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Feeling the Pinch Of D.C.'s Prosperity
Small Businesses Cry Out for Relief From Rapid Rise In Property Taxes

By Paul Schwartzman
Washington Post Staff Writer
Friday, July 20, 2007

In a storefront that once housed his great-grandfather's hardware store, Paul Ruppert and his mother, Molly, manage an art gallery, theater and music hall. Theirs is an unexpected pocket of bohemia in a District neighborhood defined by brick-faced walk-ups and the gray behemoth that is the Washington Convention Center.

After 15 years, the Rupperts are closing their music venue and a cafe, and they may shut the rest by year's end. The reason: an expected fivefold increase, from $52,000 to $269,000, in the 2008 property tax bill for the enclave's three buildings and an adjoining parking lot.

That increase, they say, does not allow for rockers and abstract painters, not to mention a reasonably priced glass of merlot.

"There has to be another use to pay the taxes," said Paul Ruppert, whose great-grandfather moved to Seventh Street NW 117 years ago. "It'll be impossible to continue to operate."

Washington's retail corridors have long been populated by homegrown businesses -- quirky taverns and bookstores, groceries and eateries that are touchstones of neighborhood life.

Yet, as development surged across the city in recent years, the value of commercial properties jumped as much as 40 percent in some neighborhoods, and some merchants fear that they will be driven out by rising taxes and competition from national chains.

"It's the downside of prosperity," said D.C. Council member Jack Evans (D-Ward 2). At risk, he said, is "the fabric of our city and losing what makes us different than Pentagon City. You're losing your local businesses that are unique to Washington and replacing them with Starbucks and the Gap and chain restaurants."

The council has set aside $11 million in one-time relief for 11,000 small businesses that gross up to $500,000 a year, but officials acknowledge that the funding is no solution.

"We need to come up with some tools to help people," said Erik A. Moses, director of the Department of Small and Local Business Development. "Some of these businesses won't survive. That's the natural order of things given the way the city is evolving."

No wave of small-business closings and relocations has been attributed to the jump in assessments, District officials said. But the complaints of merchants bemoaning steep increases can be heard from Georgetown to Shaw to Capitol Hill and in the gentrifying swaths in between.

In Brookland, Colonel Brooks' Tavern, which opened in 1980, is a place where college students and residents drink beer in a room adorned with dark wood and framed photos of the 19th-century lawyer and landowner for whom the bar and neighborhood are named.

Jim Stiegman, the tavern's owner, began assembling the 35,000-square-foot parcel in 1978. His assessment, he said, rose incrementally until 2003, when developers discovered Brookland.

The District that year valued his property at $485,000, resulting in a tax bill of about $9,000. Next year, the assessment is to rise to $2.3 million and the tax bill to more than $42,000. The increase, he said, is forcing him to contemplate selling, closing or redeveloping his property. "No matter what, you can't charge $20 for a hamburger," he said.

Adele Robey and her husband, Bruce, opened the H Street Playhouse in 2004 when the corridor east of Union Station was lined with vacant properties. Since then, nearly a dozen clubs and restaurants have moved in, and developers are building luxury housing.

In 2006, after the Robeys renovated their property, the District valued the theater at $514,000, and the assessment will top $1 million next year. Their tax payments, also doubled since 2006, will exceed $19,000 in 2008.

"Emotionally I feel sort of -- betrayed is a strong word, but it's the word I have in my conscience -- by the District," Adele Robey said. She and her husband are considering adding to the theater to build condominium apartments.

For all their angst, Stiegman and the Robeys can comfort themselves with the knowledge that they own their properties. Harry Schnipper, proprietor of Blues Alley, the venerable Georgetown jazz club, is not so fortunate.

Like many commercial leaseholders, Schnipper said he pays not only the rent but also the property taxes. In 2006, when the club, in an alley off Wisconsin Avenue NW, was assessed at $683,000, Schnipper's tax bill was more than $12,600. In 2008, the bill will approach $20,000.

Schnipper said he is prepared to move Blues Alley, which has hosted the likes of Dizzy Gillespie and Sarah Vaughn, out of Washington if the assessment continues to rise. "These kinds of places define neighborhoods," he said. "If you want to preserve the character and personality of a place, you've got to come up with a plan."

For decades, developers gravitated to the suburbs as residents migrated from crime-plagued and financially stressed cities such as Washington and New York. But in the 1990s, as crime rates declined and land in outlying areas was developed, investors started returning to cities, triggering a wave of construction, driving up land prices and attracting the kind of retailers that had gravitated to the suburbs.

In Manhattan, for example, avenues from Broadway to Lexington have been taken over by chain drugstores, bank branches and coffee bars, blurring the line between city and suburb and fostering concerns that what traditionally defines an urban area is fading.

"If the city looks like the suburbs, where's the sense of metropolis, and all those things associated with it -- the mix and diversity?" asked Jerilou Hammett, an editor of the recently published "The Suburbanization of New York: Is the World's Greatest City Becoming Just Another Town?"

In Washington, commercial property values rose nearly 28 percent, on average, from 2006 to 2007, District records show. The average increase for 2008 is 21 percent.

The jump has been more dramatic in some neighborhoods, including Columbia Heights, where the increase was nearly 50 percent from 2006 to 2007, and Trinidad, where it was 42 percent. The edges of Capitol Hill -- H Street, Barracks Row, the Navy Yard -- experienced a surge of 77 percent in that period.

Merchants do not dispute that their properties are more valuable. But they say they cannot afford the pace of the increases. The District, they say, should cap how much their payments can grow annually, as is the case with residential properties, which have a 10 percent ceiling.

"I can't argue with the valuation; it's the effect," said Dennis Bourgalt, owner of Chateaux Animaux in Capitol Hill, whose tax payments have doubled in the past year.

Evans, chairman of the council Committee on Finance and Revenue, said he proposed a commercial property tax cap but got little support from his colleagues, who were worried about the revenue loss. The cap would cost as much as $240 million, according to an analysis by District officials. The council is working out how to dole out the $11 million in tax relief funds.

Many property owners seek relief by appealing the District's assessment, a strategy that worked for Jeremiah Cohen, owner of the Tabard Inn on N Street NW, who won a reduction and saved $25,000 in taxes.

But not everyone is successful. The Rupperts lost an appeal of the District's finding that their properties, on a block where developer Douglas Jemal has assembled a number of parcels, had increased in value from $2.8 million to $14.5 million.

The family recognizes that its good fortune is born of Henry Ruppert's decision in 1890 to open a hardware store at 1021 Seventh St., then buy two neighboring properties. The store was in business until 1986, after which the Rupperts opened the theater and gallery, known as the Warehouse.

The family could keep the properties and find tenants willing to pay the necessary rents. But Paul Ruppert said he prefers to sell rather than lease the space to a national chain.

"If the Rupperts move from Seventh Street, it will be sad for our family," he said. "But we recognize that cities change. For us, it's about navigating the changing times."

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