Tag Archives: Economic development

The Top Twenty Seventh State Posts of 2020, Part One

By Adam Pagnucco.

The year 2020 was hugely eventful for the entire world and MoCo was no exception. In our county, 2020 saw a public health crisis, a resulting economic crash and huge challenges to our quality of life. In political terms, it also saw unusually contentious elections for school board and circuit court judge, four historic ballot questions and numerous fights inside county government. We wrote about it all on Seventh State. Here are the top twenty posts measured by page views from the people who count the most – YOU, our readers.

  1. Miscreants Run Wild at Elrich Press Conference

This was a poorly organized public event gone wrong, culminating with an unmasked protestor getting within spitting distance of the county executive. For those who question the need for the executive to have a security detail, this is Exhibit A for why it can be necessary.

  1. Elrich Vetoes WMATA Property Tax Bill

County Executive Marc Elrich’s first veto, this one targeting a council-passed bill giving Metro station developers 15-year property tax breaks, set off a fight on corporate welfare that has not ended by a long shot. That will prove especially true if a proposal by the planning staff to grant tax abatements to other properties near Metro stations advances.

  1. The Squeaky Wheel and Inequities Hiding in Plain Sight

MoCo PTA Vice-President Laura Stewart wrote this guest blog on inequities in MCPS’s capital budget. It’s a must-read for everyone who cares about school construction.

  1. Will MCPS Reopen?

In early November, MCPS told the public that it was planning a phased-in reopening of schools for some in-person instruction. But the winter surge of COVID quickly overtook that plan and cast the timing of reopening in doubt. The issue is still unsettled.

  1. MCEA: MCPS Reopening Plan “Wholly Inadequate” to Protect Students and Staff

Back in the summer, MCPS’s original reopening plan was drenched in controversy, ultimately resulting in a pitched battle with the county teachers’ union (MCEA). MCPS wound up going with virtual learning for the fall, like most other large school systems in the region, but the mechanics and safety of reopening are still subjects of debate.

  1. What Happened to White Flint?

Jobs, jobs, JOBS. According to White Flint developers, MoCo’s slow rate of job growth was one reason that they could not get financing to proceed on the county’s preeminent development plan. The chart below says it all. And when the COVID pandemic finally ends, county leaders must dedicate themselves to creating jobs, Jobs, JOBS or MoCo’s stagnation will continue.

  1. Baltimore City’s Election Has a Problem

Back in June, incumbent Baltimore City Council Member Zeke Cohen, who had a big lead in money and endorsements over his challenger, appeared on election night to be getting just 2% of the vote. That was the first sign of a primary gone wrong, which led to many misgivings about the state’s processes with mail ballots and the performance of its long-time election administrator Linda Lamone.

  1. Why Montgomery County Ballot Questions B and D Are Truly Bad Ideas You Should Vote Against

2020 was a year of surprises, and one of the bigger surprises was the emergence from political retirement of former County Executive Ike Leggett. Question B (Robin Ficker’s latest anti-tax charter amendment) and Question D (nine council districts) disturbed Leggett enough that he started a ballot issue committee to defeat them. This post was Leggett’s guest column on why they were bad ideas and it got a big reaction from our readers.

  1. Teachers Respond to Lynne Harris

After school board candidate Lynne Harris blamed MCEA for allegedly resisting school reopening (a post that also appears on our top 20 list), a group of rank-and-file teachers pushed back in this guest post. It achieved wide readership that was probably concentrated among teachers as the general election approached.

  1. Free-For-All

In non-COVID news, 2020 was the year that the county’s police department (along with departments around the country) became a political football. This post describes how the executive, the county council and Annapolis all jumped into the issue of policing with little coordination. Lost in the debate was the central fact that crime in MoCo is at its lowest level in decades. Policing will continue to be a hot topic in 2021.

Tomorrow we will list the top ten Seventh State posts for the year!

Share

Top Seventh State Stories, December 2020

By Adam Pagnucco.

These were the top stories on Seventh State in December ranked by page views.

1. What Happened to White Flint?
2. The Day of Reckoning is Near
3. Jawando Calls for a Tax Hike
4. Come on Now
5. Who’s the Boss?
6. MCEA to School Board: Reopening Should be Safe
7. Trump vs Hogan: Votes by MoCo Town
8. Council Overrides Veto, Attacks Elrich, Cuts Revenue for School Buildings
9 (tie). Minority Members of the U.S. House
9 (tie). Corporate MoCo Council Adopts Supply-Side Economics

The top three stories fit together and have meaning for the new year and beyond. The Day of Reckoning is Near summarizes the county’s dire fiscal picture as it heads into a challenging FY22 budget discussion in the spring. Jawando Calls for a Tax Hike kicks off an inevitable dialogue about taxes, one which will only get hotter before the executive makes his budget recommendation on March 15. And What Happened to White Flint? – December’s runaway winner – lays out the story of how the county’s premier development plan has been held back by our slow rate of job growth. Budget headaches, taxes and economic problems are about to collide.

Welcome to 2021, folks!

Share

What Happened to White Flint?

By Adam Pagnucco.

Ten years ago, White Flint was regarded as the future crown jewel of MoCo. With a shiny new master plan, a tax district for infrastructure and an assortment of regulatory breaks, the area was supposed to create new high-end high-rises combining office, retail and residential uses that would generate billions of dollars in county revenues over coming decades. Everyone who lives here knows that vision is still largely unrealized. And now a new report by county planning staff lays out why.

First, let’s revisit what White Flint was envisioned to become in its 2010 master plan: a smart growth, walkable mecca around a transformed Rockville Pike which would be transit-heavy and pedestrian friendly. The plan required substantial infrastructure investment including streetscaping, a new road network and a bus rapid transit route. Unlike many county master plans, this one had a mechanism for financing infrastructure: a new special taxing district. Properties inside the taxing district would pay into a fund used to pay for the new infrastructure needed to bring the plan to life. In return, impact taxes were set to zero. The council set an infrastructure project list through a resolution and projects in the district were exempted from county traffic reviews. This combination of high density, infrastructure investment and regulatory exemptions was revolutionary for MoCo at the time and still has not been fully replicated. MoCo politicians love to throw around the word “bold” like peanut shells, but White Flint (now marketed as the Pike District) truly deserved the adjective.

