March 10, 2009 in City

City ordinance reins in public-private deals

RPS controversy drives council action
By The Spokesman-Review
 

Never again.

That’s the message city leaders say they hope is sent with the ordinance approved unanimously Monday that outlaws some of the most controversial elements of the River Park Square mall renovation deal.

“It at least assures the community, if this passes, that there is a law to make sure that the taxpayer’s interest is protected,” Mayor Mary Verner said in an interview last week.

In the mid-1990s, the city and mall, which is owned by the Cowles Co., entered into a complicated partnership aimed at expanding the downtown mall.

The project involved the city borrowing money to loan to the mall, and the Cowles Co., which owns The Spokesman-Review, setting up a foundation to raise additional money for the project through revenue bonds.

If everything had worked as supporters said it would, the loan and the bonds would have been repaid through money generated by the mall and the garage. But when money fell short, the deal fell apart, leading to a series of lawsuits. When a federal suit was settled in 2005, the city agreed to pay off the bonds, costing between $1.4 million and $2.3 million a year through 2027.

The ordinance creates four sets of rules to govern public-private partnerships.

“It’s important for us to learn the lessons of the past,” said City Councilman Steve Corker. “This (ordinance) bodes well for us learning those lessons.”

One section requires the city to use “market value” appraisals to determine how much to pay for a property. In the River Park Square deal, the city would have become the owner of the garage after the bonds were paid. The purchase price of the garage was based on its “investment value” – not what it would fetch on the open market. Critics say the valuation inflated the price.

The ordinance also requires a private party to provide an “unconditional, irrevocable letter of credit” as collateral on a loan, although in some cases the City Council could vote to waive that requirement.

In the mall deal, no such letter was required. A 1997 confidential memo from the city attorney’s office suggested asking for one, but added that “this has been resisted and represented as impossible by the developer.”

Another portion will force the city to ensure that a proposed project is tax-exempt before participating. The bonds were sold as tax-exempt, but the IRS determined they were not.

The final section of the law bars the city from entering into confidentiality agreements with private parties engaged in partnerships with the city. That would prevent a situation similar to the one that occurred in 1999, as the renovation of the mall was nearing completion.

A dispute over parking validation between Cowles’ companies and AMC Theaters, one of the mall’s key tenants, was holding up purchase of the garage by the foundation that sold the bonds. If AMC pulled out, the development companies promised to cover any revenue losses until a new theater tenant could be found, but only if members of a city-created agency would keep that guarantee secret, even if they had to deny a public records request.

The mall and AMC reached an agreement a few months later, and the secret agreement didn’t become public for several years.

Tim Connor, a former writer for Camas Magazine, an online publication, suggested to Verner last year that the city craft the rules. He said it was important for officials to place the lessons learned from the deal into city law.

“I’m old enough now to realize that history repeats itself,” he said.

Cowles Co. Chairwoman Betsy Cowles declined to comment about the proposed ordinance last week.

“River Park Square stands on its own as a successful project. We’re proud of what River Park Square did for the downtown,” she said. “What future councils want to do is what future councils want to do.”

Staff writer Jim Camden contributed to this report. Jonathan Brunt can be reached at jonathanb@spokesman.com or (509) 459-5442.

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