Value versus the cost
Developer says RPS has been a major stimulus for downtown
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Jim Camden
Staff writer

The price tag for settling a major legal battle over River Park Square's struggling garage could be $39 million.

That's the amount being discussed by the Spokane City Council this week as a federal trial approaches later this month. Who pays what share of the total has yet to be determined.

Beyond that dollar figure is a debate that's been raging since before the mall and its expanded garage opened more than three years ago.

One is the project's cost. The other is its value.

In an ongoing public relations offensive, the mall's developer regularly lists the construction projects taking place within a mile of River Park Square since the mall opened.

Using that system, the mall developer believes the mall is the "catalyst" for $1.1 billion in new construction and business expansion, a source of some 1,100 jobs and a generator of higher sales tax, property tax and building permit fees for local government.

Without River Park Square, projects such as Steam Plant Square and the Davenport Hotel restoration would never have happened, says Betsy Cowles, president of the development companies affiliated with Cowles Publishing Co., the owner of The Spokesman-Review.

True, says Ron Wells, who developed Steam Plant Square and a string of downtown housing projects: "Almost everything we've done is possible because of River Park Square."

Mostly true, agrees Walt Worthy, who bought and renovated the Davenport. He doubts the total impact equals $1.1 billion because some of those projects may not get off the ground, but adds River Park Square "made it a lot easier for me to say yes to the Davenport."

Mayor Jim West -- the fourth mayor in 10 years to confront controversy over the River Park Square redevelopment -- last week tried to separate the garage from the rest of the mall and downtown in assessing values.

"There is a public good," West said. "Whether it was worth what it was presented as ... is all debatable. It (the garage) is worth fractions of what it was presented as."

Intangible costs

The cost of the mall renovation is listed at $110 million. The cost of the controversy is harder to calculate. There's an estimated $11 million already spent in legal fees -- and that's before a six-week trial, scheduled to start in two weeks. There's $7.1 million in parking meter funds that have piled up in an escrow account, unable to be used to cover garage expenses or to repair Spokane's streets.

The controversy also has a cost that can't be covered by the zeroes behind a number on a settlement sheet or the figures on a map with a one-mile circle drawn around the mall.

It's the cost of an unknown number of unhappy residents who have voted against incumbents in local elections and voted with their feet to stay out of downtown.

"I used to work downtown and shopped downtown religiously," said John Ledgerwood of north Spokane. "Now, I don't go downtown unless I have to."

Part of it is the retail mix at River Park Square, which Ledgerwood said strikes him as "high-end, yuppie crowd" stores. But mostly, it's his reaction to the "black eye" that the controversy has given Spokane.

"I don't want to have anything to do with that garage," said Ledgerwood, who worked downtown when the renovated mall opened but now works for a car dealership off North Division.

Terry Novak, a former city manager who was recruited in 1997 to run the Spokane Parking Public Development Authority that oversees the garage, believes a settlement of the legal entanglements would allow those feelings to fade.

"Ten years from now -- maybe less -- people are going to look back at the mall as one of the city's major accomplishments," said Novak, who resigned from the parking agency in 2001.

But for that to happen, Novak and others said, a settlement has to address some of the problems people have recognized for several years.

First is the need to simplify the dispute. The proposal being floated at City Hall does that, by having the city sell its own bonds to buy up some $31.5 million in bonds sold by the Spokane Downtown Foundation in 1998. Those bonds were downgraded to near junk-bond status when garage revenues faltered and disputes proliferated.

There is an irony in that plan, say people familiar with the dispute. The city originally planned to sell bonds to buy the garage in 1996. But concerns over potential litigation and a desire to shield the city's general fund prompted the mall developer to set up the nonprofit foundation and the city to set up the parking authority.

The parking agency was supposed to grow into an agency that operated parking facilities all over downtown, pooling revenue to cover costs. It never became more than the River Park Square parking authority, Novak said.

The foundation consisted of three local business leaders recruited by the mall's developer to serve at no salary and who thought they were doing a public service for their community.

But in a warning to anyone who thinks they are merely doing a good deed for the good of the community, U.S. District Judge Edward Shea has ruled that being a public-minded volunteer who simply relies on the advice of others doesn't get board members off the hook in the bondholders lawsuit.

`The same conclusion'

Instead of obligating the city's general fund, the foundation pledged the garage's revenues, which proved to be far less than expected. The tax-free status of the foundation bonds' interest has also been challenged by the Internal Revenue Service.

Under the city plan, garage revenue would go to the city general fund, and the general fund would pay off the bonds. Interest on the city bonds would also be tax-free.

The concept is not new. A proposed settlement in 2001, crafted by Betsy Cowles and then-Councilwomen Roberta Greene and Phyllis Holmes, would have led to a city bond issue to buy back the garage bonds, said Novak, who was familiar with that plan.

Last year, then-City Councilman Steve Eugster also proposed that the city sell bonds and buy out the bondholders. He couldn't get support on the council before his term ended.

"People coming at it from all different directions come to the same conclusion," Novak said.

If the city -- or anyone else -- buys up the existing garage bonds, those investors would leave the federal lawsuit, said Gary Ceriani, the lead trial attorney for the bondholders. They filed the lawsuit because of fears they wouldn't be paid, he said.

