Lessons Learned from the Worthy Transaction —
Mayor Condon is in a pickle. Like baseball, there are numerous unwritten rules to the economic development game that only experience within the realm can help one follow. Don’t ask me how many there are because no one really has an answer. Over time, as one moves from rookie to journeyman and, eventually, to veteran; all of these unspoken rules become ingrained in your psyche, a sixth-sense that separates the veterans from the rookies.
A healthy handful of unspoken rules Mayor Condon just learned the hard way. There’s been a lot of press in recent weeks about the deal between the City, Public Facilities District, and Walt Worthy to construct his $135 million downtown hotel. What should be one of the Mayor’s greatest “achievements” going into his reelection campaign is now one of his greatest liabilities.
For future reference, here is a list of all the rules broken during the Worthy negotiations. Hopefully this will help avoid the rookie mistakes next time Mayor Condon negotiates a public/private partnership.
The “But for” Test
Can the project not otherwise happen but for the incentives going into it? This is the first question for the public sector in any economic development transaction and serves as one of the baseline justifications as to why the public is investing in a private sector project. For instance, Walt Worthy’s hotel would not have been built but for the Public Facilities District selling him the property that it’s built upon.
Conversely, Worthy’s hotel would have otherwise been built independent of City incentives. We know this because the City has yet to reimburse Worthy for the deal parameters negotiated by the Mayor in 2013, yet the hotel has arisen, nonetheless.
Don’t Make Promises You Can’t Keep
This one speaks for itself. Thanks to reporters at the Inlander, a copy of the Administration’s “Partnership Parameters” memo shows the commitments the Mayor made in 2013 to help stimulate the project. As pointed out in both the Inlander and the Spokesman Review, City Council has, as of this writing, recently rejected the Mayor’s commitments into the project in lieu of considering more roundabout options.
Count to Four
This one is directly related to Don’t Make Promises You Can’t Keep. At any one time, the Mayor of Spokane needs any four best friends on City Council to get anything done, including a $135 million public/private partnership. As an article by the Spokesman Review points out, “Stuckart said he was shown the [Partnership Parameters] memo but was not allowed any input and had no ability to influence its details.” Not to mention a direct quote from fellow Councilperson Amber Waldref: “’I was never part of the conversations. As far as I know, the council was never part of the memo or negotiations.’” As any executive staff person in every municipality in the country will tell you, you gotta’ count to four.
Execute a Contract before Construction Begins
It’s a good idea to get the public bickering out of the way before a project begins rather than when it ends. This rule is directly related to Count to Four. Furthermore, if the City is under contract before construction begins and the developer waivers from his commitments, then there are enforceable mechanisms in place that will provide for consequences. All of this could have been avoided with a couple executive sessions with City Council aiming toward a Council-ratified contract prior to construction. I don’t know what’s more troubling, the fact that Mayor Condon thought he didn’t need a contract to commit about $3 million to the project or the fact that Walt Worthy didn’t insist on one.
Make the Deal Points Enforceable
In a recent posting by the Inlander, the Mayor’s cabinet appointee and front line negotiator admitted to not knowing what, if anything, was enforceable when Mr. Worthy started to stray from more virtuous design standards (relatively speaking); specifically, retail shops addressing the back side of the hotel on Main Avenue. The Inlander posted verbatim transcripts of Jan Quintrall that illustrate the Administration’s lack of economic development sophistication:
Inlander: But there was going to be frontage on both sides, theoretically.
Quintrall: There will still be… it isn’t all parking garage, on the back there. There will be windows, and you’re not going to get an ugly backing there.
Inlander: But as far as having retail on the ground, that was something that was discussed but it was not something that was gone through?
Quintrall: I know it was discussed, but it wasn’t something we could demand.
Inlander: “But they were asking for incentives, right? That’s one of the things that Worthy was asking for, all these different incentives? Right? So that could have been something that was part of that incentive package.”
Quintrall: You’re past me.”
Inlander: What? The incentives that…
I couldn’t have said it worse myself. Nicely done, Inlander. See below.
Negotiate and Stipulate Design Controls Above and Beyond the Zoning Code
The nice thing about public/private partnerships is they (assuming negotiators know what they’re doing) require a contract. The nice thing about contracts, including those for public private/partnerships, is one can place whatever one wants in them so long as the other party agrees. The public, including myself, has placed a significant value on urban design and architectural features — the lack thereof is one of the primary criticisms of the project. If through the course of a negotiation, the developer balks at increasing his costs to include design elements, then public negotiators may choose to put a few more dollars into the project (or may choose to put no dollars into the project).
Smarter negotiators have been leveraging public/private partnerships to improve design standards above and beyond local zoning controls pretty much since the inception of the field. The tragedy is that doing so isn’t even “best practices” economic development. Nope, today that’s just average economic development.
Make Sure All Parties are in the Room to Negotiate and Coordinate the Transaction
Worthy’s hotel is effectively a three-party deal between the developer, the Public Facilities District (PFD), and the City, so when the PFD’s CEO expressed in a recent Inlander article that he didn’t “…have any knowledge of the payment negotiated between Worthy and the City,” it makes one wonder why the Condon Administration didn’t coordinate behind closed doors with the PFD to put together a dual package of incentives that limits exposure to both public parties. At the risk of sounding redundant, all of this public squabbling could have been avoided if the Mayor chose to include the PFD and City Council while the deal points were being negotiated. Not to mention, combining assets (and leverage) with a fellow public partner is a reasonable discussion to explore before commitments were made to the developer.
Why is there 80,000 Square Feet of Event Space within the Hotel?
This isn’t a rule, just an open question. It’s industry standard for hotels to incorporate event space into their facilities. If this were a strictly market-driven development with no public incentives, I would think it perfectly appropriate. However, right across the new skywalk is about 200,000 square feet of event space underwritten by the public that now has to compete for bookings with Worthy’s facility. Should negotiators have limited Worthy’s event space to avoid competition between the two facilities (and thereby maximize Convention Center profit potential)? Or, is Convention Center business expected to be so robust that Worthy’s extra space will serve as additional capacity and thereby create a natural synergy? If so, are there “no compete” clauses on Worthy’s side of the contract that limit his hotel from stealing business from the Convention Center?
If not, that’s a significant blunder.
Rookie seasons can be tough. There’s a lot to learn. The good news is that, despite all the mistakes, downtown has 716 more hotel rooms and the vast majority of the project was underwritten by the private sector — don’t let mistakes made for this public/private partnership sour you for the next. Between the new hotel and Convention Center expansion, significant economic good will come of it.