City of Cle Elum files for bankruptcy amid $22 million in debts owed

The City of Cle Elum has filed for Chapter 9 bankruptcy, citing nearly $26 million in debt stemming from a land development dispute with City Heights Holdings (CHH) more than a decade ago.

On Monday, city council members unanimously voted to move forward with the bankruptcy proceedings and allow its debts to be reorganized under court supervision.

City of Cle Elum files for bankruptcy

The decision for bankruptcy followed a ruling by a King County judge, who found the city liable for more than $22 million for damages to CHH, as awarded by an arbitrator in November. However, the town only has a budget of about $5 million for 2025, as shown in a recent report.

“I think the city made a herculean effort in going through mediation. At this point, there is no choice but to proceed with bankruptcy,” Council member Steven Cook said during the special meeting, according to KING 5.

The $22 million in debt owed to CHH has since grown to nearly $26 million due to its 12% annual interest rate.

Officials have stated that they attempted to negotiate a payment plan, although court records showed CHH intended to accept nothing less than the full amount owed.

The judge ruled that the City of Cle Elum’s delay caused a violation in the development contract, which caused CHH to lose out on potential profit throughout this time.

Why does Cle Elum owe $22 million?

In 2011, Cle Elum entered into a housing development contract with CHH to build 950 homesites across 358 acres north of downtown. At the time, both parties understood that the local housing market may not be ready for such a large development project because it was still recovering from the 2008 financial crisis.

Instead, the contract provided CHH a 25-year construction window and sole discretion to determine when market conditions were ready. Cle Elum pledged to support the project in various ways, like fast-tracking permits, when ready.

However, in 2019, when CHH determined they were ready to begin building the community, it appeared Cle Elum was not. The city expressed it was no longer satisfied with the agreement, adding the deal was outdated and claimed it benefited CHH more than the city.

By 2024, growing frustration on both sides had come to a head, and the two sides entered into arbitration. Retired Judge Paris Kallas ruled in favor of CHH and awarded the $22.2 million judgment.

“The city sought to add new conditions to the contract,” Kallas wrote in his ruling. “And the city failed to follow the contract’s bargained-for expedited permitting process.”

The multi-million-dollar judgment is a gigantic sum for Cle Elum. The sleepy town of 2,300 residents, tucked along Interstate 90, near the Eastern face of the Cascade mountains, manages a general fund budget of just $5 million. They’ve said publicly they simply cannot afford to pay the money they owe CHH, or the 12% interest, which amounts to $7,300 a day, also ordered to be paid by Judge Kallas.

CHH said it made several attempts to have a conversation, or what they call “direct collaboration” with Cle Elum’s mayor and city council to work out a payment plan or enter some other sort of deal to get their money and help Cle Elum from entering the bankruptcy process. If Cle Elum does file for Chapter 9, the chances of CHH recovering the full judgment become slim.

Contributing: Luke Duecy, KIRO Newsradio; Julia Dallas, MyNorthwest

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