Former City Councilman Steve Eugster filed a new lawsuit Friday seeking to block upcoming city actions on the River Park Square garage.
Eugster, a long-standing opponent of the project, contends in the suit that a recent report by the Internal Revenue Service means the city cannot loan money from its parking meter fund to cover some of the unpaid debts of the financially struggling garage. The IRS said bonds sold for the garage purchase were not tax-exempt.
Eugster’s suit, filed in Spokane County Superior Court, also says the IRS report means the city cannot buy out investors who hold garage bonds issued by a nonprofit corporation.
But Laurel Siddoway, the city’s special counsel for River Park Square matters, said neither the lawsuit nor the IRS ruling is a reason for the city to avoid obeying a court order to make the loan.
“I don’t think it changes anything as far as the council’s need to comply with the Appeals Court decision,” Siddoway said.
City Council President Dennis Hession agreed. Although he hadn’t read Eugster’s lawsuit, Hession said the arguments sounded similar to those raised in letters to state officials requesting an investigation of the garage deal.
City officials still have to settle some questions about the terms of a loan from the parking meter fund, Hession said. But Eugster’s lawsuit “is not likely to change our minds.”
The council is under a court order to comply with a 1997 ordinance to loan money from the meter fund to cover certain expenses of the garage if the parking facility can’t pay those debts. The expanded garage, which opened in 1999, has consistently lost money and now owes more than $9 million. City officials have balked at making such loans since 2000 because they believe the garage might never repay them.
The city is planning to buy back some $31.5 million in bonds issued by the foundation that bought the garage as part of a strategy to settle or simplify the legal tangle surrounding the garage.
Eugster’s lawsuit contends the city shouldn’t make the loan because the 1997 ordinance was based on the foundation qualifying as a nonprofit organization that could sell tax-exempt bonds. IRS investigators said recently that they believe the foundation does not qualify as a nonprofit, and the bonds are subject to taxes.
Siddoway said Friday that the IRS report “is not the final word” on those points. The foundation plans to appeal that ruling and settling the lawsuit with a city purchase of the bonds would likely bring an agreement from the IRS that the bonds could be treated as tax-exempt, she said.
The city is negotiating with other defendants in a federal lawsuit filed by the bondholders. If they don’t reach a settlement by the end of this year, a trial starts in federal court on Jan. 3.
Among those defendants are the mall’s developers, affiliates of Cowles Publishing Co., which owns The Spokesman-Review.
Les Weatherhead, an attorney for the developers, said he hadn’t read Eugster’s latest lawsuit but noted the former councilman had been unsuccessful in several previous attempts to block the loan or other parts of the project.
“I’m not inclined to attach much weight to it,” Weatherhead said of the latest legal claim.