| All in the Family | |
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By Larry Shook |
3/22/2001 |
Part 1
In the evolution of Spokane's controversial public/private partnership, boundaries blurred between the Spokesman-Review, the Cowles mall, and the city. Can citizens trust the daily newspaper to provide fair reporting on the publisher's business interests?
In the evolution of Spokane's controversial public/private partnership, boundaries blurred between the Spokesman-Review, the Cowles mall, and the city. Can citizens trust the daily newspaper to provide fair reporting on the publisher's business interests?
Good Paper, Troubled Reporters
Spokesman-Review reporter Jim Camden wasn't sure his boss had a good idea. Chris Peck, the Review's top editor, wanted to hold a "credibility roundtable" and invite the public to critique the newspaper's coverage of River Park Square.
"'Are you sure?'" Camden says he asked Peck. "'You really want to do this?' My thought was it was going to be a disaster."
With a "National Credibility Roundtable" grant from the Ford Foundation, newspapers around the country this year are convening discussions with their readers to help evaluate how to serve them better. As this year's president of the AP Managing Editor's Association, Peck wanted to set a good example by having the Spokesman-Review host the first of these discussions.
Camden had reasons to worry about choosing River Park Square as a topic. The Cowles family owns the Spokesman-Review; the Cowles family owns River Park Square. Over the past five years, River Park Square has emerged as one of America's most controversial public/private partnerships. Camden was aware of awkward issues in the newspaper's handling of the story.
The Good Paper has not reported on some of the most sensitive aspects of the Cowles family's involvement in River Park Square. Among the unreported stories:
* The extraordinary pressure exerted on city officials by Betsy Cowles and her development team to go along with parts of the project that they considered unethical and in some cases illegal.
* The role of the newspaper's First Amendment attorney, Duane Swinton, in keeping one of the most controversial aspects of the project from public view.
* A decision by editors, over the objection of reporters, to sit on a key document showing why the city's attorneys were bothered by risks to Spokane posed by Betsy Cowles's deal-making.
Were these honest mistakes? Or did the Good Paper allow itself to become a political and business instrument of the Cowles family?
It's a painful subject for all concerned. It casts a cloud over the entire city, because it raises a question about whether the community's only daily newspaper can be trusted to report without bias on the publisher's extensive business interests. It casts a cloud over the Cowles legacy because of decisions made by Stacey and Betsy Cowles, the brother and sister who respectively manage their family's newspaper and real estate operations. But for no one is this situation more difficult than the reporters and editors of the Spokesman-Review.
In the conference room adjacent to editor Chris Peck's office, the walls are papered with awards and citations for journalistic excellence. The Columbia Journalism Review, the profession's bible, ranks the Spokesman-Review among the 25 best daily newspapers in America, rating it superior to dailies in much larger cities. Talk to Peck for five minutes and his pride in the achievements of his colleagues is obvious.
But although the Spokesman-Review's reporters regularly shine in handling some of the area's darkest stories-North Idaho's neo-Nazis, the human and environmental toll of nuclear weapons manufacture-when they walked down the street to cover River Park Square they entered a twilight zone. They found a story fraught with glaring financial problems and apparent legal violations, a story that their own employers had effectively placed off-limits.
On the afternoon of January 23, Chris Peck went ahead with his "Credibility Roundtable," an open discussion of the paper's River Park Square reporting. About two dozen invited readers attended, Peck estimates. Reporters and editors were present, including Camden, who admires Peck for holding the meeting. Attendees generally faulted the newspaper for not doing a better job of explaining the story, according to KPBX news director Doug Nadvornick, one of the participants.
But outsiders weren't the only critics. As he warned Peck he would do, Camden raised a matter that had long troubled him. It concerned a 1997 River Park Square report by the accounting firm of Coopers and Lybrand.
