Since losing the 2004 governor's race by 133 votes, Republican Dino Rossi got in on a lucrative real-estate deal, published a book and launched a controversial foundation that helped lay the groundwork for a rematch.

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OLYMPIA — What a difference 133 votes can make.

But for that tiny margin, Republican Dino Rossi would have spent the last three years living in the governor’s mansion, running state government and representing the state abroad.

What did Rossi do instead?

Since losing the 2004 governor’s race by the slimmest margin in the nation’s history, he self-published a book, started a nonprofit foundation that became embroiled in controversy, and got a cold shoulder from Washington’s big-business establishment.

Thanks to an acquaintance he made during the 2004 campaign, Rossi also became part owner of a minor-league baseball team and got in on a lucrative real-estate deal that helped push his income to the highest level he’s reported since entering politics 16 years ago.

Though he remained coy for a long time about whether he would seek a rematch against Democratic Gov. Christine Gregoire, Rossi worked hard to keep his name and face out there. He made scores of speeches to Republican groups, Rotary clubs and local chambers of commerce. He appeared at dozens of fundraisers for Republican candidates and kept up close ties with the national Republican Governors Association.

But for the most part, before announcing his 2008 candidacy last fall, Rossi stayed out of state politics and rarely mentioned Gregoire.

Rossi’s critics, and even some of his GOP allies, say he should have stayed more engaged on big issues such as transportation, education and health care.

“Dino Rossi had a choice to make,” said Jenny Durkan, a Seattle lawyer and close confidant of Gregoire’s. “He could have either been on the field being a positive influence or on the sidelines sniping. He chose to stay on the sidelines.”

Rossi and his defenders say it would have been a mistake for him to inject himself in state politics or try to act as a counterweight to Gregoire. It would have sounded like sour grapes, they say, and wouldn’t have held sway with Gregoire and the Democrat-controlled Legislature.

“I didn’t want it to be, ‘What does Dino say?’ ” Rossi said in a recent interview. “People expect you to comment on every little thing that happens and I don’t have the energy for that. I’ll do that when I’m governor.”

“In a very difficult spot”

After twice being declared winner of the 2004 election, Rossi lost to Gregoire on a third and final recount. A months-long legal challenge by the state Republican Party was eventually tossed out.

The ordeal left Rossi feeling drained and a little adrift. He says a rematch was one of the last things on his mind. And he decided early on that he didn’t want to try to be a “governor in exile.”

“Dino was in a very difficult spot,” said Chris Vance, former chairman of the state Republican Party. “There is virtually no playbook on how to act in that situation.”

At first, Rossi lay low. He says he’d promised his wife he’d take a break from politics for the rest of 2005.

He didn’t stay out of the limelight for long, though. About a year after the election, Rossi began promoting his self-published autobiography, “Dino Rossi: Lessons in Leadership, Business, Politics and Life.”

But the thing that really thrust Rossi back into the public view — and the headlines — was his Forward Washington Foundation. Rossi said the primary mission of the foundation, billed as a nonprofit grass-roots lobbying group, was to help improve the state’s business climate.

In many regards, however, the foundation was a continuation of his 2004 campaign, which used “Forward Washington” as its main slogan. It was staffed by former Rossi campaign aides. And as president, Rossi crisscrossed the state to give speeches that sounded an awful lot like his campaign stump speeches.

Last year, as speculation mounted about whether Rossi would enter the 2008 race, the state Democratic Party filed a complaint accusing Rossi of using the foundation to evade the state’s campaign-finance disclosure rules.

In essence, the Democrats said Rossi was running a de facto campaign for governor. But as a so-called 501(c) nonprofit, his foundation was not required to disclose where it was getting its money.

In a months-long investigation, the state Public Disclosure Commission found the foundation had raised nearly $360,000 from unidentified donors — including about a dozen individual donations that topped $10,000.

And despite Rossi’s claims that the foundation was nonpartisan, the PDC learned the group was using rented fundraising mailing lists with names such as “Cadillac Conservatives,” “Flag-waving Republicans,” and “Good as Gold Republican Donors.”

Rossi stepped down from his $75,000-a-year post at the foundation last September in the midst of the PDC investigation, and announced a month later that he would run for governor in 2008.

In November, the PDC staff concluded there was insufficient evidence to prove Rossi was using the foundation for political purposes. The commission voted to dismiss the Democrats’ complaint, though some members expressed concern that Rossi was trying to dodge campaign laws.

While the foundation isn’t required to reveal its donors, it is required by the Internal Revenue Service to report its annual expenses. The group’s latest filing shows that its top expenses for last year included Rossi’s salary and about $24,000 in legal fees stemming mostly from the PDC fight.

The group also spent $9,100 on “gifts” — copies of Rossi’s book that the foundation purchased from him to give to anyone who donated at least $100 to the foundation.

Big business backs away

Since Rossi stepped down, the Forward Washington Foundation has all but disappeared.

Today, it is basically just a Web site where the group’s sole employee — Executive Director Ted Dahlstrom — posts monthly musings on topics such as transportation and climate change.

