SAN FRANCISCO — Washington Treasurer James McIntire is pitching a rescue plan to prevent a $42 million default, a move he says would protect other state credits from contagion effects.
McIntire would use local tax money to pay the principal owed on $42 million of bond anticipation notes issued by the Greater Wenatchee Events Center Public Facility District that are due Dec. 1.
“A default of this nature would be costly and far-reaching for taxpayers around the state who have had nothing at all to do with this facility or its financing,” McIntire said in a statement Friday.
Under the plan, the state would provide a 10-year loan to the district at an interest rate tied to The Bond Buyer’s 20-bond index plus one percentage point. Jurisdictions in the public facility district could repay the loan with a sales tax increase of up to 0.2% with either voter or Wenatchee City Council approval. This would also allow the district’s members to issue bonds at a lower interest rate to repay the loan.
The legislation would have to be pushed through and signed in only three days during the emergency session, scheduled for Nov. 28, to tackle Washington’s expected $2 billion deficit.
Market expectations of state involvement in local financial problems have risen in recent months.
Because of recent high-profile municipal bankruptcies, the market is looking more for states to step in to help prevent bankruptcies or defaults from infecting other credits, according to Howard Cure, director of municipal research at Evercore Wealth Management in New York.
Jefferson County, Ala., became the largest municipal bankruptcy ever this month after following in the footsteps of Chapter 9 filings this year by Harrisburg, Pa., and Central Falls, R.I.
Washington officials are trying to avoid dredging up memories of the Washington Public Power Supply System’s $2.25 billion default on tax-exempt debt in the 1980s. The WPPSS — often called Whoops — debacle haunted the state’s ratings for years.
The public facilities district issued its Bans to help fund construction of the Town Toyota Center arena, a financial disaster since opening in 2008. That year, it issued three series — $5 million of limited sales tax Bans, and $5.5 million and $31 million of revenue and special tax Bans.
The facilities district is unrated, but Moody’s Investors Service this month downgraded Wenatchee’s general obligation bond rating three notches to A3 from Aa3 because of the fiscal problems linked to the arena. In September, Standard & Poor’s cut its underlying rating on the city to A-minus from A for the same reasons.
Wenatchee is the largest member of the district and is on the hook for debt service for the district’s bonds because of a contingency loan agreement. It had hoped to issue long-term bonds to pay off the notes, but a Superior Court judge ruled in September that the bonds would put the city of 30,000 over its debt limit.