Within two weeks, Washingtonians should have a final answer to the biggest question now clouding virtually all negotiations about future economic development in the District of Columbia:
Will Congress allow the city to go forward with plans for a scaled-down, $99 million downtown convention center near Mt. Vernon Square?
Realistically, the decision does not rest with the entire Congress but with three members of the United States Senate. They are Democrats from states that have little stake in the local economy: Dale L. Bumpers of Arkansas, Dennis DeConcini of Arizona and Patrick J. Leahy of Vermont.
The three men make up their party's majority on the Senate Appropriations Subcommittee on D.C., and to date Bumpers and DeConcini have followed the lead of subcommittee chairman Leahy in blocking approval for D.C. spending on the proposed convention complex. Two Republicans on the subcommittee, Lowell Weicker of Connecticut and Charles McC. Mathias Jr. of Maryland, support the spending.
Thus, it appears that the only vote that really counts is that of Leahy, who represents a state with about 450,000 residents (considerably smaller than the population of D.C.). And he is prepared to make known his decision within a week after two days of hearings on the convention center next Tuesday and Thursday.
But Leahy is not the only man facing a tough decision.If the center is to go forward, as recommended by nearly all local business people, new commitments for building plans and millions of dollars in capital outlays may be required form those same business people.
More than $40 million a year of new tax revenues are tied to various commitments already on the record, about five times the amount necessary to cover annual interest cost on borrowing for the proposed convention complex. But many of the commitments are not firm.
Discussions about these commitments will be lively, a battle of semantics about whether they are "firm" enough and "definite" enough to meet Leahy's requirement that no costs be borne by D.C. or other American taxpayers. Although some of these promises are not ironclad, isn't it reasonable to assume that some of the convention-center-related projects will come to fruition? Is it fair to expect definite promises from business executives making decisions involving millions of dollars of their own money or that of stockholders? And, has the city estimated additional operating costs and sewer system demands to serve all the new projects?
These are some of the unanswered questions in a chicken-and-egg situation that has developed, with many business people saying real commitments can be made only after the federal government has approved D.C. spending for a convention center.
The publicy owned department store company, Woodward/Lothrop, is a good example. Woodies Chairman Edwin K. Hoffman says he is prepared to recommend to his board of directors a major development for land on the block bounded by 10th, 11th, G and H streets NW, north of his downtown, flagship store now being renovated.
Woodies would invest $18 million for a new North Store and participate in development of $10.5 million of additional office and commerical space in the block. "I wish to stress, however, that these plans are contingent upon the development of the convention center as previously proposed by the city, and its related impact upon the proposed development of the downtown urban renewal sites at 12th and G." Hoffman told Mayor Walter Washington in an Aug. 2 letter.
Later, in a Washington Post interview, Hoffman emphasized that no plans are being made and no negotiations are in progress for the block in question pending congressional action. Without a convention center, there will be no significant development of the block in the foreseeable future, he added.
And Richard S. Cohen, owned of 21,000 square feet in the block bounded by 8th, 9th, H and I streets NW, says: "Because of the previous false starts and last-minute congressional vetoes of convention center plans, it would not be prudent for private investors to make irrevocable commitments until the necessary public approvals are obtained."
All the while, Leahy is seeking firm private-sector commitments before giving the government's green light. And he claims that Woodies is one reason why he will be skeptical, pointing to an earlier incident when the firm promised to upgrade its downtown store only if a convention center would be approved. The rehabilitation now is well under way, however, partly because the subway system has brought new business.
To leahy, the requirement is simple. "The spin-off development that we will require proof of must be truly new and incremental and planned only because the city would build a convention center . . . these commitments must be firm and definite," he told his colleagues earlier this year.
A review by The Washington Post last week of such commitments made to date shows there are enough firm or close-to-firm commitments from business to meet Leahy's demands, but only if the senator counts close-to-firm commitments (such as Woodies) as good enough. That is a judgmental decision he will have to make unless the business people rob him of that opportunity by changing some of their less-than-complete vows to absolute promises.
On the surface, it would appear that the D.C. city government and local businesses have met the most recent challenge by Leahy to re-examine earlier proposals for the complex and to provide detailed commitments from the private sector on hotel and office developments that will generate enough new taxes to cover all interest costs associated with the center's construction.
The requirement for such responses was included in the fiscal 1978 budget for the city, which finally was approved by Congress last June 5 after many months of impasse over the convention center. An appropriation of $27 million for the center was included but made subject to congressional assessment that the new commitments had been made.
