A recent filing in the case of Kitsap Bank versus the Fort Worden Public Development Authority (PDA) underscores the blame being cast for the failure of the PDA, with the most recent documents filed by the City of Port Townsend describing the bank as a reckless lender. Others point fingers back at city officials for failing to follow protocols the city specifically put in place to prevent the PDA from slipping into insolvency.

The first of two documents filed by the City of Port Townsend on Dec. 26 is a basic objection to the receiver’s notice of intent to be compensated. The second is a detailed declaration in support of the city’s objection filed by city council member Libby Wennstrom, who was the city’s partner liaison with the PDA. In the second filing, Wennstrom aims squarely at Kitsap Bank for failing to protect its own interests.

The declaration, filed in Jefferson County Superior Court, details the six different bonds underwritten by Kitsap Bank for the PDA between 2018 and 2021, noting that no interest was paid on the 2018 and 2019 bonds and that the unpaid interest was then rolled into the 2021 bonds. Those bonds were consolidated into a single $6 million revenue bond in 2022.

“It is difficult to believe that in the course of performing its due diligence when deciding to issue each of these bonds, and in light of the extensive local press coverage and discussion between the city and the bank about the PDA’s financial condition, that Kitsap Bank was unaware of the PDA’s ongoing financial challenges,” wrote Wennstrom in the documents. “Taken all together, this mounting debt paints a clear picture of the PDA’s growing insolvency that a prudent lender would find concerning.” 

Janet Silcott, a spokesperson for Kitsap Bank, provided the following statement: “Kitsap Bank has served as a cooperative financial partner to [the PDA’s] efforts over the past several years by providing bond financing for tangible improvements to the park, and subsequently working with [the PDA] by providing reasonable accommodations to meet their outstanding obligations. The City of Port Townsend has had oversight responsibility over [the PDA] since it was chartered. The City of Port Townsend has a legal obligation to oversee any windup of the affairs of the PDA in a manner that protects the interests of creditors.”

The decision to rewrite the loans in 2021 involved “cleanup,” and the consolidation into a single note in 2022 part of a long range plan, according to Dave Timmons, a former city manager who had taken on management of the PDA in November 2020. There were many parts that needed restructuring as part of the clean up.  In 2019 the pandemic crushed the PDA’s financial position and $1.3 million in capital funds were diverted to cover operational expenses. Makers Square, the creative center of Fort Worden, was short $600,000 because a grant had been double-counted. That required going to the legislature for the funds, which were eventually received. There was also a $1.5 million line of credit to be paid off, Timmons said.

Silcott also noted the strain of the pandemic. “As with other entities in our community, Kitsap Bank acted as a stabilizing economic force during the pandemic and remained focused on the long-term. We assisted [the PDA] in maintaining and regaining operations through reasonable financial accommodations.”

Fort Worden Hospitality, a key financial element of the campus, was completely shut down during the pandemic, but because it the entity was classified as a “public corporation,” she wrote. “[I]t did not qualify for any of the emergency funds, programs, or grants provided by the federal government during the pandemic. With no one else stepping in to assist, when allowed to reopen, the bank provided working capital to restart campus operations.”

The 2022 bond consolidated the debt, and extended the life of the note to make payments more manageable and provide the PDA with the greatest chance of success. Given the PDA’s position, the bank required the PDA to put $375,000 into a reserve account to ensure payment of the note. Timmons explained  it wasn’t to be used except in the event of an emergency, and specific language in the bond agreement required a plan be submitted to the bank in the event the reserves were tapped. Near the time of the 2022 underwriting, the city also took on greater responsibility for financial oversight, Timmons said, and the measures were crafted to provide keen monitoring and prevent the PDA’s collapse.

“We had a a path forward with the energy services program,” he said. Part of that would have put in remote metering systems. In the meantime, they created an interim formula using a per-square-foot basis to cover the cost of utilities. However the board, and partner tenants, voted it down. “They wanted a process before they agreed to it but the delay just dug the hole deeper,” said Timmons. “It was an imperfect solution but we didn’t have enough data to develop a perfect solution and we needed revenue right away.”   

