An Evaluation of the District’s Tax Increment Financing: Is it a net fiscal gain to the District?

Tax Increment Financing in the District

Tax Increment Financing (TIF) is an economic development policy tool used by state and local governments to stimulate economic development in a specific area. Its popularity stems from the notion that a TIF project is self-financing, that is, that the tax revenue generated by the project covers the bond payments for the publicly subsidized loan needed to implement the project. The District of Columbia implemented its first TIF project in 2002 and that was followed by seven additional large TIF projects. (There are some smaller TIF projects but these eight projects in our analysis are the largest, most important ones.) Our recent study (See here) is a retrospective evaluation of the economic and fiscal performance of these District TIF projects.  The study’s objective was to answer two questions: 1) does each project produce a positive net fiscal gain for the city; and 2) does the entire TIF program produce a positive net fiscal gain for the city?

The study of the eight projects finds that five were indeed self-financing, while three were not (see Table 1). We also found the net tax revenue from the five positive projects (property and sales taxes minus debt service) covers the shortfalls in the three lagging projects so that the District’s TIF program in the aggregate appears to be a net fiscal gain to the city.

A Review of the District’s TIF Projects

By and large, tax increment financing in the District of Columbia is generally used to help produce large but unconventional development projects in specific locations of the city that otherwise, arguably, would not happen. The actual amount of a project’s TIF subsidy is the principal amount plus interest of the TIF debt service. Typically, this subsidy directly finances all or a portion of the total development costs of the project. Theoretically, the TIF subsidy is justified as the amount needed to overcome some stated economic impediment for example, environmental damage, keeping a site location from achieving its highest and best use. But in the District of Columbia, it appears that TIFs are applied for a slightly different reason.

The District of Columbia is a relatively small city with over half of its land area prohibited from being developed by the private markets, largely because of the federal presence. The city also has a vibrant economy that generates steady growth in jobs and population. The result is that development of one sort or the other is happening in almost all areas of the city. As such, TIFs in the District are used to facilitate development projects in specific neighborhoods that, possibly, might not see that exact type of development, usually to achieve important socio-economic goals beyond just job and income growth. For example, the Gallery Place and Mandarin sites may have likely been developed as predominately Class A office space without TIF. But Gallery Place is now the entertainment and retail hub of the city’s central business district, and the Mandarin is a 4-star international hotel that was the first to bring upscale hotel and retail activity to the Southwest waterfront. DC USA may have likely been a predominately residential development without TIF.  But, it was the first new large-scale retail complex in a residential neighborhood anchored by one of the nation’s leading national retail chains. And the Convention Center Hotel site may have also likely been a predominately Class A office space or even a hotel development (with only a fraction of hotel rooms, thus precluding it from being classified and marketed as a convention center hotel). Instead, it is now the city’s largest hotel with 1,175 rooms and an underground concourse connecting it to the Convention Center (See here).  So, we can view TIF subsidies in the District of Columbia as the amount needed to overcome the additional project costs above and beyond the costs of a project that would be the highest and best use of land in that location. The subsidy is justified as a means of achieving important socio-economic goals for the city (e.g., grocery stores to eliminate food deserts in certain neighborhoods, broadening the market for business travel to the District, and increasing affordable housing).

The District of Columbia implemented its inaugural TIF project in 2002, and that was followed by seven additional large TIF projects up until 2010. District TIF projects have been used to facilitate retail, residential, hotel, and other mixed-use developments in the city (Table 1).

Measuring the benefits: TIF vs. A privately financed alternative project

One of the key assumptions in the analysis conducted by many state and local governments to decide whether to greenlight a potential TIF project is that the location site for the TIF project has prohibitively high economic costs that precludes a purely private sector financed development of the project (the so-called “but for” test).

The model used for this analysis does not make such an assumption. Our model assumes each actual TIF location would eventually be developed by the private sector absent a TIF but as a project much more in line with the conventional economic and social characteristics of the existing neighborhood (i.e., less investment risk).

We assume the privately financed alternative for each project starts sometime between the TIF start date and 2019 and that the 2019 real property value of the alternative project is 75 percent of the TIF project’s real property value in 2019.[1]

For example, the property value of the Gallery Place TIF project grew from $6.9 million in 2002 to $596.6 million in 2019.  We assume the property value of the counterfactual at the Gallery place location grows such that it reaches 75 percent of the Gallery Place project’s real property value (that is, $447.2 million) in 2019 but for the public financial support.

