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Cle Elum City Heights / City of Cle Elum Arbitration
The Cle Elum City Council Voted for Bankruptcy...Now What??
On Tuesday, January 28th, the Cle Elum City Council voted 5-2 to approve a motion to authorize Mayor Matthew Lundh to file Chapter 9 municipal bankruptcy, and hire John Kaplan of Stoel Rives in Seattle, WA as counsel for this purpose.
We are forming a PAC (Political Action Committee) to fund, organize efforts, and community support for a vote to change the form of Cle Elum's government from a Council-Mayor form, to a Council-Manager form. We will share more on this as time permits, but here is a link to understand the differences.
In basic terms, the Mayor would serve in a more relational role, while many of the Financial, Legal, Development, and other "business" roles would be performed by a City Manager. The City Manager is hired/voted in by City Council, and City Council can, at any time, choose to vote the City Manager out.
This gives a city much more flexibility to hire the best possible talent to run the business aspects of the City government. It is a near impossible task, in a community the size of Cle Elum, to find an individual that would want to run and take a part-time position as Mayor, and also have the expertise and time to handle all of the very complex and high dollar decisions and negotiations of a city with such unique requirements.
This change of government would need to be put to a vote of the citizens in ballot form. We will be providing additional details on this process and how the community can support these efforts.
We have discussed this with Jackson Maynard and others involved in litigating civil and constitutional violations.
We would love to hear any and all comments, questions, and input on this.
For the community,
Karl Ohlemann
509-856-5676
What are my personal interests, motivations, positions, and why?
As a full-time resident of Roslyn and longtime business owner (Founder/CEO/CFO) in the housing industry and several others, and as a student of the law, when I became aware of the latest round of litigation between City Heights and the City of Cle Elum in mid-2023, I began conversations with Mayor Matthew Lundh and City Heights owner Sean Northrop.
My concerns were/are twofold:
1. How do we avoid catastrophic outcomes for the city?
2. How do we find opportunities through negotiations for affordable housing?
I attended City Heights' Town Hall Meeting on July 10, 2024, and at Mayor Lundh's request (see text below) and with Sean's approval, I took video of the whole event (posted below in its entirety).
During this meeting, I asked many questions about how they could use this situation to alter plans to allow for affordable housing (sub $400k/$500k product) and possibly built to rent product to help bring in some our collective business owner's staff that are currently commuting from Ellensburg, Yakima, and others. This is a very serious need of our area, and as we grow, we need to be extremely mindful of this need to provide housing geared specifically towards full-time residents who work in our communities and live elsewhere. Sean/City Heights was surprisingly receptive to and supportive of this.
During the following months, I attempted repeatedly to meet with Mayor Lundh to discuss thoughts on resolution. I was unsuccessful.
Fast forward to November 7th, 2024 when news broke of the $22M arbitration award. I was very concerned, and began a deep dive to understand the facts leading up to the arbitration, and looked into many legal ways to navigate through this. I came to the conclusion after a few days that receivership would likely be the cleanest way through this, should the City either not be willing to negotiate, or attempt more harmful routes such as Chapter 9 bankruptcy (which it very likely would not qualify for at this time).
I called Sean on November 13, 2024 (see text below) and explained my analysis, and told him that I was on the side of the city/community, and whether he agreed to it or not, I would going to strongly and vocally advocate for receivership immediately before bankruptcy was pursued.
As of today, January 25, 2025, it has been 79 days since the arbitration award was given, and at a rate of approx. $8,100 in interest cost alone, this has cost the City an additional $637,542, plus now another $2.3M in attorney fees awarded to City Heights, for a total of approx. $25,184,266.
My wife and I have a company, Preserve, that was launched in 2021 that specifically engages in situations like this with the goal of helping parties navigate through cataclysmic situations and avoid implosion. We have devoted "Chapter Two" of our lives to this. This issue is one that resonates deeply with us as active members of the greater community.
That said, this isn't about me, Sean, Mayor Lundh, Council Members...it is about the community. I am squarely on the side of doing what I feel is representative of the voices of the community, and providing information, resources, and a voice to help direct conversations towards outcomes that are the best of the worst, meaning there are no great options...only various levels of bad options, specifically in this order (in my opinion):
1. Voluntary appointment by the City of a professional/professionals who can come in and manage the Financial, Legal, and Development roles of the City.
