As Seattle continues to grapple with the larger issues of what kind of city we will be in the future, ground zero for that battle is not just the Great Viaduct Debate, but what happens to the industrial area south of downtown — the Duwamish. The economic forces that have shaped that area for generations are shifting, and the ebb and flow of particular economic sectors continue to favor one side over the other and back again. Whether it will continue to be a manufacturing center or slowly develop into a commercial and residential area is a constant question.
But over the last decade, a new player has emerged tipping the scales toward real-estate development and away from industrial and manufacturing activity. Surprisingly, that new force is a direct product of a federal government policy — the same federal government that is now pushing an export and manufacturing strategy as a way to climb out of the deep hole we’re in.
The recent troubles with jobs in our economy has helped spur the recognition by policymakers that we need to actually produce things in our country and develop exports. As someone who believes in doing this and as someone who works for an association of shipping companies that make trade more viable, I'm pleased at the way this thinking has focused our collective energies on those places and businesses that are part of our fundamental economic global competitiveness.
But because economics are cyclical, times will get good again and people will again look to the land south of downtown, particularly near the water, as prime commercial and residential expansion opportunities. It is not surprising that these pressures arise from time to time. What is surprising is that much of the pressure on the Duwamish is not organic at all, but rather the product of decisions made in Washington, D.C., two decades ago, in the first Bush administration.
The program at the heart of the problem is called the EB-5 program. This program was created to attract foreign investment into blighted communities to create jobs. It worked like this: a community designates an area an “enterprise zone.” Then, a foreign national can invest at least $500,000 in that area in exchange for a “Green Card” allowing work and residence in this country. " (So much for our more noble tradition of: “Give me your tired, your hungry, your huddled masses!”) In order to facilitate these investments, four regional centers were developed nationwide. Our local center is managed by an organization called American Life.
To create an enterprise zone and be eligible for foreign investments required approval from a local agency, in this case, it was the King County Economic Development Council. A designation requires unemployment to be at least 150 percent of the national average. The census tracts used by the Economic Development Council included the SoDo area, Georgetown, and South Park. This federal program requires that investments result in 10 full-time jobs within 2 years for every $500,000 investment.
In 2007, Bob Young of The Seattle Times wrote a detailed story about this program. In particular, he highlighted a savvy lawyer, Henry Liebman, who used the program and foreign investors to acquire a good chunk of industrial land in Seattle’s SoDo area — about 40 acres. At that time, real estate prices were soaring and investors were snapping up any property they could. The go-go real estate market increased pressure to develop “under-utilized” land in the industrial areas. There was a contentious debate about whether Seattle should actually retain industry or if industry should be located further south in the Kent Valley and Tacoma. The debate has been going on for years, actually, with many believing Seattle’s waterfront to be too valuable to be tied up in industrial uses.
Liebman and his associates pushed hard for zoning changes in the area to facilitate development and to transform the SoDo into a sort of South Lake Union plan. Unfortunately for Liebman, labor and industry joined together with Mayor Greg Nickels and pushed through the Industrial Lands Ordinance which severely restricted development hopes.
Liebman told me recently that he believes the replacement of the Alaskan Way Viaduct with a deep bore tunnel will provide an opportunity to create commercial streets north of Spokane Street on First and Fourth avenues. He claims that there is not much industry there and the economic development of those streets, through changes to the zoning, makes sense.
However, Port and industrial business interests believe the tunnel provides an opportunity to protect the thousands of family wage jobs and vibrant industrial sector in Seattle. It’s an interesting view of the tunnel as sort of a Rorschach test.
When asked directly about those 10 jobs per $500,000 in foreign investment under the EB-5 Program, Liebman cited an economic study provided to the government from American Life. The four regional centers provide reports annually to U.S. Citizenship and Immigration Services. While he would not provide any analysis directly, he did say that the jobs are calculated as indirect and not direct jobs.
Liebman does not mince words when talking about Seattle's Industrial Lands Ordinance. He refers to it simply as a “downzone.” And even though the lack of development capital has taken some of the pressure off, it’s guaranteed that City Council hopefuls this year will be asked to take a position on the issue. As a council candidate in 2009, I was asked this early and often.
It goes something like this: Potential development supporters ask candidates if they’d be willing to open up the Industrial Lands Ordinance for modification — say, from Spokane Street north — and candidates say they are willing to look at everything. Later, at the King County Labor Council endorsement meeting they’ll be asked the same question again and they’ll say they support the ordinance. In fact, this issue is a perennial question on the labor council’s lengthy candidate questionnaire.
But changing zoning is no easy task. The process is long and complicated. Even when there is general agreement, change is slow. First, you must petition the City Council to amend the “Future Land Use Map.” Then, if successful, you must petition the council again to change the zoning on specific parcels. This process is governed by the state’s Growth Management Act and can be grueling and contentious for even the smallest of changes.
But 2011 is not 2007. The world has changed.
First, the economy has tanked. Development pressures have eased. People know it’s better to have places for people to work rather than holes in the ground. Remember Vitamilk at Greenlake? The pressure to create jobs and expand exports at the state and federal level has tipped the scales in the direction of the port and manufacturing sectors. President Barack Obama is pushing an export agenda to jump start manufacturing. Boeing is gearing up for growth, and suppliers for the port, Boeing, the shipyard, and other industries will be hiring as the baby boomers retire.
Second, as part of Gov. Chris Gregoire’s Container Port Initiative of 2006 and follow-on state law: RCW 36.70A.085, the cities of Tacoma and Seattle are required to adopt language in their comprehensive plans supporting their container ports. The Comp Plan amendment for the container port element must address transportation, land-use, and economic development.
Seattle’s City Council will be considering the amendments this year with a final decision in March of 2012. Already, the process is generating controversy due to competing visions of the future of the SoDo. (Disclosure: As part of my duties with the Pacific Merchant Shipping Association, I helped develop proposed language in the Comp Plan Amendment and have testified in support.) Tacoma’s City Council is working on amendments as well, but the Tacoma Tideflats is not under the same development pressure and the port enjoys widespread community support for the jobs it creates.
However, even with the changed atmosphere currently, Liebman’s desire to develop SoDo and realize a larger return for his investment of other people’s money will not go away. And when the economy improves, there will be more emphasis on the developers’ version of “highest and best” use.
So, how do we define “highest and best” use of a property? Is a property’s value simply defined by resale value? Shouldn’t we also value a property by the types of jobs, uses and value it provides the community?
It would seem that the force of an old federal program created in a different economic reality is providing pressure against local and state governments planning for the present challenges. Is this what was envisioned by the Congress when the legislation was passed? If this is really about jobs, then we probably need a new definition of “highest and best” use, too.
Another pressure for development is the Real Estate Excise Tax (REET), levied when property changes hands. In the years before the economic collapse, REET provided an ever-growing supply of cash for governments. It is still astounding that our local government has been able to protect our industrial lands in the face of the attraction of REET.
The fact that industrial lands survived against all of these development pressures is both a testament to the competitiveness and success of the companies that make up our manufacturing and industrial base and the restraint and forward thinking by our local government. The long term economic diversity of our region appears to have the upper hand for now.
But we will continue to have discussions and debates about how we grow and develop as a city. Changes will occur and pressures will change. Amidst these changes and discussions, federal programs like the EB-5 will continue to roll along without much attention, like the abandoned fishing net that keeps on catching fish.
Our region has great potential and already is creating great jobs in our manufacturing and port facilities. We are a major export center for the United States. A federal jobs program developed nearly 20 years ago is threatening good paying family wage jobs. We would be better on our own, thank you very much, Uncle Sam.