HomeMy WebLinkAboutR-1997-084 Lodging Tax AdvisoryRESOLUTION NO. R-97- 8 `
A RESOLUTION establishing a Lodging Tax Advisory Committee for the City
of Yakima and appointing members thereof.
WHEREAS, on April 26, 1997, the Washington State Legislature passed
Substitute Senate Bill 5867, enacted as Chapter 452, Laws of 1997, relating to
uniform standards for local option excise taxation of lodging, which modifies
or repeals some previous lodging tax authority, but also adds new lodging tax
authority, and
WHEREAS, the City of Yakima currently levies lodging taxes pursuant to
RCW Chapter 67.28; and
WHEREAS, on May 20, 1997, Governor Locke vetoed Sections 12 and 25 of
Substitute Senate Bill 5867, and
WHEREAS, as a result of those sections being vetoed, this state legislation
will become effective on July 27, 1997 instead of April 1, 1998, and will, in
addition, necessitate an immediate reenactment of the City's lodging taxes, and
WHEREAS, Substitute Senate Bill 5867, which amends certain portions of
RCW Chapter 67.28, requires the establishment of a lodging tax advisory
committee, and appointment of at least five members thereof, and
WHEREAS, Substitute Senate Bill 5867 requires that any new imposition
of a lodging tax enacted under RCW Chapter 67.28 be first submitted for
consideration to the lodging tax advisory committee not less than 45 days in
advance of final action on the lodging tax by the City, and
WHEREAS, this new state legislation replaces the current lodging tax
authority with a new statutory scheme, and
WHEREAS, the City Council has received recommendations for
membership on the Lodging Tax Advisory Committee and, to ensure continued
authorization for the imposition of the lodging tax, the City Council deems it to
be in the best interests of the City of Yakima to establish the committee, make
the committee appointments provided for in this resolution, and to submit a
proposal to the committee regarding continuation of the lodging tax, now,
therefore;
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA:
Section 1. Pursuant to RCW Chapter 67.28 and Substitute Senate Bill 5867
(Chapter 452, Laws of 1997), there is hereby established a Lodging Tax
Advisory Committee of the City of Yakima. The Lodging Tax Advisory
(1k)res/lodging tax advisory committee/rp
Committee shall consist of seven members appointed by the City Council. The
committee membership shall include: (a) Three members who are
representatives of businesses required to collect the lodging tax; and (b) three
members who
are persons involved in activities authorized tw be funded by
revenue received from the lodging tax. In addition, the Mayor or Assistant
Mayor shah be a member of the committee and shall serve as chair. The
number of members of the committee who are representatives of businesses
required to collect the lodging tax shall equal the number of members who are
involved in activities authorized to be funded by revenue received from the
lodging tax. The City Council shall review the membership of the advisory
committee annually and make changes as appropriate. Vacancies on the
committee shall be filled by the City Council.
Section 2. When the City Council proposes (a) the imposition of a tax
under RCW Chapter 67.28, (b) an increase in the rate of tax imposed under RCW
Chapter 67.28, (c) the repeal of an exemption from a tax imposed under RCW
Chapter 67.28, or (d) a change in the use of revenue received under RCW
Chapter 67.28, such proposal shall be submitted to the Lodging Tax Advisory
Committee forrevi.ew and comment_ateleast 45 days before final action on the
passage of the proposal by the City Council. The Advisory Committee shall
submit comments on the proposal in a timely manner through generally
applicable public comment procedures. The comments shall include an
analysis of the extent to which the proposal will accommodate activities for
tourists or increase tourism, and the extent to which the proposal will affect
long-term stability of the fund used for paying the cost of tourism promotion,
acquisition of tourism -related facilities, or operation of tourism -related
facilities. Failure of the advisory committee to submit comments before final
action on or passage of the proposal shall not prevent the City Council from
acting on the proposal.
