A few weeks ago during the FY 2011 budget debate, fiscal austerity was the DC Council mantra. Yet several items on today’s legislative agenda suggest that some legislators have already changed their tune. In fact, one of the bills being considered would spend millions of taxpayer dollars to subsidize future development over a portion of Interstate-395.
So how does the Council plan to pay for this big giveaway in these tough fiscal times?
They don’t.
The sponsors are using a budget trick, which pushes the cost of the subsidy outside the required four-year financial plan period. In other words, we don’t pay for it now but we pay for it later. This makes the bill much easier to pass, since it shows no immediate fiscal impact. Yet the idea that the District does not have to identify funding for the legislation ‘ simply because the cost occurs outside of a four year window ‘ can lead to budget and policy decisions that are not fiscally responsible and don’t protect the city’s long-term fiscal health.
In his evaluation of the bill, Chief Financial Officer Natwar Gandhi warned about the bad precedent this bill may set by designing legislation to push costs into the future, or what is known in budget parlance as the “out-years.” He said that this mechanism “will have a negative impact on the District’s financial strength into the future.”
We completely agree.
Bill 18-806, the Center Leg Freeway (Interstate 395) PILOT and Air Rights Disposition Act of 2010, exempts the from property taxes future development constructed above the I-395 freeway near Massachusetts Avenue NW, until major portions of the development are complete. (That’s what’s known as “air rights.”). Instead, the bill proposes that the developers will make payments in lieu of taxes to the District based on the current value or sale price of the property, whichever is less. The sale price of the property has not yet been settled. The way the legislation is designed, the payments to the District are capped at the value of the property today. In other words, the District will not be able to benefit from rising land values that will likely occur as the economy improves.
Then, starting in FY 2014, the first year outside the financial plan window, the payments would be based on a new value determined by the Mayor. The developers would also get a $5.4 million credit starting in FY 2015 and would make no payments between FY 2015 and the time a deck over I-395 is built. It is estimated by the CFO that no payments will be received between FY 2015 and FY 2020, and that DC will lose out on approximately $12 million in property tax revenue it would have otherwise received.
Beyond pushing the costs into the out-years, it also appears that major details, such as the sale price of the property, are still left to be worked out, making the true cost, and impact, of the legislation on the District’s finances unknown at this time.
Passing this bill could start the District on a slippery slope. Don’t believe us? Well, just yesterday, the Committee on Finance and Revenue voted to mark-up a bill that would give businesses in Union Station a permanent tax break starting in FY 2016. This will cost the District tens of millions of dollars. Yet because the costs occur outside of the financial plan window, the bill officially has no fiscal impact.
If the Council wants to pass legislation with such enormous out-year costs, particularly as the District’s finances are still fragile as we exit the recession, they should find a way to pay for it.
