Council Plans Monday Vote On Hud Loan City Must Decide Whether To Accept Money For Project
After three years of public debate, the Spokane City Council plans to decide Monday whether to secure a federal loan for the River Park Square redevelopment project.
The council’s vote may come before the city gets final word on the $22.65 million loan from the U.S. Department of Housing and Urban Development. HUD has given the loan preliminary approval.
The majority of the money for the $110 million project comes from private sources. The city also is pledging parking meter revenues as a backup if garage revenues fall short.
The path leading to Monday’s vote has been strewn with angry rhetoric, name-calling and bitter political campaigning.
Critics, including NorthTown Mall developer David Sabey and Mayor John Talbott, call the plan corporate welfare, saying developers are putting public dollars at risk for private gain.
Developers contend the project will prevent downtown from losing its major department stores and becoming an urban wasteland. They point to a 1995 economic study they commissioned that says the project will create or retain as many as 2,800 jobs - including 676 in the shopping center - increase annual city tax revenue by $3 million and generate $50 million in wages.
Opponents counter that many of the jobs will pay minimum wage, and they question the reliability of the dollar figures.
The project includes a new Nordstrom, a 20-screen cinema complex, expanded parking and numerous shops and restaurants.
Here are answers to frequently asked questions about the project.
Question: Since the loan would come from a federal agency, how is the city involved?
Answer: As far as HUD is concerned, the city is borrowing the money, not the developers.
In June 1995, the City Council applied for a $23.8 million loan from HUD to help finance the project. More than two years later, HUD gave preliminary approval with conditions to a reduced loan of $22.65 million. If the loan wins final approval, the city will subtract money spent on outside attorneys and credit analyses before loaning the balance to the developers.
Q: What were HUD’s conditions?
A: There were three: The project’s revenues must be able to repay the loan, the collateral must be sufficient and the loan paperwork must be completed by August.
Q: What is the purpose of these types of HUD loans?
A: They are designed to do one of three things: benefit low-to-moderate-income people, eliminate slums and blight, or cover the costs of public emergencies.
Q: In terms of creating jobs, what does HUD require for a project like this?
A: HUD says at least one job must be created or retained for every $35,000 loaned, according to developers.
Q: What might the city lose if the project doesn’t go forward?
A: According to the 1995 study paid for by developers, the city could see tax revenues fall by $1.1 million annually if Nordstrom leaves Spokane.
Q: How can the City Council vote to accept the loan when it hasn’t received final approval from HUD?
A: The basic outline of the loan documents is unlikely to change. If HUD does make substantial changes, they would be brought back before the council.
Q: How would the loan be repaid?
A: Plans call for three sources of revenue to repay the 20-year loan, which has an annual debt service of $2.5 million.
One source is Nordstrom. In addition to annual rent, the store will pay developers a percentage of its sales.
A second source is 41 percent of the rent paid by a public development authority created by the city for the land beneath an expanded parking garage.
The third source is a $500,000-per-year corporate guarantee from the developers.
If those sources generate additional dollars, they will be placed in a reserve account. Developers have agreed to start the account with a $1.05 million contribution. The account - which developers and city officials expect will top $5 million by the loan’s fifth year - would be used to help repay the loan if the revenues fall below the annual debt service.
Q: What if the developer defaults on the loan?
A: There are several contingency plans for repayment if that happens.
According to HUD, the loan must be backed up by collateral valued at $26 million - or 125 percent of the $22.65 million. The first four sources are the reserve account, the Nordstrom building and lease, the 41 percent of parking garage ground rent and the $500,000 annual payments guaranteed by developers.
If those are exhausted before the loan is repaid, Community Development Block Grant dollars would be used to cover the balance. That money is usually directed toward low-income neighborhoods for housing and social programs.
Should Congress dissolve the Block Grant program at any time during the loan repayment, the city must hire a financial analyst to appraise the value of the collateral compared to the outstanding debt. If the collateral is less than the debt, the city must set aside its final-year Block Grant allotment. This year’s allotment is about $4.5 million.
As a last line of credit, the developers have pledged a payment from Cowles Publishing Co. The amount of that payment will be established soon. It would be the difference between the total loan amount and the appraised value of the Nordstrom building and lease. At HUD’s request, the city plans to hire a consultant to do that appraisal.
Q: Can the public see the Nordstrom appraisal documents and lease agreements that are used as collateral for the loan?
A: Not yet, anyway.
Lawyers for the developers argue that those documents are proprietary and exempt from public disclosure. Their release would damage Nordstrom’s ability to compete with other retailers, the lawyers say. Steve Eugster, an attorney who is suing for the right to see the documents, argues they should be released because they are being used to obtain public money. The case was heard in Spokane County Superior Court on Wednesday, and a decision is expected today.
Q: How is the rest of the project being financed?
A: Mostly with private money.
The remaining money breaks down like this: $60.4 million in private loans from a bank and cash from the developers, a $1 million federal economic development grant and $26 million from the sale of the parking garage to the nonprofit foundation.
Q: Why aren’t developers paying for the entire project themselves?
A: There’s a limit to how much any private developer can borrow, said Betsy Cowles, president of the two companies that own River Park Square. In fact, the project wouldn’t be eligible for the HUD loan if conventional financing could be obtained for the entire project. To encourage such job-producing projects, HUD doesn’t require the same percentage return a private investor does, Cowles said, adding that the project won’t generate the kind of profit most private investors want.
Q: Why not just shrink the project to avoid using public money?
A: Cowles said developers looked at downsizing the project, but decided it needs to be a certain size to generate the kind of activity that promotes economic development and revitalizes downtown.