The House subcommittee already has said it is convinced. Now it is Leahy's turn. Winning his support won't be easy.
There is little doubt that the D.C. government has met many of his demands, and he is not expected to quibble over site plans and total costs as hearings open on Tuesday at about 8:30 a.m. In fact, Mayor Washington and other city officials are expected to make their presentations and answer any questions in about 30 minutes.
What happens in the hours that follow will decide Leahy's vote. Some 15 businessmen have been asked to testify Tuesday about the extent of their commitments to construct new developments if a convention center is approved.On Thursday, citizns and civic associations will testify.
To meet one part of the congressional mandate, the city government has submitted 49 "specific letters of commitment" from local and national business firms detailing plans for new hotels, stores, office buildings and housing units.
Supposedly, these commitments are for projects related directly to the convention center. But a close study of the 49 letters reveals something short of firm commitments in most instances. And many projects do not appear to meet Leahy's requirement of being new development sqawned specifically by a convention center.
Few of the letters detail specific promises to build if a convention center is erected. Many offer general support. Some projects mentioned already are moving forward (for example, an expansion of American Security Bank's operations center at 7th Street and Massachusetts Avenue NW and the Blackies House of Beef-Marriott Corp. hotel at 22d and M Streets NW). A number of the developments are located some distance from Mt. Vernon Square - such as hotels in Georgetown and along the Southwest waterfront. Several major complexes, such as the Willard Hotel rehabilitation and National Press Club block, are going forward with or without a convention center.
Although several of the commitments refer to profects already in the work, it may not be fair to exclude them all from a list of convention-center-tied projects simply because paper-work or ground work has been started. John S. Samperton Associates is committed to develop an office building at 3d and F Streets NW, for example. Zoning applications have been filed and groundbreaking is planned in 1980.
"If the center does not proceed, it may affect the timing and feasibility of my plans and jeopardize the $250,000 I have already invested," Samperton states.
The basic requirement is for enough new projects to bring in additional city tax revenues of $7.5 million a year. After cutting the project's total cost to $99 million, city leaders decided they would pay $21 million for site acquisition from current funds and borrow the remaining $77 million for construction, an amount to be paid back over 30 years.
If the $77 million is borrowed from the U.S. Treasury, the annual net interest cost would be $7.5 million or less, and this is the amount that Leahy says must be borne by the private sector. Earlier plans for a $109 million center called for borrowing all the funds, producing annual interest costs of some $10 million.
In the report to Congress, the D.C. government concludes that the 49 letters of commitment add up to $42.3 million in additional annual tax revenues, far in excess of the $7.5 million required. The letters outline plans for a 50 percent increase in D.C. hotel rooms, 1,200 new restaurant seats, 1,340 square feet of new parking space, 425,000 square feet of new retail stores, 6.6 million square feet of new offices and 900 new housing units.
But city Auditor Matthew S. Watson has expressed some caution about the data. In a Sept. 15 letter to Council Chairman Sterling Tucker, Watson questioned estimates of the number of new hotel rooms to be built "as a result of the convention center." One-fourth of the estimated 7,000 new rooms are located more than a mile from the center, he noted. Another quarter are in three projects - the Willard, Press Club and Oliver T. Carr Co.'s complex on the Garfinckel's block - being developed already.
"Thus, it appears that at least one-half of the new hotel rooms are likely to be built with or without the convention center," Watson said.
Moreover, he added: "We cannot evaluate how many of the additional projects will actually be constructed. The commitments in the letters accompanying the report vary in both firmness and detail."
His conclusion was that even if the actual development adds up to only 25 percent of that projected in the letters, "The convention center remains economically viable." The last quote has been emphasized by city officials, but aides to Leahy say the senator is not satisfied.
In an attempt to become satisfied, Leahy has narrowed the list of 49 commitment letters down to 15 considered to be in categories that might meet the congressional mandate. The hearing on Tuesday will focus on those 15 proposals.
At least three letters are thought to meet Leahy's requirements.They are from Washington Hotel Co., which said it will add 200 rooms to its existing Quality Inn hotel on New Jersey Avenue if the convention center is approved, adding $838,094 in annual taxes; Annapolis Towers, which said it will convert the former Manger hotel at 11th and H Streets into a 500-room convention hotel ($2,095,235 in taxes); and Richard Cohen, mentioned earlier, who will build a 500-room hotel across the street from the convention center site ($2,095,235 in taxes).