So what happened?

In simple terms, the planning staff describes a negative, self-reinforcing feedback loop that has no identifiable end. The loop functions like this. Low levels of development led to low proceeds for the tax district. It was supposed to raise $45 million in its first 10 years but only generated $12-15 million. Low tax district revenues held back the construction of some of the transportation improvements and other infrastructure necessary to make the area more attractive to investment. Developers seeking financing for projects were hindered by the inadequate infrastructure along with the “prominence of underutilized properties.” One of those properties, the mammoth White Flint Mall site, was tied up by years of litigation. The lack of financing, along with construction costs and market conditions, has held back development. And of course the lack of development holds back tax district revenues necessary to pay for infrastructure, so the cycle continues.

This map from the report shows the vast majority of land in White Flint is underutilized (areas marked in red and orange) relative to its zoning.

The most interesting part of the report summarizes comments from White Flint property owners, who comprise a who’s who list of prominent MoCo developers. First, let’s identify what they don’t complain about. They don’t complain about the plan itself; indeed, they think the area still has potential. They don’t complain about market demographics; they find the wealth and education levels in the area attractive. They don’t intend to sell their existing properties, which generate enough cash to cover operating costs and taxes, but they’re not in a hurry to redevelop them. And not a single one of them complained about taxes or requested a tax abatement.

Here are a few excerpts from the report on their take on White Flint’s problems.

*****

All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. In addition to limited employment growth, construction costs increased dramatically since 2010, office users occupied less space per employee, and retail demand declined with the rise of online shopping, all factors that continue to reduce demand for or limit the financial feasibility of new development.

Multiple developers noted without providing details that their firm managed to solve issues of high construction costs in other submarkets where there is a higher pace of job growth and household formation, which in turn supports rent growth.

Developers interviewed affirmed that the Pike District is accessible to fewer jobs within a reasonable commute than its peer non-downtown submarkets, and that this reduced access to job centers limits demand for additional multifamily units.

All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. Developers cited the reduced pace of household formation as a key contributor to stagnant rents, a major concern for the feasibility of future projects.

Several developers independently stated that the attraction of a major employer to the Pike District, such as a life science campus, would significantly increase the feasibility of new multifamily projects.

Developers are not currently willing to build speculative office projects in Montgomery County due to the lack of underlying job growth and the uncertainty about the future of the office sector. Several developers mentioned that they would still consider speculative office construction in Tysons and along the Silver Line corridor, highlighting the continued job growth in Northern Virginia and the contrast with suburban Maryland.

Several interviewees contrasted recent Northern Virginia economic development wins, such as the expansion of Microsoft in Reston, with news that a large distribution center project in Gaithersburg for Amazon is in jeopardy due to delays in the entitlement process. These interviewees stressed that while the number of jobs in these deals is modest, there is a constant drumbeat of positive economic news from Northern Virginia that is unmatched from suburban Maryland.

*****

Let’s boil this down to three words: jobs, Jobs, JOBS. Employment growth was the dominant theme for these developers, but they had a few things to say about business climate and regulations too.

*****

Interviewees related that development projects ultimately deliver equivalent profits as similar projects in neighboring jurisdictions, but that Montgomery County’s reputation as generally “a difficult place to do business” limits developer interest.

Developers agreed that the difficulty of the business environment issue is primarily about perception rather than the ultimate profitability. Interviewees cited as examples a range of policy issues such as a minor energy efficiency tax that Montgomery County leadership presented and implemented as a temporary measure but that never expired.

Multiple interviewees stated that in competitor counties they feel that the entitlement review process is oriented to enabling and facilitating a project, whereas in Montgomery County it feels like an oppositional relationship. Related to this, developers feel the County continually creates new policies and initiatives that adversely affect development, and which ultimately encourages them to focus on assets elsewhere in the region.

*****

The county council and the planning staff are focused on tax abatements as a way to stimulate development, especially housing. But developers in White Flint weren’t complaining about taxes. In fact, tax revenues are NECESSARY to finance infrastructure required to make development happen and function well. It is the absence of tax revenues that resulted in under-financing of infrastructure in White Flint, a key part of the area’s negative feedback loop.

Instead of taxes, the key issue identified by White Flint developers is the absence of job growth, which they believe would stimulate demand for housing and eventually make the economics of housing construction work even with high construction costs. In short: if you want more housing, create more jobs. All of these developers know what we have been saying on Seventh State for years: MoCo has one of the worst records on job growth and business formation of any large jurisdiction in the metro area.

The county’s terrible record on job growth and business formation must be reversed.

All of this points to the need for a strategic decision. MoCo can focus like a laser on job creation, doing everything possible to help entrepreneurs grow their organizations and create employment for residents. If the county does that, the vision of White Flint and other smart growth plans can be realized. Or MoCo can keep handing out tens of millions of dollars in corporate welfare as it has done for decades, thereby depleting its ability to construct infrastructure that facilitates economic growth. Or it can do nothing.

Those are the choices. What will MoCo choose?

Share

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.

Share

Elrich Blasts WMATA Property Tax Break Bill

By Adam Pagnucco.

In the wake of his veto message, County Executive Marc Elrich has once again blasted a bill passed by the county council granting developers at Metro stations 15-year property tax breaks. The council is set to override Elrich’s veto on Tuesday. Elrich’s mass email, which reiterates his reasons for vetoing the bill, is reprinted below.

*****

Dear Friends:

Last week I issued my first veto of legislation, Bill 29-20 Taxation – Payment in Lieu of Taxes – WMATA Property. I sent a memorandum with the veto explaining in detail the reasons for the veto; you can read the entire memo here, but I wanted to explain some of the reasons in my letter.

Like the Council, I am focused on expanding transit and transit-oriented development, broadening our tax base and preserving and increasing the supply of affordable housing. Unfortunately, Bill 29-20 does not achieve any important goals, is too costly and does not produce sufficient public benefit to justify the cost.

This legislation would require 100 percent exemption of the real property tax for 15 years. This exemption is known as a Payment in Lieu of Taxes, or PILOT [see NOTE 1]. A few requirements are included in the bill. However, it would not increase the number of affordable housing units than otherwise would have been provided. While it was amended to make some of the units more affordable, we could have negotiated that with the developer at a fraction of the cost to the County.

