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Still-sturdy economy gives D.C. a buffer during scandals

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Earlier this year, the tiny Persian Gulf nation of Qatar was looking for a safe place to park some of its vast oil wealth. Qatar’s investment arm chose to pump $700 million into the new CityCenterDC, a downtown Washington apartment, office and retail complex that doesn’t have a major tenant signed up yet. The District, the Qataris decided, was as low risk an investment as could be found anywhere in the world.

Oil-rich gulf states, German investment partnerships, Canadian pension funds — the foreign investors who visit real estate adviser Joel Coren uniformly savor the District’s growing population, increasing affluence and relatively stable jobs picture. Scandal and dysfunction in the D.C. government never even come up: “It’s funny,” said Coren, who opened a Washington office for Savills, a global real estate firm. “When we’re educating our clients about how far D.C. has come in a very short amount of time, the city government just doesn’t factor into it. Politics is really not essential.”

In the past two years, a majority of the D.C. Council’s 13 members have either faced questions about or investigations into their spending. Most recently, federal prosecutors have been looking into allegations that council member Harry Thomas Jr. (D-Ward 5) diverted $300,000 in city money from youth programs and used some of the cash on a luxury SUV and fancy trips and that the campaign of Council Chairman Kwame R. Brown (D) funneled more than $200,000 to a firm operated by his brother Che.

Scandal is nothing new to Washington, or any other big city. In the 1980s, the District’s top prosecutor described Mayor Marion Barry’s government as “raw corruption.” By the end of Barry’s third term as mayor, 14 administration officials had been convicted of or pleaded guilty to crimes related to their official duties.

By the early ’90s, the impact on the city had become devastating. Jobs poured out of the city, as did taxpayers. Washington was the butt of comedians’ cracks on late-night TV. And investors steered clear. “There was this perception that we didn’t know what we were doing,” said Kevin Chavous, who served as the Ward 7 council member from 1992 to 2004. “It really held back the city in so many ways.”

But the current rash of ethics allegations, federal investigations and a clumsy start to a new mayor’s term in office have had little such impact. The economy, although slowed by the same forces that have hit the rest of the country, remains relatively strong. The population is still growing. Housing and commercial real estate prices are the most resilient of any major U.S. city. “These scandals don’t have any of the traction you saw when the city was going broke,” said Tom Downs, who was city administrator under Barry in the 1980s and is now vice chairman of Metro’s board. “This is a different city now.”

Key changes

It’s different because its financial house is in far sturdier shape. A federal control board and Anthony A. Williams, then the finance chief and later a two-term mayor, as well as his successor as CFO, Natwar M. Gandhi, imposed fiscal controls that restored the city’s top-shelf bond rating for the first time in more than a decade. Since Williams and Gandhi came along, the D.C. government has shed 22,000 employees while dramatically improving service.

“It all comes back to how the finances are set up today, with an independent CFO who has final control over how the money is used,” said council member Jack Evans (D-Ward 2.) “No matter how badly the mayor or council function today, we can’t mess it up.”

It’s different because the population has evolved, becoming more affluent and more diverse. Well-educated workers decided to make Washington their home, and neighborhoods that Williams targeted for growth felt a surge of public and private investment.

And it’s different because businesses and families that had fled crime, lousy schools and incompetent government stopped leaving and reversed the trend. Tech companies flooded the region in the late ’90s. The federal government stemmed the tide of jobs leaving the District, and private-sector employment ballooned as the feds turned to outside contractors and consultants. The result was a huge increase in tax revenue as home values soared — remaining high even as much of the nation suffered deep losses during the past four years. Office construction exploded, and the long-dormant retail sector came alive, thanks in good measure to a surge in investment by foreigners who view the District as they do New York: one of the two most stable locations in the United States.

“D.C. went through an experience where it was a bit of a joke,” Coren said, “with politicos using the budget as their personal piggy bank. But it has come leaps and bounds as a market. Every single capital investor wants to be in Washington.”

That is a change. In the mid-1990s, the District Building, the city hall now known as the Wilson Building, had become a depressing symbol of the city’s decline. The building was a nest of rats and roaches, the walls literally flaking apart, their innards riddled with asbestos, the water fountains declared off-limits to workers.

Beyond the building, the city didn’t fare much better. Its streets were slalom courses of potholes and sinkholes that went unrepaired for years. The District’s police, fire and hospital workers had to shell out for basic supplies or go without. Schools consistently failed to open on time; when they finally did, students often found themselves without books. Finally, when the city could no longer borrow money because its credit rating had hit bottom, Congress stripped Barry of most of his power and appointed a federal control board to take over.