Section 3. In accordance with Section 2 of this Resolution, the City
Council hereby submits to the Lodging Tax Advisory Committee the following
proposal for its review and comments:
ToTo ensure the continued levy of lodging taxes as avtthorizeri by
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RCW Chapter 67.28, the City should reenact an ordinance levying
a special excise tax on the sale or charge made for furnishing of
lodging that is subject to tax under RCW Chapter 82.08. The
proposed ordinance is attached hereto and incorporated herein
by reference.
(Mires/lodging rax advisory committee/rp
Section 4. In order to take all steps necessary or indicated by Substitute
Senate Bill 5867 with regard to reenactment of lodging taxes levied by the City,
the Lodging Tax Advisory Committee is requested to report back to the City
Council its comments with respect to the tax proposal set forth in Section 3 of
this resolution no later than July 25, 1997.
Section 5. The initial appointments to the Lodging Tax Advisory
Committee shall be as follows:
1. Owner of the Holiday Inn (or his or her designee);
2. General Manager of Cavanaugh's Hotel (or his or her designee);
3. General Manager of the Double Tree Hotel (or his or her
designee);
4. The chair of the Yakima Visitors and Convention Bureau (or his
or her designee);
5. The chair of the Yakima Center Advisory Board (or his or her
designee);
6. The chair of the Capitol Theatre Committee (or his or her
designee); and
7. The Mayor or Assistant Mayor.
Section 6. This resolution shall take effect immediately upon passage.
ADOPTED BY THE CITY COUNCIL this 10th day of June, 1997. ,
T'•
%_`,
. Lynn Buchanan, Mayor
ATTESY
City Clerk
(1k)res/lodging [i\ advisory commineeirp
BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No.
For Meeting of 6/10/97
ITEM TITLE: Legislation for establishing:
1. A Resolution Establishing a "Lodging Tax Advisory Committee" for the City of Yakima
2. An Ordinance Relating to Enactment of Local Option Excise Taxation of Lodging (Information Only)
SUBMITTED BY: Dick Zais, City Manager
Glenn Rice, Assistant Manager
Ray Paofella, City Attorney
CONTACT PERSON/TELEPHONE: Dick Zais/575-6040
SUMMARY EXPLANATION: At the cut-off date for gubernatorial action, Governor Locke vetoed a section
of the Hotel/Motel Tax legislation from the 1997 Legislative Session. While this action was taken with good
intent, in effect, what it has done is put at risk the bonds that have been issued for construction and
expansion of the Yakima Convention Center as well as funds for future operation and maintenance. At this
point, and in consultation with our bond counsel Preston, Gates and Ellis, Mr. Forest Walls will file on our
behalf a declaratory judgment action with the Thurston County Superior Court to request that the court
overturn the Governor's veto on the basis of its constitutional standing.
Attached for your consideration are the two items of legislation that must be enacted by the City Council
relating to the Lodging Tax within the City of Yakima. The first item is a "Resolution Establishing a Lodging
Tax Advisory Committee and appointing members thereof." The second item is "An Ordinance Related to
Enactment of Local Option Excise Taxation of Lodging." The resolution is required to be acted upon by the
City Council on June 10. The proposed ordinance must be submitted to the Lodging Tax Advisory
Committee today and cannot be acted upon by the City Council until July 25 or 26 pursuant to the time
frame mandated by the newly enacted state statute. A special meeting at the City Council will be required
on July 25 or 26, 1997.
This action is necessary because of the newly amended Hotel/Motel legislation which becomes effective on
July 27, 1997. Additionally, this action is recommended on the chance that the Thurston County Superior
Court does not find in favor of the City of Yakima and others to overturning the Governor's veto.
X Resolution Ordinance Contract X Other (Misc. Information)
Ordinance is attached for Council information only. letter to Attorney General's Office re: SSB 5867
Funding Source
APPROVED FOR SUBMITTAL
City Manager
STAFF RECOMMENDATION:
Approve the resolution.
