D.C. Council Chairman Phil Mendelson. Photo by Darrow Montgomery.

The District’s partnership with Douglas Development Corp. for access to a federally guaranteed loan of $38.5 million is not sitting well with two D.C. councilmembers.

A letter from Chairman Phil Mendelson and At-Large Councilmember Anita Bonds says the loan is an inefficient use of District money and “disregards the city’s enormous need for affordable housing.”

The letter urges Department of Housing and Community Development Director Polly Donaldson to abandon the application that, if approved, would suck up nearly half of the funds D.C. is eligible for under the Department of Housing and Urban Development’s Section 108 program.

The D.C. Council allocated $5 million in Community Development Block Grant funds in the fiscal year 2021 budget in order to unlock $88 million in Section 108 funds from HUD. DHCD’s application, the letter says, runs afoul of the Council’s intent to use all of the $88 million “solely for affordable housing.”

“This application does not” do that, Mendelson and Bonds write.

The Washington Business Journal‘s Alex Koma was the first to report on the alliance between Donaldson’s DHCD, the Office of the Deputy Mayor for Planning and Economic Development, headed by Mayor Muriel Bowser‘s chief of staff John Falcicchio, and Douglas Development.

A spokesperson for DHCD says the agency does not intend to respond to the letter. Falcicchio did not return LL’s calls and text message.

The application, which has not yet been submitted to HUD, is for Douglas Development’s New City DC project near Ivy City in Northeast D.C. The application, posted online last week, says the project will include a grocery store, retail shops, a hotel, and office space. The development also includes 859 residential units, 214 of which are set aside as affordable. Only 43 of those units, or about 5 percent, are categorized as “deeply affordable” and set aside for people making 30 percent of the area median income or less.

In the FY 2021 budget, the Council directed at least 50 percent of Section 108 funds to go toward deeply affordable units.

The application says the $38.5 million that Douglas Development is seeking would pay for “land acquisition for the northwest corner of the site along New York Avenue NE.” Without the loan, the application says, “the project is not financially feasible.” However, as WBJ notes, Douglas purchased most of the 16-acre property except for a small corner of Bladensburg Road NE and New York Avenue NE. That small piece is located in the northeast corner of the project area, not the northwest corner. Efforts to reach a representative for Douglas Development were unsuccessful.

Mendelson and Bonds’ letter notes that the Council originally hoped to allocate $280 million to the Housing Production Trust Fund, a major tool the District uses to produce affordable housing. Those plans took a hit due to the pandemic, but the Council found nearly $200 million to fund affordable housing in the coming fiscal year, which includes the $88 million in Section 108 funds.

“This would not only fund those affordable housing projects already committed, but roughly 25 additional projects in the pipeline that otherwise would have to wait,” Mendelson and Bonds’ letter says. “Redirecting 20 percent of the $200 million to land acquisition for a market-rate mixed use economic development proposal undercuts these projects. It undermines the District’s oft-stated commitment to affordable housing.”

Mendelson and Bonds also point out that DHCD posted Douglas’ application on Sept. 21, when public comments were due just seven days later on Monday, Sept. 28—a move they called “offensive to the concept of open government and public process.”