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Wednesday, March 18, 2009

Thinking About: Support for Vacant Property Tax Rate

The Washington Examiner ran this article today about the D.C. Council being "poised to roll back the tax rate on vacant property that it doubled only six months ago." As you may recall, "The District’s Class 3 nuisance property tax rate was raised from $5 to $10 per $100 of assessed value as part of the fiscal 2009 budget and applied to 3,609 parcels citywide. The goal of the tax increase, implemented in October, was to spur the rehabilitation of 'unimproved or abandoned' real estate."

Ward Two Councilmember Evans is apparently one of the councilmembers against the tax. The Examiner reports that Evans believes "The Class 3 rate has never been effective and should be abolished, said Ward 2 Councilman Jack Evans, finance and revenue chairman. Fines and liens are better ways to tackle nuisance properties." Evans stated “We can’t point to one house that was fixed up as a result of this approach."

I am a big proponent of the Class 3 tax rate on vacant properties and on the recent increase in the same. In particular, I think the Class 3 tax dis-incentivizes holding onto vacant property for speculative investment's sake and gives owners an incentive either to sell or to put their properties to good use (surely, e.g., Shiloh's membership is opposed to so much of their money going to holding costs for the church's extensive vacant property portfolio in Shaw and will someday demand change). I also do not think six months is a sufficient test period for determining whether the recent tax increase is working, and think the council should wait at least another year to study its impact further.

Fines and liens are not enough to address the problem. It seems fines are generally the result of neighbor complaints about a particular property. Neighbors already bear enough of the onos of vacant properties by living next to them (e.g., dealing with trespassing vagrants, graffiti, and trash); they should not also have to be watchdogs for the city to keep irresponsible owners in check.

Responsive to Mr. Evans's claim, I think I can cite several previously vacant properties (all in the 1500 block of 8th Street) that have changed hands recently and are under rehabilitation currently -- most likely a direct result of the tax and/or tax increase. It would be great to compile a list of previously vacant properties that have been sold recently and are now under renovation/soon to be under renovation as a result of the vacant property tax to present the council. Please feel free to email me any such properties you know of (slumhistorique at yahoo dot com) or leave addresses of such properties in the comments.


Shaw Rez said...

P.S. Hat tip to DC Metrocentric, where I first saw this story.

Anonymous said...

The house on the corner of 11th and Vermont used to be covered in tons of vines and certainly looked vacant, and it conspicuously began to be cleaned up shortly after the tax increase was announced. I remember because I remarked to myself that I couldn't believe how effective the tax increase was in getting this house cleaned up. No clue whether it was a "nuisance" property, but, again it certainly looked vacant and untended to (check out the google street view of the place as it was before it began to be cleaned up). Now it looks quite spiffy! If this was the result of the tax increase, I would really be against having it revoked.

Mari said...

Then there is the odd resident who gets taxed at the vacant rate, who should be getting the homestead exemption, but aren't due to a typo. Now yes, the city will correct it but only after you've paid taxes equaling your mortgage for a year. And, as the kicker, when the city finally gets around to correcting the mistake, they'll credit you the taxes but won't refund the money.

Anonymous said...

how about 1304 9th st next to the gallery

Shaw Rez said...

1314 9th Street, which I wrote about a few days ago, is likely being renovated as a result of the vacant property tax.

Mari -- I definitely concede that there are likely some refinements needed to the system. But overall, I think it is effective (not to mention a good revenue source for the city).

Anon -- as far as I know, 1304 9th is still vacant, is not under renovation, and has not recently changed hands. Do you know something different?

Anonymous said...

This is insane. Of course this is an effective policy. 8th street is a perfect example.

Moreover, during my most recent discussion with Shiloh about their properties (6 mos or so ago), reverent Menseh specifically stated that they were working with Evan's office to see if there was anything that could be done about the increase in the tax rate. In light of Evans position, and the comment from Shiloh, i certainly have a 'raised eyebrow'.


Mr. Q said...

Agreed ShawRez that 6 months is not sufficient time to evaluate this tax policy...especially when you're talking about THESE last six months when the economy implodes...Jack Evans is obviously feeling some political pressure from someone and is caving as usual...of course, Shiloh and Sendar aren't maintaining slumlord properties in Jack's G'town neighborhood so their "undue burden" arguments all make good sense to him...

