Lesson: my friends, no government worthy of the name should ever agree to cram-down arbitration or sign developer-drafted contracts with devious developers. From KOMO NewsL
Cle Elum files for bankruptcy over $26M debt to developer over delayed housing project
FILE - A photo showing the outside of the City of Cle Elum City Hall building. The City of Cle Elum filed for bankruptcy Tuesday amid fallout with a developer over a $26 million debt from a legal dispute stemming from a long-delayed housing project. (KIMA/SBG)
CLE ELUM, WASH. — The City of Cle Elum filed for bankruptcy Tuesday amid fallout with a developer over a $26 million debt from a legal dispute stemming from a long-delayed housing project.
In court filings, the City said it is "insolvent" and filed for Chapter 9 bankruptcy following City Council approval to protect the City's "limited resources" while it continues to work toward a resolution with the developer, City Heights Holdings, LLC.
The bankruptcy filing is in response to a $22.2 million damages award issued by an arbitrator in November following a dispute over the City Heights mixed-use development project that was entered into in 2011. Those damages have now reached $25.9 million due to interest accruing at 12%, according to a City press release.
The City of Cle Elum is about 80 miles east of Seattle in Kittitas County with a population just over 2,000, according to the 2023 census. The City employs about 29 people and has an annual budget just under $5 million, according to a recent report.
The development was planned to have up to 926 dwelling units on 358 acres in Cle Elum around the area north of 6th Street along the ridge overlooking the City. However, according to a statement from Cle Elum Mayor Matthew Lundh last year, many things had changed with the City's administration and the developer between when they entered the agreement and when development efforts began in 2019, leading to "differing views" on the project.
The City Heights Development Agreement was entered into in 2011. City Heights initiated discussions with the City about moving forward with development in 2019," the mayor's statement from 2024 reads. "Between the time that the agreement was established and development efforts initiated, the City’s administration as well as personnel for both the City and City Heights changed. Given the time that had passed and changes in personnel for both parties, there were differing views on the interpretation and meaning of various provisions in the 2011 Development Agreement, including the applicable process for reviewing permit applications as well as environmental concerns. The City did its best to work with City Heights’ requests and comply with its obligations.
The dispute has been developing for years, but has come to a head this year as mediation sessions were not leading to any resolution.
A statement from the City Wednesday said officials made "increasingly generous offers during the three months' long mediation process, but the City's final offer was rejected by City Heights."
City Heights Holdings allegedly initiated garnishments to seize the City's bank accounts prior to their final mediation session on June 16, according to the City's statement, which prompted Cle Elum officials to seek Chapter 9 protections after its final offer was rejected at their final mediation meeting.
"We did not make this decision lightly,” said Mayor Matthew Lundh on Wednesday. “For months, we pursued every reasonable avenue to reach a fair and responsible settlement with City Heights. Unfortunately, we were unable to do so. Our priority continues to be protecting Cle Elum’s residents, essential services, and our financial future. Chapter 9 allows us to do just that.”
The Chapter 9 filing does not remove the City of Cle Elum's financial obligation to City Heights, but it will allow the City to work toward a "more sustainable resolution" that will likely "reduce the City's total payment obligations to reflect the City's financial realities."
"The City believes it has made its best offer given its limited resources and unwillingness to burden the City in a way that will require curtailing city services or raising taxes to a level that will drive residents and businesses out of the City," officials said.
The City of Cle Elum is only the second city in Washington state to file for bankruptcy. The first city to claim bankruptcy was North Bonneville in 1991, Bloomberg reported.
KOMO News has contacted City Heights Holdings for a response to Cle Elum's bankruptcy filing but has not yet heard back.