It's always been mutual admiration: When developer Paul Schell ran for Port commissioner, his supportive developer friends from Wright Runstad & Co. were there to

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PacMed: A clean bill of health?

The state auditor's narrow focus missed the worst details of this cozy, insider deal.

It's always been mutual admiration: When developer Paul Schell ran for Port commissioner, his supportive developer friends from Wright Runstad & Co. were there to help him win. When WRC later sought out multimillion-dollar contacts for projects such as the Port's World Trade Center, Commissioner Schell in turn was there to help them win.

When he ran for mayor and won, Schell got donations and hands-on campaign and post-election help from WRC and particularly one of its executives, Joel Horn, who served as Schell's campaign treasurer and mayoral housing consultant. Horn remains a Schell confidant and handles distribution of the mayor's City Hall e-mail newsletter.

Mayor Schell was there again last year to help WRC win approval for converting a public hospital into a commercial development—stuffing corporate pockets with millions in profit from the taxpayer-built facility known as PacMed. The mayor insisted his role in the deal was minor. But without him, it couldn't have happened.

This is history worth remembering while reading over the newly released state auditor's report on the lease and renovation of PacMed Medical Center hospital by Wright Runstad, which will turn the 66-year-old Beacon Hill facility into a new home for Amazon.com, among others.

The state finds little fault with the deal, and officials at WRC and PacMed are mighty pleased. As auditor Brian Sonntag writes, "PacMed complied with applicable laws and regulations in almost all issues we reviewed"—the notable exception being $420,000 in renovations to a PacMed clinic that should have been put out to competitive bid.

But Sonntag also notes: "We looked into the concerns that fell within our audit authority."

It's a crucial point: The audit authority, in this case, did not include looking into the essential connection between WRC, the deal maker, and Schell, the deal enabler. By excluding that link—and sidestepping other questions by taking a narrow focus—the report begs the question: Why did this deal stink for taxpayers?

As Seattle Weekly has reported ("The Wright Stuff," 10/8/98), the deal includes up to three years of free or low-cost rent to WRC, which will remake the 10-acre medical campus into a high-tech-business complex by doubling current space to almost 500,000 square feet. WRC will earn up to 25 times the lease amount it is paying for use of the public property. And while PacMed said it will make $1.5 million in annual profit on the lease, WRC's payments are configured in a way that will cut that profit in half for the first 11 years. That's $700,000 less annually in profit than was publicly proclaimed by officials.

Though Sonntag determined PacMed's public development authority (PDA) board technically abided by its charter, that charter didn't restrict the board from handing WRC a sweetheart deal. As the report notes: "The terms of the lease were a management decision. We therefore offer no opinion regarding the value PacMed received from the lease."

The audit report's marginal focus allows Sonntag to conclude that, under law, the public was properly notified of the deal. Yet these sweetheart leasing facts weren't known to taxpayers until the last minute, and the transaction had been quietly developed in back offices for almost eight months.

Sonntag's office, again narrowly, decided the city could have intervened, but city PDA officials simply "did not believe that action was necessary." The officials decided it was better to tacitly allow PacMed to lease to WRC than to a group that wanted to set up a residential-care facility at PacMed, continuing the hospital's historic medical mission.

The mayor's office, however, did intervene. For PacMed and WRC.

Schell likes to suggest he was mostly an observer. "This deal was not a transaction with the city of Seattle," an office spokesperson says. "The mayor simply expressed his support for it."

Technically true—it was not a transaction with City Hall. But the mayor's official support for the WRC deal made all the difference in getting necessary federal approval, and it resulted from insider lobbying.

The campaign dates back to January 1998, when WRC's Horn met with PacMed administrator Jim Gore to discuss the lease. Horn at the time was part of the mayor's transition team (as was Tom Alberg, longtime Schell friend and board executive at Amazon.com, which was hoping to sub-lease the converted 12-story hospital tower from Horn's company).

PacMed attorney Gerry Johnson, a Schell campaign contributor, quietly provided Schell with "talking points" to use in a letter persuading the US Department of Health and Human Services to approve commercializing the longtime public facility. Also lobbying Schell was PacMed CEO John Howell, a former partner in a health-care consulting firm with Tom Byers, who had just become deputy mayor and was handling PacMed for Schell.

Among the talking points Johnson and Howell provided was one seemingly intended to hypnotize the mayor into following their suggestions: "As mayor, you are responsible for overseeing the City's PDAs, including PacMed. You are comfortable recommending approval of the non-health-care-related use because it would help advance PacMed's mission much more than continuing to saddle it with an empty, unproductive structure. You will ensure that it continues to fulfill its community mission."

The mayor indeed intervened, recommending approval to HHS—whose lack of an OK would have stopped the transaction in its tracks.

Of course, that's history now, as is the public hospital. Amazon.com has already begun moving into its renovated quarters, overlooking downtown's skyscrapers and City Hall. It's quite a view. Look, down there: Why are those people smiling?

 
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