Who Pays For DC’s Business Tax Giveaways?

For the past year or so, the DC Fiscal Policy Institute has been alerting us to business tax breaks pending before the DC Council.

These aren’t across-the-board tax breaks that would benefit a broad sector of local businesses. They’re tailored for one or another developer or other commercial enterprise.

A few recent examples:

  • A $6.1 million property tax abatement, plus other incentives worth as much as $15 million to lure the CoStar Group–a global “real estate intelligence” company–to downtown D.C.
  • Twenty-year property tax abatements worth an estimated $8.5 million for mixed-use developments on top of two Metro stations.
  • A property tax abatement for a mixed-use project on H Street, NE., although the project could qualify for existing tax breaks for new supermarkets.
  • A 10-year property tax abatement and an exemption from sales taxes on construction materials for a hotel at Constitution Square, for a total price tag of $18.6 million. This although it would be the fourth hotel in the neighborhood and could get a share of $6 million in existing tax subsidies for the overall Constitution Square project.

I guess each of these has some purported justification. A mixed-use development at the Petworth Metro station will help revitalize the neighborhood. CoStar will hire a hundred D.C. residents. Or, to borrow from Council Finance Committee Chairman Jack Evans, the District has very few corporate headquarters. If we want them, “we’re going to have to pay for it.”

The “we,” my friends, is us. Because tax revenues the Council gives away must be made up by other tax revenues or by cutbacks in programs and services.

DCFPI warns that the District faces a $230 million shortfall for this fiscal year and a shortfall of about $600 million for Fiscal Year 2011. The main cause is a drop in tax revenues.

The Chief Financial Officer reports that Fiscal Year 2010 revenues will be $17.7 million less than he previously projected. The latest revenue estimate for Fiscal Year 2011 is now $49.4 million less.

The Fenty administration says it won’t raise taxes. The watchword again is “painful choices.” Not nearly so painful for the decision-makers as for the low-income residents who’ll probably again take a hit.

Meanwhile, the administration is offering a $19 million tax abatement, plus $5.5 million in relocation costs to bring Northrop Grumann’s corporate headquarters here. Council Chairman Vincent Gray and six other Councilmembers are on board with this.

Last year, the Council balanced the budget mainly by making spending cuts. But it did adopt some revenue raisers. It may do so again. And it should.

But I can’t help thinking, What good will it do to jack up a fee here, expand a tax there if the Council proceeds to give away more tax revenues so that big businesses can profit at our expense?

CORRECTION: An analysis presented this morning by the Council’s Budget Director shows that the Fiscal Year 2010 budget shortfall is “spending pressures,” i.e. projected agency spending over budget. Lower tax revenues are the second largest factor. The new projected budget shortfall for Fiscal Year 2011 is $605.4 million.

4 Responses to Who Pays For DC’s Business Tax Giveaways?

  1. […] Council Committee Fast-Tracks Big Tax Giveaway I’d just posted my rant on business tax breaks when the DC Council Finance Committee held a hearing on the proposed Global […]

  2. MBG says:

    The assumption is that the employees of these companies will eat and shop in the District and pay sales tax; and may even move to the District itself. It would be an interesting study to see how much increased sales tax is expected and actually is collected.

  3. […] responsible financial decisions, including one that would put some discipline into decisions on property tax abatements. Those who follow this blog know how I like […]

  4. […] new and/or expanded revenue raisers, reforms in tax preferences and a more disciplined approach to tax abatements. CNHED has some additional […]

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