In its first year of operation inside a renovated historic church in Adams Morgan, The Line D.C. attracted national buzz as host to some of the country’s best new restaurants and as a prime hang-out spot. Forbes went so far as to call it Washingtons’s “hippest hotel.”

Now, The Line is back in the headlines, and the news isn’t nearly as fawning.

The company behind the post boutique hotel made a deal with the city nearly a decade ago that promised a $46 million tax break in exchange for, among other things, jobs for D.C. residents. Now, a recent audit has determined that The Line and its owners—the Sydell Group, Foxhall Partners, and Friedman Capital—did not meet all of the conditions it agreed to in order to secure the tax break.

This discovery has set up a showdown that has, on one side, The Line and the administration of Mayor Muriel Bowser, which is advocating to move forward with the $46 million abatement as long as the hotel pays a $600,000 penalty fee. On the other side are two D.C. councilmembers and D.C. Attorney General Karl Racine—they say that, if The Line didn’t meet its requirements, it isn’t eligible for the tax break.

So let’s break down how we got here, and what happens next.

How did this all start?

The original agreement which passed the D.C. Council in 2010, required The Line to meet seven separate conditions to secure the $46 million tax break (which is staggered over 20 years). Chief among them, The Line was required to hire a minimum of 342 D.C. residents and ensure that 51 percent of construction hours were performed by District residents. The hotel also agreed to fund a job training program, devote at least 4,000 square feet to “community and nonprofit” space, and reserve all employee apprenticeships for D.C. residents. The hotel’s developers say that it couldn’t have been built without the tax break.

This deal between The Line and the city is part of the First Source Employment Program, which requires any business that receives more than $300,000 in municipal funding to enter into a plan with the Department of Employment Services that outlines how it will prioritize District residents during hiring. But there may be an issue when it comes to following through on those plans: A 2018 report from the D.C. auditor found that 81 percent of these first source provisions were either not implemented or not implemented effectively between 2014-2016.

Did the developers at The Line meet their end of the deal?

The Department of Employment Services found that The Line failed to meet at least two of the seven requirements for securing the tax abatement. The Line hired only 273 of the 342 D.C. residents it promised to employ, and it did not have District residents work more than 51 percent of construction hours. The audit also found The Line failed to reserve all apprenticeships for D.C. residents during the construction project.

And this isn’t the first time that a D.C. agency has questioned whether The Line D.C. has met all of its requirements for the tax break. In January 2018, the D.C. Office of Tax and Revenue said it required more proof before it would apply the abatement, and the hotel began its operations with a temporary certificate of occupancy for about six months.

But the people behind The Line are singing a different song. Sydell Group, which owns the hotel, said in a statement this week that it has “made good on our promises” and that “The Line Hotel has exceeded its obligations to Washington, D.C.” The group argues that the jobs it provided were undercounted by the city’s audit, and that an independent audit backs their claims. “We now need the District to make good on their promise of a tax abatement,” the group said in a statement.

How have D.C. officials responded?

Despite findings of the Department of Employment Services audit, the District has so far not backed out of its agreement with the hotel—at least, not yet. In April, DOES recommended to the D.C. Office of Tax and Revenue that the abatement be granted through a “substitute compliance” plan, which would allow The Line to qualify for the $46 million in tax relief if it agreed to pay a $600,000 penalty over the course of four years. (The money would go toward resident job training.)

But two councilmembers are calling foul on whether DOES can waive the failed requirements. At-large Councilmember Elissa Silverman said the penalty fine was inadequate, calling it “a small slap on the wrist” in a statement. Soon after, Silverman and Ward 1 Councilmember Brianne Nadeau wrote to Racine, D.C.’s attorney general, to ask if the agency is allowed to call The Line compliant, given that it did not meet all of the requirements.

Racine responded to their inquiry in a letter last week: “You asked whether the Department of Employment Services (“DOES”) may waive those conditions,” Racine wrote. “We conclude that it may not.” He says that the hotel needs to satisfy all seven of the requirements to be eligible for the tax break.

What happens now?

It’s unclear what exactly will happen with the $46 million tax subsidy from here.

Any adjustment of the abatement’s terms may require new action from the D.C. Council. A spokesperson from the Department of Employment Services told the Washington Post that the agency “is currently reviewing the opinion of the Office of the Attorney General to determine the next steps and will continue to monitor the process to ensure the establishment is and remains in compliance.”

Meanwhile, Sydell Group claims that it needs the tax break to “protect the ongoing operation of The Line hotel, its exceptional staff, and the operation of the Adams Morgan Community Center.” Subcontractors who helped build the hotel told Washington City Paper this past November that they were still owed money for their work, with claims ranging from $40,000 to more than one million dollars.