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Questions & Answers – KCCHA/County LoansWhy is the County taking on this debt?

In 2005, Kitsap County entered into a contingent loan agreementrequiring the County to loan the Authority money in the event theAuthority would be unable to pay the loans needed to build theHarborside Condominiums in downtown Bremerton. The Countyentered into a similar financing arrangement for the PoplarsApartments. These loans have or will shortly retire and becauseof the economic downturn and the implosion of the creditmarkets, the Authority is unable to restructure or repay the loans. Thus the County was asked to fulfill its legal obligations to loanthe Authority the funds to pay these loans. The County, theAuthority and then banks have been in negotiations for severalmonths to extend and restructure the debt.

What are the terms of the new loan?

The County will borrow up to $40.5 million over a 4 year term, andwill be required to make interest-only payments during that term. The interest rate is variable, but the initial rate is under 2.5%. The $40.5 million will pay off the Harborside debt (totaling $31.09million) and Poplars (totaling $5.09 million). The final $4.32million the County will draw as needed, to pay for the carryingcosts associated with the Harborside condominiums withstructuring this debt, and the interest payments needed for the 4year loan.

Where will the County get the money to pay back thisloan?

The County will assume sole responsibility for the Poplars Debtand ultimately incorporate the Poplars Property into the CentralKitsap Community Campus Project, with the potential to convertits use in a way that will repay the $5.09 million. The remainingdebt will be paid through:

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Proceeds from sales of Harborside condos and the adjacentland (the Sinclair Lot)

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Proceeds from sales of all non-low income residential assetsof the Authority (office buildings, land & market rateapartments)

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“Excess Revenues” from the Housing Authority The County will manage the sale of assets, including theHarborside Condominiums. The four year term will give the realestate market a chance to recover so the condos and other realestate assets do not need to be sold at today’s fire-sale prices.Proceeds from asset sales will go directly to paying down the Bankof America loan.

What are Excess Revenues?

Sources of Revenue not required by the Authority (a) to sustainthe operating costs of fulfilling the Authority’s core low incomehousing mission; or (b) to satisfy the Authority’s other existingobligations.

What happens in four years if Proceeds from asset salesaren’t sufficient to repay the loan?

At the end of the 4 year term if there is a gap between theamount the County financed and the sale proceeds of the assets,the County will need to issue long-term bonds to cover that gap.County staff is working to establish a plan, including acontingency fund to set aside any one-time only revenues theCounty receives beginning in 2009 to provide for debt paymentneeds starting in 2013, at the end of the loan’s term. TheAuthority in turn is required to pay back this loan as it receivesone-time only revenues in excess of its budget.

Were recent County budget reductions related to takingon this debt?

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No; the County has not made any cuts in expenses or staff because of this debt. The Board has been negotiating with theBank and the Authority to minimize the loan’s impact on theCounty’s general operating fund. As noted above, there may bedebt service payments the County will need to make from itsgeneral fund beginning in April 2013; the County will take everystep to plan and save now to avoid making cuts to absorb thesepayments.

Why is the County in the business of housing in the firstplace?

Under state law, Washington counties and cities are required toform a housing authority. This Authority is jointly comprised of the county and the cities of Bainbridge Island, Poulsbo and PortOrchard. The Authority owns or operates over 1,000 units of lowincome and senior housing throughout the county and withinthose four cities. Through use of grants, loans and bondproceeds, the Authority has provided for and expanded the supplyof good-quality housing units in the county, for both home buyersand renters. In addition to minimizing the impact to the Countyas it lives up to its legal obligations, this debt restructuringensures that the Authority will be able to carry out its coreaffordable housing mission.

Why was the Authority building condos in downtownBremerton and why did the County guarantee the debt fora project in an incorporated city?

The Authority had been designated as the official CommunityRenewal Agency for the City of Bremerton, and the original planwas formulated during the height of the real estate market in2005. Excess proceeds from the Harborside condominiums wereintended to be used to supplement funding for low incomehousing programs. The County was the one member agency withsufficient debt capacity to guarantee the financing for this project.