Earlier TIF projects were self-financing, but later ones were not

We use the model to evaluate each TIF project and present the results in Table 2. The table shows that the Gallery Place project achieved a positive cash flow in year 4 of the 25-year debt service schedule and reached its breakeven point in year 8. The table also shows that when we divide total cumulative net tax revenue for the 25 years period by the TIF bond amount (in 2019 dollars), the District is estimated to achieve a 67 percent return on investment (ROI) in year 25 of the debt payment schedule (adjusted for inflation). Also, five years after the project was delivered to the market, the TIF bond amount was 21 percent of the project site’s total property value.

When the estimated ROI in year 25 of each project’s debt service schedule is greater than zero for any project, we conclude the project will ultimately be a net positive fiscal gain for the city. Consequently, the District’s first five TIF projects produced a net positive cash flow, a financial breakeven point (all within eight years), and ultimately a positive fiscal gain (ROI) for the District. However, the Capper Carrollsburg, Convention Center Hotel and Rhode Island Row projects are not expected to produce a positive ROI over the life of the TIF loan as indicated by the negative ROI in column 5.

Based on a closer examination of the model results and the actual specifics of each project, it appears that the first five TIF projects achieved sound financial standing and an early breakeven point primarily because the total debt for each project was relatively low and the net tax revenue generated at each site was relatively high. In contrast, despite their important socio-economic roles, the last three projects (Capper Carrollsburg, which subsidizes senior housing; Rhode Island Row, which subsidizes affordable housing; and the Convention Center Hotel, which was developed to land more and larger annual conventions to fully utilize the Washington Convention Center), are not expected to generate enough net tax revenue over 25 years to service the TIF debt. (See study here)

What is the net fiscal impact of all the District’s TIF program so far?

When we aggregate all eight TIF projects between the date of the first TIF bond issuance (2002) and when the model estimates that the last debt service payment is due (2034), we can calculate the annual total debt service (including interest) and the total annual net tax generated at each TIF site. We find that the entire District’s TIF program achieves a positive cash flow starting in 2005. The model results indicate that the Gallery Place and Mandarin Hotel projects are the primary sources of excess net tax revenue for the program and, hence, are the source of cross subsidizing the seemingly uneconomic projects of Capper Carrollsburg, Convention Center Hotel, and Rhode Island Row.

The District’s TIF fiscal balancing act

According to the analysis, five TIF projects generated a net fiscal gain, and 3 did not. We conclude that while the financials of each new potential TIF in the future must continue to be highly scrutinized, policy makers should also remain cognizant of the financial health of the District’s entire TIF portfolio. The study finds that, to date, several large projects with high ROIs are cross subsidizing those seemingly uneconomic projects. The cross subsidy enables the “uneconomic” projects to achieve very important socio-economic goals for the District (e.g. affordable housing and broadening the market for business travel to the District) without jeopardizing the District’s overall fiscal health.

What is this data?

The model used in this study is designed to determine if each TIF project produced or is likely to produce enough incremental tax revenue to cover its debt service. We define incremental tax revenue as the tax revenue from the TIF project in excess of tax revenue from a comparable (a counterfactual) but totally privately financed project in that location. The model assumes a 25-year loan (i.e. TIF) at a 6 percent interest rate applied to each TIF project but for the actual TIF loan amount for each project. The interest rate for fixed rate debts range from 4 to 7.5 percent, and the actual median interest rate for the seven projects was 6.1 percent.

This analysis is based on annual real property assessment values and real property tax collections for years 2002 through 2019 for each TIF project. The analysis for three projects (Gallery Place, DC USA (Target) and Rhode Island Row) include retail sales activity (sales taxes), and four projects (the Mandarin, Capitol Hill Towers, Embassy Suites, and Convention Center Hotels) include hotel sales activity (hotel taxes). In the model, that actual property, retail and hotel taxes generated at each site is also used to finance each respective project’s TIF debt.

[1] 1 Given that most TIF projects are in prime locations and the city has experience significant property development in nearly all areas of the city, we assume the estimated 2019 real property valuation of each counterfactual would range between 50 and 100 percent of the actual 2019 TIF property valuation. Hence, we assume an average 75 percent 2019 real property valuation of each counterfactual in the model.

The Mystery of the District’s Self-Employed

When you have eliminated the impossible, whatever remains, no matter how improbable, must be the truth.

