Tuesday, March 11, 2008

Another Tax Scandal

The latest estimate of losses from the DC property tax refund scheme is over $50 million. Although that number is shocking, there is another albeit quieter scam that is costing DC taxpayers that much every year.

The Washington Business Journal reported on the lack of enforcement of the vacant property tax all the way back in 1998 (see below). At the time Natwar Gandhi, then director of the Office of Tax and Revenue, said, "Unfortunately, there are many properties that should be in Class 5 (vacant rate) but are not." The situation remains the same today.

Let's try to estimate the magnitude of the problem. We can easily assume that there are at least 3,000 vacant properties in DC. No one knows the true number but DCRA has put the number in the 2000-3000 range and many many properties known to be vacant are still not listed on DC's rolls. Say half are not paying the class 3 rate. This is a very conservative estimate. The median property value in the District is about $435,350 according to the DC Fiscal Policy Institute. And the vacant property tax now stands at 10%. So here we go:

1,500 (half of 3,000 properties) x $435,350 (median property value) x 10% (tax rate) =


That is $65 million in tax dollars that goes uncollected every year. The real numbers are probably higher. We won't know until the mayor, the city council, or congress fully investigates these properties. Not only are heavily taxed residents and businesses getting ripped off by inflated taxes due in part to these properties not being properly taxed, but vacant properties contribute to crime and blight in DC's most needy neighborhoods.

Why is this allowed to occur? I can only assume that some vacant property owners must have enough political pull to avoid penalties. Not surprisingly, DC city government owns the most vacant properties. Churches own another large portion of rundown buildings. Certain well-connected developers also fail to pay the proper taxes on their numerous "investments". Granted, the mayor inherited this mess. But we should question the lack of action by two figures that have been around from the beginning, Natwar Gandhi and the chairman of the finance committee, Jack Evans. They've done little to address this problem.