A utilities tax paid by the federal government will end up contributing about $6 million a year to finance a new baseball stadium in the District, offsetting some of the burden on local businesses.
Under the stadium financing plan approved this week by the D.C. Council, a 1 percentage point increase in the utilities tax that was due to expire at the end of the year will be extended. Utilities can pass the tax on to businesses and federal government buildings but not to residential customers.
Phil Mendelson had offered a plan to charge the federal government a higher tax for the stadium.
The tax will generate about $12.2 million per year, half from federal buildings, according to an analysis by city officials.
"The net effect is the feds pay part of the costs of the stadium," said council member Phil Mendelson (D-At Large).
It would also would greatly reduce the amount needed from the gross receipts tax on businesses.
Three years ago, the council raised the tax on utilities from 10 percent to 11 percent to protect the city from projected budget shortfalls. The change included a provision that the tax would expire once the city's revenue reached certain levels, which were met this year.
Although the tax increase will expire for residential customers, who next year will pay 10 percent in taxes, the council's move means that utilities will continue to pass the 11 percent tax on to businesses and federal consumers.
Mendelson had offered a plan to charge the federal government a higher tax for the stadium. However, the plan was not adopted by council members, who voted for a version proposed by Jack Evans (D-Ward 2) and Vincent B. Orange Sr. (D-Ward 5).
The primary reason the council extended the tax was to address concerns from District business leaders that they were being charged too much for stadium construction. The original financing agreement between Mayor Anthony A. Williams (D) and Major League Baseball sought to use a gross receipts tax on large businesses to fund most of the construction.
The stadium, to be built on the Anacostia waterfront in Southeast Washington, is estimated by mayoral advisers to cost $440 million. Natwar M. Gandhi, the city's chief financial officer, said it could cost $530 million.
To pay off the bonds issued for stadium construction, the gross receipts tax was to collect $26 million per year from the top 11 percent of businesses ranked by revenue. Some businesses complained that they would be paying too much, and the council sought ways to reduce the burden.
The utilities tax means that the gross receipts tax will have to generate just $14 million annually.
"We believe this is a very rational and painless way to distribute the burden," said Len Foxwell, a legislative analyst with the Greater Washington Board of Trade.
Harold Brazil (D), an at-large council member who will be replaced by Kwame R. Brown in January, said the financing package approved by the council "has been retooled and reshaped and polished. It's a very reasonable way to finance a stadium."
Anthony Lewis, president of Verizon D.C., said the council consulted with utilities on the change in legislation. He said that although Verizon is never happy about paying more, the tax will not be a large burden.
"When you get down to individual customers, the rate is very small," he said. "We want to do the right thing by baseball. And this helps our brothers and sisters in the business community."
Robert Dobkin, a spokesman for Pepco, said he has not heard any complaints from commercial customers.
"Customers aren't going to get a reduction they may or may not have expected," he said. "But they are not going to see an increase, either, so it seems like an equitable way to do it."