Chairman Evans and other members of the Committee, thank you for the opportunity to testify today. My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents. I appreciate the opportunity to testify on this important issue.
Bill 18-48 would provide sales and property tax reductions totaling $5.7 million to the View 14 housing and retail development project. As currently drafted, the project would include 6,000 square feet of housing affordable to families at 80 percent of the Area Median Income, or less than roughly $60,000 for a couple. Based on the size of the project, this would create roughly six units of affordable housing. It does not appear that the subsidy is based on this relatively small affordable housing component. Instead, this proposal appears to be a general subsidy for the View 14 project. (It is worth noting that such a project already should be required to include an affordable housing component under the District’s Inclusionary Zoning requirement. It is not clear that the affordable housing noted in Bill 18-48 simply reflects the IZ requirement or would add to it.)
I am not here to comment on the specific merits of this project. Instead, I would like to comment on the District’s practice of awarding tax breaks for new development projects and to recommend adoption of new processes to ensure that such tax exemptions are needed. In recent years, the District has subsidized a number of development projects through tax exemptions and abatements, yet this is done without a rigorous publicly-available analysis of the project’s finances and need for subsidy. This differs from DC’s TIF program, where such analysis is required for every project seeking a subsidy. Particularly as the District faces a huge and growing revenue shortfall, greater oversight for tax exemptions is warranted.
The View 14 project would be built near both the U Street corridor and the Columbia Heights Metro Station. These are areas of the District that have seen substantial development in recent years, most of it occurring without public subsidy. On the surface, then, it is not clear why the View 14 development needs a subsidy from the city. No formal evaluation of the subsidy needs have been published by the District.
It is important to note that the District has a process for evaluating the subsidy needs of economic development projects when they are funded under its Tax Increment Financing program. For TIF projects, the Chief Financial Officer is required to conduct a “gap analysis” to determine whether the developer would be unlikely to undertake the project without assistance from the city. If a project is not viable on its own, the gap analysis also determines the level of subsidy that is needed. TIF legislation adopted in 2008 to support the Southwest Waterfront, for example, requires that a gap analysis be completed before TIF funding for the project can proceed.
The gap analyses tend to include important information, such as the total development cost, the equity contributions of the developer, and other sources of private financing secured by the developer. This kind of information helps the public and the Council understand how the city’s financial support fits within a project’s overall financing.
There is no such requirement for a gap analysis, however, when a project’s subsidy comes through tax abatements and exemptions. Because tax exemptions and abatements represent a financial subsidy for development projects just as TIF subsidies do – the only difference is the way the subsidy is delivered – it would make sense to require a gap analysis for projects that receive tax exemptions or abatements as part of their development financing. This is especially important given that this form of development support is increasingly common in the District.
In conclusion, the DC Fiscal Policy Institute recommends that the View 14 Economic Development legislation be modified to require a gap analysis from the CFO before any tax exemptions can be awarded, and we support adoption of separate standing legislation to require such analyses for all projects financed with tax abatements or exemptions. Doing so would provide the Council and the public better information when making decisions related to the subsidy needs for economic development projects.
Thanks again for the opportunity to testify. I am happy to answer your questions.