“I got so frustrated,” said Timmons, who left the post in July 2023. “I just couldn’t get people to work together. Everybody said they wanted to work together but in the end, everyone retreated into their corners. I get it, but it didn’t help.”

Wennstrom’s court filing also highlights language in the resolution approved to consolidate all of the bonds into a single revenue bond: “The Bond shall not be deemed to constitute a general obligation or a pledge of the faith and credit of the Authority or debt of the State or the City or any other government authority other than the Authority.” The declaration also notes that the 2022 bond, prioritized operations and maintenance expenditures, and came after “the city had imposed additional financial oversight measures” but the filing does not go into detail about the city’s role.    

The city code was amended in April 2021 to put the burden of additional financial oversight on the city. This would be done through the city manager and a newly established financial oversight committee. According to the city code, “the financial oversight committee shall be chaired by the city manager” and has a number of responsibilities, such as, developing a corrective action plan should one be required, creating a financial monitoring program and regular reporting requirements.

Former Port Townsend Mayor Michelle Sandoval signed the ordinance authorizing the code changes that established the financial oversight committee. Current City Manager John Mauro was the city manager at the time.

Timmons said the city was well aware of its additional responsibilities, yet failed to take the PDA to task and impose measures commensurate with the organization’s dire financial position.  At one point while he was still at the PDA, Timmons was late to file a report, and John Mauro called the PDA before city council under threat of a corrected action plan. Timmons said that Mauro’s threat was the extent of the city’s push for fiscal accountability, although the code clearly states the city manager is responsible for all assets and liabilities.

Celeste Tell, who served on the board of the PDA, took a leadership role after Timmons left. City code required a one-year waiting period between the expiration of a board member’s term before that board member could be appointed executive director. So the PDA board asked the city council to waive that requirement and named Tell the interim executive director, a title she kept for the duration of her time at the PDA. 

Just one payment was made on that bond during Tell’s time at the PDA, but it came from the bond reserve account established through funds received from the county, which should have set off “alarm bells,” Timmons said. The 2022 bond agreement required a plan be submitted to the bank about how reserves were to be replenished by the city, although it’s not clear if one was submitted.

Mauro, reached before the bank had replied and close to deadline, said he was “astonished” that Timmons had “the audacity to make such a claim since he’s implicated both in his interim role and as city manager in terms of effective management and oversight.” He added that “[t]here’s also a very sound legal reason that the City was close but not too close in its oversight role and this relates to the outstanding debt the PDA owes (and that Mr. Timmons refinanced and grew and, in part, used to pay himself).”    

Wennstrom’s declaration came as a response to Jefferson County Superior Court Judge Brandon Mack’s Dec. 23 ruling that authorized payment of attorneys fees and professional services fees to the receiver — Elliott Bay Asset Solutions. According to court documents, the receiver has billed $218,704 for professional services for the months of October and November and Mack’s ruling approved paying those invoices.

In the filing Wennstrom argues that, “While the receiver is entitled to compensation for its services,”per state law, she adds that “the need for such compensation must be balanced against the need for the for the receiver, as part of its legal obligations to responsibly manage the property on the PDA’s behalf, to provide basic, necessary operational expenses…” such as utilities, safety services, internet and needed system repairs and maintenance.”

In bolstering her argument, Wennstrom also points to the PDA’s bond resolution that “specifically prioritizes payment of operation and maintenance expenses over other payments.”

She alleges that Kitsap Bank, between Sept. 17 and Oct. 4, dishonored 15 payments totaling $109,233, to 11 “small, local vendors,”even though the PDA’s bank accounts contained sufficient funds to pay these bills. These vendor payments were already made by the PDA (and in many cases had already cleared the bank) before the receivership was established …”

Silcott wrote that Kitsap Bank “remains committed to the Port Townsend community and the protection of this community treasure” and “dedicated to working with all parties through this process toward an outcome that protects and preserves Fort Worden for the long-term.”