Is Smart Growth Getting Married to Corporate Welfare?

By Adam Pagnucco.

On October 27, the county council overrode County Executive Marc Elrich’s veto of Bill 29-20, which mandates 15-year property tax breaks for developers at Metro stations. This seemingly ended – for now – the debate over whether huge tax abatements should be written into law for transit-accessible development projects. But in fact, the debate may just be getting started. That’s because a little-noticed discussion eight days before offered a prelude of many more tax expenditures than just the amount contained in that one bill.

On October 19, the council’s Planning, Housing and Economic Development (PHED) Committee held a work session on the upcoming Thrive Montgomery 2050 Plan. The plan, still in its early stages, is conceptualized in a mammoth 167-page public hearing draft authored by planning department staff. Among the MANY recommendations in the draft is this goal:

Goal 5.2: Ensure that the majority of new housing is located near rail and BRT stations, employment centers and within Complete Communities that provide needed services and amenities for residents.

And one of the action steps recommended for this goal is this one:

Action 5.2.1.a: Provide appropriate financial incentives, such as tax abatements, Payment in Lieu of Taxes (PILOTs), and Tax Increment Financing (TIFs) to increase housing production in targeted locations near high-capacity transit.

The adjective “near” is not defined.

At the PHED Committee’s work session, county planning director Gwen Wright commented on before and after sketches of development on Georgia Avenue and said:

One of the items, and I put this specifically because I know we’ve had a very challenging conversation just recently, about the idea of PILOTs to try to target development near high capacity transit. To do, to change what you see on the left into what you see on the right is going to take more than just zoning. It is going to take financial incentives. It is going to take different kinds of public investment.

Wright’s comments on incentives start at 38:27 of the video below.

It’s worth remembering one of the rationales for the Metro property tax break bill. Supporters of the bill said that its tax abatement was necessitated by the unique costs of building on top of Metro stations. They stressed over and over that the bill would not apply to other sites. It’s clear now that much broader tax abatements for all kinds of sites – not just Metro stations – have been under consideration by at least the planning staff and maybe other actors too for some time. Back on September 24, I wrote, “Developers of sites near but not on Metro stations might demand concessions too. As with the county’s Economic Development Fund, which began by handing out small grants to companies twenty years ago and eventually distributed 7-digit and 8-digit grants, the subsidies in the current bill may only be the beginning.” It didn’t take long for that prophecy to amass evidence of its accuracy.

Another rationale for the WMATA tax break bill is that it applied to largely empty Metro-owned sites that were not generating tax revenues. Supporters of the bill said that waiving taxes on new development did not cost the county real money if the new development would not have occurred without the tax break. But that argument does not apply to areas around Metro stations, which tend to have low-rise, mid-rise and – in Downtown Bethesda – high-rise buildings in existence now. These properties pay property taxes. Offering tax abatements to them to redevelop converts them from revenue generators into non-payers. It would actually SHRINK the tax base. This contradicts one of the primary reasons why economic development is good for the county: it is supposed to ADD to the tax base. That wouldn’t happen under the planners’ proposal.

Sure, this is just a staff draft. And sure, the draft has not been approved by the planning board much less the county council. But this is how policy is formed – it starts as a proposal, it turns into a recommendation, it is incorporated into official planning and then it becomes law. Unless something changes, these are the first baby steps towards what could ultimately become billions and billions of dollars in subsidies that the rest of us will pay for.

In MoCo politics, the number one attack made against smart growth organizations and activists is that they are supposedly tools of developers. It’s a line of argument used to shut down – and shut up – anyone who wants to see more commercial development or more housing here. It took smart growthers many years to get beyond the epithets, to present their agenda of community building, walkability, environmental preservation and sound transportation management and to truly break through into the county’s mainstream. It helped that transit-oriented projects were supposed to make money for the county’s budget. Ten years ago, redevelopment in White Flint was predicted to generate $6-7 billion of revenue over the next 20-30 years.

If smart growth indeed becomes married to corporate welfare, some of that political progress will be lost. The smart growth movement will be cast by its opponents as anti-progressive and in thrall to corporate masters whose primary goal is tax avoidance. It will face increasing impediments to its political growth and hence its ability to affect policy and influence votes. That is exactly what opponents of transit-oriented development want. The push towards corporate welfare plays right into their hands.

All of this will be a huge political gift to County Executive Marc Elrich, the man who built his career on voting against transit-oriented development and whom many smart growthers desperately want to see out of office. Elrich relishes vetoing tax abatements and tax cuts for developers because it reminds a large part of his base why they voted for him. The only thing that could be better for Elrich is if the next round of huge tax breaks is proposed in legislation a couple months before the next primary.