“We didn’t have enough money to buy tires for police cars,” Downs recalled. “The concern was the place was simply going to collapse.”

At its peak, the D.C. government carried more than 48,000 employees — fulfilling Barry’s promise to build a black middle class but driving the city into insolvency. The government metastasized “without careful attention to whether positions — and even programs and departments — were needed,” said Joyce Ladner, a sociologist and former civil rights leader who was on the five-member control board. Add the outflow of city employees who moved to Prince George’s County and took their tax dollars with them, and “the city found itself becoming increasingly bifurcated” between rich and poor.

Two decades later, the District has been redefined, so much so that many newcomers feel free to pay their city government little mind. “There is a large population of Washingtonians who function almost outside the day-to-day humdrum of city government,” Ladner said. “Their needs from the city are to get their tags, pay fair taxes and get their garbage picked up.”

That freedom not to pay much attention to their city government sometimes sparks friction with the many other D.C. residents for whom the city remains a lifeline or a livelihood. For the first time, population changes have left the District with no racial majority, yet ethnic tensions remain at the heart of D.C. politics. Joblessness is at stratospheric levels in the poorest wards, especially east of the Anacostia River. And despite a breathtaking renovation of the public schools, achievement levels remain chronically low. The old line about Washington being two cities is in some ways truer than ever.

‘Dormant’ leadership

Despite the District’s maturation, this year’s political mess does threaten the city’s success, said developer Anthony Lanier, who has worked with the past five mayors to push projects in Georgetown and the West End. “Look at the evolution from Barry to Williams and [Adrian M.] Fenty and you see a series of technocrats who had a goal of excellence,” he said. But now, “we are turning the clock back. The city from an investment standpoint has never been in a better situation, but our leadership is dormant,” Lanier said.

“The goose that’s been laying the golden egg — the federal government — has a bad case of pneumonia,” said Terence Golden, for many years chairman of the Federal City Council, which represents the city’s business elite. “There’s no love lost in America for Washington, D.C., and we’re going to see dramatic reductions in the payroll and capital spending of the federal government. No one in the city has come to grips with this.”

Golden expects coming budget cuts to mean fewer jobs and less demand for office space. Yet he and other business leaders see no action by the council to plan for such a future — a lethargy they attribute to council members being distracted by their own problems.

But others look at the same picture and conclude that Washington will remain a safe place to invest because federal functions will still have to get done, probably by contractors, keeping steady jobs in the District.

“Look — in the end, this is the capital of the free world,” said Warren Dahlstrom, president of investment services at Colliers International, a global commercial real estate broker. “Whatever corruption there is here, it’s not the situation these investors face in India, where there are no zoning regulations and you can build what you want only if you have a suitcase full of money.”

Foreign investors look more at transportation infrastructure than at municipal government when deciding where to put their money, Dahlstrom said. The District’s most powerful development engine, from that perspective, is Metro. “Metro drove the demographic change,” he said. “It made the city accessible to young professionals who just didn’t want to live in the suburbs. You can’t charge these rents to young professionals unless they can get to where they want to be without a car. They can’t afford both the apartment and the car.”

Local investors agree that any mess in city government is less of a problem than it was when the District’s finances were dangerously unstable. Longtime D.C. developers say that although they are worried that the Gray administration seems less ambitious and more plodding than its two predecessors, the District still runs much more smoothly than it once did.

Williams and Fenty “fixed a number of departments: zoning is much better, DCRA [the Consumer and Regulatory Affairs department] is much improved,” said Michael Darby, co-founder of Monument Realty, which develops residential and commercial properties. “Even though there’s some wacky stuff going on, you can still do business.”

In addition to professionalizing and trimming the bureaucracy, Williams and Fenty presided over a dramatic decline in crime — another factor investors and developers cite in explaining the District’s resurgence. Two decades ago, Washington became the nation’s homicide capital, peaking in 1991 at 479. Last year, there were 132.

As the control board and Williams restored financial stability, a new vision for the city became feasible, and for the first time since the riots of 1968, neighborhoods that used to empty out at the end of the business day became magnets for new residents. “Until the control board years, we didn’t have the idea of people living downtown, living near the baseball stadium,” Chavous said. “Our whole perception of ourselves as a city changed. We went from being entirely new at governing ourselves to a feeling that we’ve survived and we’re going to be like any other government, with good years and weak years, good government and corrupt government.”

The rise of discord

Breakfast at the D.C. Council. An argument over policy comes to a boil, and one council member lunges at another. Another council member tries to hold back the aggressor while a fourth elected official calls out: “Let ’em fight! Let 'em fight!”

