The U.S. government has told the District that it cannot use $47 million in federal funds to buy land for an upscale shopping center east of the Anacostia River, citing sanctions levied against the city eight years ago for repeatedly mismanaged federal development grants.
City officials have applied to the Department of Housing and Urban Development to lift the sanctions, and they have not given up on plans to use federal money to buy 18 acres to redevelop the Skyland Shopping Center in Southeast Washington.
But officials said they also have stepped up their search for private financing for the long-awaited project. For many civic leaders, the initiative has become a symbol of whether the city's economic prosperity will move east to its historically neglected neighborhoods.
National Capital Revitalization Corp., a publicly chartered organization steering the Skyland project, had wanted to finish buying the land by the end of November. Instead, the contract to purchase one parcel expired Aug. 31 because federal funds were unavailable. Another contract has been extended.
The corporation has gone to court to force the sale of several parcels through eminent domain.
But officials acknowledged this week that they do not have the financing in place to make those purchases if the court gives them the power to do so.
"We are making contingency plans beyond relying solely" on the federal money, said Peggy Armstrong, a spokeswoman for the redevelopment group.
The sanctions imposed on the city in 1997 forbid use of community development block grants for commercial projects.
HUD took the action against the District after millions of dollars in funding were unused or untracked.
Officials with the District and the redevelopment corporation said they did not think the sanctions would apply to the Skyland land purchases, which they considered site assembly.
HUD disagreed. A spokesman for the agency said officials will decide soon whether to lift sanctions and, if so, whether to approve the request to finance the Skyland purchase.
Those who have pushed the hardest for the Skyland project said they were deeply disappointed by the delay, especially because city officials and the revitalization corporation have talked for years about using HUD funds to acquire the land.
"We should have been on top of this. The ball was just dropped," said D.C. Council member Kwame R. Brown (D-At Large), who lives in the affluent Hillcrest neighborhood near Skyland and whose campaign platform emphasized making the shopping center a reality. "Some people have been fighting for 30 years in order to get some type of decent shopping."
Stanley Jackson, the District's deputy mayor for planning and economic development, said the city has negotiated extensively with HUD in the past few years to have the sanctions lifted and agreed this year to repay $6.8 million in disallowed debts.
"This conversation didn't just start. We started this conversation several years ago," Jackson said. "We felt that we now had a track record that should give them some confidence that we are no longer the organization of the past."
City officials hope to bring a big-box store -- Target Corp. has expressed interest -- as well as smaller national retailers and sit-down restaurants to a neighborhood dominated by carryouts and liquor stores.
But the project has sparked strong opposition from several storekeepers and property owners at the Skyland center, which dates to the 1940s. They said the city should not be allowed to force them to sell their properties to make way for a larger, more upscale center. They are fighting the effort to take the land through eminent domain and questioning whether the Skyland project would create enough new jobs and benefits to justify the use of federal funds.
"There's already jobs there now. The jobs that are there would be lost," said Elaine Mittleman, an attorney for a property owner.
Mittleman said HUD should refuse to fund the project because it involves land taken through eminent domain. Although the U.S. Supreme Court issued an opinion this spring allowing such seizures for commercial redevelopment projects, Congress is considering legislation that would prohibit federal funding for such endeavors.
Officials at the redevelopment organization and in the D.C. government said they are not deterred by those hurdles but are deepening their search for private financing as an alternative.
In order to make the project attractive to private investors, Brown said, the city is considering adding plans for condominiums, which are in extremely high demand in the District.
In the past, residents of the neighborhoods near Skyland have been wary of calls for residential development there, fearing traffic and a decrease in retail space.
Anthony Freeman, chief executive of National Capital Revitalization Corp., would not comment on the specifics of private financing proposals.
But he said his organization's dedication to the project has not wavered.
"We're committed with the community. We're committed with the council member," Freeman said. "Skyland is moving forward."