86552-3 - In re Bond Issuance of Greater Wenatchee Reg'l Events Ctr. File Date 10/25/2012
Supreme Court of the State of Washington

Opinion Information Sheet

Docket Number: 86552-3
Title of Case: In re Bond Issuance of Greater Wenatchee Reg'l Events Ctr.
File Date: 10/25/2012
Oral Argument Date: 01/10/2012

Appeal from Chelan County Superior Court
Docket No: 11-2-00737-0
Judgment or order under review
Date filed: 09/08/2011
Judge signing: Honorable John E Bridges

Barbara A. MadsenSigned Dissent
Charles W. JohnsonSigned Lead Opinion
Tom ChambersSigned Dissentresult only
Susan OwensSigned Dissent
Mary E. FairhurstDissent Author
James M. JohnsonSigned Lead Opinion
Debra L. StephensSigned Lead Opinionresult only
Charles K. WigginsLead Opinion Author
Steven C. GonzálezSigned Lead Opinion


Counsel for Appellant(s)
 Donald Stewart Cohen  
 Gordon Thomas Honeywell ET AL
 600 University St Ste 2100
 Seattle, WA, 98101-4185

 Eric Christensen  
 Gordon Thomas Honeywell
 600 University St Ste 2100
 Seattle, WA, 98101-4161

 Peter Allen Fraley  
 Attorney at Law
 Po Box 1606
 Wenatchee, WA, 98807-1606

Counsel for Respondent(s)
 Paul Arley Harrel  
 Williams Kastner & Gibbs PLLC
 601 Union St Ste 4100
 Seattle, WA, 98101-2380

 Michael White  
 Williams Kastner
 601 Union St Ste 4100
 Seattle, WA, 98101-1368

 Thomas Francis O'connell  
 Attorney at Law
 Po Box 2136
 Wenatchee, WA, 98807-2136

Amicus Curiae on behalf of Washington State Treasurer
 Paul J. Lawrence  
 Pacifica Law Group LLP
 1191 2nd Ave Ste 2100
 Seattle, WA, 98101-2945

 Kymberly Kathryn Evanson  
 Pacifica Law Group LLP
 1191 2nd Ave Ste 2100
 Seattle, WA, 98101-2945

 Jay Allen Reich  
 Attorney at Law
 1191 2nd Ave Ste 2100
 Seattle, WA, 98101-2945

Amicus Curiae on behalf of City of Vancouver Washington
 Theodore Henry Gathe  
 Attorney at Law
 City Of Vancouver
 Po Box 1995
 Vancouver, WA, 98668-1995

 Brent David Boger  
 Assistant Vancouver City Attorney
 Po Box 1995
 Vancouver, WA, 98668-1995


 In the Matter of the                     )
 BOND ISSUANCE OF GREATER  )                                No. 86552-3
 WENATCHEE REGIONAL                       )
 EVENTS CENTER PUBLIC                     )                    En Banc
 FACILITIES DISTRICT.                     )
                                          )           Filed October 25, 2012

       WIGGINS, J.?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 

No. 86552-3

a guaranty, it would create indebtedness within the meaning of our constitution.  

Accordingly, we affirm the trial court.

       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.  


       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.  

       The interlocal agreement creating the District provided mechanisms for 

financing the Regional Center, giving the District authority to impose various 


No. 86552-3

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.

       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.

       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.

       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 


No. 86552-3

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).

       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.  

       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

1 Chapter 7.25 RCW provides a procedure for obtaining declaratory judgments for 
the validity of local bond issues.

2 Article VIII, section 6 differentiates between ?voted? indebtedness taken on with the 


No. 86552-3

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

       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]

assent of three-fifths of the voting populace and ?nonvoted? indebtedness taken on 
without voter assent.  Voted debt has a higher limit?five percent compared with one 
and one-half percent for nonvoted debt.  None of the indebtedness in this case is 

3 RCW 39.36.020(1) and (2)(a)(ii) contain a debt limit that is identical in substance to 
the constitutional limitation.  See Dep?t of Ecology v. State Fin. Comm., 116 Wn.2d 
246, 253 n.7, 804 P.2d 1241 (1991).


