The Greater Wenatchee Regional Events Center Public Facilities District (the “District”) is a municipal corporation formed by the city of Wenatchee and other cities and counties to finance, construct, and operate the Greater Wenatchee Regional Events Center. In 2011, the District proposed to Wenatchee that the parties enter into a Contingent Loan Agreement (“CLA”) to ensure that the District could continue to make semiannual debt service payments and retire previous financing. The question presented on appeal was whether the CLA would cause Wenatchee to exceed applicable debt limits. The District argued that the CLA was not subject to Wenatchee’s debt limit because it creates a “contingent” liability, triggered only if the District is unable to make payments on its bonds.
A majority of the Washington Supreme Court (Justice Charles Wiggins, joined by Justices Charles Johnson, James Johnson, Debra Stephens (result only), and Steven Gonzalez) rejected the District’s argument because Wenatchee is unconditionally obligated by the CLA to service the District’s debt if the District cannot and because the risk of loss falls upon the city and its taxpayers. Under Article VIII, Section 6, of the Washington Constitution, municipal debt incurred without a public vote is limited to 1.5% of the total assessed value of all taxable property within the city whereas debt approved by 60% of the voters can be 5% of the total assessed value. As a result, the majority held that Wenatchee could enter into the CLA if approved by a vote of the people but not without a popular vote.
The dissent (Justice Fairhurst, joined by Chief Justice Barbara Madsen and Justices Tom Chambers (result only) and Susan Owens) disagreed with the majority’s analysis. The dissent reasoned that the proposed CLA does not create a debt of the city within the meaning of Article VIII, Section 6, of the Washington Constitution because, under the CLA, Wenatchee is under no obligation to borrow money. Instead, the CLA only commits Wenatchee to lend money to the District if required to meet the District’s debt service payments. Because Wenatchee would be acting solely as a lender under the CLA and would not be under any obligation to borrow money, it does not create a debt subject to constitutional voting requirements.