by Ted S. McGregor Jr.

Along with questions about the Official Statement used to sell the

bonds for the River Park Square parking garage, the majority of the questions asked in recent depositions have centered on parking validation. If there has been one issue that has nagged the project almost since the beginning, it has been validation. Call it the deal's Achilles' heel. In a nutshell, validation is the program that allows shoppers and theatergoers to get below-market-rate parking. They get it because others, usually the retailers, pay part of their bill.

By implementing a Parking and Business Improvement District (BID) in the early 1990s, the city allowed levies on property and business owners to fund a downtown parking validation program. For a time, the city contributed to the parking fund but has since changed its practice to fund only functions administered by the BID other than parking. Currently, the city contributes $150,000 to the BID each year.

Validation was identified as a major issue facing the mall project as far back as 1995 by Walker Parking Consultants, which is now a defendant in the federal lawsuit. In early 1997, Coopers and Lybrand, which was hired to do a quick overview of the feasibility of the garage project, pointed out that validation was a big question mark that could make or break the deal. It was never a secret that who pays validations and how much they have to contribute would be crucial to the garage's balance sheet. But again and again, deeper scrutiny of the issue seems to have been put off by various assurances that the yet-to-be-created validation program would be adequate.

The redeveloped garage had a big debt to retire -- more than $30 million over 20 years. Shoppers would pay off some of that debt every time they parked in the garage, and validation was supposed to fund the rest. A basic question that never seems to have been asked -- let alone answered -- is whether there was enough money in a validation pool to allow the garage to make the bond payments. As we know now, there wasn't. And it looks as if key players in the deal realized there was a serious shortfall just after the garage opened in August 1999. This didn't concern people enough to put off closing the sale, perhaps because city parking meter money could be tapped to pay the difference until the garage started achieving the revenues projected by Walker.

What do you do if there is no other source of funding like the parking meter fund and the validation pool isn't big enough? You have to raise rates. This might be a solution in downtown Seattle, but a 1993 study found a surplus of 15,000 parking spaces in Spokane's central business district. Parkers, in other words, have lots of choices. Additionally, downtown shoppers may have been spoiled by the old parking system in which they got two hours of free parking with their validation. In the new garage, they had to pay $2 for two hours -- even if they took advantage of the dollar-off validation.

There's some debate about why, but in the days and weeks right after the garage opened, parkers were confused and angry. Some just found other places to park. In his deposition, Bob Robideaux, the project leader for the Cowles family and the mall manager, blames the bad publicity surrounding the project and the validation program for the complaints and the shortfall of entering cars. Others have pointed out that the new ticketing system was confusing and that the price was essentially doubled from $1.50 for two hours (or zero with validation) to $3 for two hours (or $2 with validation). Even Nordstrom officials, as referenced in the depositions, waved a red flag about how shoppers would react to raising rates to $1.50 an hour. Hard as it is to believe if you've ever paid to park for a Mariners' game, it could be that downtown regulars simply got a dose of sticker shock when they saw the rates.

So what if the validation pool is too small and the market won't let you raise rates any higher? Well, you're out of options, and you go broke, which is where the garage finds itself today.

The trouble for Walker, Prudential

(the underwriter of the bonds), the

developer and the city is that they all went along with what will certainly be characterized to a jury as a charade on validation. As the project got bigger and bigger, going from a possible purchase price of around $13 million for the garage to the $26 million that was finally paid, nobody ever seemed to pause and consider whether the validation could expand enough to match that growth. Robideaux is quoted in one city report as saying that whatever validation system is adopted, it would be revenue-neutral to the garage. And the Walker Report, which was attached to the Official Statement, states that the validation revenue stream was being budgeted for elsewhere. Gary Ceriani, lead attorney for the bondholders, spent a lot of time on the issue in recent depositions, and he couldn't find anyone who could identify the location of that budget line item. As Ceriani builds his case by seeking falsehoods in the Official Statement -- especially ones that key players knew to be false -- this budgeted-for-elsewhere passage looms large.

