City Clears Legal Review On Pine St. Garage Deal -- Money To Developer Deemed Constitutional

The city of Seattle did not violate the state constitution by agreeing to pay $73 million for a new parking garage and didn't need to solicit public bids to have it built, says the state Attorney General's Office.

The written opinion, released to the public yesterday, effectively removes a key legal question that's been hanging over City Hall for months: Did Seattle break the law by funneling public money to private developers?

Now with the Attorney General's Office on its side, the Seattle City Council can take final steps to buy a 1,200-stall garage as part of the Pine Street-Nordstrom redevelopment project without worrying about a legal challenge from the state.

Mayor Paul Schell and Councilwoman Sue Donaldson said last night that they were happy with the opinion and hope it will finally resolve questions about the garage.

"The (city's) investment was a worthwhile one, and hopefully this ruling will allow us to put this issue to rest and move on," said Victoria Schoenburg, a spokeswoman for Schell.

Tangible and intangible benefits

The Seattle Times reported in December that the city had overpaid Pine Street Development to close the deal that moves Nordstrom into the old Frederick & Nelson building. After the garage is completed next month, the city will buy it for $73 million, even though the developer's spreadsheet shows that construction and the cost of land amounts to $50 million.

Assistant Attorney General Mary Jo Diaz wrote the 16-page opinion as a partial road map for the state Auditor's Office to review the deal.

In it, Diaz says the state Supreme Court probably would uphold Seattle's purchase of the garage based on the arguments justices have outlined in recent court rulings.

Two of those cases involve the Seattle Mariners' new ballpark and another garage project in Spokane. The justices have said that when there's a debate about the value or propriety of a public investment, they'll defer to the Legislature or local governments to make those decisions. The court likely wouldn't invalidate a deal unless there's blatant evidence the public is getting nothing in return, or evidence that local officials acted "arbitrarily or capriciously" to give away money, Diaz said.

"The city (of Seattle) will receive both tangible and intangible benefits as consideration under this agreement, . . ." she wrote, referring to the expectation of 2,800 new jobs, additional tax revenue and improvements in traffic flow and public safety.

"It does not appear that the city of Seattle intended to donate public funds to the developers or that the consideration the city will receive is grossly inadequate."

Though some might want to know whether the public benefits actually add up to $73 million, "comparative value" isn't something the court considers, Diaz said.

Competitive bids not required

She went on to argue, in more limited terms, that the city was not obligated to treat the parking garage like a public-works project - meaning, partly, that it was not required to seek competitive bids.

The umbrella agreement, signed by former Mayor Norm Rice and Pine Street Development, specifically states that developers and a nonprofit group called Community Development Properties, King County II Inc. - not the city - have liability for construction costs. That the city entered a unique lease-purchase arrangement eliminates the arguments for required public bidding, Diaz said.

The assistant attorney general cautioned that hers is not a formal opinion, but her analysis has been endorsed by two senior state attorneys in Olympia and is certain to influence the state's ongoing investigation.

The state Auditor's Office relies on the state Attorney General's Office to help guide its reviews. And without a green light from Diaz, who is the auditor's lead counsel, the auditor loses a potential stick in its review of the Seattle transaction: the argument that giving public money to a private business was unconstitutional.

Had Diaz decided there was evidence of a constitutional violation, Auditor Brian Sonntag would have had some assurance that such findings could be argued in court.

Sonntag said he concurred with Diaz's analysis for the most part. However, his staff is not yet ready to close the books on the issue of public bidding.

"We still need to look at those questions and make some determinations," he said. "I don't know that this memo necessarily told us what direction to go in."

`A downtown that was slipping'

Unlike the constitutionality question, there aren't many court rulings governing the issue of public bidding. One advisory by a King County deputy prosecutor on a different public-private project says that if a judge thinks a local government and developer are trying to evade competitive bidding, the project could be deemed a public work.

Still, supporters of the project are viewing the attorney general's opinion as a rallying point for arguing that the city, in 1995, made a good deal.

Seattle's downtown area was on the downswing with the departure of Frederick & Nelson in the early 1990s, and Rice and former and current council members have argued that the Pine Street-Nordstrom redevelopment project was critical to economic recovery.

The garage is part of a three-block development by Pine Street Development, a group of investors headed by Jeff Rhodes and Matt Griffin. They strung together a proposed $400 million project by buying the F&N building and then swapping it to Nordstrom for its smaller store across the corner of Fifth Avenue and Pine Street.

Nordstrom is preparing to open its renovated flagship store in August, while Pine Street Development is completing construction of the Pacific Place retail complex across the street. The multilevel garage is located underneath.

"I would hope at some point people will say, `Boy this (current development boom) is great' and they wouldn't look back," Griffin said earlier this week. "People clearly forget the way downtown was in '93 and '94. They all forget that we had a downtown that was slipping."

Council President Sue Donaldson agreed and said she'd vote to approve the deal again, despite the political flak. In addition to the garage's price tag, there has been criticism about the city's use of a $24.2 million HUD loan to assist the purchase of the F&N building, and about the state's approval of a low-interest loan to finance construction.

"Had the city not been involved in the revitalization of downtown, many of the projects we're seeing now would not have come to fruition," Donaldson said. Opinion `is not an exoneration'

But citizens who have criticized the garage deal say they won't quiet their arguments. One group, coincidentally, held a news conference yesterday and presented a prop with wads of money falling out of City Hall and into a hole in the ground to illustrate its dissatisfaction.

One City Council member, Nick Licata, said he'll vote against the project when it comes up later this year. Councilman Peter Steinbrueck hasn't decided. While the city already has a contract to acquire the garage, the nine-member City Council must approve certificates of participation or revenue bonds to finance the $73 million payment. Donaldson said she has the votes to keep the city's contractual promise.

Brian Livingston, administrator of The Civic Foundation, said the group has purposefully avoided questions of constitutionality in discussing the downtown garage and focused on a more economic argument: That the city is paying too much for the parking garage.

The foundation also is needling the city about the role of a city consultant as well as a parking validation program in which Seattle will help to cover the cost for retailers.

The attorney general's opinion "is not an exoneration," Livingston said. "It's simply a statement that even a deal as poorly worked as the subsidy of Pacific Place garage is, it's still allowable. It doesn't even speak to the wise use of public money."

Deal was meticulously worded

While some may not like it, Diaz, the assistant attorney general, says the voluminous umbrella agreement between the city and developers was unique and meticulously worded.

"They took great care to comply specifically" with state law and rulings, Diaz said of the drafters, which included the city finance director and lawyers from the city attorney's office. "They had really tried to take everything into consideration."

State officials don't have the authority to investigate whether Seattle officials intentionally tried to skirt the state's constitutional ban against gifts of public money to private business, or to avoid public bidding. Both of those questions would be subjective "performance" issues, Sonntag and Diaz said, and their offices only have authority to consider specific letter-of-the-law violations.

However, state auditors are still reviewing whether the city met its legal obligation to hold public hearings and give residents sufficient information before approving the project.

Ultimately, state officials say, whether the deal was in the best interest of the community is a judgment call, perhaps best answered by the voters.

"The courts have said we're not going to question the wisdom of the transaction," Diaz said. "That's for the electors to decide."

Information from Seattle Times staff reporter Susan Byrnes is included in this report. Barbara A. Serrano's phone message number is 206-464-2927. Her e-mail address is: