Trump seeks local tax subsidy for conversion of the Old Post Office into a hotel

According to the Washington Business Journal, in "Trump seeks relief from D.C. tax on Old Post Office hotel," the Donald Trump Organization, which won the Old Post Office building through what was probably an outlandishly high bid ("How the Trumps landed the Old Post Office Pavilion," Washington Post), is now seeking local tax breaks for the project.

The WBJ article discusses the specifics of the tax on the building, which is assessed on federal properties--normally untaxed--that are used for a profit making purpose. Union Station finally capitulated on this tax, which they were opposing in court, according to "D.C., Union Station Redevelopment Corp. settle tax dispute" also from the WBJ.

From the first WBJ article:

The possessory interest tax on leasehold interests is calculated at the same rate, $1.85, as D.C.`s commercial property tax. The PIT was designed not only to generate revenue, but to exact some fairness: If the Ritz Carlton or the Four Seasons or the JW Marriott pays property tax, why shouldn`t Trump have to pay it too?

Two high-level D.C. government sources confirm that Trump operatives approached District officials last summer to seek relief from the possessory interest tax. They were told, flatly, ``no.`` But the discussions continue as the GSA, D.C. and the Trump organization tackle this sticky wicket. After all, the federal government is hoping to squeeze every dollar out of the Old Post Office redevelopment, and a hefty tax bill will certainly nibble that away.

Trump representatives declined comment, but expect the argument to run along these lines: The sales and occupancy taxes and jobs that a luxury hotel at 1100 Pennsylvania Ave. NW will generate will certainly exceed that of the PIT bill.

Interestingly, two weeks ago the Wall Street Journal had an article, "Subsidized Hotels: Boon or Boondoggle? Cities Like the Jobs and Taxes Lodging Can Bring. Critics See Oversupply and Unfair Room-Rate Competition," about how local jurisdictions provide tax abatements and other subsidies to hoteliers. And this raises the issue of some firms being advantaged with subsidies competing with firms not receiving subsidies.

For example, DC's "convention center hotel" is receiving subsidies. For a variety of reasons I think that's justifiable (see below). You could argue that the Old Post Office, to be brought back online as a rehabilitated civic asset, deserves subsidies too.

On the other hand, you could argue that Trump bid too much (in order to win) for the property given the cost to rehabilitate and operate the building--which is why they are asking for subsidies--and while that benefits the US Government, which received the money from the sale, if it requires subsidies from the locality, in this case DC, it comes at a cost.

In short, Trump bid too much--although that's why he won--and now on the back end he wants the local government to make up the difference.

Ideally what would happen is that the US Government would agree to reduce the price that Trump pays to lease the building so that local tax subsidies aren't needed. However, then they'd have to rebid the project, because obviously Trump bid expecting he could get subsidies, and perhaps the other bidders did not.

For the city, deciding whether or not to agree to a subsidy should be made using a comprehensive framework on accommodations, which I wrote about in 2011, in the entry "Start with a city-wide accommodations plan: then consider TIF requests comprehensively."

At this point, it's not DC's problem that Trump bid too much.  (Which was likely a deliberate decision used to game the process and this action shouldn't be rewarded with a tax subsidy.)

He can walk away, the project can be rebid, and ideally the project would go to an organization that made a realistic bid based on the costs of the project.  This would reduce the returns to the federal government probably--but would still be higher than what they get now--and not cost DC tax revenue.

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For more on the history of the building, see the entry "The Old Post Office, a stand-out on Pennsylvania Avenue," from the Streets of Washington blog (and book).