That report, said Camden in a recent Dateline Spokane interview, "had warning flags in it" that predicted River Park Square's coming crisis. Camden found it noteworthy that, "really with not very much discussion," the 1997 city council passed its controversial emergency off-street parking ordinance the same evening it heard the cautionary Coopers and Lybrand report. (The ordinance, which pledged the city's parking meter funds, was necessary to finance the River Park Square garage with tax-exempt bonds.)
At that fateful January 27, 1997 council meeting, Coopers and Lybrand's Mike Wenzell had come from San Francisco to deliver a blunt summary of the accounting firm's findings. He referred to the cost of the garage as "exceptionally high," predicted a "significant hole" in projected parking revenues, pointed out a suspicious transfer of funds to the developer (potentially illegal because of federal requirements for tax-exempt bonds), and noted the Cowleses' refusal to provide key financial records.
"Are there any questions of Mr. Wenzell?" Mayor Jack Geraghty asked the council. There were none.
To some observers, one of the next speakers seemed to be attending a different meeting. Betsy Cowles came to the podium, introduced herself as the president of the two companies that own River Park Square, and told the council that she was "very happy to see the kind of detail that Coopers and Lybrand went into. Not only did it make me feel more comfortable because it reinforced a lot of the things that we've been saying over these many months, but I think it is a good report for you all and will hopefully give you a level of comfort of what the project is about."
The report didn't give Jim Camden a level of comfort at all. He says he and other Spokesman-Review reporters wanted to dig into the Coopers and Lybrand findings. Editors overruled them.
Reporters understood their stories were sent "upstairs" for more than spell-checking.
Spokesman-Review readers learned from Alison Boggs's story the next morning only the barest facts. The city council had given its final approval to the $100 million downtown redevelopment project, even though "the garage's parking revenues could be put at risk because of parking validation programs."
In other words, the city council ordered the Coopers and Lybrand study (at a cost of $80,000), then ignored its serious warnings. Spokesman-Review editors ignored them, too, against the recommendation of a veteran reporter.
Rewriting River Park Square
Four years later, Camden brought this up at Chris Peck's public roundtable discussion. The reporter was agitated enough that EWU journalism professor William Stimson, one of the invited guests, thought Camden "had something he wanted to get off his chest."
Reporter Oliver Staley had something he wanted to get off his chest, too. Another guest asked publisher Stacey Cowles if River Park Square stories had received special editing treatment from him or his sister. No, said Cowles; he only checked the stories for spelling. (At least one Spokesman-Review reporter found Cowles's statement insulting. It was generally assumed, said the reporter, that the policy of sending River Park Square stories "upstairs" involved more than spell-checking.)
On the spot Staley registered his disagreement with Cowles's offhand assurance. The young city hall reporter then said a River Park Square story of his had been rewritten over his objections.
When asked recently about this incident Staley explained that the story in question was fairly innocuous. It merely pointed out that the Spokane Nordstrom store would not have many of the lavish features of the Seattle flagship. Staley's recollection was that Nordstrom itself wanted this understood so as not to falsely raise expectations in Spokane.
"I feel that if we were writing about a new Bon Marche," said Staley, "I don't think the story would have raised any eyebrows. But it did raise eyebrows, and I was given an opportunity to either rewrite it or not run it. I said, 'I think we should run it, but I'm not going to rewrite it.' It was rewritten."
Staley wouldn't tell me who rewrote it. (Chris Peck subsequently told me the story was rewritten by a business editor.)
Why was it rewritten?
To satisfy concerns of River Park Square's "landlord," said Staley. Was that a reference to Betsy Cowles?
"That's how it was related to me," said Staley. "My understanding is it was read by both Stacey and Betsy, and both Stacey and Betsy had concerns about it... I was not in a room with Stacey and Betsy. There was a sort of a shuttle diplomacy kind of a thing, where my stories would be taken upstairs and discussed and brought back."
Were stories involving the Cowleses handled differently from other stories?
