D.C. FY25 Budget Expands CRE Revitalization Initiatives

The end of June saw the D.C. Council pass the Fiscal Year 2025 Budget Support Act of 2024 (https://lims.dccouncil.gov/Legislation/B25-0784) and the Fiscal Year 2025 Local Budget Act of 2024.

The 2025 budget includes the “Central Washington Activation Conversion Program Amendment Act of 2024,” a new property tax freeze to help further commercial real estate initiatives in the City core. The Central Washington Activation Program, which the Mayor has referred to as the “Office to Anything” program, offers a 15-year tax freeze, in the form of a tax abatement, for office properties with 50,000 square feet or more that are either converted to a new use that is not residential or upgraded from non-Class A office space to Class A. The tax abatement is intended to offset the increase in property taxes over a baseline year, that result from a repositioning project. The abatement will be subject to an annual cap as follows: $5 million in 2027; $6 million in 2028; $8 million in 2029; and a 4% increase in the cap each year thereafter.

The eligible area includes all of the “Central Washington Area” established by the Comprehensive Plan (outlined in black below), plus 1,750 feet in any direction from the planning area boundary (outlined in red below).

Next Steps

With Mayor Bowser’s return of the Local Budget Act to the D.C. Council last week, the Budget Support Act is expected to undergo Mayoral review in the coming weeks, and the legislation will begin its Congressional review period before ultimately becoming law. Emergency legislation to implement the Budget Support Act has been enacted. The 2025 Fiscal Year will begin on October 1, 2024.

After the budget legislation becomes law, the next step is for the Office of the Deputy Mayor for Planning and Economic Development (DMPED) to issue draft regulations. Per DMPED staff, the regulatory implementation effort is expected to get underway in FY25, which means further details on the abatement program could be available as early as this fall. These regulations will establish the selection process for eligible properties that apply for the exemption and the process by which abatements will be obtained.

Additional Renewal Efforts

The Central Washington Activation Program supplements the Housing in Downton (HID) tax abatement , passed by the Council last year and activated by DMPED in March. The HID program provides a 20-year tax abatement for office-to-residential conversions in Downtown D.C. (shown in the map below) that include affordable housing. To be eligible for the program, a conversion project must reserve either 10% of the resulting housing units at 60% of median family income (MFI) or 18% of the housing units at 80% of MFI. The program also includes Certified Business Entity-related requirements and First Source employment requirements for construction, but not for operations. An abatement would include an exemption from the Tenant Opportunity to Purchase Act (TOPA) for the first 10 years after a certificate of occupancy is issued or for the first sale (whichever is first). The HID abatement is also subject to annual caps: $2.5 million in 2024-2026; $6.8 million in 2027; jumping to $41 million in 2028; and a 4% increase in the cap each year thereafter. The abatement is awarded through a competitive application process which is currently open and accepting applications.

The HID program itself supplements the Affordable Housing in High-Needs Areas (https://dhcd.dc.gov/publication/request-applications-tax-abatements-affordable-housing-high-needs-areas-hanta) (HANTA) abatement that was created in 2020 and applies to developments in designated planning areas that meet various affordability requirements. The abatement period under HANTA is up to 40 years.

Other efforts to support the rejuvenation of Downtown D.C. include a Retail Recovery Grant program created by the recently approved 2025 budget legislation, which authorizes the Mayor to approve grants that provide economic support to retail businesses within the Downtown D.C. Business Improvement District. In addition, the Mayor has devoted resources to spearheading the Gallery Place/Chinatown Task Force (https://bedowntown.dc.gov/page/about-gallery-placechinatown-task-force) launched at the beginning of this year, which continues its efforts following the highly publicized deal reached to retain the NBA’s Washington Wizards and NHL’s Washington Caps in the District. 

These efforts reflect the continued collaboration of District officials and business leaders working to reenergize Downtown D.C. and commercial real estate more broadly.

If you have any questions about this legislative update, please contact a member of the Goulston & Storrs D.C. Land Group.