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If a neighborhood’s wealth can be measured by its grocery options, the residents of H Street NE and the Capitol Riverfront have gone from broke to baroque almost overnight.
For years, people living near the western portion of H Street NE who didn’t want to take a car or bus to do their shopping had to make do with Murry’s, the grungy supermarket whose dismal Yelp reviews call it a “post-apocalyptic foodstore,” “the most hood super market you could ever find,” and the “‘ghetto-fab’ grocery store of the decade.” But last week came the news that a Whole Foods would be replacing the Murry’s and the adjacent H St. Self Storage, three blocks from a more-upscale-than-most Giant that just opened, and less than a mile from the NoMa Harris Teeter that opened in 2010.
The Capitol Riverfront’s had it even rougher, with no choices but a couple of corner stores and a mile-plus trek across the Southeast Freeway. But a Harris Teeter will be opening next year in the burgeoning neighborhood, and a Whole Foods will join it three years later.
In D.C.’s fast-developing mini-food deserts, it seems, when it rains radicchio and rapini, it pours. The supermarket boom in the heart of the city hasn’t been confined to the Capitol Hill offshoots of H Street and the Capitol Riverfront. A Trader Joe’s and a Natural Market will open on 14th Street NW near U Street, straddling the Yes! Organic Market that opened in 2008. Shaw and Petworth will soon have a substantially upgraded Giant and Safeway, respectively. A two-block stretch near Howard University was expected to get a Harris Teeter and a Fresh Grocer, before an underdog developer was chosen for the former parcel and a conflict between Howard and its developer halted plans for the latter.
What do most of these stores have in common, besides organic leafy greens you’ve never heard of? They’re located in D.C.’s “Supermarket Tax Credit Zone,” meaning that they’re eligible for a full exemption from real property taxes, business license fees, and personal property taxes for their first 10 years of operation, as well as from sales and use taxes on construction materials.
The law responsible for the tax breaks, the Supermarket Tax Exemption Act of 2000, targets “priority development areas,” according to the text of the bill. But those areas comprise the overwhelming majority of the District east of 14th Street NW. And so the tax incentives are going largely to high-end grocery stores flooding neighborhoods that are already brimming with some of D.C.’s most expensive restaurants, apartments, and condos—stores that opened there not because of the tax breaks, but because of all the disposable income present. Meanwhile, only three aging chain supermarkets serve the entirety of the city east of the Anacostia River.
Those tax breaks cost the city about $3.1 million in fiscal year 2013, according to an estimate from the Office of Revenue Analysis—and they’ll likely cost more in future years, with more supermarkets opening up.
The two planned Whole Foods stores, incidentally, are not eligible for the tax exemption. That’s because of an update to the 2000 law spearheaded by Ward 3 Councilmember Mary Cheh, which shrank the area the exemption covers. That legislation, the Food, Environmental, and Economic Development in the District of Columbia (FEED DC) Act of 2010, limits the tax breaks to census tracts with an average household income that’s under 60 percent of the area median income (though many places that were formerly eligible are grandfathered in if they open by late 2015).
But the area median income for a family of four is nearly $110,000, since the D.C. region includes six of the 10 wealthiest counties in America. So even the pared-down tax-credit map covers neighborhoods like Foggy Bottom and most of Columbia Heights.
And the Supermarket Tax Credit Zone could once again be expanded, if Tommy Wells has his way. Last week, the Ward 6 councilmember introduced the Grocery Store Incentive Clarification Act of 2013, which would “restore the supermarket tax incentives that were in place prior to 2011 and worked well in encouraging the establishment of supermarkets in areas that were previously underserved,” as Wells put it in his introductory statement. (The bill just happened to drop one day before plans for the H Street Whole Foods became public, and the two planned Whole Foods stores to which it would extend the tax breaks just happen to be located in his ward.)
Wells said Cheh’s bill “may have prematurely and adversely impacted the ability of supermarkets to expand their geographic reach and level of service within the District of Columbia.” He also stated that on at least one occasion, the Office of the Deputy Mayor for Planning and Economic Development told a developer or supermarket that the tax incentives would apply, when it turned out upon further review that they wouldn’t.
Wells didn’t respond to a request for comment, but one has to assume he was referring to one of the planned Whole Foods stores. Whole Foods Mid-Atlantic Regional President Scott Allshouse says Insight Property Group, the grocer’s landlord-to-be on H Street, was initially under the impression that the store was eligible for the tax breaks, later learned the map had changed and the store was no longer eligible, and got in touch with Wells about it.
Cheh says Wells’ bill is “undercutting the whole purpose of what I did” and questions his motives. “Is it a coincidence that Whole Foods announced that it wants to put two stores in Ward 6?” she asks. “Neither is in a [Historically Underutilized Business Zone], so they’re not eligible for the tax breaks.” In other words, under Cheh’s law, they’re not exempt from the taxes—but under Wells’ new bill, they would be.
Wells’ assertion that the rules prior to 2011 “worked well” doesn’t stand up to the map of supermarkets that have opened in D.C. in recent years. They’re concentrated in flourishing neighborhoods in the western and central parts of the city, which is where supermarkets would be opening anyway without any incentives. But that’s not where the city really needs them. Cheh claims her more restrictive legislation is helping “steer them to food deserts,” but that’s also questionable. Wards 7 and 8 remain woefully underserved, and Anacostia lost its only supermarket last year. The incentives still cover too much of the city for grocers to feel any, well, incentive to open stores in truly poor parts of town.
It’s not even clear that tax incentives play a role in attracting grocers to underserved neighborhoods. Allshouse says Whole Foods is coming to H Street because of the market it offers, not any tax breaks it thought it could earn (though of course the store and its landlord will fight for any tax savings they can get). Tax incentives can help with the financing of a new store, he says, but are unlikely to cause a company to choose one neighborhood over another.
“We wouldn’t say, ‘Let’s go there because there’s a tax incentive,’” Allshouse says. “We’d go there because it’s a neighborhood we want to be in.”
Rather than implement broad tax incentives for large swaths of the city, D.C. Fiscal Policy Institute Executive Director Ed Lazere says a better approach would be to provide direct grants and subsidies to projects in specific areas where the services are actually needed. That could raise a host of ethical issues, with influential councilmembers steering projects to their wards, but it would avoid the current problem of encouraging supermarkets to open locations in the wealthiest parts of the so-called underserved areas.
“A lot of subsidies tend to go into areas that are quote-unquote ‘emerging’ where you know they’re going to take off, because there’s a sense that the investment is going to pay off,” says Lazere. “It’s hard to get investment in truly struggling areas.”
Cheh, with input from the Fiscal Policy Institute, introduced a bill this summer that would require the D.C. chief financial officer to review all tax breaks every five years to assess their effectiveness. The supermarket incentives, crafted in part by her own legislation, would be a good place to start.
Photo by Darrow Montgomery