entitled "Tax Benefits for Housing Improvements," city of New York Housing and Redevelopment Board, which contains very pertinent information. I shall not burden you with that information at the present time. I would like to include it in the record. Mr. MULTER. That will be received for our files. (The material referred to will be found in the files of the committee.) Mr. KYL. In the same fashion, Mr. Chairman, I would like to submit for your file and tentative use this copy of "Tax Policies and Urban Renewal in the City of New York," and a third item for the file, a case study of the greater Dayton taxation and urban blight. Mr. MULTER. Those two items will also be received. (The material referred to will be found in the files of the committee.) Mr. KYL. Thank you, Mr. Chairman. These items relate to the certain point that if we give property owners an incentive to improve their property, much of the blight can be eliminated and further Government action becomes unnecessary. Now, in regard to this other long-range or broader consideration of the general problem, I would also like to submit for the file, for the use of the committee, a brief summary of the Arlington County, Va., department of real estate assessments concerning site appraisal. Close at hand we have an example of how through a taxation of land for maximum use we can get the private funds necessary to improve areas and indeed prevent the blight which attends the general rundown if such taxation is not in effect. And also, Mr. Chairman, I would like to submit a copy of a speech by Roland O'Regan entitled "Experience With Untaxing Improvements in New Zealand." Mr. O'Regan is the chairman of the New Zealand League for the Taxation of Land Values. Wellington, New Zealand. That was presented at the eastern mortgage conference, Mortgage Bankers Association of America, on May 7, 1963, the material being made available to me by the Thomas J. Fisher Co. of Washington. This is an especially valuable peice of material because it relates actual experience going back to the year 1890 with the system of site taxation and from this material I simply want to point out a few of the factors which are listed. In summary, Mr. O'Regan says: This change in the incidence of the property taxes has many attractive features. It puts the powerful profit motive to work for and not against certain desirable social aims. One, it tends to cheapen land. Two, it tends to make land speculation unprofitable, and even impossible. Three, it initiates economic forces countering urban sprawl. Four, it promotes midcity urban renewal by private enterprise. And five, insofar as it stimulates the construction industries, it has a real influence on employment levels. And as I say again, this expereince goes back to the year 1890 and runs to the present, and is an especially valuable summary of this different concept. It would seem from a careful reading of this material that this might be particularly applicable in this city where we do have a defined boundary and where it is completely necessary that we utilize our land to the best possible purpose and at the same time preserve the character and the dignity and the beauty of the Capital City. Mr. Chairman, with that I say simply that I would not only be available but would appreciate an opportunity to talk with the individual members of the committee or the counsel at any time in the future on these two resolutions, and particularly H.R. 59 which is before the committee this morning. Mr. MULTER. Thank you, Mr. Kyl. You have made a valuable contribution to the work of this committee. Referring to the enactment clause-not the enactment clause but the effective clause, subdivision (b) on page 3 of your bill, the last item, you provide that if the bill is enacted it shall apply only with respect to expenses paid after the taxable year of the date of enactment. Now, let's assume that this bill were enacted this month. Then anyone who would want to take advantage of it would have to wait if he was on a calendar-year basis until next year before he could take advantage of this incentive. Don't you think it might be better to say that the amendment made by this subsection shall apply only with respect to expenses paid for obligations therefor incurred after the date of the enactment of this act, so that anybody then may immediately come in and take advantage of the incentive enacted? Mr. KYL. I would agree. Mr. MULTER. If on a fiscal year basis, that had just closed he would have to wait a whole year before he could get any benefit under this program unless so amended. Mr. KYL. I would certainly agree that the chairman's language is in keeping with the usual pattern of that language, more than that language in the bill. Mr. MULTER. Incidentally, I might say that in New York the tax incentive program has been very effective in accomplishing the purposes sought to be accomplished by your H.R. 59 and I think the same has occurred in other communities, too. Mr. KYL. The report from New York City certainly indicates that it has been a success, Mr. Chairman. Mr. MULTER. Are there any questions? Mr. HUDDLESTON. No. Mr. KYL. Thank you very much. Mr. MULTER. Mr. Wixon, please. STATEMENT OF HENRY E. WIXON, CHIEF, TAXATION DIVISION, OFFICE OF CORPORATION COUNSEL, DISTRICT OF COLUMBIA Mr. WIXON. Mr. Chairman, I am Henry Wixon, Assistant Corporation Counsel, District of Columbia, and I am appearing here in connection with H.R. 59 and H.R. 679 on request of the Commissioners. The Commissioners have submitted a report to the committee and I take it that will be incorporated in the record. Mr. MULTER. The Commissioners' report will be made a part of the record at this point. Also one from the District of Columbia Redevelopment Land Agency. (The reports referred to follow:) GOVERNMENT OF THE DISTRICT OF COLUMBIA EXECUTIVE OFFICES, Hon. JOHN L. MCMILLAN, Chairman, Committee on the District of Columbia, MY DEAR MR. MCMILLAN: The Commissioners have for report H.R. 59, 88th Congress, entitled a bill to provide for the protection of residential and business realty in the District of Columbia which is not substandard and which is held by homeowners and small businessmen in urban renewal project areas in the District of Columbia, and for other purposes, and H.R. 679, 88th Congress, entitled a bill to provide certain incentives for the repair, improvement, renovation, and restoration of residential and commercial property under the tax laws of the District of Columbia, to provide