Shaw Rez said...

I happened to peruse the DCRA's Winter 2009 Vacant Property List ( Oddly, only 1 of Shiloh's properties, 1600 9th Street, appears on the list. Stated differently, the following Shiloh properties are NOT listed: 1543 8th Street, 1526 9th Street, 1528 9th Street, 1532 9th Street, 1533 9th Street, and 1534 9th Street.

This causes me concern, as I posit the church is reaching the point where the tax is too great a carrying cost for them. Anyone know who we can email/contact to make sure that Shiloh is taxed appropriately for all of their properties this year?

Anonymous said...

Does this tax affect commercial property, because it definitely seems like Jemal has started putting some of the long vacant 9th st. properties back into productive use. Then again if he complained about the tax, I am sure Evans caved immediately.

si said...

jemal also skates on the vacant property tax for much of what hes got near the convention center. the city is losing millions.

the idea that fines and liens are effective is LUDICROUS. The city doesnt levy them and when they do, they mysteriously disappear. there are many laws & NO enforcement. lost revenue.

i can think of a good examples of the tax working like it should. 3rd street church of god has sold 5 vacant properties on the 1200 block of 4th. there was a dump on the 400 block of n that got renovated...1103 5th...there are bits but just like the vacant property tax is applied to the little fish, it doesnt seem to be applied to the big fish. and that is where the lost revenue is (or lost campaign contributions?)

now the problem is the market. no one can get financing and develop even if they want to. that is way beyond my expertise but there it is.

another issue i would add is the vacant retail spaces in prime locations that sometimes sit empty for YEARS while a developer (like jemal) just hold out for outrageous top dollar leases. there must be some business advantage to doing this that i just dont understand but the city does nothing to kick em in the pants and fill those spaces.

10% is steep given the market but most of the places that really infuriate the community we have been yakking about for YEARS. beauty of the internet, there is a nice record now. I was happy with 5% if the city actually charged the money. what good is 10% if they dont bother to use it?

sooo...obama hurry up and fix the economy so we can push this issue with total leverage & see cranes in the air again!

Anonymous said...

I seem to remember during last year's campaign Evans saying he supported doubling of the Class 3 tax rate. Does anybody else remember that?

Anonymous said...

Reading this blog makes me sick. Do any of you know how much it costs to renovate a property when banks aren't giving out money? For the people that are renovating, hats off to 'em. To the rest, they just have to wait until the banks start lending again...........

Shaw Rez said...

Anon @ 9:07 - I definitely sympathize with folks who have recently acquired property with the intention of renovating but are stuck without financing. I certainly think that such folks should be given a break in light of current market conditions (and I imagine they'd be eligible for an exemption anyway) and that the tax is unfair to the extent such folks are penalized.

I think most are passionate about the tax to the extent it impacts people who have held onto properties for years and years while making no attempt to do anything with them. Shiloh Baptist Church and Michael Sendar are the most commonly cited examples -- their highly visible properties have been vacant for years (through the real estate boom time) yet they failed to renovate or sell them. Vacant properties cause many problems for neighbors. This tax dis-incentivizes holding onto vacant properties and keeping them as such for long periods of time.

Unknown said...

Dear Shawrez, Please help me understand why the comments I sent you did not post to this site? Thank you.

Shaw Rez said...

Aaron - I published your comments to the 3/19/09 post about Shiloh. I believe those are the comments to which you refer. I generally accept/publish any non-spam, non-obscene comments.

Unknown said...

I was refering to the comments from yesterday that went something like this:

It does not make good common sense to tax every vacant property in the District at the ten dollar rate. This will drive property owners out of the city. The focus should be on coming up with solutions that solve the current problem without creating new ones. Before we can began to talk solutions, let's define the true purpose for this tax. It's my understanding that this tax is three-fold:

I. Increase tax revenue for the city through property tax rates;
II. Enforcement of safe and sanitary conditions for all real property [be it improved or unimproved]; and,
III. Development of vacant land throughout the city.