No. 86552-3

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

       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.       See  Robert 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 Wn.2d 246, 257, 804 P.2d 1241 (1991) (?Constitutional debt 

4 Article VIII, section 1 forbids the State from contracting debt in an amount for which 
payments of principal and interest in any fiscal year would equal more than nine 
percent of a three-year average of state revenues.  Article VIII, section 1 also defines 
?debt? for purposes of the state debt limit:

              (d) In computing the amount required for payment of principal 
       and interest on outstanding debt under this section, debt shall be 
       construed to mean borrowed money represented by bonds, notes, or 
       other evidences of indebtedness which are secured by the full faith 
       and credit of the state or are required to be repaid, directly or 
       indirectly, from general state revenues and which are incurred by the 
       state . . . .

The dissent goes astray from the very beginning, dissent at 3-5, equating the term 
?become indebted in any manner? in article VIII, section 6 limitation on municipalities 
with the definition of ?debt? under article VIII, section 1(d).  Section 1(d) applies to the 
state, not municipalities, and by its terms applies only for the purpose of computing 
the total amount of the debt, which is not the issue here.  


No. 86552-3

limitations were enacted to protect future taxpayers from the kind of 

improvidence that led to state and local government bankruptcies in the 19th 


       At Washington?s constitutional convention, our framers were 

appropriately concerned with the effects unlimited indebtedness would have on 

future prosperity, see  The 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 

. . . ?).

       The role of our judiciary in this scheme is self-evident: We must enforce 

the constitution.  Potter, 45 Wash. at 528 (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.  See 

Amdursky & 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


No. 86552-3

       In carrying out our constitutional duty under article VIII, we have created 

a wide vocabulary of principles, concepts, and exceptions.  For example, we 
have articulated the ?special fund doctrine,?5 the concept of ?borrowed money,?6

the ?contingency? exception,7 and the concept of ?full faith and credit,?8 among 

many others. As discussed later in this opinion, some of these principles are 

contradictory, leading to opposite conclusions.  But the apparent contradictions 

can be resolved because a close examination of these concepts reveals a 

discernible uniformity.  

       Nearly all of our public debt doctrines and decisions can be explained by

determining who bears the risk of loss in the underlying obligation.  Nearly 

every time we have determined that ?debt? exists, the obligation in question

places the risk of project failure on the taxpayer              (independent of the 

consideration received) rather than the creditor or bondholder.  We have found 

debt to exist where, if the project fails, the general fund is exposed and the 

taxpayers are saddled with the repayment burden.  See, e.g., State  ex rel. 

State Fin. Comm. v. Martin, 62 Wn.2d 645, 663-64, 384 P.2d 833 (1963).  

Conversely, where the risk of project failure lies not with the taxpayer but with 

5 See State ex rel. Wash. State Fin. Comm. v. Martin, 62 Wn.2d 645, 653-54, 384 
P.2d 833 (1963).

6 See State ex rel. Troy v. Yelle, 36 Wn.2d 192, 195, 217 P.2d 337 (1950).

7 See Comfort v. City of Tacoma, 142 Wash. 249, 255-57, 252 P. 929 (1927).

8 See Dep?t of Ecology v. State Fin. Comm., 116 Wn.2d 246, 254, 258, 804 P.2d 
1241 (1991).


No. 86552-3

the creditor or bondholder, we have found that there is no debt.  See, e.g.,

Dep?t of Ecology, 116 Wn.2d at 257-58.

       The ?special fund? cases demonstrate this principle well.  In those cases, 

bonds are repaid from a special fund replenished with project revenues or 

other funding sources having some nexus to the project.  For example, in 

Winston, the  city of Spokane issued ?obligations? to pay for a waterworks 

system, with the obligations to be repaid through a percentage of waterworks 

revenues.  Winston v. City of Spokane, 12 Wash. 524, 525-26, 41 P. 888 

(1895).    No  obligations were to be repaid from the general fund, so the 

investors bore the debt risk: if the project failed to produce enough revenue to 

service debt payments, the taxpayers were not liable for any shortfall.  We held 

that this obligation did not create ?indebtedness? within the meaning of article 

VIII, section 6.  Winston, 12 Wash. at 527-28.  On the other hand, in Martin, 

although similar facts existed (bonds were issued for the construction of public 

buildings), the bonds were to be repaid from an excise tax on the sale of 

cigarettes.  62 Wn.2d at 646-47.  If the project failed, the bonds would be 

repaid through increased excise taxes, placing the risk of project failure on the

taxpayers.   We held that the arrangement created debt within the meaning of 

article VIII, section 1.  Martin, 62 Wn.2d at 663-64.

