Port Commission rule appears to play favorites at Sea-Tac

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by SUSANNAH FRAME / KING 5 News

Bio | Email | Follow: @SFrameK5

KING5.com

Posted on December 11, 2012 at 12:04 AM

Updated Tuesday, Dec 11 at 12:29 AM

A handful of restaurants at Sea-Tac Airport would receive exclusive, no compete leases worth millions of dollars under a controversial proposal being pushed by the elected officials who run the Port of Seattle. The perks would benefit 11 of the 25 small businesses operating at the airport, raising concerns by Port staff and federal officials that the policy is discriminatory.

Sea-Tac is operated by the Port, a public agency governed by five elected commissioners. Two of those officials -- Commissioners John Creighton and Rob Holland -– championed the proposal that would benefit six small business owners who operate 11 food and beverage businesses at the airport.

In addition to the lease extensions, the business owners have also asked for steep reductions in rents. According to financial records analyzed by KING, if the business owners get what they want, the proposal would result in $8 million less in rent payments from the businesses. The lease extensions would also prevent other small business owners from competing for the 11 spaces. The lease extensions would begin in 2017 and last through 2024.

"I've waited a long time for this opportunity to come through, to see it again slipping by and where we don't have a fair shake at the opportunity," said Jas Sangha, a Lacey restaurant owner who tried to get a Sea-Tac lease in 2005 and was planning to bid again in 2015 (most leases last 10 years). "It's disheartening and it's not fair."

Creighton and Holland said their proposal would help small and minority or women-owned businesses that were hurt during the recession, as air travel and consumer spending both declined. They also noted that two big airlines serving Sea-Tac -- Delta and Alaska -- moved some of their gates to satellite concourses, stranding some restaurants and bars in under-trafficked gate areas. It's these businesses the proposal aims to help, they said.

"All of it provided, unfortunately, a disparate impact on their businesses. And because they're smaller, it's a little more difficult for them to weather the storm," Holland said.

But financial data studied by the KING 5 Investigators found other businesses at Sea-Tac suffered just as much as the 11 that would get help under the commissioners' proposal. In fact, two of them -- Waji's and Bigfoot Food & Spirits -- outperformed the rest of the airport in recent years.

History of the motion

One of the business owners first approached a Port concessions program manager in February with a plea for assistance. “Over the course of three years, we have experienced challenging conditions; often our sales were off as much as seventy-eight percent (78%) [the Mountain Room Bar] as a result of gate reassignments,” wrote businessman Jerry Whitsett. Whitsett specifically asked for an additional 10-year lease extension and a reduction in rents.

The request was denied by airport manager Mark Reis two days later. “(One of your restaurants) Africa Lounge, shows a sales history that is consistent with other tenants at the airport, even on other concourses. During times of economic prosperity, sales have increased, and during times of recession, sales have softened. This is a reflection of normal fluctuations inherent in running any business,” wrote Reis to Whitsett.

Reis also pointed out that the same group of business owners had recieved financial help from the Port in 2005.

"Specifically (your two businesses) received construction reimbursements, a reduction in utility and storage fees, rent reductions and a two-year lease extension for both units. The value of this combined relief for (your businesses) is estimated at nearly $1 million," wrote Reis.

When Port staff turned Whitsett down, he turned to commissioners for assistance a month later. That sparked a six-month debate between the commissioners and staff members.

Trouble on Concourse A

A top complaint of the business owners is that business all but dried up in 2009 on Concourse A after Delta moved away from the area as a result of its merger with Northwest Airlines. Sales figures show sales dropped by 17 percent between 2008 and 2009 on Concourse A. More than half of the businesses asking for help are located there.

Mountain Room Bar Hard Hit

One of those establishments is the Mountain Room Bar, which is owned by Whitsett. The restaurant is located at the far end of Concourse A and encountered the worst drop in sales of all concessionaires in the area after the loss of Delta. At one point sales tanked by 87 percent. During this financially rocky period, the Port offered options for those on Concourse A, including the offer to buy impacted units. The Port offered Whitsett $523,000 for the restaurant. He declined the offer, countering that the fair value of the business, including outstanding debt, was $3.8 million.