I. Increase tax revenue for the city
1. Abolish the class 3 tax rate and go back to a two classification system; class 1 for residential, class 2 for commercial [with some variation within the two class systems]. I'm happy to spend more face-to-face time discussing the variations and the rate.
2. Increase the rate on class 1 owner occupied properties in an effort to fill the budget short falls. After all, a large portion of the the city's services are rendered on owner occupied properties, i.e, trash collection, snow remove, police/fire/rescue services, etc. [Not to mention the calls that come through the city's call center and the council's office from city residence, most of which are fairly reasonable calls. Never the less, the calls have to be taken, investigated, and dealt with.] A $0.05 increase in the $0.88 class 1 rate would raise more revenue for the city than what could have possibly been achieved through the increase in the the $10 class 3 rate. Currently the city has the lowest owner occupied rate around for low-to-moderate first-time home buyers; and at or among the lowest rates for all other owner occupied properties. It's time to look at what the surrounding counties and states are doing to solve this deli-ma.

3. Abolish the five year tax abatement for low to moderate income families. This abatement only creates a payment shock on the recipient once the tax payment becomes due. Property owners must be conditioned to pay property taxes. This is one of the benefits of becoming a property owner. If one goes 5 years without having to pay for services they are currently receiving, during that time period their sending habits get reverted to other responsibilities. None of the surrounding counties or states offer this type of tax relief. If you study the history of this abatement, the purpose of it was to promote affordable housing in the city and to attract buyers that were choosing to live as far from the city as possible. Housing prices and interest rates are at a five year low, and more people are choosing to live closer to where they work. Times have changed and the time has come to allow the sun to set on this abatement.

4. Stay the execution of the class 3 rate during the appeals process.

II. Enforcement of safe and sanitary conditions for all real property [be it improved or unimproved]
1. Provide extended exemption periods for persons not able to either sell or renovate their properties within the effective 6-12 months that the law currently allows. The law states that you have one year, but it's application provides as little as six months since you are given two full semesters including the one in which you are already in when the exemption begins. So, if I were to list a house for sale now while still in the 1st half of the tax year, I would be exempted for the 1st half and 2nd half of 2009, being only until this September 30. That's simply insufficient in this market to reasonably assure the completion of a sale.
2. Provide an exemption for renovators and builders who have submitted plans and are waiting for their approvals and permits from DCRA.

3. Apply the tax only to true nuisance properties as evidenced by persistent or repeated violations of health and safety standards.

4. Offer micro loans to class 3 property owners at affordable rates in an effort to assist those who can't afford to out right pay to bring their properties up to standards.

5. Publish reasons behind all exemptions, including the mayoral exemption; and make the reason behind this exemption available for all property owners who have the same circumstances. This would be similar to DCRA publishing the purpose for a building permit. OTR and DCRA is currently silent on publishing the many reasons why certain property owners get this exemptions and other do not. Also, require property owners to post the exemption notice on the property so that field inspectors will know the property is registered.

6. Do away with special exemptions for foreign governments and non-profits. Require all foreign governments and non-profit organizations to maintain the same property standards that all other property owners must maintain.

7. Increase all time periods on exemption by 1 to 2 years.

8. Offer economic hardship exemptions for individuals who show cause that they are not financially able to maintain a high tax and develop a plan to either: (1) assist with the repairs and have the tax payer repay the city over time; (2) purchase the property through eminent domain; or, (3) offer assistance with selling the property.

9. Step up enforcement of the clean-it/lean-it laws and the home again laws.

10. As an incentive to property owners who develop or make improvements to their property offer a modest to no increase in the property assessment for a determined period of time.

11. Step up police patrol in areas where property owners are having a problem keeping their properties maintain because of the citizens in those neighborhood. If a property owner has demonstrated that they have complied with the law, but others in the area are destroying the property then this seems to be more of a police problem, than an occupant problem. Case in point, the vast majority of calls made to the police center are from occupied properties; more fires occur in occupied properties then in unoccupied property or on vacant land. The city has to hold the chief of police accountable for dealing with all levels of crime.

12. Increase the tax rate on occupied properties around the city that receive more then their fare share of city services (police/fire).

