Accountable USA - District of Columbia

Economic development subsidies in the District of Columbia are most frequently given to selected recipients through programs such as tax increment financing (TIF) and payments in lieu of taxes (PILOTs), which both involve the diversion of property tax revenue. In the District, PILOTs are used on previously tax-exempt properties. Those revenues that a developer might otherwise pay into the general fund are instead diverted into a special fund used to pay off bonds whose proceeds subsidize the project. 

Comparing the District’s economic development spending to that of states is problematic, because the District is the political equivalent of a city and a county and a state all in one. That means it controls property tax revenues – often abating or diverting them for enormous subsidies – whereas in states those revenues are typically controlled by localities (Louisiana's state control of local abatements is an exception).  

Recently, the District has made heavier use of property tax abatements, largely because the TIF and PILOT programs are running into spending limitations. In 2009, the District borrowed about $415 million for TIFs and PILOTs while taking in about $5 billion in total tax revenue. The District’s Chief Financial Officer (CFO) has recommended putting a cap of $1.5 billion on all economic development debt as part of the 12 percent cap on overall debt. Because of the fiscal crunch caused by the recession, the District has effectively halted all debt-related subsidies for the time being.

Many of the District’s special deals have been very costly. In 2002, Gallery Place, a mixed-use transit-oriented development, received about $80 million in subsidies (see below). To sell the TIF bonds for just this one project, DC had to pledge that incremental sales tax revenue from a much larger area would be made available if necessary. In 2006, another development in a quickly gentrifying neighborhood, the DC-USA mall project anchored by a Target store, received a $42 million TIF package. The District justified the deal in part by claiming it would enhance sales tax revenue in the surrounding neighborhood (DC has a problem with sales tax “leakage” to Maryland and Virginia), but DC has no method of tracking sales tax by location to determine if that worked. 

In 2006, the city subsidized the Washington Nationals major league baseball franchise to the tune of $693 million by diverting tax revenues for its new stadium (see below). In 2009, the city pledged $187 million for a yet-to-be-built convention center hotel.

In 2011 the Chief Financial Officer, in compliance with a new D.C. law, began publishing a Unified Economic Development Budget (UEDB), a key reform that allows taxpayers and lawmakers to account for how much subsidies cost taxpayers. The District’s UEDB also discloses the names of companies receiving subsidies, the type of subsidy, the Ward where the subsidized facility is located, and how much a company received.

In 2010, the D.C. Auditor investigated whether subsidy recipients complied with contract requirements including First Source hiring of D.C. residents and Living Wage requirements on subsidized jobs. The report found that contracts are poorly monitored and not compliant. Just 4 out of 16 projects reviewed met or exceeded the goal of hiring 51% or more of District residents resulting in an estimated loss of $14 million in District worker earnings. Worse, the Auditor found the Living Wage act to be completely unimplemented.

In 2011, Washington Interfaith Network (WIN) called for a moratorium on subsidies unless major overhauls are made in terms of both transparency and accountability, including use of clawbacks and better implementation of First Source and Living Wage requirements.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Payments-In-Lieu-Of-Taxes (PILOTs)

diversion of tax revenues on previously tax-exempt, government-owned properties to finance bonds whose proceeds underwrite large development projects

$16.3 million (FY 2014)
23/100
0/100
0/100

Property Tax Abatements and Exemptions

expensive property tax deals written into the tax code for specific companies by the DC Council; used to “attract” already built projects

$10.5 million (FY 2014)
20/100
0/100
0/100

Qualified High Technology Company

a variety of tax subsidies written into the tax code by the DC Council to benefit high-tech corporations

$819,000 (FY 2013)
0/100
18/100
19/100

Tax Increment Financing (TIF)

an expensive diversion of sales and property tax revenues to finance bonds whose proceeds underwrite large development projects (disclosure began after our report was published)

$58.9 million (FY 2014)
25/100
0/100
0/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

Washington Nationals (2006)

In March 2006, after 18 months of intense controversy, the D.C. Council voted to approve a deal under which the city would finance $611 million to build a new stadium for its new Major League baseball franchise, the Nationals. The bonds would be paid off through a combination of taxes (both inside and outside the stadium) and $5.5 million in annual rent payments for 30 years by the team’s owner, Ted Lerner. Despite the lucrative deal, Lerner clashed with the District over issues such as parking, and in 2009 he withheld $3.5 million in back rent over a dispute regarding unfinished construction work, paying only after the District agreed to provide $4 million in stadium improvements. Because of higher-than-expected land acquisition expenses, the total cost of the stadium reached about $693 million by the beginning of 2009.

The District committed to using a project labor agreement in the construction of the stadium, ensuring that it would be built by members of building trades unions, which agreed that half of all apprentices on the job would be city residents. When the stadium opened in 2008 there was criticism of its utilitarian design, but the bigger problem turned out to be low attendance levels, which in turn have slowed the pace of development in the surrounding area. (Key sources)

Gallery Place (1999)

Gallery Place, a mixed-use development located atop a Metro subway station in a prime location in downtown Washington, is a leading example of how the DC tax increment financing program has gone astray. The city provided $75 million in TIF financing (plus $7 million in property tax abatements and $2 million in infrastructure improvements) for a project that might easily have been privately financed. When the District had difficulty selling the TIF bonds, it arranged for them to be backed by sales and property tax increments not just from Gallery Place itself but also from a large portion of the city (if necessary). That is, a complex located on top of a subway station, one block from the busy Verizon Center (home of the Washington Wizards, Washington Capitals and many concerts) and in the heart of DC's Chinatown restaurant district, has first dibs on a large chunk of DC's incremental tax revenue. Developers Herbert Miller and John Akridge signed a first-source hiring agreement requiring that 51 percent of all new permanent employees at the complex be District residents. (Key sources)

Walmart in District of Columbia

Wal-Mart has no stores or distribution centers in Washington, DC.

Many Wal-Mart workers are ineligible for health coverage from their employer or choose not to purchase what is available, because it is too expensive or too limited in scope. These workers often turn to taxpayer-funded health programs such as Medicaid. There is no direct impact on Washington, DC since Wal-Mart has no retail workers there.

For more information, see Wal-Mart Subsidy Watch.