The last financial connections between the city of Spokane and the owners of River Park Square are being severed through a refinancing of a $22.65 million community development loan made in 1999 for expansion of the downtown shopping mall.
The Spokane City Council voted 5-1 in favor of a resolution on Monday that clears the way for the refinancing, known as a “defeasance” in the world of public financing.
Also, the mall companies and their corporate affiliate would pay off a remaining cash obligation owed to the city under a December 2004 settlement of a long-running legal dispute over River Park Square’s former troubled public-private parking garage.
The city is expected to receive $618,200 later this month instead of three payments of $350,000 each in 2016, 2017 and 2018. The amount was reached by discounting the future payments by 4.33 percent a year, said city Chief Financial Officer Gavin Cooley.
Once the deal is closed, the city and River Park Square will no longer have any financial relationship, Cooley said. Closing is set for Sept. 23, according to the resolution approved Monday.
It comes after years of political and legal fighting over redevelopment of the downtown mall and an intricate financing arrangement involving assets and guarantees of the city and the construction loan guarantee from the U.S. Department of Housing and Urban Development.
Councilwoman Cherie Rodgers, a longtime critic of the mall project, voted against the resolution. She said the settlement last December placed too great of a burden on the city’s general tax fund, which reduces the amount of money available for police, fire and library services for years to come.
The city last year purchased back $31.5 million in bonds sold in 1998 to finance public acquisition of the expanded mall garage. Through settlements with the mall companies and other parties, the city whittled its share down to about $25 million.
Under the settlement, the garage and $6 million in cash were turned over to the mall owners in exchange for guarantees to repay the outstanding community development loan that was part of the financing for the mall renovation in the late 1990s.
The city is financing its costs through a council-approved general obligation bond that will be repaid from the general tax fund over the next 22 years. The payments will reduce the amount available for basic city services such as police and fire.
The HUD loan refinancing approved by the council on Monday involves a separate construction loan made to the mall through the sale of “public offering notes” issued by the city and guaranteed by HUD.
The loan, approved on the need for downtown redevelopment, carried a 7 percent interest rate. In the loan, the city had put up its annual community development block grant funding from HUD as backup collateral for any shortages in loan repayments. The loan account was dipping into community development block grant funds and reducing grant money available to low-income neighborhoods prior to the settlement.
River Park Square is owned by real estate affiliates of Cowles Publishing Co., which also owns The Spokesman-Review.
In the December settlement with the city, Cowles Publishing agreed to maintain a bank letter of credit guaranteeing payments on the HUD loan.
Now, the refinancing is being done by the mall companies and their corporate guarantor, Cowles Publishing, which are also paying costs associated with arranging the deal.
Refinancing eliminates the need for the bank letter of credit and will free up lending capacity to the city for other community development loans.
Steve Rector, secretary-treasurer for Cowles Publishing and its development affiliates, said the decision to refinance was made because commercial real estate credit is favorable compared with the interest being paid on the HUD loan. He did not specify the current lending rates.
“It is replacing the loan with cheaper money,” he said.
The refinancing involves borrowing money from a bank to purchase U.S. Treasury bonds and placing those bonds in escrow. As the bonds mature, they are used to make loan payments until the earliest payoff dates on the loan notes.
One series of notes can be paid off in 2008 and the other in 2009.
“It’s purely a financial decision,” Rector said. “Now we’ve got all the pieces back under our control.”