[NOTE 1: The requirement applies to development that is higher than eight stories on property owned by WMATA at a Metro station. The development must include at least 50 percent residential rental housing, and one-quarter of the moderately priced dwelling units (MPDUs) must be affordable for residents at 50 percent of area median income (AMI). The PILOT would begin no later than the second year after the property tax is levied. The law would sunset in 2032, but any existing PILOT would continue until the end of its 15-year period. To be eligible for a PILOT, a developer would be required to use contractors and subcontractors who have no more than two final penalties of $5,000 or more in the three prior years for violations of applicable wage and hour laws. At least 25 percent of the workers constructing the project must be County residents. Special taxing district taxes are exempt from the PILOT.]

It is an expensive, and unnecessary, approach, particularly at this moment when the County is struggling to fund critical services (the need for which is increasing and will likely continue to increase for a while), where the outlook for revenues over the next couple of years is not good and where full economic recovery from this pandemic may take as much as 10 years. It is certainly not prudent to reduce revenues coming into the County coffers at this time.

During the Council’s deliberations on the bill, supporters could only cite one potential development as being eligible for this 15-year, 100 percent tax break – the proposed Strathmore Square at the Grosvenor/Strathmore Station. Under the provisions of this legislation, Strathmore Square’s owners would receive a tax break of approximately $100 million. As a member of the County Council, I supported the zoning changes that made this proposed development possible, but I simply do not believe it is a responsible use of County resources to supplement a market-rate housing complex at this level of expense.

The developer of that project saw an increase in the allowed units that went from a little over 500 to more than 2,200—density that was based on being atop a Metro station. Now, the developer is arguing that it is too expensive to develop on the Metro, yet WMATA records show that the price the developer paid was based on an appraisal that was done AFTER the property was rezoned. The developer accepted the appraisal and agreed to proceed. If the developer thought the price was unreasonable and would make development unprofitable, it could have rejected the appraisal and the deal. Instead, it came to the County three years later and asked that all its taxes be forgiven because the deal does not work for it.

Should similar developments occur at the other potential WMATA sites across the County, lost revenue would likely exceed $400 million. To be clear, I want more housing constructed in our County, and I see the significant benefit of housing that makes transit usage extremely convenient. However, I do not believe providing developers with as much as $400 million in incentives is necessary to get 8,000 new housing units that are projected to come here anyway. Put another way, this bill would provide a developer with a $50,000 per unit gift regardless of cost of rent, without producing additional affordable housing units beyond the amount required for all developments. This is not a good use of public funds.

Nor do we need this law—the authority already exists for the County to negotiate individual agreements.

It makes sense to continue to allow them on a project-by-project basis—not all projects need the same PILOT term or value. Flexibility should be maintained to enable negotiation of the best possible agreement that is in the public interest.

Additionally, it does not make sense to focus the market rate housing (along with the public subsidy) at Metro stations, which pushes affordable housing elsewhere. As the recent Housing Preservation study points out, affordable housing units near transit are at greatest risk of being lost and are being lost. Seventy-five percent of projected need for housing over the next decade is for affordable housing—why would the focus of a housing bill be on subsidizing market rate housing? Furthermore, given the projected number of market units needed over the next 20 years, there is sufficient zoning near Metro Stations to accommodate the needed units. While they might not be built on top of Metro property, they may be built nearby within easy walking distance of the Metro.

In White Flint, there are properties adjacent to, and across the street from, the Metro entrance where housing could be built that would actually be closer to the Metro entrance than some buildings on WMATA property. In other words, the housing does not have to be built directly on WMATA property; it can be nearby. And this bill creates a difficult precedent. It is likely that other properties near Metro will ask for the same PILOT. Those properties offer similar value in providing transit proximate development. It is simply not good policy to have a general approach to subsidize market rate housing.

Ironically, this bill may be counterproductive by raising the value of WMATA’s land. Under Federal law, WMATA must seek the highest and best price for its land. Land that is exempted from all property taxes for 15 years is more valuable because the calculation of its value includes the costs to acquire and develop, including taxes, weighed against market rents. If two properties are side by side, one exempt from taxes and the other not, and they were producing the same value of unit, the land value of the exempt property would be greater because its cost of development would be less than the cost to develop the tax-paying property. This would, in turn, likely raise the parcel’s appraised value. Supporters of the bill have said they are trying to reduce the cost to developers, but if the value of the land increases, the bill has had the opposite effect.

Furthermore, there is no evidence that this is needed. In fact, if you look around the region, many of our neighboring jurisdictions have their highest taxes on property nearest Metro sites and the tax rates are substantially greater than in Montgomery County. If property taxes were the key to development, we would have won the development battle a long time ago because we are lower than most surrounding jurisdictions. (See chart below)

And I would note that if one of the goals of this bill is to provide tax incentives to attract new businesses, those incentives should go to the occupant of the building, not to the developer of the building. This legislation gives public funds to help build buildings, not to incentivize businesses to become tenants in those buildings.

And workers deserve a prevailing wage. A majority of the Council voted against requiring the prevailing wage at these projects. The provision would have required that all contractors and subcontractors pay prevailing wages and be licensed, bonded, insured and abide by wage and hour laws. Legislation that dedicates public funds to market-rate housing should, at least, also support the workers who build the housing. If WMATA was building a structure on the same property, current law would require it to abide by the prevailing wage. I believe the developments contemplated by this bill should as well. The lack of such a provision to treat workers equitably and to share in the subsidy is another major deficiency in this legislation.

Finally, to risk of stating the obvious, using our limited funds for market-rate (non-affordable) housing development means fewer funds for other services including affordable housing, recreation and education, which has a racial equity/social justice impact. This bill allows housing to be built for those who can afford it, not for lower-income populations who are disproportionately Black and Latino.

I hope this gives you a better understanding why I could not support this bill.

Sincerely,

Marc Elrich
County Executive

Share

Elrich’s First Veto: The Politics

By Adam Pagnucco.

County Executive Marc Elrich has a soft and raspy voice. Close your eyes and imagine that voice saying:

I just think that developers should pay their fair share.