III. Development of vacant land throughout the city
1. Not allowing class 3 penalties to leapfrog in priority over mortgages and other liens, but instead affording them priority according to the date they are due. In this way, lenders will not be as fearful of making loans in DC on any unoccupied properties or land, only to then lose their priority to class 3 penalties. Lenders are turning down loans for one of my client's DCHD auction property at 3022 Channing Street, in addition to other properties, for this reason. This measure would also cure the current law's constitutional deficiency that leaves lenders unaware of the penalties, since no notice would be required for subordinate liens.
2. Abolish the tax on raw land as unfair and irrational.

3. Create a link on the District's web site where interested property owners, developers, contractors, investors, bankers, etc. can exchange information and possible do business together. Post the success stories and the necessary steps taken to receive the desired results. People like to see success stories. This can be a model for other cities.

4. Do away with OTR and DCRA's ability to retroactively apply the case 3 rate for up to three years. Title insurance companies, who issued title policies on retroactively taxed class 3 properties are now receiving claims for outstanding back taxes that they are having to defend against. Not to mention the common sense behind this. Just for the sake of argument, let's say that all vacant property was retroactively taxed according to the time period it sat vacant over the past three years, claims would began to cripple property owners and the city. Special attention has to be paid to the risk involved in the implementation or the lack their of regarding this section of the policy.

IV. Additional suggestions

1. Take the time an read or re-read the tax commissions opinions on tax rate classification. Detail advice to the city went into this section. The city paid good money for this expert opinion. All policy makers must take heed to its suggestions. The report can be found on OTR's web page.

2. Study the report that was prepar
ed by the council of mayors on how 50 cities have handled this problem. There are a host of additional suggestions outlined in this report. None of the solutions entailed taxing property owners into submission. Spend more time listening to expert economist and other policy makers on this topic. The council has admitted that not one expert economist was consulted with proven experience on this subject, nor did any expert economist report exist that gave proof that by raising ones property tax to ten [or even five] dollars per one hundred dollars of the assessed value, the result the city was looking for would be achieved.

3. Refund or credit all property owners who have been penalized by this unfair, unjust, and hasty law. One can make a strong unconstitutional argument against this tax.

4. Resist the temptation to punish any segment of the population that abides by the property condition standards set by the city's building inspectors; regardless of occupancy.

5. Be open to constructive criticism without taking it personal. Admit that this was a bad law with really good enforcement, and let's move on. This time let's have a win-win situation.

6. Move emergency legislation so that the 2nd half of 09 property taxes aren't effected by this law.

7. Enact enforcement policy to ensure that all district government properties are in compliance with the same laws it imposes on its citizens. Develop an publish a game plan to bring city owned properties that are out of compliance into compliance. This information may help private property owners solve some of your class 3 property concerns. The city must lead by example.

8. Maintain a link on the district's web site that publishes the compliance status of all government and privately owned property. This goes towards greater transparency.

Shaw Rez said...

Thanks for your thoughtful and thorough comment, Aaron. I will study the report you cite and try to keep an open mind.

I have a feeling I will conclude that the Class 3 rate is effective in the situations most dear to Shaw (and similarly situated neighborhoods). For us, vacant, boarded up buildings that are not under construction or held out for sale or lease are a severe hinderance to the area. Even if the buildings satisfy the building and sanitation codes, they still cause us problems through their attraction of graffiti, trash and vagrants, and through the impression they leave on others visiting the area. Often, the owners of such properties have held onto such properties for decades without making any attempts to sell, lease, or renovate. Class 3 has finally brought a dis-incentive to such absentee ownership, and we have seen numerous examples of properties changing hands and/or being renovated as a result of it.

That said, I cannot argue that the Class 3 is not perfect as it is and that, as applied across the city, it does not always make sense. But for Shaw, I think it does make sense and it does work.

Unknown said...

Shaw Rez--Kindly allow me to respond by first saying nuisance and blighted properties exist all over the city. The city is charged with enacting laws that govern the entire city and not just gentrified pockets of the city.

Please understand that all vacant properties aren’t nuisance properties; and all nuisance and blighted properties are not always vacant. There are several fully occupied properties in Shaw that create an “eyesore” on the community; just like there are vacant properties that are “eye pleasing.” Just for the sake of argument, let’s say the government goes and reclassify the list of over one hundred and fifty Shaw community properties [provided to DCRA] publicly noted as vacant that are currently receiving the benefit of being classified as class 1 or class 2. Most of these properties are well-maintained properties that the owners are having a tough time selling or renovating in the down market that we are in.

