December 5, 2004 in City

Mall deal: It’s in the numbers

By and The Spokesman-Review
 

There are many unknown numbers in a proposed settlement between the city of Spokane and the River Park Square developer that the City Council is expected to consider Monday.

Lawyers and accountants will spend much of the weekend filling those numbers in, because without them, the council will likely ask for a delay.

Late last week, Spokane’s history of politics surrounding the downtown mall project and its tangled litigation had almost everyone involved in the negotiations quoting the axiom “the devil is in the details.”

But one number is known, and it’s four. As in, four votes.

That’s a majority of the council, and the minimum that Mayor Jim West needs to approve any settlement of Spokane’s long-running political dispute.

West says he’d love to have all seven council members voting yes, and in the next sentence acknowledges that’s not likely to happen. Council members Cherie Rodgers and Bob Apple have opposed most settlements with other defendants in a federal fraud lawsuit, and signaled last week that they’re unlikely to vote for this one.

The city is giving up too much, and getting too little, they contend.

Five yes votes would be a big victory for West, but four is a win. The city and the developer could agree to stop their legal battle, and narrow an impending federal trial to two main defendants.

To do that, the proposed settlement would reportedly have the city turning over the mall’s expanded garage to the developer, who would in turn guarantee repayment of a $22.65 million loan that is guaranteed by the U.S. Department of Housing and Urban Development and backed up by federal community development funds. Other money would change hands, and the city would receive between $1.5 million and $2 million toward a settlement of a massive federal lawsuit.

West’s assessment on Friday is likely to be his pitch to the council if it votes on the proposal Monday night: “It’s not a perfect settlement. It’s not a perfect solution, but it’s the best settlement we can get.”

A legal truce between the city and the developer has eluded the community for more than four years, as financial problems at the mall’s garage grew into a knot of lawsuits in state and federal courts.

“It’s like a giant spider web, with everything so interconnected,” Councilwoman Mary Verner said last week.

The complicated agreements approved in the mid-1990s to set up the public-private partnership over the $110 million redevelopment project were “ingenious,” Verner said. “There’s no easy way to extricate ourselves.”

To vote yes, Verner and other persuadable council members will have to be convinced that this is the best deal the city can get from its one-time partner in downtown redevelopment, the real estate development affiliates of Cowles Publishing Co.

Cowles Publishing also owns The Spokesman-Review, KHQ-TV, and other news media enterprises.

The council has been briefed in closed sessions about ongoing negotiations between the city and the developer for months, and last week was given the broad outlines of a proposed settlement. Wednesday morning, they had questions that negotiators had hoped would be answered by Friday.

Friday, the negotiators were saying they believed – but couldn’t guarantee – those questions would be answered and the full proposal would be on paper by Monday afternoon, in advance of the council’s 6 p.m. regular meeting.

“There’s no firm settlement on RPS,” West said Friday, warning people shouldn’t be surprised if it fails to come together.

A veteran vote-counter from some 20 years in the Legislature, West seems unlikely to send the council a proposal that doesn’t have a strong chance of four votes.

Some council members declined to comment on the proposed settlement last week, but others made it clear what answers they wanted before they are willing to vote yes.

One key, said Verner and Councilman Al French, are rock solid guarantees that the developer will pay off the loan guaranteed by HUD.

The original agreement between the city and the developer had several sources of income, tied to performance of the mall, its chief tenant Nordstrom and the garage, which were described as more than adequate when the project was on the drawing board in 1996. But with recession, political disputes and legal wrangling, they have proved insufficient.

The city already has siphoned off nearly $1.5 million in block grants, from programs designed to help low-income families and neighborhoods, to cover part of that loan.

French said he wants the city to have assurances the financial strength of Cowles Publishing – not just its mall development affiliates – will repay the loan with “no ifs, ands or buts.”

“I don’t want to hear ‘Times are tough, times are hard, the dog ate the homework,’ ” French said. “I need to know: Here’s the check.”

Hanging over the settlement is the developer’s warning that the mall firms could file for Chapter 11 bankruptcy, and force even more of the city’s block grant money to be diverted as the mall’s assets are reorganized.

“The threat of bankruptcy complicates this many fold,” Verner said.

Another key will be a clear settlement of legal disputes between the developer and the city, Verner said. The two are adversaries in multiple lawsuits in state court, beyond the federal case scheduled for trial in January.

“I want to see us resolve everything” with the developer, Verner said. “Council members have expressed a desire to get a universal settlement.”

There are two other defendants in the federal lawsuit – Prudential Securities Inc., which underwrote the bonds a nonprofit foundation sold to buy the garage, and the law firm of Perkins Coie, which was the city’s bond counsel when the agreements were negotiated in the mid-1990s. There is some hope, but no real expectations, that a settlement with the developer will spur settlements with them before the January trial.

But whittling down the defendants should also bring down the legal costs of the trial, French said. The council is struggling with a budget shortfall, so every payment connected to the garage dispute, whether it’s money for extra lawyers, money to pay off the loans the city floated to buy out the garage investors or money to replace block grants, is a hit against city services.

Every $50,000 paid into the garage dispute equals one police officer, he said.

That will be part of West’s pitch about the positives of the settlement proposal.

It would help end legal bills, while continuing to trial would likely bring two to three years of appeals, he said last week.

“That’s money I need to give to police officers and librarians,” West said.

One political problem that West and the council could face goes beyond what the agreement says, to how much time the council and the community have to digest it.

The dispute over River Park Square has been part of Spokane politics for nearly eight years, in one form or another. It has influenced council and mayoral elections since 1997 and helped change the very structure of city government, giving Spokane a strong mayor and a completely separate council.

The council and the citizens might have less than eight hours to review the settlement before the council votes.

French and Verner are well aware that their predecessors who approved the mall agreements in 1997 were criticized for being stampeded into a vote on a key element of the deal, the city’s pledge of parking meter money to back up some expenses of the garage.

And even that vote came after months of hearings and a review by an outside accounting firm.

None of those members remains on the council. And of the group of project critics and watchdogs who replaced some of those council members, only Rodgers remains.

That could be an advantage for West being able to pass a settlement, French said, because there are fewer hardened positions.

“But the new slate (of council members) is concerned about not making the same kind of mistakes that first council made,” French said.

For the council, the key number on Monday is three, Verner said. That’s the real number of choices they will have on any settlement proposal that still poses questions. Yes. No. Or “we’ll get back to you.”

“We have to make some decision, but I think our third option could be to wait a week,” she said.

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