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UW Election Eye 2012

Campaign 2012 through the eyes of UW faculty and students

April 18, 2012 at 2:48 PM

Wenatchee dodges disaster from failed arena project

A tax increase in Central Washington that passed on Tuesday will help the Town Toyota Center in Wenatchee pay off its $42 million debt. If the measure had failed, the arena most likely would have had to close its doors. (Photo by Larry Int-Hout)

In a special election Tuesday, voters in Central Washington approved a tax increase to bail out the Town Toyota Center. Debt on the arena threatened to force Wenatchee into bankruptcy.

WENATCHEE, Wash — Seattleites can probably remember when financing for Safeco Field was a topic of heated debate. A 1995 tax increase to help fund the stadium was narrowly defeated with 49.9% of the vote, and the city was left to ask the Washington State Legislature for help.

To help finance the stadium, Seattle formed a public facilities district with other surrounding cities to convince the state to contribute to the project.

Wenatchee had the same idea when they were looking for funding for an events arena in 2006. They formed the Greater Wenatchee Public Facilities District (PFD) with several surrounding towns and got tax money from the state to finance an arena.

But unlike Safeco, today Wenatchee’s Town Toyota Center is in serious financial trouble — to the tune of $42 million of debt that it appeared impossible to pay off, possibly forcing the city into bankruptcy.

That is until a special election in Chelan and Douglas counties yesterday yielded surprising results.

Voters in nine Central Washington municipalities approved a .1% sales and use tax increase that will help pay off the $42 million debt on the area’s community arena. The measure needed a simple majority to pass, but unofficial results show that it won about 65% of the vote.

“This gives us a revenue source that we can now bond, and with that we should be able to pay back the bond holders,” said Wenatchee Mayor Frank Kuntz. “The building is going to stay open, and that is going to solve the problem.”

Although the Town Toyota Center (previously the Greater Wenatchee Regional Events Center) is located in Wenatchee, people from other cities in the area are subject to the tax increase, too — something that has stirred up its fair share of controversy. Other cities’ financial involvement in this issue stems back to the formation of the Public Facilities District.

“We went to all of the cities and counties and said, ‘If you join the Public Facilities District, the city is going to take responsibility, and we’re going to get the sales tax back,’” Kuntz said. “‘We want you to join so our rebate is bigger. The more people that join, the bigger the rebate.’”

Nine local governments signed on to the project and formed the Greater Wenatchee Regional Events Center Public Facilities District. The governments were promised that they would not be held financially responsible for the arena, and the PFD began to collect a .033% regional sales tax rebate, or about $600,000 per year, from the state. Many cities throughout the state, like Spokane, Vancouver, Pasco and Bellingham, have formed similar public facilities districts to build and maintain a public facility that is located in one city but serves an entire region.

The Greater Wenatchee PFD is made up of Chelan and Douglas counties, and the cities of Wenatchee, East Wenatchee, Chelan, Cashmere, Entiat, Rock Island and Waterville. For government leaders in some of these towns, deciding to join the PFD was not an easy choice.

Officials in some local cities, like Leavenworth, chose not to join the PFD at all, while others, like Chelan, had to be convinced.

“The first vote before city council actually failed,” said Jay Witherbee, KOZI radio host and the former mayor of Chelan. “City council was not in favor of formally joining the PFD. The City of Chelan and our city attorney went outside and had the PFD agreement looked at, and then we were assured that we had no financial exposure whatsoever.”

These questions of financial responsibility — and the surrounding cities’ exposure to a sales tax increase — wouldn’t be an issue today if the Town Toyota Center had performed the way everyone expected.

The root of the problem

The three-and-a-half year old Town Toyota Center in Wenatchee serves as a hub for sports and entertainment in Central Washington. The arena hosts sports like hockey, football and soccer, and it’s brought many concerts and special events, like Disney on Ice and — this reporter’s personal favorite —  the Backstreet Boys “This is Us” tour, to the 32,000-person town.

