Next week, the DC Council will hold a second and final vote on an $11 million tax break — for the Howard Town Center housing and retail development — that the Chief Financial Officer concluded was not needed to make the project viable. Although DCFPI thinks the best approach would be to hold off on the tax break and let the developer work on alternate financing, there are ways the tax abatement could be improved even if the Council approves it. And we hope the discussion around this tax abatement will help inform future discussions among the DC Council to ensure it is pursuing responsible economic development with DC’s limited tax dollars.
Until recently, the DC Council typically had very little information that it could use to assess the merits of proposed commercial tax abatements. But last year, the Council set new requirements to analyze the costs and benefits of every proposed tax abatement to better understand whether any given project really needs special tax treatment.
The proposed Howard Town Center property tax abatement is the first time the DC Chief Financial Officer unequivocally concluded that a proposed tax break is not needed for a project to proceed, because the developer could seek financing from federal low-income housing tax credits, charge higher rents or defer a portion of the fee paid to the developer. Despite this information, the tax break passed on first reading by an 8-4 vote.
Given what the CFO found, there are some ways that the Howard Town Center abatement could be changed that ensure the project can move forward but also ensure a tax break is granted only if it is really needed. It is important to note that the Council approved the tax break but did not fund it, and that funding is unlikely to occur before the 2014 budget is adopted in June. That means there is time to tweak the tax break without jeopardizing it. More specifically, the Council could:
- Amend the legislation to require the developer to apply for low-income housing tax credits before the DC tax abatement goes into effect. If the tax credits come through, a DC tax break may not be needed.
- Require the developer to commission an independent market study on the rents that can be charged when the housing is completed. If the project can charge higher rents, that may provide the income needed to make the project financially viable.
Beyond that, we hope that the “Tax Abatement Financial Analysis” that now accompanies each proposed tax abatement becomes a vital part of the discussion over each proposed tax break. If the CFO raises questions about a project’s need for special tax treatment for the city, the developer could be asked to provide their own detailed response. Depending on the response, the Council could direct the developer to take additional steps to seek financing other than from the city, before the tax break is voted on. This kind of process would help make sure that DC’s economic development subsidies are offered only when needed to help an important project move forward.