Last week was a terrible one for Elrich. His chief administrative officer and emergency management director were blown to smithereens by the county council over the pace of the executive branch’s distribution of federal assistance funds. The story dominated the local press for days. Elrich responded to the council with this saucy comeback: “I used to be a legislator, and it’s the best job in the world because you can just say, ‘I want to spend this money,’ and tell someone to go spend it. And you don’t actually figure out how to do it.” There is more than a bit of truth to this, but the observation won’t improve Elrich’s relations with an irate council.

That came on top of numerous other headaches, including the ethics problems that forced the resignation of Elrich’s first chief administrative officer, criticism of Elrich’s mushrooming COVID pay liability, the beatdown the administration took from Governor Larry Hogan over reopening private schools, pushback over Elrich’s joking that the council was “fact proof” and the general drudgery of having to deal with the crises in public health, the economy and the budget spawned by the coronavirus. Whether one is sympathetic to Elrich or not, the stories about his administration of late have nearly all been bad. (One exception: the opening of the county’s first bus rapid transit route on Route 29, an event that would never have happened without Elrich.)

But all of that bad news is wiped away, at least for the moment. That’s because Elrich changed the subject by vetoing legislation providing 15-year property tax breaks for Metro station high-rise developers. What’s the new subject?

I just think that developers should pay their fair share.

Supporters of the vetoed bill argue that it was necessary to enable development of high rises at the pending Grosvenor-Strathmore Metro station project. They feared that failure to act would doom or shrink the project. That urgency prevented them from examining other, more time-consuming, paths to a deal including an appropriation from the economic development fund (in which Elrich would get to play) or providing financing through the county’s economic development corporation or the Housing Opportunities Commission. But unlike those mechanisms, legislation is a highly public thing. By giving Elrich an opportunity to veto the bill, his critics on the council gave him an opportunity to go on offense.

But wait a minute, you say. The bill passed on a 7-2 vote, one more than necessary to override a veto. When the council overrides Elrich, doesn’t that make him a loser?

Those who think that do not understand how Elrich got elected executive. During his twelve years on the county council, Elrich was the sole no vote on a host of master plans, all increasing density. Yes, he “lost” those votes again and again. But he also picked up support in those communities from skeptics of the plans who came to see Elrich as their only champion. Those folks became a critical and expanding part of Elrich’s base. Few if any politicians in the county have ever won more from “losing” than Marc Elrich.

Elrich’s opposition to many new development policies have prompted his critics to brand him as a NIMBY. But there is more to his political success than pure NIMBYism. When you listen to him discuss development closely, he is making an equity argument as much as a land use argument. Here is what he said about development in 2002:

Our beleaguered middle-class is told that the County can no longer afford to provide the quality of life that made this place so attractive at the same time it throws millions in subsidies into the pockets of millionaires. We make great claims about ending welfare, but we’re really only changing the beneficiaries. What we’ve done is to recast developers as the new poster children of the Nineties. This blind devotion to growth is great – if you’re a developer or a tumor – but it doesn’t work so well for the rest of us who are better served by priorities that strengthen our communities and our schools.

In other words, throwing public money at developers reduces the money available for schools, public safety, health and human services, libraries, parks and more. Here is a more refined version of this argument from his 2018 campaign kickoff.

Elrich’s quarrels with developers resonated more when the economy was better, such as in 2006, when he was first elected to the council. As executive, such arguments come up less often, first because his office does not often deal directly with land use and second because the economy is in such wretched shape. MoCo has much bigger problems at the moment than “predatory” developers. But in a dark blue county in which Democratic primaries are the real elections for office, Elrich’s equity argument still has purchase when occasion calls for it.

Supporters of the bill that Elrich vetoed have good arguments on their behalf. It’s true that Metro sites have extra development costs. It’s true that, for the most part, high-rises are not being built on these sites. It’s true that transit-oriented development is superior to sprawl or no growth. So it’s not a crazy position that public investment should be used to make these projects happen.

But the bill’s supporters have two problems. First, they are making complicated arguments and Elrich is making a simple one. In politics, simple arguments usually beat complicated ones. Second, the supporters are making economic arguments while Elrich is making a value judgment. Most MoCo Democratic primary voters are not accountants or economists, but they do have progressive values. Broadly speaking, they agree with the notion that everyone with means – not just developers – should pay towards the cost of funding government.

On top of all that, consider the times we are in. The county’s unemployment rate is the highest it has been in anyone’s memory. Small businesses are shutting down left and right. Tenants are missing rent and will be, eventually, at risk of eviction. So what are we doing? Giving developers 15 year tax breaks. That’s how Team Elrich is going to frame this.

I just think that developers should pay their fair share.

Unless something strange happens, the council will override the executive’s veto. The bill’s supporters will get the policy win. But the political win? Overall, that belongs to Marc Elrich.

Share

Elrich’s First Veto: The Policy Debate

By Adam Pagnucco.

On Friday, County Executive Marc Elrich issued the first veto of his administration against a bill by the county council offering 15-year property tax breaks for high-rise developments at Metro stations.

Vetoes are uncommon events in MoCo politics. Elrich’s predecessor, Ike Leggett, vetoed three measures: a county property disposition bill in 2012 (which was overridden), a minimum wage bill in 2017 (which was subsequently replaced by a similar bill that he signed) and a 2018 line item in the capital budget covering stormwater contracting (which resulted in passage of a compromise). Vetoes are typically prevented by one of two things: deal-making between the executive and the council or passage of a measure by more than the six votes required to override. But there was no deal in this case: Elrich opposes the property tax bill and wrote his rationale in a lengthy veto message.

This post examines the policy debate around the bill, about which I wrote a three-part series. (Here are links to Part One, Part Two and Part Three.) Tomorrow, we will discuss the politics.

Bill 29-20, the target of Elrich’s veto, originated from three related events. First, Montgomery County, like the rest of the region, has a shortage of housing when compared to projections of population growth. This was chronicled in a report by the Metropolitan Washington Council of Governments (MWCOG), resulting in passage of a resolution by the county council to meet the county’s share of regional housing growth. (Elrich was notably skeptical of this.) Second, for at least the past fifteen years, the county has chosen to concentrate new density around Metro stations through its master plans for a combination of reasons related to transportation, environmental concerns, placemaking and preservation of the Agricultural Reserve. (Elrich voted against many of these master plans when he was on the council.) Third, Fivesquares Development, which was selected by WMATA as its ground lease development partner at the Grosvenor-Strathmore Metro Station, has proposed a housing development including high rises at the station. However, Fivesquares has since said that the economics of the site won’t allow anything more than low density development unless they obtain a subsidy.

