Thursday, November 19, 2009

Lost: Vacant Property Tax

Have you seen the vacant property tax? After having a substantial positive effect across the city, it was last seen entering the Wilson Building, where it was eliminated to give a tax break to derelict property owners rather than to help revitalize DC neighborhoods.

In September, the DC Council killed this vital tool for addressing crime and moving unused properties back into productive use. It replaced the vacant property tax with a tax that applies to "blighted" properties. Six weeks into the new tax cycle, however, it is unclear how DCRA intends to implement and enforce the new law. Its website continues to cite the now repealed vacant property law, criteria, and list of vacant properties.

[UPDATE: Following my post, DCRA posted the new blighted property law.  It is available here.]  

I won't get into all the benefits of the tax, but suffice it to say that entire blocks of undeveloped property and vacant historic homes are back in productive use directly as a result. In the worse case scenario, these properties are used for drugs, prostitution, and facilitate other crime, become dumping grounds, and are known for turning into urban jungles. But even when the most responsible of owners properly maintain vacant properties, they still contribute to a lack of eyes on the street, a loss of vitality on the block, and an atmosphere that contributes to crime and neglect.

The original "Class 3" tax rate was at $5 per assessed $100 value (compared with 85 cents for occupied residential properties), but then, during the last election cycle, the DC Council got tough. It brought the vacant rate up to $10 per $100 value, while attempting to tighten the frequently abused exceptions. That led to push back. Some came from honest people who were swept up in the higher tax combined with greater enforcement by the Department of Consumer and Regulatory Affairs. A few owners who actually lived in their property found themselves hit with an excessive tax because it was misclassified, and then they needed to jump through hoops to have the error corrected. Slum property owners (as well as developers who had decided to put off work on their properties during the recession), however, saw it as an opportunity.

At first, it seemed a majority of the Council was posed to simply return the vacant property tax rate to $5. That's fine because the more significant issue has always been consistent and proper enforcement of the law, not whether the $5 rate was too low. Instead, the Council eliminated the vacant property tax entirely and applied a $10 rate only to something new -- "blighted" properties.

In theory, that sounds reasonable. It's the "blighted" properties, the nuisance properties, that are the ones that are unsecured, used for drugs and crime, overgrown with weeds, covered in trash, etc.

But DCRA already has fines it can impose when a property is unsecured, overgrown, or covered in trash... and it does so more often in recent years. In addition, if a property poses a danger to public safety, then the Board of Condemnation can condemn it and require the owners to make repairs or, if the owner does not do so in a reasonable period of time, the city can repair the property and bill the owner.

So then, what does a "blighted property" tax do?

Well, it eliminates most vacant properties from being subject to any higher tax at all. That doesn't reflect the additional cost that such properties place on its neighbors and encourages owners to speculate rather put properties into productive use.

The change in the law would also appear to discard all of the good work that DCRA, working with neighborhood organizations across the city, have done since 2006 when it was charged by law with maintaining a vacant property list. There are 2,221 properties on that list, 655 of which have been granted an exception from the higher tax.

One also has to wonder -- why, in the midst of a budget shortfall, when the DC Council is cutting programs and services, would opt to give vacant property owners a $10 million a year tax break? Interesting priorities.

According to the new law, the “Blighted Properties Abatement Reform Act of 2009," a "blighted property" is:
"a vacant improved real property which upon the determination of the Mayor constitutes a threat to the health, safety, or security of neighboring properties or persons. In determining whether an improved real property is blighted, the Mayor shall consider multiple conditions existing within a six month period from the following:
(A) The property has had the utilities, plumbing, heating, or sewage disconnected, destroyed, or rendered ineffective for at least six months so that the property is unfit for its intended use;
(B) The property has multiple building code violations posing a severe and immediate health or safety threat and the owner has failed to abate after notice by the Mayor;
(C) The property is boarded up or there is the presence of graffiti;
(D) Exterior doors, windows, skylights and similar openings are either broken or missing;
(E) The exterior is not maintained in good repair and not structurally sound so as to threaten the public health or safety;
(F) The property is a fire hazard and otherwise dangerous to the safety of persons on the property; or
(G) The property is not kept substantially free from accumulation of debris and excessive vegetative growth. For purposes of this subsection, “debris” shall mean
(i) Construction or demolition waste that is not stored in a rodent proof container and not removed after 14 days or longer;
(ii) Yard waste and branches that are not bundled and set out for waste collection, but not yard waste placed in a properly maintained compost pile;
(iii) Garbage and solid waste.”

[UPDATE: The version posted above was the legislation as introduced.  As DCRA's website now shows, the final law, as amended, varies significantly.  It is even more of a mess.  Stay tuned for an additional posting that attempts to explain the new law.  The information below, however, continues to be accurate.]