that existing housing in urban renewal areas in the District of Columbia shall be rehabilitated, restored, and preserved in all possible cases, and for other purposes. Section 1 of the proposed bills would amend section 6 of the Act of August 14, 1894 (sec. 47-705, District of Columbia Code, 1961), so as to provide, in essence, that any increase in the value of real property on which the taxpayer's personal residence is located which increase is the result of repair, alteration, renovation, or restoration shall be disregarded in making the valuation of the property for the fiscal year in which the repair, alteration, renovation, or restoration is completed, and for the 4 succeeding fiscal years. The term "taxpayer's personal residence" has been defined to mean real property owned by the taxpayer, or his spouse, or both, at the time of the repair, alteration, renovation, or restoration involved, provided that it is occupied by them, or either of them, as a personal residence at such time, or within 6 months thereafter. Section 2 of each of the proposed bills would amend seetion 2(a) and section 3(a) of title III of the District of Columbia Income and Franchise Tax Act of 1947 (sec. 47-1557(b) (a), District of Columbia Code, 1961 ed.), so as to provide that "expenses" up to a limit of $2,000 paid for the repair, maintenance, alteration, or additions to the personal residence of the taxpayer may be deducted from gross income in determining District income tax liability. Concededly, encouraging the improvement of owner-occupied houses in the District is a worthwhile objective. However, the use of real property tax abatement and income tax reduction as a means to that end is not, in the opinion of the Commissioners, the best method of accomplishing that objective. The District government, presently, has at its disposal a variety of programs to encourage property improvement, among which are zoning, building, and housing codes, as well as urban renewal and redevelopment programs. In some instances, the proposed legislation would offer certain classes of property owners financial rewards for what are now required improvements under existing statutes and regulations. It might, in many instances, reward certain homeowners for making luxury-type improvements. Since the effect of this legislation is tax exemption it would, in many cases, reward those who are least in need of inducement to improve their own property. For example, an additional income tax deduction of $2,000 to a taxpayer in the 5-percent bracket would be twice as beneficial as it would be to a taxpayer in the 21⁄2-percent bracket. Likewise, the abatement of real property taxes is potentially more beneficial to those taxpayers in the higher income brackets than those in the lower income brackets, since a person with a larger income, in all probability, could afford more costly and luxurious improvements and would, therefore, reap a far greater tax reduction. Moreover, the word "expenses" as used in section 2 of H.R. 59 and H.R. 679 is not defined. Conceivably, for example, this might be argued to include the cost to the taxpayer of occupying a hotel room or renting a house during the time involved in making repairs, maintenance, alterations, or additions to the personal residence of the taxpayer. The word "maintenance," as used in the bills might include any expense of any kind whatsoever incurred by the taxpayer in the operation of a personal residence, such as the cost of wax for the beautification of the floors, the cost of soap to wash the windows, the cost of gas to heat the house, or the cost of rental of a machine to cut the grass. At the present time 53 percent of the land area of the District is now exempt from real property taxation. The granting of further additional exemptions could become an extremely serious matter to the District revenue program. Resources to finance expenditures are severely limited in the District, while the expenditure demand is increasing. The upgrading of owner-occupied houses enjoys a community wide acceptance as a goal of public policy; however, it is only one of many justifiable governmental desires which cannot be financed out of currently available revenues from the District tax system. In many instances the apparent incentives offered by this proposed legislation may well be more illusory than actual. Real property taxes and individual income taxes are deductions for Federal income tax purposes. Therefore, the tax incentive offered on the one hand might be significantly reduced because the owner of the real property involved might find his Federal income tax burden substantially increased. The owners of rental properties now have an inducement under both Federal and District income tax statutes to improve their properties. Yet, experience indicates that many rental properties remain unimproved and in a deteriorating condition which further contributes to blight and slums. It would, therefore, appear that it is questionable whether this program would have any great effect on homeowners since the ability to capitalize improvements and depreciate them for income tax purposes has apparently failed in a great many instances to induce owners of rental property to improve it. The administration of District real property and income tax statutes will be made substantially more difficult and costly by the present bills. Assessment, insofar as owner-occupied houses are concerned, would necessarily become a twofold operation. Two sets of values would have to be established; the value of the house disregarding any repair, alteration, renovation, or restoration, and a separate value taking into consideration each of the above-described activities. This legislation, to the extent that it would impede the District's ability to change assessments in the face of constantly changing real property values, would destroy equalization and impair the ad valorem basis of real property taxation. One version of the proposed legislation would provide real property tax abatement only so long as the owner-resident owns his house. This in turn would compel the District to check on ownership records involving claims for abatement, and would significantly increase the workload of the clerical personnel presently involved, and could conceivably require the hiring of new employess. Moreover, the most serious effect of this particular provision on the administration of the real property tax statute would be the lack of finality in determining tax liability