Powers In Wonderland 06/21/01

by Robert Herold and Ted S. McGregor Jr.

Curiouser and curiouser! cried Alice." Mayor John Powers must by now better understand why Alice was so confused. She had followed a rabbit down a dark hole, been shrunk in size and hadn't a clue where she was, nor where the rabbit was going.

Mayor Powers is dealing with his own version of the rabbit and the hole. He is trying to work his way through the River Park Square garage mess. Curiouser and curiouser.

Our new mayor, in keeping with his campaign promise to solve the problem and restore the city's solid financial footing, obtains the services of Spokane attorney Laurel Siddoway. After analyzing the situation, she has concluded that the city had entered into a deal that not only put it in a financially untenable situation, but a deal that appears to have been tainted by bad analysis, bad advice and bad judgment. Most critically, she determined that the city can't continue to make payments on a garage that everyone seems to agree was appraised at a value perhaps twice what it was worth. She then moved to negotiate a better settlement from the developer, all the while making plans to defend the city against pending claims from both the developer and the bondholders and pursue claims against parties who provided the aforementioned bad analysis and bad advice. She even calculates that if the city lives with the original deal, it could cost citizens as much as $45 million over the next 18 years.

But things soon got more complicated. The bondholders filed their own suit, so Siddoway revised her suit and headed to federal court. Along the way, she named the city bond attorney and his firm as a third party to the bondholder's suit.

It made sense, after all, shouldn't the loss be shared amongst all those responsible, and wouldn't the bond attorneys who negotiated the deal count as one of those parties? When lawsuits start flying like they have here, everybody gets named somewhere along the line.

Siddoway was now deep into Wonderland, where she ran into an array of strange occurrences and odd characters. Some members of the City Council want to wrest the handling of the legal issues away from the mayor's office, ostensibly to reach a settlement. But what kind of settlement? The developer has indicated it will not cough up any cash for a solution, so why do council members think they'll do any better than Powers and Siddoway? Perhaps they ascribe to an old plan that seems to surface every few months that relies on refinancing and asking the bondholders to take a hit on their investment. But that just-get-it-over-with plan does nothing to get at the inherent unfairness of the original deal.

In other corners of Wonderland you can still find the conspiracy theorists, who think Powers is too soft on the issue and is really just going through the motions for his masters at Cowles headquarters. Strangely enough, these folks were even offended when the city's bond counsel was named by Siddoway's lawsuit. Are we missing something or aren't these the very same guys and gals who threw a city manager overboard because they suspected that he was tainted with the project, and who drove the city attorney out of office for the same reason? But now they want Siddoway to lay off the bond counsel for being above reproach -- after all, that bond counsel did say he opposed the project behind the scenes. Behind the scenes? Isn't what counts is one's performance in front of the scenes, especially when fiduciary responsibility is at stake?

The conspiracy theorists prefer the work of Seattle attorney Yale Lewis, who managed to keep his personal gravy train a-runnin' by alleging the fraud he was told to allege. Siddoway has taken the charge of fraud off the table unless evidence materializes to support that claim.

But this group may not even want a solution. After all, what would life be like around here if we couldn't blame the Cowles for all our problems? We want our pound of flesh, and anything less than that will be denounced as a failure and a sellout.

And then there's the inscrutable Cheshire Cat, who continues to file lawsuit after lawsuit from his perch on the City Council dais -- some against the very organization he serves. He seeks to fill every open crack in the garage dispute with his own legal tonic -- a fact that greatly impedes the already slim chances for a settlement. Ironically, Eugster's persistence in state court may have left the door open for the Cowles to keep the case there instead of federal court, as they are seeking to do with their latest action, which was filed late last week.

And that may be the most curious behavior of all. In naming individual council members and their spouses in their latest action, the developer seems to be taking us back to last summer, when fraud was alleged and various John and Jane Does were named in court documents. But that was before Powers, and he took all that nonsense off the table. So for the developer to seem to be playing tit for tat at this stage indicates that they are either at wit's end or that they believe more pressure at this time may urge action favorable to their cause. Whatever their intentions, it doesn't appear to be a move that will pave the way to a political solution. It's a move that makes a negotiated settlement an even more remote possibility.

On the sidelines are those who would just like to get this problem behind us. They are out and about urging the mayor to do what he can't -- wrap things up. The simple truth is the city can't afford this garage. Meanwhile, the legal fees mount and the divisions in our community harden, poisoning politics and greatly hampering our chances for public progress in a variety of pressing areas. This would be a silly way to run a railroad even in a thriving city like Seattle or Portland. In Spokane, where every step forward is a struggle, it's downright suicidal.

