Here comes the "public " part of that "public-private partnership " we've been hearing so much about since the plan for a new Nordstrom in downtown Spokane surfaced more than a year ago. Following a script written in San Francisco and Seattle, the city of Spokane is being asked by private developers to purchase the River Park Square parking garage for $29.8 million.
"Asked " may be the nice way of putting it, since the developers, Spokane's Cowles family, have suggested that if the city doesn't join the project they may just be forced to board up two square blocks of downtown real estate. Such rhetoric and the garage's pricetag have elevated the decision from normal city business to one that could make or break downtown Spokane.
But such pressure, whether intentional or merely coincidental, may have been unnecessary, as the city appears ready to go into the parking business in order to "save " downtown.
Citizens will be able to testify on the issue at a special hearing Thursday at 6pm in council chambers. The council is expected to vote on the issue at its Oct. 28 regular meeting.
City staffers have been working the past few weeks on how to structure the city's role and what price will be paid. Under the plan, the city council will vote to issue revenue bonds to pay $29.8 million for the parking structure, including $9 million for improvements and expansion. Starting in 1999, the city would lease the property it sits on from the Cowles for 20 years, starting at $610,000 per year and adjusting for inflation each year.
The city, armed with a parking study that predicts vehicle occupancy starting in 1999, is confident that revenues from the garage will be sufficient to fund the bond payments, the lease payments and any improvements needed along the way. In fact, since revenue bonds are being used, the garage has to generate enough money to pay the debt, as revenue bonds are completely independent from the city's general fund.
Since the project's viability is based on the projections outlined in the study conducted by Walker Parking Consultants of Indianapolis, some wonder what would happen if those predictions aren't met. Pete Fortin, deputy city manager and one of the leaders on the city's side of the project, says the deal will be written in such a way that parking rates will be tied to occupancy. In other words, if the facility isn't generating enough money to cover the payments, the hourly parking rates will be raised to make up the difference.
"It was never our intent to pledge the general fund to back a parking garage, " says Fortin.
But that's just what Seattle did. In joining a downtown redevelopment project, Seattle decided to commit nearly $70 million of general obligation bonds to fund a parking garage that assisted a development that will bring Nordstrom's flagship store to the vacant Frederick and Nelson building. Why general obligation bonds in Seattle? They're simply cheaper, as far as interest goes, says Seattle's Debt Manager Brian McCartan. Seattle Mayor Norm Rice sold the project to the city as self-sufficient, and McCartan says the payments will be tied to the income, as in the Spokane plan.
Spokane Attorney Steve Eugster says the city's proposal is specifically designed to to keep the issue away from a public vote. He predicts that the city will accept the ordinances regarding the purchase as "emergency ordinances " in order to preclude the citizens' right to referendum. Whether the garage project is really an emergency, of course, is a matter of perspective, but could become an issue if people care to challenge the city's decision.
Fortin agrees that the city chose to issue revenue bonds because they wouldn't require a vote, saying a vote simply would have taken too long to meet the developer's tight schedule.
One of the issues that was only decided recently is over who will own the garage at the end of the life of the bond. The proposal to be voted on by the city council calls for the property owners to be able to buy back the garage (at fair market value) after it is paid for. In Seattle, the city will maintain ownership of its garage after it is paid for, and proceeds from the facility will, like meter income, feed into the general fund.
To hear city officials tell it, the project sounds risk-free. Since revenues will pay the bonds, the city can help save downtown without risking any other aspect of city government or services. But few others familiar with these partnerships suggest there is no risk. Even Pierce County Executive Doug Sutherland, who visited Spokane last week to promote the project, says public-private partnerships essentially spread the risk of development between the two partners.
A basic question is why the developers are seeking a partner at all. A partial answer is that the city can borrow money much less expensively (between three and four percentage points less in interest) than the developers can. But the developers initially decided to seek a partnership with the city because a handful of retail analysts studied the project and found the return on investment wasn't high enough to justify the overall cost, says Nancy Goodspeed, spokeswoman for the developers. Goodspeed says the project is only viable because the Cowles family is willing to live with a lower return on investment in order to save downtown. But even with a civic-minded local funding source, Goodspeed says the numbers dictate that the development needs public assistance to make it.
