Article by Erik Smith. Published on Wednesday, December 1, 2011 EST.
Rumors Swirl of Hostage-Taking on ‘Sprint Bill’ – Denied by Democratic Leaders
Officials of the state treasurer’s office plead for support Tuesday from the Senate Ways and Means Committee. Right to left, Johnna Craig, Wolfgang Opitz, Jay Reich.
By Erik Smith
Staff writer/ Washington State Wire
OLYMPIA, Nov. 30.—A last-ditch effort to prevent a debt default in Wenatchee appears to be foundering in the state Legislature, and the treasurer’s office is warning of dire consequences for the state if lawmakers fail to take action by Thursday morning.
If lawmakers do nothing, the Greater Wenatchee Area Public Facilities District will default Thursday on $42 million in debt racked up in construction of a civic arena. And the clock is ticking. Lawmakers had just enough time to pass a rescue bill when they convened their special legislative session on Monday – but the effort bogged down in the House Tuesday amid skepticism from lawmakers that things could really be as awful as state treasurer Jim McIntire warns.
Rumors swirled through Republican ranks Tuesday that majority Democrats were trying to hold the rescue measure hostage for the so-called “Sprint bill.” That measure, written by the Department of Revenue and favored by Democrats, would override a court decision that allows cell phone companies to avoid paying sales tax. But it also would force cable landline customers to pay a tax they never have paid before, perhaps constituting a new tax – and any new tax would require Republican cooperation for a two-thirds vote of the House and Senate. In the always-political environment of the Legislature, such a tradeoff strikes many Republican members as plausible because the Wenatchee area is represented entirely by the GOP.
But House Democratic leaders denied the charge. And it seemed more likely that advocates are having trouble lining up votes for a complicated loan scheme that strikes many lawmakers as a bailout for a small community in an isolated part of the state that should have seen trouble coming and dithered until the last minute.
Last Day for Action
Stakes are high on this one, as is the deadline pressure. Default is triggered if a bill doesn’t land on the governor’s desk and get a signature by 10 a.m. tomorrow. The fact that the House took no action Tuesday makes the matter a nail-biter, said state Rep. Cary Condotta, R-Wenatchee, one of the sponsors of the House version of the bill. Once the bill passes the House it still must go through the Senate.
“The time is ticking away, and I think if we are not on this thing in the morning, I think we have some serious issues,” he said. “And now I’m hearing that the morning session has been pushed back to 11 o’clock, and so I am very concerned. I think if the House doesn’t take action by very early afternoon it will be very difficult to get this done.”
Advocates had been hoping that the House would pass the measure Tuesday afternoon. But the vote was called off, apparently because preliminary vote counts fell short. Republican and Democratic leaders in the state House met behind closed doors Tuesday afternoon. House Majority Leader Pat Sullivan denied rumors of a hostage-taking strategy. The problem is that the votes haven’t been lined up for the Wenatchee measure, he said.
“We had a number of meetings in the House talking about those questions on those bills. Actually, Rep. [Richard] DeBolt [the House Republican leader] asked very explicitly when I was in the room whether those two bills were linked, and I said emphatically no. And [House Speaker] Frank [Chopp] in a later meeting actually said that we weren’t going to do the Sprint bill for a while, but we were interested in doing the Wenatchee bill.
“It is just a matter of getting the 50 votes we need, to combine the House Republican and Democratic caucuses.”
Most attention has focused on the House, for the simple reason that its budget committee passed the House version of the rescue bill, HB 2126, on the opening day of the special session. An identical bill, SB 5965, has been filed in the Senate, but its budget committee did not meet until Tuesday. The committee held a hearing but took no action.
‘Extrordinarily Painful and Expensive’
The treasurer’s office is doing its best to convey the alarm felt by local governments at the prospect of a default. It would be the biggest default by a municipal government agency in Washington state since the notorious $2 billion collapse of the Washington Public Power Supply System in 1983. Not only would Wenatchee-area city and county governments face years of costly litigation and dramatic increases in borrowing costs, the treasurer’s office also warns of a fallout effect for every other local government in Washington.
Bond buyers back east are going to see Washington as the kind of state where local governments would prefer to throw up their hands and go to court rather than fulfill their contractual obligations and pay their debts on time, said Jay Reich, bond counsel for the treasurer’s office. Odds are borrowing costs would increase across the entire state.
Meanwhile, creditors might assume ownership of the 4,300-seat Wenatchee Town Toyota Center. But what is more likely to happen is that they will take the nine participating city and county governments to court and the battles will last for years.
“I think the bondholders are going to want to get paid,” Reich told the Senate Ways and Means Committee Tuesday. “They are not going to want a used hockey rink which probably has no market value. What they are probably going to do is to sue every one of the cities and all the professionals who were involved for a long period of time, claiming that they were sold a bill of goods; the risks were not disclosed properly; that there was securities fraud, regardless of what the contractual obligation is, and they will want the $42 million back and will not stop.
“That legal uncertainty does put a cloud over the marketplace, not only for those who are affected, but, as I say, this is a default, a failure to pay on debt, and people will view credit here – that people will rather litigate than pay their debt. I can’t predict the future here, but it is not going to be as neat and clean as we would hope.”
About all that litigation would settle is who is to blame, he said. “One might argue that is a cleansing experience,” he said, “but it would be extraordinarily painful and expensive.”
Far from Greased
Advocates still have a big selling job to do. Many lawmakers say they are unconvinced that the state has a duty to step in. Precisely what happened in Wenatchee is a rather complicated story. The upshot is that the local governments in the area faced a deadline to obtain bond financing, but didn’t.
“I understand the facts, I don’t think they were unforeseen,” said state Sen. Karen Keiser. “It seems to me an incentive for other PFD’s or other jurisdictions to kick back a little bit and let the state to come to their rescue. I think that is a very dangerous precedent.”
Sen. Ed Murray, D-Seattle, chairman of the Senate Ways and Means Committee, was quoted in an Associated Press story Tuesday night that he opposes the measure. If true, his opposition could be the biggest hurdle of all, as the House measure would likely be routed to his committee before it goes to the floor.
During Tuesday’s hearing, Murray said, “It still leaves me with a problem as I look at this. I mean, there hasn’t been a particular will on the part of Wenatchee to raise taxes to finance this as it probably should have been financed in the first place, so I’m not sure the will is there, even if this bill is passed. And if we do pass this and come back a year from now and we hear that Wenatchee has cut fire and police and the bondholders are left whole – I think that’s a problem.”
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