BOARD/COMMISSION RECOMMENDATION:
COUNCIL ACTION:
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DRAFT
ORDINANCE NO. 97 -
An Ordinance of the City of Yakima, Washington, relating to taxation of
charges made for the furnishing of lodging
WHEREAS, ESSB 5867, enacted as Ch. 452, Washington Laws of 1997 (the
"Legislation"), provides that cities are authorized to levy and collect a special excise tax on the
sale of or charge made for the furnishing of lodging that is subject to tax under Ch 82.08 RCW;
and
WHEREAS, the Legislation repeals a portion of the existing statutory authority of the
City of Yakima to levy taxes on the furnishing of lodging, which authority has been exercised by
the City pursuant to Chapters 3.92 and 3.93 of the City of Yakima Municipal Code (the "Code"),
but provides, and states the Legislature's intent, that the City's authority to levy lodging taxes be
continued under the Legislation; and
WHEREAS, it is the intent of the City Council to reenact and replace the taxes on charges
made for the furnishing of lodging, authorized by law prior to the Legislation, with taxes levied
pursuant to the Legislation and that such taxes levied pursuant to the Legislation should take
effect immediately upon the effective date of the Legislation;
NOW, THEREFORE, BE IT ORDAINED BY THE CITY OF YAKiMA:
Becton 1. Section l (part) of Ordinance No 1624 and Section 3.93.10 of the Code are
amended and reenacted to read as follows:
3.93.010 Special excise tax imposed.
Commencing Apia 1, 1974Juy 27, 1997, for the purposes set forth in
ROW.26.2$,240Section 4 of Ch. 452 .: hin ��. • n : w • f 1997, there is imposed and levied a
special excise tax of twefive percent, on the sale of or charge made for the furnishing of lodging
is • ...ect to ._ and r 82.08 RCWdin� not limited to the furnishing of 1by
a hotel, roominghouse, tourist court, motel, trailer camp, and granting of any similar license to use
real property, as distinguished from renting or leasing of real property, in the City of Yakima;
provided, that it shall be presumed that the occupancy of real property for a continuous period of
one month or more constitutes a rental or lease of real property and not a mere license to use or
to enjoy the same.1?'rovid howeyer that if as determined by a court ofcompetent'urisdi io
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_ 997 l_ _s 1F r: e
.. , f Ch. 452 � f ao _x
th' - .,� a 11; tion ►n t
ro ons + • n .
Section 2. Section 1 of Ordinance No. 1624 (part) and § 3.93.020 of the Code are
reenacted to read as follows:
3.93.020 Definitions.
The definitions of "selling price,' "seller," "buyer," "consumer," and all other definitions as
are now contained in RCW 82.08.010, and subsequent amendments thereto, are adopted as the
definitions for the tax levied under this chapter.
Section 3, Section 1 (part) of Ordinance No. 1624 and § 3.93.030 of the Code are
reenacted to read as follows:
3.93.030 Ad_ministrafion and collection of tax.
For the purposes of the tax levied under this chapter:
1. The Department of Revenue of the state of Washington is designated as the agent
of the city of Yakima for the purposes of collection and administration.
2. The administrative provisions contained in RCW 82.08.050 through 82.08.070 and
in Chapter 82.32 RCW shall apply with respect to administration and collection by the
department.
3. All rules and regulations adopted by the Department of Revenue for the
administration of Chapter 82.08 RCW are adopted.
4. The department is empowered, on behalf of the city of Yakima, to prescribe such
special forms and reporting procedures as the department may deem necessary.
Section 4. Section 1 (part) of Ordinance No. 1624, as previously amended by
Section 1 of Ordinance No. 2016 and § 1 of Ordinance No. 1980, and § 3.93.040 of the Code, are
amended _r1 ted reser" fl0 folio s:
and 1CG110.v�Rr s to avows ws ...........
3.93.040 Capital improvement fund for convention center and performing
arts center facilities.
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A.
Theheretofore been
cr ted s fun kno as the capital improvement fund for convention center and
performing arts center facilities.
