by Ted S. McGregor Jr.

Early-1990s The decline of downtown Spokane becomes obvious after J.C. Penney leaves and the Crescent closes. With the Bon Marche and River Park Square stagnating, it appears that if action is not taken soon, Spokane's downtown would go the way of Tacoma's and become just an office center, with retail fleeing to the suburbs. This prospect scares the city, which stands to lose millions in tax revenue, and the property owners, who stand to lose millions in property value. Something needs to be done, and, leaders of the effort say, it will take an effort similar to the one that landed Expo '74 for the city two decades earlier. Rebuilding River Park Square is viewed as the best vehicle to save downtown, as the owners, the Cowles family, are Spokane residents and Nordstrom, the mall's anchor tenant, is the nation's leading retailer, meaning it could attract other tenants under the right circumstances.

They said it...

"A lot of cities don't have this opportunity. Every other city in the country is dying for a Nordstrom." -- Rod Johnson, project architect for Callison Architecture, quoted in The Inlander, May 4, 1995

May 1995 A report using figures from financial consultants Ernst & amp; Young and Walker Parking Consultants leads to a preliminary plan for the city to issue bonds to purchase the River Park Square parking garage (including the land it sits on) and pay for a renovation and expansion to the facility. Parking is about the only way public entities like the city of Spokane can participate in private redevelopment projects, and across the nation municipalities have assisted such projects by getting involved in the parking side. The amount that the city will be called upon to issue as bonds (city-issued bonds are tax exempt) is pegged at $14 million. The city soon agrees to develop a proposal to issue no more than $15 million in bonds to partner on the project.

June 1996 In the year since the original plan was hatched, the scope of the project grows, and the city shows a willingness to continue its partnership with the developers. Walker, now working for the city, presents a new feasibility study to the city council that suggests that a bond issue of $26 million would be supportable by the project once it was up and running. A month later, two property appraisers are hired by the city to validate this increased figure for the garage. The city instructs the appraisers to apply an investment value appraisal, which takes into consideration variables not always used in doing such work. Some call it the valuation of unique properties for unique buyers. The work confirms the new valuation, but the appraisers qualify their work, saying they were performing consulting assignments rather than appraisals.

They said it...

"It was never our intent to pledge the general fund to back a parking garage." -- Pete Fortin, assistant Spokane City Manager, quoted in The Inlander, Oct. 20, 1996

Fall 1996 As details become available for public consumption, some citizens begin to criticize the plan. Some say it isn't right to use federal Housing and Urban Development money (which would play a part in the deal) to enrich the likes of the Cowles family and Nordstrom; the developers and the city, however, argue that such money is correctly used to stop downtown from drifting deeper into a blighted state. Others, including the Sabey Corporation of Seattle, then owners of NorthTown Mall, the city's largest taxpaying entity, begins to question the deal itself. In presentations to the city council, Sabey representatives criticize the Walker Report for using unrealistic numbers and for ignoring the impact that the availability of parking throughout downtown would have on the garage's performance. Sabey's concerns are written off by some decision-makers as sour grapes from a competing retailer. Within a few years, however, Sabey's predictions would prove accurate. Sabey later sells NorthTown.

They said it...

"It's not your tax money if it works. But if it doesn't work, you're on the hook for it." -- Laurent Poole, executive vice president of the Sabey Corporation, quoted in The Inlander Oct. 16, 1996

Oct. 17, 1996 A public hearing is held on whether the city should join the project, which would now require the issuance of nearly $30 million in bonds. The developers say a decision needs to be made immediately to guarantee the continued participation of Nordstrom. The marathon session ends not in the adoption of the plan but with Councilwoman Roberta Greene calling for a new study to confirm or reject the findings of the previous studies. The proposal is adopted and the firm of Coopers and Lybrand out of San Francisco is hired to rush out a new report. The public opposition to the risk the city faced under the deal also leads to an internal re-examination of the funding mechanism, led by the city's bond counsel and others, seeking to give the city more protection in case the deal ever goes sour.

