December 6, 2004 in City

Hession hoping for vote on RPS

By The Spokesman-Review

City Council

6 p.m. today,

Council Chambers, City Hall.

TV: Cable Channel 5.

Agenda: Possible consideration of River Park Square parking garage settlement, further consideration of city budget.

Details were still being ironed out Sunday in a possible settlement in the River Park Square legal dispute.

City Council President Dennis Hession said he hoped a proposed agreement would go to the council for a vote during its regular meeting at 6 tonight in Council Chambers at City Hall. The meeting will be broadcast live on Cable Channel 5.

“My preference is to get it done tomorrow,” Hession said in a telephone interview Sunday afternoon from his law office in downtown Spokane. The council this month must also approve the 2005 budget, which is expected to bring major cuts in city services.

A settlement would eventually eliminate ongoing legal costs associated with River Park Square, money that would become available for regular city services. So far, the city has spent at least $3 million on the litigation.

Under the proposal, the city would turn over $8 million to corporate entities that own River Park Square and relinquish its claim to ownership of the public-private parking garage at the mall. The mall owner would own and operate the garage while the city takes responsibility for garage debt incurred in a $31.5 million bond sale in 1998.

The $8 million in cash is owed for operating losses at the garage from 1999 until last June when the developer took possession of the garage under a default on a lease for the ground beneath the garage.

In return, the developer would guarantee a separate $22.65 million construction loan obtained by the developer through the city and the U.S. Department of Housing and Urban Development as part of the $110 million mall expansion project in the late 1990s.

The developer would return $1.5 million to the city as part of the settlement, and then another $500,000 in coming years.

It is believed the settlement would end a long-running legal battle between the city and the mall owners over losses at the poorly performing parking garage. One official described the settlement as a “complete divorce.”

However, the city is still planning to go to federal court in January to pursue legal claims against other parties involved in the 1998 bond sale, including the bond underwriter and the city’s private bond counsel.

The settlement comes amid reports the mall owner was considering Chapter 11 bankruptcy for its development companies because of financial problems. City officials said they were allowed to review RPS financial information, and were satisfied that the project is under financial stress.

A bankruptcy would likely result in a loss of money being used to repay the already underperforming HUD construction loan. This year, the city was forced to tap about $1.5 million from its community development block grant funds to make up for shortages in payments on the HUD loan to RPS. That money would be restored under the settlement.

River Park Square is owned by corporations affiliated with Cowles Publishing Co., which owns The Spokesman-Review, KHQ-TV and other media outlets.

The council may also take action today on a proposed settlement with Preston, Gates and Ellis, the law firm that advised the Spokane Downtown Foundation, a private, nonprofit organization that sold bonds to buy the garage in 1998. In turn, the foundation leased the garage to the city’s Spokane Parking Public Development Authority, which previously operated the garage.

The city is expected to receive $1.3 million in cash from the Preston, Gates firm to be applied to the remaining debt load on the garage.

City officials said they believe Preston, Gates and Ellis is responsible for federal tax liability on the garage bonds, which were sold under a tax-exempt status. The Internal Revenue Service has ruled the bonds went for a sufficient amount of private use that they could not qualify for tax-exempt status. That means that taxes on bond interest earnings will have to be paid to the IRS, although the tax case is under appeal by the foundation.

In 2001, the investors who owned the underperforming garage bonds sued in federal court, alleging securities fraud.

One of the lawyers at Preston, Gates and Ellis who worked on the bond sale was Mike Ormsby, a campaign supporter of former Mayor John Powers.

The city earlier this year bought back the bonds from investors and assumed their legal claims in the federal securities case.

The council today will be asked to authorize an extension of a $32.7 million tax anticipation note sold to Bank of America in June to finance the bond buyout. As an emergency ordinance, the law requires that the note extension be approved by five members of the seven-member council.

So far, council members Cherie Rodgers and Bob Apple have consistently opposed the settlement efforts. Rodgers has said the city should have taken its case to a jury rather than settle. They have said they believe the developer is paying too little in the settlement.

Councilwoman Mary Verner, who has voted both for and against various aspects of the settlement, appears to be the critical swing vote in extending the tax anticipation note.

City administration officials were reportedly meeting with her Sunday evening to go over details of the planned settlement.

Unlike the emergency ordinance, the proposed settlement would need four votes to pass.

In yet another wrinkle to the RPS saga, the city and its parking authority have been notified that the $8 million in cash slated for the developer in the settlement is subject to a writ of garnishment obtained by the mall’s former project developer and construction manager.

The $8 million is also the subject of another court order requiring the city to loan that money to the developer under a 1997 ordinance that set up the intricate deal.

RWR Management Co. won a $6.5 million jury verdict against River Park Square last summer in a breach of contract lawsuit in Spokane County Superior Court. Bob Robideaux, the owner of RWR, successfully argued he had not been fully paid for his work on the mall development prior to the termination of his contract by RPS in 2002. He has said he was fired. The developer is appealing the award.

Bob Dunn, attorney for Robideaux, said last week that the RPS companies offered to pay $2.7 million in October as a settlement of the court award, but the offer was refused. He said a lawyer for RPS threatened to take the mall real estate companies into bankruptcy.

“It was totally unacceptable,” Dunn said of the proposed payment from RPS.

City officials said they intend to route settlement cash through the parking development authority, as previously required by the state Court of Appeals, and not avoid the writ of garnishment since that could result in monetary sanctions against the city.

“It’s not our fight,” Hession said of the garnishment.

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