A lot of ink has been spent trying to understand what people meant when they said validation would be revenue-neutral to the garage. Both Robideaux and Duane Swinton, the developer's attorney on the project, repeated the phrase during their depositions. Ostensibly, "revenue-neutral" means that validation would not be a cost to the garage. Swinton put it this way: "The garage would be able to collect whatever rates the garage decided to set." But of course this can only be true if there was enough money in the validation pool to meet expenses, and nobody ever seemed to investigate whether that pool was full or empty before they all dove in.

Three Gonzaga University business professors were hired by the city to double-check the numbers surrounding the deal, and like Coopers & amp; Lybrand before them, they identified validation as a major concern. There was no new program to report at the time of their study, they found, so the professors were careful to include a statement from Robideaux that the validation would be revenue-neutral to the garage. In his deposition, Robideaux claims the responsibility for creating a revenue-neutral validation system belonged to the BID, not the developer, and that responsibility to set rates belonged to the Public Parking Development Authority's (PDA). Robideaux claims he referred questions about validation to Karen Valvano, then president of the Downtown Spokane Partnership, which administrated the BID money and oversaw validation.

Throughout the mid-1990s, the BID's validation program had about about $200,000 a year to work with. Some documents suggest BID officials hoped to muster $750,000 a year after River Park Square opened; others recall expectations of the validation pool to grow only to $250,000. By 1998, however, when the BID began planning a new validation system that would be revenue-neutral to the garage, the size of the problem became obvious. Mike Edwards, current president of the BID, recalls the amount needed from their validation program every year would have had to have been about $1 million -- five times the BID's pre-1998 expenditure. The day that simple calculation was made, all statements about validation being revenue-neutral were proven false. The money just wasn't there.

And if that wasn't clear enough, the garage's whole paradigm shifted shortly afterwards, when AMC Theaters voiced its displeasure at the amount of money it was being asked to contribute to the validation system. While the theater wound up participating in the validation system (and is today its biggest contributor), the PDA agreed to scale back its rate structure to fit AMC's needs better. Rather than collecting the Walker-projected $1.50 per hour (or $1 on Sunday) for every car parked in the garage, the garage would only collect a flat fee of $2 anytime after 5 pm (when most theatergoers visited) and all day on Sunday. The illusion of solvency created by Walker and so fervently believed in by so many dissolved that day in October 1999 when the PDA made that change. Of course, they had to make the change -- the reality of the marketplace couldn't be denied. It's just that such a massive surprise is the kind of thing developers pay a lot of money to avoid. It's why they hire parking consultants in the first place.

Starting in late 1997, Walker began to run new "what-if" scenarios for Robideaux and Pete Fortin, the city's director of finance -- essentially plugging different rate structures and car counts into spreadsheets to see what impacts they would have on garage revenues. Why these were being run is still in question, but the scenarios clearly started to show validation falling short, not revenue-neutral. Yet if everyone was so sure that validation was going to be revenue-neutral, why the need for what-if scenarios? Or, to get back to the Walker statement, if the costs were already budgeted for elsewhere, why did anyone need such secenarios at all? The fact that one of the what-if scenarios was later adopted by the PDA -- the switch to a flat fee after 5 pm and on Sundays -- suggests the exercise was undertaken out of more than just curiosity.

Ceriani's questioning in this area suggests that he believes key players were aware that predicted revenues weren't going to materialize. Expect him to argue that when that realization was made, they had an obligation to notify the bondholders before the sale of the garage was finalized in September 1999.

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Sat., July 31, 11 a.m.-6 p.m.
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About The Author

Ted S. McGregor Jr.

Ted S. McGregor, Jr. grew up in Spokane and attended Gonzaga Prep high school and the University of the Washington. While studying for his Master's in journalism at the University of Missouri, he completed a professional project on starting a weekly newspaper in Spokane. In 1993, he turned that project into reality...