They said it...

"We have stepped back from this, I think, three large steps. We want to be a partner, but we're not the ones out on the limb." -- City Councilwoman Roberta Greene, quoted in The Inlander, Dec. 24, 1996

They said it...

"There would be no city credit, no city ownership, no city operation, no city pledge to the bonds. We're not involved." -- Roy Koegen, Spokane's bond counsel, describing his new plan to use a non-profit corporation to purchase the garage, quoted in The Spokesman-Review, Oct. 29, 1996

December 1996 Stating a desire to protect the public even more, a new financing structure is proposed by the city and its bond counsel dropping the idea of the city issuing bonds on its own. Under the new plan, the Spokane Downtown Foundation, a private nonprofit corporation, would issue the bonds and buy the garage. The city would pledge its parking meter fund in case expenses outpaced revenues -- an eventuality the developers and public officials downplay. The city would own the garage, but not the land it sits on, after the bonds were retired in 20 years. The purchase price is set at $26 million. Also at this time, city officials visit San Francisco to share their plan with representatives of the bond market. The bonds would be marketable, they are told, but just barely.

They said it...

"I think we need to understand that this project has a lot of checkpoints to pass. It has a lot of barriers to overcome and a lot of hurdles to jump. But we can't be one of those barriers along the way. Others will have an opportunity to do due diligence along the way. There are potential deal makers and deal breakers in front of this project. I think our role now is to enable it to move forward and wish them well." -- Councilwoman Phyllis Holmes at the Jan. 27, 1997, city council meeting

Jan. 27, 1997 With the final version of the Coopers and Lybrand study only released hours before, the city council meets to decide the future of downtown Spokane. Since the developer says the situation with Nordstrom was even more dire, the ordinance is given emergency status, meaning no public referendum could be mounted to recall the decision. Despite containing many concerns about the project, especially some of the numbers in the Walker Report, the Coopers and Lybrand report is embraced by many as confirmation that the deal is sound. The Coopers and Lybrand representative at the meeting stresses the importance of factoring in the impact of a parking validation program, which is not settled. Under validation, discounts would be granted to lure parkers, but such discounts could impact the garage's income. Public officials say a validation plan would be worked out soon, and the developer later claims it would be worked out in a way that wouldn't impact the deal one way or the other.

We said it...

"The sad thing about the council's decision to call the ordinance an 'emergency' is that everyone knows that a two-year-old project never had to become an emergency. In fact, if it had been handled differently, it could have served to bring the community together and create an even brighter outlook for downtown." -- Inlander editorial, Jan. 29, 1997

February 1997 Spokane lawyer Steve Eugster, who had recently challenged the legitimacy of using state funds to build the Seattle Mariners new stadium, challenges the deal in court, arguing that public money cannot be used to enrich private individuals or corporations. Eugster's case is rejected in superior court in March, and in November of 1997 the state Supreme Court rejects it, too, using roughly the same argument it used in rejecting the Mariners case. The parking meter pledge survives because the court says the city would get something back -- the garage itself at the end of 20 years -- so that the money is not a gift.

October 1997 To comply with the requirements of the federal Department of Housing and Urban Development ( which contributed a $22 million, federally quaranteed loan to the project), the city council hires three Gonzaga University business professors to prepare a credit analysis to prove to HUD that the deal would be good enough to pay back the loan. If defaulted upon, some HUD money usually earmarked for the city's poor -- Community Development Grant money -- could be lost. HUD appears to be watching the Spokane deal closely because a similar deal in Seattle ended in controversy when HUD money appeared to be funneled into private aspects of the public-private partnership surrounding Pacific Place, a mall project in downtown Seattle that used a garage to gain the city's participation. While the credit analysis report is accepted by HUD, the document did raise the issue of validation first raised by Coopers and Lybrand, pointing out that how much the garage collects for every hour parked would have a huge impact.

We said it...

