‘I don’t have optimism:’ Cle Elum one step closer to declaring bankruptcy

The small town of Cle Elum, Washington is one step closer to declaring bankruptcy after a special meeting and vote by its city council Tuesday night concerning how to manage a recent judgment against them for $22.2 million for failing to make good on land development deal they made with Issaquah-based home building company, City Heights Holdings (CHH), more than a decade ago.

In a 5 to 2 vote, the city council approved a resolution that provides the city with the option to file for Chapter 9 bankruptcy at any time — a process that could take months or years to finalize and would potentially lower the city’s bond rating making it more difficult to borrow money in the future. It would also potentially make funding departments like the city’s police and fire departments, schools and social services challenging to fund.

What led Cle Elum to consider bankruptcy?

In 2011, Cle Elum entered into their housing development contract with CHH to build 950 homesites across 358 acres north of downtown. At the time, both parties understood 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it appeared Cle Elum was not and expressed they were no longer satisfied with the agreement, adding the deal was outdated and claimed the it benefited CHH more than the city.

By 2024, growing frustration on both sides came 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.”

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The multimillion-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.

Developer, Cle Elum City Council differ

CHH said it made several attempts to 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.

“We’re not afraid of bankruptcy, we just think it’s the most horrible experience that could happen to the city and it’s completely avoidable,” CHH Founder Sean Northrup said during the public comment period at Tuesday night’s city council meeting. “We think there are ample opportunities for the city, within its resources, as I understand them, to … get into conversations and have meetings and avoid Chapter 9. I hope that’s what you choose to do and again we’re at a point further down the road without a lot of progress yet, so we really need to move on to what you choose to do and then we’ll deal with what process you pick.”

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However, Northrup’s comments were met with friction from at least one city council member.

“I do not believe City Heights has shown any authentic concern for the city of Cle Elum or understanding of the reality of our finances and the rules governing them,” Steven Cook said right before the council’s final vote. “The city is faced with no good options here, only options that are less bad than others.”

One option other than bankruptcy that was discussed at the special meeting included asking taxpayers to foot the $22.2 million in the form of a bond. However, Cle Elum City Council member Ken Ratliff pointed out a bond would include at least 6% interest, would present challenges to pay it off and could drive up the cost of living beyond what residents were willing to take on.

Moments later, the council rejected a resolution that would direct the city to consider all available alternatives to bankruptcy while looking for strategies to strengthen better financial stability as it continues to provide essential services to residents.

“I appreciate your optimism,” commented Ratliff right before that vote. “I don’t have optimism.”

Luke Duecy is a reporter, editor and anchor at KIRO Newsradio. You can read more of Luke’s stories here. Follow Luke on X, or email him here.