The D.C. Council should hold a hearing to understand why the city’s tax office recently reduced the taxable value of commercial properties in the District by $2.6 billion, council Chairman Phil Mendelson said Wednesday.
Mendelson (D) said “legitimate questions” were raised by a Washington Post report that the Office of Tax and Revenue had reduced the 2012 assessments of more than 500 commercial properties through settlements between city officials and property owners.
The agreements represent a $48 million reduction in potential revenue for the current tax year, and in most cases, the settlements went against the initial recommendations of staff appraisers. A surge in settlements has rankled staff appraisers and has prompted investigations by internal auditors and the FBI, according to several people with knowledge of the inquiries.
“The first reaction is ‘Oh, my God, so much money is being reduced’ . . . but it’s possible that the assessments were wrong,” Mendelson said. “Either way, while it’s unreasonble to expect perfection, I think it’s legitimate for people to say that $2.6 billion is a lot of money. That’s why there ought to be a public hearing.”
Council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue, said he will hold a hearing if he is not satisfied with information that he expects to receive from Chief Financial Officer Natwar M. Gandhi to explain why the number of settlements has increased. “I will hold a hearing if the circumstances merit a hearing,” Evans said.
Evans said he fears that a federal probe could prevent employees and others from testifying. He said he will not make a decision about a hearing until the council returns from recess Sept. 15.
Council member Jim Graham (D-Ward 1) said of the settlements: “This could be devastating, as I know that Human Services cannot take any more cuts if D.C. has to find $40-plus million. Poor people have done more than their share already in filling the gaps.”
Council member David A. Catania (I-At Large), a frequent critic of Gandhi, said the increase in settlements, which are shielded from public view and bypass a review by an independent board, “calls into question the transparency and fairness of the process.”
“We certainly don’t want to encourage well-connected people to make deals. . . . It’s not fair,” Catania said.
The Post found that the city’s most influential developers were among those receiving assessment reductions, including cuts of 40 percent or more. Some of them saved hundreds of thousands of dollars in property taxes.
Gandhi and his top aides attributed the increase in settlements to an attempt to avoid litigation in D.C. Superior Court. In an interview last week, Gandhi also noted that $2.6 billion is a relatively small part of the city’s $246 billion tax base.
Property taxes are the city’s largest source of revenue, accounting for about 30 percent.
Mayor Vincent C. Gray (D) expressed concern at his regular biweekly news conference Wednesday, disagreeing with Gandhi’s stance that $2.6 billion was not that much. “Any amount that we would lose would bother me,” Gray told reporters. “At its core is, ‘Why did it happen?’ ”
Gray said he will wait for any investigations to play out before taking action.
The mayor said he sponsored legislation when he was the council chairman that has ushered in “a new approach” on the independent board that hears appeals from property owners. The new board, now known at the Real Property Tax Appeals Commission, has more full-time, professional members, Gray said.
He said he recognized that the old board, the Board of Real Property Assessments and Appeals, was “somewhat overmatched” when dealing with property owners and their attorneys.
In the past, Gandhi criticized reductions made by the appeals board, and he pushed for the right to challenge them in court. The recent settlements were approved when the old board was still in existence, although they were not acted on by that board. The new board went into effect in mid-July.
Also in July, Gandhi was appointed to another five-year term, after being nominated by Gray. Gray said he remains supportive of Gandhi. “I was proud to renominate him,” he said. “I think he’s made an enormous contribution.”