We are asking the Legislature to immediately pass a bill to protect the state’s local governments and their taxpayers by repaying $42 million in bonds taken out to build an events center in Wenatchee. Without this intervention, these bonds will default this Thursday and have potentially crippling financial effects across the state.
In 2008, the Greater Wenatchee Events Center Public Facilities District (PFD), made up of Wenatchee and eight other local jurisdictions, issued these bonds with the idea they would be refinanced when the economy recovered and consumer spending rebounded. Unfortunately, the events center has not lived up to economic projections. The immediate debt is more costly than the PFD can afford and local jurisdictions have not come up with an agreement to address it. The PFD is now on the verge of default because of this inaction.
Our proposed legislation would provide a bridge loan to buy time for the PFD and local governments to get their finances in order. Unfortunately, this has been mischaracterized as a “bailout,” which is untrue. This legislation is a very bitter pill for the PFD and its local jurisdictions and is no bailout. The PFD is capable of repayment over time. This measure would force the city of Wenatchee and the other local entities to repay their debts — with their own money — period.
Many are asking why the state would step in when it has no legal obligation to prevent this default. Admittedly, even we are reluctant. No one likes the position of this potential failure, but a default is much worse, and would put local governments in a difficult financial situation.
If the state does not take control now, the failings of this one small government entity would become a fiscal millstone for many local governments in Washington. Bond investors can choose among thousands of issuers throughout the country. A default of the Wenatchee PFD would cause investors to demand higher interest rates from other local government borrowers in Washington who they may perceive as being at similar risk.
For example, borrowing costs on a $100 million bond could increase by as much as $15 million to $20 million — scarce tax dollars that would go toward higher interest payments rather than create jobs and build the infrastructure and facilities we need. In some cases, local projects could be avoided by bond investors — which would stop them in their tracks.
Local utilities still shudder at the memories of the financial devastation created 29 years ago when the Washington Public Power Supply System defaulted on $2.25 billion in bonds. Lawsuits held the matter in the courts for more than 13 years. By the time the last settlements were reached, credit ratings were destroyed and it took years for the utilities and their ratepayers to recover. Though on a much smaller scale, local governments and taxpayers face a similar fate if our proposed legislation does not pass. The state cannot stand by and allow this to happen.
We have ensured every component of strict accountability in our bridge-loan legislation. Here are some important points to note:
1. The bill does not use any state funds. Instead, the $42 million needed to avoid default would come from local funds in the state-administered local sales and use tax account.
2. Since there are no state funds involved, it does not make the general fund deficit worse, nor will it affect the state operating, capital or transportation budgets.
3. It includes severe interest rates and terms as a strong disincentive against other local governments that might tempt default.
4. The substitute measure does not allow the unelected PFD board to councilmatically raise the sales tax rate — a request by local officials that differs from the original bill.
5. It is not a bailout. It holds the nine jurisdictions of the Wenatchee PFD tightly on the hook for all repayment — and will garnish local funds from those jurisdictions with severe penalties if the PFD fails to make repayment.
We could ignore this impending default — but that would be wholly irresponsible. The costs of a default, potential bankruptcy, years of lawsuits, and resulting skyrocketing interest rates for local governments and their taxpayers in Washington are too great of a price to bear — especially when it can be avoided responsibly and the PFD jurisdictions are capable of paying the bill.
We are asking your legislators and all citizens to support this legislation and protect Washington’s taxpayers.
Jim McIntire is the elected treasurer for the state of Washington. Rep. Ross Hunter, D-Medina, is chairman of the House Ways and Means Committee. Sen. Linda Evans Parlette, Rep. Mike Armstrong, both R-Wenatchee, and Rep. Cary Condotta, R-East Wenatchee, represent the 12th Legislative District in North Central Washington.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
