D.C. Mayor Muriel Bowser is proposing a dramatic increase in tax breaks for owners of downtown office buildings who convert them to housing, arguing that the additional incentives will help revive what she calls the “economic engine of our city” amidst a persistent pandemic-era trend of remote work that officials fear might not change much in years to come.

But her package of enhanced tax breaks — which was included in her 2024 budget proposal — has drawn mixed reviews, with progressive activists decrying them as a giveaway to wealthy property owners and some experts wondering if they’ll do enough (and soon enough) to revive downtown just as the city is starting to feel the pinch of declining commercial property values.

Bowser’s proposal builds on an existing program that puts $2.5 million each year from 2024 to 2026 towards property tax breaks for commercial property owners who convert to residential use. The amount of tax breaks is already set to increase to $6.8 million in 2027, and Bowser’s new budget proposal would see it jump dramatically to $41 million in 2028.

“Anyone who goes downtown during the week knows that we don’t have the vibrancy we had prior to the pandemic,” Bowser told the D.C. Council last month as she unveiled her budget. “Office vacancies are nearly double pre-pandemic level… but we also know that we cannot rely on the strategy only of bringing back workers. Our downtown is forever changed and the strategy we put in place has to focus on how we mix uses and people downtown.”

Earlier this year Bowser said she hoped to attract 15,000 new residents to downtown D.C. over the next five years, and in the process better balance the ratio of residents to workers. Historically, for every 10 workers in downtown there was one resident; in Union Market, Bowser told lawmakers, the ratio is one to one. Bowser told the council last month that under the current tax breaks for residential conversions, the city could expect 1,400 total housing units; with her proposed increase, it would jump to 7,900.

In a statement, Gerren Price, the president of the Downtown D.C. Business Improvement District, said he was “thrilled” with the proposed increases to the tax breaks, saying they “will incentivize more developers and help achieve the mayor’s goal for more people living in the heart of the District.” Oliver Carr, the CEO of Carr Properties, which has a significant portfolio of office buildings in D.C. and says occupancy is half what it was pre-pandemic, similarly told DCist/WAMU that turning downtown office buildings into housing will need some level of government assistance.

“We think that kind of incentive is a must-have to create some momentum,” he said. “I can tell you that without a property tax incentive, the numbers just don’t work. Construction costs are really high today and rents in the city are kind of holding steady and maybe even they’ve come down a little bit. So the only way to create a financial incentive to attract capital is with this property tax incentive. We’re just looking for an economic tool to create some growth in residential downtown. I think tax abatements seem pretty straightforward, and it’s something the city has done in the past very successfully.”

Similar tax breaks were put to use to spur development in Penn Quarter and Chinatown two decades ago, and in 2009 the council approved a package of residential tax abatements for new buildings in NoMa.

But Bowser’s proposal for increased tax breaks has drawn a cool response from some lawmakers and activists, who question whether it’s a good use of taxpayer funds — especially as Bowser has proposed cutting funding for emergency rental assistance and a range of other programs as part of an overall belt-tightening in city spending.

“The logic of this budget seems to be this: D.C. residents need to make sacrifices now so that we can subsidize enough growth downtown to get people to move there, so that in five or 10 years’ time, those people will contribute enough new tax revenue to allow us to afford the things we want to invest in,” said Councilmember Brianne Nadeau (D-Ward 1) during a council hearing last month.

Erica Williams, the director of the D.C. Fiscal Policy Institute, says property tax breaks are the wrong mechanism to help commercial property owners convert buildings to housing, and may well be giving public funds away to developers who were already thinking of pursuing residential conversions anyhow.

“We think it’s the wrong tool,” she said. “There’s all kinds of things that would have to change in a lot of these buildings. And that’s going to take a lot of upfront capital cost. And so a loan or grant program that’s really targeted at covering cost in those in that initial year or so of the construction process would probably make a lot more sense than a 20-year abatements against operating costs.”

Williams and others have been especially alarmed at other changes Bowser is proposing as part of her incentives package, including decreasing the amount of required affordable housing that would have to be included in any conversions that get a tax break, exempting the conversions from the D.C. law that gives city residents a priority in hiring for construction projects that get public funding, and additionally giving any residential conversions a 15-year exemption on the D.C. law that gives tenants the right of first refusal when their building is put on the market.

“It doesn’t feel well-aligned with our goals for building affordable housing in the District, which we really desperately need,” said Williams. “By the mayor’s own analysis in her Comeback Plan, one of the major reasons for people leaving the District is housing affordability, so that we wouldn’t be leaning into that further is unfortunate.”

But advocates of the mayor’s proposal say it merely reflects the reality that existing requirements will only make conversions more costly. “I think if you start to increase the requirement to have too many below-market rate units, then the numbers stop working,” said Carr.

“We believe in supporting TOPA and First Source and zoning proposals to meet our policy goals,” said Bowser last month. referencing the laws she’s looking to exempt for downtown D.C. residential conversions. “But 100% of them on 100% of the projects, this one-size-fits-all approach, won’t work, especially for downtown.”

For Yesim Sayin Taylor, the director of the D.C. Policy Center, some type of government incentives — whether tax breaks, grants, or some other public offerings — will be needed to speed up the process of converting downtown office buildings to residential use. “It would take a ten-year recovery and turn it into a five-year recovery,” she said.

But Taylor says that D.C. isn’t yet thinking big enough about how to best get it done quickly enough to avoid the prolonged pain of having a desolate downtown. In Calgary, Canada, the local government is investing public funds to help convert almost a dozen office buildings to residential and other uses; so far the biggest single infusion of public funding has been $15 million for a single building. D.C. doesn’t have that type of money to spend, but Taylor says one idea she’s been toying with is an independent economic development corporation to marshal resources to transform downtown D.C.

“The two elements of an economic development corporation is that it has some independence in its vision of how to redevelop a place, and it has some assets that it can lean on. So we do not have money right now, but we can maybe negotiate for assets,” she said, citing the aging FBI headquarters building on Pennsylvania Avenue as a possible asset the federal government to hand over to a new economic development corporation as a development opportunity.

Economic development corporations have existed in a number of D.C. neighborhoods throughout the city’s history, and the National Capital Revitalization Corporation was created by the federal government in the late 1990s as a means to spur redevelopment as the city emerged from its financial crisis. Other than that, though, Taylor says there needs to be more emphasis also on creating new jobs opportunities and attracting new employers downtown; Bowser’s Comeback Plan pledges 35,000 new jobs in high-demand sectors like hospitality, technology, and life sciences.

Councilmember Brooke Pinto (D-Ward 2), who introduced her own downtown-focused bill last month known as the Recovery Act, says she’s supportive of Bowser’s broad goals, but thinks the city needs to focus on ideas other than just tax breaks to spur the transformation of downtown.

“I am happy that downtown revitalization and recovery are central to the mayor’s strategy for the city. I think we’re aligned that it needs to be a focus, and that we need to be providing incentives for these types of conversions because they’re so costly,” she said. “But I think the Recovery Act is a much broader, more comprehensive blueprint that provides multiple different tools, whether it’s tax incentives, grants, or prioritizations for things like child care and safety.”

The council is currently reviewing and making changes to Bowser’s proposed budget, and Pinto says she hopes to incorporate portions of her bill into the final spending plan that lawmakers will vote on in May.