The Port of Olympia in July approved a proposal to develop almost 200 acres of land on its New Market Industrial Campus (NMIC). The new Panattoni Lease Option Agreement (Panattoni Agreement) is fraught with potential negative impacts on the community. There are financial, environmental, public health, school safety, and other quality of life issues at stake. However, in light of the tremendous financial strains that will be experienced by public agencies due to the Covid pandemic, financial considerations, including the level of public subsidies to private interests, are of paramount importance.
Taxpayers assigned a big bill
With respect to the Panattoni Lease Option Agreement, the chief public financial exposure lies in the area of Habitat Mitigation costs with estimates ranging from $70,000 to $100,000 per acre. The who and how these expenses were to be borne was of critical importance to the public interest, but ultimately did not play a significant role in consideration of the proposal. Without due diligence and consideration, Commissioners Bill McGregor and Joe Downing decided that the public, not the developer, should pick up the entire bill of up to $20 million. Given the operating ethos at the Port, and its dismal record, it appears that the public has taken on Panattoni Development as its newest financial dependent.
How did we get here?
It appears that the fast-tracked Panattoni Agreement hurtled like a run-away train to approval at the Port of Olympia’s July 13 meeting. Despite the numerous public comments outlining its flaws, two commissioners decided to throw caution to the wind and approve the lease. Contrary to statements that the agreement represents only an option, the Commissioners’ approval pulled a trigger that will tie the Port and the public to this financial arrangement for decades.
Instead of taking time to fully understand the financial and environmental implications of the draft contract, especially in light of concerns raised by Tumwater Mayor Pete Kmet, Commissioners, with the exception of Commissioner Zita, chose to ignore all considerations other than cash flow.
A civic Tale of Two Letters—community-based values vs lobbyist’s influence
The community values approach.
A letter by Mayor Kmet clearly set out the issues, values and concerns of the Tumwater community. His letter serves as an exemplar of community-focused governance. It is practical in that it recognizes needs for the economic future of Tumwater. However, it places quality-of-life in the forefront of importance.
Kmet succinctly expresses concerns about large warehouse developments: “Large distribution warehouse uses consume large parcels of land, typically generate a lot of semi-truck traffic, offer lower job density, and generate less tax revenue per acre than other higher value uses.”
As the City of Tumwater is the part of Thurston County that will be most affected by the Port’s decision, the Commission should have been very deliberate by using a high degree of due diligence to protect the quality of life for those residents. They deserve nothing less.
The lobbyist-influenced approach.
At the Commission’s June 22 meeting, Michael Cade, Executive Director of the Thurston Economic Development Council (EDC), spoke strongly in favor of the proposed Panattoni Agreement. He also submitted a letter of that date putting forth an economic rationale for the warehouse deal. [See box on page 11] Unlike other written public comments, Cade’s letter is not shown on the Port’s website but was made available only via a public records request.
Cade’s letter asserts that the Panattoni large warehouse development would create 942.5 full-time jobs. Contrasted with this rosy, pie-in-the-sky picture is economic data that suggests large warehouses produce on average two jobs per acre at $16 per hour. Therefore, the validity of Cade’s assertions must be viewed with extreme skepticism—as is shown by a disturbing chain of circumstances involved in this economic claim.
A nexus of conflicts of interest
Based on information, both in plain sight and from a public records search, it appears that EDC is, in effect, a nexus of apparent conflicts of interest:
- Port of Olympia Legal Counsel Heather Burgess is a Board member and President-Elect of EDC. As port counsel, she has oversight for Port contracts. Her law firm, Phillips Burgess Law, PLLC is the named attorney representing the Port of Olympia on the Panattoni Agreement.
- Port Commissioner Bill McGregor is a Board member of EDC. He was one of the two deciding votes on the lease option contract.
- Evan Parker of Kidder Mathews is a Board member of EDC. He and Amy Evans served as the lead real estate brokers on this project. Per sec. 25.1 of the contract as proposed, Kidder Mathews will represent the Port upon the execution of the Agreement, and subsequent Ground Leases, and be entitled to all commissions.
A separate agreement between the Port and Kidder Mathews is to be signed upon execution of the Panattoni Agreement. Thus, Mr. Parker has a significant vested interest in the string of commissions payable to Kidder contingent on the deal being consummated.
