Newspaper part of the story in Spokane fight

SPOKANE — Cherie Rodgers arrived on the scene of Spokane's civic brawl almost by accident.

Rodgers, 54, is a quick-to-smile neighborhood activist who moved to Spokane in 1986. As chance would have it, she was sworn in to fill a vacancy on the Spokane City Council in late 1997 — a week after key parts of a public / private plan to rebuild downtown's River Park Square mall were approved.

The widow of a career military man, Rodgers is part Blackfeet Indian and grew up on a reservation in Montana's Flathead Valley. She brought the kind of no-spin, common-sense approach to city government her constituents — northsiders of mostly modest means — expected.

She knew Spokane's legendary Cowles family then only by reputation: They own half the town, not to mention the newspaper, she was told. Cross them at your own peril. Always been that way; always will.

But Rodgers had doubts about the plan to build an upscale mall, owned by the Cowleses and financed with a mix of money from retail sales, parking-garage fees and a big federal loan.

Beyond the messy financing, she had an even more fundamental question: Would folks in Spokane, known as a city of coupon clippers, really flock to pay $69 for a towel rack at Restoration Hardware?

She points to the Monroe Street Bridge spanning the Spokane River.

"When I moved here, there was a toll on that bridge," she says. "It was a dime if you had three people in your car, and 25 cents if you had two or less. The day they took the toll off, 14,000 more people used the bridge.

"That's Spokane."

When she began studying the mall's paper trail, her eyes popped.

"There were two sets of books," she says, referring to confidential River Park Square studies that raised red flags.

The reports — some backed by opinions from the city's attorneys — suggested that the amount the city was paying for the mall's parking garage was so steep that it could go bankrupt, leaving the entire project in peril.

"It was a house of cards," she says.

Particularly galling to Rodgers was the use of federal Housing and Urban Development money for a loan to build a new Nordstrom store, and the use of future HUD grants as loan collateral. Rodgers, who grew up in HUD housing, bristled at the notion of risking money intended for Spokane's poor.

She became convinced that city officials knew the risks and accepted them as the cost of revitalizing a decaying downtown. But voters never got a chance to approve the deal, much of which, Rodgers says, was negotiated in private.

It since has become glaringly public. The city and the Cowles companies are co-defendants in a federal securities-fraud suit brought by jilted bondholders of the mall's struggling parking garage. Tens of millions of dollars are at stake in the trial, set for April.

That's OK with Rodgers, who would rather pay for a community cleansing than a cover-up.

"Let's let everybody see what actually happened," she says. "If you don't call a spade a spade, it just keeps on going."

Her take: The traditional power players, the Cowles family chief among them, might argue they were doing right by the city, but they were also doing plenty right by themselves.

A bully pulpit

Betsy Cowles, 41, is a fourth-generation Cowles heir, now in charge of the family's real-estate empire. It was she who broached the idea of a revitalized downtown mall. And it was she, Rodgers and others say, who sewed up public financing by driving a hard bargain with the city: Take the deal — or be blamed for abandoning downtown Spokane.

This was no idle threat. Betsy's brother, W. Stacey Cowles, 43, is publisher of the influential Spokesman-Review newspaper. Aggressive editorials in favor of the mall project — and review of news coverage of the financing — gave the Cowleses a bully pulpit few dared to challenge, Rodgers says.

"You've got Betsy and Stacey spinning the story, putting out only what they want to put out there," Rodgers asserts. "And you have their First Amendment attorney working all the details in the background."

She refers to Spokane attorney Duane Swinton, who had made a career helping newspapers fight for open government. In the mall deal, he worked the business side of the fence for the Cowles family, engineering much of the financing structure. And in 1999, he filed a suit against the City Council, trying to block the release of certain project documents.

That suit was later withdrawn. But a year later, Cowles family lawyers sued Rodgers, other council members and their spouses personally for defamation after Rodgers discussed the flap on local talk radio.

A stunned Rodgers hired her own lawyer and told the Cowleses to come get everything she had: Her little house and her $1,600-a-month Veterans Affairs pension check. She would gladly go back and live out her dream retirement in Montana — settled in a tent trailer surrounded by nothing messier than her photo albums and the Mission Mountains.

The defamation suit is now just one piece of the larger legal quagmire. But Rodgers' defiance — while it came too late to halt the project — would spark a populist movement to rid City Hall of officials perceived as being too cozy with the Cowleses.

In 2001, voters would re-elect her with a charge to keep at it. But she still wonders how things got so upside-down in the Lilac City.

"I've stopped watching sitcoms on television," she says. "This is more entertaining."