       Nearly every case stretching back to statehood is consistent with this 
?risk of loss? principle.9  See Amdursky & Gillette, supra, § 4.1.2, at 164-70 


No. 86552-3

(surveying Washington case law in detail and concluding that our debt limits 

are triggered where the risk of project failure falls on the taxpayers/general 

fund independent of the consideration received for the bonds).

       In our most recent cases, we have begun explicitly relying on the risk of 

loss concept as a basis for our decisions.          For example, in Department of 

Ecology, the Department of Ecology entered into a complex lease arrangement 

that required payment only so long as the legislature appropriated money.  116 

Wn.2d at 258.  We concluded there was no debt because ?[t]he ultimate risk of 

loss is not on the State?s future taxpayers.  Instead, the risk of loss is on the 

[investors], who will have entered into the transaction with full knowledge that 

they alone bear that risk.?  Id. at 254-55.

       The dissent misses the point of the risk of loss analysis, labeling it ?a 

matter left to elected representatives . . .?, and accusing the majority of ?second-

guessing.?  Dissent at 13, 15.  The risk of loss analysis does not attempt to 

evaluate the likelihood or the amount of risk.  To the contrary, the question is 

simply this: on whom does the risk of loss fall, the investors or the public?  This 

9 The dissent wrongly suggests that risk of loss is an ?entirely new legal concept.?  
Dissent at 1. The principle is recognized both in our case law and by scholars and is 
consistent with nearly all of our public debt cases dating back to early statehood.  It 
has developed haphazardly, but organically, as courts have resolved individual 
cases on their merits.  Recognizing this pattern, we should state it forthrightly and 
rely on it?not only as a matter of honest jurisprudence but also to give clear 
guidance to municipal officers, the public, and lower courts.  This will help prevent 
future invalid bond issuances by promoting understanding and encouraging public 


No. 86552-3

is not a speculative inquiry because it is evident on the face of the operative 

documents.  In this case, the risk of loss is on the City and its taxpayers.  If the 

revenues of the District are inadequate to repay the bondholders, the City must 

make loans to the District to permit the payments to be made.  The City, not the 

bondholders, is at risk.

       The risk of loss concept can guide our decisions in this and future cases.  

Nevertheless, we are mindful of the fact that existing case law addresses many 

of the special problems that arise in the context of public debt, and we must 

turn to that case law first and foremost.

       C. The contingency cases and the guaranty cases

       This case sits at the intersection of two conflicting lines of case 

authority?the ?contingency? cases and the ?guaranty? cases.             To resolve this 

case, we must decide which of these lines of authority is correct.  

       In most states, it is widely accepted that so-called ?contingent liabilities?

are not debt.  See 15 Eugene McQuillin, The Law of Municipal Corporations 

§ 41:22, at 480-81 (3d rev. ed. 2005).        As Professor McQuillin explains, one

example of a contingent liability is a contract to pay for goods that is contingent 

on the goods actually being furnished.  Id. For example, in City of Walla Walla 

v. Walla Walla Water Co., the United States Supreme Court found that there 

was a contingent liability, not debt, where the city of Walla Walla contracted to 

pay for waterworks contingent on the waterworks being built and water being 


No. 86552-3

available. 172 U.S. 1, 19 S. Ct. 77, 43 L. Ed. 341 (1898).

       In this ?pay-as-you-go? situation, it makes sense to find that there is no 

debt.  Taxpayers are simply not at risk of being saddled with debt while 

receiving little or nothing in return, since payment hinges on consideration 

received.  And indeed, most other jurisdictions that apply the contingency 

doctrine do so in similar pay-as-you-go scenarios.1  We agree that this kind of 

contingent liability is not debt.

