Politics

Sugar Daddy Government

A new generation of billionaires is remaking American cities. The cities are better off; the democratic process sometimes suffers.
by | June 2004

A dozen blocks north of downtown seattle, the neighborhood adjoining Lake Union is in the midst of transformation. Alongside the car dealerships, sign stores and furniture markets that line Westlake Avenue, there's a new biomedical research laboratory, a bioinformatics facility for Merck, the drug company, and new labs for the University of Washington. All told, more than 3 million square feet of new development is underway in a little pocket of the city.

This is happening in the midst of Seattle's worst recession in 30 years. So it's no wonder that local officials look to the laboratories and biotech businesses as a form of economic salvation. Mayor Greg Nickels says it's as important to the city "as the day Bill Boeing started to build airplanes."

The official name of this neighborhood is South Lake Union. But some residents have another name for it: Allentown. That's because it started as the private vision of one man, Paul Allen, the co-founder of Microsoft. Thanks to Allen's wealth (about $21 billion, according to Forbes magazine), the development of South Lake Union has been able to proceed regardless of business cycles.

It's not his only project in Seattle. Over the course of the past seven years, Allen has orchestrated the construction of a new football stadium, redeveloped the old train station, financed two museums (a shrine to rock-and-roll and a science fiction museum), refurbished a classic movie palace and contributed generously to new libraries at the University of Washington and downtown. In the process, he has emerged as Seattle's most important civic figure--more important than anyone in elected office. Allen's idiosyncratic vision and passion for development are literally reshaping the city.

There is only one Paul Allen. But there are billionaires doing roughly similar things, if on a generally smaller scale, in quite a few cities around the country these days. Some, such as New York Mayor Michael Bloomberg, have used their wealth to win power the old- fashioned way--by getting elected. Others find running for office unnecessary, even irrelevant. Instead, with major cities starved for funds, they are simply using their private fortunes and the skills that made them rich to change their hometowns.

In Madison, Wisconsin, businessman Jerry Frautschi's Overture Foundation is spending $100 million to transform the dated Civic Center into the hub of a thriving arts district. The oil-rich Bass brothers have refashioned once-decrepit downtown Fort Worth into Texas' liveliest urban center. Nor are the wealthy limiting their activities to economic development. In Los Angeles, Eli Broad, a businessman who had the good sense to establish two Fortune 500 companies, has become not just the city's most generous benefactor but its most powerful private citizen, deeply involved in controversial issues that range across the policy spectrum. Not since mid-century, when David and Nelson Rockefeller operated in New York, the Chandler family ruled Los Angeles and Amon Carter rode herd on Fort Worth, have wealthy individuals held such sway and had such impact on the official apparatus of government.

For mayors and civic activists accustomed to the negative effects of corporate consolidation and the loss of local business leaders, the appearance of a new generation of activist-tycoons sometimes seems like a godsend. "The fact they are out there enables the city government to think boldly," says David Brewster, executive director of the Seattle arts group Town Hall, "because the bold thought will appeal and the bold thought might be funded. We all walk around with much bigger ideas in our head."

Not everyone is so sanguine, however. The same qualities that make someone successful in business--decisiveness, self-confidence, the relentless pursuit of a distinctive vision--can be a recipe for conflict in the public realm. For politicians who cross their paths or for citizens who reject their visions, power-wielding billionaires can be frightening. "No matter how benevolent the actor may be," insists John Fox, the head of a group called the Seattle Displacement Coalition, "it is inherently undemocratic.

AFTER THE VAULT

There is nothing new about rich people being involved in urban planning. To a great extent, it is the way planning has traditionally been done. But it used to be done largely through organizations. In Boston, there was "The Vault," an informal but powerful group named after the bank meeting room where the city's business elite met to plot downtown developments. Los Angeles had the "Committee of 25." In Seattle, it was the Rainier Club, in Cleveland, the Union Club. The names were different, but the purposes were much the same: These were the associations of local decision makers, and they wielded enormous-- if often hidden--clout behind the scenes of formal city government.

Then came the upheavals of the late 1960s and early '70s. By the end of that time, private corporate power in most (although not all) American cities was in retreat. Seattle was typical: Its city council enacted a flurry of reforms designed to open meetings and development proposals to public scrutiny and limit the role of private wealth in politics.

