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Move to Reverse Tax Break for Adams Morgan Hotel Deal Fails

Accompanying images can be viewed in the October 2014 issue PDF

By Anthony L. Harvey

The Adams Morgan Advisory Neighborhood Commission (ANC) launched its fall session on October 1st with a raucous, jam-packed session attended by at least 100 people, most of whom were attracted to the meeting by the still festering controversy regarding the $46 million property tax abatement for the so-called Adams Morgan Historic Hotel at Champlain and Euclid Streets — an adaptive reuse of the First Church of Christ, Scientist and new construction of a hotel complex on the church’s rear surface parking lot and the adjacent former City Paper building site.

Over 30 of these attendees spoke passionately, each for several minutes or more, on the question of support or opposition to a proposed request by the ANC to the City Council that all or part of a $46 million property tax abatement granted to the developer of this yet to be constructed hotel by the DC Council in 2010 be rescinded — clawed back, to use its term of art — on the grounds that the developer had failed to engage the Local 25 hotel workers union in a labor peace agreement — an arrangement which legally binds an employer to allow workers the opportunity to form a union should they so desire without any obstructions or retaliation against such employees. Such an agreement has long been considered by the neighborhood’s residents to have been a condition of the community and the ANC’s support for both the project and the property tax abatement.

Outgoing Ward 1 Councilmember Jim Graham who sponsored the bill told the meeting that the ANC’s support for a property tax expenditure of this magnitude was considered essential to its successful passage by the DC Council. Thus the proposed tax abatement legislation was loaded down with provisions for first source job hiring of DC residents for construction and hotel operation with 51 percent of those jobs to be reserved for residents of Ward 1.

The hotel’s management role was asserted by the developer and Councilmember Graham to be Marriott International, Washington’s highly successful union operated hotelier. And although the council member and the developer Brian Friedman both testified in 2010 that the hotel jobs would be union jobs and that wages would be no less than $12 an hour, and that such costs for unionized labor was one of the factors necessitating such a large tax abatement, the labor peace agreement was not made a formal part of the enacted legislation in 2010, even though Graham testified the ANC that such an agreement was at that moment in the final stage of negotiation.

This testimony was given by Graham at this same December 16, 2010, special ANC meeting where he, together with Friedman, who also emphasized the unionized nature of the anticipated hotel work force, appeared on a four-person panel and exhorted the ANC to support the $46 million tax abatement. The other two members of the panel were Lindsley Williams of the Holland and Knight law firm, Friedman’s legal representatives, and Bobby Mehling on behalf of the Christian Science Church, Friedman’s major partner at this stage of the project. The session was videotaped and the panel’s part of the ANC session can be viewed at http://youtu.be/iBSZVzi8Uqw?t=7m14s.

Questions to the panel from commissioners and commissioners-elect regarding the agreement’s lack of final signatures were greeted by panel members with derisive laughter, Graham again emphasizing that the agreement was being “finally negotiated” and that he knew that for a fact, having been so informed by John Boardman, Local 25’s executive secretary/treasurer.

The number of jobs being committed to by the developers has become another flashpoint of controversy. In sworn testimony before the DC Council’s finance and revenue committee in October of 2010, chaired by Ward 2 Councilmember Jack Evans, at which time Councilmember Graham resurrected the tax abatement provision, developer Brian Friedman testified that the hotel project would result in 565 permanent jobs and provide the District with a $6.9 million hotel occupancy and sales tax and parking garage annual revenue stream — a figure now estimated at half that amount.

The jobs number has also wildly fluctuated — both up and then back down. The final legislation that was enacted in 2013, however, reduced the number of jobs from “765” to “342.” The legislation was buried as subtitle M of the omnibus FY 2014 Budget Support Act of 2013 and titled the “Adams Morgan Hotel Real Property Tax Abatement Jobs Requirement Clarification.” Clarification in this legislation means less than half.

The next phase in the tortured trail of the developers’ asserted failure to honor its commitment to the ANC and Local 25 regarding labor relations occurred in the run-up to the Zoning Commission’s consideration and ruling on the developers’ application for a planned unit development (PUD), which would both approximately double the value of the hotel site and furthermore would actually allow its construction in spite of the Reed-Cooke Zoning Overlay’s prohibition on hotels or alcohol-serving establishments and its restrictions on height in this Overlay’s coverage area.

