All She Wants for Christmas

by Ted S. McGregor Jr.


"And what do you want for Christmas, little girl?" To which Betsy Cowles whispers back into Santa's ear, "a parking garage."


OK, so maybe it didn't happen quite that way, but the end result is the same: After years spent gnashing teeth and pulling out hair, River Park Square and its prodigal garage appear to be on the road to reunification. The final decision will come Saturday, when the Spokane City Council is expected to consider and vote on a proposal that will end the legal feud between the former partners in the troubled River Park Square parking garage saga.


"It's important that the public have the opportunity to comment on any agreement," said Councilman Al French at Monday's council meeting, explaining the reason for a separate meeting on the matter. Previously, it had looked like the council might vote Monday night, but the proposal wasn't finalized in time. It's a good thing, too, because it was starting to feel like a replay of how the whole thing started. In January 1997, the deal was voted on as an official emergency, with the ink still wet on the documents.


"There was all kinds of pressure [then]," observed former Mayor John Talbott, who addressed the council on Monday night, "even that we were going to board up downtown. Now a different council is being threatened once again."


Negotiators on both sides claim the only pressure comes from the looming Jan. 4 federal trial date, but scheduling a separate meeting prevented the appearance that it was 1997 all over again.


Details of the proposed settlement were not available by press time on Tuesday, but the full proposal was expected to be made public Wednesday. The rough outline of the agreement, which has been hammered out in recent months, does include giving the parking garage back to the mall owners, Spokane's Cowles family. In the original deal, the city issued bonds to buy the garage; when the garage failed, the owners of those bonds sued everyone involved in the deal; just this year, the city paid off the bondholders, buying the garage outright and assuming the claims against those defendants.


"This gets the city out of the parking business," says Steve Rector, chief financial officer of the various Cowles companies involved. "And we can focus on continuing improvements [to the mall]."


Betsy Cowles and others have long argued that the garage could be run more efficiently and perhaps make more money; now they'll get their chance to prove it.


Although getting out of the parking business may be a priority for city officials (especially getting out from under the hefty ground lease payments that were agreed to in '97), handing over the garage is a bitter pill to swallow. The one thing the city would get after it paid off the bonds is gone. It'll be like paying off your house for 20 or 30 years but getting no house at the end. And the city will also pay off the back taxes the garage owes to Spokane County.


"I don't think my testimony will make a difference," Talbott concluded on Monday night. "We'll have a settlement, and the citizens of Spokane will be paying -- the city will be paying for this for years."





An Ironclad Deal


Talbott's right; unfortunately, there's not much that can be done about it. Through all the legal wranglings in recent years, one thing has come through -- the city was not adequately protected by the deal as written back in 1997.


"Whoever [wrote and signed a contract] with no collateral on the HUD loan left a huge exposure for the city," Mayor Jim West said outside council chambers on Monday night.


West was referring to the fact that the contracts surrounding the HUD loan held a fatal flaw. They were essentially unsecured, which is why the possibility that the companies that own River Park Square might file for bankruptcy was such a problem for the city. Oddly enough, Rector says that despite the mall's strong performance as a business, it might need to claim it is broke. Specifically, if there were any big judgments looming, the thinly capitalized front companies that own the mall would consider seeking protection in Chapter 11. Since the Cowles' real money is not to be found in those companies, such a move could thwart the city from collecting from the developer any award won at trial.


For these and other reasons, West and some members of the city council share Talbott's frustration; but unlike Talbott, they see the need to move ahead on a settlement with the Cowles.


"John Talbott seems to want the focus on the deal itself and how it's costing us a bunch of money," says Council President Dennis Hession. "I believe this administration and this council want to be students of the past so we don't repeat the mistakes that were made. But we also want to resolve what we have instead of going back to kick that dog again. Yes, when you look at the structure of this transaction, it's just amazing. This will cost us millions of dollars."