To much of the electorate, and to many local officials, this was good news--a sign that influence at the community level was finally being democratized. But cities soon discovered that an anemic business community could be worse than the old overbearing ones. As local retailers and hometown banks disappeared, replaced by national chains, local corporate leadership withered. Even the biggest cities were not immune from these trends. By the late 1990s, Los Angeles, the nation's second-largest city, was virtually devoid of Fortune 500 home offices. "You've got to look hard to find a major corporation headquartered here," says L.A. School Superintendent Roy Romer. "It's hard to call in a key group and say, 'You represent the structure and leadership of the community, let's get this done together...'"

But the same processes that were displacing local companies were creating vast new fortunes for entrepreneurs shrewd enough to harness them--people such as Paul Allen, Michael Bloomberg and Eli Broad. The relationship of these new business tycoons to their hometowns was very different from that of the old business elites. The wealth of the old business leaders had often been tied directly to the health of their hometowns. The new tycoons are in business around the world; the precise economic condition of Seattle or Los Angeles isn't crucial to their fortunes, even though they may live there. And they are more loners than joiners. When they invest their money in the city, it's a personal choice--a way to pursue an individual passion. That offers both opportunity and danger.

MAN OF MYSTERY

Paul Allen is something of a mystery even in his hometown. "It's hard to get much of a fix on him," says David Brewster. "He doesn't grant interviews. There's this kind of, 'Why are you so reclusive?' But on the positive side, people feel he is what you might call an original."

Allen is 51 years old. He and Bill Gates first met as high school students in suburban Seattle. Both were computer hobbyists, and they soon found they shared the dream of making a living writing commercial software. Eventually, they both dropped out of college (Allen from Washington State, Gates from Harvard) to join forces and start a company called Microsoft. Soon thereafter, Allen purchased the rights to the operating system that would become DOS. When IBM selected DOS to run its first consumer PCs, Microsoft's explosive growth began.

A battle with cancer forced Allen to drop out of Microsoft in 1983, but he held on to his Microsoft stock. As a result, by the early '90s he was one of the world's richest men. He invested in high-tech start- ups, bought Ticketmaster and the Portland Trail Blazers basketball team, and in 1995 stepped into local politics by supporting a plan to transform South Lake Union, a gritty commercial neighborhood with a smattering of low-income housing, into a grand urban park.

Allen came late to this effort, but after he purchased 11 acres of neighborhood land for what was called the "Commons" project, he became closely identified with the effort. Opponents denounced it as a ploy to "yuppify" Seattle, and Allen soon emerged as a central figure in Seattle's nastiest class battle in many years. Despite the project's unanimous support from the city council, the electorate rejected it twice.

After the Commons defeat, Allen was left with 11 acres of undesirable land. But his public involvement escalated. In 1997, he bought the Seattle Seahawks football team, demolished its stadium, the Kingdome, and bankrolled a referendum campaign that persuaded state taxpayers to finance a new facility. He started buying even more property in South Lake Union. It soon became clear that he had a new vision for the neighborhood: He wanted to transform it into a mixed-use, environmentally sustainable biotech center. In 2002, he found an unexpected ally in Greg Nickels, Seattle's newly elected mayor.

In many ways, it was an unlikely partnership. During the mayoral campaign, most of the city's "cyber-riche," including Paul Allen himself, had sided with Nickels' opponent, incumbent Paul Schell. Nickels, a former King County councilman, had relied on labor unions and neighborhood activists for most of his support. Nickels and Allen were not exactly buddies; they had met a handful of times, and then only at social functions or sporting events. Yet soon after taking office, Nickels decided to embrace Allen's vision for South Lake Union.

After talking with researchers at the University of Washington, the mayor concluded that the next big thing was biotech--and that South Lake Union was the place to do it. There was just one problem. South Lake Union was a grungy, low-income neighborhood cut off from the rest of the city by two freeways. Nickels proposed spending nearly $500 million in state and local funds to upgrade the area's infrastructure and make South Lake Union into a desirable neighborhood.

