In the hallway outside the mayor's office, a large model showcases a new image of a city freeway. Much of the highway — rather than gouging a canyon through the downtown's...

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PORTLAND — In the hallway outside the mayor’s office, a large model showcases a new image of a city freeway. Much of the highway — rather than gouging a canyon through the downtown’s edge — is covered with parks, housing projects and a high-tech campus.

“Normally, I would not advocate that we cover up our mistakes, but in this case I would make an exception,” said Portland Mayor Vera Katz, in a 1998 speech that proposed the multibillion-dollar effort to cap the freeway.

In her 12 years in office, which end Friday, Katz has displayed a relentless energy to help establish this city as a hub of urban innovation.

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Though the freeway transformation remains a distant dream, Katz has helped push for ambitious projects that expanded rapid transit, redeveloped industrial and riverfront zones and established Portland as a magnet for restless and creative youth, who even through the worst of the recent recession continue to resettle in and enliven this city.

Katz, 71, is a blunt-spoken Democrat whose obsession over the details of running the city sometimes appeared to obscure her vision. That obsession has continued through this final year in office even as she fights a rare form of cancer in her abdomen, sorting through mail with an aide as she undergoes transfusions and dialysis.

From across the political spectrum, Katz’s devotion to the city and her job has earned praise.

“She has integrity, decency, and — whether or not I agree with her — she has always tried to work for the common good. And I would challenge anyone who says otherwise,” said Kevin Mannix, a former legislator who now chairs Oregon’s Republican Party.

Katz entered Oregon politics in 1972, when she won a seat in the Legislature and quickly established herself as part of a new generation of state politicians.

For most of the past century, many of Oregon’s legislative leaders were men from Portland’s business community or rural timber and farm communities.

Katz is a German-born, New York-reared dancer, who came to Portland in 1964, then was inspired to political action by the 1968 presidential campaign of Robert Kennedy.

In the Legislature, she was elected the state’s first female speaker of the House.

“For a New Yorker to become speaker of the Oregon House — that is so out there,” said former Seattle Mayor Charles Royer, who was raised in the Portland area. “You have to say, ‘Man, this is a very skilled political leader.’ “

Katz worked on legislation that helped define a new era in Oregon politics, including land-use laws that limited urban growth, the Oregon Health Plan to expand insurance, and new education standards.

In 1992, she began her first term as mayor at a time when this river city — like Seattle — was launching into an economic boom of epic proportions. Portland redevelopment charged ahead, with new urban residential areas emerging along the Willamette River and in an aging industrial section known as The Pearl that featured upscale lofts in renovated warehouses.

And, while Seattle struggled to get mass transit under way, Portland opened light-rail links that traversed the downtown and eventually would push into western and eastern suburbs, as well as north and to the airport.

“I thought we always had a mutual understanding that we were here to learn from each other,” Katz said of the two cities. “But to be honest with you, Seattle has come down to Portland, far more often, to learn how we deal with things — primarily, with transportation.”

Early in her tenure as mayor, Katz worked closely with a key Seattle investor in Portland as billionaire Paul Allen took over ownership of the city’s NBA franchise, the Trail Blazers.

Allen built the Rose Garden arena and sought to establish a new retail district in the area around the stadium.

But the city did not embrace a subsequent Allen proposal to turn the aging Coliseum, which sits next to the Rose Garden, into a center for big-box stores. And Allen’s plan for developing the Rose Garden district has faltered as his holding company, Oregon Arena Corp., has filed for reorganization in U.S. Bankruptcy Court.

“I always had wished that we would have developed a better relationship with Paul Allen,” Katz said. “It has been less successful and less rewarding in recent years and I don’t know if it was my fault — I don’t know if it was a lack of interest on his part.”

Allen’s representatives say they worked hard to keep an open dialogue with the city.

“I don’t think there has been any failure in communication,” said J.E. Issac, president of Allen’s Oregon Arena Corp. “I think we have a good relationship with the office of the mayor.”

For Katz, economic development took on added importance during her last four years in office as the state fell into a recession that yielded the highest unemployment rates in the nation.

Her critics say that she often appeared out of touch with the complaints of Portland’s business community, which was stung by the departures of home-grown Columbia Sportswear to nearby Washington County and Louisiana-Pacific Corp. to a new headquarters in Tennessee.

Katz does not accept the criticism.

“As I look up and see the many construction cranes currently outlined along the city’s skyline, I shake my head that there are still people who criticize Portland as a bad place to do business,” Katz said in her final state-of-the-city speech this month.

During that speech she also cited her concern over a continuing struggle to maintain funding for Portland Public Schools.

“Now we are well into the 21st century, but we are still agonizing over whether our schools will have enough money to provide even the basics of a full school year,” Katz said.

Katz’s final term in office also has been shadowed by the terrorist attacks of Sept. 11, 2001. As a native New Yorker, she was proud to lead a Portland delegation on a goodwill trip to Manhattan in the weeks that followed the attacks. Then in 2002, a terrorism threat surfaced closer to home.

The U.S. Justice Department indicted an eclectic group known as “The Portland 7,” which had sought to travel to Afghanistan to fight on behalf of the Taliban. One of them, Patrice Ford, was a talented linguist who had served as an intern in Katz’s office.

Katz acknowledges “real issues” of terrorism that require the city to work in collaboration with the FBI. But she says she is equally concerned that the fear of terrorism is undermining concern for civil liberties.

“What gives me satisfaction is that at least here in Portland, none of these issues will be swept away. It’s just who we are.”

As for her own future, Katz is planning to teach in the College of Urban and Public Affairs at Portland State University. But most important, she needs to focus on her health.

“I have not given myself time to heal spiritually, emotionally,” Katz said. “It’s been very foolish. But that’s who I am and will always be.”

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com