You know we’re in trouble when a developer seeking a tax break from the District is asked to explain why his project merits special tax treatment, and the answer is, “There’s always a subsidy.”
Tax abatements have become so common in the District that developers like Brian Friedman — quoted above — have come to expect them as a matter of right. His company plans to build a high-end hotel in Adams Morgan. It is seeking $21 million in tax subsidies, in the form of a 15-year property tax break. Friedman asserted that his quest for a large tax break is “like any other hotel in the city,” according to the Washington Business Journal. We beg to disagree.
When developers routinely start to ask for tax subsidies, the effectiveness of this approach as an economic development tool is called into question. Tax subsidies should be used selectively when they are needed to make an economic development project viable, especially if it will bring benefits such as jobs or neighborhood development. If a project would likely be developed anyway, the tax abatement represents money down the drain.
There is a growing trend in DC of offering such tax breaks without asking the hard questions of whether it is really needed. Under other DC economic development programs, like Tax Increment Financing, the Chief Financial Officer takes a close look to assess how much assistance, if any, is warranted to move a project forward. There are no such rules for tax abatements.
In this rule-less world, we end up with a hodge-podge of tax abatements, often for large developments that might succeed without any DC help. Take, for example, the 20-year partial tax abatement for Highland Park ‘ a high-end residential building on top of the Columbia Heights Metro that was completed and largely full when the tax break was approved. A large amount of tax dollars are devoted to these tax breaks, money that could otherwise be used for a more comprehensive approach to economic development ‘ targeting underserved neighborhoods, supporting projects that create living wage jobs, or helping small businesses, to name a few.
There are solutions to this problem. First, the Council should approve the Exemptions and Abatements Information Act, which would apply to proposed tax abatements the same hard-edged analysis applied to most economic development programs. Second, the District could create a budget for tax abatements ‘ deciding how much it wants to spend on them each year, just like it decides how much to spend on libraries and every other service. That will help ensure that DC offers tax abatements only when they really are critical and that we keep abatements from eating too much into revenues needed for schools, public safety, health care, and other services.