       But we took the contingency doctrine one step beyond the pay-as-you-

go situation in Comfort v. City of Tacoma, 142 Wash. 249, 255-56, 252 P. 929

(1927).  The city of Tacoma created a special local improvement guaranty fund

to secure repayment of local improvement bonds.  The primary sources of 

funding were the local improvement taxes secured by the bonds and interest 

on any bond sale proceeds not yet expended for the improvement.  If the fund 

was insufficient to make scheduled bond repayments, the fund issued warrants 

to the bondholders.  But the warrants were limited to five percent of the 

outstanding bond obligations secured by the fund.  Id. at 255.  In other words, 

the city did not guarantee individual bonds, but instead made payments to the 

1 See Taxpayers for Improving Pub. Safety v. Schwarzenegger, 172 Cal. App. 4th 
749, 762-63, 91 Cal. Rptr. 3d 370 (2009) (holding that the contingency exception 
applies where a ?governmental entity agrees to pay sums in succeeding periods in 
exchange for property, goods, or services to be provided during those periods?); 
Knowlton v. Ripley County Mem?l Hosp., 743 S.W.2d 132, 136-37 (Mo. App. 1988) 
(holding that contingency exception applies to employment contract contingent on 
services performed, just like payment of a hydrant rental, maintenance of a public 
market, and payment for water as delivered).


No. 86552-3

fund, subject to the five percent limitation. We held that this was only a contingent 

liability and therefore not debt, citing City of Walla Walla.11   Comfort, 142 

Wash. at 255-56.  But we continued, stating in dicta, ?If A is indebted to B and 

C promises that, if A does not pay B, then he (C) will, no one would contend 

that C had an outstanding debt.?  Id.     This dictum overlooks the fact that unlike 

the hypothetical C?s unlimited obligation, Tacoma?s obligation was capped at 

five percent of the outstanding debt. 

       Comfort?s expansive interpretation of contingent debt is flatly 

contradicted by another line of authority,  the ?guaranty? cases.12            In  State 

Capitol Commission v. State Board of Finance, we held that a state guaranty

of bonds was debt.  74 Wash. 15, 26-27, 132 P. 861 (1913).  The  State 

guaranteed bonds issued by the State Capitol Commission to finance the 

construction of buildings on our state capitol grounds.        The bonds were to be 

repaid from the sale of valuable land set aside for that purpose, so it was highly 

unlikely there would ever be a shortfall requiring the State to                     pay.  

Nevertheless, we held that the guaranty was debt because it violated ?the spirit 

and the letter? of our constitutional debt limits, rejecting the idea that whether a 

liability is debt depends on how likely it is to come due.  Id. at 27.  Years later, 

11 We later confirmed the result in Comfort in Kelly v. City of Sunnyside, 168 Wash. 
95, 11 P.2d 230 (1932).

12 The dissent does not acknowledge these conflicting lines of authority.  But where 
cases conflict, the responsibility of the court is to harmonize them or overrule one 
line or the other, not to simply ignore the conflict.


No. 86552-3

in Martin, we reaffirmed this proposition, stating that a ?mere guaranty of the 

principal and interest? of bonds is debt, citing State Capitol Commission.  

Martin, 62 Wn.2d at 654-55.       Thus, State Capitol Commission and Martin say 

a guaranty of bonds is debt, while Comfort, in dicta, says it is not. 

