The Feeling Is Mutual

| FROM THE PRINT EDITION |
 
 

When co-op managers from around the country met in Seattle last October, they devoted one convention day to a collective busman’s holiday, boarding buses for an organized tour of Seattle-area cooperatives.

They strolled the aisles at a local PCC market, surveying shelves of health foods and learning how a neighborhood buying club grew to become a chain of natural foods markets that sells a half million dollars per day worth of organic everything. They bused over to REI’s monumental flagship store and marveled at how a huge national chain with 122 stores and $2 billion in sales could have evolved from an idea cooked up 75 years ago by a few Seattle mountaineers. They clustered in front of the sedate Capitol Hill offices of People’s Memorial, and heard the story of the nation’s largest funeral cooperative, which has 80,000 members.

While Seattle is best known for Fortune 500 corporations like Boeing and Microsoft, these visitors experienced the city as a cooperative Mecca, the epicenter of a historic movement that is a quiet but crucial facet of the Northwest culture and economy.

“If you’re into cooperatives, you want to come to Seattle to see what they’re about,” observes David Woo, a Philadelphia cooperative activist who got his start selling outdoor equipment at REI in Philadelphia.

In addition to the nation’s largest consumer and funeral co-ops, Seattle and Washington state are also home to the nation’s largest health cooperative, one of the largest credit unions, along with dozens of rural electrical co-ops, farmer co-ops, grocery co-ops and more.

“There’s something in the water out there in Seattle,” suggests Liz Bailey, a vice president of the National Cooperative Business Association, which hosted the October convention. “Something that breeds the cooperative spirit.”

The NCBA is a national organization that represents several hundred cooperatives, including several of Seattle’s, most of which defy the popular stereotypes attached to cooperatives.

“When most people think of co-ops, they think of counterculture hippies and ‘Kumbaya,’” Woo observes, strolling through REI. “But Seattle demonstrates that those stereotypes are ridiculous.”

These days, when many Americans despair over Wall Street’s astronomical salaries and ravenous corporate tactics, co-ops serve as a reminder that there are other ways to do business in the American marketplace.

A recent study at the University of Wisconsin identified more than 29,000 cooperatives across the United States, holding a staggering $3.1 trillion in assets and generating $500 billion in annual sales. They employ 856,000 people who earn $25 billion a year in wages. Most of these are consumer co-ops like REI, PCC Natural Markets and the rural electrical cooperatives. But there are also more than 700 purchasing co-ops like Ace Hardware and True Value, whose independent hardware store owners cooperate to buy goods in bulk, enabling them to compete with the big-box stores.

About 1,500 producer co-ops are owned by independent farmers who market their produce cooperatively. Darigold, the marketing subsidiary of Seattle’s Northwest Dairy Association and a household brand name across the region, is wholly owned by 542 dairy farmers who account for nearly a quarter of U.S. exports of cheese and other dairy products. (See page 48.)

While they may vary dramatically in their missions and membership, these diverse businesses share one crucial characteristic: They are owned by their members—buyers, sellers or, less frequently, workers. There are no sole proprietors, no stockholders demanding higher profits and annual dividends. The customers, or the producers, also share ownership of the business, electing its board and shaping its policies, and in some way sharing its profits.

Some, like Seattle’s Group Health Cooperative, are legally organized as nonprofits. Most, however, are for-profit businesses. Either way, cooperatives are not charities; if they lose money, they fail.

Cooperatives also share another important characteristic: They are responses to something that doesn’t work quite right in the free market.

“Cooperatives are born out of adversity,” says Diane Gasaway, a former banker who now directs the Northwest Cooperative Development Center. “They are formed to serve a need that the conventional marketplace isn’t serving.” Economists call this a market failure. Electrical co-ops were formed to bring power to rural areas that private utilities wouldn’t serve. REI was formed to make available high-quality outdoor gear that wasn’t available at Sears. Credit unions cropped up as a response to bank failures, many of them during the 1930s.

Darigold was created in 1918 as a way to market a highly perishable product that has to be processed daily. “It’s essential that dairy farmers have a stable market for their products,” Darigold CEO Jim Wegner explains. And that requires cooperation among farmers who might otherwise be competitors.

