[Congressional Record Volume 148, Number 43 (Wednesday, April 17, 2002)]
[Extensions of Remarks]
[Pages E553-E554]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




INTRODUCTION OF THE DISTRICT OF COLUMBIA TAX INCENTIVES IMPROVEMENT ACT 
                                OF 2002

                                 ______
                                 

                       HON. ELEANOR HOLMES NORTON

                      of the district of columbia

                    in the house of representatives

                       Wednesday, April 17, 2002

  Ms. NORTON. Mr. Speaker, today, during Tax Week in the Congress, I am 
introducing the District of Columbia Tax Incentives Improvement Act of 
2002. The legislation builds on and adds to federal tax incentives I 
first pressed through Congress in 1997 in order to help produce market-
based residential and business stability and growth. I believe the bill 
has a good chance of passage. This bill is necessary to assure even the 
sustained stability, let alone real economic growth, that still eludes 
the District economy and the city government. The bill is essential if 
the District is to become more economically diverse so that it is not 
overly dependent on just two sectors--tourism and federal offices. This 
federal tax package gives the city the tools it needs to begin to 
produce a self-sufficient economy. After the financial collapse of the 
1990s, and after the sunset of the control board last year, Congress 
has an obligation to help the city do what is necessary to increase its 
own residential and commercial economic output and independence.
  The city does not have that capacity today. Ominously, the District 
lacks the essential safety valve of other large cities--a state to fall 
back on in times of economic downturn and distress. The economic 
forecasters agree that because of congressionally imposed impediments 
to collecting the natural revenue available to states, including the 
inability to levy a tax on commuters, no matter how much the District 
reduces spending, expenditures will continue to grow faster than 
revenues for the foreseeable future. This trend places the District on 
a collision course, at worse to insolvency, at best to instability, if 
the Congress does not assist the District with economic tools to help 
the city capture its own, natural, steady revenue stream in the 
marketplace. The surpluses that brightened the city's hopes are 
trending toward a decline: $185 million surplus in 1997 to a $77.6 
million in 2001. Because of congressional constraints on the ability of 
the District to collect revenue, the District faces an annual 
structural deficit of $400 million, a figure projected to rise every 
year. The city's unemployment rate is 6.9% compared with 4.5% in 
Maryland and 4.1% in Virginia. This picture resembles other large 
cities in the United States. However, none of these cities survives on 
city-generated revenues alone, nor could it do so. State assistance is 
necessary not only to meet current expenses, but also to make up for 
sharply diminished tax bases in every other major American city.
  Fortunately, the federal tax credit incentive approach already 
approved by Congress is having extraordinary success in promoting 
economic growth here. My bill will improve upon D.C.-only tax credits 
that leverage the private sector rather than the government to do the 
job of growing the economy and will return many times the small tax 
revenue foregone by the federal government.
  The District of Columbia Tax Incentives Improvement Act of 2002 that 
I introduce today has six important components: first and most 
important, treatment of the entire District of Columbia as an 
enterprise zone, to spread to all neighborhoods and businesses tax 
incentives that have brought substantial benefits to many communities 
but with the unintended effect of affording an unfair and arbitrary 
advantage to some businesses and neighborhoods over their competitors; 
(2) assuring that the tax benefits do not expire before their job is 
done by extending these D.C.-only federal enterprise zone benefits, to 
match other jurisdictions with similar benefits; (3) improvements to 
capital gains provisions, including zero capital gains taxation for 
businesses holding intangibles; (4) making the $5000 homebuyer credit 
permanent, to ensure continuation of the tax incentive that is largely 
responsible for new homebuyers and for maintaining and attracting 
taxpayers to the city, and that is critical to helping the District 
achieve the 100,000 new residents necessary to sustain its stability; 
(5) releasing tax exempt bonds from the private activity bond limit in 
order to lift the constraints of a valuable tool for attracting 
businesses to build here; and (6) enacting triple tax exemption for 
D.C. securities, to put the District on par with the territories who do 
not pay taxes on their securities.

