The failed promise of biotech in South Lake Union

The City during the Nickels years has put a lot of money into building up the sector, but job growth for biotech has fallen far short of the promises.
Crosscut archive image.

Amazon's new headquarters in South Lake Union

The City during the Nickels years has put a lot of money into building up the sector, but job growth for biotech has fallen far short of the promises.

Throughout Mayor Greg Nickel'ꀙs tenure and as recently as this summer when the Mayor, Governor, and other dignitaries (for the umpteenth time) toured South Lake Union, we were reminded of all the high-paying new jobs and tax revenues these plans were supposed to bring to our city and region. That was the justification for his Mercer Corridor re-working, the streetcar, and other public investments still in the planning stages earmarked for that area. Height limits were raised so that buildings could have special ventilators on the roofs, for example.

In addition to the Mayor'ꀙs Mercer Plan, much of his agenda in South Lake Union remains undone. The city has undertaken massive planning efforts to upgrade the water systems and build another electrical substation to handle the increased demand of all those labs developing new products. A $300 million undergrounding of the wiring and back up 'ꀜnetworking'ꀝ systems (to guarantee electricity even when systems fail in other areas) is still in the works. Debate now rages internally at City Light over how these systems will be paid for — either by the large users themselves (such as Paul Allen'ꀙs Vulcan Inc. and the University of Washington) or passed on in the form of higher utility rates. All told, over $850 million in city funds are earmarked for South Lake Union in the current five-year city CIP Plan — with over $100 million alone contained in the 2009 budget.

And let's not forget state government's contribution to the biotech industry. In 2004, Gov. Gary Locke signed a bill authorizing a continuation of millions of dollars worth of annual tax breaks (B & O and sales tax breaks) to biotech companies involved in "research and development." The bill upped the amount and extended this tax break first offered in the early 1990s by the state.

Since 2004, as a result of the 2004 bill, tens of millions in state revenues effectively were diverted to stimulate biotech development in Washington state. These tax breaks were recently extended again to this industry through 2015. During the 2009-2010 biennium, it is estimated that $160 million in tax revenue will be diverted (meaning pulled from the state's general fund) to pay for these "incentives."

On top of these subsidies, in 2005 Gov. Gregoire sought and obtained the legislature's approval for creation of a $350 million "Discovery Fund" drawn from a portion of the multi-billion dollar tobacco settlement. Chunks of that now are given out annually in the form of grants to biotech firms. This year $39 million from that fund will be doled out (down from $60 million in grants the state distributed in 2008). Gregoire boldly proclaimed in 2005 that this fund would lead to creation of 20,000 new biotech jobs state-wide "over the next 10-15 years."

Hasn't happened. The dirty little secret no one at City Hall or in Olympia will acknowledge is that biotech has flat-lined. And this isn'ꀙt a dip in activity just due to the current economic downturn; biotech never got off the ground. According to a 2006 report put together by the Seattle-King County Workforce Development Council in cooperation with the biotech sector itself, there was no job growth at all in the life-science sector statewide or in King County from 2003-2006.

And a current check of websites for all Seattle based biotech companies, including those with offices in South Lake Union, shows significant declines in employment since the 2006 report. The 2009 annual report from the investment advisory firm of Ernst and Young, on the status of the national biotech market, reveals that the Seattle biotech market has seen significant declines in revenue and loss of major publicly traded companies.

While revenues in all regional markets fell, Seattle'ꀙs share of the national market fell at an even greater rate. We were once considered one of the top markets, in the tier below the giant regions of Boston, San Diego, and New York-D.C. Now the Seattle area ranks 9th among biotech clusters with only 15 publicly traded companies and a market value of $1.5 billion. By contrast, second place New England has 59 such companies with a combined market value of $49.7 billion. Fourth place San Diego has 40 such companies with a market value of $17.4 billion. Nor are these companies doing very well in the recession, since many are pinched for cash reserves.

What'ꀙs even more astonishing, a check through City records indicates that the number of jobs created in South Lake Union from 1995 to 2002 actually exceeded the number of jobs created there since 2002, the year when Paul Allen, the UW, and the Mayor seriously started work on creating a biotech hub in South Lake Union.

To be sure, biotech jobs, while relatively few, pay well. (Average salary in biotech in 2006 was $81,500, double the state's average salary.) The South Lake Union area has some major anchors such as the Gates Foundation (a major funder of medical research), UW Medical School institutes, and the Fred Hutchison Research Center, to give it critical mass. But despite these advantages, South Lake Union has some drawbacks, besides the sector's not generating a lot of jobs. Seattle got a relatively late start in the biotech sweepstakes, and startups face high land values and new-building rents in South Lake Union — not the best formula for incubation space.

At various times over the last six years, the Mayor told us that by now we would have added more than 4 million square feet of biotech and office space in South Lake Union. Adding up the new buildings and the amount of space in each reveals that only 1.8 million square feet of space was added to the area since 2002. All but 400,000 square feet of that was created by Paul Allen'ꀙs Vulcan Inc. Clicking on Vulcan'ꀙs Website, I see over 40 percent of that space unoccupied. And most of the new space there is advertised for offices not biotech. The new Amazon headquarters replaces some buildings originally targeted for the biotech market, for instance.

In addition, many of the 'ꀜnew'ꀝ jobs in South Lake Union more properly are described as businesses relocating there from other parts of town — such as Group Health, Amazon, some UW research facilities, the Bill & Melinda Gates Foundation, the biotech firm PATH, and NBBJ Architects. The stronger trend has been the migration of high tech firms, such as Microsoft, to the area. As recently as 2007, the Mayor said there'd be as many as 6,000 new jobs created in SLU between 2003-2007. According to a recently released report from the City'ꀙs Department of Planning and Development, there's been a gain of 2,461 jobs in SLU over that period. By contrast, in the Duwamish over the same period, more than 6,000 good old fashioned blue collar jobs were created.

Perhaps you could justify such a relentless quest by our Mayor and City Council to spend millions in limited public resources in South Lake Union if it was a major revenue and jobs generator for the City. Perhaps you could justify the redirection of 'ꀜBridging the Gap'ꀝ funds destined for neighborhood projects if Mercer Corridor plans met a real need and supported a burgeoning biotech hub as promised in South Lake Union. Perhaps you could justify applying repeatedly for Obama'ꀙs stimulus funds if the Mercer project did indeed serve a distressed community (where these funds are supposed to go) rather than a very upscale development zone.

The Mayor'ꀙs South Lake Union agenda fails on all counts.


Please support independent local news for all.

We rely on donations from readers like you to sustain Crosscut's in-depth reporting on issues critical to the PNW.


About the Authors & Contributors