Do you suggest the government [under the class 3 laws] increase the tax rate on these property owners to ten dollars per one hundred dollars of the assessed value? This would mean that a modestly priced property in Shaw assessed at four hundred thousand dollars would owe forty thousand dollars in annual taxes. The average purchaser seeking to obtain financing on this property would be turned down once the lender pulls the tax record and obtains the tax bill. The taxes on this property would more than exceed the principle and interest payment. The typical borrower would be turned down for the loan. Most lenders will not take into consideration that once the property becomes occupied the rate will be reduced to the class 1 rate. They’re only going to go off of the published rate on OTR’s web site.

Now, times this scenario by two hundred plus properties in Shaw that fall into this category; what do you think the collateral damage will be on the Shaw community once these properties [that are now stigmatized properties] began to go to tax sale because the owners can not pay this unjust tax penalty for not being able to sell their homes?

Who do you think will purchase these properties at tax sale with over a decade worth of traditional taxes owed on them after one full tax season?

What do you think will happen to these properties once the government is forced to become the new properties owners because no one purchased them at tax sale?

How far do you think this will set the community back?

Where is the sense of community in any of this?

Can you honestly say that you believe that the current law should stand as written? If not, kindly offer your version of a better solution to the most common problems facing our current policy makers with respect to this overly controversial law. I will be the first to stand with you if your solutions deal with “nuisance, blighted, and derelict properties around the District and leave well-maintained unoccupied properties or unimproved land out of the equation.

Shaw Rez said...

Hey Aaron,

Thanks again for your comment. I certainly agree that the law as written is not perfect, and I would likely concede that the recent doubling of the tax rate is punitive and uncalled for. Accordingly, my proposal would be to go back to what it was before last year's increase and to tweak it in response to legitimate concerns that have been expressed. Maybe another clause needed is that an owner is not subject to the classification if they have owned the property for less than three years.

I disagree with your general proposition that "Most of these properties are well-maintained properties that the owners are having a tough time selling or renovating in the down market that we are in."

First, even a "well maintained" vacant property hurts the community and poses a nuisance to the community (I can't think of any boarded up buildings that aren't eyesores, for what it's worth). Vacant buildings attract graffiti, trash, and vagrants and they deprive the community of valuable housing or commerical space. I find your comment about inhabited properties sometimes being eyesores or nuisances off-point.

I doubt many holders of vacant property are in such a position due to market forces (having a "tough time selling" them). Shiloh Baptist Church, for example, has made it clear that they're uninterested in selling. Michael Sendar has reportedly had several attractive offers.

Tom Madison said...

I live in the Near Northeast section of DC and have been part of a (sometimes one man) task force to get vacant properties identified and their tax class properly stated. I can unequivocally refute Jack Evans' statement that they "can’t point to one house that was fixed up as a result of this approach." -- I can show him a list of a dozen or more in my area of the city. If he thinks that policy wasn't effective, it's only because he turned a blind eye or didn't even bother to check statistics. We have seen properties that have languished for more than a DECADE get sold or renovated within months of being hit with the Class "003" designation.

Blighted properties are the most serious offenders, but the DC Councilmembers are kidding themselves if they don't believe that vacant properties are not a problem. While I agree with some of what Aaron writes as to the vacant tax rate being overly punitive in many situations, those situations can be fixed with changes to the law, not with a complete repeal. His contention that DC "increase the rate on class 1 owner occupied properties in an effort to fill the budget short falls" based on the justification that "a large portion of the the city's services are rendered on owner occupied properties," is misguided at best. Do not DC residents pay personal income taxes and sales taxes? Most owners of vacant properties in the District do not.

I have threatened by Councilmember over this particular issue and I strongly, strongly urge everyone else to do the same. Put the pressure on your representatives not to kowtow to outside "investors" and to represent their constituents -- a higher tax on vacant, not just blighted, properties needs to be preserved (and tweaked), but not removed entirely. District RESIDENTS are the ones who will pick up the tab when vacant properties are no longer taxed at a higher rate.