The scene is not from this autumn — this season’s headline battle involved only barnyard epithets, not fisticuffs — but from the early 1990s, and it involved not the targets of this year’s federal investigations but rather the late council members Harry Thomas Sr. and John Wilson. (It was Barry who urged his colleagues to let the battle blossom, according to three people who were in the room.)

Discord is not a new element in the short history of limited home rule in the District. But although “there were certainly odd personalities and hearings that went till 4 in the morning, there was nothing like the potential for indictments,” said Kathy Patterson, the Ward 3 council member from 1995 to 2007.

Such scandals were avoided not because earlier members were better people, but because the opportunity to abuse funds grew sharply, said another longtime former council member, Carol Schwartz (R-At Large), who served four terms over three decades. “We didn’t have the ability to raise so much in constituent-service funds, and we didn’t have these huge earmarks,” she said. “Liars are going to lie; thieves are going to steal. But the amounts are just so much greater now.”

Several colleagues of council members now facing questions say that some elected officials are living beyond their means: vacationing, dining, and buying homes and vehicles that befit the lifestyle of the private-sector executives they do business with, not the $126,000 salaries they earn from D.C. taxpayers.

“Those early councils had a lot of idealistic people who came out of the civil rights movement and went into this to prove that this city could govern itself,” said one council member who didn’t want a name attached to this view for fear of making relations with colleagues impossible. “We live in a more materialistic society now, and you see that in these members who want the fancy car, the boat, the watch.”

What disturbs some business and political leaders even more than ethics allegations is that whatever popular outrage has resulted from this year’s headlines has not yet led to a roster of candidates eager to replace the incumbents.

Voter turnout has been falling in big-city elections nationwide, and Washington is one of a number of cities where the new, well-educated population that has revived urban economies shows little interest in the adopted home’s politics.

“Most of these new people wouldn’t know what ward they live in and have no particular interest in D.C. politics, unless and until they have kids,” said Tom Lindenfeld, a longtime D.C. campaign consultant. As a result, the city’s declining black population has maintained and even gained political power as white and Hispanic newcomers become a majority. (By Lindenfeld’s count, the D.C. electorate is still about two-thirds black, although African Americans now account for less than half the population.)

Victor Reinoso paid hardly any attention to D.C. government in his first several years of living in Washington. But that changed as his child neared school age. Reinoso, who got deeply involved in the school reform movement and eventually served on the school board and then as Fenty’s deputy mayor for education, has reluctantly concluded that improved government allowed more affluent residents “to be shielded from the noise of the Wilson Building.”

Pair that with a diminution of two more once-powerful voices — Congress and the city’s business leaders — and politicians are operating without some of the checks that once helped keep them honest. Congress, which regularly hauled Mayor Barry in to be grilled on the city’s operations, has taken a more hands-off approach since the control board closed shop. And the city’s business leaders have been “fading from view to such an extent that it’s hard to point to a new, big project that they’ve initiated” in recent years, said Reinoso, who worked at the Federal City Council before joining the D.C. government.

During the past two decades, many of the District’s largest locally based businesses went under or were bought by national or foreign companies. The result has been a quieter, less-ambitious business community. The Federal City Council — a driving force behind the Metro system, the convention centers (old and new), the sports arena and public school reform — has not launched a major initiative in five years.

Golden conceded that “there’s less of a local D.C. business community” now that companies based elsewhere control many of the city’s major employers. But businesses owned by out-of-town interests also have a stake in the city’s financial and political health, he said, and those executives are recruiting candidates to run against council members who are “taking us back 20 years.”

“We can live for a while on the laurels of the past,” Golden said, “but the District, in the future, is not going to be able to run on autopilot. Right now, we’re getting to be embarrassing again.”

Despite the stability of the past 15 years, the city still has enormous problems. Fiscally, it remains structurally flawed — a frighteningly small tax base of affluent families and businesses pay for a city with one of the nation’s highest poverty rates and a mix of federal agencies and nonprofit organizations that renders more than half the properties untaxable.

In the end, maybe it’s not so surprising that this year’s scandals have resulted in such a paucity of paralysis compared with how devastated the District was by ethical troubles in the Barry years. Maybe, Ladner suggested, the real anomaly was what happened in those first decades of home rule, when every story about corruption fed into a narrative in which a nascent democracy was being tested on its ability to govern itself.

Maybe now, Washington has its occasional scandals just like any other city, and the people and their economy simply carry on — not exactly an optimal state of affairs, but something the District has craved from the beginning: normalcy.

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