These events gave rise to Bill 29-20, which offers developers at Metro stations 15-year property tax breaks if they build high rises. The bill’s supporters claim that without the tax breaks, the sites will either remain undeveloped or will contain low- or mid-rise projects that waste the stations’ potential for generating transit-oriented development. Elrich disagrees, offering several key reasons that I will evaluate.

Elrich: The bill “harms the budget.”

Elrich wrote:

At a time when the County is struggling to fund critical services, where the outlook for the next couple of years is uncertain at best, and where full economic recovery from this pandemic may take as much as ten years, it is certainly not prudent to reduce revenues coming into the County coffers.

The bill’s supporters argue that the tax break would only apply to projects that would otherwise not happen without the bill, thus not creating a real marginal cost to the county. They also say that without the bill, the Metro stations would remain undeveloped and therefore pay nothing to the county. However, according to Fivesquares, a low density project would be viable at Grosvenor-Strathmore without a subsidy and would therefore generate actual property taxes for the county. So even without the bill, it’s possible to get taxpaying low- or mid-rise development at Metro stations. The real question is not so much about the budget but whether the public benefit of high-rise housing infrastructure at Metro stations is worth an investment of public dollars. Elrich says no, the bill’s supporters say yes.

Elrich: The public benefit isn’t worth it.

Right now, developments at Metro stations are required to ensure that 12.5-15% of constructed units are moderately priced dwelling units affordable to moderate income people. Council Member Will Jawando amended the bill to require that 25% of a qualifying project’s units be moderately priced to get the tax break. Elrich says there should be a higher percentage of moderately priced units and he argues that they should be mandated rather than included in a tax incentive. (If he believes that, he should send over legislation to accomplish it.) Bill supporters argue that a higher percentage of affordable units would kill a project’s economics. The record of the bill does not conclusively prove either side right.

Elrich: Public funds should be used for affordable housing, not market rate housing.

Elrich argues that MoCo’s real housing shortage is in affordable units, not so much in market rate units, and that because the bill allows projects with 75% market rate units to get tax breaks, it contributes little to solving the county’s housing problems. He is right that MWCOG’s report recommends that “at least 75% of new housing should be affordable to low- and middle- income households.” But with all due respect to MWCOG, the difference between the county’s requirement that 12.5-15% of new units be moderately priced and the report’s recommendation that 75% of them be affordable is VAST. The county’s housing target is 10,000 units above forecasts. No one – not Elrich, not the council, not the planning board – has a credible financing plan for plowing (at least) hundreds of millions of dollars of public money into building 7,500 or more affordable units. Holding this bill or any other plan to that standard is unrealistic.

Elrich: The bill sets a difficult precedent.

Here, Elrich makes the same slippery slope argument that I made. If developers at Metro stations get these tax breaks, developers of properties next to Metro stations will want them too. The bill’s supporters argue that Metro sites have extra costs that require subsidies to offset. Those extra costs are probably responsible for the dearth of new high-rise projects at Metro stations all around the region. But the bill does change how the county does incentives. In the past, incentives have been granted on a case-by-case basis (including the Marriott headquarters development project). The bill establishes its subsidy in law, giving it to developers by right. The bill’s supporters don’t say this publicly, but they argue privately that legislation is necessary because Elrich can’t be trusted to constructively negotiate with developers. Even if that were true, Elrich won’t be executive forever, and case-by-case negotiations have advantages that a one-size-fits-all approach can’t replicate.

Elrich: Construction workers deserve prevailing wages.

Council Member Will Jawando offered an amendment to require that Metro station development projects should pay construction workers the same prevailing wage they receive on county construction projects to get tax breaks. The amendment failed on a 4-5 vote, with Jawando and Council Members Evan Glass, Tom Hucker and Sidney Katz voting in favor. Elrich cites the bill’s failure to require prevailing wage as a reason to veto it.

When I was employed by the carpenters union, I lobbied the council to pass what is now the county’s prevailing wage law. In doing so, I provided them with a mountain of evidence that prevailing wage laws do not inflate construction costs because higher wages tend to be offset by higher productivity. As Nooshin Mahalia of the Economic Policy Institute wrote just before the bill was passed:

An overwhelming preponderance of the literature shows that prevailing wage regulations have no effect one way or the other on the cost to government of contracted public works projects. And as studies of the question become more and more sophisticated, this finding becomes stronger, and is reinforced with evidence that prevailing wage laws also help to reduce occupational injuries and fatalities, increase the pool of skilled construction workers, and actually enhance state tax revenues.

Council Member Marc Elrich was a co-sponsor of the prevailing wage bill. No current council member was in office when it passed in 2008.

The county has a prevailing wage law for its construction projects. WMATA uses the federal prevailing wage law (the Davis-Bacon Act) for its construction projects. And yet a developer with a county subsidy building at a WMATA Metro station is not required to pay prevailing wage. That just does not make a lot of sense.

Those who voted against prevailing wage coverage argue (against the evidence linked above) that it would inflate project costs and offset the value of the 15-year property tax break. If they truly believe that prevailing wages increase costs, then to be intellectually honest, they should repeal the county’s prevailing wage law to save money for the capital budget. Unless they do that, the arguments against prevailing wage ring hollow. On this one, Elrich is right.

The best point that Elrich’s critics make against him is that if he opposes this bill, then what is his plan to build more affordable housing? The county’s current total of $62 million in operating and capital money for preserving and building affordable units is woefully inadequate when compared to the needs. Elrich has been discussing this issue while in elected office for 14 years. What is the Elrich Plan to Build Affordable Housing?

Tomorrow, we will get into the politics of the veto.

Share

That Day When Our County Exec Had to Explain Economics to the Council in a Veto Message

Yesterday, Montgomery County Executive issued the first veto of his administration. It was of a major tax giveaway bill to developers — the county would likely lose over $400 million in revenue according to Elrich — passed in the name of sparking additional housing development around Metro.

