LET’S GET BACK TO BASICS
[from January 2006 issue]
Like all journalists and others who try to keep tabs on the pulse in this city, we here at The InTowner continually scan the various neighborhood listservs for nuggets of info and insights. We regularly find both nuggets and insights which often reaffirm for us that positions we have taken on various issues are on target with more than just ourselves stuck in front of our computers. (We will admit, of course, that occasionally the opposite can be the case.)
One of the best electronic forums out there is something called TheMail, the brainchild of Ward 1 activists Dorothy Brazil and Gary Imhoff, the husband and wife team that for many years now has been performing yeoman service to all our residents as they have consistently forced, by virtue of their always thorough and informed research and advocacy, both the politicians and the bureaucrats to be aware that there are citizens out here watching every move and not only prepared to right wrongs but actually succeed in doing so. (Their work that brought about the downfall of last year’s attempted gambling ballot initiative fraud is an perfect example.)
This, then explains why it is that thoughtful, civic-minded citizens flock to the electronic pages of their twice-weekly moderated electronic town meeting (and why it is that the politicos and bureaucrats read it -- and frequently participate in the discussions). And it was here, on the very day we were preparing to go to press that we stumbled on a mini-essay from Ward 3 resident Jonathan Rees (who happens also to be a candidate for city council) that contained sentiments that we have tried to impress upon the politicians for some time, but apparently to no avail. So good was what we read -- and we kick ourselves that it was not we who actually wrote it -- that we share some of it with our readers, as follows:
“. . . [W]e have reached a point of taxing our businesses and people to death, we are engaging too much in social engineering, we are passing legislation to do this or that but never knowing where the money is coming from. While we are a progressive ward, we also realize that we can't keep on driving up the price tag of living in DC. . . .
“Building a new baseball stadium, building another hospital, and many other matters before us is not going back to the basics but may lead us into new problems that will increase the burden of all tax payers, drain us from more needed things and this is because we just don't know when to say enough is enough. Let baseball build its own stadium. Let Howard University Hospital get out of the red and stop laying people off before it embarks on a new project. Let the DC Public Schools explain where out tax dollars over the years went to upkeep our school but never did before we throw more money at the problem. Let DC government realize that its workforce of 34,000, when we have a population of 540,000, is the same as in 1976, when we were over 800,000, and that that is a major part of the problem of why the cost of living in DC is out of control, and let's finally have the guts to cut it down to a reasonable level. Let's start getting real about addressing all problems and each of us show a gusty individuality.”
Now, let us be quite clear about one thing: The fact that we have quoted Mr. Rees favorably does not suggest that we are taking any position on his candidacy; at this point in time we have absolutely no idea who ought to get our nod, if anyone -- and we won’t decide until we know lots more about everyone and what they think about important issues of public policy and municipal government management.
But, we do say without hesitation that Mr. Rees has hit the nail on the head. Too much time and energy (not to say anything about taxpayer money) is being wasted on large schemes to the detriment of making life easier, safer, and more pleasant for our citizens. Just consider the vast amount of city council members time, the time of so many of the city’s middle and senior managers, and the money spent on the effort to get baseball to set up shop here. Meanwhile, people are not safe on our streets, the health care services are a shambles, children are at risk hourly, the schools and libraries are a disgrace, and yet nothing seems to occupy anybody’s attention other than baseball and how to figure out more ways to squeeze cash out of the residents through fees and fines (so they don’t have to call ‘em taxes).
It is imperative that our leaders actually lead by leading us back to basics. In an election year, especially this one, it would seem prudent for the politicians to take heed.
[Ed. Note: Included with this month’s editorial is an essay appearing in the print edition under the Community Forum header which addresses in detail the issues that had been raised in last month’s editorial. The writer, who is opening a restaurant in DC’s Brookland neighborhood, is an historic preservation and commercial district revitalization advocate who assisted with the founding of the H Street Main Street and Historic Brookland Main Street programs. He has also co-authored approximately $1.5 million in successful grant proposals for community revitalization activities. The complete submission is reproduced below:]
Disappearing Small Businesses Here & Elsewhere
By Richard Layman
In Last month, The InTowner editorialized about whether or not Dupont Circle is "'washed up' business-wise," a response to piece in the Washington Business Journal. [See, “From the Publisher’s Desk,” December 2005, page 2.] The WBJ piece focused on the dwindling number of independently-owned retail and restaurant businesses and their inexorable replacement by the marques of national and international chains, implying this was the fault of the neighborhood's residents for not responding somehow, by seeking additional zoning protections.
A quick survey of the national press would see that this is an issue across the world, ranging from Los Angeles (see, John Pomfret, "Downtown Los Angeles Gets a $10 Billion Remake," the Washington Post, January 2, 2006, page A-3) to Madrid (see also, Leslie Crawford, "Urban village changing for good and ill: A former ghetto in Madrid is a victim of its own success as higher rents close the old shops. Resident Leslie Crawford is saddened," Financial Times [London, UK], January 7, 2006, page 15).
This is the result of three trends that are difficult for a group of ad-hoc citizens in Dupont Circle, or any city neighborhood, to address on their own. More intricate responses, at higher levels than a neighborhood, are required.
Ever since the end of World War II, the dominant trend in the retail industry has been the development of first regional, and then national and now international chains, of a size and specialization far beyond that of independently-owned local stores in the downtowns and neighborhood commercial districts of center cities.