B. Source of Funds.
(1) All proceeds of the special excise tax imposed and administered as provided by
Sections 3.93.010, 3.93.020 and 3.93.030 of the City of Yaldma Municipal Code, or any portion
of such tax not otherwise appropriated in any annual budget or otherwise for expenditure from
some other appropriate fun , :. u . a3 -a reeeeds
shall be •
deposited in the capital improvement fund for convention center and performing arts center
facilities, together with all proceeds to the city consisting of excess profits derived from the
operation of Capitol Theatre and funds from other sources as may be determined from time to
time by the Yakima city council
C. Purpose -- Expenditures.
(1) Expenditures from the capital improvement fund for convention center and
performing arts center facilities shall be made only to pay or secure the payment of all or any
portion of general obligation bonds or revenue bonds issued for the purposes authorized by
Chapter 67.28 of the Revised Code of Washington -end for the purposes of paying all or any part
of the cost of
ren Prong�tion and the comet
via ,! isiti • . id o • ... t: ti • s • f to _i 'i -rel l• rovided, proceeds to the city consisting
of excess profits derived from the operation of the Capitol Theatre shall be spent only for the
repair and restoration of the Capitol Theatre building and fixtures and appurtenances thereto and
for other capital expenditures incurred by the city arising from the ownership of the Capitol
Theatre premises, and to maintain and preserve the Capitol Theatre premises and improvements
thereto.
(2) No expenditure shall be made from the capital improvement fund fef convontien
ess the city council shall approve such expenditure
by passing an ordinance appropriating money within the fund for the purpose for which the
expenditure is to be made or by including an appropriation for such purpose in any annual budget.
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Section 5. The invalidity of any article, subsection, provision, clause, or portion of this
• e • _ herein,
the .�l:.i:.....F the application
ordinance or of the statutes adopted by reference herein, or invalidity of he applica ion
thereof to any person or circumstance, shall not affect the validity of the remainder of this
ordinance or the validity oa its application to other persons or e:"ucumstauk.w, and all other --tides,
sections, subsections, provisions, clauses, or portions of this ordinance or the statutes adopted by
reference cc herein not expressly held to bs invalid, shalt continue in full force and effect.
,Section 6. There is added to the Code a new Section 3.93.050 to read as follows:
Taxes Replaced.
The taxes levied by this ordinance are in addition to all other taxes imposed by the City,
and shall replace, and are not in addition to, the taxes heretofore levied by Ch. 3.92 and 3.93 of
the Code, which taxes shall remain in effect and continue to accrue in all respects until July 27,
1997.
Section 7. Effective Date of Tax
The effective date of the tax imposed by this ordinance shall be July 27, 1997.
Section 8, Repealer.
Section 3 of Ordinance 95-12 and § 3.92.030 of the Code is repealed.
Section 9. Effective Date -Declaration of Emergency.
Pursuant to the terms of the Legislation, as partially vetoed by the Governor of the State
of Washington, the existing statutory authority of the City to levy lodging taxes is substantially
modified and portions are repealed. Under the Legislation, the City of Yakima must reenact its
lodging taxes, pursuant to procedures provided for by the Legislation, by July 27, 1997, when its
statutory power to levy and collect such taxes is changed. The loss of revenue from such taxes
would damage the ability of the City to provide for the immediate preservation of the public
peace, property, health and safety. Therefore, an emergency is declared under Article VI,
Section 2, of the City Charter and this ordinance shall take effect on July 27, 1997.
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SENT BY:PRESTON cATES&ELLI3 6 -97
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PASSED BY THE CITY COUNCIL , signed and approved this day of July, 1997.
City of Yakima, Washington
ATTEST:
City Clerk
APPROVED AS TO FORM:
City Attorney
By
Lynn Buchanan, Mayor
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SENT BY:PRESTON GATES&ELLIS : 6- 9-37 : 3:06PM : PRESTON FLOOR 49-) 1 509 576 6335:# 7/ 7
CE1kU HCATE
1, the undersigned, clerk of the City of Yakima,Washington (the "City") and keeper of the
records of the City Council (the *Council DO HEREBY CERTEFY:
1. That the attached ordinance is a true and correct copy of Ordinance No. of
the Council (hereinafter called the "Ordinance"), duly passed at a special (?) meeting thereof held
on the day of July, 1997.