My favorite part of the veto message in where Elrich, a progressive often accused of being an impractical lefty by opponents, explained the economics of these sorts of tax subsidies:

Under Federal law, WMATA must seek the highest and best price for their land. Land that is exempted from all property taxes for 15 years is more valuable because the calculation of its value includes the costs to acquire and develop, including taxes, weighed against market rents. If two properties are side by side, one exempt from taxes and the other not, and they were producing the same value of unit, the land value of the exempt property would be greater because its cost of development would be less than the cost to develop the tax-paying property. This would, in turn, likely raise the parcel’s appraised value. The Bill could potentially be counterproductive by raising the value of WMATA’s land.

Put another way, by reducing the tax burden, all the county has done is make WMATA’s land more valuable and increased the amount that they can charge for it. They will capture that value in the sale price of the land with Montgomery County taxpayers, who already heavily subsidize WMATA, having footed the bill.

They say you can’t get something for nothing. But if you’re not careful, you can get nothing for something. Or, at P.T. Barnum put it, “there’s a sucker born every minute.”

Share

Elrich Vetoes WMATA Property Tax Bill

By Adam Pagnucco.

County Executive Marc Elrich has vetoed Bill 29-20, which would grant high-rise developers on Metro station projects payments in lieu of taxes in return for 15-year exemptions from property taxes. I wrote a three-part series on this legislation quoting the bill’s supporters in Part One, evaluating their arguments in Part Two and raising concerns in Part Three. The bill passed the council with amendments on a 7-2 vote, with Council Members Tom Hucker and Will Jawando voting no. Under the charter, the council may override a veto with 6 votes.

The executive’s veto message is printed below.

*****

October 16, 2020

TO: Sidney Katz, Council President

FROM: Marc Elrich, County Executive

RE: Veto explanation of Bill 29-20, Taxation – Payment in Lieu of Taxes – WMATA Property – Established, Enacted with amendments

I share the Council’s desire to find ways to spur smart growth and to broaden our tax base. However, I strongly oppose the approach used by the Council in this legislation. It is too costly and does not achieve my goal of increased affordable housing. Therefore, I am vetoing Bill 29-20, Taxation – Payment in Lieu of Taxes – WMATA Property.

Below is a description of the bill and my explanation of the veto.

Description of Bill 29-20

Bill 29-20 requires 100% exemption of the real property tax for 15 years. This exemption is known as a Payment in Lieu of Taxes (PILOT). The requirement applies to development that is higher than 8 stories on property owned by WMATA at a Metro station. The development must include at least 50% residential rental housing, and one-quarter of the moderately priced dwelling units (MPDUs) must be affordable for residents at 50% of area median income (AMI). The PILOT would begin no later than the second year after the property tax is levied. The law would sunset in 2032, but any existing PILOT would continue until the end of its 15-year period. To be eligible for a PILOT, a developer would be required to use contractors and subcontractors who have no more than two final penalties of $5,000 or more in the three prior years for violations of applicable wage and hour laws. At least 25% of the workers constructing the project must be County residents. Special taxing district taxes are exempt from the PILOT.

This Bill harms the budget without providing a meaningful public benefit.

At a time when the County is struggling to fund critical services, where the outlook for the next couple of years is uncertain at best, and where full economic recovery from this pandemic may take as much as ten years, it is certainly not prudent to reduce revenues coming into the County coffers.

During the Council’s deliberations on the Bill, supporters could only cite one potential development as being eligible for this 15-year, 100% tax break – the proposed Strathmore Square at the Grosvenor/Strathmore Station. Under the provisions of this legislation, Strathmore Square’s owners would receive a tax break of more than $100 million. As a member of the County Council, I supported the zoning changes that made this proposed development possible, but I simply do not believe it is a responsible use of County resources to supplement a market-rate housing complex at this level of expense.

Should similar developments occur at the other potential WMATA sites across the County, lost revenue would likely exceed $400 million. To be clear, I want more housing constructed in our County, and I see the significant benefit of housing that makes transit usage extremely convenient. However, I do not believe providing developers with $400 million in incentives is worth the 8,000 new housing units. Put another way, this Bill would provide a developer with a $50,000 per unit subsidy regardless of cost of rent. We simply cannot afford this cost.

Public benefit

Generally, PILOTs are used to incentivize production of more affordable housing that we would not otherwise get. Under current law, new residential development must include between 12.5% and 15% MPDUs (the minimum percentage requirement depends on the location of the project). Enactment of an entirely new program with such a substantial subsidy must do more than require one quarter minimum required number of MPDUs be affordable to those earning 50% AMI. In fact, we need more of these deeply affordable units, and I would support turning that provision into a requirement, rather than simply using it as part of an incentive package. Again, the public benefit proposed by this Bill does not warrant the expenditure.

Authority already exists to provide PILOTs

As you know, the County already has the authority to offer PILOTs. It makes sense to continue to allow them on a project-by-project basis – not all projects need the same PILOT term or value. Flexibility should be maintained to enable negotiation of the best possible agreement in the public interest.

Additionally, if we want to provide tax incentives that support commercial development to bring new businesses here, those incentives should go to the occupant of the building, not to the developer of the building. This legislation gives public funds to help build buildings not to incentivize businesses that would be tenants in those buildings.

Use of limited public funds should be targeted for affordable housing production and meeting affordable housing goals, which is not the focus of this Bill

By the estimates developed by WMATA and some Councilmembers, about 8,600 units can be built on the properties covered by this Bill. Approximately 1,300 of those units would be the required MPDUs; approximately 7,300 would be market rate units. The recent regional housing study and the related housing goals were clear that our housing need was not simply about the total number of housing units. The report and the related goals specify income-based targets: three-quarters of the future projected 40,000 units need to be below 70-80% of area median income. Therefore, only one-quarter or 10,000 of the projected 40,000 units, are needed to be at market rate. If this legislation succeeded in producing the number of units estimated by WMATA, then about 7,000 (those on WMATA property) of the 10,000 market rate units needed would not produce property tax revenue for 15 years. The legislation would shift property taxes almost entirely onto below market rate units.

The remaining 3,000 market rate units are likely to be spread out at the 23 “activity centers” along with the more than 25,000 affordable housing units. It does not make sense to focus the market rate housing at Metro stations and push the other affordable housing elsewhere. As the recent Housing Preservation study points out, affordable housing units near transit are at greatest risk of being lost and are being lost.