Cooperation isn’t always easy, says Gasaway, whose organization helps groups start new cooperatives around the region. “You need the impetus of the market failure to start. And that need has to be compelling enough to keep people at the table, because it’s hard to play in the same sandbox as other people.”

The cooperative impulse—the idea that people can solve economic problems by working together—is as old as civilization. But the legal and business concept is usually traced to the Rochdale Cooperative in the English Midlands, where weavers and other craftspeople founded a cooperative store in 1844 as an alternative to the predatory pricing of company stores. That concept crossed the Atlantic Ocean with European immigrants who formed cooperatives to defend against monopolistic banks and railroads.

In Washington, those populist impulses led to the establishment of the Washington State Grange and the Peoples Party, rooted in Puget Sound farms and in the logging camps and mills at the turn of the century. Many of those pioneers were avowed socialists and labor radicals, but others were nonideological farmers and workers trying to defend themselves against the chronic economic cycles of the era.

The cooperative explosion occurred in the 1930s, when bank failures and the Great Depression left people looking for alternative ways to buy, produce or market their goods. REI, People’s Memorial, BECU and many producer and electrical co-ops were founded in the mid-1930s. The seeds were sown for Group Health around 1937, and it went into business 10 years later.

For the likes of REI and Group Health, the growth rate has been phenomenal—and sometimes controversial. True believers suspect that the cooperative mission diminishes in inverse proportion to the size of the membership and the flow of money. “When members no longer feel like owners, you’re too big,” says Derek Hoshiko, who has organized small cooperatives in the Seattle area. “They begin competing with other communities. I’m a member of REI, but I don’t really feel like an owner there.”

That impulse is understandable to anyone who subscribes to the social or environmental values often attached to cooperatives, says Gasaway. But cooperatives are real businesses that deal with all or most of the same economic realities as the conventional business across the street. Contrary to many assumptions, she says, most cooperatives have to make a profit, which is subject to income taxes. Those taxes may be lower than for the corporation next door, because co-ops return much of their profits to members, who generally pay individual taxes on that income.

For profit or not, cooperatives have worked their way into every corner of regional and national economies—from retail to farming to electricity and health care.

And what next? Gasaway’s organization has helped a group of home health care workers organize a cooperative in Bellingham. Think about it, she says: You have a huge generation of aging Baby Boomers, many of them with money to spend, who will be needing care, and many of them would rather get it at home. Home health care workers require substantial skills, but are poorly paid, averaging about $11 an hour. As a result, they’re hard to get and hard to keep. You have a fast-growing demand for care, and a shortage of people to provide it—a classic market failure.

“Cooperatives could provide more consistency to caregivers, patients and their families,” Gasaway says. “And you can do this because you’re not paying a third party; there are no CEOs and stockholders raking income off the top.”

Today, the idea of a home health care co-op may seem farfetched. But no doubt that’s what people thought 75 years ago about a group of Seattle mountaineers who thought a little co-op might be a good way to acquire some good climbing gear.

 

A Co-Op Sampler

Some cooperatives based in and around Seattle

REI (Recreational Equipment Inc.): Launched by Seattle mountaineers in 1935 as a way to obtain quality climbing equipment, REI has become the nation’s largest consumer cooperative, with 3.5 million members and $1.8 billion in sales through 122 stores in 29 states. This year, REI paid out $165 million in dividends to members and employees.

Darigold: It’s the brand name used by the Seattle-based Northwest Dairy Association, which is one of the nation’s largest producer co-ops, with sales of milk, cheese, butter and other dairy products exceeding $2 billion per year. Founded in 1918, Darigold is owned by more than 500 independent dairy farmers, who compete with other co-ops and conventional dairies around the country. (See Executive Q&A, page 48.)

Group Health Cooperative: Established in 1947, Seattle-based GHC is the nation’s largest consumer-governed health care organization, boasting more than 600,000 members in Washington and northern Idaho. With nearly 10,000 staff, including 1,100 physicians, Group Health is frequently cited as a potential model for a future national health care system.

BECU: Credit unions are classic cooperatives, wholly owned by their members. Founded in 1935, BECU (formerly Boeing Employees Credit Union) is the state’s largest and the nation's fourth largest, with 800,000 members and $10.8 billion in assets in 2011.

