Lower rates put garage in the red
Bondholders were never told that rate cuts could lead to parking garage revenue shortage

Jim Camden
Staff writer

Jed Conklin - The Spokesman-Review Movie patrons wait to have their parking validated at River Park Square.

As the renovated River Park Square prepared for a grand reopening in the summer of 1999, a dispute over the expanded garage threatened to scuttle the parking structure's sale and blow a gigantic hole in its budget.

The dispute was settled in a way that avoided the former. But the parking rates were set in a way that ensured the latter.

Weeks before the mall's Aug. 20 reopening, AMC Theatres threatened to pull out of the project.

That prompted the Spokane Downtown Foundation, a nonprofit group set up to buy the garage, to suggest it should pay less than the $26million price set almost three years earlier.

The mall's developer wasn't willing to drop the price.

But the public officials and legal advisers did agree that summer to drop something else -- the evening parking rates.

That change -- proposed as a temporary solution but still in effect more than four years later -- wiped out any chance the garage had to cover its expenses after it opened. But neither the public nor the investors who had bought $31.5 million in bonds tied to the garage revenues were told.

Lease dispute

In August 1999, the developer and AMC management had a serious dispute over the lease for the cinema chain's multiplex theater.

One clause in the lease indicated cinema customers would park free. Another clause required AMC to participate in any parking validation program.

AMC wanted to invoke the first clause; the developer wanted the second.

“Our position from Day One was we would not provide free parking” to AMC, Bob Robideaux, a key executive for the developer, said later when questioned by attorneys preparing for the federal securities fraud lawsuit over the garage.

But when the mall announced in September 1996 that it had landed AMC, the president of the business group that ran the downtown parking validation program said theater patrons would have free night and Sunday parking.

All other times, they'd get two hours of free parking, said Karen Valvano of the Downtown Spokane Partnership, which collected money from its members to pay for validations their customers turned in.

The program Valvano described was the existing validation system that gave shoppers and movie patrons two free hours during the day and free evenings.

No one seemed to notice that those promises contradicted an economic feasibility analysis released two months earlier.

Walker Parking Consultants had projected at least $2 million -- nearly half of each year's forecasted garage revenue -- would come from theater patrons. But that couldn't happen unless the validation discounts the patrons received were covered by other sources, such as the business validating the parking stub.

Throughout the first half of 1999, a new validation program was debated by the Downtown Spokane Partnership, which ran the program for participating businesses.

The businesses feared the program would go broke if the number of parkers went up dramatically and the rate stayed the same. The partnership settled on a new system: $1 off to any parker who showed a movie stub or a receipt for at least $20 from a participating merchant.

They also proposed a flat rate of $2 for anyone parking in the evenings and on Sunday.

City officials asked Walker Parking Consultants to run “scenarios” to estimate the effects of those proposed rates on projected revenues.

Charging a flat rate of $2 in the evening -- which meant a theater patron paid $1 after validation -- cut revenue projections by as much as $1.2 million a year, Walker reported.

In June, the Spokane Parking Public Development Authority agreed to the lower night rates when it took control of the completed garage.

“Everybody wanted a more generous validation program. Nobody wanted to pay for it,” Terry Novak, then-chairman of the development authority, said in his deposition for the federal lawsuit.

All the mall's tenants were unhappy with the new program, Robideaux said in his deposition. But only AMC had a legal claim.

Deal on hold

When a construction delay moved back the opening date for the mall, AMC had what Novak called a “get-out-of-the-lease-free card.”

The theater company continued to insist that its customers had a right to park free and began negotiating with another downtown garage and threatening not to open.

Until the dispute between the developer and AMC was settled, the Spokane Downtown Foundation refused to close the purchase. The parking authority, which had been set up to oversee the garage's operation, refused to accept control of it.

The foundation had sold $31.5 million in bonds in September 1998 to buy the garage. That money was sitting in banks drawing interest and could be returned to investors if the deal fell through.

Some of the costs of repaying bonds could be charged to the developer. Cowles Publishing Co., the developers' parent company, had put $1.4 million in escrow, which it had borrowed from another one of its subsidiaries, KHQ-TV.

If the sale was complete, that money would be returned to Cowles Publishing; if the deal “unwound,” as foundation attorney Mike Ormsby later put it, the company would lose it.

Concern over the money in escrow wasn't a significant factor in efforts to keep the sale on track, Duane Swinton, attorney for River Park Square, said recently. That escrow money was minuscule compared with the cost to the project, and the city's and developer's hopes for downtown redevelopment, if the entire deal fell through, he said.

Ormsby wrote mall owners a letter in August 1999, suggesting the foundation pay less than the $26 million price negotiated between the city and the developer.

“It appeared in August 1999 that the price was too high,” Novak asserted in his deposition.

Price in dispute

The sale price was based on revenues projected in the 1996 Walker report. Those projections had been a key element in justifying the $26 million price, through appraisals that critics already had complained inflated the price.

If lower parking rates meant lower revenues, the value, too, could be lower.

According to his deposition and documents collected for the pending trial, Ormsby argued at one point the foundation could refuse to buy the garage. The dispute with AMC represented a potential “default” in the sale contract.

Attorneys for the developer said the contract was valid.

“We had an agreement on the purchase price, and it did not need to be adjusted, and we expected to be paid $26 million,” Swinton said in his deposition.

Ormsby said in his deposition the foundation dropped the idea of not buying the garage because “we were trying to look at ways to be able to assist the developer get problems with AMC resolved in a way that satisfied the (parking authority).”

The foundation purchased the garage in September without any discount for a potential revenue shortfall.

“The AMC problem was resolved successfully, and we moved on,” Chris Schnug, a member of the foundation board, told attorneys in her deposition for the federal lawsuit.

Ormsby, attorneys for the city and the developer assured the foundation board that the $26 million price was appropriate, Schnug said. But she didn't recall ever being told the foundation had the option of not buying the garage.

During his deposition, Novak was asked if the parking authority was “trying to improperly hide things from the city.”

“No,” he replied. “We had two City Council members (Orville Barnes and Roberta Greene) right there.”

Barnes and Greene were also members of the PDA from its inception in 1997.

Losses begin

A final lease agreement between River Park Square and AMC was signed in November.

At that point, the parking authority already had dropped the parking fees to a flat rate of $2 after 5 p.m. Monday through Saturday and all day Sunday.

As forecast, the garage lost money.

Those involved in the decisions to drop the evening rates have said they didn't think bondholders needed to be told about the problems with AMC and the likely loss of revenue from lower rates.

“There was no threat that a principal and interest payment (on the bonds) would be missed,” Ormsby said.

Swinton, the attorney for River Park Square LLC, said he believed parking revenues might fail to cover “a small part” of the garage's operations and maintenance, but would be more than enough to pay off the bonds.

The City Council had passed an ordinance in early 1997 to cover any shortfall in rent, operations and maintenance with a loan from the city's parking meter fund.

But by the time the parking authority asked for that loan in early 2000, voters had replaced some of the project's strongest supporters on the council with some of its most vocal critics.

•Friday: The garage seeks a loan, and the resulting controversy opens the door on a voluminous and complicated legal entanglement.

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