By Susannah Frame, December 17, 2012, King 5 News
A controversial business deal that’s been in the works at the Port of Seattle for over a year will benefit a handful of small businesses that operate at Sea-Tac Airport. Some of those set to receive help in the form of non-competitive, long term lease agreements and potential cuts in rent –as per a motion passed by the five member Port of Seattle Commission in September — are long time campaign supporters of key Port Commissioners. Respected business ethicist, John Dienhart, Director of the Center for Business Ethics at Seattle University, said there may be no conflict of interest at all in the passage of the motion, but that to the public, any appearance of a conflict undermines the business of government.
“The public needs to be reassured. And when they see the appearance of conflict of interest it feeds into their belief that government is already not trustworthy,” said Dienhart.
Commissioners John Creighton and Rob Holland championed the proposal which would benefit 11 women and minority owned restaurants at the airport. Six people own the 11 businesses. The 8-year lease extensions requested by the business owners are worth millions of dollars. And if the steep reductions in rents they’ve requested come to fruition, the Port would lose nearly 8-million dollars in uncollected rent money.
The motion that paves the way for these opportunities is controversial because it doesn’t benefit all small businesses at the airport. Two of the restaurants set to receive the help actually outperformed nearly every other restaurant at the airport last year. In addition, the lease extensions would prohibit other small business owners from competing for the 11 spaces through 2024.
In emails obtained by KING, Port business and legal executives advised the Commissioners against taking the action, which they opined could be seen as discriminatory and against the federal regulations which airports must abide by if they receive federal dollars via the FAA.
“The current motion is very problematic (i.e. Legal/compliance risk) and Mary Gin (Kennedy), (Director of Commission Services) has attempted to communicate this to two Commissioners,” wrote Deanna Zachrisson, a Port Aviation Business Development manager to the airport manager, Mark Reis.
Even federal regulators offered a preliminary opinion that the motion was outside the intent of FAA regulations.
“This looks unfair or even discriminatory,” wrote Ricky Watson, a FAA minority business compliance specialist.
“Based upon what you forwarded for me to review, I agree that this provision is troubling. It would appear to be discriminatory,” wrote Patricia Deem of the Office of Regional Counsel, FAA.
Businessmen lobby Commission
The Commission pressed on anyway. Two of the business owners who will benefit from the motion, Des Moines businessman David Fukuhara and Las Vegas businessman Jerry Whitsett supplied repeated written documentation and public testimony to the Commissioners, urging them to vote yes on the plan. They said their businesses were devastated by decisions made by the Port and that their restaurants have suffered greater economic impact in the last several years compared with other concessionaires because of the poor treatment they’ve received from the Port. Their main complaint is that the Port business office located their restaurants in the outskirts of the airport where few airlines operate. With little foot traffic, the business owners testified they need the lease extensions to pay off their debts.
“At Sea-Tac small businesses have shouldered an extreme disproportionate burden in investment costs and rents while being assigned the lowest traffic locations in the airport,” testified Fukuhara on April 10, 2012. “Compare our results with the operators in the Central Terminal and the results are unconscionable.”
Three months before the motion ultimately passed Whitsett’s attorney, Rob Spitzer, appealed to Commissioners Creighton and Tom Albro for their support.
“My client, Jerry Whitsett, and I would like to confirm with you both that you continue to support the Motion introduced along the lines previously discussed, which I understand will be on the agenda for the June 26 Commission meeting. I know that staff may be unhappy with the concessionaires approach to the Commission for assistance on the issue, and are working to delay and ultimately derail this effort, but it is completely consistent with the goals of the Port and has garnered the support of the community. Please resist any attempt to delay the motion further,” wrote Spitzer.
Fukuhara appealed to Comm. Holland in an email dated March 8, 2012 after Reis, the airport manager, denied the businesses the lease extensions and rent reductions they requested.
“I feel there seems to be a bias against (minority-owned) certified companies. These biased people need to view us as responsible small business people, who have made every required investment, have paid every dime of rent and have weathered every storm that has come our way. We are excellent operators who have brought creative, award winning concepts to Sea-Tac Airport,” wrote Fukuhara. “Thank you very much for raising these issues with the Port Staff.”
Long time supporters
Whitsett and Fukuhara’s lobbying efforts were successful. The motion passed on September 11, 2012. Prior to this, the two businessmen have been long time donors to both Creighton and Holland’s political campaigns. Last year Whitsett, Fukuhara, their family members and close associates donated about $11,000 to Creighton’s unsuccessful bid for a seat on the King County Council –about 10% of the total raised.
Creighton says the money has nothing to do with the way he voted.
“To take this (campaign money) as a snapshot is really distorting matters,” said Creighton. “I don’t think it’s a sweetheart deal. The factors are there that show they warrant relief.”
The same group gave more than $12,000 toward Holland’s unsuccessful race for the state legislature this year which amounted to more than half of what he raised.
Comm. Gael Tarleton also received campaign contributions from Whitsett, Fukuhara and their associates for her successful run at a seat in the state legislature this year. Together they gave $8500, which constitutes 4% of the total raised. Tarleton was the 2012 Commission President and also voted yes for the small business motion. Although in the public records received Tarleton does not weigh in on the intent, purpose or wording of the motion.
