In re Bond Issuance of Greater Wenatchee Reg'l Events Ctr. Pub. Facilities Dist.

Decision Date25 October 2012
Docket NumberNo. 86552–3.,86552–3.
Citation175 Wash.2d 788,287 P.3d 567
CourtWashington Supreme Court


Donald Stewart Cohen, Eric Christensen, Gordon Thomas Honeywell, et al., Seattle, WA, Peter Allen Fraley, Attorney at Law, Wenatchee, WA, for Appellant.

Paul Arley Harrel, Michael White, Williams Kastner & Gibbs PLLC, Seattle, WA, Thomas Francis O'Connell, Attorney at Law, Wenatchee, WA, for Respondent.

Theodore Henry Gathe, Brent David Boger, Vancouver, WA, amicus counsel for City of Vancouver, Washington.

Paul J. Lawrence, Kymberly Kathryn Evanson, Jay Allen Reich, Pacifica Law Group LLP, Seattle, WA, amicus counsel for Washington State Treasurer.


[175 Wash.2d 791]¶ 1 Our state constitution limits municipal indebtedness to protect taxpayers from legislative and voter improvidence. We must decide whether the city of Wenatchee (City) would exceed its debt limit by entering into a “contingent loan agreement” (CLA) with appellant Greater Wenatchee Regional Events Center Public Facilities District (District) to help the District finance a regional events center. The District argues that the CLA is not subject to the City's debt limit because it creates a “contingent” liability, triggered only if the District is unable to make payments on the District's bonds. We reject this argument because the City is unconditionally obligated to service the District's debt if the District cannot and because the risk of loss falls upon the City and its taxpayers. We conclude that this case implicates the very concerns that prompted our framers to enact limits on municipal debt in the first place. We hold that because the City's obligation under the CLA is essentially a guaranty, it would create indebtedness within the meaning of our constitution. Accordingly, we affirm the trial court.

¶ 2 The City could enter into the CLA if approved by a vote of the people, but not without a popular vote. Total municipal debt incurred without a public vote is limited to one and one-half percent of the total assessed value of all taxable property within the City, while debt approved by 60 percent of the voters can be 5 percent of the total assessed value. Const. art. VIII, § 6. Our decision accordingly places the approval of the CLA in the hands of the voters.


¶ 3 The Greater Wenatchee Regional Events Center Public Facilities District is a municipal corporation organized under chapter 35.57 RCW. The District was formed in June 2006 by an interlocal agreement among the City, Chelan and Douglas counties, the cities of East Wenatchee, Cashmere, Chelan, Rock Island, Entiat, and the town of Waterville. The purpose of the District is to finance, construct, and operate the Greater Wenatchee Regional Events Center (Regional Center), a 167,531 square foot facility that hosts concerts, trade shows, family shows, sporting events, rodeos, and other gatherings. Construction of the Regional Center began in September 2006 and was completed in November 2008.

¶ 4 The interlocal agreement creating the District provided mechanisms for financing the Regional Center, giving the District authority to impose various taxes. Further, in September 2006, the District and the City agreed to make CLAs in the future requiring the City to loan money to the District as needed to meet the District's debt service obligations.

¶ 5 The District planned to finance the Regional Center using bonds, and in November 2008, issued short-term bond anticipation notes (2008 Notes) worth $41,770,000 to purchase the Regional Center. The 2008 Notes were intended as a temporary funding mechanism because of an unfavorable bond market in 2008. Payments on the notes were interest only and came due on December 1, 2011. The City entered into a CLA with the District, obligating the City to loan money to the District to make interest payments on the 2008 notes in the event the District could not. The 2008 CLA is not at issue in this case, and no one contends it would violate the City's debt limit.

¶ 6 In 2011, in anticipation of the 2008 Notes maturing, the District took steps to issue long-term bonds to retire the 2008 Notes. To support the issuance of these bonds, the District proposed another CLA to the City. It is this 2011 CLA that is at issue in this appeal.

