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D.C. Development: Fixing The System

Day 5: Deals for Developers, Cash for Campaigns

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The Wilson Building, which houses the chambers for the Mayor and the City Council of the District of Columbia. (WAMU Photo by Jared Angle)
The Wilson Building, which houses the chambers for the Mayor and the City Council of the District of Columbia. (WAMU Photo by Jared Angle)

Developer subsidies can be a boon to District residents when used properly. They can draw shops and restaurants, new residents, and jobs. They can keep longtime residents from being priced out, and increase a neighborhood’s property values and the tax base for the city.

But the city can’t ensure taxpayers are getting a good deal if developers’ promises aren’t kept, if subsidies don’t go to the right groups, or the money is given to developers with ties to decision-makers.

A WAMU investigation this week found elected officials approved $1.7 billion in tax breaks and discounted land deals in the past decade. At the same time, the officials received more than $2.5 million in campaign cash from groups receiving the subsidies.

“People should be very concerned about this money because it’s their money,” said Greg LeRoy, executive director of Good Jobs First, a national economic subsidies watchdog group. Without determining if subsidies are needed or enforcing public benefits “the district is spending money that could have either been used to keep your taxes lower or to improve the quality of life in the District – improve schools, improve transportation, improve parks and libraries.”

Council Members David Grosso and Kenyan McDuffie announced this week a city hearing on legislation they're drafting on public financing of campaigns. Grosso said the questions raised by WAMU should be addressed: “It is unseemly that there are so many connections, direct lines between these kind of approvals of public money going into projects that then turn around into contributions into campaigns so closely around that time.”

D.C. Council member and mayoral candidate Tommy Wells said oversight of promises made by developers receiving subsidies shouldn't be left to agencies under the mayor's offices.

"There's a conflict of interest," he said on the Kojo Nnamdi Show Friday afternoon. "I will put that function in a different part of the government that doesn't have the self interest of saying 'Oh yeah, they did it and they've done to the next deal."

If the city explores other changes, it can look to its neighbors, Maryland and Virginia, for ideas on how to hold developers to their promises and close loopholes in campaign finance laws.

Closing Campaign Finance Loopholes

From “shadow” campaigns to straw donations, CIty Hall has been wrought with scandal in recent years. At the center of nearly all these controversies are misdeeds involving campaign cash.

Critics say the city’s campaign finance laws need to be overhauled – starting with the “LLC Loophole.”  This loophole lets developers and other businesses make multiple contributions to an individual candidate through limited liability companies, or LLCs.

Limit LLCs: D.C. Attorney General Irv Nathan has lobbied the D.C. Council to curb the use of LLC donations in city campaigns. “Effective limits are meaningless if one can contribute through an unlimited number of LLCs,” Nathan said at a March council hearing.

Nathan wants to require that LLC donations disclose the controlling shareholders and any related corporate entities. This would prevent people and companies from “bundling” checks and evading contribution limits.

The LLC Loophole has made “a mockery of campaign finance law” in D.C., said James Browning with the watchdog group Common Cause. He said Maryland recently passed a law closing some of the loopholes and the District should do the same: “One of the most effective reforms is to set up a standard that if two corporations are substantially similar, let’s say 80 percent of the same shareholders, the key executives...will be counted as one entity for the purposes of tallying campaign contributions.”

Several developers, when asked, said they would be on board with limiting LLC contributions.   

“I would certainly welcome that,” Chris Donatelli, a prominent D.C. developer said on the Kojo Nnamdi Show this week.  He said LLCs require developers to host fundraisers and they “can create the appearance of a conflict of interest.”

“The companies and businesses that create LLCs...have an advantage,” Donatelli added.

Create safeguards to prevent “pay-to-play” decision-making: Nathan, the Attorney General, wants to restrict contractors seeking or receiving large city contracts from donating to lawmakers awarding these deals.

“Such contributions only feed cynicism and perception of corruption even when there is none,” Irving said at the March meeting.

But Nathan’s proposal only affects contracts and grants -- not tax breaks.

Ensuring subsidies pay off for residents

D.C. has taken some steps to evaluate subsidies. The city’s Office of the Chief Financial Officer often estimates how much money the city will effectively lose if subsidies are approved. And the Office recently started doing detailed financial analyses to see if subsidies are needed.

But there’s a lot of work to be done. District officials, developers, watchdog groups and longtime political observers offered dozens of possible solutions. WAMU collected a sampling of ideas, including those frequently raised.

Approve subsidies only when they’re needed: The city could require developers to prove subsidies are needed in order to qualify to apply for one.

The city could include tax breaks and other subsidies in its budget review so they’d have to be stacked up against the city’s other priorities, according to Good Jobs First.

Development subsidies such as payments-in-lieu-of taxes currently allow the city to avoid that difficult comparison. If it happened, “you could never get any of these things funded because there will always be an advocacy group for the libraries, or whatever the issue is that you manage to pick. It will outweigh any of these projects,” Council Member Jack Evans said at a 2006 meeting on a proposed PILOT that he supported for the Capper Carrollsburg redevelopment in Southeast D.C.

Having subsidy decisions made by an independent review board that’s not tied to the council or mayor could help “professionalize” the process, said Brett Theodos, a senior research associate with the Urban Institute, an economic and social policy group.

Ensure subsidies meet goals: Schools and government agencies are evaluated on their performance and so should subsidized projects, said Ed Lazere of the D.C. Fiscal Policy Institute. “People can get cynical about government...when they think that it's just giving favors to a wealthy few,” he said.

Housing advocates said the city has had trouble tracking goals, which can make enforcing and verifying them difficult. But the city already collects voluminous paperwork related to federal housing subsidies so it could use the same process to verify that low-income units exist and are filled with eligible candidates.

Requirements for subsidized projects should be stricter — but that isn't the case recently for affordable housing requirements tied to public land deals, according to Cheryl Cort with Coalition for Smarter Growth, a land use research group.

Get money back: At least 19 states and more than 100 cities have clawback provisions for at least one type of subsidy to developers, according to Good Jobs First.

Maryland revoked nearly $16 million in state subsidies that went to companies if they didn’t create enough jobs or meet other performance requirements. Virginia has provisions requiring companies to return money if they don’t meet certain requirements, said Thomas Cafcas, a senior researcher with Good Jobs First.

“It’s “not a red state blue state thing,” he said, “just a smart protection of taxpayer bucks.”

This story was updated Friday afternoon with comments from Council member Tommy Wells


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