by Ted S. McGregor Jr.

Fax machines around the city were buzzing on Friday after The Wall Street Journal published its highly anticipated report on Spokane's attempt to use a loan from the federal Department of Housing and Urban Development (HUD) to leverage downtown revitalization. Supporters of the plan to secure Nordstrom as a downtown tenant into the next century were concerned that sensitive information from secret documents secured by the Journal would be revealed and poison the project. Opponents, who have sought a peek at those documents for years, were hoping to finally get their smoking gun to prove the city is being taken advantage of. By the end of the front page story, however, project supporters' fears weren't fully realized -- as far as the release of sensitive information goes, it could have been worse, several people close to the project say privately.

As Journal cover stories often focus on the people behind the business, the story is told by examining the Cowles family's need to step outside its traditional way of doing business in order to protect its investments in the city it has called home for more than four generations. And even though the Journal reporters may have pulled some punches, opponents of the project find plenty in the story to confirm their suspicions.

"Worsening the suspicions is officially imposed secrecy about certain terms, " write Charles Gasparino and Josh P. Hamilton. "This has fed worries that there are financial dangers to the city and its taxpayers that have been hidden from them. The worries are not unfounded... "

The story goes on to reveal that if the occupancy of River Park Square drops below 70 percent -- a factor outside the city's control -- Nordstrom's rent payment will drop by more than half, with the city potentially on the hook to make up the difference. It also reveals that the city tried to negotiate a better deal with the developers but was unsuccessful. And, since developers haven't shared all their financial information with those studying the project, like Coopers and Lybrand, the article also questions the validity of the Cowles family's contention that they'll never make much of a profit from the mall.

But some point out that the secret document cited in the article dates to November, 1997, suggesting that things have changed since then. Just how they have changed, however, is unknown since in March, 1998, the city council voted to turn over the negotiations on the deal to City Manager Bill Pupo and the city attorney's office. Pupo says he can't discuss any changes to the deal that have taken place since the date of the memo because they are confidential.

Still, some were expecting bombshells that failed to materialize, like Nordstrom paying only $1 a year in rent (as one retailing expert has said developers in another city agreed to) or the Seattle-based retailer having a way out of the lease after five years, which could really leave the city in the lurch. The one interesting, but not all that surprising, revelation was that Nordstrom negotiated a $1 million payment from the developers to cover internal costs associated with the move.

"I think that $1 million is coming from the people of Spokane, " says opponent Steve Eugster. "I fear that we really are subjecting ourselves to a bad deal. "

City Councilwoman Cherie Rodgers agrees: "I think the article points out that the risk falls squarely on the city. "

Although the developers are now only speaking with media they own on the subject, other supporters, who have never argued the project is without risk, are saying the fact that The Wall Street Journal didn't come up with anything more proves the project is sound. And, more importantly, since the final loan documents hit City Hall the same day as the story was published, it drives home the point that HUD, the final arbiter of the deal, has given its seal of approval.

"We've commissioned three studies that support the project, " says Stan Schwartz, the assistant city attorney most familiar with the project, "and now we have HUD's approval, and they've been very diligent in crossing every 't' and dotting every 'i' along the way. "

Mike Adolfae, Spokane's director of community development, has also worked closely on the project. He points to the HUD Inspector General's report on the project, which came out in September, as further proof of the city's diligence.

"I think it's clear that we did most of it right, since their report is missing any scathing series of findings, " says Adolfae. "Looking back, sure, we've all learned a lot in this process, but we have completed [all the tasks HUD asked], and it's all been thoroughly reviewed. "

Others criticize the article for not pointing out more information favorable to the project, like the fact that HUD's care in running its $1 billion-plus per year Section 108 program has resulted in zero loan defaults.

Friday's story was not the first time The Wall Street Journal has written about Spokane's redevelopment project. On Nov. 12, 1998, the same reporters looked into a seemingly obscure bond-related issue, and used the River Park Square parking garage bonds as the example. The debate within the bond industry is whether the issuers of bonds can shop around for a favorable rating, and then, when they sell the bonds, not disclose any unfavorable ratings. They use the River Park Square example because the official statement for the bonds issued by Spokane Downtown Foundation did not disclose the fact that Moody's would not rate the bonds favorably. Standard and Poor's did rate them with their lowest investment grade, and they were sold quickly, but the article questioned the ethics of the practice, which is used by other issuers nationwide, of not notifying the purchaser of any unfavorable opinions.