Hal Ellis, chairman of the Public Parking Development Authority, agreed with Hession's assessment when he addressed the council on Monday night, saying the original deal "defies standards of commonly accepted business practices." But he came to the same conclusion as Hession: "Get the city out of this mess -- and that's really what it is. It is a drag on the entire community."


As the city's case has developed over the past couple of years, it's become clear that Judge Shea was not going to allow the contracts between the city and the developer to be broken up. In other words, if the city has spent the past four years trying to wiggle off the hook, this settlement may be the final acknowledgement that they just can't get out of the deal.


For West, that calls for a practical solution: "We're bleeding," he said Monday night. "How do I keep this from continuing to cause damage into the future? We have to stop the bleeding. I want more librarians instead of lawyers."


And right there he has his finger on the pulse of the community. The anger in Talbott's voice is certainly shared by many citizens who see smaller budgets at community centers, empty police cars and brand-new libraries closed five days a week. It's hard not to fault citizens for concluding that someone at some point decided that a parking garage was more important than these core services. That's always been the source of the anger; West and Hession, however, are quick to ask not to be blamed for something they didn't do.





Developer's Concessions


As for the Cowles, the other half of the team that dug the money pit, Rector says they have always been troubled by the loss of the Community Block Development Grants, which were endangered by the default of the HUD loan. So why not do something to fix it sooner? They never could find anyone in the city to talk to reasonably, he says. But that's changed.


"There's been strong leadership at the city and a willingness to really sit down and tackle some of the issues we're trying to accomplish," says Rector. "We want to get the litigation behind everybody and come up with a solution that protects the block grant money. It's critical to the community."


To take that point beyond mere rhetoric, Rector says his bosses have made many concessions in the settlement proposal. To begin with, the developer plans to accept responsibility for the repayment of the HUD loan and pay the city the amount in grants already lost (around $1.5 million). This would include a formal letter of credit from the Cowles that would guarantee full repayment. Under the original agreement, the HUD loan was to be paid out of the garage's revenues, but the garage was broke from Day One.


So you could say the HUD loan was the project's responsibility all along -- and that it's not much of a concession. But the issue of who was responsible would have remained a matter for the courts -- and it's an issue that isn't addressed at all in the federal case. (Rector and Hession say the settlement is designed to eliminate all pending litigation between the two parties, in federal and state court -- including pending suits against current and former individual council members.)


Another concession Rector says his companies have made is to consider the parking meter fund as a part of the solution. Some early press reports had claimed that the parking meter funds -- about $8 million held in escrow -- would go straight to the developer. After all, that's what state courts have ruled -- that the city had to loan the parking meter money to the garage, which has debts of more than $10 million (much of which is owed to the developer). So the garage is entitled to the money, but only as a loan: It's complicated, but Rector says that parking meter money would be split up somehow and used to help the city and the developer offset their settlement costs. Details are expected to be available Wednesday.


The early reaction to the thought of all that parking meter money -- the pot of silver that started the whole controversy -- being signed over to the developer created a sense that the developer had won, but Rector says that's not the case.


"If one side felt that they were being taken advantage of, they would be reluctant to proceed," says Rector. "It's an extremely fair settlement. Both sides have given quite a bit."


"[You can't] approach it with the idea you want some kind of revenge," says Hession. "I believe that the community wants to get it behind us, and they recognize that it has not been the most palatable result, but it's time to move on."


Still, it's a bit frustrating to realize that this current settlement roughly resembles exit strategies proposed years ago by John Powers, Roy Koegen, Terry Novak and even Steve Eugster. "Whenever you settle a case, you wonder why it took so long to get to that point because, frequently, it's not that far off from where you started," says Hession, who is an attorney.


But others are not so eager to let go of the past. "This issue is more important than this building," former Councilman Steve Corker testified Monday night. "It's not just about the money."


Corker called for full disclosure of the facts surrounding the River Park Square project so that the community could understand the role played by Cowles-owned media in pushing the deal through in 1997. "A critical [part] of closing this issue is to create fairness and accountability." Corker said he planned to elaborate on his comments on Saturday at the special council meeting.


