Hud Loan Needs Some Paperwork Official, Developer Disagree On Significance

The city of Spokane has some problems with the paperwork for a $22.65 million federal loan to help a downtown redevelopment project, inspectors for the U.S. Housing and Urban Development Department say.

But it’s still unclear what effect the problems - detailed in a report from the department’s Inspector General office - will have on the loan’s final approval.

“We will give a thorough review to the report and the recommendations,” said Alex Sachs, a spokesman for HUD headquarters in Washington, D.C.

Sachs did not speculate on whether the report would hold up the HUD loan to the city.

City officials said Friday they are frustrated.

They say they have already addressed the issues raised in the report, some more than once.

“We have certainly tried to proceed in good faith,” said Stanley Schwartz, assistant city attorney. “This report doesn’t conclude anything to the contrary.”

Betsy Cowles, president of Citizens Realty and Lincoln Investment Co., the owners of the development, said the report points out “minor issues” that can be worked out.

“On the major complaints and the major allegations, we got a clean bill of health,” she said.

The loan would be part of the money used to build the new River Park Square, a $100 million retail center, theater complex and parking garage in downtown Spokane. The loan was given preliminary approval in July 1997.

Citizens Realty and Lincoln Investment are subsidiaries of Cowles Publishing Co., which also owns The Spokesman-Review.

Robert Woodard, acting district inspector general for audits in the Northwest, said the report points out problems for both the city and HUD, not just for this project but in the federal program that loans money for economic development.

“They are significant problems,” he said. “We find the rules to be somewhat confusing and nebulous.”

The report lists three areas of possible violations of federal regulations:

The city may have violated federal regulations by allowing the old River Park Square building to be demolished before the city completed the federal environmental study process.

The developer had already completed the state Environmental Protection Act process. The city argued the project was exempt from federal requirements, but in December 1997 was told that wasn’t correct.

Because the federal environmental process was finished after the building was demolished, HUD funds might not be available to cover demolition costs.

That doesn’t mean, however, the amount of the loan would be less, Cowles said.

Inspectors said the city needs an opinion from the Office of General Counsel whether the city violated federal environmental regulations. Without it, the loan funds might not be released.

The city attorney must convince the proper HUD officials that the loan doesn’t constitute a gift of public funds to a private business.

Schwartz said they will submit a copy of the state Supreme Court ruling that the loan is not a gift of city funds.

The city must provide HUD with a plan to ensure that businesses displaced by the project are compensated.

HUD regulations say businesses that move “permanently and involuntarily” can receive relocation assistance.

The city plans to use a $1 million Economic Development Initiative grant to repay the displaced business owners, and submitted a request for the money in June.

But there’s a hang-up between the city and HUD.

HUD inspectors say the city must notify the businesses that they might be eligible for relocation assistance before it can receive federal money. City officials say they must have the money before they notify the businesses.

“As soon as we are assured of the HUD loan, we will start the notification process,” said Mike Adolfae, community development director for the city of Spokane.

Cowles called the dispute between the city and HUD “classic government,” but said the developers do not believe business owners are eligible for displacement funds.

“Our position is we did not kick people out of the mall,” she said. “It was an issue of economics - people were going under and not renewing leases.”

Inspectors contacted six of 16 businesses that moved out of the west part of River Park Square before redevelopment began.

Two owners said mall managers asked them to move; they would not have left otherwise. Two business owners said they were asked to relocate because the building was closing. Two other business owners said they left voluntarily.

One business owner told HUD inspectors he spent $95,000 for relocation, the report says.

“We agree that the developers’ study shows that the major cause of the decline in retail was outside the developers’ control, but we disagree with the implication that this was true for all businesses that left,” HUD inspectors said.

The project The federal loan would be part of the money used to build the new River Park Square, a $100 million retail center, theater complex and parking garage in downtown Spokane. The loan was given preliminary approval in July 1997.