"Doing business with the public is tricky, slow and frustrating -- and in many ways, that's how it should be. River Park Square developers may feel like they're covering the same ground over and over by answering questions, but that may just be the price of a low-interest HUD loan." -- Inlander editorial, Jan. 21, 1998

November 1997 Spokane Mayor Jack Geraghty loses his re-election bid to John Talbott, a persistent critic of the garage deal. Geraghty was a supporter of the deal, and his defeat means rockier times ahead for the project. It also serves notice that the public unrest over the deal is perhaps deeper than some realized. In the coming years, the garage deal becomes a litmus test for any political candidate and impacts a number of city council races.

They said it...

"I'm a naysayer because I'm asking the questions about how our citizens' tax dollars are spent." -- John Talbott, quoted in The Inlander, Oct. 29, 1997

August 1998 The lease on the land is finalized between the city and the developer, and the city's Parking Development Authority is charged with overseeing the operation of the garage.

September 1998 Investors buy the bonds, totaling $31.5 million. Along with the $26 million for the purchase of the garage, there were fees and reserves included.

They said it...

"The project's proposed validation program will be revenue-neutral to the garage as the difference between the retailer's reimbursement (70 & cent; per two-hour validation and scheduled to increase) and the garage's normal charge ($3 for two hours) will be made up through other sources." -- Bob Robideaux, manager of River Park Square, quoted in the HUD credit analysis conducted by Gonzaga University professors Kent Hickman, Clarence Barnes and Carl Bozman

July 1999 On the eve of the mall's grand reopening, a flap develops between the developer and a prized tenant, AMC Theaters. AMC is under the impression that, as with all its theaters across the nation, parking would be free for its patrons. The developer has a different vision, with theater patrons paying reduced rates. AMC's own lease contradicts itself on the issue, but after negotiations that may have included a cash settlement, AMC decides to stay. As a result, the validation system is overhauled just before the mall is to open. The plan varies significantly from the figures Walker used for its study, creating an easily recognizable hole in the garage's revenues.

They said it...

"There are some assumptions in the [Walker Report] that have not come to fruition. And there are things that changed programmatically with the project." -- John Dorsett, principal with Walker Parking Consultants, quoted in The Inlander, Feb. 17, 2000

Aug. 20, 1999 Phase One of the new River Park Square Mall opens, with a new Nordstrom and AMC Theaters, to crowds of excited shoppers. Those parking their cars, however, are anecdotally reported to be experiencing sticker shock in the garage. The garage fails to hit its target occupancy figures right out of the gate. As a result, the PDA tweaks its rate structure over the next few months, creating an even bigger hole in the garage's budget but bringing in more parkers at a critical time when people are forming their parking habits related to the new facility.

September 1999 Despite some concern over the garage's obvious revenue problem, the structure is sold by the developer to the foundation for the previously agreed-upon price of $26 million.

November 1999 The garage deal's biggest critic, Steve Eugster, is elected to the city council, tipping the balance of power in favor of the project's opponents.

They said it...

"The attitude of the city and people in power is that we are going to do what we want and the public be damned." -- Steve Eugster, quoted in The Inlander, Oct. 20, 1999

April 2000 The PDA announces what had been known for some time: that the garage is essentially broke and will need to tap into the city's roughly $1.6 million (annual) parking meter fund to pay its bills. With new leadership on the city council, the city floats the idea of reneging on the parking meter pledge it contracted for. Efforts to reach some kind of solution miscarry as longtime opponents fail to talk the problem out. Meanwhile, the developers pay to keep the garage running.

May 2000 The developer files a writ of mandamus, essentially a call for a legal order to get the city to pay the money that it had, in the developer's view, contracted to pay. The case wends its way through the courts, with the developer being stymied. Currently the action is still alive and the developer hopes it will ultimately force the city council to release the funds being withheld.