-Sherlock Holmes

When the CARES Act passed in March, self-employed persons were granted eligibility to apply for and receive unemployment benefits for the first time in history through the Pandemic Unemployment Assistance (PUA) program.  The self-employed have always been a part of the economy, but the CARES Act marked a turning point for this business type with formal acknowledgement by legislators to the importance of supporting them. But who are the “self-employed”? The identity of the self-employed has long been a mystery. And like the solution to any mystery, one must ask the right questions, find the right clues, and piece together those clues to arrive at the truth.

With the self-employed people two narratives exist. In some cases, self-employed data is lumped in with businesses, and in others they are an employee for themselves. Even among policymakers, the overarching question of, “who and how many are self-employed?” is often debated. Are the self-employed only those people in the “gig economy” or are they established firms that we may frequent daily without knowing they are self-employed? To solve this mystery, we dug through publicly available federal data from the Census for the District of Columbia to gain a better perspective on this significant group. For the sake of simplicity, the self-employed referenced here are “single-person firms” where the owner is the only employee of the firm.

The Tale of the Self-Employed Establishment
From the business perspective, how many businesses within the District are considered one-person self-employed organizations? Using the Statistics on U.S. Businesses and Non-Employer Statistics Data from the Census for 2007 through 2017, Figure 1 reports that in the past ten years self-employed establishments have grown to account for 70 percent of all establishments in the District. Over this same period, the self-employed share of total establishments grew by 4.1 percentage points from 65.9 percent to 70 percent in 2007 and 2017, respectively.

Figure 1: Share of Establishments by Type, 2007 vs. 2017

Source: Census, Statistics of U.S. Businesses and Non-Employer Statistics


As of 2017, 54,965 establishments within the District were registered as self-employed. While these establishments make a significant impact in terms of the number of establishments, their contribution to District total wages and salaries is limited. Traditional businesses with an owner and employees will often budget anywhere from 15 to 30 percent of sales for payroll. Assuming an average of 22.5 percent for payroll as a share of revenues, ORA estimated from sales receipts data the payroll size of self-employed versus employer establishments and compared their contribution to total District payroll.

From the Employee Narrative
In the self-employed establishment, payroll expense varies depending on the share after expenses remaining. As noted in Figure 2, the self-employed account for approximately 1.0% of all payroll earned within the District between 2007 and 2017.

Figure 2: Share of Payroll by Establishment Type, 2007 vs. 2017 (in billions)

Source: Census, Statistics of U.S. Businesses and Non-Employer Statistics, ORA


The share of payroll accounting for those self-employed as employees modestly grew to 1.1% in 10 years, but overall remains marginal compared to the traditional employer establishments. Despite the total establishments that are self-employed, the core fact remains that they are still an employee and when thinking about payroll, this would only account for 60,000 potential employees within the District. Whereas employer establishments employed 527,004 employees according to the data in 2017. Thus, while the self-employed make a significant share of total establishments, as individual employees they are vastly outnumbered by those in traditional employment in the District.   

The Red Herring of the Self-employed and the App-service Employment
Contrary to popular belief, self-employed individuals are not relegated to only ridesharing or other app service employment. As Figure 3 shows, the majority of the self-employed are to be found in the Professional, scientific and technical services sector, one of the District’s largest employment sectors, and a major driver of District economic growth in recent years.

Figure 3: Top 10 Industries for Self-Employed (Total Establishments), 2017

Source: Census, Non-Employer Statistics


According to the Census data, in 2017 the total sales for self-employed establishments was $1.9 billion. In context, that was the going rate if you wanted to buy both the Tampa Bay Rays ($825 million) and Miami Marlins ($940 million) in 2017.. Looking back at Figure 3, Professional, scientific, and technical services accounted for 30 percent of the total self-employed establishments. Jobs within this sector include consultants, lawyers, and computer programmers. In terms of sales, the sector accounted for nearly 43 percent, or $821 million, of the total self-employed sales that same year. Real estate and rental and leasing sector, which includes real estate agents and property management companies, although a smaller share of total establishments accounted for an estimated 10 percent of the total sales in 2017. Combined with Professional, scientific, and technical services, the two sectors account for nearly 35 percent of the total establishments, and 53 percent of all self-employed establishment sales in 2017 or $1.0 billion. While many self-employed could be from ride-sharing, the data indicates a larger portion may be in more lucrative industries.

