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City offers RPS settlement ideas

The city of Spokane and the companies that developed the River Park Square Mall would trade assets, set aside cash and drop a wide range of legal claims against each other, according to a tentative settlement released Wednesday.

The city would protect programs for low-income neighborhoods by getting solid financial assurances from the developer to repay a federally guaranteed loan. It would get as much as $2 million to settle a pending federal lawsuit and another $1.05 million by 2018, according to the city’s most recent version of the complicated settlement, which was posted Wednesday evening on the city’s official Web site.

The mall development companies owned by Cowles Publishing Co. would get title to the underperforming parking garage at the heart of the long-running legal dispute, but no cash. The money it claims it is owed for nearly four years of back rent and other unpaid expenses would be pledged to repay the loan guaranteed by the U.S. Department of Housing and Urban Development.

Some details are still being negotiated.

“We aren’t representing this as the final agreement. This is the city’s version of what we want it to be,” City Council President Dennis Hession said Wednesday evening.

Steve Rector, secretary-treasurer for Cowles Publishing Co., agreed: “It’s still a proposed settlement. There are some items that we are still working on.”

Cowles Publishing Co. owns the mall development and operation companies, as well as The Spokesman-Review.

With the council scheduled to meet at 8 a.m. Saturday in a special session, city officials decided to begin circulating a draft of the settlement of the long-running legal war between the city and its former partner in a downtown redevelopment plan.

“The whole purpose of getting this on the airwaves is to get people reviewing the documents,” Hession said.

The city and the developer have been locked in a series of legal battles in state and federal court for more than four years. The dispute began when the city refused to loan money from its parking meter fund to cover some of the expenses of the financially strapped garage. The city has a 1997 ordinance that requires such a loan, but the council argued the garage was doing so poorly the money would never be repaid, which made the payment an illegal gift rather than a loan.

Disputes grew among the city, the developer and other parties over the complicated financing that paid for the mall. Eventually, investors who bought some $31 million in bonds backed by garage revenues began to fear they would not be repaid. They sued everyone connected with the mall project in federal court, alleging fraud and misrepresentation.

This spring, on the eve of a federal trial, the city reached a settlement with the bondholders, borrowed some $33 million and bought up their bonds. U.S. District Judge Edward Shea rescheduled the trial for Jan. 4, and ordered everyone involved to settle by that date or be ready for trial. Through a combination of formal mediation and private negotiations, the city has settled with some other defendants, but the mall developer, the bonds’ underwriter and the city’s former bond counsel have not yet settled and are preparing for trial.

The proposed settlement calls for the city and the developer to drop their legal claims against each other, both in federal and state courts. Neither is required to admit liability and state cases are dismissed “with prejudice” so they can’t be re-filed.

One of the driving factors for the city in settling the dispute with the mall developer is stated in the first section of the agreement.

“The City desires to protect its HUD block grants from further exposure,” it says.

Some $1.5 million in block grant money has been diverted to make payments on a federally guaranteed loan that was used in the 1990s to help build the mall. Under the proposal, the developer would help reimburse the community development fund by about $1.05 million by 2018, Hession said.

The proposed settlement drops the complicated repayment schedule for the federally guaranteed loan. Instead of promising to repay the money with rent from the mall’s major tenant, rent from the land the garage sits on or other mall income, the developer’s parent company will guarantee the remaining $21.3 million with an “unconditional and irrevocable letter of credit” from a bank.

The developer would get title to the garage, which the city now claims after buying up the garage bonds. The city would also give up any claim to the Nordstrom building, which was used as collateral for the HUD-guaranteed loan, and claims to Nordstrom rent payments.

Still under negotiation, Hession said, is the fine-tuning of a key section on what to do with some $8.3 million in parking meter money that the city must keep in escrow because of the ongoing litigation.

The developer has claims that cover more than $8 million, as a combination of unpaid ground rent and uncompensated operations and maintenance of the garage since early 2000. Some claims may have to be reviewed by as many as three appraisers, and the final payments may be an average of the two closest appraisals.

But the proposal calls for the city to put slightly more than $6 million into a bank account to help repay the HUD-guaranteed loan, rather than turning that money over to the developer. That’s in addition to the letter of credit to back up the loan.

“We walk away with zero cash,” Rector said. “All that money is being retained toward settlement.”

The city can keep $2 million of the parking meter money in return for a full release of the development companies in the federal lawsuit.

Even if lawyers and accountants for the city and the development companies agree to final language and at least four members of the council approve the proposal on Saturday, the settlement is not final. It must still be ruled reasonable by Judge Shea, who is set to preside over the federal fraud trial starting Jan. 4 in Richland. The Department of Housing and Urban Development, which guaranteed the $22.65 million loan to help build the mall and can withhold community development block grant money to cover any shortfall in repayment, must also agree to certain aspects of the deal.

And the community as a whole must come to grips with a controversy that has colored city politics since 1997.

“This has been a painful process for both parties,” Rector said. “I don’t think that anybody on either side is thrilled, but both sides can feel good about it.”