on owner-occupied houses. The effect that sections 1 and 2 of these bills would have on District revenues is impossible to estimate, but it would appear that the District would face an overall annual revenue loss. Although real property tax revenues might ultimately increase, the increase would tend to be offset by a corresponding decline in income tax receipts. Section 3 of H.R. 679 adds a new subsection to section 7 of the District of Columbia Redevelopment Act of 1945, providing that residential or commercial property which is not substandard and which is in an urban renewal project area shall not be acquired by the Redevelopment Land Agency. The Agency is also required to encourage the owners of substandard structures in the project area to rehabilitate or restore them to good condition. If the owner fails to do so within a reasonable time, the Agency, after acquiring the property, must determine whether it is desirable or appropriate for it to rehabilitate or restore the property and then dispose of it in some manner consistent with the public interest. The Commissioners are informed that the Redevelopment Land Agency, although recognizing the desirability of avoiding the demolition of structures which may be integrated into a redeveloped area, is opposed to legislation which prohibits the acquisition or demolition of structures within an urban renewal area which are not substandard. The position of the Agency is that in many instances it is not possible to achieve sound redevelopment and at the same time continue in use every building which might, if located elsewhere, be either usable as is or in such condition that it could be rehabilitated. The Commissioners concur in this view, recognizing that the Supreme Court of the United States, in the case of Berman v. Parker (75 S. Ct. 98, 348 U.S. 26, 99 L. Ed. 27 (1954), held that in the redevelopment of a blighted area it may be absolutely essential for the Agency to acquire for demolition buildings which are not themselves substandard. The Commissioners endorse the view of the Agency that planning on an area basis is essential to the renewal of slum or blighted areas of the city. Therefore, they oppose enactment of section 3 of H.R. 679. Section 4 of H.R. 679 amends the Zoning Act approved June 20, 1938 (District of Columbia Code, sec. 513, et seq.), by adding a new section to read as follows: SEC. 17. The provisions of this Act shall apply to chanceries and other businesstype buildings of foreign nations in the District of Columbia, so as to conform with the general practice among nations of requiring the observance (by countries with which they maintain diplomatic relations) of their laws and zoning regulations in the location of such buildings; and the Zoning Commissioners shall accordingly include in its regulations under the first section of this Act such provisions as may be necessary to insure that such buildings are hereafter located only in areas appropriately zoned for such purposes." The new section 17 appears to require that District zoning regulations conform to the laws and zoning regulations of other nations in respect to the location of chanceries. If this is the intent of this section, such a provision would be difficult, if not impossible, to administer. Without having surveyed the zoning laws and regulations of all the nations with which the United States maintains diplomatic relations, it may be assumed that such laws and regulations cover a wide variety of provisions relating to location of chanceries. Conforming the provisions of the District of Columbia zoning regulations to these provisions does not appear feasible. However, the reference in the amendment to foreign nations may be merely an expression of congressional understanding that these nations do, in fact, regulate chanceries and the final clause, which appears to direct the Zoning Commission to make a regulation to insure that chanceries are located in areas zoned for business-type buildings, may be the operative provision of the amendment. In that case, the Commissioners wish to state that they and the Zoning Commission have discussed with a representative of the Department of State the type of ordinance which would appropriately regulate the matter of the location of chanceries in the District of Columbia. Enclosed is a copy of a draft of a proposed amendment of article 31 of the zoning regulations (use regulations for residence districts) relating to chanceries. This proposed amendment is of the general character and scope which the majority of the Board of Commissioners and a majority of the Zoning Commission would agree to have submitted to a public hearing if Congress elects to resolve the chancery problem by permitting the Zoning Commission to proceed under its present authority to restrict chanceries. Under the draft regulation decisions in individual cases would remain with the Board of Zoning Adjustment; the Department of State would prefer that it be made by the Zoning Commission itself. Substantively, the draft regulation is much more restrictive than at present in order to meet objectings which have been raised in the past at Board of Zoning Adjustment hearings. The majority of the Board of Commissioners and the majority of the Zoning Commission believe that this regulation would permit chanceries only in circumstances when they could not be deemed objectionable. Moreover, by avoiding a total prohibition, there would be no basis for a claim of discrimination against the relatively few new countries which have not yet succeeded in finding chancery locations-a consideration which is of considerable concern to the Department of State. The President of the Board of Commissioners, Walter N. Tobriner, favors the exclusion of chanceries from all residential areas whether it be accomplished by regulation or legislation. He, therefore, would support in principle the provisions of section 4 of H.R. 679 if it were amended so that it expresses such a purpose clearly. He opposes the proposed amendment of the zoning regulation. Therefore, the majority of the Board of Commissioners, for the reasons stated, oppose enactment of section 4 of H.R. 679 and recommend that legislation of this nature be deferred in favor of the regulation under consideration by the Zoning Commission. For the foregoing reasons the Commissioners are constrained to recommend against the enactment of H.R. 59 and H.R. 679. Sincerely, WALTER N. TOBRINER, President, Board of Commissioners, District of Columbia. |