Article by Erik Smith. Published on Wednesday, December 07, 2011 EST.

No Hearing Contemplated in Senate Ways and Means Committee, but Advocates Hope to Pull Bill to Floor – Costly Litigation in $42 Million Default Could Come at Any Moment

Sens. Linda Evans Parlette, R-Wenatchee, and Ed Murray, D-Seattle, chairman of the Ways and Means Committee.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Dec. 7.—It’s looking like the Wenatchee rescue bill is in big trouble in the state Senate, and if the time is coming for lawmakers to put up or shut up, that time may be today.

            Lawsuits are expected shortly in the wake of the $42 million default last week of a Wenatchee-area public facilities district, unless the Legislature acts quickly to provide a bridge loan. The bill is pending in the state Senate, following passage in the House on Monday. But the full Senate doesn’t meet Thursday, meaning that today’s floor session might be the last chance to pass something before a cascade of multimillion-dollar litigation rains down on the Apple Capital, and possibly drives up borrowing costs for municipal taxing districts statewide.

            “Wednesday is a very important day,” said state Sen. Linda Evans Parlette, R-Wenatchee, who is counting votes to pass the bill. At this point advocates are several votes shy of the number they need, but they will press the case one more time this morning during closed-door sessions of the Senate Republican and Democratic caucuses.

            Already one hint of the game-plan appears to be emerging. State Sen. Ed Murray, D-Seattle, chairman of the Senate Ways and Means Committee, says he does not plan to hold another hearing on the rescue measure. Murray has made known his opposition to the measure. However, he said he will not stand in the way of a vote to bring the bill to the floor, bypassing his committee, if Parlette can find the votes.

            “Right now it certainly doesn’t have the votes to move,” Murray said. “I mean, I am personally opposed. But I have been pretty clear, as I have done with other bills, if the votes were there I would move the bill [to the floor]. But the votes are not even close to being there.”

            Officials of the state treasurer’s office say noteholders aren’t going to wait forever, and the longer the Legislature debates the issue, the more likely it is that someone will file a lawsuit and take the matter out of the political realm. Once that happens, it warns, municipal districts statewide will face higher interest rates when they seek to issue new debt. Ultimately it is taxpayers who will pay, potentially in the millions. Some interest groups say they are concerned that the state’s own high bond rating may be threatened, because the state of Washington failed to take action.

            Many said after the default took place that the Legislature might have a week to act. The week ends at 9:59 a.m. on Thursday.

            Ought to Accept Amendment

            The situation is prompted by the default last Thursday of the Wenatchee district, which issued bond anticipation notes in 2008 to pay for construction of the Town Toyota Center, a 4,300-seat arena in Wenatchee. The district was supposed to have issued bonds to pay off the notes by Dec. 1. But because of a complicated set of circumstances, due in part to a September court ruling and a cumbersome governmental structure that prevented the district from reacting quickly, the bonds were never issued. Interest on the notes was paid last week, but the $42 million in principal remains outstanding. Creditors have held off on lawsuits in hopes that the Legislature will act.

            How much time does the Legislature have? “It’s really hours and days, not days and weeks,” said Wolfgang Opitz of the state treasurer’s office. “As I said last week, it’s ambiguous, and that view hasn’t changed. Sooner is better than later.”

Parlette said that time is so tight that the Senate ought to accept a controversial amendment to House Bill 2145 that was passed on the House floor Monday. “It was a stronger bill without it, but I think at this point that paying off the bondholders is the most important thing, due to how much time we have and how much time we’ve already spent talking about this issue, at a time when we’re supposed to be talking about the budget. I think we should just take the bill in this form and leave it that way.”

            Requires Voter Approval for Sales Tax Hike

At the insistence of Republicans, the House made a tweak to House Bill 2145 that eliminated the ability of the nine participating taxing districts to raise sales taxes without a vote of the people. That provision originally was intended to give them a way to pay back the $42 million loan from the state. The idea behind the bill is to offer a loan to the taxing districts from a state sales-tax distribution account, giving them time to find new financing on the bond market.

            If they don’t find new financing by the end of 2012, the state will begin charging a punitive interest rate, much higher than the market rate on similar types of financing. The state would garnish sales tax payments to the cities and counties involved in the Wenatchee public facilities district for the next ten years, thus ensuring that the money would be paid back.

            Democrats have raised concerns that the cities and counties in the area would cut public services if they cannot raise sales taxes on their own. Conservative voters in the area are considered unlikely to raise their own taxes to pay for the arena. However, if paying arena debt becomes the first priority for the Wenatchee-area cities and counties, those taxing districts also have the option of going to the voters and asking them if they wish to raise their own taxes to pay for police, fire protection, museums, roads and libraries.

            Let Default Proceed
 

            Murray said the situation raises the possibility that local governments in the Wenatchee area might go bankrupt trying to provide public services and paying on debt at the same time. He said that perhaps the state might be better off drawing the line and declaring that the Wenatchee area ought to pay the consequences of a default. “Do we as a state have a zero tolerance policy?” he asked. “Are we going to step into every situation in these dozens and dozens of local jurisdictions if they enter into financial arrangements that didn’t even pencil out before the economy crashed? I think it’s a big policy question. I think the bigger question is not Wenatchee, but what are you going to do going forward?

            “I think we need a higher level of scrutiny on all of these districts, and I am working on some legislation that I may introduce as soon as tomorrow.”

            Kennewick City Manager’s Statement Confuses Matters

            The central argument for state intervention is that the bond market will jack up borrowing costs for other municipal districts statewide. The state treasurer’s office is citing the case of a public facilities district in Kennewick that last month went to the bond market to refinance a little less than $10 million in bonds for the Three Rivers Convention Center. The Wenatchee default was impending at the time, and the district wound up paying three-tenths of a percent more than it had proposed in its offering. That means Kennewick taxpayers will pay $200,000 more over the life of the loan.

            The state treasurer’s office says it is the direct result of the Wenatchee trouble, and that taxing districts statewide will face exactly the same problem when they go to the market if the default is not averted.

            However, waters were muddied by a statement made by Kennewick city manager Marie Mosley and published in the Tri-City Herald Friday. She noted that Kennewick taxpayers saved money as a result of the refinancing, about $450,000 over the life of the loan. And she insisted that the Wenatchee situation did not affect the refinancing. “We were concerned about a possible effect with the refinancing, but we were never of the understanding that it was an issue.”

            Opitz of the treasurer’s office said it is well-understood in the financial community that Kennewick would have gotten a better deal if it hadn’t been for Wenatchee. “The question isn’t what deal you got,” he said. “It’s a question of what deal you otherwise would have gotten.”

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