Chasing the story

A dig through the archives of The Spokesman-Review, produced two floors below Betsy Cowles' office, shows the paper did not ignore the River Park Square story. The bare bones of it are there, from the days things first began to go bad. And the stories noted the Cowleses owned both the mall and the newspaper.

What's missing is the kind of comprehensive investigation the same paper, long considered a high-quality publication for its market size, has devoted to other topics, such as neo-Nazis in North Idaho and environmental issues in Eastern Washington.

Jumping into that void were Tim Connor and Larry Shook, two local journalists who have made a passionate — but not very profitable — career pursuing the story.

Shook, 57, once was editor of the Seattle Weekly and publisher of the now-defunct Spokane Magazine. Connor, 46, made his mark investigating the Washington Public Power Supply System bond default for the same magazine.

The modern-day muckrakers picked up the scent of the River Park Square deal as they worked to create a city news magazine.

In an unusual print / TV collaboration, they teamed with Tom Grant, a reporter at KXLY-TV (one of the few mainstream news outlets in Spokane not owned by the Cowles family) who made a national name covering the Wenatchee sex-crimes controversy. Connor dug out documents and did the grunt work; Grant provided the broad public stage to air the story.

Connor and Shook's magazine plan — financed in part by Cowles' business rivals — didn't pan out. But they continued to publish on, winning several awards for a stream of in-depth River Park Square stories.

Their stories stoked a political revolt in Spokane. But outside the city, the brouhaha was barely noticed.

That's what the Cowleses count on, the muckrakers say.

"The checks and balances do not exist in Spokane," Shook says. "(The family's) gamble is, they never will."

The newspaper's role

The Spokesman-Review, circulation 108,000, is the only sizeable daily newspaper for hundreds of miles. As such, it alone had the clout to alert the public to the fault lines in the garage deal.

Critics say the paper failed to do that, despite having information handed to it on a silver platter.

In 1998, a confidential memo from two city attorneys outlining the risky nature of the HUD loan was leaked to The Spokesman-Review. The paper sat on it. Five months later, the same document was leaked to The Wall Street Journal, which reported what was shaping up as a major bond default.

Worse, critics say, has been the paper's role as a vigorous advocate of River Park Square. In the project's early years, editorials supported the project and assailed mall critics, most notably former Mayor John Talbott, who publicly questioned the HUD loan to officials in Washington, D.C.

"If journalism had the equivalent of a legal bar or medical board, The Spokesman-Review would not be able to practice," Shook says, noting that Talbott's warnings would later prove prescient. "Their license would be revoked over this."

Both Betsy and Stacey Cowles would acknowledge later, in court depositions, that they routinely reviewed Spokesman-Review stories related to the mall in advance of publication. The Cowleses say it was part of a "no-surprises rule" to notify family members when they were going to be in the news. Critics say it had a dangerous dampening effect on reporters.

The practice of prepublication review was abandoned in 2001, says Spokesman-Review Executive Editor Steven Smith, who replaced longtime editor Chris Peck a year ago.

"We did have some internal practices that were not rigorous enough," Smith says. "There were some ethical issues in terms of the way we handled River Park Square."

Yet he maintains that blanket criticism of the paper's coverage is unwarranted.

"In general, over the years there was a sincere intent by this newsroom to do the right thing," Smith says. "We've published hundreds of stories. Most of the salient elements were broken by this newspaper."

In 2000, the paper convened a "Credibility Roundtable" to hear community concerns. But it rejected calls to hire an independent outsider to evaluate the paper's coverage or to cover the mall story in the future.

No need, according to both Smith and the Cowleses, who say the staff has complete freedom to pursue the story.

"There is a firewall (today)," Smith says. "It begins and ends with me."

Shook scoffs at that: "It's a no-brainer. You can't own the town that you cover."

The family paper's ability to exert influence for its own benefit, Shook says, reveals the dangers of monopoly media ownership now being debated in Congress.

"If you want to know the relationship between the public's right to know and how a society's business gets conducted," he says, "Spokane, unfortunately, is a fascinating drop of pond water under the microscope."

Ted McGregor Jr., editor and publisher of Spokane's alternative weekly, The Inlander, agrees. He accepts Betsy Cowles' word that she was trying to save downtown and thinks she may have succeeded. But he says The Spokesman-Review was asleep when it came time to safeguard the public's right to know.

"If they had raised questions early on, it would have made all the difference," he says. "That's where the watchdog fell asleep."

"Censored in Spokane," a Web site maintained by Washington State University professor David Demers, includes links to a parade of criticism of the newspaper and a growing list of letters to the editor about River Park Square, submitted to The Spokesman-Review but never published.

