Officials Say City Must Pay For Garage -- Only A Court Ruling Can Let Seattle Get Out Of High-Cost Contract

The city of Seattle has no choice but to buy a high-priced parking garage, despite evidence that Mayor Norm Rice and city officials skirted state law to ensure a new flagship store for Nordstrom.

Short of a court ruling, city officials said yesterday that they cannot back out of the deal and are legally obligated to make the $73 million payment. A Seattle Times story Sunday revealed that the garage is expected to cost only $50 million to build.

Rice and longtime council members have defended the $73 million payment, saying it has been more than outweighed by downtown's rebirth and by increased tax revenues.

But some newer council members have questions about the deal.

A potential $23 million cash subsidy to developers or Nordstrom "certainly has caused a bit of consternation around here," Councilwoman Tina Podlodowski said yesterday.

"I am concerned and have always been concerned about making sure there is full disclosure in any kind of financial transactions involving the city. . . . I am really interested in finding out how we got to this point."

The city Auditor's Office yesterday announced it will conduct a review to determine whether Rice and the City Council violated state law and city policies when they approved the agreement with Pine Street Development two years ago.

While the state Auditor's Office has said that it, too, will scrutinize the agreement, Seattle auditors say they have more tools to measure City Hall accountability.

So far, no one in the city can account for the $23 million gap between the cost of the garage and the price that will be paid by the city. Developers say they may use the money to cover $20 million that they owe Nordstrom for moving into the Frederick & Nelson building.

A Times review of an early draft of the developers' construction-loan documents filed with the state indicates the $73 million was earmarked for "financial obligations" to Nordstrom as well as garage expenses. Developers would not say whether that arrangement is spelled out in the final draft.

Cash subsidies to private businesses are illegal under a state constitutional ban. As part of a $400 million downtown-redevelopment project, Seattle circumvented that law by funneling money through the underground garage project, now being built.

Developers ostensibly named a price and the city agreed to pay it without competitive bidding or scrutiny of construction costs.

The 1,200-space garage is under Pacific Place, a five-story retail complex being built at Sixth Avenue and Pine Street, across the street from Nordstrom's new flagship store.

The developers, Pine Street Development, purchased the old F & N building and then swapped it with Nordstrom for its smaller building across the corner of Fifth Avenue and Pine Street. They're also crafting Pacific Place and struck the deal for the garage underneath.

Legally binding contract

In light of the news about a potential $23 million overpayment, some council members have been asking whether the city could back out of the agreement. But city staffers doused that idea yesterday by pointing out that Seattle has signed a legally binding contract.

"It's a contract that will require payment, and we're obligated until a court tells us not to pay," said Marilyn Sherron, a lawyer in the City Attorney's Office.

As early as next November, the city will have to issue certificates of participation - adding $73 million to its debt - to acquire the garage under a lease-purchase agreement. The contract specifically states that, barring a lawsuit or change in state law involving the city's debt capacity, Seattle cannot avoid payment.

Sherron said her office still thinks the garage agreement is "legally defensible."

City officials have defended the price by pointing to extras that the city will get beyond parking stalls. Among them: city control over the historic facade of the old F & N building, a promise that 10 percent of the construction work on the entire Pacific Place project will go to women- or minority-owned firms, and air rights above the five-story building.

Odds against a lawsuit

Citizens could file a lawsuit to challenge the deal's legality, but Seattle attorney John Blankinship said a recent state Supreme Court decision on the constitutional ban against subsidies makes it nearly impossible for such a suit to succeed.

Blankinship was lead attorney for opponents of public financing of the new Mariner stadium. The court in 1996 ruled in support of the stadium.

That precedent-setting decision lets local governments get around the anti-subsidy provision by claiming such deals have even a slight public benefit.

The court has "in effect written that constitutional provision off the books," Blankinship said.

A potential state lawsuit to stop city financing for the garage would largely depend on the state auditor's findings and the attorney general's chances of winning in court, state officials said.

State and city auditors said they will study City Council and mayoral actions in their upcoming reviews - what questions were asked about the garage project and what city officials were being told, for example - but they left little hope for recovering any overpayment.

Developers wanted more

The city also could try to renegotiate the $73 million price with the developer. But that's unlikely, city officials say, since Pine Street Development would have to agree. Its principals had hoped to get even more money.

Incoming City Council member Nick Licata said he thinks the 1995 council should have asked more questions before it committed $73 million in public funds.

"I don't think they wanted to know" what the overpayment was, said Licata, a citizen activist who had criticized the price two years ago. "They just saw it as a package deal and said, `Let's just pony up and buy it.' "

Peter Steinbrueck, who was sworn in as a council member last month, said he wants to re-examine the garage cost and the perceived public benefits.

"Right now, it's pure speculation about what the actual returns (to the community) will be. I want to get the facts, check the record and wait for the state audit to produce findings and the cost of what we purchased."

Richard McIver, who joined the council after the decision, said, "It'd be interesting to know where the $23 million went," but he's convinced the investment was worthwhile. He said his understanding of the state constitution is that the city can give money away but cannot lend its credit to private businesses.

Decision-makers defend deal

Council President Jan Drago has publicly downplayed concerns about the garage, saying people should instead recall how desperate the city was to find a tenant for the F & N building in the early 1990s.

She and two others who approved the 1995 agreement and who remain in office - Martha Choe and Margaret Pageler - did not return phone calls seeking comment.

But Councilwoman Sue Donaldson, who also supported the deal, said last night that the investment was needed to revitalize the downtown business core.

Mayor-elect Paul Schell, meanwhile, has no interest in reopening the issue, or in tracking the whereabouts of the $23 million in public funds. He suggested that Seattleites take comfort in knowing that the garage will help to produce financial dividends for the city.

City officials say they expect $82 million in additional tax revenues from the Pine Street/Nordstrom development by 2013.

"He feels that the question is not whether what was paid exactly coincides with the cost of the garage, but whether it coincides with the value the city is getting (in return)," said Victoria Schoenburg, Schell's spokeswoman. "You certainly can't say that a single garage is going to revitalize downtown, but that deal has meant a tremendous amount for downtown Seattle."