Rossi, who no longer has any role at the foundation, says it still could take off. If it doesn’t, he says, Gregoire and the Democrats are to blame.

“They filed the phony PDC complaint because they wanted to silence anybody who may have an opinion that might be counter to the people who are in charge in Olympia,” he said.

Rossi said the group’s fundraising largely dried up after the PDC launched its investigation. But even before that, he said, many people in the state’s business establishment were nervous about donating for fear of ticking off Gregoire.

J. Vander Stoep, a lawyer from Lewis County and one of Rossi’s closest advisers, said that after the 2004 election Rossi became “persona non grata” to the state’s big-business establishment. He said business leaders knew they needed to keep their distance from Rossi because the Gregoire administration was “keeping score.”

Rossi tells a story about going to a Mariners game with a prominent businessman. The next day, Rossi says, someone from the governor’s office called that person and said, “Hey, I saw you at the game with Dino yesterday.”

In 2006, Rossi approached the Association of Washington Business (AWB) to seek support for his new foundation. He also proposed giving one of his Forward Washington speeches at an AWB board meeting.

The business group said no to both requests.

AWB President Don Brunell said that when Rossi came to make his pitch about the foundation, his plans seemed “pretty sketchy.” But Brunell said big business hasn’t soured on Rossi.

Brunell pointed out that, as a state senator, Rossi always received a good voting scorecard from the AWB, while Gregoire has scored poorly. The group announced last week it is giving Rossi an award for his efforts to improve the business climate.

“I personally like the guy,” Brunell said. “He was a good legislator and he would have been a good governor. But at the time he came by, he wasn’t the governor.”

Investments pay off

Despite Rossi’s loss in the 2004 governor’s race, the contest opened doors that helped him move up to a bigger league in the real-estate business.

“I’ve invested well,” Rossi said. “There’s no doubt that I got to meet people I wouldn’t have met if I didn’t run for governor.”

A real-estate salesman for more than two decades, Rossi put his license on “inactive” status in 2005 rather than take the necessary classes to keep it current. But Rossi has long made the bulk of his money on personal real-estate investments.

Until a few years ago, most of Rossi’s real-estate investments were small to medium-size apartments. In early 2005, Rossi says, he received an unsolicited offer on one of those properties — an Eastlake fourplex that he had owned since 1985.

Rossi sold the fourplex for $600,000 and suddenly had a large sum of money that he wanted to reinvest in another property in order to avoid paying capital-gains taxes.

Enter Tom Hoban, part owner of Coast Equity Partners, a large Everett-based property-management and investment company. Rossi and Hoban met during the 2004 campaign and, according to both, immediately hit it off.

Rossi says when he told Hoban about needing to roll over his gains on the Eastlake apartment, Hoban told him about a Mill Creek medical building that Coast was looking to buy. Rossi says Hoban told him, “We need a pretty big investor in this thing to take it down.”

They bought the two-story, 17,472-square-foot building for $4.9 million, which Hoban’s company now manages. Rossi owns 28 percent of the building and figures he’ll get more than $75,000 in rental income this year.

Rossi still owns a 31-unit apartment building in Lake Stevens but has turned it over to Hoban’s company to manage.

Last year, Hoban tipped Rossi to another investment opportunity — buying a small share in the Everett AquaSox, a Seattle Mariners minor-league team. Rossi, who describes his share as “fractional,” recruited former Mariners outfielder Jay Buhner to join in the deal.

Rossi made one other big investment in 2005, though this time his connection was a longtime friend and political supporter named Chuck LeFevre.

Rossi and LeFevre were part of a group that invested in a $1.55 million warehouse about a mile south of Safeco Field. Rossi owns 12.5 percent of a new property-management company that is overseeing the renovation that will convert the 36,441-square-foot building into retail and office space.

The 90-year-old warehouse is part of a bigger land-development plan that has sparked some controversy in the Sodo neighborhood. It is one of more than 30 properties — on about 40 acres — that developer Henry Liebman has acquired in the area. He aims to transform gritty warehouses into high-end retail stores and offices.

A former immigration lawyer, Liebman has raised more than $150 million through an obscure federal program that offers green cards to foreigners who invest in projects that create jobs.

Some businesses and labor leaders worry that Liebman’s projects will drive up rents in the area and squeeze out blue-collar jobs. But Rossi scoffs at such concerns.

“I’m not sure how it drives out blue-collar jobs if you have a building that’s empty and is a blight on the community and you go in and improve it,” Rossi said.

With the campaign heating up, Rossi said he has put his investment activity on hold and will keep it that way if he wins in November. And he says he’s been talking to lawyers about putting his investments — except his $850,000 Sammamish home — into a blind trust.

Having someone else manage his investments, he says, would make it harder for his opponents to raise conflict-of-interest arguments.

“If I do it now, there won’t be any question later on.”

Staff reporter Susan Kelleher contributed to this story. Ralph Thomas: rthomas@seattletimes.com