The Jerusalem Municipality is on the verge of canceling a controversial decade-old agreement with the YMCA over city taxes, city officials said this week. The decision, which could lead to a long legal struggle between the city and the US-based institution, would see the YMCA ordered to pay more than $11 million in back taxes which were previously waived, they said. The original agreement dates back to 1997, when then mayor Ehud Olmert gave the YMCA a tax exemption over land re-zoning stemming from a major construction project under way next to its building on King David Street. The municipality had originally wanted to tax the YMCA millions dollars for re-zoning the land - changing its category from "commercial" to "commercial-residential" - but the YMCA balked. After years of negotiations, which began under the late mayor Teddy Kollek and concluded with Olmert, an agreement was reached according to which the YMCA would "pay" the tax in community services, such as swimming lessons for east Jerusalem residents, concerts and kindergarten classes. But a recent letter to the YMCA by city attorney Yossi Havilio charged that the institution had failed to live up to its side of the bargain, and had not given the city anything in return to date, 12 years after the agreement was first signed. "In effect, today, more than 11 years after the agreement was signed... and at a time when the project is in its advanced stages, there has been no benefit or services provided to the city or the public," the letter states. YMCA OFFICIALS this week denied that they had violated the agreement, and expressed the hope that the city would not annul the accord. "We are fully in compliance with the terms of the municipality agreement, and will continue to abide by its terms to provide services to the city," said Mike Bussey, director-general of the Jerusalem International YMCA. Bussey conceded that the construction of the project - which was supposed to have been completed by now - was not finished. But added that organization's officials have "taken as many steps as we can" to move the project forward. He could not cite a target date for the project's completion, however, noting that an arbitration hearing with the developers was slated for this spring. Rami Kook, the attorney for the YMCA, said his client was not in violation of the accord, since the project has not been completed yet - an argument the municipality does not accept. "According to the terms of the agreement, the YMCA will provide services to the city from the day the project is completed, and it is still not completed," he said. He added that while the city has the right to annul the agreement, it does not have the right to arbitrarily fine the YMCA. But Deputy Mayor Pepe Alalo said the argument that the YMCA will start providing services only when the project is totally completed was disingenuous. "As a respectable institution, the YMCA must meet its agreement to provide services, and if it does not, the city will have no choice but to annul the accord," he said. "It cannot take so many years." The YMCA was formulating its response to the city this week, ahead of a final decision by the municipality. A petition to the High Court of Justice against the deal by the Movement for Quality Government in Israel was rejected, even though the court strongly criticized the agreement. MQGI spokesman Shuki Levanon said this week that the organization was reviewing the case and, after receiving information from the city, would decide how to proceed. THE PROJECT in question includes a 10,000-square-meter underground recreation center, which is being erected just behind the original YMCA building, and will include an eight-lane indoor swimming pool, a college-size gymnasium and three squash courts. The project - which includes a luxury condo complex and a large underground parking lot just behind the YMCA - is being built by the Rassco Construction Company. The company reached an agreement with the YMCA, whereby it was given a 150-year lease on the land, on which to put up approximately $200 million-worth of condos. The YMCA, which was designed by the same architects as the Empire State Building, opened its doors in 1933, with a dedication speech by General Edmund Allenby.