Some investors are currently receiving payments from a company that insured the bonds. Others have missed principal and interest payments.

Ceriani said last week he hadn't seen the details of the plan being discussed by West and the City Council, and couldn't comment on it. Nor would he say what would happen if the council has the votes to buy up the garage bonds, but doesn't have the money, by April 19 when the trial is scheduled to start.

City officials acknowledge they can't prepare a bond issue in two weeks and probably can't sell bonds before May.

"It depends on how comfortable we are with the solidity of their guarantee," he said. "We understand these sorts of things take time."

The investors wouldn't fight a delay for "a deal that makes sense," Ceriani said. "A motion to continue on a wing and a prayer, yeah, I'd object to it."

Open to solution

The city has seven other co-defendants in the case: the mall development companies, the mall's former manager, the foundation, the parking agency, the foundation bonds' underwriter, consultants who estimated potential revenues from the garage and law firms who gave bond advice to the city and the foundation.

The city hopes to get those other defendants to contribute money toward that $39 million price tag, which is one tangible way of dividing up responsibility for the garage's shortcomings.

That could happen by all defendants agreeing to a proportionate share of that responsibility, and canceling the trial.

But agreement of who is responsible for what problem -- or in some cases, agreement on the actual problems -- has eluded Spokane for more than four years. So the city's plan also has a backup.

The city could take the place of the current bondholders as plaintiff in the securities fraud lawsuit, and ask the jury to determine who should pay what.

Ladd Leavens, lead trial attorney for the mall developer, said last week his clients are watching any city developments "with interest."

"The developer is continuing to prepare for trial, but remains open to resolving the dispute with sound business solutions and moving forward together with the city of Spokane," Leavens said in a prepared statement.

This has been one of the main disconnects in the dispute. The city needs a political solution because a majority of the council and mayor must approve it, and they must answer to voters who include groups who support the project and others who oppose it. But the development company has called for a business solution since 1999, when the expanded garage opened and began losing money.

Betsy Cowles has repeatedly noted that the city has done little with a $60,000 study it commissioned in 2000. That study, by parking experts Keyser Marston of San Francisco, ended with a page and a half of recommendations to increase garage revenues. Many have not been accomplished, or even tried.

Some make business sense but would be politically unpopular, such as raising the rates for city parking meters, or extending the meter hours into the evenings when the mall's theaters are bringing people downtown and contributing to a rebounding nightlife in Spokane.

Others make political sense but face business restrictions, such as monthly parking in the garage. Nordstrom, which has a right under mall covenants to reject such a plan, has been reluctant to agree to monthly for fear of losing spaces for customers at key times of the year.

Looming cuts

Others Keyser Marston suggestions were proposed and rejected before the garage opened, such as multiple validations that would give mall patrons additional discounts for major purchases at different stores, or in combination with a meal or a movie. Businesses who must pay for validations would not agree to that in 1999, and the current plan gives customers who validate a parking stub a single $1 discount, regardless of how many purchases they make.

Keyser Marston suggested focusing on daytime parkers between Monday and Saturday, because those are the ones who don't pay a flat rate. It also suggested sliding rates to encourage customers to park longer.

Since the garage opened, the rates have remained essentially the same. And the biggest source of new parking customers -- movie patrons for the AMC Theatres multiplex cinema -- are also the ones who throw the garage the farthest off its revenue projections.

But raising evening rates could send movie patrons to competing theaters in the NorthTown or Spokane Valley malls, where parking is free.

Solving the parking problems isn't the only challenge for the city, the developer and others embroiled in lawsuits in state and federal courts.

The city borrowed $22.65 million in federally backed funds, and reloaned that money to the developer as part of the building costs for the mall. A portion of the garage's ground rent was pledged to repay that loan, and parking revenues haven't been enough to "make the rent."

A backup source of funding for the loan are federal Community Development Block Grants the U.S. Department of Housing and Urban Development gives the city to help low-income neighborhoods.

The city has notified social service agencies it may have to cut funds by as much as $1.5 million annually because of the garage dispute. The developer has countered with a letter to the city, and the agencies in question, that there's no need to cut programs if the city would just follow a 1997 ordinance and loan the parking authority money from its parking meter fund so the agency can pay the ground rent.

But that gets into a debate over possible terms of a loan, which aren't in the ordinance, and the repayment prospects from an agency that's $9 million in debt. Board members resign so quickly from the parking authority it has trouble getting quorums at its monthly meetings.

As he tries to slice through the Gordian knot that River Park Square has become, West has said he wants a global solution to the dispute, one that clears up lawsuits in state court as well as the federal securities claims, and repays the loan without jeopardizing HUD grants.

It's a goal that many people in Spokane have had for years whether they view the project as a positive or negative or the problems as business or political.

"Without a doubt, mistakes were made on both sides," said Worthy, the developer who rehabilitated the Davenport and has watched the economics and politics of downtown for decades. "They need to forget a little bit about who's right and who's wrong.

"They should sit down with the right people, get 'em in a locked room and say `Don't leave until you get this settled."'

Worthy said he'd be willing to offer up one of the rooms in the Davenport to hold the talks -- but after awhile, he might cut off the supply of food and water.

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