The D.C. Department of Housing and Community Development, struggling to come to grips with the city's lack of a formal housing "linkage" policy, has recommended that a local office development firm increase its cash offer of $1.4 million for low-income housing to $4.6 million.

Hadid Development Cos. immediately termed the amount "extremely exorbitant."

In an application submitted earlier this year with the city zoning commission, Hadid proposed giving $1.4 million to a low-income housing group in exchange for the right to build a large office building near the D.C Convention Center.

But last month, after several hearings at which zoning panel members expressed concern that the developer's offer was too low, the zoning commission sent the entire Hadid case to the housing agency to determine if the cash offer was appropriate. This was the first such linkage case considered by the agency.

The District, unlike other cities where linkage proposals have been made, is without a specific policy to deal with the increasing number of housing linkage cases being brought to the zoning commission.

Consequently, several neighborhood groups opposing the Hadid proposal said the commission should halt consideration of any further cases, including Hadid's, until the city formulates a policy to deal with this trend. An increasing number of local developers are making linkage proposals.

The zoning commission is scheduled to decide the Hadid case Monday afternoon at the District Building.

Housing linkage is a concept popular in several cities nationwide in which developers trade money as a means of bypassing a neighborhood's zoning provisions.

In the District, office developers now consider the fledgling linkage concept a profitable way to build office towers larger than would otherwise be permitted by the city's zoning laws.

Housing linkage has been gaining momentum in the city since the zoning commission approved the District's first case last December. In that case, the John Akridge Co. agreed to give $1.5 million to a nonprofit housing group in return for the right to build four additional stories atop a proposed office building at 1215 I St. NW.

For developers, housing linkage is viewed as a relatively painless means of obtaining the right to build larger office buildings in return for relatively small cash donations to low income housing groups.

The concept has often pitted neighborhood groups against each other in the fight for more housing. In neighborhoods on the fringe of the ever-expanding downtown office market, citizen activists have said that housing linkage should be avoided because it encourages developers to erect larger buildings that will loom over their rapidly eroding residential areas.

In addition, zoning in some of these borderline areas calls for a mix of housing and office space. Through linkage, however, developers such as Hadid have proposed giving money for new or renovated housing located many blocks from an office project. They then are able to avoid constructing less profitable housing space in downtown areas, building instead projects consisting entirely of offices.

"These developers all say that mixed-use doesn't work, but I just don't buy that," said Laurence Berg, a member of the Blagden Alley Neighborhood Association and the Logan Circle Community Association. Both groups have been fighting the Hadid proposal.

"If this project is approved, every other developer ... is going to say that housing in the downtown area is not feasible," he said.

But low-income housing groups, increasingly strapped for funds during the Reagan administration's era of cost-cutting, claim they need the housing linkage money now more than ever.

"We recognize that the city must look to innovative and sometimes radical ways to build low- and moderate-income housing, like housing linkage," said Clarene Martin, a member of the the Shaw area's Advisory Neighborhood Commission, which has backed the Hadid linkage request.

In the Hadid case, the D.C. housing department said the development firm would retrieve its proposed $1.4 million linkage offer only seven years after completion of the office building, which is slated to be built at 1001 New York Ave. NW.

At that site's location, Hadid could, as a matter of right, construct an office building containing about 200,000 square feet of space. Any footage over that amount must include a mix of housing, according to the site's zoning.

In return for the $1.4 million donation to the Shaw Coalition Redevelopment Corp., a nonprofit group that promotes housing in the Shaw neighborhood, Hadid is seeking to construct an additional 70,000 square feet of office space over the matter-of-right amount.

But after getting back the $1.4 million in housing linkage funds seven years after the office tower was built, the housing department said Hadid would then obtain about $6.4 million from the additional 70,000 square feet of office space during the following 14-year period.

"We believe it would be reasonable to ask the developer to share these long-range benefits with the city by requiring the developer to contribute 50 percent of the net cash flow increase generated" by the additional 70,000 square feet, according to a housing department document filed with the zoning commission.

The document said Hadid's $1.4 million offer should still be given to the Shaw group, but that any additional funds could be placed into a housing trust fund. Such a trust fund, a mechanism used by other cities with housing linkage programs, has not been established by the city.

Robert Pohlman, the acting director of the housing department, said if the District is going to proceed with housing linkage, the process "needs to become standardized so it's not being done inconsistently."

He said that based on Hadid's plan to charge $30 per square foot in annual rent, the 70,000 additional square feet from the housing linkage means "there's room for more of a contribution."

John Sarpa, Hadid's senior vice president, said the housing agency's estimate of the firm's profit from the additional office space is "extremely exorbitant."

He said his firm is reluctant to talk about increasing the $1.4 million housing linkage offer.

"We feel we're at the top end, and what we're offering is appropriate," he said.

Sarpa claimed that zoning commission denial of his firm's proposal "would have a chilling effect on the whole housing linkage concept." He added that if the case is defeated by the zoning commission or further delayed, his firm will construct a 200,000 square foot office building allowed as a matter of right, without contributing any funds for housing.

"If we're not successful, then by definition it will have a very negative impact on future programs," Sarpa said.

Such a threat, whether perceived or real, does not matter to groups trying to stem the growth of office projects in neighborhoods once solely residential.

City planners and politicians "all said that when this area was redeveloped, it would not look like K Street," Berg said in reference to the canyon of boxy office buildings in downtown Washington. "But that's exactly what we're getting."