Examining Tax Office Settlements

I read with great concern a recent Washington Post article, “Surge in D.C. tax office settlements reduces commercial property owners’ bills.” In case you missed the article, the major premise was an assertion that our tax office was unjustifiably lowering tax assessments of major commercial developments in the city, costing us as much as $48 million in lost tax revenue in 2012.

Since the tax office falls within the jurisdiction of the Committee on Finance and Revenue, which I chair, I asked for a substantial volume of data right away and will be continuing to review it in coming weeks. The CFO’s initial response has been that if these cases had gone to trial, the judges would have set the assessments even lower overall, resulting in further lost revenue for the District. I will be seeking to determine whether the CFO’s response can be substantiated, or whether something in the process is broken. I intend to hold a hearing on the issue if I suspect the latter.
Initial anecdotal evidence seems to suggest that the article is a bit off base. For example, the article cites Gallery Place, which apparently received a 24 percent reduction from its proposed assessment value, cutting its bill to the city by $1 million. Information I am receiving, however, suggests that the initial assessor used an estimator of likely rent collected by the owners in coming up with an initial assessment. In general, this is a good practice, since we have a relatively small number of assessors to cover a tremendous volume of real estate. In the case of Gallery Place, however, the timing of the development as an anchor in what was then a transitional area means that actual rents collected, as dictated by long-term contracts, are meaningfully lower than the market rate. Thus, it would seem reasonable that a tax supervisor would notice and correct the error during the appeal process rather than forcing the owner to go to trial – this is how we want our government to work. Even after correcting the error, the Gallery Place development was assessed a 6.5-percent increase from 2011, which is encouraging.

Those who park on the street are well aware that, despite any other weaknesses in our government, our ticket writers are “the best in the business.” In the same vein, I have found that our tax office is quite zealous in identifying and collecting all tax revenue due to the District, sometimes to my constituents’ chagrin. At times, mistakes happen, but I am hopeful that my continued review will reveal that these settlements were made for principled reasons that were in the best interests of our residents.

As I said in my article on Natwar Gandhi’s re-nomination as the District’s chief financial officer a couple of months ago, the ultimate judge of the success and stability of our tax office is in the rating agency assessments of our bonds, which determine the costs we have to pay to build schools, libraries and parks. Particularly during this time of instability in our government, it is critical to have an independent CFO that inspires confidence on Wall Street as well as on Capitol Hill, and Dr. Gandhi uniquely meets this description.