Nickels knew that one of the effects of such massive investment would be to further enrich Paul Allen, who owns about 40 percent of South Lake Union through his Vulcan development company. However, the mayor argued that Seattle and the state of Washington stood to benefit even more. A study commissioned by the city's Office of Policy and Management estimated that developing South Lake Union could generate as many as 23,000 new jobs and $1.3 billion in new revenues for the state and city. A third of those jobs would come in the field of biotechnology.

"I was elected eight weeks to the day after September 11," Nickels says. "Boeing was laying off thousands of people, the hospitality industry was on its knees. We have since then been in the top five in unemployment as a state and our part of the state is particularly hard hit. So the question I was facing was how to build a strong economic future."

LINGERING DOUBTS

Not everyone accepts the job-creation forecasts for South Lake Union as solid.

Local critics argue that Nickels is asking for a big public investment in pursuit of an uncertain payoff. "The projections for growth are highly speculative and rest on assumptions that Seattle will capture this inordinate share of national biotech market," says John Fox. "We could take a fraction of what we are spending"--about $30,000 per job--"and generate more jobs."

Councilman Nick Licata, Allen's toughest questioner on the council, talks in similar terms. "I think in some ways Mayor Nickels is more under the influence of Paul Allen than Paul Allen is under Mayor Nickels," he says.

Others focus on the close connection between the city administration and Vulcan, Allen's development company. "They have extraordinary access to this government right now," says Peter Steinbrueck, the head of the city council's urban development and planning committee. "I haven't seen this administration raise a single objection to anything that Vulcan has proposed. Sometimes it comes out as not Vulcan's plan but the city's or the mayor's, but much of it behind the scenes is really being directed by Vulcan." In short, there is growing fear that Allen is changing Seattle from a city where neighborhoods, activists and elected officials set the vision into a place where an unelected but immensely wealthy individual does. "It inherently works to distort policymaking and planning," John Fox complains, "to reflect the vision of the individual as opposed to the many."

BROAD AGENDA

Other cities exhibit similar ambivalence toward their current billionaire benefactors. Los Angeles is feeling it about Eli Broad, the city's second-richest man, who led the homebuilders Kauffman and Broad (now KB Homes) and the annuity giant Sun America. Broad, 71, is a native New Yorker, the son of staunchly Democratic lower-middle- class parents who, in his words, "was raised on this rhetoric of the poor workers and the big bad bosses."

While Broad made much of his fortune building suburban tract houses, he has also made a major effort to strengthen central Los Angeles, arguing that "no city in world history has been great without a center." In the late '70s, he took the lead in creating the Los Angeles Museum of Contemporary Art. More recently, he stepped in to rescue the faltering downtown Disney Concert Hall project, and adjudicated a longstanding dispute between the city and Los Angeles County over development plans for Grand Avenue, a downtown boulevard that Broad is determined to transform into Los Angeles' Champs- Elysees.

Meanwhile, Broad has used his money to alter the course of city electoral politics. Two years ago, when communities in the San Fernando Valley considered seceding from Los Angeles, he attempted to reconcile the warring camps. When that effort failed, he contributed handsomely to a successful media campaign aimed at defeating the secession movement in a referendum.

At the same time, he has emerged as an often-controversial power behind the scenes in the city's school policy decisions. In 1999, Broad helped engineer a takeover of the L.A. school board. Along with Mayor Richard Riordan, he created a new school pressure group, the Coalition for Kids, and contributed more than $200,000 to its slate of candidates. The Coalition's slate swept into office, defeating three incumbents. Two years later, Broad and Riordan pressured one board member to scale down a teacher salary increase, and then, when she refused, contributed to a candidate who ousted her in the next election. Broad is said to have dangled $10 million before the president of Occidental College in an unsuccessful effort to persuade him to run against another school board member.

All this involvement in local politics has generated a backlash, notwithstanding the general good feeling about Broad's charitable efforts. Broad has become a target for criticism not only from teachers' unions but also from the Los Angeles Times, which has published accusations that Broad profited from school board construction decisions and improperly lobbied the school board to build yet another Broad project: a fancy new arts high school downtown.

SUNDANCE ADVENTURES

To the extent that Eli Broad's involvement in civic affairs is a problem, however, it's a problem many other cities would love to have. In an era in which cities compete fiercely to attract new residents among the "creative class," large donations to the arts or to downtown redevelopment can be community-defining events. That certainly has been the case in Fort Worth, where the billionaire Bass brothers have spent most of the past 20 years putting their personal stamp on the city's central core.