       The risk of loss principle discussed above resolves this conflict of 

authority.  Even if the municipality?s liability is contingent upon the failure of 

payment by an intervening agency such as the District, such a contingent 

liability is subject to the debt limit if the ultimate risk of loss falls upon the 

municipality.  We hold that the guaranty cases are correct, and the dicta in 
Comfort misstates the law.13  If a municipality could guarantee debt with no 

debt limit consequences, even a small town could back an almost limitless 

number of third-party projects by pledging its credit in the event of default.         In 

fact, we noted in Comfort that the legislature established the five percent cap in 

part to remedy the ?the lack of necessary restrictions to prevent pyramiding 

assessments . . . .?  142 Wash. at 251.           Some of those guaranties would 

eventually come due, requiring the municipality to resort to taxes to pay for 

failed projects, the very evil against which our debt limits protect.  These 

13 Nor does it make sense, as amici suggest, to decide whether a liability counts as 
debt based on how likely it is to occur.  This creates two major problems: first, it is 
difficult to imagine how a court would make that factual finding.  Second, it would 
potentially make debt a moving target, hinging a liability?s status as debt on changing 
facts.  It is far more sensible to look at what kind of contingency is at issue; i.e.,
whether it is similar to the pay-as-you-go fact pattern in City of Walla Walla where the 
contingency is receipt of consideration, not some outside event or market condition.  
See 172 U.S. at 19-20.


No. 86552-3

guaranties would transparently evade our constitutional debt limits and would 

frustrate not only the risk of loss concept, but also the very purpose of having 

debt limits in the first place.  To ignore this would be to abdicate our solemn 

responsibility under the constitution.

       When a municipality makes an absolute guaranty of another entity?s 

debt, the resulting obligation is indebtedness within the meaning of article VIII, 

section 6, and cannot properly be called a contingent liability.  Comfort may 

well have been correctly decided on its facts, but State Capitol Commission

correctly sets forth the law of our state.

       The dissent relies heavily on Comfort, arguing that the CLA ?merely

creates a contingent liability.?    Dissent at 9-10.  The dissent overlooks that 

unlike Comfort, the City?s liability to the District is not capped at five percent of 

the outstanding amount of the bonds.  Equally importantly, the dissent entirely 

ignores the guaranty cases, such as State Capitol Commission, which clearly 

say that a guaranty of future bond payments is a debt within the constitutional 


   II. The 2011 CLA would create ?indebtedness? if executed

       We turn now to the main subject of this appeal: whether the 2011 CLA

between the City and the District would create indebtedness triggering the 

City?s debt limit under article VIII, section 6.  In examining the 2011 CLA, we 

must look beyond the labels used by the parties and analyze the substance of 


No. 86552-3

the agreement.

       Under the risk of loss approach, the 2011 CLA is plainly debt because 

the City?s taxpayers bear the risk of project failure.  If the Regional Center were 

to fail (i.e., shut down and cease producing revenues), the City would be 

required to make loans to service the District?s bonds with no foreseeable 

means for the loans ever to  be repaid.  The obligation to make loans is 

absolute, so the City would have to come up with money either from the 

general fund or increased taxes, potentially endangering basic city  services

(e.g., police, fire, and sewer).  On the other hand, the bondholders carry no risk 

of loss.  Assuming the City fulfills its obligation, all debt service payments will 

be timely made.  There can be no doubt that, under the risk of loss approach, 

the City?s obligation under the 2011 CLA constitutes debt for purposes of 

article VIII, section 6.  This conclusion is confirmed by the case law.

       A. The 2011 CLA is a guaranty of the District?s bonds

       In substance, the 2011 CLA is a guaranty, pledging the City?s taxing 

power to service the District?s debt.  The essence of the 2011 CLA is that if the 

14 The dissent misplaces its reliance on Twichell v. City of Seattle, 106 Wash. 32, 
179 P. 127 (1919), dissent at 9, in which the City pledged the revenue of its street 
car system to fund repayment of a bond issue.  Bonds paid exclusively from the 
operational revenue of a utility such as a street car system do not come within the 
debt limit because they do not require repayment from general revenues.  Nor does 
the dissent gain any support from citing a case presenting the identical issue as 
Comfort, establishing a guaranty fund with a five per cent cap.  Dissent at 9 (citing 
Kelly v. City of Sunnyside, 168 Wash. 95, 11 P.2d 230 (1932)).  Finally, the dissent 
is unsupported by its citation to State ex rel. Washington Toll Bridge Authority v. 
Yelle, 56 Wn.2d 86, 95, 351 P.2d 493 (1960), dissent at 12, which turned on 
statutory interpretation, not the constitutional debt limit. 