Given the projected number of market units needed, there is no lack of zoning in the Metro Station areas in order to accommodate the needed units; while they may not be built on top of Metro property, they may be built nearby within easy walking distance of the Metro.

High rise housing is expensive to build and expensive to rent

Furthermore, a focus on high rise buildings ignores the fact that by its very nature, high rise development is the most expensive that can be built. Advocates want to maximize use of land but if density is used to build high rises, it will be unaffordable to most of the people identified as needing housing. Seventy-five percent of projected need is affordable housing – why would the focus be on subsidizing market rate housing? Zoning in central business districts for high rises far exceeds the zoning for types of housing that are generally affordable and more family friendly – including garden style and mid-rise apartments.

The Bill could increase the cost of WMATA land.

Under Federal law, WMATA must seek the highest and best price for their land. Land that is exempted from all property taxes for 15 years is more valuable because the calculation of its value includes the costs to acquire and develop, including taxes, weighed against market rents. If two properties are side by side, one exempt from taxes and the other not, and they were producing the same value of unit, the land value of the exempt property would be greater because its cost of development would be less than the cost to develop the tax-paying property. This would, in turn, likely raise the parcel’s appraised value. The Bill could potentially be counterproductive by raising the value of WMATA’s land.

The Bill sets a difficult precedent

It is not clear why there is a public need to specifically incentivize development on WMATA owned property. It is likely that other properties near Metro will ask for the same PILOT. Those properties offer similar value in providing transit proximate development – a residential walkshed is a radius of ½ mile from Metro; a walkshed is the area around a station that is reachable on foot for the average person – how far someone is willing to walk to their home or business from transit. Additionally, a commercial walkshed is ¼ mile from heavy transit, which would raise the question of whether commercial development should be favored closer to Metro. There does not seem to be a logic to the approach of this Bill.

The impetus for this Bill seems to be based on one project at one Metro site as evidenced by testimony and the Council packets. One project should not drive countywide policy.

The specific project was discussed during Council deliberations – at the Grosvenor Metro Station by FiveSquares Development which had been working with WMATA for about five years either directly or through their affiliate, Streetscape Partners.

The Bill is particularly focused on one project at the Grosvenor Metro. In December 2017, as a member of the County Council, I voted in favor of the Grosvenor-Strathmore Metro Area Minor Master Plan which allows for this development to proceed. WMATA documents that we reviewed show that the original assumption for their property was that about 500 units could be built. This Minor Master Plan up-zoned portions of the Plan Area to allow for greater density, particularly on the Metro site both to take advantage of the Metro location and to provide density to make the project feasible. This up zoning resulted in allowing more than 2,200 units to be built there, essentially quadrupling the density.

The documents show that FiveSquares was substituted for Streetscape as the developer and that the appraisal of the land would only be done after the completion of the rezoning process. So, the price was set based on the appraisal which, like all appraisals, took into account all of the costs and the market for units that would be needed to support those costs. One has to assume that FiveSquares fully understood what they were doing because had they thought the appraisal was wrong, they could have walked away from the project. FiveSquares agreed to the appraisal and signed a deal. The appraisal assumes that the property can be developed at the determined price and FiveSquares obviously concurred with that assessment. Having been personally involved as an Executive negotiating over the value of land, I know that it is common for buyers and sellers to differ in appraisals and then to reach agreements that attempt to accommodate the assumptions of both parties. One has to assume that FiveSquares knew what they were doing when they accepted the assumptions and the appraisals that went with it.

If FiveSquares had a problem with the price and appraisal, they had an opportunity to reject the appraisal and the deal. At no point during the Council’s consideration of the Minor Master Plan was there any indication that additional public subsidies would be required to get a high-rise project “shovel ready,” let alone a 15-year abatement of all property taxes.

I would also note that others have commented that FiveSquares will pay for amenities; those amenities attract residents and make the project feasible. They would also have been included in the appraisal and are key in marketing the property.

Fiscal impact of a PILOT and the FiveSquares project

According to the Bill’s Fiscal Impact Statement that compared Strathmore Square with existing nearby buildings, the development’s approximate annual property tax bill upon completion would be between $5.8 million to $7.1 million a year. Over 15 years, the approximate loss of property tax revenue would be between $87 million and $106.5 million for just this single project.

No evidence that this Bill is necessary to stimulate market-rate (non-affordable) housing and this approach is not done region-wide

There is no evidence that this subsidy is required. In fact, if you look around the region, many of our neighboring jurisdictions have their highest taxes on property nearest Metro sites and the tax rates are substantially greater than in Montgomery County. If property taxes were the key to development, we would have won the development battle a long time ago because we are lower than most surrounding jurisdictions.

Furthermore, market housing is being built rapidly in Bethesda and is likely to spread to other densely zoned areas as Bethesda builds out. Rents in Bethesda are extraordinarily high, and it does not make sense to subsidize the construction of apartments that rent at prices far out of reach for most County residents. The Bill, coupled with a separate proposal from the Planning Board to reduce impact fees in most areas, will only deepen the obstacles to growing the tax base. While it is true that residents of these buildings will pay income taxes, the loss of property taxes is significant, and residents could live in other market rate housing where we collect both income taxes and property taxes. For the commercial sector, the only ongoing tax we receive to help provide infrastructure is the property tax.

This Bill was designed without a market analysis to establish whether this type of general legislation is needed. As noted above, the authority already exists to provide these PILOTS on an individual project basis, and a Countywide approach is not warranted.

Workers deserve prevailing wage

A majority of the Council voted against requiring the prevailing wage at these projects. The provision would have required that all contractors and subcontractors pay prevailing wages and be licensed, bonded, insured, and abide by wage and hour laws. Legislation that dedicates public funds to market-rate housing should, at least, also support the workers who build the housing. This provision was supported by the Baltimore-Washington Laborers’ District Council, an affiliate of LiUNA; United Association (UA), United Brotherhood of Carpenters, International Brotherhood of Electrical Workers (IBEW), CASA, Jews United for Justice, Progressive Maryland, Montgomery County Education Association (MCEA), SEIU 32BJ, SEIU Local 500, SEIU Local 1199, UFCW MCGEO Local 1994, and UNITE HERE Local 25. If WMATA was building a structure on the same property, current law would require them to abide by the prevailing wage. I believe the developments contemplated by this Bill should as well. The lack of such a provision to treat workers equitably and to share in the subsidy is another major deficiency in this legislation.