As had been stipulated in a unanimously enacted ANC resolution articulated by Commissioner Steve Lanning on August 27, 2013, the ANC’s support of the PUD application was stated to be predicated “on the condition that the applicant clearly and openly commits to the process of allowing employees of the hotel to potentially enter into a collective bargaining agreement and/or join a union. Furthermore, that the applicant declares that such a process will be allowed, free of intimidation or coercion of employees.” The resolution of conditional support was ignored by both the applicant/developer and by the Zoning Commission in its 2014 ruling and subsequent order.

In a widely advertised, remarkably peaceable, and well attended ANC committee-sponsored community forum on September 24, 2014, chaired by Commissioner Marty Davis and held at Mary’s Center in the usual ANC meeting room, some 35 to 40 residents argued the merits of a clawback and voted overwhelming to recommend to the committee, and through the committee to the full ANC, that the ANC request legislation to “clawback” the entire $46 million tax abatement.

Their consideration was informed by a fascinating analysis of the fiscal consequences of substituting Washington metropolitan area prevailing non-union wages and benefits for those of union wages and benefits in the hotel industry by Ian Elder, Research Analyst for Union Local 25. Using the same data employed by CB Richard Ellis in analyzing for the District’s Chief Financial Officer proposed tax subsidies for the project, Elder estimated the annual savings in non-union labor costs to be $3.5 to $4 million per year to the developer as against property taxes of $2.5 to $3 million per year. In analyzing the cost of $46 million over the tax abatement period in such a scenario, Elder estimated a saving to the developer of almost $8 million.

The ANC monthly meeting one week later, on October 1st, was not peaceful; with the usually ample space of the meeting room overwhelmed by the more than 100 attendees and with the added pressure of time, tempers flared and at least one hothead went off the rails.

But a calming presence was provided by ANC Chair Billy Simpson, and when the dust settled, he led the ANC’s consideration of the clawback question by noting two competing values in his own personal consideration of the matter: First, what it meant growing up in a very large family with the family breadwinner, his father, being a Safeway union butcher and what his father’s union wages and health benefits meant to that large family; secondly, his respect for the law and for the fact that the $46 million property tax abatement had been passed without any legal provision for a clawback or any language requiring a labor peace agreement. For this reason he opposed any provision for such an extra-legal, retroactive clawback.

Subsequent clawback motions by Commissioners Marty Davis and Wilson Reynolds both failed to pass, garnering only the vote of Commissioner Davis in favor of his own motion to clawback all of the $46 million, and that of him and Commissioner Reynolds to a motion made by Reynolds to clawback 20 percent, or roughly $9 million of the property tax abatement. A video of Friedman’s council committee testimony had been available for viewing at http://youtu.be/9ExBPIpIaM as late as October 6, 2014, but has since been deleted for reasons we were not able to determine.

On the following afternoon, October 2nd, the historic landmarking of the First Church of Christ, Scientist was prominently featured on the agenda for the afternoon session of the DC Historic Preservation Review Board (HPRB). This proceeding that is to be incorporated into the hotel complex marked the third leg of the first phase of subsidies for the hotel project since it provided the initial qualification for a federal tax credit for the restoration and preservation of the church edifice that is to be incorporated into the hotel complex.

Though anti-climatic to prior appearances before the HPRB regarding the controversial hotel addition to the church, and sparsely attended, it nonetheless brought opposition to the landmarking from union official John Boardman, who called to the attention of the Board the fact that “according to the criteria for evaluation under the National Register Federal Program Regulations (CFR 36, Section 60.4), ‘Ordinarily . . . properties owned by religious institutions or used for religious purposes . . . shall not be considered eligible for the National Register.’” Continuing, Boardman commented that in his judgment the church building does not qualify for landmarking under the pertinent exception to this rule, namely that of “a religious property deriving primary significance from architectural or artistic distinction or historical importance.” He concluded by asserting “that developers are trying to squeeze benefits out of taxpayers by abusing our historical preservation processes.”

Without dissent, the HPRB voted to accord historic landmarking status to the First Church of Christ, Scientist’s neo-classical behemoth in Adams Morgan.