PCC natural markets: The largest consumer-owned natural food co-op in the nation, with nine stores in the Seattle area, PCC (for Puget Consumers Coopeartive) claims more than 45,000 member-owners, $161 million in sales and net income of $2.3 million in 2011.

People’s Memorial Funeral Cooperative: Since its founding in 1939, People’s Memorial has grown to become the nation’s oldest and largest co-op of its kind. Based on Capitol Hill, it has about 80,000 members and handles nearly 10 percent of funerals in the Seattle-King County area. About 95 percent of its funeral arrangements are simple cremations, with an average cost of about $850.

Peninsula Light Co.: “PenLight” is the state’s second-largest electric cooperative, delivering federal hydropower to some 31,000 homes across 112 square miles in the Gig Harbor area. Most of Washington’s electrical cooperatives are in rural Eastern Washington.

Tree Top: Owned since 1960 by Eastern Washington apple growers, the well-known juice cooperative processes more than 300,000 tons of apples and other fruits per year. Sales in 2011 were $370 million, returning 19 percent on members’ investments.

Paine Field Ready for Takeoff

Paine Field Ready for Takeoff

Opposition continues, but Paine Field inches closer to commercial operations.
 
 

When Paine Field was built in 1936, nearly a decade before Seattle-Tacoma International Airport was completed, the 604-acre, fog-free unpopulated site 23 miles north of Seattle was envisioned as being one of 10 commercial “super airports” around the country. Originally called Snohomish County Airport — its name was changed to Paine Field in 1941 — the airport was a Works Progress Administration project designed as part of the New Deal to create jobs, drive economic growth in the Pacific Northwest and support a nascent aviation sector.

Shortly after opening, the airport was diverted for military operations during World War II, and again later for the Korean War. Snohomish County took over full management of the site and opened it for new commercial development in the mid-1960s, leading Boeing to establish a production facility for the 747 jetliner in 1966. By then, Sea-Tac had emerged as the region’s primary airport.

Now, 80 years after construction began, Paine Field is about to fulfill its original purpose as a commercial airport. Last year, Snohomish County approved plans for a commercial air terminal to be operated by Propeller Airports, a 5-year-old subsidiary of Propeller Investments, a private equity firm that invests exclusively in the aerospace and transportation sectors. When completed, the two-gate passenger terminal will be the first privately operated commercial air terminal in the country.

“This is a win for residents and businesses in Everett and Snohomish County,” says Everett Mayor Ray Stephanson. “Bringing a terminal of this quality to our community as a public-private partnership saves precious taxpayer dollars and offers considerable economic benefits.” He says the county looks forward to “helping travelers avoid hours of traffic and headaches.”

Initial operations will be limited to two dozen flights a day. Any expansion beyond that, which will require Federal Aviation Administration approval, will likely be vigorously fought in court by community groups in nearby areas like Mukilteo and Edmonds concerned about traffic, noise and property values.

Mukilteo’s mayor, Jennifer Gregerson, is pushing for a county charter amendment to create an airport commission to oversee Paine Field. While Mukilteo, whose eastern border abuts the airport, has no legal authority to stop passenger service, Gregerson wrote recently in a blog post, “We will use every tool at our disposal to ensure that the full impacts to our community are heard and addressed. We will not stop in that mission, and the fight is not over.”

In that regard, the Port of Seattle’s effort to build a third runway at Sea-Tac is a cautionary tale. First proposed in 1992, it faced opposition from cities and communities neighboring the airport and encountered long delays and rising costs. The third runway finally opened in November 2008 and cost $1 billion, more than four times the original estimate.

But the forces arrayed in support of Paine Field are building. The FAA concluded in 2012 that commercial airplanes could use Paine Field without significantly affecting the neighborhood. Jet engines are much quieter today than they were two generations ago, and Paine Field officials say the noise level meets federal guidelines within the footprint of the airport itself. In fact, the noisier aircraft tend to be private planes that use the only runway that takes them over Mukilteo. An opposition group, Save Our Communities, and two individuals filed suit to block commercial service on environmental grounds, but a Ninth Circuit Court of Appeals ruling in March rejected the argument.

