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Fenty v. Council on Business Tax Relief

Several District Council members, including Chairman Vincent C. Gray, aren't buying Mayor Adrian M. Fenty's tax relief plan for city businesses, a proposal that counter's the council's initiative earlier this year.

When the D.C. Council approved a tax relief package for businesses in January, the expectation was that the plan would kick in slowly, with modest savings for businesses in the first year, followed by larger savings in future years.

The way the legislation was structured, businesses would receive a tax break only if total revenues from commercial property taxes exceeded a "trigger" of $1.2 billion, which was the amount D.C. Chief Financial Officer Natwar M. Gandhi was expecting from that category to help balance the city's fiscal 2009 budget. No one expected the property market, slowing across the nation, would outperform those projections by much--if at all.

When revenue estimates landed in February, however, commerical property tax projections had soared and the trigger was activated. Suddenly, businesses stood to save about $96 million in payments in the first year of the new legislation. Gray (D) and Jack Evans (D-Ward 2) took political credit in a news release that hailed a great day for small business owners in the city.

Problem was, revenues from income and deed taxes took a nosedive. Suddenly, the combination of declining revenues on one side of the ledger and an inability to collect the full taxes from businesses on the other left the city in a $96 million hole, according to Gandhi's calculations.

That put Fenty in a bind in the final days before he released his fiscal 2009 budget request.

Ultimately, the mayor proposed altering the commercial tax cut plan to phase it in. According to the mayor's aides, his proposal would save businesses $15 milion in the first year and $113 million over three years--more than the $96 million in relief offered by the council's plan. In a briefing to the council, City Administrator Dan Tangherlini explained that the relief is "bigger but slower. Pick which you prefer."

But Gray and other council staffers are grumbling that Fenty's aides have misrepresented how the mayor's plan would impact the tax relief. They contend that the administration is comparing three years of tax relief in the mayor's plan to one year of tax relief in the council's plan. After all, the council's plan would presumably offer the businesses $96 million per year in savings--for a total of about $288 million over three years--since the lower tax rate would kick in each year if property taxes remain strong. Indeed, the mayor's staff has ginned up this handy chart that concedes the point.

Barbara Lang, president of the D.C. Chamber of Commerce, has said the businesses she represents have been in need of tax relief for years, so she is examining the competing plans and expects to weigh in as the council deliberates. The challenge for Gray, Evans and the rest of the council is this: If they indeed put more tax relief back into the budget, they'll be forced to cut spending elsewhere to make up the difference--not an easy feat.

By David A Nakamura  |  April 4, 2008; 7:00 AM ET
Categories:  City Finances , D.C. Council , David Nakamura  
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