DC Auditor Finds Financial Mismanagement in DGS Operation of Eastern Market
Low Sales Volume Apparently Puts Inside Merchants In Bind – Raises Questions About Business Model Going Forward
by Larry Janezich
A required biennial audit of Eastern Market operations by the DC Auditor found substantial financial mismanagement and raised questions about the future of Eastern Market which will soon face competition from two area Whole Foods and a possible Rodman’s Discount Gourmet in the future Hine development.
The audit for the period October 1, 1010 to June 30, 2012, revealed that the double rents which South Hall Merchants are required to pay until they agree to new leases (the current leases expired in June and December of 2008) were not collected by the Department of General Services (DGS). Since the expiration of the leases, the audit found, no South hall merchant has entered into a new lease agreement. Merchants continue to operate under the double rent penalty, but DGS is not collecting double rents because, according to the report, DGS believes it unrealistic. Presumably, the actual amount owed the city by merchants is much higher, given the figures apply only to the audit period. Negotiations to increase the rent and enter into new lease agreements have been unsuccessful.
The current South Hall Merchants, their monthly rent, and the amount which DGS has said is owed the city for the 21 months covered by the audit period between October 1, 1010 and June 30, 2012, is as follows:
1. Blue Iris Flowers $672.80 $14,128.50
2. Bowers Fancy Dairy Products $716.10 $15,038.10
3. Calomiris Fruits & Vegetables $1411.20 $29635.20
4. Canales Delicatessen $1310.40 $27,518.40
5. Canales Quality Meats $724.50 $15,214.50
6. Capitol Hill Poultry & Park Produce $1413.30 $29,679.30
7. Eastern Market Grocery $659.40 $13,847.40
8. Eastern Market Pottery $806.00 $16,926.00
9. Fine Sweet Shop $1638.00 $34,398.00
10. Market Lunch $2883.30 $60,549.30
11. Market Poultry $850.50 $17,860.50
12. Southern Maryland Seafood $2306.40 $48,434.40
13. Union Meat $2137.80 $44,893.80
14. National Capitol Bank ATM $875.00 $18,375.00
The auditor, deferring to DGS’ judgment regarding the collectability of the outstanding rents, recommends only that merchants be assessed some $3,500 in unpaid late fees. The audit also found a lack of complete records of events in North Hall during the audit period, as well as incomplete records for outside vending.
In a written response to the report, dated July 11, 2014, DGS Director Brian Hanlon addressed its recommendations, agreeing to execute “best efforts” to enter into new lease agreements after a market rent appraisal, but warned, “It is not clear that sales volume for Eastern Market South Hall merchants can support market rents.” Hanlon also agreed to send collection letters to merchants by August 30 regarding payment of late fees – under threat of enforcement of collection of the double rent provision. Hanlon noted regarding two other recommendations – a standard contract for rental of North Hall and monthly accounting provisions – that remedies have already been put into effect.
If Hanlon’s speculation about the low sales volume for South Hall merchants is borne out, it would not augur well for Eastern Market’s future unless radical changes are made to the composition of vendors and/or marketing.
Along those lines, in May of this year the South Hall merchants floated a plan to open 7th Street to parking on weekends to boost business, saying that current market policies were “strangling” them. The move would have displaced 34 outside weekend vendors, who responded with opposition to the proposal. See CHC post from May 4, here: http://bit.ly/RiV60I
Eastern Market Community Advisory Committee (EMCAC) board member Chuck Burger is spearheading an effort within EMCAC and the local business community to develop a marketing plan for Eastern Market. It is unclear what the status of the plan is.
EMCAC met Wednesday night, but though the Auditor’s report had been released that day, the matter was not brought up, either in the Market Manager’s report, or by any member of the Committee. EMCAC serves as an advisory board regarding market operations. Legislation to restructure the Eastern Market governing board to provide decision making management authority proposed by Councilmember Tommy Wells last year, fell victim to opposition by Mayor Gray, and despite rumors to the contrary was not revived last January.