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Critics question the District’s planned $100 million hospitality bailout.

It’s a good time to be a tourist in Washington, D.C. Museums are empty. Hotels are offering their rooms at substantial discounts. Restaurants are resorting to fixed-price menus to fill seats. For one weekend, riding the Metro was free.

But there’s a downside to this tourism paradise for those who work in the industry: Thousands of jobs have been lost, many of those still holding on have taken pay cuts, and the District faces the potential collapse of many businesses, hotels, and restaurants that attract and provide services for tourists. In short, a hospitality industry that until recently enjoyed the fruits of an unprecedented economic upswing—to become the city’s second-largest employer—is suddenly suffering its worst crisis in modern memory.

The D.C. Council has been quick to respond. Shortly after the events of Sept. 11, the council, along with the mayor’s office, announced a proposed $100 million hospitality-bailout bill designed to provide low-interest loans or loan guarantees to hotels and restaurants affected by the attacks. The measure passed the council and now awaits approval by Mayor Anthony A. Williams.

The hospitality bill is designed to enable loans that banks wouldn’t otherwise make to at-risk businesses. Any business that was negatively affected by the attacks is eligible, but the bill is primarily geared toward hotel, restaurant, and transportation industries.

At-Large Councilmember David Catania, a proponent of the bill, says that the measure will be financed by the accumulated surplus that the city has managed to build up in recent years. On Nov. 7, the city announced a “loan deposit program” that will shift $40 million in District funds from national banks to local banks to create a pool of $8 million for the loan program. Catania also stresses that the legislation won’t cost the city the whole $100 million, because at least some of the high-risk loans will be paid back. The District’s chief financial officer, Natwar Gandhi, agrees, estimating that the ultimate cost of the program will be about $15 million.

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Critics think, however, that the bailout may be a step in the wrong direction and could signal a return to the fiscal irresponsibility that plagued the District in the past.

On Capitol Hill, for instance, there’s a belief that the council, faced with a sagging economy and no longer overseen by an independent control board, needs to be watched closely. The council is aware of the scrutiny.

“I am very conscious of concerns that people are watching the District right now,” says Ward 2 Councilmember Jack Evans. “In the past, the council and the mayor would just give money away. We are not going to put the city in financial risk, particularly now.”

But some aren’t so sure that the city will be able to maintain fiscal stability. “To me, rushing in with a $100 million bill is a cause for concern,” says Beth Solomon, a Shaw neighborhood activist who says that her own District-based video-production business has been hurt by the attacks. “I understand the logic of wanting to prevent further hemorrhaging of jobs, but this could be a knee-jerk action that ends up haunting us.”

According to Evans, the need for the bill is plain. “The occupancy rate at the Marriott Wardman, for example, which mainly serves the convention center, is 4 percent right now,” he says. “We need to keep this segment of the market around and ride the crisis out for the good of the city.” (Occupancy at the Marriott Wardman has since returned to something closer to normal; at press time, the hotel said that its occupancy was at 60 percent.)

Whether a chain of hotels that posted a $479 million profit last year needs the city’s help in getting a loan is an open question. And, if the larger businesses such as Marriott do end up the primary benefactors of the legislation, as Evans’ example suggests, will the loan program in essence be a corporate subsidy to businesses without a true need for such assistance?

Others, such as Solomon, ask an even more basic question about the program: Does it makes sense to use District resources to sustain all of the players in a crowded market—even smaller businesses—with money that could be spent building alternative industries for displaced workers?

“[Hospitality jobs] are low-wage, low-skilled jobs,” she says. “We need a hospitality industry, but at what price? That industry just received a huge subsidy in the form of the convention center. Now we are propping it up again. We need to ask: What is the long-term economic strategy for a stable economy?”

Observers argue that the city should make sure that “corporate aid is effectively community aid,” says Terry Lynch, executive director of the Downtown Cluster of Congregations. The city has already taken the widely hailed step of extending the duration of unemployment benefits to workers terminated since the tragedy. A separate bill, drafted by the council and designed to provide direct loans to recently laid-off workers, has met with some criticism.

“If someone is drowning in debt, the last thing you want to do is throw them a cinder block,” says John Boardman, executive secretary and treasurer of Hotel and Restaurant Employees Local 25. “You need collateral to get loans, so renters can’t get them, and they build up debt for those who can. This does not solve the problem.” Boardman urges that greater aid go to workers in the form of direct grants, rather than loans.

With the control board only recently departed, the council is under considerable pressure to keep spending down while also addressing the fiscal crunch that’s been among the most obvious fallout of the Sept. 11 attacks. Even council insiders worry about the District’s rush to effectively function as a bank for struggling businesses.

“We just don’t have the money for this,” says a council staffer, who asked to remain anonymous. “This stuff isn’t in the appropriations bill. The District can’t spend money that has not been approved by Congress, and the Senate has not been giving positive feedback. I guess that’s why we’re tapping into reserve funds.”

Such concerns also have a legal basis. Under the Home Rule Act, the District is barred from lending or guaranteeing a loan to a private entity. Because the entire purpose of the bill is to lend to private companies, it would seem that the bill violates the District’s own laws.

Not so, says Catania. “We can lend that money for a private purpose,” he says. “It’s no different than what cities do to finance

the Olympics.”

The issue was serious enough, however, to lead the Office of the Corporation Counsel to take a long look at the bill, and there is speculation that the mayor may be advised not to sign off on the legislation. And either way, it adds to the perception that the council has lost its newly acquired fiscal focus.

Even those who were expected to rally behind the council’s action on the hospitality bill have been measured in their praise. “The council has recognized that the industry is in a unique circumstance right now,” says Boardman. “And we are very pleased with what they have done. But there are other critical issues coming up. We asked for linkage tying re-employment to loans, but we didn’t get that in there. We need to think about how we structure unemployment compensation. Health care is a huge issue. We are now the anthrax capital of the world, and our people are struggling.”

Dawn Poker of the Convention and Tourism Corporation says that the continued viability of her industry is crucial enough to the city to deserve the help. “Everyone is well-aware of what tourism means to this economy,” she says. “We need to encourage people to come back to D.C.” CP