WASHINGTON - The cash-strapped capital is renewing its efforts to collect local income taxes from mortgage titan Fannie Mae.
Because of an exemption conferred by Congress, Fannie Mae, formally the Federal National Mortgage Association, pays no local taxes. The company, which posted profits of more than $2 billion last year, might have to pay some $300 million to the city if it were taxed like other corporations.
"D.C. has become a tax haven for one of the world's largest financial organizations," said William Lightfoot, a member of the Washington city council.
On Monday, eight council members introduced a resolution asking Congress to let the District of Columbia tax Fannie Mae.
Fannie Mae has "executives with multimillion-dollar salaries, (but) "gets fire, police, and sanitation (services) free of charge," said Mr. Lightfoot, who supports the resolution. "It's a patently unfair situation."
Washington's city council tried to debate the issue of a local tax on Fannie Mae last year, but council members backed off in the face of heavy lobbying by the agency.
The 12-member council has been emboldened to try again this year by a recent series of articles in The Washington Post highlighting the issue. The resolution is expected to be voted upon in March.
If the district were to win the right to tax Fannie, it might choose to collect at less than the normal rate so that Fannie Mae does not leave the capital for the suburbs, said Mr. Lightfoot.
When Congress chartered Fannie Mae during the Depression, it made the mortgage agency exempt from state and local taxes in an effort to bolster home lending.
Since then, Fannie Mae has been spun off into a publicly traded company with a host of government privileges.
Critics, including some in Washington's city council, say Fannie Mae no longer needs one of those privileges - the exemption from local taxes.
But Fannie Mae is showing no signs of budging.
Last year, the agency told Washington's local government that it would rather take its 2,000 jobs to a nearby suburb than pay taxes here.
Fannie Mae fears that lifting the tax exemption would open it to local and state taxes throughout the country.
"The removal would run absolutely counter to our mission of lowering mortgage costs," said David Jeffers, a Fannie Mae spokesman, because the agency would pass on the increased tax bill to homeowners through higher mortgage rates.
Long-time Fannie Mae watchers say that Washington's local politicians will be outgunned by Fannie Mae.
"The likelihood of (the tax) passing is slim, because of the political clout of Fannie versus the District (of Columbia) government," said one observer, who asked to stay unnamed and out of the fight.
While Morgan Stanley analyst Eric Hemel couldn't rule out a local tax on Fannie Mae, he said "the probability is small."