No. 86552-3

District is unable to make debt service payments, the City will provide money 

for those payments.     The City nominally makes ?loans,? but this is just a label.  

In fact, the whole point of the CLA is to make the bonds more marketable by 

pledging the City?s full faith and credit to ensure timely repayment.  This is no 

different from the situation in State Capitol Commission.

       We  can  also look to the common law of guaranty contracts, which

defines a guaranty as an

       ?undertaking or promise on the part of one person which is 
       collateral to a primary or principal obligation on the part of 
       another, and which binds the obligor to performance in the event 
       of nonperformance by such other, the latter being bound to 
       perform primarily.?

Robey v. Walton Lumber Co., 17 Wn.2d 242, 255, 135 P.2d 95 (1945)

(quoting Am. Jur. § 2, at 873-74).  At common law, a guaranty can be either 

absolute or conditional.  An absolute guaranty is ??an unconditional undertaking 

on the part of the guarantor that the debtor will pay the debt or perform the 

obligation.??  Id. at 255-56 (quoting 24 Am. Jur. § 16 at 885).          In contrast, a 

conditional guaranty     involves   a ??condition to liability on the part of the 

guarantor,?? which is the ??happening of some contingent event other than the 

default of the principal debtor or the performance of some act on the part of the 

obligee.??  Id. at 256 (quoting 24 Am. Jur. § 16, at 885).

       Under this test, the 2011 CLA is unquestionably an absolute guaranty.  

The 2011 CLA obligates the City to perform (by making loans) in the event of 


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nonperformance by the District.  In substance, the City takes over the District?s 

obligation to meet immediate debt service payments if the District cannot.  

Moreover, the only contingency on which the City?s obligation depends is 

default or nonperformance by the District.  Under this test or any other, the 

2011 CLA is a guaranty of the District?s debt.

       D. The District?s attempts to characterize the obligation otherwise are 

       The District argues that this is not like a guaranty?and that it is not debt 

at all?because the City is only obligated to loan money to the District, not to 

actually make the District?s payments.  We flatly rejected this logic a century 

ago in State ex rel. State Capitol Commission v. Lister, 91 Wash. 9, 156 P. 

858 (1916), and we reject it again now.  In Lister, we held that loans were no 

different from payments for debt limit purposes.  Id. at 16-17.        The state made 

loans from a fund to the State Capitol Commission to pay interest                     on 

construction bonds.  The loans were virtually certain to be repaid because the 

Commission had set aside land for sale, the proceeds of which would repay 

the loans.  Nevertheless, we held that there was debt, rejecting the notion that 

labeling an obligation as a ?loan? changes its character.  Id.         Years later, we 

reaffirmed this proposition in Martin, stating that ?even a loan of the interest 

from general taxes, with a guaranty of repayment? is debt.  Martin, 62 Wn.2d at 

657. Here, there is not even a guaranty of repayment.  In fact, from the record, 

it appears possible that the City?s ?loans? might never be repaid.  The District?s 


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argument ignores the reality of the situation.     An obligation to make a loan can 

constitute debt, particularly where it appears unlikely it will be repaid.

       The  District  also argues that the 2011  CLA does not create debt 

because the City can meet its obligation through current-year tax revenues, 

citing State ex rel. Troy v. Yelle, 36 Wn.2d 192, 217 P.2d 337 (1950).              This 

argument is a red herring.  Under the District?s theory, no bonds would count as

debt as long as the municipality could meet its yearly debt service obligations 

through current-year taxes.  This cannot be, for it would exempt virtually all 

existing public debt from constitutional limits.  Rather, the current-year taxes 

exception applies where the entire obligation           can be discharged through 

current-year taxes, as in the case of warrants covering current-year expenses 

in Yelle.  There is no chance of that happening here.         This is not a short-term 

obligation the City can discharge with present funds, but a long-term obligation 

that will persist for years to come.   The facts of Yelle bear this out.  Yelle dealt 

principally with ?general fund warrants,? a short-term financing mechanism to 

pay for current-biennium appropriations when the state treasury contained 

insufficient funds.  36 Wn.2d at 193.  Current-biennium appropriations are a far 

cry from the obligation at issue here, which is a long-term obligation that could 

require yearly payments.  Wittler is equally unhelpful; there, the alleged debt 

was essentially an appropriation that was paid for through current-year taxes.  

