Credit: Darrow Montgomery

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Sydell Group, the New York-based developer of the Line Hotel DC, did not meet two legislative requirements necessary for the company to receive a multi-million-dollar tax abatement to operate the upscale Adams Morgan hotel, two members of the D.C. Council now say.

But if Unique Morris-Hughes, the director of D.C.’s Department of Employment Services (DOES), gets her way, the Sydell Group will still receive the $46 million tax break it was promised.

In a letter sent on May 6 to Attorney General Karl Racine, Ward 1 Councilmember Brianne Nadeau, in whose district the Line is located, and At-Large Councilmember Elissa Silverman, who chairs the Council’s labor committee and has oversight of DOES, outline their concerns with Sydell’s apparent failure to comply with several terms of its tax agreement, which include hiring requirements for D.C. residents.

In 2011, the Council passed a law stipulating that in order to receive the tax abatement, which would be staggered over 20 years, Sydell would have to meet seven different hiring targets and other requirements, on top of existing First Source and Certified Business Enterprise laws. These include a provision requiring Sydell to ensure that D.C. residents performed at least 51 percent of the construction hours worked, to hire at least 342 full-time equivalent construction employees, and to reserve all apprenticeships on the project for D.C. residents.

“The intent of the Council is clear in the legislation: That Sydell has to meet not just one of the requirements, but all of the requirements. What even the agency admits is that [Sydell] did not meet, clearly meet, two of them,” Silverman tells City Paper. Representatives for Sydell did not immediately respond to City Paper‘s request for comment.

Nadeau and Silverman write in their letter to the attorney general that in “recent meetings with DOES, we have learned that DOES determined that the Line did not meet several provisions” of the 2011 law. According to an audit DOES conducted of Sydell’s compliance, the councilmembers wrote, “the agency found that the hotel only employed 273 District residents during the construction phase, did not have District workers work more than 51 percent of the construction hours, and did not reserve all of the apprenticeships for District residents, meaning that the hotel did not meet at least two of the seven provisions of the tax abatement.”

“Given not all the provisions outlined in the law were met,” the letter continues, “we assert the Line Hotel is not eligible for the tax abatement.”

Morris-Hughes tells City Paper that DOES “went through a very thorough and substantive review, engaging outside, external experts and auditors to assist with the review. Where we landed is really grounded in all those factors and the law itself. Based on all those factors, we landed on a place where we believe a good faith effort was made” to meet the legislative requirements.

Neighborhood activists have raised concerns that Sydell did not appear to be on track to meet those legislative requirements for nearly three years. And in June of 2018, Nadeau sent a letter to City Administrator Rashad Young asking the mayor’s office to investigate why the Department of Consumer and Regulatory Affairs issued a string of temporary occupancy permits to the hotel, which was already operating by that point. Nadeau tells City Paper that she believes, with a project of this size, the city should perform audits periodically to better track compliance.

“I can say that Sydell never came to [the labor] committee with concerns that they felt the requirements were difficult to meet, and that they needed some special consideration,” says Silverman, who points out that the D.C. Council amended its 2011 law two years later to reduce the scope of Sydell’s obligation to hire D.C. residents. “This is a sizable investment of taxpayer dollars in this hotel. There needs to be a true benefit, specifically to the Ward 1 community, for this use of taxpayers’ dollars.”

But in a brief letter that Morris-Hughes sent to Deputy Chief Financial Officer Keith J. Richardson on April 30, which City Paper obtained, Morris-Hughes wrote that, based on a DOES review of Sydell’s hiring records, the agency believes Sydell “made a good faith effort toward compliance.”

It continues (emphasis ours):

Pursuant to D.C. Official Code Section 2-219.03(e)(3)(A)(iii), DOES found substituted compliance for the Hotel project, effective in tax year 2019, if the following condition is met: The Adams Morgan Hotel Owner LLC shall make a payment to the District of six hundred thousand dollars ($600,000), which shall be deposited by the District into the District of Columbia Jobs Trust Fund established by D.C. Code Section 2-219.04c and shall be used for District resident job training and placement activities authorized by law. The $600,000 payment shall be made according to the following schedule: $150,000 shall be paid on or before May 1, 2019; $150,000 shall be paid on or before May 1, 2020; $150,000 shall be paid on or before May 1, 2021; and $150,000 shall be paid on or before May 1, 2022. Thus far, DOES has received the first payment of $150,000 prior to May 1, 2019.

Morris-Hughes effectively told the Office of Tax and Revenue, which is responsible for processing the abatement, that DOES has substituted a $600,000 fine for the provisions with which Sydell failed to comply. She tells City Paper that this agreement “was absolutely grounded in the law in a very thoughtful and intense process.”

In their letter to Racine, Nadeau and Silverman wrote that they “are concerned” with this approach, and that “in effect, [Morris-Hughes] is claiming the authority under the District’s First Source law to waive unrelated sections of law and permit the Line Hotel to receive its tax abatement without meeting the legislated requirements.” Nadeau and Silverman are asking Racine for his “legal opinion” on the authority of DOES or the Executive Office of the Mayor to “use First Source law to waive provisions of law unrelated to First Source.” (“We respect their right and interest to sent a letter to the attorney general,” Morris-Hughes says. “However, based on our legal guidance and legal experts on both these First Source and tax abatement laws … we feel that we have very strong footing.” )

Nadeau tells City Paper she was “a little bewildered” when she learned of the arrangement. “I always thought it was an all-or-nothing thing,” Nadeau says of the seven legislative requirements. “I’m not out to get anybody. In fact, I’d be disappointed if the hotel chose not to operate based on a lack of the tax abatement. […] What I’m most concerned about is that the law drafted by my predecessor is fully implemented and properly implemented. There is certainly a great deal at stake.”