This mess needs to be cleaned up, and the only way for everyone to come out feeling somewhat good about it is for the partners to share the pain. If that common sense approach cannot be taken, and it looks more and more like it can't, then maybe federal court -- and a full airing of the facts via the discovery and depositions that comes with it -- is the best place to solve this mess.

The central sticking point appears to be the Cowles' insistence that they not put another dime into the project. This is understandable, as the overall mall has probably become more of a money pit than they ever expected. The mall doesn't appear to have been a major money-making scheme for the family, but it has stabilized their downtown property's value. And, yes, they have lived up to their end of the bargain, as the mall is up and running and helping turn downtown around -- and putting real money into the city's coffers. It's quite true that many of the good things happening downtown wouldn't have been possible without River Park Square. And it's understandable that a businessperson or company would want to keep a deal intact if that deal favored them. But none of that changes the fact that the city's participation in the garage has always been on shaky political (and financial) ground.

First, the proposal had to be adopted by emergency ordinance (at the developer's behest), so the public could never vote on its wisdom. Next we were told the parking meter money would only be touched in extreme emergency -- most rhetoric at the time the plan was being adopted even went so far as to state the attachment of the guarantee was a formality that would never come into play. Of course, now we need that money -- and perhaps more. And even then it was clear to most people that the price negotiated for the purchase of the garage was way out of line with reality. You only had to look at the price of similar properties or the cost of building new parking facilities from scratch at places like Northpointe or NorthTown for proof.

Now, with the benefit of hindsight, it even looks like all the numbers used to sell the city on the idea were bogus. Whether the findings of Walker Parking Consultants were the product of wishful thinking or some behind-the-scenes cooking, the mistake could cost the city, the bondholders and even the developers millions of dollars. So not only were City Council members at the time told they would preside over the death of downtown if they didn't adopt the plan, they were misled -- intentionally or not -- about the basic level of risk involved. Even the argument that the 1997 City Council was making a political decision rather than a financial one is undermined by this shoddy risk assessment. All in all, it's more than enough grounds for a challenge. A deal is not always a deal.

Still, a solution isn't that hard to envision. Once the size of the mess is agreed upon -- in other words, how many millions of dollars short the project is from paying its own way -- the various players should submit to mediation to assign blame and a dollar figure to match. Bondholders could make a concession, say by taking 75 cents on the dollar for their troubled investments. Walker could cough up all its professional malpractice insurance money (and then some). The city would agree to fund the garage to a certain level, either from the parking meter fund or from the general fund. Steve Eugster would have to stand down and drop his outstanding lawsuits in the matter. And finally, the developer would agree to a lower price on the garage, one that better reflects reality. You add all that money and savings into the pot, and then you go out to rebond the deal, perhaps for a longer term. Maybe the city's former bond counsel could even do the new deal gratis as its contribution. After all that, you'd end up with lower payments that fit the actual reality of the garage, and life could go on.

But that missing piece of the puzzle appears to be the Cowles' reluctance to contribute to such a solution -- granted it could be a hefty sum, anywhere from $6 million to $8 million. Still, they should bite the bullet and do it for the good of their hometown. First of all, they appear to be able to afford it. They are one of the wealthiest families in America, and it's worth pointing out that a good chunk of that wealth was raised right here in Spokane by doing business wisely for more than a century. Maybe looking at it as a little philanthropy for the place that helped build their fortune could massage their rationale.

Secondly, a similar outcome to the one outlined above seems inevitable. Does anybody really think a courtroom solution will give any party a 100-percent victory? The players could spend the next year or more paying lawyers and end up right where a settlement would get them. But what if the developer does manage to win outright? If the court orders the city to just live with the deal, many citizens (especially those who depend on the Community Development Block Grants) will blame the Cowles and that damned garage every time other problems, from streets to libraries, cannot be addressed due to lack of funds. Winning the case could be the worst public relations nightmare yet for a family that has suffered criticism, often unfairly, over its role in Spokane's past and present.

While this plea may fare no better than the many others that have come before, it should at least serve to tell citizens that they shouldn't blame Mayor Powers for failing to find his way out of Wonderland as quickly as he had hoped. He is offering to come to the table to share the pain fairly with the other partners in this deal gone bad. The developer is not.

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