The proponents of the lease option based their case in large part on EDC Cade’s letter of June 22, 2020. At first blush, it is apparent that his letter contains an overly optimistic assessment of benefits. A closer look, based on a public records search, produces a more disturbing picture. These questions arise: What was the basis of evaluation in Cade’s letter, and what were the circumstances leading up to it?
- Amy Evans of Kidder Mathews at the June 22 Commission meeting expressed strong support for the Panattoni Agreement. What she failed to disclose in that comment was her material financial interest. This failure to disclose shows a disturbing lack of candor.
Ms. Evans, who has a material interest, was instrumental in the construction of the economic benefit claims cited in Cade’s letter. Ms. Evans set up the valuation process by connecting Mr. Cade with David Toyer of Toyer Strategic Advisors. On June 12, 2020, she sent an email with the subject line “Panattoni” to both Michael Cade and David Toyer stating: “Michael [Cade]: David [Toyer] will be a good one to work on economic impact analysis of the Tumwater Panattoni project.”
- The question then became:
Who is David Toyer, and what financial interests does he have with any of the material parties to this deal? It appears that Toyer has a close financial tie to Panattoni Development.
On the website of Toyer Strategic Advisors, the only client listed and showcased is Panattoni Development. Thus, it appears that an agent of Panattoni was given the job of setting the rationale for economic development benefits for the Tumwater project. It would appear that any valuation opinion from Toyer would fail the test for arm’s-length objectivity.
The public on the hook for decades?
The economic benefits asserted by EDC clearly are based upon data from a biased source. Arguably, the input from EDC should have been entirely discounted and rejected from consideration. In turn, that the benefits claimed were based on questionable assertions cast a shadow over other representations, and raised the question of lease rate adequacy especially in the face of a potential $20 million in mitigation costs. If those provisions should prove inadequate, the public will be on the hook for decades.
Denis Langhans is a retired corporate executive who holds a PhD in the humanities. He has been observing governance and accounting practices at the Port of Olympia for several years.
The story behind the “rad” benefits of a warehouse project
In a document addressing questions about the Panattoni Lease Option, the Port used findings by the Thurston Economic Development Council (EDC) to present the lease as a highly attractive economic opportunity:
any potential future development is estimated to have an economic impact of 942 jobs, $142 million in labor income, $365 million in total economic production for Thurston Co. and $12.7 million in state and local taxes.
When Kidder-Matthews VP Amy Evans first saw these astonishing numbers, she sent an enthusiastic email to the Port’s Development Director: “Pretty rad!”
Maybe a little too rad. The EDC staffer who prepared the figures got his data from Panattoni’s agent. (In fact, it was Amy Evans who suggested they work together.) The EDC researcher plugged the data into an input/output model that measures only benefits, and in one day he was able to report the “impacts.” Finally, while the EDC staffer stressed that his numbers did not represent impacts beyond the construction period, the Port and the EDC presented them as applying to “any potential future development…”
All of this is beside the point. It would take only two Port Commissioners to approve the project and they were on board from the first. “Economic impact” estimates are not meant to be scrutinized. The purpose of such figures is to eliminate debate and reinforce the idea that development brings only benefits.
Yet there is much about this proposed development and the terms of the lease that deserved a lot more objective scrutiny. An attempt by Port Commissioner EJ Zita to present key questions for discussion was rejected. The mayor of Tumwater, where the project would be sited, wanted time to investigate environmental issues and other higher value options. The Port dismissed concerns raised in more than 38 pages of public testimony by saying that the developer would comply with regulations. Pro-commissioners claimed that as an “option agreement” the Port’s commitment was limited – ignoring the fact that the “10-year option” was at the sole discretion of Panattoni, who could unilaterally extend the terms of the lease and commit the Port for 55 years.
A further word on the “rad” economic impacts
The favorite models to predict the impact of developments don’t measure total economic impact but only benefits—expanded by various multipliers. And it’s all about the multipliers. A criticism of the IMPLAN model, for example, says that the most disturbing thing about it is “the wildly unreasonable values it allows for multiplier effects.”
Those “rad” numbers cited by the Port for jobs, labor income, and total economic output for the Panattoni project construction phase? They were created by multipliers:
The beauty of this process is that no one knows how it works, nor how valid any of the estimates are – even if they were correctly treated as lasting only as long as the construction phase of this project. No one will ever be able to verify what actual impacts this warehouse development had – and whether benefits of another use of the land would have been greater.