Gray spokesman Pedro Ribeiro said it would be unfair to offer a tax break to the Trumps when they were awarded the project through a competitive bidding process.
“It was never part of the bid proposal that the project would not be subject to the tax,” he said.
The inquiry may not surprise longtime observers of Trump projects. In 1975, for example, Trump purchased the decaying Commodore Hotel at Grand Central Station and negotiated a 40-year property tax break from New York City before turning the hotel into a Grand Hyatt and renovating the terminal’s exterior.
But the Trumps aren’t the only ones to take issue with a tax levied on property owned by the federal government.
Federally owned property typically is not subject to local property taxes. In recent years however, District lawmakers — faced with a city filled with un-taxable federal properties — created a possessory interest tax establishing a tax on private entities operating within federal buildings.
Should the Trumps challenge the legitimacy of the tax, they would not be the first. New York City developer Ashkenazy Acquisition and the Union Station Development Corp., a public-private group, refused to pay the possessory interest tax since the District began charging it for space that the groups manage in Union Station.
The Union Station groups, like the Trumps, asked officials to waive it. They also went a step further and challenged it in court. When neither move succeeded, they agreed recently to a $7.5 million settlement with the District, but they have not agreed to pay the tax in the future and may try a new challenge.
The Trump Organization plans to lease the Old Post Office from the government and build a 261-room luxury hotel, spa and three restaurants, along with a parking garage and massive ballroom in what is now a vacant and crumbling rear annex.
The Trumps declined to comment on the tax relief request through David Orowitz, vice president for acquisitions and development.
Orowitz said recently that his team had thoroughly examined the Old Post Office and hadn’t discovered any surprises that might inflate the project’s expected $200 million renovation cost.
“I think the reality is we’ve been very happy with what we’ve found in the building,” he said. “With old buildings there is a lot of risk, but they’ve actually done a very good job caring for the building.”
Both Orowitz and officials from the General Services Administration say negotiations are progressing over how best to preserve the historic building, completed in the 1890s, while making it appealing and functional for guests. However they are unlikely to complete the deal by February, the time frame that the GSA proposed when it selected Trump and Colony Capital as preferred partners in February 2012.
Assuming negotiations are not completed by next month, the government could reconsider other bidders. But GSA spokesman Dan Cruz said the agency is still working with the Trumps.
“There are obviously many complexities that go into a deal that has a term of 60 years, involves a building listed on the National Register of Historic Places, and many other unique circumstances to be addressed,” he said in an e-mail.
Orowitz attributed the lengthy discussions to the project’s complexity. “It takes a long time just to get drafts back and forth. Everyone is looking forward to getting it done as soon as possible,” he said.