State Reviewing Parking Garage Deal In Seattle City Will Pay $23 Million Over Cost Of Building As Part Of Downtown Project

Auditors are reviewing a city overpayment of as much as $23 million for a parking garage as a potential violation of the state constitution, a newspaper reported Sunday.

A copyright report in The Seattle Times said Pine Street Development stands to get $73 million for a 1,200-space parking garage to be completed next year, although the building is costing about $50 million.

The difference, revealed in a construction budget the developer filed with the state, appears intended for use in a $400 million, three-block redevelopment project that features an overhaul of the old Frederick & Nelson department store as the flagship of the Nordstrom clothing chain, and some of the money could wind up with Nordstrom, The Times reported.

A direct city payment to the developers or to Nordstrom would be barred by a state constitutional ban on gifts of public money to private parties “except for the necessary support of the poor and infirm.”

National parking experts say the cost is twice the national average per stall, even considering the expense of building an underground garage in an urban center.

The real purpose seems to be subsidizing the developers, said Roamy Valera of the International Parking Institute, the industry trade association, and Richard Rich, a Michigan parking consultant.

“It looks like what they’re saying is, ‘We can’t give you anything directly, but if you build it we’ll buy it for this price and that’s how we’ll give to the project,”’ Valera said.

“Someone is making one hell of a profit,” Rich said. “It’s too easy to see through this.”

After hearing about the $23 million gap from Times reporters last week, Jan Jutte, assistant director of audits in the state auditor’s office, said the deal would be examined.

“I think this is something the public wants to know about,” Jutte said. “They have a right to know if they paid $73 million for a $50 million garage.”

Local officials have some leeway in deciding what constitutes a subsidy, and court rulings allow finance assistance to an economic development project that produces “a public benefit” for the community.

Lori Mayfield, an aide to City Attorney Mark Sidran, said attorneys in the municipal Law Department believe the Pine Street agreement signed in 1995 is legal.

City officials could not say, however, what the extra $23 million would buy.

“Our office does not have a breakdown of any of these costs or the acquisition package,” Mayfield said.

The price was negotiated between Pine Street, an investment group headed by Jeff Rhodes and Matt Griffin, and city officials without competitive bids or a cost assessment.

The linchpin of the overall project was provided last year when Rhodes and Griffin bought the Frederick’s building and traded it to Nordstrom for the company’s existing store a block to the northeast.

Nordstrom is spending $100 million to outfit the building as a store and corporate headquarters. Pine Street plans to turn the current store into a retail and office complex after the move and is now building Pacific Place, a five-story shopping mall and parking garage another block to the east.

A report three years ago estimated the Pine Street development projects would generate $82 million in tax revenue from 1997 to 2013.

Long-range benefits justified the high price of the garage, Mayor Norm Rice said.

“We wanted to make sure we had a healthy downtown with an investment and attractiveness of a facility that would make people come, feel good and stay,” Rice said.

Tom Weeks, chairman of the City Council finance committee when the garage deal was approved, said he knew the price exceeded the cost but never asked by how much.

“It wasn’t that we wanted to build a garage. It was that we wanted a Nordstrom development and a development on the (old) Nordstrom block,” Weeks said. “It was presented to us as all or nothing.”

Developers insisted on the garage deal to enhance their bottom line in the absence of the direct public subsidies offered in other states, said Bob Watt, deputy mayor at the time and now executive director of the Seattle Chamber of Commerce.

“We have precious few tools in the state to do economic development,” Watt said. “Here, we have Article 8, Section 7 of the state constitution, saying ‘Thou shalt not give public funds,’ so doing a joint venture with a public garage was a way to help with the project.”

A brief financial analysis in a memo from the Office of Economic Development to City Council members in 1995 concluded that the “yield” from the garage deal sale would help the developer “offset” losses from giving Nordstrom a good deal on the old Frederick’s building.