State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 661-62, 399 P.2d 319 (1965). 


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Long-term obligations are different.  The ?current year expenses? exception 

cannot be construed to cover long-term obligations like the City?s obligation 

under the CLA.The dissent claims incorrectly that our application of the risk of 

loss principle ?essentially converts the debts of the District into debts of the 

City,? arguing that this is inconsistent with a footnote in one of our prior cases 

stating that ?the debts of one municipal corporation are not to be considered 

the debts of a separate municipal corporation.?  Dissent at 8 (citing  Pierce 

County v. State, 159 Wn.2d 16, 43 n.14, 148 P.3d 1002 (2006)).  The dissent 

overlooks the dispositive difference between our prior footnote and this case: 

in Pierce County, the counties never agreed to provide money to remedy any 

shortfall if Sound Transit was unable to repay its bonds.  Id. at 25 (?The Sound 

Transit bonds are payable from and secured solely by the pledge of Sound 

Transit's MVET and sales tax.?).  

       Our footnote in Pierce County, although inapplicable here, helps to 

demonstrate why the City has incurred indebtedness within the meaning of our 

constitution.  Our Pierce County footnote responded to the argument that the 

creation of Sound Transit unconstitutionally ?expanded the debt limit of the 

counties.?  Id. at 43 n.14.  As noted above, the argument failed because the 

counties did not undertake to assist Sound Transit in repaying the bonds.  But if 

a city were permitted to enter into CLAs with multiple municipal corporations, 

the city?s potential liability could quickly exceed its debt limit, creating virtually 


No. 86552-3

unlimited liability.  Our constitution?s framers never intended that cities would be 

allowed such an evasion, endangering the fiscal health of the city at the risk of 

its citizens.  

       Finally, the District argues that the CLA cannot be debt because it is not 

?borrowed money.?  In essence, the District argues that in order for there to be 

debt, the City must actually be the issuer of bonds.  This contradicts not only 

our case law, but also the plain language of article VIII, section 6.  Both State 

Capitol Commission and Lister find state debt even where an entity other than 

the state issues bonds.  State Capitol Comm?n, 74 Wash. at 26-27; Lister, 91 

Wash. at 17.   Moreover, while the District?s argument might make some

logical sense under the state debt limit in article VIII, section 1, it makes none 

when we are dealing with a municipality under article VIII, section 6.  Our 

municipal debt limit prohibits municipalities from becoming ?indebted in any 
manner.?15    This language is broader than article VIII, section  1, and by its 

terms encompasses more than the classic case of a municipality issuing its 

own bonds to finance a public project.

       E. The 2011 CLA is indebtedness

       Having rejected the District?s arguments, we hold that the 2011 CLA, if 

effective, would create debt.  The arrangement is in substance a guaranty, and 

15 In contrast, article VIII, section 1(a), (d) says that the state may ?contract debt? and 
that ?under this section, debt shall be construed to mean borrowed money . . . .?  By 
its own terms, this definition applies to section 1 (?this section?), not to the article VIII, 
section 6 limitation on municipal indebtedness.


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the risk of loss falls squarely on the City?s taxpayers: if the Regional Center 

fails, they, not the District?s bondholders, wind up holding the bag.        We affirm 

the trial court.

   III. The total amount of indebtedness would include the principal of the debt 
           plus any accrued interest

       The parties dispute the amount of indebtedness the City would incur by 

executing the 2011 CLA.  Under our case law, the correct amount of debt is 

equal to the total amount of bonds the City would guarantee.  State Capitol 

Comm?n, 74 Wash. at 24, 27.  The trial court in this case followed this rule, 

finding that the entire amount of principal on the District?s bonds would be City

debt.  However, the trial court erred by including the total amount of interest

over the life of the bonds in its calculation.  Only accrued interest is included in

a municipality?s debt limit, not interest still to be accrued.  Lister, 91 Wash. at 

15.  This being said, if the principal debt, plus any other debt subject to the limit, 

exceeds the constitutional debt limit, the interest issue may be moot. But in the 

event that either party believes further proceedings on this issue are necessary 

to resolve the case, the trial court can address those issues on remand 

consistently with this opinion.