¶ 7 The proposed 2011 CLA requires the City to loan money to the District if and when the District cannot make its semiannual debt service payments. The 2011 CLA also includes several other important provisions: that the District will repay all such loans, with interest, from the District tax and facility revenues; that the City's commitment to make loans is absolute and unconditional; that all debts of the District are the District's alone; that holders of the District's bonds will have no recourse against the City, its assets, or its tax revenues; and that the City has no obligation to impose new taxes or enter into its own debt obligations to fund the loans to the District. The agreement also grants third-party beneficiary status to bondholders (in theory allowing them to compel the City to make loans) and contains no limitations on the amount of money the City could be required to loan the District (this represents a change from earlier agreements, which limited the City's loan obligation to its debt capacity).

¶ 8 The City passed a resolution approving the 2011 CLA conditioned on the City's obtaining a judicial declaration that it has the right and authority to do so.1 Accordingly, the City filed a complaint in Chelan County Superior Court seeking a declaratory judgment whether execution of the 2011 CLA would cause the City to exceed its debt limits. The District intervened, and the court appointed a taxpayer representative to represent the taxpayer's interests.

¶ 9 The superior court granted summary judgment to the City, ruling that the 2011 CLA is “indebtedness” within the meaning of article VIII, section 6 of our constitution and therefore subject to constitutional and statutory debt limits. The court also ruled that the agreement would cause the City to exceed its nonvoted debt limit.2 Finally, the court held that the amount of indebtedness incurred by the City equaled the entire amount that could possibly be loaned to the District to meet all of its debt service obligations, including both principal and interest over the life of the bonds. Without the 2011 CLA to support the issuance of new long-term bonds, the District was unable to refinance the 2008 Notes before they became due and defaulted on the notes on December 1, 2011. We granted the District's request for direct review.


I. The municipal debt limit under article VIII of our constitution

A. The text and purpose of article VIII, section 6

¶ 10 Article VIII, section 6 of our state's constitution forbids municipalities from becoming“indebted in any manner” beyond one and a half percent of taxable property within their boundaries:

No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding one and one-half per centum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of three-fifths of the voters therein voting at an election to be held for that purpose, nor in cases requiring such assent shall the total indebtedness at any time exceed five per centum on the value of the taxable property therein.... [3

This provision complements article VIII, section 1, which limits state debt.4

¶ 11 Our framers enacted debt limitations to remedy a particular historical evil. In the 19th century, state governments financed or guaranteed an increasing number of private and public capital and infrastructure projects, most notably railroads. SeeRobert S. Amdursky & Clayton P. Gillette, Municipal Debt Finance Law: Theory and Practice § 4.1.1, at 162 (1992). Many of these projects failed, leaving taxpayers liable to pay for them while receiving little or nothing in return. Id. In response, states around the country enacted debt limitations preventing legislative bodies from saddling current and future taxpayers with an unmanageable tax burden to support unsuccessful railroads and other unwise ventures. Id.; see also Dep't of Ecology v. State Fin. Comm., 116 Wash.2d 246, 257, 804 P.2d 1241 (1991) ( “Constitutionaldebt limitations were enacted to protect future taxpayers from the kind of improvidence that led to state and local government bankruptcies in the 19th century.”).

¶ 12 At Washington's constitutional convention, our framers were appropriately concerned with the effects unlimited indebtedness would have on future prosperity, seeThe Journal of the Washington State Constitutional Convention 1889, at 667 (Beverly Paulik Rosenow ed., 1962), and enacted debt limits to cure these ills by building an “impassible barrier” around the public treasury. State ex rel. Jones v. McGraw, 12 Wash. 541, 543, 41 P. 893 (1895); State ex rel. Potter v. King County, 45 Wash. 519, 528, 88 P. 935 (1907) (debt limits “are intended for the protection of minorities, for the protection of posterity, and to protect majorities against their own improvidence ...”).

¶ 13 The role of our judiciary in this scheme is self-evident: We must enforce the constitution. Potter, 45 Wash. at 528, 88 P. 935 (stating that enforcing debt limits is the “duty of the courts). Constitutional debt limits are premised on the belief that political accountability does not sufficiently check runaway debt. SeeAmdursky & Gillette, supra, § 4.1.1, at 160–61. Thus, we must not assume legislative bodies will police themselves; instead, it is our duty to ensure that public entities do not make promises that they have no constitutional authority to honor.

B. The “risk of loss” concept

¶ 14 In carrying out our constitutional duty...

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