A second article ran Dec. 2, and again Spokane was the subject. This time, the Seattle-based regional HUD Inspector General, Robert Woodward, with rare candor, questioned his agency's loan program, telling the Journal that the objections to the project in Spokane "are a perfect example that seems to highlight the potential weaknesses in the program. "

Woodward is also the author of the 50-page audit on the Spokane project that raised a handful of issues when it was released last fall, the final and most critical of which being whether the city was wrong to allow construction to start prior to the conclusion of the environmental review process required for all projects the federal government is involved in. Woodward concluded that "...the city probably should have notified the developer not to proceed with construction, " a finding that appears to be the reason the final approval for the project was delayed for so long. The IG requested that the Washington, D.C., office render an opinion on the subject. City officials now say they have received a waiver on the environmental review issue; Woodward says he was told that his agency's rationale for the granting the waiver confidential.

The Wall Street Journal's drumbeat of critical coverage has some wondering why Spokane is being singled out by a newspaper widely considered a beacon of capitalism. But it needs to be known that the Journal's editorial viewpoint is of a more orthodox brand of fiscal conservatism -- the kind that would, perhaps, be more sympathetic to those (like some program-slashing Republicans) who would rather compete in a world of smaller government, maybe without HUD altogether. It's also likely that the story attracted the attention of Journal editors because of its players. It's no secret that competing newspaper giants enjoy revealing the foibles of their competition, and the presence in this drama of the Cowles family, with its ties to The New York Times group, undoubtedly raised the profile of this story from just another alleged case of corporate welfare.

As the four-year-old story hit its crescendo last week with the Journal article and the signing of the final loan documents, the focus shifts to the fallout from such a contentious debate. Now that the project appears to finally have its green light, will the episode fade? Not likely. To begin with, there's the issue of the Nordstrom lease, which Eugster is attempting to make public. Despite a ruling in his favor, the lease remains sealed until appeals from the developer are ruled on.

But even more contentious than that is the residue of suspicion that seems to have permeated City Hall. The secret memo obtained by The Wall Street Journal had to come from one of a very few people, and some want to know who it was. Although Pupo says he's not conducting an investigation into the leak of information, some council members have indicated they would like to pursue the matter. Since the Journal will not reveal its sources, finding out will likely depend on a confession.

Nonetheless, the search may go on, predicts Rodgers, who denies the leak but admits everyone suspects her. Rodgers recounts a Dec. 21 meeting in executive session for which she believes all council members but her and Mayor John Talbott were briefed. At that meeting, the leak was discussed, and, Rodgers says, along with one council member's call for lie detector tests all around, the possibility of being sued individually and as a city was raised.

And that's just what may linger longest in the minds of opponents -- the legal hair-trigger apparently wielded by the the city's partner in the project. Not only in the protection of sensitive information was threat of legal action outlined; even at the end of Friday's Journal article, Cowles' attorney Duane Swinton speculated that if HUD backed out of the financing "...lawsuits would be flying every which way. " And even in the city's response to the IG's audit, the specter of a lawsuit is clear in answering the question about allowing construction prior to the environmental review: "To suggest that the City should have withheld the building permit prior to the negotiation and agreement on loan documents, " wrote Assistant City Manager Pete Fortin, "is to invite litigation. "

The Journal article concludes with the confession that the project has "taken a toll on the family. " But the article also suggests that the greatest toll may be to the journalistic credibility of the newspaper the family has operated for more than a century. The Journal questions The Spokesman-Review's behavior, since its publisher has been actively lobbying for the deal -- even going beyond charging the paper with serving as a public relations tool of the family to suggesting the newspaper may have supported Patty Murray for reelection for her role in helping the project along. It's an accusation denied by Publisher Stacey Cowles (the offhand charge does ring a little false since in 1996, the Review endorsed Bob Dole, whose GOP minions wanted to eliminate HUD altogether).

But in the end, despite the ugly process, all interested parties can claim vindication: opponents believe their arguments are proven by the findings of one of the nation's most respected newspapers; supporters, with finalized loan documents to point to, say the project has withstood an unprecedented level of scrutiny from all sides. As for the citizens of Spokane trying to sort through the blizzard of secrecy, angry rhetoric, innuendo and spin, all speculation will be laid to rest in August as the first phase of the new mall opens and its performance can begin to speak for itself.

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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...