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Effects of Recession
Thu December 8, 2011
Default ‘trouble’ spreads beyond Washington's ‘river city’
For the first time in nearly a decade, a Washington municipality has defaulted on a loan. The Greater Wenatchee Public Facilities District operates Town Toyota Center near the banks of the Columbia River. It missed a major bond payment on December 1st. Now the Washington legislature is debating whether to step in.
Opening of a money loser
It’s practice time for the Wenatchee Wild hockey team. The players take turns shooting goals on the ice at Town Toyota Center. General Manager Mark Miller says attendance at Wenatchee Wild games is the best in the league by far.
“They are pretty much a staple in the community for the four years they’ve been here,” says Miller. "It has been transformed into a hockey town.”
But hockey alone won’t pay the bills on a facility like this. Nor will last month’s BB King concert or the Wizard of Oz.
Pull back the curtain and Town Toyota Center – with its four-thousand seats - has been a money loser since it opened in 2008. Last year it did eek into the black. But the city of Wenatchee still has to subsidize the facility. Now, it’s tempting to cast the story of the riverside Town Toyota Center as a modern day “Music Man.”
But this story is a lot more complicated than “con man fools small town.” No con men here. But yes, there was an out-of-state developer who ended up with a record of building and managing under performing events centers.
Visions of a new place to skate
There were other characters in this cast too. A local developer with big visions for the city’s riverfront. Hockey and ice skating boosters who wanted a new place to skate. Soon seven cities and two counties banded together to build a $53 million state of the art events center.
“This was an opportunity that presented itself and we took advantage of that situation at that time. Right or wrong,” says Dennis Johnson, Wenatchee’s outgoing mayor.
Back in 2007, the project was up for a vote. Should construction move forward with the city playing the role of financial backstop? Mayor Johnson cast the tie-breaking “yes” vote. This despite an independent report that suggested the developer’s financial projections for the arena were too rosy. Johnson though wasn’t worried.
“I don’t think there was a red flag that was raised at that time at all,” recalls Johnson.
Four-and-a-half years later, the project is in default. On December 1st, a $42 million principal payment came due. The Public Facilities District didn’t have the money and a judge blocked the city’s plan to provide a contingency loan. Mayor Johnson blames the Great Recession for the default on the three-year loan. He says the bond market collapse in 2008 made it impossible to get long-term financing. Hindsight is 20/20, says the mayor, and he offers no apology. But others do.
Apologizing for the mistake
“I am very apologetic for the situation that’s been created,” states Mark Kulaas.
Kulaas is a Wenatchee City Councilman. In 2007, he voted against green lighting the project. He didn’t think there was enough due diligence.
“The analogy of a train getting going on the tracks is probably pretty good. Momentum started and it was not going to be derailed or stopped,” says Kulaas.
Kulaas wishes he’d pushed for a public vote on the arena. Now, the trouble with the Town Toyota Center has spread beyond this river city. Other public entities in Washington were investors in some of the bond notes. Central Washington University, for instance, bought $1.6 million worth. And that’s not all.
Washington State Treasurer Jim McIntire is concerned the default will drive up borrowing costs for other municipalities. He’s asked the legislature to authorize an emergency loan to pay off that delinquent $42 million. Washington’s elected state auditor is weighing in too.
State cautioned public about risk of default
“It absolutely should not have gotten to this point,” says Brian Sonntag. “They had plenty of time to address this, to put a fix in place long before this happened.”
Brian Sonntag’s office has been warning for nearly two years that the Wenatchee events center was at risk of default. Sonntag says his office is monitoring two other public facilities districts, one in Vancouver and the other in Grays Harbor County. Neither is on the cusp of default, but he says their financial backing is shaky.
Back at Town Toyota Center manager Mark Miller proudly calls it the prettiest arena of its size he’s ever seen.
“Absolutely. And spacious and bright and you’re looking out over the Columbia River and wow!” says Miller.
“The Music Man” has a happy ending and Miller is hoping for the same here. He hands me a list of upcoming events: Mannheim Steamroller Christmas concert, Stars on Ice and a bull riding event. But it will take more than Christmas songs and bucking bulls to pull the Town Toyota Center in Wenatchee out of default.