These three firm projects add up to more than $5 million in annual taxes, still short of the required $7.5 million. The balance would have to be met from one or more of the remaining proposals that have various caveats attached to their commitments. Among the strongest candidates are:
b The Woodies development. Given the fact that Woodies is owned by public stockholders, the commitment by company chairman Hoffman is about as strong as possible. He has said he will recommend development if the convention center is approved, and directors hardly could turn down such a management initiative without causing a major internal rift. Total new annual taxes: $2,558,920.
A promise by George Washington University to develop 24,000 square feet on H Street NW between 13th and 14th streets, formerly a medical center and now a parking lot. GWU President Lloyd H. Elliott says that as soon as the center is approved, GWU will hire an architect and move forward with development of a 216,000-square-foot office building with 24,000 square feet of retail space. Annual taxes: $424,681.
BMR&S Partnership's certainty that "we would be able to interest potential investors" in a small hotel or 60,000-square-foot office building on several New Jersey Avenue NW lots. Annual taxes (if offices): $75,086.
Jerome Golub Realty's proposal to build 200 townhouses along M Street NW, north of the convention center, a total investment of $12 million, "if I can obtain the necessary financing." Some people might not think housing is tied to a convention complex, Golub notes, adding: "As a property owner in this area who has been seeking financial backing . . . I can assure you that this question of image and neighborhood appearance is very important." Annual taxes: $559,195.
Two projects by Donohoe Inc., a 100-room expansion of an existing Holiday Inn on Wisconsin Avenue in Georgetown within five years and a $50 million office-retail-Holiday Inn complex at 500 C Street in Southwest Washington, for which construction would start immediately. Annual taxes: $3,652,947.
A plan by International Developers Inc., creator of the Watergate, for two office buildings (or one office building and one condominium) with 500,000 square feet at the southwest corner of Vermont Avenue and Thomas Circle, near the proposed convention center. President Giuseppe Cechi says his firm has contracted to buy land for the $30 million project, but "because of the city's previously unsettling experience with respect to obtaining the final approvals . . . we do not plan to make any further commitments . . . until a final decision is made regarding the development of the convention center." Annual taxes: $665,863.
A 120-room additional to the Fairfax Hotel at 21st Street and Massachusetts Avenue NW by new owner John B. Coleman and Co. of Chicago. "The decision to proceed . . . is, to a great extent, contingent upon" convention center approval. The original 180-room hotel already is being renovated. Annual taxes from expansion: $507,667.
Real estate investor Sylvan Herman's plans for the Burlington Hotel on Vermont Avenue, near Thomas Circle, for which he has obtained an option. If the center is approved, his "intention" is to develop a 500,000-square-foot building "as soon as possible" at a cost of $25 million. Annual taxes: $561,049.
This listing of relatively strong commitments adds up to more than $9 million of new annual taxes, far more than is needed to reach the magic figure of $7.5 million. When added to the three projects mentioned first, with $5 million of new tax revenues, firm and close-to-firm commitments are double the required minimum.
A number of other businesses said in their commitment letters that they are considering or would consider major projects if a convention center is built. They include Vega Investment Corp., a hotel and restaurant in Georgetown: Total Management Inc., a million square feet of offices near Union Station or a combined hotel-office complex; and Conrad Cafritz, an office building at 13th and K Streets NW.
And the Washington Metropolitan Area Transit Authority notes that four sites it owns in the older downtown retail section would no doubt be developed "in a shorter time frame than would otherwise tend to occur" without a convention center to spur investment in the area. Several other owners of specific sites also expressed optimism about quick development if the center is backed.
Meanwhile, all sorts of major projects are waiting in the wings for action on the center. The type and size of development atop Metro Center along G Street NW depends on the congressional action. And the Hecht Co. has hinted that it might not be able to stay on 7th Street without the magnet of a convention center to attract more customers.
To the hearings this week, Leahy's staff has invited representatives of Washington Hotel Co., Annapolis Towers, Cohen, Herman, Golub Realty, Woodies, Donohoe, Total, Vega, Cafritz, International Development and Coleman Co. They apparently represent the proposed projects with the firmest commitments, in the view of Leahy's staff.
Leahy is on the spot because he must find enough contingencies associated with the various commitments to raise serious doubts about completion of the proposed projects if he is to continue 10 oppose the center. The Quality Inn expansion proposed on Capitol Hill contempltes the sale of a fire station by the city, for example. If the station is not vacated, could the hotel be expanded? That is the type of question Leahy may ask.
Business leaders are on the spot, too. No doubt all of them have been provided copies of a Leahy statement on the Senate floor earlier in this session: "I intend to be rather skeptical and probe in some detail any business commitments promised to us in a new civic center plan."