Testimony of Debby Ratner Salzberg
Board Chair, Federal City Council
May 25, 2021
Committee on Business & Economic Development
Chairperson Kenyan McDuffie
“Tax Policy Proposals to Build Wealth Equity in the District Post-COVID Economic Recovery”
Good morning Councilmembers. My name is Debby Ratner Salzberg. I am Chair of Federal City Council, which is a business civic organization. Its Trustees, or members, are CEO-level leaders from some of the largest employers and businesses in the District. I myself come from the real estate development community, recently serving as president of Forest City Washington and then DC Region Chairman for Brookfield Properties. The District is near and dear to my heart. I personally worked on development at the Yards in the Capitol Riverfront district.
I am here today to share the overall business perspective and to implore the Council against any tax hikes at a time when the economic recovery is uncertain and high-income workers are increasingly mobile. And also at a time when the city is set to receive an unprecedented influx of $2.2 billion in federal funds, taking the pressure off of local tax revenue.
First, let me say that the Federal City Council is committed to an equitable recovery. We incubated the Washington Housing Conservancy, which is a private-sector led initiative to create and preserve workforce housing. We are launching new programs to close the digital divide and direct more DC residents into the local talent pipeline to get good paying jobs with social mobility.
But as important as it is to achieve an equitable recovery, this goal should not be pursued through the tax code. A tax hike could in the end lead to harmful impacts on our economy—and ultimately erode the tax base and tax revenue the city relies on to fund its generous social support system. The city’s tax revenue has skyrocketed over the last two decades largely because of its expanding and robust economy. It is this economic vitality that enables an expenditure-heavy progressive agenda.
Even before the pandemic, the District faced an uphill competitive climb with its suburbs. It’s true that DC seemed to be good at encouraging and incubating startups. But the DC Policy Center’s work has shown that these companies head to Rosslyn, Reston or Tyons once they reach a certain size. Some of the region’s most iconic companies, from AOL to Cvent to Opower, all followed that same growth and location trajectory. Schools play a large part. But so do costs—by that I mean real estate, taxes and regulation. It simply costs less to run a large company when you step over the border leaving the District.
Business location decisions are long term. CEOs want to understand not just the specific rules in the moment, but the spirit of how things will be for the next decade. DC mayors have had a solid track record fighting for business. The DC Council could be a champion too but its recent track record is worrying.
Recent regulatory decisions have needlessly antagonized tax-paying businesses. For example, the noncompete ban was passed without an understanding of how catastrophic such a ban could mean for companies who rely on investing in human capital to drive innovation and profits. A company will not locate in the District if it knows that its competitor in Arlington could orchestrate a one-sided poach of their software programmers, mechanical engineers or paralegals.
I urge DC Councilmembers against taking for granted the commercial property or high income tax base. Do not assume that when one company leaves, another will line up to replace it. Businesses have been bee-lining it to low-tax jurisdictions during the pandemic. Do not assume high-income residents will continue to stay in the District given the new teleworking mobility of high-skilled labor. DC was already especially vulnerable to losing office workers. Two-thirds of District workers are commuters and two-thirds of the region’s workers can work from home. If costs continue to climb higher in the District, businesses and residents may pencil out their budget and find that it’s just not worth it anymore to stay in the District.
At the same time, the city’s retail and hospitality sectors are reeling. Small businesses downtown are deseparate for the return of of office worker foot traffic. Before COVID, downtown retail was already 15 percent vacant. It’s now 65 percent, with 30 percent of those establishments permanently closed. This is a tragedy with real-life implications for their service workers who are out of a job. And permanent business loss affects the government’s bottom line too. The CFO expects that next year commercial property tax assessments to be down 10 percent and hotels down 20 percent.
What this city needs is a robust economic rebound where those retail shops rehire their workers; where office staff returns downtown to patronize those shops; and where more businesses are attracted to the District to then hire more local DC residents.
A tax increase now could threaten the very foundation of not just the economic recovery, but the future tax base that Councilmembers need to fund the services and future that we all want to help our city thrive.