The District government is failing to ensure that developers fulfill pledges they make in exchange for tax benefits and loans, and hasn’t collected potential monetary penalties since the mid-1980s as a result, the city’s auditor said.
Auditor Kathleen Patterson’s remarks followed recent complaints from Adams Morgan community leaders that a developer lags far behind in its pledge to employ 342 D.C. residents on a hotel construction project, a commitment it made to acquire a $46 million tax abatement.
“There needs to be oversight of commitments that developers make,” Patterson said. “I think there’s a lot of deference to the private sector in the District government. There’s a lot of belief that the private sector knows how to do things better than the government rather than ‘I work for the taxpayers and I need to make damn sure they do what they’re supposed to do.’ ”
In August, Patterson’s office reported that the city’s oversight of at least two development projects showed that even as developers delivered on a variety of promises, city agencies “did not sufficiently monitor” compliance.
In particular, the auditor reported that two agencies — the Department of Small and Local Business Development and the Department of Employment Services — “persistently failed to monitor developers’ compliance with requirements that would allow the District to collect significant monetary penalties.”
In addition, Department of Employment Services officials “acknowledged” that “no monetary fines have been assessed to any developer or contractor since at least 1984 for non-compliance,” according to the auditor’s report.
Mayor Muriel E. Bowser’s administration, in a written response to the report, said it is committed to “making sure that developers follow through on their agreements” and ensuring “there are consequences for unexcused non-compliance with legal obligations.”
But the administration also said it wanted to “reassure” those who may believe “that alleged weaknesses in our systems lead developers to systemically avoid commitments.”
“Systems are in place to ensure compliance,” the administration wrote.
Yet, in the case of the Line hotel, now under construction in Adams Morgan, District officials learned that the developer was not meeting hiring requirements only after a community leader, Bryan Weaver, complained to D.C. Council member Brianne K. Nadeau (D-Ward 1), whose district includes the neighborhood.
Nadeau, who took office in January 2015, acknowledged that she initially was unaware that legislation required the hotel’s developer, the Sydell Group, to hire 342 D.C. residents for construction jobs on the project to receive the tax abatement.
The legislation had been proposed by Nadeau’s predecessor, Jim Graham (D-Ward 1), in conjunction with Weaver, then a member of Adams Morgan’s Advisory Neighborhood Commission.
Weaver said he pushed for the hiring requirement to help D.C. residents find jobs and training. A year after construction began in March 2015, he found that few, if any, residents were employed.
After he complained to Nadeau, she pushed for an explanation from Deborah Carroll, director of the Department of Employment Services. Carroll said she was unaware of the tax abatement — and the accompanying hiring requirement — until Nadeau brought it to her attention this past spring.
The agency had been monitoring whether the developer was meeting its obligation to hire District residents for the project under the First Source agreement, a provision that requires builders to offer jobs to local residents, Carroll said.
But agency officials were unaware of the more significant obligation — that the developer hire 342 District residents.
Carroll, who was appointed by Bowser (D), said she could not explain why agency officials did not know about a tax benefit enacted by the council three years ago.
“I can’t tell you what happened in the past,” she said. “I can tell you what happened when we picked up the ball on the tax-abatement issue.”
“When it came to our attention, we took action,” she said.
According to a recent tabulation by the Bowser administration, the Sydell Group has hired 90 District residents — or about 26 percent of the required workforce of 342. The city is in the process of verifying that those 90 people hired by Sydell are District residents.
Construction on the project is scheduled to end next month.
The District will make a final assessment of the developer’s hiring record after the hotel opens next year and could then decide to cancel the tax abatement.
Since a Washington Post report last month about Sydell’s failure to fill the construction jobs with District residents, the developer announced that it would host a job fair on Oct. 7.
Weaver said he is skeptical that the developer has enough time to fill more than 200 construction jobs before the project is completed.