Washington Law Review

Essay

The Case for Revisiting Contingent Liabilities Under Article VIII

| 90 Wash. L. Rev. Online 105

Abstract: Prior to 2012, Washington municipalities frequently relied on contingentliability agreements (“CLA” or “CLAs”) to reduce borrowing costs because such liabilities did not constitute debt under article VIII of the Washington State Constitution. But the viability of CLAs was called into question by the Washington State Supreme Court’s 2012 plurality decision in In re Bond Issuance of Greater Wenatchee Regional Events Center Public Facilities District (“Wenatchee Events Center”), which applied a new method for determining what constitutes debt—the risk-of-loss principle—to conclude that the entire value of a CLA constitutes debt. This Essay urges the Court to revisit the opinion because the decision fails to offer clear guidance and relies on an unpersuasive distinction between debt and indebtedness to explain the holding. Additionally, this Essay argues that the risk-of-loss principle is not the correct standard for municipal debt because the framework is not supported by Washington precedent and the principle is a novel approach that disregards the origins of Washington’s debt provisions. If the Court decides to continue treating CLAs as debt, this Essay suggests the Court should not follow Wenatchee Event Center’s conclusion that the entire value of the CLA is debt and instead adopt the approach of the Generally Accepted Accounting Principles for governments: The amount of debt equals only that portion that is likely to become owed.

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