City lays out its debt case in court
Friday, August 12, 2011
WENATCHEE — The city says state laws passed in the late 1800s to limit city spending are not clear enough to easily determine whether Wenatchee can legally back the Town Toyota Center’s nearly $42 million outstanding debt.
The city laid out its case in court documents filed Thursday in Chelan County Superior Court in a lawsuit to determine whether the city can legally back the debt when it is refinanced later this year.
The city wants to honor a commitment it made in 2006 to loan money to the arena’s owner to make its annual debt payments, The city’s attorney, Arley Harrel, wrote. But city leaders do not want to exceed their legal debt limit.
“The city finds itself between the proverbial rock and a hard place,” Harrel wrote. “Unfortunately, Washington legal precedent does not provide clear guidance to the city on how to resolve this conflict.” The city sued last month, asking a judge to determine whether backing the bonds would constitute debt for the city. The suit names the taxpayers of Wenatchee as defendants, and businessman Mike Walker as the taxpayers’ representative.
If the city signs the loan agreement with the Greater Wenatchee Regional Events Center Public Facilities District, it would be committing to pay about $65 million over the life of a 20-year bond issue, or about $85 million if the bonds are paid off in 30 years.
Harrel argued in the documents that because the city does not have to borrow money to make the loan to the PFD, it would not be debt in the traditional use of the term. He cited a number of previous court cases that could be helpful to the court in making a ruling, but none are similar to Wenatchee’s case or answer the debt question definitively.
Walker’s attorney, Tom O’Connell, filed paperwork on Wednesday with the court stating that he intends to argue that backing the bonds would constitute debt.
Documents filed Thursday state that the PFD would not be able to refinance the current short-term, interest-only bonds that expire on Dec. 1 without the city’s backing. And, because the district is not generating enough revenue to cover operations of the arena and the annual debt payment, the city is expected to make the majority of the debt payment for the foreseeable future.
The city’s annual payment is estimated to be between $2.5 million and $3 million a year.
Under state law, the city cannot incur debt that is greater than 2.5 percent of its total taxable property value, and can only commit 1.5 percent of that value without voter approval. Under that formula, the city currently has a non-voter-approved debt capacity of just over $23 million that it could tap for Town Toyota Center.
The City Council has already passed an ordinance saying that it intends to back the bonds when they are refinanced if the court determines that it would not constitute debt.
The PFD has until Monday to file its arguments with the court.
Judge John Bridges will hear the case on Sept. 8.
Michelle McNiel: 664-7152
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