Photo by Mr. T in DC.
Buried halfway through this week’s Current, the paper ran an article reporting that both Mayor Vincent Gray and Council Chair Kwame Brown believe it might be a good idea to use tax incremental financing to lure a high end tenant to the mall.
Tax incremental financing (or “TIF”) is a process whereby the city issues bonds to raise money for a particular project. Typically this involves giving the funds to a private developer. A portion of the taxes from the project that gets funded by the financing are directed towards paying off the bonds. The idea is that the city will take the taxes that arise from the incremental increase in property and/or sales taxes from the now improved property to pay back the money.
The city has used TIFs in the past. For instance, the city used a $74 million TIF to help the Gallery Place development along. It used a $46 million TIF for the Madarin Oriental hotel. And it used a $7 million TIF for the Spy Museum. Each of these projects was successful and they even paid off the bonds ahead of schedule.
But TIFs only work when there’s an increment to be found. In other words, they work when they’re used in areas that will likely see a big improvement from the public investment. If there’s no increment, then the only way to pay off the bonds is to cut into the taxes that would arise from the property without the public financing. In that case all you’ve really done is give free public money to a private developer.
The pitch that the Current article made was that if there’s no TIF for the mall, then Vornado won’t be able to land Bloomingdale’s and will instead lease to a store like T.J. Maxx. So, the theory goes, the “increment” of having a Bloomingdale’s instead of a T.J. Maxx is enough to justify a TIF for the mall.
The twist with this proposal is that a part of the incremental tax proceeds (i.e. the difference in sales taxes that Bloomingdales would pay over T.J. Maxx) would be directed to tax breaks to attract retailers to less established retail districts in DC. Chairman Brown called this a potential “win-win”.
This is completely backwards.
If the District wants to get into the TIF game again, it should be directing the TIFs to those less established areas, not the mall. That’s where there will be an actual incremental increase in value; and that’s where we’ll get much more bang for our buck. If Vornado, which owns the mall, can’t put together a package to attract Bloomingdale’s with its own resources, then so be it. Maybe that means they and their partners paid to much when they bought the mall at auction last year. That’s not our fault.
Listen, GM doesn’t want a T.J. Maxx to move in to the mall, but using public funds to help attract one tenant over another is unacceptable. And it’s shameful that the Mayor and the Chairman are even thinking about such a ludicrous proposal.