On December 21, the DC Council approved emergency legislation awarding a property tax abatement to support construction of a five-star luxury hotel in Adams Morgan that will cost the city $46 million over the next 15 years. The vote capped off another year in which the Mayor and Council approved a number of property tax subsidies that will cost the city millions in future revenue, despite an unprecented budget crisis and widespread calls for fiscal restraint. The fact is that some economic development projects merit assistance from the city, but right now the District has no evaluation process in place to make that determination. So we’re left with a process that is ad hoc and non-transparent.
Meanwhile, taxpayers are largely left in the dark. A recent report by Good Jobs First, a national nonprofit that advocates for better economic development practices, gave the District an “˜F’ for the lack of disclosure the city provides the public regarding tax subsidies. The grades rate the District and other states based on the amount of information they provide online regarding data such as subsidy dollar amounts, job-creation numbers, wage levels in those jobs, and the geographic location of the subsidized project. DC taxpayers deserve better, and the new mayor and new council chairman have an opportunity to improve how we use our precious fiscal resources. One way to do that would be to put into law the Exemptions and Abatement Information Act, which was introduced in 2009 but not passed. The act would require greater fiscal analysis of projects looking for public subsidies, and a detailed listing of a project’s benefits for the city.
In some ways, the Adams Morgan hotel project was a step forward. The developer initially sought subsidy in the form of tax increment financing (TIF), which requires an in-depth financial analysis of the project. Tax abatement and exemptions, by contrast, do not require any analysis to determine how much subsidy is needed, if any, for the project to move forward. .
Analysis of a tax abatement cannot simply end there Because a tax abatement is a financial investment by the city, the DC Council has an obligation to ask a number of other questions about a project. In our analysis of the Adams Morgan hotel, we highlighted at least four questions that ought to be examined for any abatement legislation to move forward.
- Is the project an economic development priority for the District?
- Is the subsidy needed to enable the project to move forward?
- What are the costs of the project?
- What are the benefits of the project?
In the case of the Adams Morgan hotel, DCFPI’s analysis determined that it was unclear whether the project’s potential merits warranted the overall costs to the city. In the final days before the bill was approved, a number of conditions were added to the tax abatement proposal, including requirements to hire DC residents for construction jobs and permanent jobs in the completed hotel, but these came too late to be part of a healthy dialogue on the tax break.
As the new Council moves forward in dealing with budget deficits, it must give economic development projects greater public scrutiny before giving away taxpayer money that would worsen deficits in the long term. Beyond approving the Exemptions and Abatements Information Act, Mayor Gray and the Council ought to adopt a broader set of criteria to assess the merits of a developer’s request for a tax break, such as the ones we laid out regarding the Adams Morgan hotel project.
Finally, the Mayor and Council ought to implement a cap on the overall amount of tax dollars that can be abated in any one year. Such reforms would force the Council to prioritize projects and ensure that only the most worthy receive tax payer assistance.
