Council needs help judging tax breaks
The DC Council will vote on three breaks for developers today, on taxes and affordable housing requirements. But if I were a Councilmember, I'd have a really tough time deciding whether any of them are a good deal or not, because we simply don't have enough information.
First is the Adams Morgan hotel tax break. A developer wants a $46 million property tax break to build a 174-room hotel. It would replace empty space owned by a church with something generating hotel taxes and patrons for nearby businesses, but as Lydia DePillis notes, "How do we know that they couldn't make it happen with [less of a break]?"
The giveaway was already reduced from $61 million to $46 million, which apparently still works for the developer. That means the developer was initially asking for more than they needed, and Jim Graham was supporting them. The DC Council would be best off having some independent sense of what it would really take to build a project, but usually they can only take the developer's word for it and decide how much to trust it.
In this case, at least there was some independent analysis by the CFO, which raised some questions like predicting the break would take away from other hotels' revenue and therefore the taxes they pay. Even with the analysis, it's still unclear whether it's a good deal, but at least people have some numbers, which is often not the case.
At the very least, I hope the Council would ask for a Transportation Demand Management (TDM) plan, or a reduction in the number of parking spaces. The project has as more spaces than rooms, and Adams Morgan already has more cars driving around than space on streets. The neighborhood could use more foot traffic, but really doesn't need a lot of people just driving to the hotel only to then drive downtown for their meetings. The hotel needs to plan to have at least a large percentage of its visitors and employees use the many buses that serve the area.
Then there's the Southwest Waterfront deal, which Cheryl Cort wrote about yesterday. A developer promised to build some housing and some office on public land, and agreed to include some low- and moderate-income housing as part of the deal. Now, they want to take some of their office space and convert it to more housing, but without the affordability requirement.
They say that they can't afford to have the same affordable housing in the new portion, and that this change is the only way to get financing for the project. We can believe that it's harder to get financing now and perhaps they need some change, but how much of a change? At the very least, for example, DC could probably insist that the new housing contain some housing at 80% Area Median Income, which is still "workforce" housing for fairly well off families, rather than 100% AMI as the developer has suggested.
But how much negotiating room is there? This is public land, which means that DC ought to try to get the best deal it can. The problem is that we don't know what is the best deal or what's even relatively close. The developer is likely to push for more than they need, figuring they might as well try for a little more. On the other hand, if nothing gets built, it doesn't help DC at all. What's the right balance?
Third, the Union Station payment in lieu of taxes (PILOT) will come back today. The Union Station Redevelopment Corporation theoretically owes taxes on the commercial activity happening on their land equivalent to what private properties would pay, but they aren't paying it. This bill would permanently excuse them from the tax in exchange for a much smaller payment.
USRC says that they are already spending lots of money that they wouldn't if they were private, like paying for elevators that get used by Amtrak and the Metro. As with the other two, though, the bigger problem is that we have little way of really evaluating how much of the break is reasonable given USRC's special circumstances, versus how much is just a request for special treatment that a for-profit organization thinks it can get out of elected officials.
The only Councilmembers who seem to know for sure how to vote are those with firm ideological attitudes toward tax breaks. Jack Evans, for example, seems so sure about the Union Station break, despite calling it "dead as a dog" last time, that he plans to introduce it as emergency legislation. There's no word on why there's suddenly an emergency on legislation that's been brewing for months.
Even the most well-meaning Councilmembers find themselves in a serious quandary when these votes come up. Do they push for more, risking that a project might then never materialize? Or do they give the developer what they want, knowing that there's a huge chance that developer will be patting their lobbyists on the back for pulling the wool over the Council's eyes and getting a big windfall out of the public till?
Advocates have called for a fuller analysis of the Waterfront tax break. As DCFPI has suggested, the Council should systematize the process for these breaks to require some analysis of each one and set an overall cap. Perhaps also it's worth requiring that some analysis be conducted afterward, to determine which ones actually paid off and which didn't. That could help watchdog groups create a sort of scorecard for long-serving Councilmembers about how much their tax breaks either added to or detracted from the District's overall fiscal health.
Some tax breaks make sense, while others don't. But right now, our leaders are flying blind, which isn't a good way to make decisions.
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