Q: How many tenants have signed leases for the mall?
A: Nordstrom, American Multi-Cinema and the Eddie Bauer and Ann Taylor clothing stores have signed multi-year leases. So have several other longtime River Park Square tenants. Project manager Bob Robideaux said there are “letters of intent” or signed leases from tenants to fill 76 percent of the retail space. Agreements being negotiated would bring that to more than 80 percent, Robideaux said, but developers are not identifying other possible tenants.
Q: Can Nordstrom reduce its rent payment if the number of River Park Square tenants drops below a certain level, as opponents claim?
A: “I can’t confirm or deny whether that’s true or not,” Cowles said. “People are speculating. The terms haven’t been disclosed.”
Q: Opponents also said the city agreed to collect connection fees to be paid to the developers by nearby property owners. Is that true?
A: It used to be true, but the plan has changed.
Surrounding property owners who connect to the project via skywalks will pay connection fees totaling $500,000 a year. During negotiations, the city indicated it would collect the fees for the developers. But city attorneys worried that would leave taxpayers responsible for taking scofflaws to court. Late last week, city attorneys got an annual $500,000 guarantee from the developers, who now will collect the fees.
Q: Critics also complain that an overall market feasibility study hasn’t been done for the project. Why is that?
A: The city hired three consulting groups to evaluate various aspects of the project. At least one of those reports called the lack of an overall study a “weakness.”
Supporters contend the project’s feasibility has been fully addressed. “We’re the one who’s going to lose out first, lose the most money,” Cowles said. “It would be rather stupid of us not to have done some research here.”
City Councilman Orville Barnes maintains the proof of the project’s feasibility is that a private bank and high-end tenants are willing to be involved.
Q: What does the parking garage expansion include?
A: Developers are adding 2 floors to the current 750-space garage. There also will be parking spaces added beneath the Nordstrom building, with the new garage having 1,304 spaces.
Q: How is the city involved with the parking garage?
A: In January 1997, the two companies that own River Park Square formed a nonprofit foundation to issue bonds to buy the garage from the developers. The garage will be leased to and operated by a public development authority created by the city.
The nonprofit foundation plans to buy the garage from the developers for $26 million, and sell bonds totaling about $31 million.
Q: How are the city’s parking meter revenues affected?
A: To make the foundation’s bonds attractive to investors who might be concerned about the garage’s upkeep, the city offered “credit enhancements.” It pledged parking meter revenues to cover any shortfalls in the cost of ground rent and maintenance and operation.
Parking garage revenues will be used first to cover the debt service on the bonds, which goes from $2 million the first year to $3.2 million by the 20th and final year.
If there isn’t enough left over to cover the maintenance and rent - about $2 million the first year - parking meter revenues would be tapped. The city would be obligated to raise meter rates if necessary to cover those costs.
The city collects about $1.6 million a year in parking meter revenue. It could borrow from another fund, and then repay those dollars as parking meter revenue increases.
Parking meter dollars can’t be used to pay off the bonds. Money left in the parking meter fund at year’s end could be used to fix streets - the historical use of those dollars.
Any money taken from the parking meter fund must be repaid once the garage makes a profit.
At the end of 20 years - once the bonds are repaid - the city gets the parking garage at no cost. If city officials don’t want it, the developers have first right of purchase.
Q: Why doesn’t the developer sell the land beneath the garage to the foundation?
A: Selling the land along with the garage would make the package too expensive for the foundation, Cowles said. Also, the land is being used as collateral by the developers to secure private bank financing.
Over 20 years, the developers will collect about $18 million in ground rents from the foundation.
River Park Square is owned by Citizens Realty Co. and Lincoln Investment Co., affiliates of Cowles Publishing Co., which owns The Spokesman-Review.
, DataTimes ILLUSTRATION: Color photo
Graphic: The sources of River Park Square financing
MEMO: These sidebars appeared with the story:
Public hearings on the city’s involvement with the River Park Square proposal will be conducted tonight from 5 to 7 and Saturday from 2 to 6 p.m. in the council chambers at City Hall, 808 W. Spokane Falls Blvd.
Here is a tentative timeline for the River Park Square project:
Today-April 1: HUD expected to approve federal loan.
Monday: City Council votes on loan.
Wednesday: Construction scheduled to begin on portion of shopping center bordered by Post, Lincoln, Main and Spokane Falls Boulevard, including new Nordstrom store, parking garage and glass atrium over Post.
Aug. 20, 1999: Nordstrom, atrium, retail spaces and 14 of 20 planned movie screens scheduled to open. After old Nordstrom store demolished, construction to begin on portion of shopping center east of Post.
Summer 2000: Remaining six movie screens and balance of retail spaces scheduled to open.
These sidebars appeared with the story: HEARING Public hearings on the city’s involvement with the River Park Square proposal will be conducted tonight from 5 to 7 and Saturday from 2 to 6 p.m. in the council chambers at City Hall, 808 W. Spokane Falls Blvd.
TIMELINE Here is a tentative timeline for the River Park Square project: Today-April 1: HUD expected to approve federal loan. Monday: City Council votes on loan. Wednesday: Construction scheduled to begin on portion of shopping center bordered by Post, Lincoln, Main and Spokane Falls Boulevard, including new Nordstrom store, parking garage and glass atrium over Post. Aug. 20, 1999: Nordstrom, atrium, retail spaces and 14 of 20 planned movie screens scheduled to open. After old Nordstrom store demolished, construction to begin on portion of shopping center east of Post. Summer 2000: Remaining six movie screens and balance of retail spaces scheduled to open.