Concluding Remarks
The mystery of the self-employed has eluded policymakers for decades. Dueling narratives of self-employed as establishments or employees have complicated the issue even further. As establishments, the level of newly self-employed within the District has grown continuously since 2007 to become 70 percent of all establishments by 2017. Viewed as  employees alone underestimates the significance of self-employed as an important driver of District economic growth, given the share payroll in 2017 accounted for by self-employed was estimated to be 1%. Contrary to popular thought, the self-employed are not restricted to retail or transportation, but are prominent in well-established skill-based sectors of the District economy. Overall, their contributions are not limited to tip-based income but have amassed to $1.9 billion in sales annually. However, there is no easy solution to the mystery of the self-employed, only more questions. But, the Census data may be the cipher we need to begin unraveling this mystery and answering those questions in the future.

For an interactive experience, check out our blog dashboard companion piece in Tableau, “The Mystery of the District’s Self-Employed”

Which Capital Bikeshare stations see the most traffic?

Since its launch in 2010, the Capital Bikeshare program has witnessed tremendous growth in ridership. From 2011 to 2014, the number of Bikeshare trips that began or ended in the District of Columbia grew 2.6-fold. This remarkable growth has been fueled by the addition of new Bikeshare stations throughout the region and by the attractiveness of the program as an alternative mode of transportation.

Total Number of Trips by Year

A survey recently released by Capital Bikeshare gives us glimpse into how Bikeshare members use the service. The survey found that:

  • 85 percent used the bikes to attend social events;
  • 79 percent used the bikes for personal appointments;
  • 78 percent used the bikes to go shopping or run errands;
  • 77 percent used the bikes to eat at restaurants;
  • 74 percent used the bikes to go to work; and
  • 54 percent used the bikes to exercise.

However, when weighed by the frequency of trips, the most common use of Bikeshare is for going to work. Survey respondents that use Bikeshare to travel to work did so more frequently than for any other purpose. Of these travelers, nearly half use the bike share more than six time per month to travel to work.

Purpose of Bikeshare Trip

This left us wondering if Capital Bikeshare trip data for the District of Columbia supports the results of the survey. We analyzed program data since the start of the program and created an interactive map to visualize station traffic and user habits over time.

(click to interact with the following map)

Capital Bikeshare Arrivals and Departures

Here’s what we found:

  • Within the District, the net Bikeshare traffic flows from the NW quadrant to downtown area and to Georgetown.
  • The average District Bikeshare station experiences approximately 1,079 arrivals, 1,081 departures, and 2,159 total trips each month so on average, arrivals and departures even out across the city.
  • There is great variation in trip volume between stations.  The location with the highest amount of use, Massachusetts Ave & Dupont Circle NW, averaged 9,751 in monthly trips. In comparison, the location with lowest amount of use, Nannie Helen Burroughs Ave & 49th St NE, averaged only nine trips per month.
  • Station trips fluctuate seasonally due to weather conditions. The use begins to increase in April, peaks in the summer, and declines beginning October.

(click to interact with the following table)

Capital Bikeshare Arrivals and Departures Bar

Comparing arrival and departure data by station with the District of Columbia Office of Zoning land use map shows that Bikeshare traffic flows from residential areas to commercial areas. In order to compare stations, we calculated the percentage of total trips that were arrivals and departures for each station. Then we calculated the difference between the arrival rate and the departure rate to see if bikes tend to flow in or out of a station. For example, if 70 percent of all trips logged in a station are arrivals and 30 percent departures, the station’s trip balance would favor arrivals by 40 percent.

Since 2011, stations with the highest percentage of arrivals are generally located in areas of the city that are designated as commercial use and are home to offices, restaurants, nightlife, and entertainment.

Top 10 Arrivals

Conversely, stations with the highest percentage of departures are generally located in areas designated for residential use.

Top 10 Departures

The most balanced stations – those that essentially have an equal percentage of arrivals and departures – are located in a mix of residential, commercial, federal, and institutional areas.

Top 10 Most Balanced

The data we analyzed also captured another Bikeshare phenomenon that has been documented in the past. There is an imbalance between arrivals in departures across the entire system which requires an extensive redistribution program to ensure bike availability. This imbalance is captured in the survey results since 59% of respondents cite access to transportation and the ability to take one-way trips as an important factor in their decision to join the Capital Bikeshare.

What exactly is this data?

Bikeshare station location and trip data were derived from the Capital Bikeshare dashboard. Zoning and land use information was gathered from the District of Columbia Office of Planning land use maps. The survey results referenced in the post are included in the 2014 Capital Bikeshare Member Survey Report.