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A nearly 100-page report out Thursday by the Office of the D.C. Auditor finds that the city agency in charge of overseeing vacant properties bungled enforcement from October 2014 through September 2015, the last fiscal year for which official data was available when the audit began. Based on estimates provided in the report, the Department of Consumer and Regulatory Affairs’ alleged mismanagement of its vacant and blighted properties program probably resulted in millions of dollars in lost tax revenue over that time.
That’s because, by law, D.C. can tax properties classified as “vacant” or “blighted” at higher rates than it can tax properties in good repair. Whether residential or commercial, vacant properties may be taxed at $5 for every $100 of a property’s assessed value, while more severely damaged blighted properties may be taxed at $10 for every $100 of assessed value. Those tax rates are between five and 12 times the normal ones. They’re meant to encourage landlords to keep properties in active use, redevelop them, or sell them.
But the program hinges on DCRA effectively identifying and categorizing vacant and blighted properties, which the auditor found did not happen for 31 properties surveyed. The auditor made selections for its study after hearing from advisory neighborhood commissioners, elected officials, and residents about derelict properties with which they were familiar.
The 31 properties represent just a slice of all vacant and blighted properties across the city. Various estimates put these at between 1,000 and 3,000. Yet, the report points out that the data DCRA furnished was “unreliable and incomplete” in “multiple ways,” with “errors, omissions, and duplicates.” Not including registration fees and infractions, the District collected about $13 million in property taxes from 958 vacant and blighted properties in fiscal year 2015, per data compiled in April 2017.
Because of “improper granting of exemptions, not following legal requirements, [communication] errors with [D.C.’s Office of Tax and Revenue],” and other problems, though, the District failed to collect almost $1 million in potential revenue across the 31 properties, according to the audit. Given the estimated total number of vacant and blighted properties, “the true financial impact could be far more significant [than that],” the report explains. Improper granting of exemptions accounted for the largest share of lost taxes.
Beyond foregone revenue for the city, vacant buildings cause quality of life issues for neighbors. “The community impact [of how the program has been administered] has been no less grievous: deteriorating buildings; fewer neighbors and eyes on the street; magnets for illegal activity; and frustration from neighbors and elected officials when their repeated complaints do not produce results,” the audit states.
D.C. Auditor and former Ward 3 Councilmember Kathy Patterson says the estimates in the report are “conservative,” but notes that DCRA has sought to improve the program since Mayor Muriel Bowser‘s administration launched. Still, “the District of Columbia government creates enforcement regimes in law and then doesn’t follow them,” says Patterson, who calls vacancies a “a very persistent problem.”
“We’ve found this [to be the case] in other areas,” such as the use of small and local businesses in District contracts, Patterson adds.
In a statement, DCRA Director Melinda Bolling says the department has installed new leadership and upgraded its IT system for the vacant and blighted properties program, among other measures taken since 2015. “Although DCRA disagrees with some of the Auditor’s findings and characterizations, the agency is committed to continued improvement in the program and believes our efforts are on course,” says Bolling.
DCRA spelled out those disagreements in a lengthy response letter to the audit. The department said it is not within its power to actively put dilapidated properties into productive use, explaining that “the onus is strictly on the property owners to sell or rehabilitate” them.
DCRA also beat back against suggestions of potential “fraud” and “gross negligence” within the program, calling them “inappropriate,” inflammatory,” and “unsubstantiated.” The auditor found “some cases were well outside the bounds of bureaucratic errors”:
For example, in one case, DCRA conducted two inspections, both of which found the property vacant, but DCRA never sent vacant notices to the owner. In another case, DCRA granted an owner’s exemption request within one day of the request and without conducting an inspection, while DCRA’s average cycle time between request and exemption was 50 days. We also found a few cases in which staff decisions to deny an exemption or deny occupied status were overturned and there was no documentation to justify the change.
Admitting that it had no “evidence of intent,” the auditor’s office says it didn’t refer these cases to D.C.’s Office of the Inspector General for investigation. But it says “we have an obligation to report when we find an environment where there is a risk of fraud or negligence even if we do not substantiate any such occurrence.”
Furthermore, DCRA took issue with the report’s sample size, saying that seven of the 31 properties surveyed were skewed by the very fact that community members had identified them as “problematic properties.”
The D.C. Council has recently taken up the issue of vacant properties, approving legislation last year that shifted the burden of proving properties were no longer vacant from DCRA to owners. Now law, the legislation also reduced the period during which owners can claim exemptions, and increased maximum fines. Just this week, Chairman Phil Mendelson proposed a bill to address foreign-owned vacant properties.
In part, the audit recommends that both DCRA and OTR improve their data systems for such properties, adopt and train staff on standard operating procedures, and end “special exemptions” for some owners.
“We need to be very real about what the policy looks like on the ground,” Patterson says. “There’s a big gap.”