WASHINGTON — The District of Columbia Council is expected to approve two resolutions tomorrow that will authorize a combined $88 million of tax-exempt bonds to be backed by payments in lieu of taxes.
It will be the first-ever PILOT program in the district, and the bonds will finance infrastructure for a $1.6 billion redevelopment project along the Anacostia River in southeast Washington, a blighted area of the city about a mile from the U.S. Capitol. The district is trying to transform the area, including a 42-acre mixed-use site, into a vibrant neighborhood with new housing, retail, and a large riverfront park.
By the time the project is complete in 10 or 15 years, officials hope to have created more than 5.3 million square feet of new development, including 1.8 million square feet of office space, 2,700 residential units, and up to 400,000 square feet of retail space as well as such cultural amenities as a new 5.5-acre park and esplanade along the Anacostia.
The deal is the first to take advantage of a law that went into effect in April 2005, allowing the District of Columbia to capture 100% of the taxes from a property that was not previously on the city’s tax rolls — essentially, federal land acquired by the district.
City officials say they will issue the PILOT bonds by the end of the year. The deal features two components. The first, up to $48 million, will finance public infrastructure on the site of the Southeast Federal Center, the general name for the 42-acre parcel. The bonds will mature over 30 years and finance public roadways, sidewalks, water mains, a storm sewer, and sanitary sewer, as well as various other amenities.
The district plans to sell the issue through private placement with Forest City Washington, the local arm of a Cleveland-based developer hired to redevelop the entire 42-acre site.
Meanwhile, a second tranche of about $40 million covers infrastructure around the new headquarters for the U.S. Department of Transportation, which is located adjacent to the Southeast Federal Center and is set to open later this year. The bonds will be issued for the Anacostia Waterfront Corp., the district’s redevelopment arm, which will use the funds to finance the 5.5-acre park. The AWC bonds will mature over 15 years, and district officials said the PILOTs could be used as security to issue additional 15-year revenue bonds at a later date.
Even though the two sites are adjacent to each other, they have different owners, so the district had to issue two different sets of bonds, explained Konrad Schlater, a project coordinator in the district’s planning and economic development office. The General Services Administration, the federal government’s real estate agency, owns the Southeast Federal Center, while the DOT building is owned by JBG, a real estate holding company.
District officials say the plans are still far from definitive. They would not say which financial advisers or bond counsel they have consulted on the deal because they said it was still very preliminary.
“Basically, what this legislation does is it sets up the mechanism for both properties to have a payment in lieu of taxes, puts the money in a stream, and that allows us to issue notes or bonds — and beyond that no decision has been made,” Schlater said.
The PILOTs are equivalent to what the city would otherwise receive through property taxes, about $7.8 million each year on the Transportation Department project and about $7.3 million each year on the Southeast Federal Center project. Any PILOTs in excess of the debt service will flow into the district’s general fund.
Officials considered issuing the debt as tax increment financing bonds, but ran into several limitations. It couldn’t fully capture the property taxes to support TIF bonds because of a preexisting obligation that stipulates that at least 50% of property taxes back general obligation debt.
“So if we did a TIF on this site, we would only be able to gain maybe approximately 50% of the taxes on the site, because the other 50% would be dedicated to GO debt,” Schlater said.
A district official. said another consideration revolved around the independent office of the chief financial officer, headed by Natwar Gandhi. The official said that the office expressed some concerns about using PILOT bonds for the project, but that those reservations had been resolved. According to the official, Gandhi’s office was unsure if the bonds could be marketed and worried that the federal government could opt to resume control of the Southeast Federal Center site, which would kill the revenue stream for the project.
The district official said Gandhi’s office noted that the GSA would have to waive its current right to repurchase the building before the bonds are issued.
“It’s good that they’re 100% fully on board with the project, because they had been wavering a little bit,” the district official said.
A spokeswoman for Gandhi said she was not aware of any such concerns.
PILOT bonds may play an additional role in the future, another district official said, adding that the city would consider such issuing such debt for two parcels known as Poplar Point and Reservation 13, areas that are currently federally owned but are being transferred to the district.
Reservation 13 could become home to a bond-financed National Capital Medical Center, which would be run by Howard University and financed partially through the sale of $210 million in tax-exempt zero-coupon bonds backed by tobacco settlement revenue. Mayor Anthony Williams has backed off his support on the deal, though, and it may be dead.
The other location, Poplar Point on the Anacostia River, could become home to a new 25,000-seat soccer stadium. The $75 million facility would be located across the water from the future stadium for Major League Baseball’s Washington Nationals.
But legislation in the House that would transfer these areas to the district has been waiting for months for a floor vote that is unlikely to take place soon.
