The District recently announced a budget shortfall for Fiscal Year 2011, estimated from $34 million up to $100 million. Meanwhile, as of this morning the DC Council’s agenda for tomorrow included consideration of a huge, permanent property tax break for Union Station which would cost $34 million over the next two decades.
Update: The bill has been pulled for now.
Bill 18-220 would exempt the commercial businesses in Union Station from paying property tax ever again, starting in FY 2016. Union Station is a federal property, and therefore exempt from DC’s property tax, but it does have to pay what is known as a “possessory interest tax.”
The possessory interest tax is effectively a property tax levied on the commercial activities that occur in tax-exempt buildings, which matches DC’s commercial property tax. It levels the playing field so that for-profit enterprises operating in space leased from the federal government pay property taxes like any other commercial business. In other words, the Starbucks in Union Station would pay the same tax as the (numerous) Starbucks in Dupont Circle or Peregrine Espresso on Capitol Hill.
Very simply, the Union Station tax break is costly, unfair and deceptive. First of all, tens of millions in District tax revenue will be lost. The Office of the Chief Financial Officer says the fiscal impact would be “substantial,” an estimated loss of $34 million over the next two decades.
It is also unfair. Union Station is using its political clout to push for special tax treatment which most businesses in struggling neighborhood commercial corridors do not receive. The Union Station tax break would undermine DC’s efforts to even out the taxes between for-profit commercial activity in federal buildings and for-profit activity in private buildings. That’s an important issue in a city with a substantial amount of tax-exempt land. If the bill were passed, the Starbucks in Union Station would not pay commercial property tax, while Sidamo Coffee & Tea a few blocks away on H Street NE would. That’s not right.
Finally, the bill is deceptive and hides its true costs. The tax break has been structured to push lost revenue into the future, by starting the exemption in FY 2016. As a result, the fiscal impact statement says the tax exemption officially has no effect on DC’s finances, because DC rules only require costs to be measured in a four-year window. Yet the statement says that the costs in the out years will be substantial and “all of which are not possible to estimate at this time.”
Update 2 by David Alpert: Tommy Wells’ staff clarified that because of changed to the bill in committee, he does not support the bill in its current form. Here’s his statement.