First, it would seem that vacant lots (unimproved), no matter how severely "blighted," are not subject to the higher tax at all. Ironically, it would also appear that an absentee owner of a vacant historic house can avoid the vacant property tax by allowing the house to eventually collapse.  No house, no vacant property tax.

Second, how is DCRA to enforce this law?

And what will DCRA do with its current vacant property list? I have urged DCRA not to throw the list in the trash heap, but to use it as a starting point for the "blighted property" tax list. It should only remove properties from the list upon a showing from the owner that the vacant property is not "blighted" within the terms of the statute.

So far, it is unclear how DCRA and the Office of Tax and Revenue will implement the new law, which applies to the tax year that began on October 1, 2009.


Jay'O said...

This really is outrageous! I can attest to 5 houses on our block that have been rehabed, sold and/or rented after the absentee landlords got notices from DCRA.

They actually didn't have to go any farther than just telling them what was insotre for them as a "Vacant Property" and BOOM - the block improved.

Does anyone know how each councilmember voted on this?

Kwame Brown and Evans wanted the reduction

Graham and Bowser were against it...

WE SHOUDL ALL CONTACT Councilmember BOWSER to encourage her as she is still trying to get it back to 5% for plain vacant buildings! ! ! !

Anonymous said...

Why the hell is the DC coucil trying to protect absentee slumlords woh live in MD and VA?

Sure a very few well meaning DC residents might have a vacant property that won't sell, but the Law had a 12 month exception for those rehabing and selling a property.

The rest are slum spectulators who probably lived in DC in the past and still have political conections and family in DC that vote.

Well, I call BS on that! Our concilmembers should be responsive to DC RESIDENTS not outside moneied interests. Isn't it bad enough that we don't have the Vote and now we have people from other Sates preventing us from improveing our neighborhoods!

Jay"O said...

Hey one last thing...

A lot of people think that because absentee slumlords pay real estate taxes anyway, that this is enough to discourage speculators ~ untrue:

The normal residential real estate tax, i.e. the cost of holdng on to a vacant property) is $.85 for every $100 in value. If your vacant property is assessed at $250,000 - $450k that means you'll be paying about $2500 - $4500 a year.

But wait ~ because of the annual 10% cap on tax increases, a building bought 10 years ago for $100k and now worth $250-$450k is probably now assessed only at $200k (at most).

So our landlord ends up paying $2,000 a year to sit back and wait and speculate, and wait...

...THAT'S THE PRICE OF 1 MONTH'S RENT for a 1 bedroom apartment!!!!!

A pretty cheap price to pay when you stand to make profits in the 100s of thousands of Dollars.

All courtsey of some of our elected City Council members!

Jay'O in Columbia Heights

Cary Silverman said...

The motivation behind the repeal, I believe, was to address the situation of big developers whose properties are stalled due to the financing crunch/bad economy. Some own large vacant lots or office buildings (i.e. ballpark district). Others own entire blocks of vacant storefronts (i.e. Douglas Development in the Convention Center area). The argument of these developers is that they keep their vacant properties secure and clean, and therefore they should not be subject to the tax. Hence, the "blighted" property tax.

The fact that some innocent resident owners were caught up in increased DCRA enforcement, along with a few beaurocractic horror stories, gave the council the cover that they needed to eliminate the vacant property tax.

The result of the change, however, is that it will largely let speculating absentee owners, who don't care if the neighborhood has to clean up their mess and has empty crime-ridden streets, off the hook.

I'm not sure of the exact vote. Evans, Wells, and Michael Brown introduced the bill. Alexander, Kwame Brown and Gray cosponsored. Kwame Brown was probably feeling the heat from developers, since he motivated the increase in the vacant property tax rate from $5 to $10, and he is also chair of the economic development committee.

Bowser was the strongest advocate of keeping some form of the tax.

One day, the DC Council will provide citizens with a useful and transparent bill monitoring system like any of the 50 states that allows you to see, in near real time, what amendments were introduced and how legislators voted. It's 2 months since this legislation passed, yet the Council's "Legislative Management Information System" (LIMS) still provides no information on the bill:

Anonymous said...

Douglas is part of the vacant property problem. The wasteland north of NY Ave, including the empty corner at P and N. Cap are all owned by this group. Even though there is fencing around a half collapsed building and boarded up windows on another, neither of these have ever appeared on the vacant list.

Anonymous said...

At the Blagden Alley meeting last week, I was told that Douglas has soon to be realized plans to restore the facades of buildings north of NY on 7th St with windows and such.

Anonymous said...

Carey's legislative history is completely wrong.

The reason that LIMS shows no information on the Evans' "Blighted Properties Abatement Reform Act" is quite simple: Nothing has happened on that bill since it was introduced. And, given that it would do the exact opposite of what Bowser wants to happen, it's highly unlikely that bill will ever see the light of day.