And even as Betsy Cowles defends the firewall between her family's business empire and its newspaper, a job posting appears in the lobby of the newspaper building, under the Spokesman-Review logo. The job: customer-service representative for River Park Square.

Plenty of fallout

After six years, the controversy continues to stand Spokane on its head. A sampling of the fallout:

• The City Council swung from a pro-mall majority in 1996 to a 4-3 majority for mall critics by 2000.

• The upstart council refused to make the loan payments for the parking-garage shortfalls to the Cowles family. And in 2000, it filed suit accusing the Cowles companies of a broad civil conspiracy to hijack millions in public funds for a private project.

• Wall Street downgraded the city's credit rating. This makes future bond sales — a primary way cities borrow money — more expensive.

• Garage bondholders, a group that includes some of America's leading financial institutions, in 2001 filed suit in federal court to get their money back and make a national example of Spokane and the Cowleses.

The legal gloves remain off, in spite of the efforts of Mayor John Powers, elected in 2000 on a settle-the-mall-mess pledge. His first act was to defang the city's conspiracy suit against the Cowleses. It was a compromise he hoped would entice Betsy Cowles to settle out of court.

It failed. And last month, Powers was fired by voters, who placed him third in the primary election. Spokane's mayor at next spring's trial date will be either Tom Grant, the TV reporter who helped break the story, or Republican state Senate Majority Leader Jim West, endorsed by The Spokesman-Review.

Now, with the bondholders' suit looming in April and legal fees piling up, a federal mediation effort continues. But it hasn't persuaded Spokane's combative parties to bury their hatchets, and an out-of-court settlement seems doubtful.

The trial jury could determine that bondholders knew the risks of their investment. Or it could find the city and Cowleses guilty of defrauding investors by downplaying the risks — possibly leading to a multimillion-dollar judgment against one or both parties.

A proud legacy

Also on trial, in the court of public opinion: the century-old power structure of Spokane, where deals have often been brokered behind closed doors, with the Cowles family nearly always in the room.

"These two people, Betsy and Stacey Cowles, are relatively young," says Connor, the journalist. "They're going to hold power in Spokane for a generation. If this is what we have to expect, I'm going to have a hard time raising my kids here."

But Betsy Cowles — Spokane native, lawyer, business leader, philanthropist, skier, soccer mom to two young sons — doesn't apologize for the costly, controversial project.

"I love living here," she says. "Because of the transformation that's happened here in the last five years, this is a city my kids will want to live in."

Nor does she apologize for her family's legacy. She is, she says, a "proud, card-carrying member of the Cowles clan, or Cowles gang, whatever they call us."

Her predecessors, she reminds, made it their business to do "good things for the community. We plan to carry on that tradition."

But the tradition already has been altered. Betsy Cowles now looks out on her hometown with mistrust. She says criticism of the River Park Square is orchestrated by rivals who want to bring the Cowles family down.

The mall project, she maintains, ultimately will bring the city more in tax revenues than it drains in other ways.

"There was no grand conspiracy," she says. "Council members were voting to revitalize downtown. They knew there were risks. We knew there were risks. We're not making any money off of this."

How folks view that statement depends on which side of this dispute — and maybe even which side of the Spokane River — they're standing on.

The downtown is spiffier, but old frontier-town dividing lines still exist. Downtown business interests defend from the south side. Blue-collar residents with a neighborhood-reform view peck away from the north.

Up in her office, Betsy Cowles looks down at her town. Light traffic below the Review Building makes its way past the infamous parking garage that could save — or spoil — Spokane.

"Someday, this might be a really interesting case study," she says. "But when you're living it, well, it'd sure be nice if it was happening in somebody else's town."

Ron C. Judd: 206-464-8280, or

River Park Square — a legacy of litigation

More than a dozen lawsuits have been filed in connection with River Park Square, a public / private mall redevelopment in downtown Spokane. Most are on hold pending resolution of the largest lawsuit:

The trial: Securities-fraud suit

Jurisdiction: Federal District Court, Spokane; Judge Edward Shea

Trial date: April 2004

Plaintiffs: U.S. Bank Trust, the trustee for bondholders and seven institutional investors, including John Nuveen & Co., Salomon Smith Barney and Vanguard Group

Defendants: City of Spokane, River Park Square, LLC (mall-development company owned by Cowles family), numerous bond underwriters, consultants and law firms

At issue: Whether city and mall developers fraudulently misrepresented financial risks in the mall deal

Relief sought: Repayment of $31.5 million in bonds issued to remodel a parking garage