Spokane Council passes sweeping public/private partnership reforms, including new public records, loan security, and appraisal requirements.
The Spokane City Council voted unanimously Monday to approve four broad rule changes in the way Spokane does public/private partnerships. Although the words River Park Square don’t appear in the new ordinance, each of the four reforms addresses well-documented abuses in the River Park Square public/private partnership that the city approved in January 1997.
1) All transactions in involving city funds for which appraisals are used to determine value will require market value appraisals. The measure adopts, nearly verbatim, the market value appraisal requirements adopted by the U.S. Congress in 1989 as part of banking reforms brought on by the Savings & Loan crisis of the 1980s. The measure responds, most directly, to the River Park Square garage transaction in which a highly unusual “investment value” appraisal method was used to boost the sale price of the garage to $26 million, even though appraisers working for the city put its market value at less than $14 million.
2) When tax-exempt bonds are sold to finance portions of public/private
partnerships, the city will now require that the City Auditor certify that no more than 10 percent of bond proceeds go to benefit private developers or other private parties. If and when non-profit entities are used in such transactions the city will also certify that the non-profit is organized and operated “in the public interest,” and that it either have received Internal Revenue Service (IRS) certification as a federally recognized non-profit, or have a pending application to the IRS seeking non-profit status. This reform responds to a June, 2004, IRS report that found multiple violations of federal tax rules in the RPS garage transaction, including massive overpayments to the Cowles family, which sold the garage for $26 million but continued to collect rent on the property, and influence garage operations, through a lease and covenants attached to the land beneath the garage, which the family did not sell. The IRS stripped the bonds of their tax-exempt status as a result, a move that ultimately cost the city millions of dollars and helped fuel a successful securities fraud suit by garage bondholders.
3) Developers who want to use the city to broker low-interest federal loans will now face stiff new requirements to post a letter of credit as collateral to protect the city’s financial risk in the transaction. The new ordinance makes the letter of credit requirement mandatory on loans through the Department of Housing and Urban Development’s (HUD) 108 loan program. For other loan transactions involving the city’s assistance as a broker of loan funds, a letter of credit is required unless the council formally waives the requirement after a public hearing. Although HUD guidelines recommended the city obtain an “unconditional” letter of credit for its $22.65 million loan to River Park Square in 1998, city officials (against HUD’s advice) declined to secure a letter of credit or comparable collateral from the Cowles family. Consequently, when the loan went into default in 2004, the city had to divert over $1 million in federal grant funds to pay on the loan.
4) The city will now be prohibited from entering into private confidentiality agreements with developers to withhold public records that would otherwise be publicly available under the state’s public records law. The new language also requires non-profit entities acting on the city’s behalf in public/private partnerships to agree, in advance, to make their records publicly available
Council President Joe Shogan praised Mayor Mary Verner, Councilman Richard Rush and Assistant City Attorney Mike Piccolo for their work on developing the new ordinance and bringing it to the council.
Councilman Steve Corker, who was first elected to the council in 1999 largely because of his opposition to the RPS project, praised the measure.
“I think it’s important for us to learn the lessons of the past,” Corker said. “What I appreciate about this is not only defining some of the critical issues that have got to be a part of any future consideration, but just recognizing that any public/private partnership has to be public in the minds of the public. I think we’ve learned a lesson, that when public tax dollars are involved that every aspect of that project or corporation has to be open and available to all interested parties. We learned a lesson in terms of confidentiality issues. I think we learned a lesson that even in our own house, the city needs to be open. There were many of us who thought the city had been deceived but we learned that they were fully aware of the risks that were involved but those risks weren’t communicated to the public so they couldn’t be part of a dialog for future decisions.
“I think this bodes well for learning those lessons and making sure that both elected officials and people in the community can be more responsible to that openness and trust that’s part of our elected and fiscal responsibility.”
Councilman Bob Apple, another veteran RPS critic, also spoke in support of the ordinance even though he said he thought it should go further, particularly in the area of loan security.
“A lot of my motivation for bringing it forward,” said Councilman Richard Rush, “was to batten down the hatches and provide a way for the city where we could exercise our fiduciary responsibility and still leave room for public/private partnerships.”
No comments yet.