Using limited funds for market-rate (non-affordable) housing development means fewer funds for other services including affordable housing, recreation, and education, which has a racial equity/social justice impact

A Racial Equity and Social Justice (RESJ) impact analysis was not applied to this Bill, which was introduced before the RESJ requirement took effect. Because the Bill will have a significant budgetary impact, it deprives the County of tax dollars that could be used for other programs, including affordable housing that would benefit communities of color most. This Bill allows housing to be built for those who can afford it, not for lower income populations who are disproportionately Black and Latino.

Share

Smart Growth or Corporate Welfare? Part Three

By Adam Pagnucco.

Part Two examined the case made by supporters of Bill 29-20, which offers 15-year property tax breaks on Metro development projects, and found that they have a point: namely, that the economics of high rises at Metro stations likely deter many such projects from being built. But there are other issues with the bill that should be addressed. Some of them are:

Smart growth was supposed to make money for the county.

There are plenty of good reasons to channel economic development through smart growth principles, including transportation management, community building, agricultural preservation, environmental considerations and more. But one of the cited reasons has historically been its alleged impact on county finances. Concentrating development in existing downtowns means that new road and sewer infrastructure does not need to be built. Nor do new police or fire stations. Schools may need to be expanded but new ones are not necessarily required as they may be by remote greenfield development. And high property values in downtowns can generate lots of property tax revenues that can be allocated across the county’s many needs. That was the plan at any rate. White Flint, one of the county’s earlier smart growth plans, was projected to generate $6-7 billion in revenue over the next 20-30 years back in 2010.

That was then. Now we are being told that if we want development at Metro stations, taxpayers need to pay for it.

There is no evidence that corporate payouts have paid off for MoCo overall.

Bill 29-20 is far from the first corporate incentive proposal in county history. MoCo has handed out $67 million in incentives through its Economic Development Fund (EDF) over the last couple decades with millions more on the way. Most of this money has been expended for retention, not attraction. Four recipients alone – Fishers Lane (HHS), Meso Scale Diagnostics, Marriott and HMS Host – were allocated a combined $44 million in multi-year retention grants, of which $28 million remains to be paid. MoCo’s Democratic elected officials even gave a $500,000 subsidy to a subsidiary of Rupert Murdoch’s Fox Corporation. Despite all of these expenditures, the charts below shows how MoCo compares to its neighbors in employment growth and establishment growth since 2006, the county’s peak in the prior business cycle.

Here is the bottom line: we have been paying escalating amounts of corporate incentives for more than twenty years and it has not moved the needle on our economic competitiveness. Any time you do the same thing over and over and don’t get a positive result, you need to reconsider what you’re doing. Council members, think about it.

The county’s own actions make it a tough place for landlords.

Back in April, I wrote an article titled, “Why Would Anyone Want to Build Rental Units in MoCo?” summarizing the many deterrents to residential rental construction here. Among them were the time-consuming and expensive eviction process, the county’s moratorium policy (which does nothing to stop school crowding) and the election of a frequent development opponent as county executive. But little compares to the recent imposition of rent stabilization, which is supposed to be temporary but could always be extended. Many landlords were outraged at allegations of mass rent gouging when in fact there was little evidence to back that up. So are we now offering tax breaks in part to make up for all of this? Wouldn’t it be cheaper for taxpayers if the county simply stopped doing some or all of the above so that tax breaks aren’t necessary to get landlords to build units?

Property taxes by themselves are not the reason why MoCo can’t compete.

In waiving property taxes on Metro projects for 15 years, Bill 29-20 assumes that MoCo’s property taxes are a deterrent to development. But according to D.C.’s chief financial officer, MoCo’s effective property tax rate in 2018 was lower than in Prince George’s, Fairfax and Alexandria and not much higher than Arlington. And according to the General Assembly’s Department of Legislative Services, MoCo’s real property tax rate ranked 14th of 24 local jurisdictions in Maryland in FY20. On top of that, MoCo’s transportation impact taxes are far lower near Metro stations than they are in other parts of the county.

MoCo’s tax competitiveness challenge lies in its income tax (which is not charged by local governments in Virginia) and its energy tax. Bill 29-20 does not address either of those issues.

What are the consequences for income inequality?

High rises on top of Metro stations will be able to command some of the highest rents and/or condo prices in MoCo (and perhaps the entire region). In fact, such projects need to charge high rents and prices to pay off the costs of high rise construction and WMATA requirements. Bill 29-20 does not impose any additional affordable housing obligations beyond the 12.5-15% moderately-priced dwelling unit requirements in existing law. (Council Member Will Jawando introduced an amendment to raise the affordable housing requirement to 25% in committee but it was voted down.) So the bill in effect requires MoCo taxpayers to subsidize high-cost housing. Given the county’s long-standing problems with housing unaffordability and income inequality, that’s a hard pill to swallow.

And so Bill 29-20 presents a tough policy predicament. It’s true that high rise projects at Metro, the local Holy Grail for smart growth in the D.C. region, are not happening because of difficult project economics. It’s also true that sprawl and no growth are bad alternatives to transit-oriented development. But it’s frustrating that some of the architects and advocates of the county’s 15-year smart growth approach are now telling us it can’t happen without big tax breaks.

That said, corporate welfare can in rare cases be a necessary evil. If the county council wants to consider tax breaks for projects on a case by case basis, so be it. In doing so, the council can sort out projects that have a compelling public purpose from those that don’t. The council can also exercise leverage over a developer when public amenities like open space, child care, schools and other priorities are under consideration.

Bill 29-20 does not enable any of that. It creates an entitlement. Developers at Metro station properties will get tax breaks by right according to law. The council gives up most if not all of its leverage to influence such projects. And of course future developers might want to amend the law to get even longer tax breaks or other benefits. 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.

Metro station development was supposed to make us money. Now it seems we will have to pay for it, at least up front, to get the benefits that come later. Dear reader, this is your judgment to make. Is it worth it?

Share