Heirs to the estate of legendary oilman Sid Richardson, the brothers hold the largest family fortune in Texas. Since the early 1980s, they have been committed to using some of it to bring the center of Fort Worth back to the glory days they remembered as children, when they had gone downtown to visit their Uncle Sid.

Perhaps the most committed was Ed Bass, who had studied architecture at Yale and was determined to transform downtown into a vibrant, mixed-used area. In 1983, when Ed Bass opened a nightclub in downtown Fort Worth, with an apartment for himself on top, the area was in serious decline. "The curbs were just crumbling," says Bill Boecker, who now oversees development on the 40 blocks of Bass property downtown. "Storefronts boarded up as far as you can see." There was nothing to indicate that downtown Forth Worth would escape the fate of other declining urban centers.

Bass selected an area of low-slung buildings around Main Street and named it Sundance Square, in honor of the outlaw who had frequented the area at the turn of the century. When a natural gas explosion damaged four city blocks in 1986, Ed Bass bought much of the bombed- out property, built luxury apartments, and persuaded a theater chain to put a Cineplex downtown. To run Sundance Square, the Basses brought in a manager from the Rouse Company, developers of Boston's Quincy Market and many other urban commercial projects. To ensure the safety of their developments, they created their own private police force, reportedly the fourth largest in Tarrant County. Some locals called it, jokingly, the Basstapo.

STRAINED RELATIONS

Even when activist billionaires steer clear of local politics, their dealings with civic leaders can be fraught with difficulty. In Cleveland, Peter Lewis, chairman of the Progressive Insurance Co., has repeatedly clashed with local officials and with the hometown establishment. In the mid-1980s, Lewis approached then-Mayor George Voinovich about relocating the company's corporate headquarters to a Frank Gehry-designed skyscraper downtown. Lewis' idea wasn't exactly embraced by the establishment. At the party to unveil his plan, the head of the city's most powerful law firm turned to Lewis and asked him where he worked.

To Lewis, it was a vivid demonstration of his outsider status, a sign that the insular Cleveland establishment wasn't interested in him. The deal eventually fell apart under conditions both sides still refuse to discuss, depriving Cleveland of a landmark building. Stung by this defeat, Lewis decided to focus his philanthropic activities on Case Western Reserve University and nearby University Circle, only to watch with dismay as, he says, the university mismanaged a $36 million gift. In 2001, an angry Lewis denounced the school, describing it as "a diseased university that is collapsing and sucking Cleveland into a hole with it." To protest the establishment's supposed stranglehold over the city, Lewis suspended all of his local giving.

The moratorium remained in effect until last fall, when Lewis invited cultural institutions in University Circle to request funding for plans that would remake the area into a multi-use, "must-experience" 24/7 neighborhood. In the meantime, however, New York and other cities benefited from large gifts that might otherwise have gone to Cleveland.

Lewis may be more eccentric than any of his fellow billionaire activists. He's brutally candid about saying what's on his mind. At age 48 (he is now 70), Lewis announced he was getting divorced because he would no longer go along with the pretense of monogamy. He admits to enjoying marijuana and has bankrolled ballot initiatives across the country to legalize the use of marijuana for medical purposes. But he continues to insist on what Jennifer Frutschy, his philanthropic adviser, calls "the challenge of excellence and always doing better than what was there before."

Peter Lewis shares with Allen, Broad and the Bass brothers a zeal to break with established institutional processes--to create, as Broad puts it, "new things that don't exist, rather than presiding over the status quo." Lewis' admirers applaud him for giving Cleveland's political establishment a kick in the pants, just as Allen's supporters applaud the Microsoft tycoon for prodding city leaders to think in more ambitious terms.

If the new generation of politically active billionaires is a threat to liberal democratic values, not every liberal seems to realize it. "These guys are probably more creative partners to work with than the traditional local bank executive or chamber of commerce president," says historian Walt Crowley, the founder of historylink.org and a person known throughout Seattle for his left-leaning views. "They're definitely more fun."

Crowley should know. Paul Allen is historylink.org's most generous private donor.

John Buntin
John Buntin  |  staff writer
jbuntin@governing.com  | 

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

More from Politics