2. That said meeting was duly convened and held in all respects in accordance with
the law, and to the extent required by law, due and proper notice of such meeting was given; that
__t ah_ou.�hout the meeting and legally sufficient number of members of
a legal quorum was present asusaca�yeasa�+b the �s.ne�e,�..�., �.... a..._,....d ...._______._ ___
the Council voted in the proper manner for passage of said Ordinance; that all other requirements
and proceedings incident to the proper passage of said Ordinance have been duly fulfilled, carried
out and otherwise observed, and that I am authorized to execute this certificate_
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the
City this . day of July, 1997.
City Clerk
PRESTON GATES & ELLIS,; LLP
A T T O R N E 1 S
June 6, 1997
Mr. Leland T. Johnson
Senior Assistant Attorney General
Office of the Attorney General
415 General Administration Building
Olympia, WA 98504
Re: SSB 5867 - City of Yakima
Dear Mr. Johnson:
YA
JUN 9 1957
We represent the City of Yakima (the "City") and have acted as its bond counsel with
respect to various bond issues to fund the Yakima Convention Center (together, the Bonds") as to
which the City has pledged lodging taxes affected by SSB 5867, as partially vetoed (the
"Legislation"). The purpose of this letter is to provide you with an explanation of the City's
position with respect to the issues raised by the Legislation. The City believes that
implementation of the Legislation would substantially impair contracts it has undertaken,
including the 1996 Bonds, by materially and detrimentally altering the financial framework relied
upon by the bondholders as securing payment of debt service on such Bonds.
Background
The City began planning for development of a convention center in the early 1970's. In
1975 and 1976 it issued its limited tax general obligation bonds to finance the construction of the
Yakima Convention Center (the "Center") and pledged the 2% lodging tax levied pursuant to
RCW 67.28.180 (the "2% tax") to pay debt service on the 1975 Bonds. The 1975 and 1976
Bonds have been retired.
In 1996, the City issued its Limited Tax General Obligation Convention Center Bonds (the
"1996 Bonds") in the aggregate principal amount of $6,000,000 for construction of improvements
to the Center. The City pledged the 2% tax as well as the 3% lodging tax levied pursuant to
RCW 67.28.240 (the 3% tax") to payment of debt service on the 1996 Bonds.
At this time the City has outstanding 1996 Bonds in the aggregate principal amount of
$5,850,000 to which are pledged the 2% tax and the 3% tax. In addition, the City is dependent
upon such taxes for maintenance and operation of the Center facility. In 1997, the City expects to
collect approximately $785,000 in lodging taxes, all of which is expected to be applied to pay debt
service on the 1996 Bonds and operations expenses of the Center (exclusive of $65,000 applied to
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Mr. Leland T. Johnson
June 6, 1997
Page 2
operation of the Capital Theater). In 1997 debt service on City bonds to which these taxes are
pledged will be $420,000. Operating expenses are expected to total $367,000 in 1997. Collection
of the lodging taxes is thus essential not only to payment of scheduled debt service but to
continued operation of the Centd.
.
For budgeting purposes, the City allocates the entire 2% tax and 2/3 of 1% of the 3% tax
to payment of debt service. It applies 2-1/3% to costs of operation. However, bondholders have
a claim on all 5% of the taxes. As a result of the Legislation, the City expects its revenue to be
reduced by approximately $160.000 each year (without adjusting for inflation).
The Le ig slation
As you have noted, the Legislation repeals the City's taxing authority under
RCW 67.28.240 and fails to replace it as contemplated in SSB 5867 prior to the partial veto.
Under the Legislation, the City's ability to levy lodging taxes will diminish from 5% to 4%. The
City will face a significant diminution in resources from which to pay its obligations. The
Legislation also eliminates all or a portion of the credit against the state sales tax by repealing
RCW 67.28.190 and failing to replace it as contemplated in SSB 5867 prior to the partial veto.
This will have the effect of requiring a significant increase in local sales tax rates on lodging.
