The DC Council votes today, March 5, on legislation to cut residential property taxes, barely a week after Mayor Muriel Bowser publicly tested support for tax increases on expensive properties. Both proposals were presented as options to expand housing affordability.
At three budget engagement forums the mayor held in late February, attendees were asked whether they would support increasing taxes on properties selling for more than $1 million and using the additional tax revenue for affordable housing. At all three budget forums, large majorities expressed support for the measure.
Cutting property taxes to increase affordability?
The week before Bowser kicked off her budget forums, the DC Council Finance and Revenue Committee approved legislation that would increase DC's homestead exemption, which is essentially a property tax deduction, in an attempt to make homeownership more affordable.
The current exemption is about $75,000, meaning that homeowners don't pay property taxes on the first $75,000 of their home's assessed value. The legislation would increase the homestead deduction to $125,000. DC’s Chief Financial Officer estimates the measure would reduce DC’s tax revenues by $37.2 million next year.
The Council is scheduled to take an initial vote on the legislation today.
Councilmember Brandon Todd introduced the bill in January. Similar legislation was introduced in the Council last summer but did not pass before the end of the session in December.
Todd argues that with housing costs and home values rising, property tax bills are going up and his legislation would help struggling homeowners.
“This bill would decrease the taxable value of District homes, resulting in sizable savings for homeowners,” Todd said in a statement when he introduced the original bill in July 2018. “These savings would prove extremely beneficial for families, first time home buyers, and senior citizens trying to keep up with the rising cost of living in the District.”
Calling the bill "tax cuts for mansions," the DC Fiscal Policy Institute says the proposal will disproportionately benefit high-income earners and widen the gap between DC’s wealthiest and poorest households. The group says almost half the tax cut would go to households with incomes above $150,000, and less than a quarter would go to households with incomes below $50,000.
Finance and Revenue Committee Chair Jack Evans voted for the legislation when his committee took it up, as did councilmembers Anita Bonds, Vincent Gray, and Kenyan McDuffie. Councilmember Elissa Silverman was the sole vote against the bill in the February 13 committee vote.
Raising property taxes to increase affordability?
At Bowser’s budget engagement forums ahead of the release later this month of her proposed fiscal year 2020 budget, attendees were asked to vote in an instant poll for one of five ways to pay for more affordable housing.
A total of 447 people voted at the three forums using smartphones. The results, from most popular to least popular, were:
|Create a special tax on properties selling for over $1 million and use those revenues for affordable housing||68%|
|Give private developers the right to build taller/denser buildings in my neighborhood, as long as more of those units were affordably priced||24%|
|Increase taxes on all homes and commercial properties to support affordable housing||4%|
|Reduce support for other District projects like schools, public safety, or health and human services||2%|
|Affordable housing is not a priority for me||0%|
With widespread support for a tax on properties selling for more than $1 million and additional support for taller and denser buildings that include affordable housing, is Bowser planning additional affordable housing initiatives along these lines?
Bowser’s press secretary did not reply to several messages asking that question.
Property tax caps for affordability?
DC caps residential property tax increases at 10% a year. In 2013, Evans introduced legislation to lower the cap to 5% with the goal of offering relief to homeowners whose property values skyrocketed faster than their incomes. “It really helps our longtime homeowners and condo owners,” Evans told NBC4 at the time.
Then-Mayor Gray wrote the Council in January 2014 opposing the bill, saying the $6.6 million price tag was too costly and that "this change in the cap would benefit owners of high-value homes and residents in the highest-income wards." Gray wrote that Ward 3 homeowners would reap 33% of the financial benefits while homeowners in Wards 7 and 8 would receive only 4%. The DC Council voted unanimously to table the bill indefinitely in June 2014.
The DC Council faces another decision on whether to cut property taxes to try to make housing more affordable. Whatever the decision, DC needs more tools to expand affordability. The most popular options Bowser presented at her budget forums – a tax on properties selling for over $1 million and increased density in exchange for more affordable housing – are worthy of further exploration.