As Sea-Tac struggles to handle rapid growth (see story, page 41) and as vehicle traffic through Seattle faces gridlock much of the day, pressure to develop a second major airport in Washington state will continue to grow. Boeing Field — officially King County International Airport — is not a candidate as a relief airport because of conflict with the flight pattern into Sea-Tac. McChord Field, a military airport near Tacoma, is also mentioned as a possible option — Colorado Springs Airport south of Denver, for example, has combined military and commercial operations. But McChord is a key component of Joint Base Lewis-McChord and there are no plans or initiatives afoot to use McChord for commercial flights.

Besides, since Sea-Tac is already situated between Seattle and Tacoma, Paine Field is far better positioned to serve the growing number of residents who live in Seattle and to the north. The state Office of Financial Management estimates that, by 2025, the population of Snohomish County alone will grow to 1 million, up from 870,000 today.  About 4,700 travelers a day from Snohomish County depart from Sea-Tac, according to Port of Seattle passenger data from 2014 and 2015. Most presumably have to travel by highway through the center of Seattle to get there. 

 

A Long Runway
1. A WPA project, Paine Field was one of 10 “super airports” intended to spur economic growth during the Great Depression.

2. The site required tree clearing and leveling to ready it for runways in 1936.

3. Shortly after it opened, the airport was used by the military during World War II.

4. Alaska Airlines had a maintenance hangar at Paine Field in the late 1940s

It’s also difficult for communities in north Puget Sound to argue persuasively that Paine Field’s growth should be limited when the airport was there before most of the communities were established, and when the region’s economy has benefitted greatly from aerospace development around Paine Field.

It is now one of the largest manufacturing and service centers in the state, encompassing about 50,000 jobs. Boeing builds its largest planes at a Paine Field facility that is the largest building in the world. Other companies like Aviation Technical Services, which employs 1,500 workers doing commercial aircraft maintenance, also call Paine Field home and use its runways for their operations.

Although commercial flights will initially be limited to about 24 a day, Paine Field is already a busy airport. It handles roughly 300 flights daily, including large jetliners from the Boeing factory and small planes flown by private aircraft owners. The modern, FAA-operated control tower was built in 2003, more than doubling the size of the old tower, and it has the most advanced aviation technology in the industry. 

Propeller Airports is moving ahead — it has submitted its application to comply with Washington’s State Environmental Policy Act — and hopes to break ground on the new terminal by the end of this year. Flights could begin in late 2017.  

With commercial operations an apparent certainty, the issue now is growth. Asked to discuss the future, Propeller CEO Brett Smith is careful in his response. He says the company is “building its business model around a two-gate terminal, and beyond that, who knows?”

Opponents doubt Propeller’s ability to operate a terminal, given its lack of a track record, but Smith insists Propeller will create a “world-class facility worthy of this airport.” 

Propeller expects to make a profit from parking, concession, service and airline facility fees. 

Tom Hoban, CEO of the Coast Group of Companies, an Everett-based commercial real-estate and investment firm, is often described as the “father” of the effort to bring commercial service to Paine. He sees the two-gate operation as adequate for now. But, he adds, “If you think of the things the community could do to drive economic diversity and provide jobs for our kids, there is no better option than leveraging a public asset like Paine Field.”

If Seattle-based Alaska Airlines is one of the airlines that operates from Paine, Hoban says the community could not have a better partner.

He also disagrees with residents of communities opposing commercialization, predicting commercial operations at Paine Field will likely increase property values. He says commercial flights will provide businesses the ability to function in Snohomish County, attracting more demand. “The model is there,” he notes. “San Jose to SFO [San Francisco], John Wayne to LAX [Los Angeles]. It’s the low-hanging fruit.”

Propeller’s Smith agrees. “Is it going to be Sea-Tac north?” he asks. “No.”

But he believes the operation will provide a new and welcome experience for passengers tired of the Sea-Tac hassle. Propeller’s terminal will have a fireplace and comfortable seating areas. The nearby parking lot will offer valet service; arriving passengers will be able to send text messages to the lot and have their cars waiting in front of the terminal building.

Smith says Propeller will leverage what he calls “the incredible aviation infrastructure at Paine Field” to encourage further economic development and provide local travelers an airport option.

Snohomish County Executive Dave Somers says having a private company operate the airport not only provides substantial income for the county — the lease agreement calls for annual payments of about $450,000 — but also eliminates the risk of a publicly operated terminal. Under the 30-year lease, Propeller is responsible for building and maintaining a state-of-the-art, two-gate terminal, which would revert to county ownership at the end of the lease. 