Finally, by eliminating the "grandfather" provision of Section 3(1) of SSB 5867, the Legislation
deprives the City abilityof to issue additional bonds which the lodging taxes may he
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pledged.
Contractual Obligations
The City and a number of private persons have entered into contracts in reliance upon the
continued existence of the 3% tax and the 2% tax. While every party to these contracts and third
party beneficiaries have assumed the risk of a downturn in receipts due to economic or other
conditions, the authority of the City to levy the tax and use its receipts pursuant to these contracts
was central to the financial framework supporting the Center. The loss of this taxing authority
was a risk no one assumed. These contracts and related documents include the following:
1. Ordinance No. 95-53 of the City passed October 17, 1995 authorizing the issuance
of the 1996 Bonds.
2. Insurance Policy Agreement with AMBAC with respect to the 1996 Bonds.
3. Bond Purchase Agreement with Seattle -Northwest Securities Corporation, dated
January 9, 1996, with respect to the 1996 Bonds.
4. Official Statement for the 1996 Bonds, dated January 9, 1996, discussing contracts
and some of their implications to bondowners, as well as the pledge of lodging taxes.
Mr. Leland T. Johnson
June 6, 1997
Page 3
In addition, the City has entered into a number of contracts with construction contractors
for improvements, and with an operator of the facility, which assume the continued flow of
revenues derived from lodging taxes.
Financial Framework
The City entered into these financial arrangements carefully and deliberately based on one
fundamental assumption: that the 2% taxes and the 3% taxes would be available and would be
the exclusive source of repayment of the bonds used to finance the Center. While the City agreed
to pledge its full faith and credit to these bonds, the debt was sized in such a manner that, based
on conservative estimates, all debt service and all operating costs of the Center (in excess of
revenues of the Center) would be paid from these special taxes. This was clear public policy
which was explained to the underwriters who purchased the bonds, the rating agencies that rated
the bonds and the insurance company that insured the bonds. The general obligation pledge was
credit enhancement that would be available only in an emergency, such as for example, if
estimated special tax revenues were insufficient for such purposes. Given these assumptions, the
City and those involved in buying, selling and insuring the bonds believed that the general funds of
the City (already committed to other uses) would not be used to pay debt service on the bonds.
Certainly, the elimination of any part of the special taxes would substantially and detrimentally
alter the fundamental financial framework of the Center financing.
Enclosed are letters from Seattle -Northwest Securities Corporation and Seafirst Bank
stating the importance of such tax revenue as a part of the contract between the City and the
bondowners.
Legal Analysis
The United States and Washington constitutions forbid the enactment of laws which
impair the obligations of contracts. U.S. Const., Art. 1, § 10; Wash. Const., Art. 1,§ 23
(together, the "Contract Clause"). Interference with a contract involving a municipal corporation
is a "public contract," which is entitled to a "more stringent examination" under the Contract
Clause than contracts between private parties. Tyrpak v. Daniels, 124 Wn.2d 146, 151-52, 874
P.2d 1374 (1994). Washington courts employ a three-part test to determine if there has been an
impairment of a public contract: (1) does a contractual relationship exist; (2) has the relationship
been substantially impaired; and (3) is any such impairment reasonable and necessary to serve a
legitimate public purpose. Id. at 152. Only the second element appears to be at issue in this case.
In Trypak the Court found an unconstitutional impairment from legislation which
authorized one port district (Port of Camas -Washougal) to annex part of another district (Port of
Vancouver). The Port of Vancouver challenged the legislation because it allegedly impaired
general obligation bonds issued by that port. The Court determined that the Port of Vancouver
!._ Leland
T T..L
Mr. Leland T. .i Viliison
June 6, 1997
PageT_ __ A 4t
collected more than enough taxGJ to meet its bond obligations, with n..rwof the
_.._
annexed property. The annexed area generated only about $3,800 in annual taxes for the benefit
of the Port of Vancouver. The Court stated that the "relevant question is whether the legislation
detrimentally affects the financial framework which induced the bondholders originally to
purchase the bonds." Id. at 153-54. The Court found that the reduction of the Port's revenues,
while not preventing repayment of the bonds, was a substantial impairment because it reduced the
security afforded by the excess taxes collected:
Although this proposed annexation will not cause the Port of Vancouver's tax base
to fall below the minimum necessary for repayment, the excess taxes collected by
the Port of Vancouver, over and above those necessary to meet their bond
obligations, form additional security against routine economic fluctuations, making
the bonds more financially attractive.
