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Under the Influence

By Tim Connor and Larry Shook	8/17/2001

Part 2
Who Was Watching the Store?

As the legal conundrum of River Park Square gets sorted out, how and why Betsy Cowles overrode the demands of Koegen, Novak and Ormsby is already an important question. In response to securities fraud charges filed against the city (and the RPS developer, the PDA and the SDF) in federal court, the city has filed a claim against Roy Koegen and his law firm Perkins Coie.

From 1997 to mid-2000, Koegen served simultaneously as special counsel to both the city and the PDA on work involving the RPS garage. The city alleges his dual role compromised his representation of the city, that he specifically failed "prior to the closing of the Parking Garage purchase by the Foundation, to bring to the attention of all City Council members certain adverse developments which he knew or should have known significantly compromised the financial feasibility of the Garage," and that he allowed his personal interests in six-figure attorney fees from bond proceeds to "interfere with his representation of the City."

The PDA never formally informed the city council of the AMC crisis. At least two council members, Cherie Rodgers and former Mayor John Talbott, were never told about it. Coincidentally, they were the two critics of the deal.

"Not at any time was I ever informed about any of this," says Rodgers. She says she first learned of the AMC blowup when "I asked for the legal bills from Perkins Coie, and Preston Gates" in February 2000. Such bills, she explains, detail subject and length of conversations. She learned of the Novak and Ormsby letters for the first time when asked to comment on them for this article.

I was really being blocked . . . from getting inside information on a variety of projects in the city." -Former Mayor John Talbott

Talbott, too, says he was kept out of the loop on the AMC crisis.

"I was really being blocked at every avenue from getting inside information on what was going on with regard to a variety of projects in the city," he says. River Park Square was one of many.

Koegen declined to be interviewed for this story, but the record shows that he wasn't the only person who could have briefed the city council and alerted the public to the fiasco in the summer of 1999. City council members Roberta Greene and Orville Barnes served on the PDA board during this period and knew what was happening. Moreover, records clearly show that Pete Fortin (who was promoted to acting city manager during the course of the dispute in mid-1999) was also in the loop and directly involved in negotiating with AMC officials over the impasse. Documents show that Ormsby faxed to Fortin a draft of his August 13th letter to the developer.

The people left in the dark were the elected city councilmembers known to be critics of the city's involvement in the public/private partnership. And, due to undisclosed public documents and no coverage in the press, the citizens of Spokane.

All parties to the AMC crisis seemed to agree on one thing: that the matter should be shielded from public disclosure.

Despite their August 1999 warning letters, Novak, Koegen, and Ormsby all were instrumental in keeping the controversy from rearing its head in open public meetings or leaving its tracks in publicly accessible documents.

All parties to the AMC crisis agreed on one thing: to shield the matter from public disclosure.

Recently obtained notes of an August 25, 1999 PDA executive session suggest that city councilwoman and PDA director Roberta Greene was nervous that the public might learn of the troubles with AMC.

Among the entries in those notes:

"Roberta asked whether ltrs between PDA + [Cowles attorney Duane] Swinton are public doc. TMK [Tom Kingen, an attorney in Koegen's law firm] thinks they are...

"RJK's [Roy Koegen's] concern is about things going public. Steve Eugster had requested copies of mins, etc. of PD & was provided those.

"RJK asked TMK if any way to set up so not public knowledge @ this time. TMK said could by saying public funds have not been used yet & therefore not public record.

"RJK says meet w/Ormsby (not public) & let him know & he handle certain items @ this time since the Foundation not public.

"RJK--Riverpark Sq cannot afford to let AMC go...

"Mike [Wilson, a PDA director] concerned about pressure not to proceed by council. Roberta commented that council really wasn't aware of all that is going on..."

Present at that meeting were PDA chairman Terry Novak, directors Roberta Greene, Mike Wilson, and Dale Stedman, Koegen, Kingen, Swinton, and Mary Gaston, an attorney in Koegen's firm. Orville Barnes was absent.

Greene's recorded comment-"that council really wasn't aware of all that is going on"-raises obvious questions about whether she and fellow council member/PDA director Barnes were adequately briefing the city council about what AMC senior vice president Dick Walsh called "a dark storm cloud on the horizon."

To Park Free or Not to Park ...

