When the D.C. Council’s Committee on Finance and Revenue continues Thursday its examination into why Chief Financial Officer Natwar Gandhi stopped enforcing a 2000 law, some folks will cast the remedy sought by Mayor Vincent C. Gray as a new tax. But his request would simply return to the original directive. “It’s not a new tax. It’s a new law that clarifies what the council intended when it passed the one in 2000,” said Attorney General Irvin B. Nathan.
“It’s the proper application of the existing law,” explained at-large Councilman Vincent Orange.
To understand, let’s go to the clips: In 2000, the council passed the Tax Clarity Act, requiring the CFO to collect a tax on the full amount of certain refinanced commercial real estate loans — except if the original debt already had been taxed. Between 2001 and 2006, Gandhi allegedly implemented the law, collecting about $14 million. Then, in 2007, after receiving a lone request for a ruling about the legality of the tax, Gandhi stopped collecting it — without approval from elected officials.
Two enterprising lawyers — Jeff Mitchell and James Stanton — alleged earlier this year that Gandhi never collected the tax and that industry representatives used tactics to avoid paying it. The city may have foregone $100 million, they said.
“We’ve always thought it was in excess of that [amount],” Mitchell told me earlier this week.
Their allegations instigated legal opinions, an investigation by the inspector general and council hearings.
During testimony last week, it became apparent that since February Gandhi has misrepresented the facts, reminding me of President Reagan’s “trust but verify” admonition. When I deal with the CFO, verify, verify and verify again has become my mantra — and for good reason.
Gandhi had said his office received a legal opinion when it abruptly stopped collecting the recordation tax, as prescribed in the Clarity Act. But during the hearing, his general counsel admitted no such document existed. So, the CFO voided a council-passed law using a five-sentence email to a private company.
Additionally, Gandhi had trashed Mitchell and Stanton, asserting their claim that companies were evading the tax was “ridiculous.” Title company executives confirmed last week many deals were structured using what they called a loan “modification” method. Under questioning by at-large Councilman David Catania, that method seemed similar to standard refinancing.
“There is no doubt it is refinancing,” said Mitchell. Those maneuvers meant the District missed out on millions in taxes.
The recordation tax debacle is yet another example of Gandhi’s mismanagement of the city’s finances.
Gray really doesn’t need a new law. He could instruct the CFO to implement the 2000 Tax Clarity Act. But he has refused. “Vince has all the timidity of Barack Obama but none of the charm,” said one council member who requested anonymity.
On Thursday, the CFO and crew likely will offer yet another revised self-protection narrative. Not unlike the previous, it won’t comport with the known facts about why the city was denied massive amounts of revenues when it most needed them.
Jonetta Rose Barras’ column appears on Monday and Wednesday. She can be reached at [email protected].