"Oh, clearly," he said. "They're the only sources who pre-approve the story."
According to Staley, the attitude toward reporting on River Park Square has since changed at the Spokesman-Review. Until 2000, he says, there had been a "top-down philosophy that... this is not a story that we are going to aggressively report."
Staley says he isn't exactly sure why the newspaper decided to begin reporting more thoroughly on River Park Square. Whatever the reason, by the time he and Camden began working the story, the mall deal was set in concrete.
Staley says Spokesman-Review reporters have long "chafed" about the problem posed by their owners' involvement in River Park Square. "As you can appreciate, it's not something you're really enthusiastic about. It's a real uphill battle in terms of morale. It's kind of hard to muster the enthusiasm to wade into a situation that's a real conflict of interest."
News Judgment
But Staley's boss, editor Chris Peck, denies any dampening effect caused by Cowles financial and political interests. On the March 7, 2001 edition of KPBX's "On The Record," Peck gave unequivocal assurances that the Spokesman-Review's coverage of River Park Square has "been driven by our journalistic mission, not by some corporate mandate from the Cowles family."
Two of Peck's editorial decisions call those assurances into question.
On March 29, 1998 Peck authored a column accusing Mayor John Talbott of "civic terrorism." Talbott's crime was to question the wisdom of leveraging five years of Spokane's Housing and Urban Development (HUD) federal block grant money to help finance River Park Square. It seemed too risky, said Talbott.
Talbott was "blowing smoke," wrote Peck. Peck cited corroborating analysis from community development program director Mike Adolfae. Peck attributed to Adolfae the assurance that the most the city stood to lose was $14,000, a paltry sum compared to the city's current credit rating losses.
Adolfae asserts that not only did Peck incorrectly characterize Adolfae's position, Peck ignored warnings that Adolfae says he has been raising since 1995. According to Adolfae, Spokane's HUD loan to River Park Square lacks the security recommended by federal guidelines. Far from being critical of then-Mayor Talbott, Adolfae echoed his concern and says he informed the developer in writing that federal guidelines required such a letter of credit. The Cowleses somehow managed to negotiate that requirement away; Adolfae never knew how.
According to Adolfae, the reporting in Peck's column was grossly inaccurate. It also served a political purpose favorable to Peck's employers. "Chris wrote that column to embarrass John Talbott," says Adolfae.
At least as questionable as the above column was a decision Peck's colleagues say he and editor Scott Sines made not to publish a memo in which city attorneys Jim Sloane and Stan Schwartz expressed worries about the controversial Nordstrom lease.
Cornerstone of the River Park Square project, that lease is pivotal to understanding not just the risks and obligations of Cowles real estate companies, but the risks and obligations of the city as well. One remarkable provision of the lease is that it requires the Cowleses to enforce upon their public partners a set of agreements that ensures the garage is operated in a manner that puts Nordtrom's needs over public parking needs. Documents only recently made public by the city show that lawyers for two of the state's largest bond firms considered those agreements violations of the federal tax rules that apply to the complex transaction. Spokane bond counsel Roy Koegen, of the Perkins Coie law firm, and William Mantle, of Preston Gates and Ellis, tried repeatedly and unsuccessfully to remove the restrictive provisions that still govern how the garage operates.
The Cowleses kept the Nordstrom lease confidential until the HUD loan survived the last of its legal challenges. City councilman Steve Eugster doubts the loan could have survived those challenges if the controversial Nordstrom lease had been subjected to public review while the loan was being negotiated. Nevertheless, while the Nordstrom lease was still a secret, city attorneys Sloane and Schwartz wrote a confidential memo to the mayor and city council warning that terms of the lease posed a troubling financial risk to Spokane. The city, cautioned the lawyers, "could find itself in a situation where there are inadequate funds to repay the debt."
The city's attorneys' memo wasn't newsworthy, according to S-R editor Chris Peck. The Wall Street Journal disagreed.