June 2000 Citing its unwillingness to honor its commitments, the bond rating agencies Moody's and Standard and Poor's downgrade the city's bond rating, meaning future projects that require borrowing will become more expensive. Also this month, the city council circumvents its own legal department and hires Seattle lawyer Yale Lewis, who files a lawsuit charging the developer with fraud and conspiracy, deep-freezing an already chilly relationship with their partners on the deal.

They said it...

"The city has shown a disturbing reluctance to honor financial commitments on the garage in spite of a court ruling." -- Moody's bond rating agency, in its report justifying dropping Spokane's bond rating in June 2000

They said it...

"The notion that we were all in cahoots to defraud the bondholders is just absurd. The city was not just buying a garage; they were investing in a project. Frankly, the city is coming out ahead, even if they paid every nickel that they owed." -- Betsy Cowles, as told to The Inlander, Sept. 28, 2001

September 2000 Phase Two of the mall opens, with its eastern portion featuring Pottery Barn, Banana Republic and Restoration Hardware, in each case the shops' only Inland Northwest locations.

November 2000 Attorney John Powers is elected as the city's first strong mayor, as that Steve Eugster-authored proposal, passed in 1999, takes effect. Powers defeats incumbent John Talbott, whose anti-parking garage stance is well known. Powers' message is somewhat new and apparently welcomed by the voters. He proposes to work at settling the garage dispute through mediation, a stance that matched public opinion on the matter, as judged by opinion polls taken throughout the year. The new form of government marginalizes the council, as the mayor takes control of the dispute; the council will be called upon, however, to ratify any settlement.

They said it...

"The City of Spokane cannot afford to shoulder an unforeseen $1.5 million to $2 million loss each year for the next 20 years, and we cannot lose our HUD grant money." -- John Powers, in a guest editorial in The Inlander, Aug. 23, 2001

February 2001 Despite the developer's insistence that the city has received more than its fair share from the deal in the form of millions of dollars in tax revenues and construction fees, Powers files his own lawsuit in the case. The Yale Lewis lawsuit is dropped, and Powers abandons the charges of conspiracy and fraud. The move surprises the most vocal critics of the garage, many of whom believed Powers was a pawn of the Cowles family. The arguments also surprise the developer, who perhaps expects a warmer reception. Still, by dropping the fraud and conspiracy charges, Powers opened the channels for negotiations, although little progress is made on that front. The city's new suit argues that Walker misled them in its rosy predictions and that its own bond counsel failed to warn city officials adequately. The city also argues that the ordinance of Jan. 27, 1997, has been misread and that the city isn't responsible for paying the bond payments at all.

We said it...

"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. 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." -- Inlander editorial, June 21, 2001

April 2001 Seeing that the deal is falling apart, the institutions that purchased the bonds used to buy the garage file a lawsuit to make sure they get their money back -- along with the return on the investment they expected. In this case, the developer and the city are back on the same side as the defendants. The bondholders aim to prove that the official statement that went out to potential buyers was intentionally misleading. If proven, they can force the various parties to pay off the bonds. This case also moved the action into federal court.

July 2001 After the city council narrowly votes to make a loan to the garage, Powers vetoes the decision, saying there isn't enough proof the city would ever get its money back. As predicted by some, the move leads to the city's bond rating taking another hit from the markets.

August 2001 The Internal Revenue Service issues a preliminary ruling that the bonds are not tax-exempt, as the foundation's attorneys said they were. While appeals may last a few years, if a final decision is made that they aren't tax-exempt, it will complicate any settlement significantly.

November 2001 United States District Judge Edward Shea hands down his ruling rejecting several motions to dismiss the bondholders' case. Although the facts he considered have not yet been proven, if they are his 44-page ruling may provide a road map for the pending litigation. Despite his ruling, a jury would still be the ultimate authority on the complex questions being raised by this deal-gone-bad.

Witness to Wartime: The Painted Diary of Takuichi Fujii @ Northwest Museum of Arts & Culture

Tuesdays-Sundays. Continues through May 16
  • or

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...