"We recognize that our client was unable to prevent the Port's relocation of Delta, but there can be little argument that allowing the Delta gates to remain virtually unused destroyed our client's business expectancy," wrote Whitsett's attorneys Garvey Schubert Barer and Carla DewBerry.

“I’m sure you know that due to Delta gate reassignment and some other changes, concourse A has been a ghost town, which has made it very challenging to profitably operate,” wrote Rob Spitzer, an attorney representing Whitsett to commissioners on March 26, 2012. “(We) are seeking support from the Commission for lease extensions, giving them time to recover from the double whammy of the steep decline in (passenger traffic) in the vicinity of their restaurants and the economic downturn,” wrote Spitzer.

But sales figures show it wasn’t concourse A, but Concourse D that experienced the worst of the economic downturn.  Between 2008 and 2009, sales at businesses on Concourse D plummeted 30 percent due to the recession and Alaska Airlines's relocation of most of its flights out of the concourse. Only one of the 11 businesses slated to benefit from the commission’s motion is located on that concourse.

Port staff advises against motion

Top Port of Seattle business and legal staff warned in emails that helping a handful of small businesses at Sea-Tac instead of all of them was a bad idea.

Deanna Zachrisson, the Port of Seattle's aviation business development manager, called the proposal "problematic" and worried that "no one is listening" to the professional staff's advice.

Even federal regulators said it was a bad idea. "This looks unfair or even discriminatory," wrote Ricky Watson, a FAA minority business compliance specialist.

Despite the warnings, the five Port commissioners voted unanimously for the proposal in September.

Commissioner Holland said he called the FAA himself a month after the motion passed to make sure the deals were proper. Holland told KING 5 the FAA representatives assured him that if there were a strong business case to do so, it would be within federal regulations to grant exclusive long term leases.

“I like my staff. I think we have a great airport director and a great legal staff, but they are not experts. They are experts in many things but not in (minority contracting) programs,” said Holland.

Disagreement over meaning of motion

How the Port commissioners approved the small business proposal underscores dysfunction in how they manage the multi-billion-dollar public enterprise. After months of debate and public meetings on the issue, today the commissioners can't even agree on what the motion means.

Commissioner Creighton said the motion is really about studying what help small businesses at Sea-Tac may need. “What I was intending was let’s do a deep dive and look at the data,” said Creighton. “As I read the motion it doesn’t say, go out and hand out lease extensions. It says go out and look at the criteria and see what is appropriate.”

But the motion as passed in September contains no language requiring the businesses to open their books and provide financial records to justify the exemption from competition. An original version did have such language, but it was removed in June.

Commissioner Holland said he’s seen the financial facts personally and that the motion is specifically aimed at helping the minority and women-owned businesses who need more time and better deals to get out of debt.

“I think it’s fair to say, 'Let’s give you an opportunity and an extension to help you clear it out (debt) and from this point going forward it’s how well you do,'” said Holland.

Commissioner Tom Albro has a completely different outlook on the intent and purpose of the motion. He told KING 5 that the policy has nothing to do with offering relief to businesses because they suffered financially at the airport. Albro said the motion is aimed at creating opportunity at Sea-Tac for more small businesses.

“It’s not a relief package. It has nothing to do with hardship. This is about growing small business opportunities at the airport. Nobody gets a sweetheart deal. It has to be a good deal for everyone and it has to be competitive,” said Albro.

Small business owners unable to bid on the spots occupied by the 11 bars and restaurants say they wish the commissioners had obtained all of the financial facts before voting yes.

"Not just for me, but other folks who wish to do business at the airport who are local, who live here, who spend their money here. I just hope and wish the Port would reconsider their decision and allow fairness, bidding, into this bidding process," said Sangha.

It has been nearly three months since the motion passed, which directed Port staff to begin lease negotiations. That hasn’t happened yet. The commission is waiting for written approval from the FAA on whether or not the motion breaks federal rules. That stipulation was added at the eleventh hour, just minutes before the group took the vote in September.

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