           1. District of Columbia City-Wide Enterprise Zone

  Several extraordinarily valuable enterprise zone tax benefits 
constitute the major financial tools that have been used for business 
revival and new commercial and office construction in the city. Among 
the most successful have been the wage tax credit allowing an employer 
a 20% credit for the first $15,000 ($3000) of an employee's income if 
that employee is a D.C. resident. This credit not only helps attract 
and retain businesses, it also helps to correct the severe imbalance 
that allows two-thirds of the jobs in the city to go to commuters. 
Another tax benefit, the elimination of capital gains altogether, is 
expanding and creating businesses in many city neighborhoods and 
downtown. A third tax incentive, tax exemption for up to $15 million in 
bonds, is fueling much of the city's construction boom, and 
construction alone accounts for the major portion of the increased 
economic output of the District today.
  However, because the District is small and compact, multiple 
enterprise zones have had unintended, discriminatory effects. High 
income university students with little personal income have brought 
Georgetown and Foggy Bottom businesses within the zone, but some 
businesses in struggling areas of Ward 5 do not qualify. The Willard 
Hotel can get $3,000 off the first $15,000 it pays any employee, but 
competitors such as the Hay Adams and the Washington Hilton, cannot. 
The Hay Adams, one of D.C.'s oldest and most distinguished hotels 
recently completed renovation of its facilities and helped return 
tourists to D.C. without the benefit of the $15 million tax exempt 
bonds because it is not in the zone. These new provisions would 
eliminate an unearned advantage that forces competition among our 
already depleted pool of businesses instead of between those in and 
outside of the District.
  The solution is to designate the District of Columbia itself an 
enterprise zone. Only this

[[Page E554]]

solution will erase indefensible distinctions that tear neighborhoods 
apart and help some D.C. businesses, neighborhoods and residents over 
others that are similarly situated.
  We are simply asking the Congress to do for the business tax breaks 
what it has already done for the Homebuyer credit: make it available in 
all parts of the city. The $5,000 Homebuyer Tax Credit has always been 
citywide, and the success of its citywide approach shows that effective 
tax breaks can and should be used to encourage the economy throughout 
the city.

       2. Extending the Life of the D.C. Enterprise Zone Benefits

  Currently, the District of Columbia Enterprise Zone Benefits 
(including the $3,000 wage credit, zero percent capital gains taxation, 
tax exempt bonds) expire at the end of 2003. Last Congress, other 
jurisdictions which enjoy similar tax incentives, had their benefits 
extended until 2009. The Tax Incentives Improvement Act would extend 
the life of the D.C. Enterprise Zone Benefits to 2009 to match those of 
other states.
  Since 1997, the economic impact of these valuable tax incentives have 
been felt across the city, and the evidence of their clear success has 
enabled me to renew these benefits several times. The evidence is now 
so convincing that I am seeking not only to renew but to enhance and 
improve the benefits. In return for hiring D.C. residents, local 
businesses have claimed hundreds of thousands of dollars in $3,000 
employment tax credits which has resulted in the hiring of D.C. 
residents as required to receive any tax breaks. Representative D.C. 
businesses that have claimed wage credits include hotels and 
restaurants, retailers (such as Safeway Foods, CVS Drugs, and Subway 
Restaurants), offices, janitorial and maintenance services, parking 
facilities, and telephone, electric, and gas utilities. Although the 
Internal Revenue Service does not have a mechanism that captures the 
amount of wage credits claimed, there are thousands of representative 
examples throughout the city: an accounting firm with 15 District 
clients that documented claims of $1.9 million over three years; a D.C. 
manufacturer that claimed tax credits of $400,000 over the same period; 
a partnership that owns a D.C. hotel that claimed credits of more than 
$500,000 each year since 1998; and one of the District's largest hotel 
operators, for tax year 2001, will claim employment tax credits of more 
than $1.7 million.
  In addition, more than $150 million in tax exempt bonds have been 
issued on behalf of new and expanding for-profit businesses, including 
such neighborhood retail businesses as K-Mart and CVS Drugs; tourist 
destinations such as the new International Spy Museum; commercial 
parking facilities, and social service providers such as the United 
Planning Organization. Specific amounts include: $11.3 million in tax 
exempt bonds for the Arnold and Porter law firm; $13 million for a 
subsidiary of Pepco; $9 million for the Crowell and Moring law firm; 
and $4.5 million for the American Immigration Lawyers Association. The 
current pipeline consists of projects valued at over $150 million.

