August 20, 2004 in City

Downtown mall developer bills city $4.7 million

By The Spokesman-Review

The developer of River Park Square on Thursday handed the city a $4.7 million bill for unpaid expenses at the downtown mall’s troubled parking garage.

That amount is on top of a previous bill two years ago for $3.3 million, bringing total losses at the publicly operated garage to $8 million in its five years of operation.

The bill includes charges for operations, taxes and a ground lease for the garage, plus interest on the unpaid lease amount. Payment could come from an escrowed fund of city parking meter money, although city officials have said the $8 million shortfall may ultimately be factored into a wider settlement of garage troubles.

Under the controversial redevelopment of the mall in the late 1990s, River Park Square sold its improved parking garage to a downtown foundation, which in turn, leased the facility to a city parking authority. The developer retained ownership of the land under the garage, subject to lease.

River Park Square is owned by companies affiliated with Cowles Publishing Co., which also owns The Spokesman-Review.

Spokane City Councilwoman Cherie Rodgers, a critic of the garage deal, said she was not surprised by the amount of the bill. She said the garage has “been upside down since day one.”

The city is under state court order to loan money from its parking meter revenue to make up for garage losses. At the same time, the city is pursuing a legal claim against the mall owner in federal court over alleged securities fraud in the sale of the garage. The trial has been postponed to January.

The original garage deal had the Spokane Downtown Foundation selling $31.5 million in tax-exempt bonds to finance purchase of the $26 million garage. Failure of the garage to perform financially led to the fraud claim by the garage’s prior bondholders. The city has sought to resolve the garage dispute by paying to retire the bonds and assuming legal claims stemming from the bondholders’ 2001 federal securities lawsuit.

After the city retired the debt last spring, the mall owner in June took possession of the garage, claiming it was entitled to control the facility because the ground lease was in arrears. Now, the mall owner has control of parking receipts, which are being used to pay the developer for operating costs, monthly ground lease installments and other costs. Operating losses against the city have now stopped accumulating. The garage took in $238,000 in July, which was a 16 percent increase over the previous July.

Duane Swinton, attorney for the developer, said any proceeds above operating costs will be used to pay off interest charges accruing against the unpaid lease amount under terms of the garage deal. “We are providing reports on the application of funds,” Swinton said during a meeting Thursday of the Spokane Parking Public Development Authority.

City officials have said all of the money involved in the garage dispute will ultimately be taken into account in any future settlement.

In the meantime, the city has no source of revenue to offset the cost of retiring garage bonds. The city borrowed money on a short-term bank note, but must eventually sell bonds to pay off garage debt. It is seeking concessions from the developer and other parties to reduce that cost as part of a wider settlement.

Rodgers said money will have to come from the general fund to make garage debt payments at the same time the city is cutting basic services such as police, streets and fire.

Also, the city earlier this month was forced to take $1.2 million from its federal community development block grant funds to cover a shortfall in payments on a U.S. Housing and Urban Development loan granted through the city to the mall developer to help pay for mall construction. In granting the loan, the city pledged its annual community development block grants as collateral. The developer pledged a portion of the ground lease to the loan payments.

Community development programs, intended to help low-income neighborhoods and residents, will be shorted by $1.5 million in the coming year, said Mike Adolphae, the city’s community development director. Programs include housing rehabilitation, residential street paving, sidewalk improvements and others.

Adolphae said that because the developer is now taking money directly from the garage and applying it to ground lease payments, it should also begin placing a share of the ground lease in the HUD loan payment account, under terms of the loan.

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