The tax-break wars in the D.C. region could use a cease-fire

Wednesday, April 14, 2010

THE DISTRICT of Columbia is apparently out of the running as area jurisdictions compete to land Northrop Grumman's corporate headquarters. But the city's offer to give the giant defense contractor millions in tax breaks generated vigorous debate about whether the public is served when government pulls out all the stops to land new businesses. It's a question that often is not easily answered, which is why a proposal mandating more rigorous analysis of tax abatements makes sense.

A public hearing is set for Wednesday on a bill before the D.C. Council that would require the District's chief financial officer to conduct a financial study of any proposed tax abatement or exemption. The measure, Bill 18-0400, is sponsored by council member Michael A. Brown (I-At Large), who says his aim is not to discourage economic development but to ensure that only worthwhile exemptions are granted. Council member Jack Evans (D-Ward 2), chair of the council's finance committee, agreed that such studies could be helpful but only if they examine tangible and intangible benefits of development.

The number of businesses seeking special tax treatment has been on the rise -- 20 last year, ranging from grocery stores to housing developments. Generally, the request is for a 10-year break in paying property taxes. There's no question that such tax breaks can help lure new businesses and influence relocation decisions. Supporters of tax abatements argue that the District is better off with a company paying 75 percent of normal taxes than with no company, and no taxes, at all. Nonetheless, tax abatements do diminish future revenue.

Underpinning every request for special tax treatment is the argument that it will make the difference in a company coming to the city or a project going forward. Perhaps that is true, but, as the D.C. Fiscal Policy Institute notes in its support of Mr. Brown's legislation, no one in the District government is taking a hard look to see when that is truly the case. This bill would ensure that the right questions get asked. We would hope other governments in the Washington area would follow suit. One of the more distressing aspects of the competition for Northrop Grumman is watching how regional interests get overtaken as governments scramble to outdo each other in offering more inducements. Ideally, jurisdictions would negotiate a cease-fire, or at least some ground rules, in a war in which otherwise the corporation wins and the taxpayers ultimately pay. A more careful weighing of the costs and benefits in each jurisdiction would be a good first step.

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