Although neighbors have expressed concern about airplane noise, Paine Field Airport Director Arif Ghouse says it should not be a concern. “We have shown that the noise level is contained within the airport itself,” he says, meaning that noise levels above 65 decibels are not heard in neighboring communities. He notes that Paine Field already has many large commercial airplanes taking off each day as new planes come from the Boeing plant. The only difference between them and commercial flights, Ghouse says, is that “they’re just empty.” 

Future Destination
Propeller Airports, a private developer, is buldigna two-gate commercial terminal to serve Paien Field. It could open late next year. 

There is room for expansion at Paine. The airport already has about 80 acres north of the main runway targeted for development. The aim is to market the land to “aerospace” uses, Ghouse says. Expanded airline operations would certainly qualify as an aerospace use. 

Road access to the airport may be a more serious concern. There are two general access routes to Paine Field on crowded surface streets. Motorists trying to exit to Interstate 5 run into long lines when Boeing shifts end. Paine Field is scheduled to be on the Sound Transit 3 light rail expansion. An updated version announced in May indicates light rail would serve the airport (and Everett) by 2036.  

No airline has publicly announced flights from Paine Field, but two have shown strong interest. Bobbie Egan, an Alaska Airlines spokeswoman, says there is a need for another commercial airport in the region. Asked about Propeller’s lease and plans, Egan says, “If there is an airport built there, we would take a strong look at service there.” In a 2013 proposal to the FAA, Alaska suggested operating 98 flights a week from Paine Field to Portland, Honolulu, Los Angeles, Las Vegas and other West Coast destinations. 

Las Vegas-based Allegiant Air, which operates flights from Bellingham to Oakland, Los Angeles, Palm Springs, Las Vegas and Phoenix, has also expressed interest with the FAA but says it has no immediate plan to fly from Paine Field. 

Paine field has three runways, the longest more than 9,000 feet and used mostly by Boeing for its large, wide-body jets. The runway length means it can handle almost any size aircraft; the longest runway at Sea-Tac is about 12,000 feet. A second runway at Paine is much shorter, about 3,000 feet, and is used mostly by small private aircraft — about 650 private planes are based there. The third runway, 4,500 feet long, is used as a taxiway and for Boeing to park unsold aircraft.

Paine Field also is a major tourist destination. The Future of Flight Aviation Center and the associated Boeing factory tour attract 350,000 people a year. The Museum of Flight Restoration Center and Reserve Collection also call the airport home, along with Paul Allen’s Flying Heritage Collection. Two community colleges operate facilities there, training students for jobs in aviation.

The question that’s still hard to answer is how Paine Field can grow fast enough to help shoulder part of Sea-Tac’s increasing load. “As part of our master planning, we have always recognized the region is going to eventually need a reliever airport,” says Sea-Tac spokesman Perry Cooper. But 24 flights a day at Paine won’t do much to relieve congestion at Sea-Tac, which currently averages more than 1,000 flights a day.

One pressing issue is the real challenge faced by the Port of Seattle at Sea-Tac. If it stumbles even slightly in its plan to enlarge the airport, the resulting bottleneck would affect the region’s economic growth and send business elsewhere. 

Another major regional airport would provide the answer. In 1936, Paine Field was envisioned as a “super airport” serving the region. It now seems as if fulfilling that vision is the only practical alternative to serving the area’s growing transportation needs.

Who Was 'Top' Paine?
Paine Field is named for Topliff O. “Top” Paine, who was born in Ohio in 1893 and moved with his family to Everett in 1903. A graduate of Everett High School and the University of Washington, Paine was a ranger with the U.S. Forest Service when he joined the Army in 1917 upon the United States’ entry into World War I. He was commissioned a second lieutenant in 1918 after completing flight school. He was discharged in 1919 and became a commercial pilot in California and Mexico. In 1920, he joined the Post Office Department’s new Air Mail Service, becoming one of the top pilots in its Western Division. He died in 1922 when his revolver accidentally discharged. The Earl Faulkner Post of the American Legion suggested Snohomish County Airport be named in Paine’s honor in April 1941.