Despite Corker's insistence that the community not forget what happened, it appears that Spokane may have hit River Park Square overload. At Monday's meeting, when the council was expected to vote on the settlement, only Corker and Talbott showed up to testify against it. In 1996 and '97, any public meeting featuring talk of River Park Square was packed. The controversy that came in like a lion -- and roared for years -- appears to be going out like a lamb.





Gauging Success


As the controversy has become more complex, it's become harder to know how to define success. What result will be best for the city? For some, any settlement at this point is unacceptable. Watching Betsy Cowles be cross-examined for a day or two in Richland next month was to be the ultimate satisfaction. But even after the federal trial, many issues between the two parties would have remained -- issues the settlement proposal would clean up.


Still, what about the money? Start any calculation by kissing goodbye all the time spent and the legal fees that have mounted (at a clip of about $1 million per year for the city). Future legal fees can be avoided, however, by settling various cases. But the big-ticket item came when the city issued about $32 million in bonds to buy out the bondholders earlier this year. This was a controversial move, because the city essentially decided to buy the garage outright from the bondholders, when it was still owned by the Downtown Spokane Foundation. The move was supposed to give the city better leverage against the remaining defendants, but the kinds of contributions once hoped for have not yet emerged.


So far, contributions from Walker Parking, the law firm of Foster Pepper, the Downtown Spokane Foundation and R.W. Robideaux total about $4.7 million. If the city settles on Saturday with the law firm of Preston Gates, it will get another $1.3 million. That's about $6 million -- less than a fifth of the city's recent outlay for the garage.


Still, West and Hession defend the decision to pay off the bondholders. Earlier this week, in fact, West led a delegation to the bond-rating agencies in San Francisco. Because of the garage controversy, the city currently has a bond rating of BBB-, which is the lowest above junk status. West believes that paying off the bondholders was a way not only to better control the litigation, but also to show the bond markets that Spokane is serious about regaining its reputation among lenders. And that could translate into real dollars, as the city is about to seek buyers for the first round of bonds in the city's biggest issue of debt ever -- the 10-year road bond passed by voters in November.


So to cover the chasm between the $6 million already collected and the $32 million spent, the city will look to the two remaining defendants in the federal case: the law firm of Perkins Coie, which employed the city's bond counsel Roy Koegen, and Prudential Securities, which underwrote the bonds. So far, these two have been the parties most reluctant to negotiate on a settlement.


So what will success look like? Leaders like Hession acknowledge that the city will be paying millions, so perhaps success will be if, say, half that $32 million is covered. In this case, nobody expects to cover the city's cost; most simply hope to make a bad situation not quite so bad.


No one is willing to speculate on the potential exposure of the remaining defendants, but those closest to the legal issues have long argued that Prudential might be the fattest target in the whole mess -- even though they have received less attention than other defendants.


As West put it Monday night, "The intermediary is hired to protect the buyer. We were the buyer. Prudential was the intermediary."





Finally, Splitsville


If the city and the developer were a married couple doomed to divorce, Hession and Rector seem to be saying it's time to swallow a little pride and sign the divorce papers -- for the good of the kids.


"It's incredibly important to get this done with the developer," says Hession. "We're likely to have future relationships and interactions, because they are a major player. We want that to be a good thing."


"Certainly this public-private partnership didn't work out like everybody had planned," adds Rector. "And no question, with hindsight, we would have done some things differently. But we have no regrets on our end -- [we] created a tremendous project for Spokane."


"You can fight this to the bitter end, and we're prepared to do that," West said Monday night. "But in the end, that's where you might end up -- bitter."





To see the official proposal, check the city's Web site (www.spokanecity.org) or call the Mayor's office at 625-6250. The Spokane City Council's special meeting on the settlement proposal is on Saturday, Dec. 11, at 8 am. It will be televised on local Comcast channel 5.





Publication date: 12/09/04