Promises, promises

THE SECOND-GUESSING has settled in around the collapse of the city and the Port of Seattle's sweetheart deal with Immunex, the biotech company that got a $19 million taxpayer gift in 1999 to build a new facility on Seattle's waterfront called the Helix Project.

Last week, Immunex, now in the process of being taken over by a rival biotech company, halted construction on the centerpiece of Helix, a new headquarters building. Some sources report that the partially built building will actually be torn down; Immunex denies that but confirms that the project is being "reduced." According to the same sources, only 400 people, rather than the 1,200 originally promised, will be employed locally when the complex is eventually completed.

Meanwhile, the public has already finished its part of the deal—constructing an overpass that Immunex needed for its facility with $6.1 million in city money, $1.6 million from the Port of Seattle, $3.2 million from King County, and $8 million in federal grants.

Ah, the promises. They are the cornerstone of the "public-private partnership," the mechanism for corporate welfare so beloved by local officials and especially by the Port of Seattle. The promises are, invariably, that by giving taxpayer money to this or that private business today, the business will pay more back in taxes and generated jobs than the giving public would have netted otherwise. They presume a static world in which companies grow, prosper, and honor commitments. More often than not, the promises aren't kept. Things happen. Especially in the corporate world.

Some of these things, in the case of Immunex, were predictable. Some were not. The most predictable danger in the Immunex deal was the most obvious. If all of Immunex's research and investments had gone bust, there would have been no money and no promised jobs. If any of Immunex's drugs were successful and money started coming in, the company would be of precisely the most lucrative size and cash flow for a buyout by some bigger company. A rheumatoid arthritis drug—Enbrel—has done precisely this, and Amgen did, in fact, make a serious offer. Amgen will most likely take over later this year. And Amgen, based in suburban Los Angeles, has very little use for an expensive new second headquarters building 1,000 miles away. One way or another, the chances were always very good that Immunex was getting our money in return for a scenario that would never happen.

But some things are less predictable. A much less trumpeted story came out a few days before news broke about the halt in construction. Turns out that Immunex was playing some of the same sorts of accounting games as Enron (and a lot of other high-flying "new economy" companies) in its structuring of the Helix deal.

The company had taken $671 million debt off its books by using a mechanism known as a "synthetic lease." With the setup—of the perfectly legal sort that has in recent years made investors wary of companies' annual reports—Immunex created a separate legal entity to buy its Elliott Bay property from the Port of Seattle. That entity then leased the property back to Immunex.

The upshot is many unanswered questions: Is Immunex worth less than Amgen thought? What are the implications for how much of the Helix Project will actually be built, and how many new jobs will be netted? And it also calls into question whether local pols, in deciding to give generously, had an accurate picture of Immunex's financial prospects.

But surprises of this sort always seem to be the case with public-private partnerships. The next time you drive to Olympia, look at the fancy new exit leading to nowhere just past Fort Lewis, in a town called DuPont. That exit, like the overpass built for Immunex, was part of another public-private partnership, in which the state and Pierce County gave Intel a whole package of perks—including the freeway exit and exemption from nearly $4 million in state and local sales taxes—to bring in a whole 650 new assembly-line jobs. Less than a year after it opened, Intel closed the facility and left the state. The freeway exit, virtually unused, remains.

The lesson? When you hear the phrase "public-private partnership," hold onto your wallet.

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