Walsh laid out AMC's dilemma in a June 28, 1999 letter he wrote to Downtown Spokane Partnership president Mike Edwards, Pete Fortin, Steven Faust (an attorney with the Paine, Hamblen law firm who served as chairman of Spokane's Transportation Council and vice-chairman of the Ratepayer Advisory Board), and Bob Robideaux, Betsy Cowles's River Park Square project director. The tone of Walsh's letter was collegial but plain-spoken. He explained that all over America what kills downtowns is costly parking.

"This more than anything else broke the back of urban core retail across the nation," wrote Walsh. "The Spokane Valley Mall is just such an example in the Spokane area. I shudder to think what the prospects for retail in downtown would be right now if the community had not answered back with the new River Park Square."

But Walsh was also shuddering at the shocking last-minute news that Cowles was planning to hand AMC's Spokane customers a stiff parking bill. Free parking was an absolute necessity for urban theaters, Walsh stressed. He pointed out that a recently opened Regal theater in Bellevue, which was "severely underperforming," was charging patrons $2 to park. It hardly needed saying that the income level of Bellevue movie fans was higher than that of their Spokane counterparts.

Walsh emphasized that the parking problem had to be fixed immediately: "The most vulnerable time for any project is at its opening. Community perception is formed either positively or negatively within a very short period of time. These attitudes will be cemented almost irrevocably within the first two or three visits. Once firmly entrenched, the means at anyone's disposal to alter those perceptions in the future could be rendered useless."

"At the currently proposed rates, it could cost $4.50 for 3 hours of parking to see a $7.00 show - ugh!" -Mike Edwards

Walsh wasn't telling Spokane's downtown leadership anything it didn't already know. The Business Improvement District had done its own research showing a "soft shift in people's willingness to come downtown" because of parking costs. BID had also researched urban theaters and found that almost all of them offer free parking.

In an April 29, 1999 memo to Spokane's Transportation Council, Downtown Spokane Partnership head Edwards warned of the approaching crisis. "The City (probably for political cover) is set to implement the new rates as proposed in the bond document," he wrote. "This means no evening discount, which may be a significant disincentive to customers coming Downtown in the evening to go to the movies. At the currently proposed rates, it could cost $4.50 for 3 hours of parking to see a $7.00 show--ugh!"

In a May 4, 1999 memo Edwards warned downtown that its present validation program was "fundamentally broken." This was because downtown merchants had been unable to develop a sustainable plan for subsidizing customer parking. River Park Square was about to make the problem much worse by creating the most expensive parking in Spokane's history. And while the bond prospectus promised bond buyers that parkers themselves would be willing to pay the high prices necessary to pay off the bonds, downtown insiders-Betsy Cowles and Bob Robideaux included-seemed to recognize that wasn't likely.

Ironically, Novak says the mall developer was among those who then successfully urged the PDA to cut its parking rates-to not charge the high prices. But it was the high rates that, when plugged into the controversial "investment appraisal" the city had gone along with in the Spring of 1996, had allowed Betsy Cowles to negotiate for a $26 million purchase price. (There were also provisions for additional Cowles profit-taking if revenues fulfilled the earlier, optimistic Walker projections.)

The developer's advice to PDA was curiously contradictory. On the one hand, the bond markets were told that the garage's rate structure would yield earnings strong enough to pay off the bonds. On the other hand, the developer urged the very public authority responsible for managing that rate structure to undercut it for fear of driving away moviegoers and mall customers. Cutting garage rates would supposedly entice consumers downtown, but at the risk of serious losses that would have to be paid by someone.

Who Will Pay?

Novak says he went along with the developer's request because he accepted the argument that when the mall was completed, parking volume would be sufficient to pay off the bonds. He now acknowledges that both the PDA and River Park Square were wrong to have relied on the controversial revenue projections.

The forecasts from Walker Parking Consultants used to sell the bonds predicted year 2000 revenues of $4.6 million. That projection was off by more than $2.5 million. The struggling PDA did not even take in sufficient parking revenues to cover its non-debt service expenses.

The taxpayers of Spokane were already committed to helping defray such losses by the 1997 emergency parking ordinance. Who else should pay was reportedly suggested by Robideaux at the August 16, 1999 Spokane Downtown Foundation board meeting. According to Tracy Richter's notes: "Robideaux... says other businesses must step up and not expect Betsy to subsidize. Wants business beneficiaries other than retailers to put $ in pot."