Dated Nov. 20, 1997, that memo was uncovered by The Wall Street Journal and published in a January 8, 1999 story on River Park Square.
According to Richard Weins, the Spokesman-Review editor who has coordinated River Park Square coverage since 1997, his paper possessed the memo well in advance of the Journal story. Yet even after The Wall Street Journal scooped the Spokesman-Review on this important document, the Review never published it nor disclosed its contents to the citizens of Spokane. Weins said that he and Camden wanted to publish the memo, but that Peck and Sines vetoed it.
Camden refused to discuss the matter, saying it entailed "long, internal discussions" he wouldn't get into for fear of compromising the memo's source. Peck at first said that he didn't remember this episode. Then he sent a clarifying e-mail saying that subsequent discussions with Camden and Weins jogged his memory. He suggested that he overruled publishing the memo because it contained details about the Nordstrom lease. "I felt the potential harm to those who signed the lease, coupled with the lack of a compelling public interest to discuss the lease at that time, tilted in favor of waiting to publish details of the lease until the document was made public."
Why should this be such a sensitive topic inside the Spokesman-Review? Because, said one embarrassed Spokesman-Review reporter who requested anonymity, "it blows the cover" on how the newspaper has handled River Park Square.
A Game of Hide the Lease
In agreement with Peck that the Nordstrom lease and the Sloane/Schwartz memo about it should be confidential were Cowles lawyer Swinton and the city attorneys who wrote it. But The Wall Street Journal and the Spokesman-Review's Weins and Camden weren't the only ones who disagreed with that view.
The unnamed source who provided the Sloane/Schwartz memo to The Wall Street Journal first provided it to The Spokesman-Review in May 1998, according to the source. That individual still insists on anonymity.
"If the Spokesman-Review had published that memo, the public would have known how risky this whole deal was, and I don't think it would have proceeded. I think that the public would have demanded accountability on the part of city officials who were agreeing to this deal, and on the part of the developer. Especially since the community block grant money is on the line, and $2 million a year for 20 years is coming out of our street fund. You already had Coopers and Lybrand, and basically the city officials ignored that, as did the Spokesman. And here you have staff concerns. I mean, this is our own legal department's memo about their concerns. I think the public had a right to know all the risks. That's why I gave the memo to The Wall Street Journal, because the Spokesman wouldn't do anything with it. Protecting my identity wasn't the reason the Spokesman-Review didn't publish that memo. The Spokesman-Review was covering it up. Any newspaper whose owners didn't own River Park Square-it would have been all over the news. All day, every day."
The collective effect of decisions made by the city's legal department, the River Park Square lawyer and the Spokesman-Review's top editor "kept criticism away from HUD for approving this deal," says city councilman Steve Eugster, "because the people didn't know the terms of the lease. Had they known the terms of the lease, I'm sure there would have been much more concern regarding the security" for the HUD loan.
Eugster sued in January 1998 to make the Nordstrom lease public. He felt understanding it was the public's only hope of comprehending the public/private labyrinth being created in River Park Square.
River Park Square's financial underpinnings can't be understood without understanding the Nordstrom lease, says Eugster. "Bear in mind the HUD loan had as its primary security the flow of funds under the Nordstrom lease. Secondly, the Nordstrom lease was important because the interest that the city got in the Nordstrom building was going to be encumbered by that lease... As it turned out, the lease has terms in it that are extremely surprising [because of certain rent reduction provisions, and because the way the structure is valued effectively lowers the building's worth]. Another reason it was so important to know about the value of the security is the fact that the promissory note that the developers signed was a non-recourse note. What that means is that their obligation under the note is only as good as the value of the security for the note."
The bottom line, says Eugster, is Nordtrom and the Cowleses structured an arrangement that leaves the city of Spokane at disproportionate financial risk.