Simultaneously, the real estate industry has adopted a similar scale, moving from a very local industry to one that is organized on a national and international scale. A key space in Dupont Circle, the Commerce Bank branch at the corner of Connecticut Avenue and S Street, NW, provides a perfect example that illustrates both trends.
Commerce Bank, based in New Jersey, uses chain principles to guide its services and its growth. (The bank's founder still owns a chain of Burger King restaurants in the mid-Atlantic.) Commerce's entry to DC has been facilitated by a real estate investment trust, Starwood, which bought the property on Connecticut Avenue, rid the space of the locally owned retail businesses within, leaving it empty for years, waiting for the right national tenant willing to pay the much higher rents, in comparison to the previous owner, that they were seeking.
Finally, as The InTowner editorial pointed out succinctly and eloquently, the property tax assessment model employed by the District of Columbia for commercial retail properties, often historic buildings with small footprints, appears to set values independent of the building's profitability as a property tenanted by (ideally) locally-owned businesses.
If taxes keep going up, so do rents. But if retail sales revenues don't increase at the same pace, small businesses will be driven out, first by restaurants that tend to generate more revenue per square foot than the average retail business, and then by chain businesses that have national marketing campaigns and economies of scale unmatchable by independents.
That this is happening should be of great concern to DC residents and government officials. One of the primary differentiating factors of center cities is a retail sector defined by independently-owned shops with unique products and identities.
Tourists and business travelers -- not to mention residents -- appreciate this “specialness” and spend (more) money in such stores. As the DC retail environment becomes more similar to the offerings of malls and lifestyle centers, our city becomes less competitive compared to other national and international destinations; and visitors will end up spending less time and money in DC stores.
In addition, we should be concerned about building a local economy that retains in the city more of the money spent within the city. This is called the multiplier effect. Chain businesses spend and send most of their revenues elsewhere. However, studies by the Institute for Local Self-Reliance and others find that as much as "three times as much money stays in the local economy when you buy goods and services from locally owned businesses instead of large chain stores."
To right these sorry trends, there are two policies that the District of Columbia government should pursue in order to make our city more hospitable to independent retail businesses.
First, the City Council needs to direct the Office of Tax and Revenue to create and implement a more appropriate property tax assessment methodology for small commercial retail properties. There is a bill before the Council providing for a 50 percent tax credit for such properties if they have been owned by the same owner for at least 20 years. But that focuses on individual properties and length of ownership rather than the needs of the entire commercial district and the small and historic properties within it. (Plus, would a slumlord who owned a commercial building, often empty, for at least 20 years still be able to benefit from this law? I think so, the way it's written currently.)
A "highest and best use" model that doesn't differentiate between types of buildings will always price out anything other than commercial office, because such high revenue-producing, low-service requirement properties are the absolute best financial deal for any city.
The rule of thumb from the "Main Street" approach to commercial district revitalization is that a retail business pays from four to 10 percent of its annual revenues in rent -- or if the property is owned, mortgage plus property taxes and maintenance. Restaurants have higher revenues and may pay as rent up to 15 percent of annual revenue.
Tax assessment models for commercial properties must be based on the revenue models for operating businesses located in such commercial districts. A tax assessment methodology focused on some "mythical" building worth independent of the businesses located within and the revenue streams they generate is disconnected from business reality.
This will lead to business displacement, particularly of independent businesses, in favor of chains, or in significant changes in the use, changes which may be incompatible with the needs and desires of residents and/or the retail mix of a thriving commercial district.
The current method of assessment isn't much different than taxing farmland that is being farmed as if it could be redeveloped into residential tracts. Eventually the farmer will have to sell.
Second, the District government needs to look more carefully at its retail business attraction policies and incentives. Currently, most benefits are skewed to favor chain businesses at the expense of developing local businesses.
Since most independent retail has died on the vine, the infrastructure that supports independent retail has withered as both the various retail sectors (office supplies, clothing, restaurants, etc.) and the commercial real estate industry that develops and leases retail space have become organized as national and international enterprises.
Places like Richmond, Virginia and the State of Illinois have strong retail merchants associations providing a wide variety of services and training opportunities to support the development and maintenance of independent retailers. These organizations provide a great deal of assistance to local and regional businesses, without excluding the membership of national chains. To the best of my knowledge there is no equivalent association in the Washington region.
Cities like Los Angeles and Austin, Texas have created specific initiatives designed to attract, develop, and support independently-owned retail businesses. For example, LA's Historic Downtown LA Retail Project provides extensive training, incentive, and development resources centered upon the development and strengthening of independently-owned shops and services; art galleries; cafés, restaurants and nightlife.
Clearly, much more than zoning overlays are required to right the trends that forcefully homogenize the retail districts in our neighborhoods and downtown Washington. And, I hope that The InTowner continues to publish articles about why this is so.
Business Property Tax Relief Hearing Set
City Council Chair Linda Cropp and Ward 1 Councilmember Jim Graham have introduced Bill 16-255, the "Historic Neighborhood Retail Business Property Tax Relief Act of 2005," which proposes a 50 percent property tax credit to owners of qualifying small retail or arts related businesses located in neighborhood historic districts who have received cumulative annual increases of 100 percent or more in the assessed value of their property in the past two real property tax years. To be eligible, properties must have been owned by the same owner for 20 or more years.
A public hearing before the DC City Council’s Committee on Finance and Revenue, chaired by Ward 2 Councilmember Jack Evans, has been scheduled for 11 a.m. on Wednesday, January 25, in Room 412 at the John A Wilson District Building (1350 Pennsylvania Avenue, NW).