Combatants head off to court
Dispute over city loans to cover shortfall leads to lawsuits

Jim Camden
Staff writer

File - The Spokesman-Review City Council members Steve Eugster and Cherie Rodgers sued to block loans from the parking meter fund.

In a dispute over the coins from Spokane's parking meters, city officials and the owners of the River Park Square mall each made a calculated decision in the spring of 2000.

The City Council refused to loan parking meter money to the mall's struggling garage. Attorneys for the mall's developer sought a court order to force the loan.

Both thought they were moving the fastest way toward a solution to the garage's problems.

Both were wrong.

And the dispute over coins from the parking meters -- which can total as much as $2 million a year -- sparked a cascade of lawsuits, with more than a dozen claims and nearly every group that touched the project suing and being sued.

One of the biggest suits -- a federal securities fraud case against the city, the mall's developer and other organizations involved in the garage's planning, financing and operation -- is scheduled for trial April 19 in Richland.

That wasn't what the city or the developer expected would happen in the spring of 2000, when the battle began over the parking meter money.

The mall had been open more than six months, and the garage was doing so poorly that parking fees weren't covering operation and maintenance costs or the rent that was promised to the mall's developer for the land on which the garage was built.

The Spokane Parking Public Development Authority -- a city-created agency in charge of overseeing the garage -- requested a loan of $450,000 to pay those bills under a 3-year-old city law.

`Highly unlikely'

In 1997, the council unanimously passed an ordinance promising to loan parking meter money to bail out the River Park Square garage, over the objection of critics who questioned the facility's costs.

But that was a promise the 1997 council may have been comfortable making because it thought it might never have to keep it. It had a study from Walker Parking Consultants projecting the garage would make more than $4 million a year, more than enough to cover all its expected costs.

Former City Councilwoman Phyllis Holmes said in a deposition last year that she was willing to use the meter funds and realized the city might have to tap them.

But the council was getting assurances from the developer and its own bond attorney the city "would not have to rely on parking meter funds," Holmes said.

"That is highly unlikely to happen," Betsy Cowles, president of the companies developing the mall, told the council on Jan. 11, 1997, two weeks before it voted to loan the parking meter money if the garage revenues didn't cover certain expenses.

When revenue fell short -- starting almost as soon as the garage and mall opened -- the council balked at the loan.

Revenue prospects were so dismal the parking meter fund, then being used for street repairs, might never be repaid, a majority of the council said. That would make any transfer of money an illegal gift, not a loan, they said.

Spokane politics went through a tectonic shift in the time between those two votes, and so did the council. The 1997 council had unanimous support for a project expected to save downtown; the 2000 council had four new members, and a 4-3 majority was convinced their predecessors were duped into a bad deal for the city.

The new council also had new consultants with new opinions about the garage's earning power.

Before it would consider the loan, the city paid for a study by a Portland consulting firm, Keyser Marston.

Those experts came to a much different conclusion from Walker's. Keyser Marston said that without changes in rates, customer levels or expenses, the garage might lose about $3 million the first two years and then about $400,000 a year until 2018, when the bonds were paid off.

Or, in what the consulting firm called its "least optimistic scenario," it could lose about $1.4 million a year for the next 19 years.

An attorney from one of the state's top bond firms told council members the city could legally refuse to make a loan that couldn't be repaid.

"Any such action by the City Council to make a gift would run counter to the express provision of the ordinance," said Harry Schneider of Perkins Coie, the same firm that advised the city to pass the parking meter ordinance in 1997.

The city also had warnings about the possible effects of refusing the loan. City Attorney Jim Sloane and bond counsel Roy Koegen -- a member of Schneider's firm -- had said the city could be sued for securities fraud if it refused the loan.

Business leaders urged the council to keep its word.

Investment analysts warned that the city's bond rating could be lowered if the loan wasn't made.

"At that time, I didn't believe anything that anybody told me legally," said City Councilwoman Cherie Rodgers, the only member of that 2000 council who is still serving. She was part of the majority that balked at the loan, and she still thinks that was the right decision.

"I thought, `How can I loan money that will never be repaid?' " Rodgers said in a recent interview.

`Disturbing reluctance'

Rodgers said the majority of the council thought that if they refused to loan the money to the developer, the bond underwriters and others involved in the garage deal would sit down with the city and renegotiate the deal.

The price for the garage, which was based on the garage's earning capacity, would be lowered to reflect the lower revenues and Wall Street "would be understanding about this until we sort this out," she said.

But the reaction to the council's decision was different from what the majority expected, Rodgers said. And swift.

In six weeks, Wall Street downgraded the city's bond rating, citing "a disturbing reluctance to honor financial commitments." Even before that, the mall developer sued.

Attorneys for River Park Square used what they said was the least coercive tactic to try to force the city into the loan. They asked the Spokane County Superior Court for a writ of mandamus -- a court order for government officials to do something the law requires them to do.

Les Weatherhead, an attorney for River Park Square LLC, said the goal was simple. Get the city to live up to its agreement on the parking meter loan, then discuss ways to improve the operations of the garage.

The writ named then-City Manager Henry Miggins and then-City Attorney Sloane as the people the court should order to make the loan. A Superior Court judge agreed, and the city appealed; nine months later, the Washington state Supreme Court struck down the writ.

A court order might be the right solution, the justices said. But this one named the wrong people. The council makes the decision to spend money, and it should be named in the order.

The developers had to amend the order, and the case had to wend its way again through the courts. It wasn't until September 2003 that a state Appeals Court ruled that the city, under the 1997 ordinance, "has a duty" to offer a loan from the parking meter fund.

Everybody sues

Weatherhead contends that ruling "vindicates" the decision to seek the writ. "The legal obligation of the city under the laws they had passed were clear."

His reading of that law suggested that Miggins and Sloane were the proper people to name in the writ, and he takes responsibility for not seeking a court order for the council.

"It never dawned on me to name anybody else," he said.

By the fall of 2003, the garage was more than $7 million in debt, for costs including taxes and utility fees, salaries, maintenance and ground rent; much of it was owed the mall developer. Voters had picked yet another new mayor and council. And garage litigation had become a growth industry in Spokane.

The city sued the developer, the Spokane Downtown Foundation, the parking agency and others, saying it had been misled in the deal.

Council members Steve Eugster and Rodgers sued the city, the developer, the parking agency and others to have the meter loan ordinance overturned.

The trustee for the bondholders sued to keep the city from dissolving the parking agency.

A citizens group sued the city, the developer and others over the garage deal.

The developer sued the city, alleging breach of contract. It also sued some council members and their spouses for statements about the garage and mall it contends were untrue and damaging to the business.

A local group headed by Eugster sued the city, the developer and others charging violations of the state's Open Meetings Law.

The mall's management company sued the developer for loss of income.

And the bondholders essentially sued everyone in the spring of 2001. In a pair of federal lawsuits, they contended that those involved with developing the project and selling the bonds artificially inflated the value of the garage and defrauded investors.

"I never dreamed it would go to federal court," Rodgers said recently.

But for some people in City Hall, federal court was exactly where they wanted to be.

•Saturday: The dispute moves to mediation.