SAN FRANCISCO - A week after Spokane's mayor vetoed an $800,000 loan for a debt service payment on bonds for a mall parking garage that later went into technical default, Moody's Investors Service yesterday downgraded various bond ratings for the Washington city. The agency also removed the city from its watch list and assigned it a negative outlook.
Moody's cited the impact of Spokane's dispute with the developers of the River Park Square parking garage and other parties as the reason for its downgrades, along with the city's "unwillingness to honor its financial commitment" and "litigious environment."
The agency issued the following rating downgrades: A2 from A1 on the city's unlimited tax and general obligation bonds, A3 from A2 on the city's limited tax GOs, and A3 from A1on the city's water and sewer revenue bonds.
The ratings affect an estimated $101.5 million of debt, according to Moody's.
"We just think that the city's general credit has been weakened by its lack of willingness to pay on its obligation related to the parking garage," said Kenneth Kurtz, a senior vice president at the credit agency. "We certainly expect that the city's GOs and revenue bonds will be paid. We still have investment-grade ratings on them."
The agency assigned a negative outlook to Spokane due to "the uncertainties associated with the parking garage dispute, including the potential financial impact of the numerous lawsuits currently underway," its report stated.
Standard & Poor's rates the city's unlimited tax GOs A-plus and the garage bonds CCC with a negative CreditWatch. Fitch does not rate the city.
The Spokane Downtown Foundation, a nonprofit entity, sold more than $31 million in revenue bonds in 1998 to build the garage. The Spokane Parking Public Development Authority operates and maintains the garage using its own revenues to pay the foundation, which in turn uses the funds to repay debt service.
The city pledged its parking meter funds as a loan to the PDA in the event of any possible shortfall in revenues. That loan has yet to happen, although the garage is fiscally in the red. Instead, Spokane placed its parking meter funds into an escrow account. As many as 10 lawsuits are involved in the wrangling.
The garage issue hit a crescendo last week after PDA chairman Terry Novak asked the city council on July 30 to grant a loan of $800,000 to pay debt service due Aug. 1. Council members approved it 4 to 3. However, a day later, Mayor John T. Powers vetoed the vote. Hours after the veto was announced, Novak resigned his chairmanship.
Jack Lynch, city administrator, said that the city still maintains A ratings, and said he viewed the credit agency's recognition of Spokane's fiscal performance as positive.
Spokane has a fiduciary responsibility to ensure everything it does is based on sound financial practice, according to Lynch. He thought the city would get the rating back over time.
"If the court decides that the city has the responsibility to pay, it will. Conversely, the city has the responsibility to city taxpayers, ratepayers, and to bondholders that we don't pay where we don't owe," Lynch said.
