Aug. 10–If there was anything City Council members and the company building a downtown JW Marriott could agree to in the wee hours of Friday morning, it was this: the deal they struck two summers ago to get the hotel built unraveled because neither side quite knew what they were getting into.
At a special meeting in June 2011, the council had asked if White Lodging Development Services would be willing to pay “the city’s prevailing wage” to workers building the $300 million Marriott. In exchange, the city would waive $3.8 million in various fees. It was a last-minute ask after months of negotiations, and White Lodging’s chief representative was hesitant at first — but he said yes, the company would pay a prevailing wage, and that the company had met that federally defined standard on other projects.
Council members did not ask about the particulars of those other projects. And White Lodging did not ask for more time to run more calculations about how the requirement would affect the project’s finances.
Those mistakes came full circle early Friday morning, when a deal ostensibly about a $3.8 million hotel incentive deal had morphed into a symbol of economic-development policies, the use of taxpayer money to lure business and the very nature of Austin’s growth. The council finally settled months of heated debates by effectively terminating White Lodging’s agreement with the city.
Construction will continue and the 1,000-room hotel will open in 2015, company officials say. But the company lost $3.8 million in waived fees, and is now also under no obligation to meet the wage standards that were required as part of the deal; business leaders said Austin’s reputation probably took a hit.
“Nobody is gonna win,” Council Member Mike Martinez glumly declared.
It was a sentiment oddly discordant with the cheers of the people Martinez had sided with, workers and their supporters. White Lodging was paying construction wages were mostly above-market rates but, in some cases, those wages were below the federal prevailing-wage standard, a situation labor advocates and religious leaders said was basically the equivalent of cheating workers out of fair pay. The council vote was a political triumph for those groups.
A year ago, it would have been considered a highly unlikely outcome.
Prevailing wage for most, but not all
Hours before the City Council’s decision, Joe Vasquez, the bishop of the Diocese of Austin, came to City Hall to exhort those demanding White Lodging either honor their reading of the incentive agreement or foresake the waivers. It was his first appearance at City Hall to talk policy since becoming the diocese’s leader in 2010, a sign of the civic pressures being brought to bear.
The first signs of controversy emerged when White Lodging proposed building the hotel in exchange for the $3.8 million in incentives. Various activists contended the hotel would be built anyway; the Marriott became an outlet for frustration over other tax-incentive deals they said should never have been struck, deals they said were primarily designed to attract jobs that would not benefit longtime Austin residents.
White Lodging said that concession was necessary to secure financing for the hotel. The addition of a large hotel downtown had been a goal of the council, to accommodate lucrative convention-center business Austin has been losing to other cities because of a lack of suitable hotel space. Other cities, including San Antonio, Dallas, Houston and Indianapolis had approved incentive packages between $40 million and $100 million for such hotels, making prevailing wages in those projects a fairly painless concession.
When the $3.8 million incentive deal with White Lodging was presented to the council, Martinez suggested his colleagues require that White Lodging pay its construction workers “the city’s prevailing wage policy,” as a way to ensure locals would share in the benefits of the hotel.
After agreeing to the prevailing wage requirement, White Lodging subsequently determined that paying all construction workers a prevailing wage would cost it more than it was going to save from the waived fees. Deno Yiankes, White Lodging’s President and CEO of the Investments and Development Division, said he brought his concerns to Martinez and Martinez directed him to Rudy Garza, a then-assistant city manager, because the city had never used prevailing wages in an economic-incentive deal.
In an email exchange Garza said he did not think the council’s intent was to require so much more in additional pay that the benefit of the waivers would be nullified. Yiankes proposed a plan that would pay most workers above prevailing wages — as much as 20 percent more in many cases — but some workers, mainly electricians, would make less than a prevailing wage. Garza endorsed White Lodging’s approach on Aug. 16, 2011, writing, “You are good to go.”
Hardened positions
But by January 2013, other city staff members had grown to suspect Garza had exceeded his authority in granting the approvals. The local electricians’ union, whose members were making less than a prevailing wage, also complained to the city staff and took the issue public.
In June, the city staff determined White Lodging had violated the wage requirements, had not cooperated with a city investigation and relied on the approval of a city official who did not have the authority to grant it.
Months of negotiations broke down. Austin Interfaith, the Austin-based Workers Defense Project, other labor advocates and tax-incentive critics — some of the most persistent constituencies in town — made a full-throated declaration that White Lodging should either pay every one of its construction workers under the prevailing wage standards or return the $3.8 million.
“Decisions tonight will be included in our next voter information packet,” Jim O’Quinn, an Austin Interfaith leader, told council members.
Yiankes, who said the company was being unfairly labeled as a callous juggernaut, abandoned the deference with which development interests typically address the council and began his remarks by noting that his first White Lodging job was washing dishes and his grandfather was a Greek immigrant and blue-collar immigrant like many of those gathered in the council chambers.
Yiankes said that when all 2,000 construction workers are taken into account, they will average 20 percent more than the federally defined prevailing wages. He said the company also was willing to pay every construction worker at least $11 an hour.
“I ask, why isn’t the City Council and city manager doing what they said they would do?” Yiankes said. “If I can’t trust a document from an (assistant) city manager that tells me this is what we can do and move forward in good faith on a multi-hundred-million dollar project, how am I to believe (City Manager) Marc Ott when he sends me a letter that says we’re … violating it? Which do I believe?”
Gary Farmer, the chairman of Greater Austin Economic Development Corporation, said Yiankes should not have to sort through that kind of question.
“I’m disappointed the council did not take the opportunity to rectify an unfortunate situation caused by confusion that put this community in an uncomfortable spot,” Farmer said. “I think it’s imperative the city live up to its agreements, honor its word and zealously protect its reputation. I think the council failed to do that.”
Martinez said he should have known the full effect of the council’s prevailing-wage requirement when he proposed it two years ago. But he said other council members accepted the requirement as well.
“I don’t see how I can change that position today, even if it wipes out the waivers,” he said, adding that the city needs to establish a clear policy on wage requirements.
After it became clear a majority of council members supported revoking the incentives, they decided to not take a vote and let the staff’s decision stand. But leading up the decision, White Lodging was pushing particularly hard on Bill Spelman, presuming he was the swing vote on an otherwise split council. Spelman said he did not support White Lodging’s request to restore the incentives because the council’s intent had been clear: every construction worker would have to be paid at least a prevailing wage.
“If the city staff doesn’t carry out the policy the City Council put in place, we cannot then say, ‘we’re only kidding, we’ll do it the city staff’s way,'” Spelman said. “That’s no way to run a government.” Even if Yiankes were directed by a council member to deal directly with Garza, Spelman said, “He never did bring it to the entire council. They’re going to make a great hotel, but having said that, I think Deno knew what we meant by prevailing wage.”
After the vote Richard Suttle, White Lodging’s local attorney, would say only, “We’re disappointed, and we are exploring all our options.”