   IV. The trial court did not commit prejudicial error in considering the City?s 
           declarations and the exhibits attached to them

       Finally, the District raises several evidentiary objections to declarations 

and exhibits brought before the trial court.  A            trial court?s ruling on an 


No. 86552-3

evidentiary issue is ?harmless unless it was reasonably probable that it 

changed the outcome? of the case.  Brundridge v. Fluor Fed. Servs., 164 

Wn.2d 432, 452, 191 P.3d 879 (2008).  Here, the trial court, confronted with 

the District?s evidentiary objections, said that ?the case will not turn on that, of 

course.?    Verbatim Report of Proceedings at 51.             The  District?s attorney 

agreed, at least in part, that ?it?s not something that I think this matter ought to 

be turning on one way or another.?  Id.  After reviewing the record, we agree.  If

the trial judge committed evidentiary error here, it was harmless. 

   V. The recent passage of Substitute S.B. 5984 does not moot this case

       After we heard argument in this case, the legislature passed a law on 

March 1, 2012, allowing the City to impose a sales tax to pay for the Regional 

Center without holding an election.  See Laws of 2012, ch. 4, § 6.  That bill, 

Substitute S.B. 5984, does not moot our decision in this case.  A case is moot 

if we can no longer provide effective relief.  Westerman v. Cary, 125 Wn.2d 

277, 286, 892 P.2d 1067 (1994) (citing Orwick v. City of Seattle, 103 Wn.2d 

249, 253, 692 P.2d 793 (1984)).  Here, our ability to provide effective relief is 

not impacted by a slight modification to the City?s taxing authority.  This is a 

declaratory judgment action, asking whether it would violate the City?s debt limit 

to enter into a CLA with the District.  That question still urgently requires an 


No. 86552-3

answer, and we have received nothing suggesting the City does not still want 

an answer to it.  This case does not turn on whether the City can impose a tax 

without putting it to a vote.  In fact, the City?s capacity to generate revenue to 

pay for an obligation is completely independent from whether that obligation 

implicates the City?s debt limit.  Municipal debt limits are calculated as a 

percentage of taxable property within the municipality, and sales taxes simply 

do not enter into the equation.  See Const. art. VIII, § 6; RCW 39.36.020(1), 


       Nor does it moot the case that the District recently passed a ballot 

measure imposing a sales and use tax within its jurisdiction.   See  Michelle 

McNiel,  Sighs of Relief  after  Voters  Overwhelmingly  Approve  Sales  Tax 

Increase for Town Toyota Center, Wenatchee World, Apr. 17, 2012.                  Again, 

the question we must answer is whether entering into a CLA implicates the 

City?s debt limit.    Our ability to provide effective relief by answering this 

question is not affected by a slight  change in the District?s fiscal situation, 

particularly where we have no evidence that this change will solve the District?s 

financial woes or eliminate the need for long-term bonds.           Our situation with 

respect to this case remains the same: We have been called on to answer a 

constitutional question, and that question still urgently requires an answer.  

Moreover, on appeal we review the facts in the record before us.            It is not our 

role  to supervise the specifics of the District?s finances, particularly where 


No. 86552-3

recent changes to those finances are not detailed in the record.  This case is 

not moot.


       We have a duty under the constitution to enforce limitations on public 

indebtedness.  This case implicates the core concerns of article VIII, section 6.  

We cannot sit idly by while municipalities creatively attempt to exceed their 

proper debt limits, frustrating the principles enshrined in our constitution.  We 

affirm  the trial court?s ruling and remand          to the trial court for further 

proceedings, if necessary, consistent with this opinion.


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        Justice Charles K. Wiggins

                                                         Justice James M. Johnson

        Justice Charles W. Johnson                       Justice Debra L. Stephens, result 

                                                         Justice Steven C. González