But that didn't happen. In the summer of 1999, with River Park Square's grand opening only days away, the quiet attempts to resolve the conflict between the developer and AMC appeared to be going nowhere. The mall and the theater seemed on the verge of divorce. In an August 10, 1999 letter, AMC apparently suggested that River Park Square had defaulted on its lease by failing to provide theatergoers with free parking. Neither AMC nor Cowles will release a copy of that letter. However, River Park Square attorney Duane Swinton's August 11 reply to AMC attorney Edward T. Bullard surfaced recently as part of legal discovery.

"River Park Square is disappointed that it did not hear back concerning its voluntary proposal to assist AMC on the validation issue," wrote Swinton. "That proposal was not a recognition of any default by River Park Square concerning the lease terms but rather constituted a good-faith effort by the landlord to assist one of its major tenants. River Park Square has not been, and is not, in default of its lease obligations. Unfortunately, because of the August 10th letters [sic], the proposal is hereby withdrawn by River Park Square."

Swinton's blustery tone notwithstanding, AMC clearly held the superior hand. Construction delays had postponed River Park Square's opening by three weeks. A lease provision gave AMC the right to pull out of the development entirely under such circumstances, so the developer was in no position to deliver ultimatums. Based on what happened next, it didn't take Cowles and her team long to figure that out.

At PDA's insistence, the developer signed a reimbursement agreement that insured the developer would compensate PDA for AMC's lost parking revenues if the theater pulled out over the dispute. In a move that epitomizes Cowles's use of strategic secrecy in managing her part of the public/private partnership, her attorney Duane Swinton asked PDA and Spokane Downtown Foundation attorneys Koegen and Ormsby to sign confidentiality agreements to keep this reimbursement pledge a secret. The developer agreed to defend that agreement against public records litigation, should any arise, and to pay any resulting fines ordered by the court. Koegen says he refused to sign. Ormsby confirmed he did sign the agreement but even now, pursuant to that agreement, says he cannot answer other questions about how he handled the AMC crisis for the foundation and Preston, Gates & Ellis.

The reimbursement agreement only covered revenue losses in the event AMC left River Park Square. It did not cover whatever deficits would result from discounts to AMC customers after the theater opened. It did not cover the worrisome losses Novak and Ormsby addressed in their August 13, 1999 letters.

Novak believes that private negotiations between AMC and Cowles at least managed to keep AMC from bolting. AMC and the mall developer won't discuss the deal that was struck. Novak's summation: "Somehow they pulled the thorn."

But apparently AMC was left smarting. On August 20, 1999, AMC attorney Bullard wrote a sharp letter to the Downtown Spokane Partnership, River Park Square boss Robideaux, and the PDA. His client, he said, was not happy with the new parking terms.

"AMC is concerned about and objects to the confusing and poorly timed implementation of the new program in connection with AMC's opening and the openings by other major retailers. The logistics of the program seem to change daily... many questions and confusion remain regarding the program as of the day prior to the opening of AMC's facility... For the foregoing reasons, AMC has asked us to request that the implementation of the 'easy pass' system be delayed and suggests that free parking be provided until it can be properly implemented..."

As River Park Square's losses steadily mount, Novak acknowledges that the warnings he and Ormsby sounded in their August 13, 1999 letters were to no avail. "We left it all in the hands of the lawyers," he says. "I mean, that's how we got where we are."

One person who is not surprised about the financial mess at River Park Square is former deputy city manager Pete Fortin. He says that when the mall opened it was generally understood in city hall that "more money would have to come in from somebody" if the bonds were to be repaid.

Did Fortin have any sense of how that would happen, or where the money would come from?

"No."

Did he have a sense of whether it would happen?

"Well, in my mind it had to happen."

Fortin retired in February 2000. Who in the city at that time did he think had an understanding of where the new revenue would come from to pay off River Park Square's bonds?

"I don't think anybody did. I don't think the process had begun to determine where it would come from."

Asked what he expects to happen next, Fortin seemed resigned to Spokane's ongoing impasse. He replied: "I'm going to go make a presentation tonight on the incorporation of the Spokane Valley. That's all I'm guessing on."

Meanwhile, those trying to solve the mystery of River Park Square can only scratch their heads about why the developer, the PDA and the Downtown Spokane Foundation allowed the mall to open under such uncertain circumstances.

As the city's special counsel Laurel Siddoway put it in court papers filed in a discovery motion in mid-April 2001: "Further discovery will perhaps reveal why the parties felt obliged to close the purchase under these circumstances."

THE END

See sidebar, "Box Canyon."

Return to Part 1

Copyright 2001 by camasmagazine.com