Although it may bring events to Wenatchee, the Town Toyota Center has fallen incredibly short of generating the profits the community was expecting. In fact, the arena has operated at a loss or barely broke even since the day it opened its doors.

When it opened in 2008, the Town Toyota Center was run by Global Entertainment Corporation (GEC), the same company that provided the financial projections that were used to justify constructing the arena in the first place. But GEC did not produce the millions of dollars in annual revenue that it had promised.

A 2010 audit report by the Washington State Auditor’s Office revealed that the Town Toyota Center operated at a loss of $1.6 million in 2008 and $2.5 million in 2009. For a facility that owes $42 million in debt, these numbers are less than ideal.

In September of 2009, when GEC’s contract was up for renewal, the City of Wenatchee and the Public Facilities District decided to cut their losses and take over managing the facility, instead of hiring another private firm. GEC was not held responsible for the disparity in their projections and the less-than-impressive revenue, leaving the PFD to deal with the mess. Now, the city oversees the finances and the PFD runs the day-to-day operations of the arena.

Since this transition, the Town Toyota Center has eked by with enough revenue to cover operating costs but still has not been able to start paying back its loans. This has left the City of Wenatchee, which entered into a contingent loan agreement with the PFD to help lighten its financial burden, to make its interest payments. The question of who would be responsible for paying back the actual loans remained up in the air for quite some time.

But the results of Tuesday’s special election have provided an answer to this uncertainty.

Paying the price

For Josh Tarr, owner of American Shoe Shop in Wenatchee and treasurer of Your Communities’ Future, a group that supported the tax measure, the proposition was just about cleaning up the financial mess.

“I am in support of an actual solution to a problem that other people made for us,” he said. “If I could turn back time, this facility would have been put up for a vote and we would have voted for the sales tax. We would have then built the facility on that revenue stream, and we wouldn’t be talking about this today. But It looks like the whole region got together to fix a problem, and that’s encouraging.”

The PFD owes $42 million to its investors, and this sales tax increase should finally allow the city to start paying it back, although it will take about 25 years.

To others, like former Chelan Mayor Jay Witherbee, this tax increase to cities all around the area is not the answer. He says that the situation would have cleared up on its own. Without a tax increase on the table, he argues, the bond holders would have felt the need to negotiate a settlement when the PFD defaulted on the loan in December of last year.

“Greece just settled for 38 cents on the dollar, because bond holders know it’s better than nothing,” Witherbee said. “You’ve made an investment, taken a gamble, a risk, and it didn’t pay off. But it’s better than nothing.”

But the results of yesterday’s vote mean that investors won’t be negotiating a settlement any time soon.

Wenatchee is not the only city that has recently faced financial trouble. According to a September 2011 ABC News article, more than 600 municipalities have declared bankruptcy since it became legal to do so in 1937. Some of the municipalities that declared in 2011 include Boise County, Idaho, Harrisburg, Penn., and Jefferson County, Alabama.

Thanks to a bill passed in March of this year that was inspired by the Town Toyota Center fiasco, other Washington cities can rest assured that measures are now in place to prevent the same thing from happening again in other small cities.

Substitute Senate Bill 5984 now requires the completion of an independent financial feasibility review — essentially a close look at the potential costs and revenues — before a public facilities district can be formed. This means that if Seattle decides to go ahead with a new basketball or hockey arena of its own, the people of Seattle and surrounding areas might be spared from picking up the tab.

Even though this bill came too late for the Town Toyota Center, locals hope that other cities won’t make the same mistake Wenatchee did.

“There was a ‘foot on the gas’ mantra, and in this day in age, we just can’t push things through,” said Tarr. “There should be second and third opinions done on financial feasibility. We all love to be entertained, but it shouldn’t be at the cost of essential city services.”

Comments | More in State | Topics: arena debt, Central Washington, Proposition 1

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