The clear risk the city faces if it joins the project comes in the form of what happens in the case of failure. The primary safeguard the city has built in to the deal is that it will only join the project if all aspects of the development are delivered as advertised. However, if the project is built and then flops, the city will have to pay for the bond anyway. If the city defaults on those bond payments, it will affect its bond rating, which would hurt the city the next time it goes out looking for money. If the project withers in the years after the bonds are issued, the city will still have incurred the expense of issuing the bonds in the first place. Finally, the city will also have to pledge another revenue stream against the bonds in case of default. Spokane officials have decided to pledge parking meter revenues, but Fortin says a built-in reserve fund and the option to raise parking rates will be considered before parking meter income would ever go to make bond payments.
So is there any reason to think the garage won't generate the kind of money the city expects? One theory, which may or may not materialize, relates to parking competition. Laurent Poole, executive vice president of the Sabey Corporation, which owns and operates NorthTown Mall, the city's largest taxpayer, says someone could build a similarly sized parking garage two blocks away for $10 million or less. By spending less, his theory goes, the new garage operator could undercut the city's rate and affect the garage's income.
Poole, who works with major retailers every day, also questions the city's analysis of the proposal, saying his company is concerned about the project's effect on the city's ability to face other pressing challenges, like police and streets. Some city officials say Poole is questioning the project because his company fears competition with a new Nordstrom. Poole counters that NorthTown already competes with a healthy downtown Nordstrom.
"It's not your tax money if it works, " says Poole of the city's investment, "but if it doesn't work, you're on the hook for it. "
When Seattle considered the parking plan in its downtown, the city staff, with the help of the Seattle Downtown Association, studied the potential impacts of the the plan on outlying retail centers, like Northgate, which generates a significant amount of tax income. Unlike NorthTown, which is only three-and-a-half miles from downtown, Northgate is 10 miles outside of downtown Seattle. The city determined the impacts to Northgate would be negligible.
"There are risks on both sides for any city, " says McCartan. "There is the risk of inaction, and that was serious here. These stores have the option of going elsewhere. "
Fortin, who repeats that general funds will not be affected, says there was no City Hall study of such impacts on NorthTown, and the Cowles own economic analysis done by Dave Eacret of Real Estate Economics of Bellevue didn't address the issue either.
Without even getting into any details, many people, with the memory of a $25 million bus station still fresh, are concerned with the $29.8 million cost. By comparison, the Parkade is currently valued at $6 million, and the River Park Square garage's estimated value is around $2 million today. In fact, based on current values, you could buy the new downtown library, the Parkade, the Bon March & eacute;, the Burlington Coat Factory, the Crescent Court and its adjoining annex for less than $30 million. What gives?
"Everyone else in this economy is buying real estate for less than replacement value, " says Poole. "Why is the city paying almost three times the replacement value -- the cost of construction -- for this garage? "
The key, says Fortin, is that the value is not being calculated on its worth today, but on what it will be worth in 1999, when it's surrounded by a thriving mall.
"If you build a Burger King, would you sell it for the cost you paid to build it? " Fortin queries. "No, because there's a revenue stream. "
The deal looks even better for the Cowles if you look back a few years. In the early-1980s, the Cowles were given the airspace above Post Street in return for allowing the city to connect a skywalk from City Hall to the structure. So it appears that the city would be buying back some land it gave to the Cowles only a few years ago.
Others are concerned that having a $30 million parking garage hit the books in 1999 will raise property values (and therefore taxes) in downtown. Although this hasn't been the result with the $25 million STA Plaza, a similar case can be made that if property values aren't affected, the city would be missing out on tax revenues that would come with higher values. Either way, the appraisals the city commissioned on the property could be quite important to the future of downtown rents. A copy of one of the appraisals, obtained by the Sabey Corporation, reveals some trepidation on the part of the appraiser, Daniel E. Barrett of Spokane. In the report to the city, Barrett writes that "The assignment is unusual in several aspects, " and "Several questions are raised regarding the validity of the Walker [parking study]. "
In fact, much of the value of the parking structure is based on the Walker study. If the study's projections aren't realized, however, Walker doesn't guarantee the bonds.
Another study, a state-mandated environmental review (SEPA) conducted by CH2M Hill, aimed to find out whether the parking structure would increase impacts to downtown's air quality problems. Spokane is flirting dangerously close to landing on the federal Environmental Protection Agency's non-compliance list, which carries some stiff penalties. The city previously decided to build a new bridge over the Spokane River, in part, to alleviate the auto emission problems at Monroe Street and Spokane Falls Boulevard.
