PORT TOWNSEND — A Kitsap Bank effort has halted the dissolution of the Fort Worden Public Development Authority following a ruling in Jefferson County Superior Court.
Judge Brandon Mack on Friday ordered a general receivership placed on the PDA, granting Elliot Bay Asset Solutions management over the organization as it attempts to recoup funds for the bank, said Celeste Tell, the PDA’s interim executive director.
A public hearing for dissolution was scheduled to go before the Port Townsend City Council on Monday, but it was taken off the agenda.
“According to state law, an automatic stay is in place,” city contracted lawyer Alexandra Kenyon said at the council meeting.
“That stays any sort of administrative proceeding, such as dissolution. Because it’s a court order, we will need to postpone consideration of the dissolution and strike the public hearing.”
Elliot Bay Asset Solutions has been assigned as receiver to ensure that the dissolution complies with state law to maximize value for the bank, as creditors, according to the bank’s motion.
Kitsap Bank representatives said in the motion that the PDA owes the bank $6.2 million, and that its current plans for dissolution — without making any efforts to repay bonds with the bank — have been made hastily and are unconstitutional.
“The Authority (PDA) intends to conduct a disorderly and abrupt wind down that does not comply with the law,” bank representatives said in the motion, “that results in the dissipation of valuable assets, and that impermissibly impairs obligations owed to the Bank.”
The PDA’s board of directors voted to dissolve on Aug. 1 and then brought a request on Aug. 5 to the city council to schedule a public hearing for dissolution.
“The authority’s request for dissolutions was neither precipitous nor unexpected,” wrote Port Townsend City Manager John Mauro in a declaration to the court.
“At this juncture the planned transition of Fort Worden operations to WA State Parks has been in process for months and was communicated via open public meetings of the Authority and through specific public engagement events.”
In a letter to the court, Tell presented a list of nine meetings held with Kitsap Bank on topics of financial insolvency, the potential collapse or dissolution of the PDA. Tell said the letter was not taken into consideration in Friday’s court ruling.
Tell said it was not accepted because it was a letter and not a signed declaration.
“We have been working collaboratively and planning this dissolution of the PDA and smooth handoff to parks over several months,” Tell said.
“The bank keeps saying we did this suddenly; we did not do anything suddenly.”
The PDA has been winding down operations and was not able to secure legal counsel for the case, said Tell, whose last day as a PDA employee was Tuesday.
One board member has resigned and the rest are waiting to see what happens next, Tell said.
Money owed
According to the bank’s motion for appointment of a general receiver, the PDA issued its first revenue bond in 2018 in an amount not to exceed $1.6 million. That money was intended for energy efficiency and solar projects at Fort Worden.
According to the document, the PDA entered a revenue bond agreement in 2019, not to exceed $2 million, this time for the purpose of financing Fort Worden’s glamping facilities.
Later in 2019, the motion stated, the PDA entered into another revenue bond agreement with the bank, not to exceed $1.5 million, to finance the Makers Square project.
The motion read that, in December of 2020, the bank issued a grant anticipation note not to exceed $214,000, to go toward the Makers Square project.
In 2021, the bank and the PDA restructured the 2018 and 2019 bonds into revenue refunding bond agreements.
At the time of restructuring the bonds, the bank and the PDA also entered into agreements for two credit lines — one for $250,000 and the other for $500,000, according to the motion. At the end of 2022, the bank and the PDA entered into a bond agreement consolidating previous bonds into one revenue refund bond in the principal amount of $5,973,497.98.
In his declaration, Mauro said he agreed with the bank’s characterization of the financial history except for that the second line of credit — for $500,000 — was never issued.
Tell said she agreed with the characterization as well but said she struggled to wrap her head around why the bonds were continually issued while the agency was struggling financially and publicly.
“They made a bad loan; banks make bad loans all the time,” Tell said. “The history of these particular bonds is really interesting. Not much of the money went to improve Fort Worden. A lot of the money went to recapitalize unpaid interest from previous loans and to support operations.”
Tell took over as interim executive director in October 2023 as a part of the third iteration of PDA leadership.
Bounced checks
Tell said that, in the final weeks of operations, the remaining employees were scrambling to pay off outstanding bills to vendors.
“A lot of them are to small local vendors, and on Friday morning before the hearing, Kitsap Bank began basically freezing our account and returning the checks for not sufficient funds,” Tell said.
“It was vendors (such as) our IT guy. They returned $10,000 in checks that were sent to him. It was the landscaping company, it was Double D Electrical, it was our attorney, also.
“There was no notification. The only way we found out about it was because people started calling us and telling us about it. It was just really bush league. What they are doing is not OK by any stretch of the imagination, and that really impacts our community.”
The PDA had $130,000 in an account and had paid off $109,000 to vendors in the previous weeks, Tell said, adding that there should not have been insufficient funds.
“I think there’s also the possibility that they could do a great job and can turn Fort Worden around and have it be profitable and generate revenue for the bank in six months, which is kind of, I think, what they’re targeting. I wish them well.”
Tell said the next steps of the receivership are unknown. The company that went to the fort on Monday was familiarizing itself with the unique situation, she said. She added that the company seems competent at what it does, but most of its experience is with for-profit entities.
Elliot Bay Asset Solutions could not be reached for comment.
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Reporter Elijah Sussman can be reached by email at elijah.sussman@sequimgazette.com.
