SAN FRANCISCO - Spokane, Wash., Mayor John T. Powers yesterday vetoed a City Council decision to loan $800,000 for debt service to the agency overseeing the River Park Square garage, a move that will likely force the project's bond trustee to dip into a reserve fund to make a $1.3 million bond payment that comes due today.
Before vetoing Monday's 4-3 council vote, Powers said he considered the risks associated with the loan, the legality of it, and the possibility that it would keep Spokane embroiled in more litigation.
In addition, the loan request did not meet "any generally accepted standards for credit worthiness," Powers wrote in an eight-page letter to credit agencies.
"I found myself faced with a loan being advocated by the authority not because the city had any legal duty, but to help the city's 'image' in the market. Yet I could foresee the virtual certainty of an immediate legal challenge and negative public relations, with the city and others mired in even more litigation," the mayor stated in the letter.
In 1998, the Spokane Downtown Foundation, a nonprofit entity, issued $31 million in tax-exempt bonds for the garage project. The garage is operated by the Spokane Parking Public Development Authority. The city pledged parking meter revenues to pay for any shortfall in payments the PDA in operations and maintenance.
Since then, the city has refused to issue the loan, saying to do so would be a gift, which could not be repaid. In February the Washington State Supreme Court ruled that no city official is authorized to make payments independent of the city council. The Internal Revenue Service is auditing the tax-status of the bonds.
Terry Novak, chairman of the PDA, which made the loan request Monday, was hopeful that investors would receive a total payment of $1.3 million. He said it is likely the trustee, U.S. Bank, would dip into a bond reserve fund to repay investors. A shortfall occurred after attorney fees were deducted, he said.
A trustee spokesman was not available.
Had the loan been approved, capital reserve funds from a city solid waste account would have been used.
Leslie Weatherhead, who represents the mall developer, expressed disappointment with the mayor's decision but said, "He has his reason and the right to exercise his authority."
Weatherhead previously viewed the council's vote as a step in the right direction.
In another matter related to the garage project, a superior court judge gave an oral ruling Friday that the city must release $1.7 million in federal Housing and Urban Development funds the city withheld from the developer.
Laurel Siddoway, the chief attorney for Spokane involving the River Park Square garage controversy, said the city will not appeal.
Moody's Investors Service assigns an A1 rating to Spokane's unlimited general obligation bonds, and the city remains on watch list for possible downgrade.
"We are reviewing the current development," said Dari Barzel, a Moody's vice president.
Standard & Poor's assigns a CCC rating, or junk bond status, with a credit watch negative to the Spokane Downtown Foundation's garage bonds and rates the city A-plus on its unlimited tax general obligation bonds.
The triple-C status represents " the last stop before a missed payment," said Kurt Forsgren, a director at Standard & Poor's.
Fitch does not rate Spokane.
Mark Schwartz, a former banker and a Pennsylvania-based attorney, spoke against the loan at the council meeting.
"It is all about posturing and not about substance," Schwartz said of the council's decision.