According to Eugster, the Cowles family "drove an extremely hard bargain, and I don't think that the city fully appreciated what they were doing. One time when I asked Mr. Sloane whether he understood the impact of a non-recourse promissory note, he couldn't explain it to me. I don't think he'd had any experience in this kind of financing arrangement."
Citing pending litigation, neither Sloane nor Koegen would be interviewed for this article.
While Eugster was fighting in the courts to open the Nordstrom lease to public inspection, city councilwoman Cherie Rodgers was trying to get a look at it. She knew the lease had problems, she says, because assistant city attorney Stan Schwartz told her so.
As an elected representative of the public part of the public/private partnership, Rodgers felt she had a duty to study the lease. She made an appointment to look at it in project manager Bob Robideaux's office. Robideaux canceled at the last minute. She made an appointment to look at it in Swinton's office. Swinton canceled at the last minute. She made an appointment to see it in city bond attorney Roy Koegen's office. When she arrived, Koegen apologized. Swinton, he said, had confiscated the document and she would have to review it in his office.
Swinton eventually permitted Rodgers to read the lease under his supervision in his office. She remembers the document she was shown as having 60 to70 pages. Swinton would not permit her to take notes.
"I felt like I had a $200-an-hour babysitter," says Rodgers.
This drama unfolded as the city's negotiations with HUD went forward. Swinton turned up the heat on keeping the Nordstrom lease under wraps. In a memo dated December 21, 1998, city attorney Sloane wrote the mayor, city council, and city manager that Swinton had contacted him, threatening to sue the city and council members if they leaked to the press "essential elements of the developer's lease with the Nordstrom corporation." Moreover, wrote Sloane, city officials going against Cowles wishes in this matter could not expect protection from the city's legal staff. In a courtroom fight with the Cowleses, it would be their personal checkbooks against one of the nation's wealthiest families.
The Cowles legal strategy worked. Not until March 2000 did the courts agree with Eugster that the Nordstrom lease is a public document. By then, the HUD loan, with its worrisome risks to Spokane, had long since been approved. The Cowleses made their first HUD money draw-$3.4 million-on February 3, 1999.
"I regret that we own the damned thing."
Three reporters who covered River Park Square-Alison Boggs, Rachel Conrad, and Kristina Johnson-declined to speak with me about their experience. Conrad is no longer with the paper, but Boggs and Johnson still are. Other former and current Spokesman-Review reporters shared anecdotes with me about the sensitivity of covering River Park Square, but they would not speak on the record.
Several reporters and editors, however, praised the paper. Stephanie Craft, now a faculty member at the University of Missouri School of Journalism, filed the first River Park Square story in May 1994. She emphatically stated that she felt no pressure to give the story special treatment because of the Cowles connection. Kathy Mulady, now a reporter for the Seattle Post-Intelligencer, shared Craft's view. Mulady took pains to express her respect for the integrity of her former editor, Richard Weins. And despite their criticism of certain aspects of Spokesman-Review coverage, both Camden and Staley believe the paper has done a fair job of covering River Park Square since it began paying more attention to the story last year.
For his part, Weins acknowledges that the involvement of the Cowles family in this story creates an inherently difficult situation. The policy of routinely routing all River Park Square stories upstairs for Stacey and Betsy to review has been changed, he says. Now, that review ends with Chris Peck.
Spokesman-Review staffers acknowledged that the conflict of covering River Park Square remains. "You can't feel good about doing this crusading reporting," said Staley, "when you feel that it's your employer who you're crusading against."
"I truly believe they [Stacey and Betsy] have not been heavy-handed in affecting coverage," says Weins. "But it's almost like it's open to conjecture... it's pretty nebulous. It's all difficult."
Weins said the story about the Sloane/Schwartz memo was the only time the paper didn't do a River Park Square story when he thought it should have.
Was that his only regret in the paper's coverage of River Park Square?
"Oh, God, no. I've got lots of regrets," he said. "I regret that we own the damned thing."
Continued . . .
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