SAN FRANCISCO — Washington’s treasurer will ask the Legislature to cough up $42 million to try to protect the state from the repercussions of a local municipal default.
The treasurer’s office will ask lawmakers during this month’s special session to green-light a loan to the eastern Washington city of Wenatchee to prevent a default on bond anticipation notes due Dec. 1.
“We don’t want to be in the situation where we have another municipal default in the state,” said Chris McGann, spokesman for Treasurer James McIntire. “We are not helping out Wenatchee, we are protecting the state.”
The city is on the hook for notes issued by the Greater Wenatchee Regional Events Public Facilities District to help fund construction of the Town Toyota Center arena, a financial flop since opening in 2008. The legislation would have to be pushed through and signed in only three days during the emergency session, scheduled for Nov. 28, to tackle the state’s expected $2 billion deficit.
McGann said the treasurer’s office has appointed a special envoy to work with Wenatchee and the public facilities district to try to prevent the default.
The city had hoped to issue long-term bonds to pay off the notes, but after it filed a validation action a Superior Court judge ruled in September that the bonds would put it over its debt limit, according to bond disclosure documents filed with the Municipal Securities Rulemaking Board’s EMMA website. The state Supreme Court has agreed to expedite a hearing on the appeal, but won’t take action before the December deadline.
Officials are trying to prevent any default that could raise the specter of the Washington Public Power Supply System’s $2.25 billion default on tax-exempt debt in the 1980s. The so-called Whoops debacle haunted the state’s ratings for years.
The public facilities district, created in 2006 to develop the arena, includes two counties and eight other municipalities but Wenatchee, with a population of 30,000, is its largest city and backstops the notes.
The district issued three series of notes in 2008 for the arena: $5 million of limited sales tax Bans, $5.5 million of revenue and special tax Bans, and an additional $31 million of revenue and special tax Bans.
The notes have required $2.2 million of annual interest payments. The center had only been able to contribute around $600,000 to the annual payments using sales tax revenues, leaving the rest of the cost to the city.
The 4,300-seat arena has lost money since it opened. It had an operating loss of $1.6 million in 2008 and $2.5 million in 2009.
The company hired to help build and then manage the center, Global Entertainment Corp., made unrealistic revenue projections, according to city officials.
After the first year, the center fired GEC, hired a general manager, and took over operations. Since then, revenues have improved enough to cover operations but not debt service.
Wenatchee has also had budget troubles of its own and had to make cuts to fund the debt service payments for the center. It has trimmed at least 15 staff positions since 2009. The city’s interim finance director, Deanne McDaniel, said she has not been privy to the conversations about securing a loan from the state but said the city is working on a long-term solution.
On Sept. 28, Standard & Poor’s lowered its short-term rating on the 2008 revenue and special tax notes to SP-3 from SP-2. At the same time, it upgraded the limited sales tax Bans to SP-1 from SP-2.
Standard & Poor’s also lowered the underlying rating on the city’s general obligation bonds to A-minus from A, and kept a negative outlook because of problems stemming from the arena debt.
Wenatchee has $12.8 million of non-voter-approved limited-tax GOs and $3.1 million of voter-approved GOs outstanding. Moody’s Investors Service rates the limited-tax GOs A1 and the voter-approved GOs Aa3.