July 6, 2004 in City

Council to discuss RPS loan

By The Spokesman-Review
 

The Spokane City Council will talk about making a loan to cover River Park Square garage expenses this week, but the amount and the terms of the loan – points that have generated court battles over the last four years – are still uncertain.

City Attorney Mike Connelly said last week that the council is expected to have a first hearing on a loan proposal today, with a final vote likely scheduled for the following Monday.

The state Supreme Court has refused to hear the city’s appeal of a lower court ruling that it must make a loan to the Spokane Parking Public Development Authority under a 1997 ordinance.

That pretty well closes out a legal fight among the city, the PDA, the mall’s developer and others that began in 2000. But neither the Supreme Court nor the lower courts gave the city much guidance on the terms of the loan.

“We’re to make a loan,” Connelly said. “The court order is less than specific about terms.”

The amount is also in question. City staff expect to have recommendations by this afternoon.

When Spokane Superior Court Judge James Murphy ruled the city was required to make the loan in early 2002, the debt stood at about $3.3 million. But the financially strapped garage continues to lose money, and its debts to the mall developer, which continues to operate it, and to other creditors grow each month. The total debt is about $9 million.

River Park Square mall is owned and operated by affiliates of Cowles Publishing Co., which also owns The Spokesman-Review.

Last fall, then-Mayor John Powers proposed a $6.3 million loan, at an interest rate that was 1 percent over the rate available for government funds. The council split 3-3 on that proposal amid questions of whether the parking authority would accept a loan under those terms and the on-going question of whether the money would ever be repaid.

In December, another proposal to loan about $3.3 million was tabled by the council.

The 1997 ordinance says the money is to be loaned from the city’s parking meter revenue fund. But that ordinance sets up no interest rates or repayment terms, other than to say it would be paid out of future revenues.

But with the garage unable to pay off its current debt, city officials fear the parking meter fund won’t be repaid for years – if ever.

Under the terms of a series of agreements between the city, the developer, a foundation that sold bonds to buy the garage and the parking authority, garage revenue is used first to repay bonds, then to pay rent for the ground on which it is built and operations and maintenance expenses. Some months, the garage doesn’t make enough to cover bond payments, and in months that it does, legal fees siphon off much of that money.

The city is proposing a settlement of a federal lawsuit that involves selling new bonds and buying the garage from the current investors who have filed claims of fraud against the city, the developer and others. Meanwhile, the developers have moved to take over the lease from the parking authority, and the Internal Revenue Service has issued an opinion that the bonds sold to finance the garage don’t qualify for tax-exempt status.

All of this means there are “lots of legal issues” surrounding the loan and the garage, Connelly said – a condition which he joked was “shocking.”

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