               3. Improvements to Capital Gains Provision

  The District seeks the high technology and computer companies that 
have made the rest of the region rich and that can help diversify the 
city's economy. Under current federal enterprise zone law, elimination 
of taxes on capital gains (such as increases in the value of 
investments in stock or property), does not apply to earnings to D.C. 
companies and entrepreneurs whose assets consist substantially of so-
called ``intangible'' assets (those assets which do not have a physical 
substance). The most common types of businesses that deal principally 
in intangibles are information-based technology companies, including 
those that develop software or maintain Internet sites. Recently, the 
Internal Revenue Service ruled that businesses in the District holding 
intangibles could not receive the zero percent capital gains taxation 
allowed in many neighborhoods in the D.C. enterprise zone. My bill 
allows technology and other companies to receive the special capital 
gains treatment subject to appropriate safeguards to ensure that D.C. 
is not used by such companies as a tax haven.
  My bill also makes other important improvements to the capital gains 
provisions in the D.C. enterprise zone law, including reducing the 
holding period for assets from five years to two years to help spur 
investment and growth and reducing the amount of business that must be 
derived from the zone to receive the special capital gains treatment. 
Currently, District businesses must derive 80% of their business from 
the enterprise zone while other jurisdictions only have to derive 50%. 
My bill corrects this inequity.

4. Making the District of Columbia a Permanent $5,000 Homebuyer Credit 
                              Jurisdiction

  This provision would make permanent the $5,000 Homebuyer Credit, 
perhaps the most successful economic stimulus in the city's history. It 
is chiefly responsible for stemming the flight that almost destroyed 
the city's tax base during the 1980s and during the financial crisis 
and insolvency of the 1990s. The credit offers significant evidence 
that a tightly targeted tax incentive can have a major turnaround 
effect on a major problem confronting a city.
  The credit has been so successful that we have recommended that 
states do the same for the many large cities that are rapidly losing 
taxpayers. In 1998, its first full year, despite the city's financial 
problems and damaged reputation, the credit made the District first in 
home sales increases in the United States. According to an independent 
study by the Greater Washington Research Center covering a portion of 
1997 and all of 1998, 70% of D.C. homebuyers have used the credit, and 
51% purchased homes because of the credit. In 1999 alone, single family 
home sales have risen in the District by over 10,000 homes. Fannie Mae 
has converted the $5,000 credit into up-front money towards the 
purchase of a home, affording the credit significantly greater value to 
the individual.
  The $5,000 homebuyer credit proved itself so quickly and so well that 
I have been able to get it repeatedly extended by Congress. The credit 
is minimally necessary if the city is to have any chance of increasing 
its still small and depleted tax base, an urgent necessity for self-
sufficiency. The credit has proved itself so definitively that to get 
the full effect, it should be enacted permanently.

    5. Exempt Enterprise Zone Bonds from Private Activity Bond Limit

  Under legislation recently enacted by the Congress, Enterprise Zone 
bonds issued to finance commercial development projects in Empowerment 
Zones and Renewal Communities are exempt from the federal Private 
Activity Bond Limit or PAB. The PAB is the state's annual authorized 
limit for total tax-exempt bonds projects. Currently, that limit is 
$150 million per year in the District. The failure to apply this 
exclusion to the District places the city at a competitive disadvantage 
with the states, particularly with respect to housing and retail 
projects. My bill levels the playing field and exempts the District 
from the $150 million limit, as well as from the $15 million per 
project limit, to give the District the tools to attract economic 
development projects to the city.

            6. Triple Tax Exemption for District Securities

  Generally, local jurisdictions that issue securities, such as bonds 
and notes, are subjected to three different levels of taxation--
federal, state, and local. Unlike these jurisdictions, the District is 
the only local government in the continental United States that does 
not have a state to assist it in supporting basic goverment functions 
and services. Although Puerto Rico, the Virgin Islands, and American 
Samoa do not have state support either, they have been granted an 
exemption of federal, state, and local taxes (or triple tax exemption) 
on their securities (bonds and notes issued by the Council) to help 
make up for this deficiency. My bill ends the District's inequitable 
treatment and exempts District securities, like those in the 
territories without state aid, from federal, state, and local taxation.

                          ____________________