Focus, PFD members: avoid defaultPosted by Empire Press on Oct 10, 2011 in All Content, Jim Russell | Comments Off on Focus, PFD members: avoid default
Sen. Linda Evans Parlette, R-Wenatchee, arranged for Treasury officials to explain that the public facilities board should avoid default on Town Toyota Center debt on Dec. 1. I attended the meeting, reviewed it on the Wenatchee World’s livestream, read articles and commented online. I examined the three interlocal agreements that created the events center, defined the relationship between the events center and the City of Wenatchee and amended the Contingency Loan Agreement between the city and the PFD for the current interest-only payments.
Based on my weird compulsion to read those materials, and despite having erred in not making default my only focus, I’m making new recommendations.
Avoiding default is the PFD’s issue. It is not the City of Wenatchee’s issue. It’s the PFD’s debt. None of us in other districts can do anything. And I think avoiding default is the PFD’s highest priority. Nothing else deserves consideration right now.
The PFD must act immediately, and it has one option. It must write a bond proposal to issue and pay off 30-year bonds, get the proposal approved by bonding authorities and rating agencies, price the bonds and sell them by Nov. 30. The Treasury representatives said 60 days is an extremely tight schedule. The good news is revenues appear to more than cover long-term debt payments with historically low interest rates.
Only one other possible option surfaced in discussions from George Buckner, an East Wenatchee city council member and former municipal bond manager and trader. He believes the PFD could persuade current bondholders to accept an extension of the deadline with current interest rates. An extension would give the PFD time to work out a comprehensive agreement. Buckner probably could persuade them — if he could find them.
It seems implausible. Time is a serious problem. The PFD only last week hired an agent to identify and contact the current investors. Even if the agent finds the investors, some may demand that cash on Dec. 1. Furthermore, the interest rates may be much higher two years from now. Contacting investors could raise fears of default and initiate sales, making new bonds harder to sell. The Treasury representatives did not endorse the idea. Forget it.
The PFD must focus on the only remaining option identified by Washington’s Treasury representatives. It was recommended by the State Auditor’s Office in its report to the PFD on Nov. 15: “Applying all operating revenues of the District towards debt service on the bonds and requesting that the City of Wenatchee consider covering expenses. The option would relieve the City of the debt burden tied to the District and consequently not impair the City’s debt capacity.”
The PFD has a tough task. City leadership asked Chelan and Douglas County commissioners to use their debt capacity to cover the debt. After watching the city dither for three years, the commissioners slammed the door on the city request. Perhaps the sound of the slamming door will make it clear: the city has no other option.
Yet city leadership appears immobilized based on public comments. They want the State Attorney General’s opinion before proceeding. He may take awhile since he’s focused on health care law.
The city is afraid it can’t forecast future costs. Try forecasting default costs.
The PFD must force the city to replace the existing interlocal agreement between the city and PFD effective Dec. 1. It may take deep budget cuts in both Wenatchee and PFD budgets. They’ve got to cut or default. Don’t default.
The debt is the PFD’s problem, not the city’s. The PFD has to dictate to the city what is going to happen and do it now.
We should hope the PFD avoids default and provides a future where all the districts could work together, but those are subjects for future columns.
Got a comment on Jim’s column? Shoot us an e-mail at email@example.com, or visit his blog at blog.jamessrussell.com.