The vacant property tax changes occurred during the second vote on the Budget Support Act in September. Bowser introduced an amendment that would put vacant property into a Class 3 tax rate of $5 per $100 assessed, and create a new Class 4 tax rate of $10 per $100 assessed. She tried to create a mechanism for designating a property as blighted, but it wasn't well thought out.

Kwame Brown then introduced an amendment to Bowser's amendment that gutted it. It got rid of the $5 rate for vacant properties, and made the Class 3 rate applicable only to vacant buildings (excluding vacant lots) designated as blighted.

I believe nearly all Councilmembers voted in favor of the Brown amendment. There was minimal discussion of policy or of how much money the city was going to be leaving on the table. Instead, there was a rush to vote for the Brown amendment and no consideration about such a major decision being made without any public hearing or discussion.

The Brown amendment contains one useful quirk: vacant residential buildings that are not designated as blighted would be subject to the Class 2 property tax rate (same rate as commercial properties). I'm not sure that was intentional (more likely it was an oversight due to astoundingly sloppy legislative drafting by Kwame Brown or whoever it was that wrote the amendment for him). But at least that means that Douglas Development and other vacant property speculators will at least pay double the occupied residential rate.

The bottom line with the Kwame Brown pro-vacant property slumlord amendent is that it created a poorly conceived blighted property system, yet also continued the vacant property registration system. That's why DCRA's website still talks about registering vacant properties.

LIMS may suck, but doing basic research doesn't depend on LIMS.

Cary Silverman said...

Anon 12/1, I stand corrected if the vacant property law was changed as a result of a series of amendments to a second reading of the Budget Support Act rather than through an amendment to the originally introduced blighted property legislation.

Thank you for the detailed and helpful legislative history of how we arrived in the current mess. You must be about one of six people in the DC government, including members of the council, who can recite it. I stand by my comments that the 2008 increase in the vacant property tax from $5 to $10, coupled with increased (and occasionally inaccurate) enforcement, is what led to the ill conceived recent changes.

You correctly point out a quirk in the new law -- that is -- the previous vacant property registration system remains in place and vacant improved properties, even if not blighted, will be taxed at the commercial rate (twice the occupied residential rate). However, I believe it would not, as you suggest, place a higher tax on many vacant properties owned by large developers. Since many of those properties are zoned commercial, they would be taxed at the same commercial rate as always. For instance, the many Douglas Development properties along 7th and NY Avenue are Class 2.

So, correct me if I am wrong, the poorly-written law currently sets the following rates:
-Occupied house: $0.85 (Class 1)
-Vacant house: $1.65 (Class 2)
-Occupied commercial: $1.65 (Class 2)
-Vacant storefront: $1.65 (Class 2)
-Vacant lot: applicable residential or commercial rate; no higher tax, even if it is a nuisance property.
-"Blighted" house or commercial building (likely to be applied primarily to condemned properties): $10

And, FYI, Councilmember Bowser introduced legislation on Tuesday, December 1, to again amend the vacant and blighted property laws.

Anonymous said...


Class 2 is $1.65 for the first $3M and $1.85 for more than $3M. I assume that a non-blighted vacant residential property would be subject to those same levels.

And a vacant lot cannot be taxed as a blighted property, no matter how dangerous, ugly, or eyesore it is. (Thanks Kwame!) So this creates an odd economic incentive for a potentially blighted building owner to knock down the building and pay far less in property taxes.

Bowser's bill on vacant properties seems to be quite good. It doesn't affect the property tax rates, but it seems to simplify the vacant property registration process and gives the city greater flexibility on designating a property as blighted.

Anonymous said...

I own a vacant lot in the city. I have been negotiating with the HRPB, neighborhood commissions, etc to get a approval for my plans for over a year. The plans have finally been submitted to DCRA to get a building permit and now I have to pay an expeditor just to get the plans through DCRA. Under the old law, there was no exemption for vacant lots while waiting for permission to build. The vacant property law forced property owners who would planned to use their cash to build, to spend $30K, $40K, $50K in property taxes. I understand people's frustration with the slow pace of improvement, but often it is the bureaucracy of the DC slowing the process not the property owner. We are in a credit crunch. I have excellent credit, savings and good salary, but I had a difficult time finding a bank that was still issuing construction loans for 2-unit buildings. I admit I have made some mistakes along the way because I have never had a home built before, but raising my property tax would not sped up my building process. I am paying my current mortgage, mortgage on the lot, property taxes and an architect. I can assure you that if I could build anymore quickly I would.

Anonymous said...

Brian P Murphy

The vacant property law got a bad name because of the many horror stories of unjust and negligent enforcement that it created. An older couple had a house for many years with a side yard that was a separate lot. It was assessed as "vacant" even though there was a barbecue fireplace, patio and outdoor furniture. Their story about getting the runaround from their government would make anyone grind their teeth and clench their fists. Finally they had to hire a lawyer and spend a lot of money to get things squared away.

There are many, may worse stories than this. It was a bad law.