After a week of hand-wringing over a hotel developer’s failure to date to hire residents for construction jobs under the terms of a $46 million tax break, D.C.’s highest finance official seems prepared to pull that benefit if the company doesn’t make up for its shortfalls in the near future.
Dubbed The Line, the project broke ground in Adams Morgan in early 2015, and construction is expected to finish as soon as next year. Its backers have promised to deliver an economic boost to the neighborhood in exchange for the tax abatement, to be doled out over 20 years. But more than five years after it was first announced, the hotel continues to raise eyebrows over whether and under what circumstances private developments should get public support. That debate was reignited last week when the Post reported that the project’s developer was nowhere near meeting statutory requirements that the D.C. Council approved in 2010 and amended in 2013.
Now, the Office of the Chief Financial Officer says it will decide whether to award the subsidy after the company “provides certification that all the conditions in the legislation have been met.” The act mandates the Sydell Group to hire a construction force of mostly District residents and “a minimum of 342 full-time equivalent employees” to build the 200-plus-room hotel. (Initially, the deal required 765 construction positions, but the resulting law was changed because the scale of the project had diminished.) Officials say Sydell is only about a quarter of the way to 342 jobs. They further insist that these positions were intended for D.C. residents, not laborers in general.
The situation calls into question how effectively the District can avoid being hosed, and who’s to blame when a deal goes south. And beyond Adams Morgan, the Line affair could set precedent. A spokeswoman for OCFO says she’s “not aware of the District ever rescinding an abatement program for a developer”—an assessment corroborated by more than half a dozen interviews.
In no small part, that’s likely because many tax incentives given by D.C. in the past have not contained clawbacks or other built-in protections designed to safeguard taxpayer dollars, as a 2013 investigation by WAMU revealed. Although the particulars differ, the District approved a $60 million tax break for the Advisory Board Company to remain in D.C. last year, while, in 2012, it approved but never fulfilled a $33 million tax deal with LivingSocial, which has struggled.
A spokesman for the New York-based developer says the company is working closely with the District “to ensure the project remains in compliance and in good standing with the community, and remains confident that it is on track.” He adds that the developer hosted a job fair on Sept. 14.
Meanwhile, executive and legislative officials say, Sydell risks forfeiting its tax abatement if it doesn’t hire up by the completion of the hotel’s construction, and if it thereafter fails to staff the majority of the hotel’s permanent jobs with District residents, half of whom must live in Ward 1. Other criteria for the tax break include the developer funding a job training program and providing at least 4,000 square feet of incubator space for local groups. The eventual hotel will absorb the First Church of Christ, Scientist, which faces Columbia Road.
Based on the Post’s account, Sydell seems to be under the impression that it’s only on the hook for filling 175 construction jobs with D.C. residents, or 51 percent of the 342 cited in the law. But as Bryan Weaver, a former neighborhood commissioner who helped craft the deal and ran for D.C. Council, points out, even then the developer would be off the mark. Weaver is skeptical that Sydell will come into compliance by the end of the build-out, noting that records he saw in March showed the company had hired fewer than three dozen D.C. residents up to that juncture.
“This is a kid going into the last week of his senior year saying if he doesn’t pass these three classes, he’s not going to graduate, and he’s saying, ‘Oh, I’m going to pass,’” the community activist says. “Unless they extend the construction for another year, I don’t see how they do it.”
As a prominent backer of the deal, Weaver hopes he’s wrong. “If the District wants to work out some sort of settlement with [Sydell], or a penalty and then try to continue with the tax abatement, I’d look at it for what it’s worth,” he adds. “But at some point, we’re all carrot and no stick. At what point are we going to say: Sorry guys, you didn’t hold up your end of the bargain?”
City leaders are toeing a fine line with the hotel’s team because they want to see a longstanding project realized while simultaneously affirming the rule of law. Courtney Snowden, deputy mayor for greater economic opportunity, says she doesn’t view the situation as a “controversy.” “In my view, we want to be good partners with those who are helping to build up the city and create opportunities for residents,” Snowden says. The Department of Employment Services, she explains, will keep tracking hires by Sydell and its contractor Walsh Construction.
Asked about the role of Mayor Muriel Bowser’s administration in supervising the development, Snowden replies, “I wouldn’t say that some have said we dropped the ball. I don’t think we have. We have a group of committed staff to monitor projects and contracts. This is one of them.”
Ward 1 Councilmember Brianne Nadeau says the hotel will bring critical daytime foot traffic to Adams Morgan, a neighborhood that has no shortage of the nighttime kind. Nadeau declines to speculate about whether Sydell will fulfill its obligations and says her priority is ensuring D.C. residents—particularly those in her ward—have opportunities for short- and long-term jobs. To that end, her office has coordinated with the developer to schedule three job fairs over the next three months, one on Oct. 7. Still, Nadeau says it’s not “a persuadable point” if Sydell neglects to follow the law. “It’s not about how any one of us feels at the moment.”
So where does the buck stop? Jim Graham, Nadeau’s predecessor who introduced the tax break to the D.C. Council, describes the gap between the developer’s employment of District residents thus far and the provisions in the legislation as “a failure of oversight,” assigning partial blame to his one-time rival. “We paid attention to major projects within our ward in terms of compliance—not everything that goes on but something as gigantic as that hotel, certainly,” he says. “Without that money, nothing would have happened.”
Construction on The Line launched shortly after Graham was booted from office. He suggests that timeframe means sitting elected officials are culpable for the project’s shortfalls. “The attention should have been paid in the last 18 months,” Graham says. “Who was in office the last 18 months? You tell me.”
To which Nadeau responds, magnanimously: “I appreciate the work that Jim Graham did as my predecessor, because without him we wouldn’t have this law, but it’s not about pointing fingers at this point.”
For some Adams Morgan residents, the main issue at hand is getting the most bang for the District’s buck from the hotel, as the agreement sought. Wilson Reynolds, a longtime neighborhood commissioner, calls the deal “cutting edge” in terms of the payout it’s supposed to bring D.C. He adds that he’s “in harmony” with Nadeau about next steps, arguing that Sydell has a simple reason to comply with the law: “They have a lot of eyes on them.”
“Now, how hard they work to fill those jobs? That can be a different conversation,” Reynolds says. “What’s scaring me is that, the ability to be able to have a job in this neighborhood that allows you to afford to live in this neighborhood is quickly eroding. It’s a very serious problem.”
D.C. Council Chairman Phil Mendelson recalls that the tax abatement for the hotel was highly debated when originally proposed. He was one of a handful of councilmembers to vote against it in December 2010. While lawmakers have reformed the city’s tax-abatement policies since then, requiring stricter OCFO analyses to assess whether a development needs an inducement to advance, Mendelson says he still “does not see why we need to provide an economic incentive for this project.” “But a deal is a deal,” he notes. “I’m not about to pull the rug out from under it.”
For the chairman, the policy takeaways from the hotel fracas are already apparent. “Assuming the worst, it would not be a new lesson. It would be a reaffirmation that the District can be taken advantage of,” he says. “Assuming the best, then we could take from this that the idea of tying employment of District residents to government benefits, like tax abatements, is a good thing.”
Whether the worst, the best, or something in between ensues will unfold in the coming months.
“Keeping the tax abatement is probably a major motivation for the developer, so I wouldn’t be surprised if they are working very hard to meet [requirements],” explains Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which initially opposed D.C.’s financing of the project.
The Line “highlights that the city has to be really careful when it thinks about giving tax breaks to for-profit developments, to make sure it’s not only getting its money’s worth but it can enforce it.”