Rent coming due in Hillyard

OLYMPIA – The state Department of Transportation wrongly allowed the city of Spokane and Hillyard’s Market Street Market to use several state-owned buildings rent-free for years without a lease, according to a state auditor’s report.

“We found reasonable cause to believe an improper governmental action occurred,” concludes the report, triggered by a whistleblower’s complaint.

But the DOT’s regional administrator and the director of the market defend the deal. Instead of having probably unrentable buildings sit vacant, they say, the market-maintained site serves as a community center, farmers’ and craft market, and small-business incubator.

“I would welcome anybody to find a higher and better temporary use than what we’ve done,” said Paul Hamilton, an insurance agent and longtime wrestling coach who runs the market, a private corporation. The 10 1/2-acre site is slated for eventual demolition to make way for the North Spokane Corridor highway project.

In response to the audit, the transportation department – which a few years ago valued the site at $115,400 in rent a year – has agreed to recalculate a rate and seek renters.

“I’m highly dubious that we’re going to find somebody,” largely because the agency’s requiring any user to agree to vacate on 30 days’ notice, said Jerry Lenzi, DOT’s regional director in Spokane. He predicts the market will be able to stay at a reasonable rent.

The state investigation was launched last October, when a whistle-blower contacted the auditor’s office alleging questionable transactions between Spokane property owners and the state DOT. The resulting documents – obtained by The Spokesman-Review through a public-records request – are more than 3 inches thick.

After a preliminary investigation, the auditor’s office focused on the market property, which the state bought from Vern and Mary Ziegler in 2002 for $2.9 million.

In 2003, Hillyard residents asked DOT to use the property for a farmers’ market. The DOT wrote a permit to the city of Spokane, which let the group use the site.

“If we send to AG (the attorney general) for review, I anticipate we will be asked why we aren’t charging rent,” DOT staffer Tim Golden wrote in an e-mail to Lenzi on May 19, 2003. “Rent for this site was $9,618 a month … as we discussed, there is no way to write a lease for this and avoid charging rent.”

Why no rent? Lenzi said Wednesday he never thought the farmers’ market would be a success. “I thought these guys didn’t have a snowball’s chance in you-know-where of making it go,” he said.

So instead of a lease and rent, the agency wrote the city a rent-free, month-to-month “general permit,” good for a maximum of one year.

That was four years ago.

In retrospect, Lenzi concedes, the agency should have revisited the issue and written a lease, but the office simply never got around to it.

Nonetheless, he maintains that the market’s use of the property is as big a “win-win” situation as the state is likely to find for three decades-old buildings on a site slated for demolition.

“We tried to lease the property and had no success,” he said. “Nobody really wanted it.”

By letting the market use the site, he said, the state is saving “at least 25 grand a year” by avoiding vandalism, gang graffiti, drug paraphernalia and other litter, and homeless squatters. The market also pays for utilities and takes care of maintenance.

State law allows rent-free leases, if a tenant’s maintenance costs are worth at least as much as the rental value. The rental value is what DOT’s trying to figure out.

Hamilton says he’s not worried. He’s proud of the Market Street Market’s growth: basketball clinics on courts he bought, a 40-foot Ferris wheel, startup businesses, car auctions, church gatherings, youth dances. When he spoke Wednesday, Hamilton was getting ready for hundreds of kids to show up for a talent show.

“If they say, ‘You’ve gotta pay $12,000 a month,’ then I will fold up my Ferris wheel and go home,” he said.

But, like Lenzi, he doubts any business would want the site.

Within a few years, he said, he hopes to move the market’s activities into Hillyard’s Joe E. Mann Center, a 7-acre Army Reserve site at the intersection of Haven and Market streets that has been declared surplus by the military.

Hamilton said he’s always known the DOT site was temporary. He looks forward to the day that the North Spokane Corridor is built, bringing with it two off-ramps into Hillyard and what he expects to be a wave of resulting growth. And he’s not just a passive observer – he owns 20 acres in the area, land that’s already increasing in value.

In the meantime, he said, the Market Street Market is a valuable asset to the community.

“The alternative is the buildings are gone and there’s a fence around it, saying: ‘No trespassing. State of Washington,’ ” he said.