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Stuck With Each Other 

by Robert Herold


Permit some further thoughts about the city's new legal strategy in its efforts to bring about a favorable conclusion to the parking garage debacle. Critics of Mayor Jim West's proposal to pay off the bondholders, thus transforming the city from defendant into plaintiff, make two arguments: The dollar price tag on the garage is too high because of a fraud; and given this, Spokane should take its chances with a jury.


These arguments build from a central question: As the city had nothing to do with the issuance of the bonds in the first place, why should it now, after all the legal expenses incurred over the past several years, willingly take on such a debt?


The answer to this question, naturally, requires that you go back to 1997, when the City Council, on advice of its bond attorney, sought to build a "firewall" between the city and the bond offering. But upon careful examination of the situation since taking office, Mayor West has concluded that, in the eyes of both Judge Edward Shea and the bond rating agencies, that firewall doesn't exist. Never has.


Promises made about such a firewall back in 1997 do not add up after the city supported the HUD loan and agreed to pledge parking meter funds to the deal. Firewall or not, "you can count on the city to back up this deal" was the message our elected leadership was sending to prospective bond buyers. This much-advertised firewall led our elected leaders into a legal minefield. When Councilwoman Phyllis Holmes pointed out that others would perform due diligence before the deal was ready to go to market, she was only partially right. Others did look at it, but that fact has not allowed the city to wiggle off the hook for not performing its own adequate diligence.


Mayor John Powers and Councilman Steve Eugster argued that a loan (from parking meter revenues) that will never be paid back isn't a loan at all, but a gift. While their contention remains as logically valid today as ever, it hasn't changed anything. This distinction between a loan and a gift has failed in any way to impress the bond rating agencies, nor even, more recently, Judge Shea.





So the city is on the hook, legally, which means that the city will likely be responsible for some of the garage's failing finances. Although the case has yet to be tried, the conclusion has emerged that the city will not escape. How much money the city will be responsible for is the only open question.


The Cowles family's attorneys say the amount has been set by agreements made by the council back in 1997. Since day one, they have argued that "a deal is a deal." But this particular deal emerged from the concept of partnership. Once you introduce the concept of partnership, you transform a "deal is a deal" into "what's fair is fair." That's what partnerships are all about. Still, it's a distinction it may yet take a jury to enforce.


The attorneys on the Cowles side have said on countless occasions that if the city had just paid that darn parking meter money, in partnership the garage could be "managed" out of this financial morass. (This from people who couldn't manage their way to an effective parking validation program. But I digress.) Alas, most of the tactics that consultants suggested could make more money were, and are, politically unfeasible. For example, no one on the council, then or now, will support a bailout scheme that relies on draconian increases in on-street parking rates. The simple fact is that the garage won't pay for itself -- not now, not ever. And should this case come to trial, all protestations about deals being deals aside, a jury will decide whether those issuing the bonds and those providing the financial analysis knew or could have been expected to know that the garage wouldn't pay for itself. Council President Dennis Hession, a lawyer himself, has come to believe that, one way or the other, the bondholders would have prevailed.





Mayor West appears to share that view, which brings him back to the partnership concept that started the whole deal. If it is true that you die by the partnership, West seems to argue, then it's equally true that you live by the partnership. If the bondholders were sold a bill of goods, then it follows that all the partners must contribute to the solution. Partnerships, after all, operate not so much on the "deal is a deal" basis, as the Cowles' lawyers would have the jury believe, but more on the foundation of "we're all in this thing together."


Some ask why the city didn't adopt this course of action two years ago when it was first raised. The difference is discovery. With that phase out of the way, all the defendants have a more tangible idea of their share in the solution. Most have asked to be let out of the case via summary judgment motions, but so far Judge Shea has been a stickler, keeping the defendants in court.


So if you think the bondholders had a strong position, as both West and Hession appear to have concluded, it would also be safe to conclude that the city would wind up spending money to solve the problem one way or the other. West hopes that, in the end, the city can enforce -- in court if necessary -- that element of the concept of partnership that dictates "what's fair is fair."





Comments? E-mail [email protected]





Publication date: 04/22/04
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