Id. at 154-55. The Court emphasized that the reduction of the revenues caused a unilateral
diminution of the security relied upon by the bondholders, Id. at 155. The Court stated that this
"putatively minimal impairment of the tax base" is nevertheless a substantial impairment of the
bond contracts. Id.
There is no question that Tyrpak and other cases like it control the result in this case. The
financial impact of the Legislation here is many times greater than the impact to the Port of
Vancouver in Tyrpak--which constituted a substantial impairment. The Tyrpak Court held that
the reduction in the "security" of the excess taxes was a substantial impairment. In this case, the
substantial reduction of the lodging taxes removes not only security for repayment but a major
portion of the planned source of repayment. The full faith and credit of the City is part of such
security, but the pertinent documents establish that the repayment was planned entirely from the
lodging tax revenues. If the "putatively minimal impairment" in Tyrpak is constitutionally
impermissible, there can be no question that the legislation at issue here violates the Contract
Clause.
Remedies
The City is seeking relief from the effects of the Legislation in three ways:
(1) Of paramount and immediate importance is the ability of the City to continue to
impose both the 2% tax and the 3% tax in order to fulfill its obligations to bondholders. The
City's inability to continue collection of all of these taxes is the clearest incident of impairment.
(2) The City's taxpayers should continue to receive the credit against the state sales
tax. In the absence of the credit, the special taxes would, in effect, be increased by 2%. This
would have the predictable effect of lowering demand and causing a dimunition of revenues
available to pay debt service on the 1996 Bonds.
Mr. Leland T. Johnson
June 6, 1997
Page 5
(3) The City is considering options to expand the Center -- a necessary step in meeting
nationwide competition among such convention centers. These expansion plans are likely to
require the issuance of new bonds to which would be pledged the special taxes. The City believed
that it would have had the authority to proceed with this expansion under SSB 5867, but this
expectation has been dramatically changed as a result of the partial veto. The City will seek to
reinstate this authority.
Litigation
Subject to further discussion with you, we believe that the best way to resolve the issues
discussed in this letter is for the City to bring a lawsuit in Thurston County Superior Court asking
the court to determine that implementation of the Legislation would unconstitutionally impair the
obligations of the City. We believe that other jurisdictions might join in this lawsuit. We would
welcome the State's cooperation in bringing the matter to a speedy resolution. We look forward
to discussing with you, in the next few days, the ways in which the State and the City could
cooperate in expediting the presentation of these matters to the court.
As you know, since the Legislation now becomes effective July 27, 1997, time is of the
essence.
I hope this summary is helpful to you in understanding the situation in which the City finds
itself. Enclosed are copies of the documents referenced in this letter and related materials as well
as letters from the underwriters of the bonds. Please call with any questions or comments so that
we may proceed expeditiously to resolve this matter prior to the effective date of the Legislation.
Very truly yours,
PRESTON GATES & ELLIS LLP
A
.�
By .
Forrest W. Walls
FWW:mlb
JAFWW WHOME'03L588. DOC
Enclosures
cc: Mr. Dick Zais, w/ encls.
Mr. Ray Paolella, w/ encls.
Mr. John Hanson, w/ encls.
Exhibits
1. Ordinance No. 95-53 (See third recital, and § 10, page 13)
n G.
Official Statement for the 1996 Bonds. (See cover page, pages 2 and
5)
3. Bond Purchase Agreement with Seattle -Northwest Securities Corporation.
4. Letter from John Rose of Seattle -Northwest Securities Corporation, dated June 4, 1997.
5. Letter from Jane Towery, Seafirst Bank, dated June 4, 1997.
6. Specimen 1996 Bond