An anonymous complaint came into the Port’s Ethics and Compliance Hotline on September 7, 2012, five days before the vote. The complainant accused Comm. Creighton of having a conflict of interest because the companies to benefit from the motion “helped to fund his 2011 campaign.” In response, the Commission hired an outside attorney, Russ Perisho, who has preliminarily found no wrong doing.
In a December 8, 2012 email to Pres. Tarleton, Perisho updated the Commission on his progress.
“I’ve reviewed numerous emails and other documents related to the topic of the September 7, 2012 Hotline call, including materials concerning this year’s ACDBE discussions and motions. Documents available for public review at the Public Disclosure Commission were reviewed. Applicable state law and the Port Commissioners’ Code of Ethics have been researched and reviewed. Finally, I interviewed John Creighton on Tuesday, December 4,” wrote Perisho.
“My review to date causes me to conclude that there is no reasonable basis to believe that Commissioner Creighton violated either state law or the Port Commissioners’ Code of Ethics.”
“I have requested an opportunity to meet with the Commission and am scheduled to meet in Executive Session on January 8, 2013 so that I may obtain further guidance on two issues: a) whether further investigation is warranted, and b) the form and forum of my final report,” wrote Perisho
Controversies like this are nothing new to the Port. This summer Port CEO Tay Yoshitani took a lucrative side job with a Port customer. A group of state lawmakers and two Port Commissioners were highly critical of Yoshitani’s decision to take the board position because it could give the impression of a conflict of interest. Commissioner Holland called for Yoshitani to resign.
“The problem is the perception,” Holland told KING 5 in August.
But in the case of the small business motion, Holland said people have to look beyond any appearances.
“I would tell people to take a clear look at it, look at the facts, not the appearance of facts,” said Holland.
Holland: Unfair questions
Holland said even asking about the appearance of a conflict of interest is out of line. He pointed to his vote on December 11 in which the Commission approved a contract which extended Hanjin Shipping’s lease at the Port’s Terminal 46 for 10 more years. Holland voted for the multi-million dollar extension, but noted the company explicitly turned him down when he’s asked for campaign contributions from the company in the past.
“I feel like you’re going to do a story about me voting a certain way because I got something out of it personally. Nothing is further from the truth. I’ve voted to give relief to many companies that have never supported me. To even imply something is not ethical in this situation is not fair and is wrong,” said Holland.
But in the world of business ethics Dienhart believes it’s the appearance that counts.
“Clearly it is the appearance of a conflict of interest and often times that can be as bad as a conflict of interest itself,” said Dienhart. “Given the low trust in government, people assume the worst. And if you want folks to trust you then you have to be absolutely clear that the process for choosing them was objective and fair.”
No hard data provided to prove hardship
Public records show the motion passed based on the business owners’ claims of unfair treatment as opposed to hard financial data. Criteria that the businesses provide evidence of financial hardship was removed from the motion in June.
The small businesses complained they had to pay more to remodel their spaces to get them ready for business.
“The facts that people should know, are that these folks have had larger build out costs per unit than anybody else at this airport. Absolutely,” said Holland.
But a consultant hired by the port in 2008 for $32,000 found the opposite. Jacobs Consultancy reported that construction costs for this group were actually “somewhat lower than the average” cost for food and beverage tenants airport-wide.
The businessmen also appealed for help based on their opinion that their rents are higher than other restaurants at Sea-Tac.
A KING analysis of rents shows the 11 restaurants paid an average of 12.9 percent of their sales in rent in 2011. The average for the rest of Sea-Tac concessionaires was a fraction higher at 13 percent.
Anthony’s Restaurant comparison
The small business owners point to a well-known concessionaire at the airport, Anthony’s Restaurant, as a strong case in point of disparate treatment. Anthony’s pays a flat 8 percent of its total sales in rent. Whitsett’s restaurants, the Mountain Room Bar and the Safari Lounge, pay 15.1 percent and 15.4 percent respectively. Fukuhara’s units pay far more than Anthony’s as well. La Pisa Café and Waji’s, both owned by Fukuhara, both pay 13.6 percent of total sales in rent.
“The most extreme example of big business favoritism in airport food and beverage vending is the treatment of Anthony’s in the Central Terminal,” wrote Fukuhara’s attorney Larry Setchell in a statement to KING entitled “Commissioners are Heroes”. “If anything, the taxpayers of King County should be outraged why these big businesses are afforded such preferential treatment and favorable rent terms. After all, taxpayers do subsidize the operations of the Port of Seattle through a generous annual tax levy,” wrote Setchell.
Jacobs Consultancy reported to the Commission in 2008 that Anthony’s is not comparable to the smaller units.
“Anthony’s and the (minority-owned businesses in question) are not comparable. The level of investment, the level of risk, and the complexity of the operation are above those of the concourse A Concessions, and the Anthony’s brand is an important contributor to the success of the Central Terminal,” wrote the consultants.
Confusion within Commission
On December 3, KING published a report about the motion which showed confusion among the Commissioners about the intent and purpose of the motion. After months of correspondence, staff hours and public meetings on the issue, three Commissioners interviewed couldn’t agree on what it meant.
Comm. Holland said it’s intent is to provide relief to small businesses who’ve suffered a greater hardship at the airport.
Comm. Creighton said his intention was to simply take a look at financial data to see if relief is warranted.
Comm. Albro said the motion is not a relielf package at all. His interpretation is that its to encourage more small businesses to enter into direct leases with Sea-Tac.