Garage Rating Lowered Bond Status Downgraded After Projections Fall Short

The poor performance of the River Park Square parking garage recorded its first casualty Monday: the credit rating for the bonds used to fund the garage.

Standard & Poor’s, the credit rating agency, lowered its rating from BBB- to BB-, essentially declaring the bonds to be a risky investment.

The rating move followed reports that the garage is not meeting its revenue projections, and will struggle to pay an $860,000 bond interest payment due in August. The bonds are to be paid off with garage revenue.

The Public Development Authority, the nonprofit city agency that leases the garage from the developers, is exploring ways to increase revenue as well as restructure the debt.

The lower rating does not have an immediate impact on the city, only the Spokane Downtown Foundation, the independent nonprofit corporation which issued the bonds, and the bond holders, who now own a less valuable investment.

But drops in credit ratings may not be confined to the garage bonds.

City bond attorney Roy Koegen warned the Spokane City Council Monday that if the city fails to uphold its pledge of parking meter revenue to cover certain garage shortfalls, the city’s currently stellar credit rating could be in jeopardy.

The credit rating affects the interest rate the city pays when it floats bonds. If Standard & Poor’s lowered the city’s rating, it could cost an additional $750,000 to $1 million to borrow $10 million on the bond market, Koegen said.

“They take promises from public entities seriously,” said Koegen. “If promises are not followed through, the impact would be adverse.”

River Park Square is being developed by an affiliate of Cowles Publishing, which owns The Spokesman-Review.

The 1997 City Council pledged parking meter revenue to help cover any shortfalls in ground rent, operations and maintenance of the parking garage. The pledge was used to sell the bonds.

The sanctity of the pledge was brought up by Mayor John Talbott in earlier discussions last week and Monday.

Talbott wondered if the city could empty the $1.9 million parking meter fund for other purposes, and claim that there were no dollars available for the garage.

“I would vote against giving a penny to the parking garage,” Talbott said. “We have to make available parking meter fund monies. If there are no monies in the fund, then there are no monies.”

Koegen, speaking after the meeting, said Standard & Poor’s would not view such a maneuver favorably.

“It could have a negative impact,” Koegen said. “It could hurt the rating.”

Councilwoman Phyllis Holmes said the city should honor its pledge.

“A promise is a promise,” she said.

If the city is required to loan its parking meter revenue to the development authority, it would still be worthwhile, said Councilman Rob Higgins.

“In my opinion, this is money well-invested to encourage development in downtown Spokane,” Higgins said.

Other council members were not as sanguine.

“A previous council, in its generosity, has attempted to lock the city into the continued subsidization of something that may be of no benefit,” said Councilman Steve Eugster. “We can’t even negotiate this without jeopardizing our bond rating.”

If successful, the development authority’s efforts to restructure its debt will protect the parking meter revenue, Koegen said.

The parking garage bonds were also placed on CreditWatch Negative by Standard & Poor’s, which means the bonds’ ratings could continue to slip.

If revenues don’t increase, the garage will lose about $130,000 a month, Koegen said, or about $1.6 million a year.

Parking meter revenue could be used to cover most of that sum if debt restructuring efforts fail.

Standard & Poor’s report detailed the sources of the garage’s revenue shortfall, including the continuing construction of River Park Square, changes in the shopper validation program, and “exceedingly optimistic feasibility report assumptions.”

The report also detailed other areas of serious concerns. Topping the list was eroding political and financial support of the project from the city. The scheduled opening of a new movie theater at the NorthTown Mall with free parking was an additional concern.

The report was not optimistic about dramatic increases in parking revenues, despite new marketing efforts and changes to allow monthly parking.

It noted that in 1998, the parking consultants projected gross monthly revenue of about $260,000 a month. Based on November data, revenue was less than half that, at $124,000.

“Given poor parking performance to date, expected competition and little prospect for increased shopping activity in the short term, it is unlikely that revenues will significantly improve from current levels,” the report stated.

These 2 sidebars appeared with the story:

1. DEFERRED

Depot waits

The City Council deferred its decision on the Burlington Northern-Santa Fe Railway refueling depot until next week’s meeting, in order to conduct a hearing on the subject.

The council is being asked to vote on a resolution upholding the Kootenai County hearing examiner’s decision to bar the depot because it threatens the region’s drinking water.

2. STRIKEN

Old clause

The City Council voted Monday to strike a clause from the City Charter that gives hiring preferences to married men.

The clause, which is unconstitutional, was part of the city’s original 1910 charter. Because charter amendments must be voted on by the public, it will be placed on the November ballot.