If the SEPA study had found significant impacts, the developers would have been required to do a full-blown Environmental Impact Statement, detailing how the impacts would be mitigated. The SEPA study found that the impacts wouldn't be significant enough to require an EIS. But some findings in the study raise questions.
For one, the entire study was done under the assumption that a 2,500-seat theater would be part of the project. Since the study, the developers announced the theater could be twice that big (4,600-5,000 seats), yet the study wasn't updated. Also, to estimate air pollution impacts, the study relied on a standard formula based on the square footage of the existing building. It did not, however, subtract the unoccupied space in the west end of the mall, which arguably generates no traffic. And there is no mention of the 2,500 workers touted by the developers who will be commuting -- only shoppers are counted.
Goodspeed says the developers are committed to complying with any future environmental findings, but adds the city has accepted the SEPA study.
Another issue related to air quality is whether the city is ignoring its own policies by encouraging single occupancy auto travel. Aren't the trolleys and the $25 million STA Plaza symbols of the community's need -- and the city's policy -- to rely less on cars?
Seattle was faced with the same question, says McCartan, referring to the perceived contradiction of his city's expensive underground bus tunnel . He says the staff ultimately became comfortable with the decision when it became clear that the garage would be for retail, not commuters.
On the issue of apparent cross-purposes, Eugster says the city is ignoring its own operating procedures in this decision, especially the statute that calls for parking decisions to begin with the City Plan Commission and be part of a comprehensive plan. Additionally, he says the city is speaking out of turn when it says Riverfront Park and the downtown library need more parking because those entities are operated by independent commissions.
Yet another issue raised in Seattle that has people here wondering, too, is whether the city will be obliged to consider all parking partnership proposals. Seattle is already going into its second parking project.
"If it can be done one time, it can be done again and again, " says Peter Steinbrueck, a Seattle architect and civic leader. "Where does it stop? "
Fortin says there are other parking issues on the horizon, but adds that each case will be handled individually.
Bottom line, critics are wondering if this isn't just corporate welfare dressed up as a solution to downtown's woes. After all, when you add up the entire public commitment -- the cost of the garage, the lease, the loss of the tax revenue because the city doesn't pay taxes and even the $24 million HUD loan guaranteed by the city -- it goes well beyond the $30 million figure most reports are focusing on and may exceed $60 million.
"Capitalism used to be a game in which you rolled the dice, but now all the chips are being bought with public money, " says Nick Licata, a Seattle businessman critical of his city's parking plans. "I'm not opposed to public-private partnerships, but the problem is they're shotgun weddings. "
Spokane developer John Stone, in a letter to Mayor Geraghty, shows similar concern: "With opportunities beckoning around the convention center, around housing and around commercial needs other than retail, why is the City committing to helping underwrite an $80 million project that benefits only two downtown blocks and is highly risky? "
And it has to be an equally tough sell to politicians, who are often elected on campaign rhetoric that has something to do with sticking up for small business and spending wisely and frugally. It's reminiscent of the Mariner's Stadium issue, when a lot of "fiscal conservatives " stepped out of character and chose to spend money when faced with the prospect of not being able to take little Timmy to the ballgame.
But backers of the city's involvement in the project counter that they're good deals. Even in a time of belt-tightening and "just say no to corporate welfare, " cities (and states, in the case of the Mariners) will be faced with crucial spending decisions with long-term effects. Often, public-private partnerships will be the only way to get a job done.
In the case of downtown revitalization, officials say the partnership is not only wise but absolutely necessary to preserve existing downtown investments and make sure downtown becomes the economic engine of the city as a whole. No neighborhood can expect the city's help if downtown retail is allowed to evaporate slowly, because the city will be more strapped than it is now. The examples of other cities that have suffered such a fate are brutal enough to make any municipal planner sit up and take notice.
As of right now, the federal HUD loan and grant aren't going anywhere, according to sources inside Sen. Patty Murray's office. But the developers say Nordstrom's building schedule is aggressive, and if Spokane falls off the list for inaction now, it may never get back on and downtown will suffer.
So something must be done right away, the developers say. But in the apparent haste of having to make the decision right away, is fear and emotion replacing fact and evaluation? The entire project is built on premises put out by consultants working for the developers, a fact that seems to beg a second opinion. After all, businesses making similar decisions usually seek independent advice and analysis before investing millions.
With another 60-90 days, the city could likely answer many of the questions that have been raised in what public process there has been. But in order to save downtown before the century turns, that may be too much time to waste.