2. Voluntary/Involuntary receivership. This would mean that the court appoints a "manager" to unilaterally run the Financial, Legal, Development, and other departments as needed with full legal authorization to make any and all changes needed for the survival of the City and with the purpose of satisfying the financial obligations of its Creditors.
3. Recall of Mayor/Council Members. In general terms, this would require the courts approval, based on evidence presented that meet the standards for a recall. It would then require a total vote of least 35% of the number of total votes cast for each position in the previous election in which they were elected. If the Mayor is recalled, then the Mayor Pro Tem (Council Member Steven Harper) would step in until the next election, unless they too were recalled. I'll add more details on this below in the near future.
4. Chapter 9 Bankruptcy (Absolute last resort; only if all other options fail). In many ways, this leads to receivership, but can have VERY damaging results on the short and long-term stability, reputation, and creditworthiness of the City, as well as a likely drop in property values and general disinterest in those who might otherwise be inclined to "invest" into the community. It is unlikely that the City could be granted Chapter 9 since it does not appear they have satisfied many of the qualifications required. (See below for Memorandum Regarding Chapter 9 Bankruptcy Qualifications)
It is my assessment that the City of Cle Elum is getting terrible advice from its attorneys!!
This is a brief summary. I have and will expand on more of these below as time allows.
I have heard requests for a Town Hall forum, where the public can ask questions, and where the Mayor and City Council have to respond.
I would highly recommend that the residents and community make their voices heard on this, either in Public Comments in upcoming City Council meetings and/or via call or email to the Mayor and Council Members (click on links; from City website):
Note: The Mayor is the chief executive and administrative officer of the City, in charge of all departments and employees, with authority to designate department heads subject to Council concurrence. The Mayor presides over all meetings of the City Council, but only has a vote in case of a tie. The Mayor reports to the Council concerning affairs of the City and its financial and other needs and can make recommendations for Council consideration and action. The Mayor directs the preparation of and submits to the Council a proposed budget. The Mayor also has the power to veto ordinances passed by the Council, but a veto may be overridden by five members of the council. The Mayor is the official and ceremonial head of the City and represents the City on ceremonial occasions.
Mayor Matthew Lundh; 509-304-4576
Mayor Pro Tem/Council Member Steven Harper; 509-260-1088
Council Member Jerred Weis; 509-304-4034
Council Member Steven Cook; 509-596-1195
Council Member Beth Williams; 509-307-8600
Council Member Audrey Malek; 206-790-8565
Council Member Cassidy Buechle-Curtis; 509-731-3440
Council Member Ken Ratliff; 509-260-1278
I write this to make it very clear what my motives are, why I am taking the positions I have, and why I feel so passionately about being engaged in these discussions. We lived in Cle Elum for the first few years, and later moved to Roslyn. TO BE CLEAR, I HAVE NO DESIRE TO BE MAYOR OF CLE ELUM. This keeps getting brought up, and I have no idea where from. I am a businessperson, not a politician. Period. If they need a business person, that is the only value I feel I would bring. We are very happy in Roslyn. I could envision a day that we may move back to Cle Elum, but certainly not in an effort to qualify for public office there.
I always welcome feedback, whether you agree with me or not. Please reach out to me at:
Karl.Ohlemann@Preserve.Inc
or
Thank you. It is an honor to live here and to feel like we can make a difference. Together, we can get through this.
Kindly,
Mayor Lundh/City of Cle Elum Facebook Post Feb 6, 2025
Facebook Post 2/6/2025
Text Messages
Update (1/17/2025)
On Tuesday, January 14, 2025 the City of Cle Elum held a City Council meeting. The council chambers were literally overfilled with residents and concerned community members. As part of the agenda were Public Comments. Since so many people from the community signed up to speak, Council made the decision to reduce each person's comments from the standard and planned five minutes to three minutes.
The bulk of public comments were regarding the $22M+ arbitration award with City Heights Holdings.
Many community members communicated their frustration with the City of Cle Elum for not only for the violations the City has repeatedly made on the 2011 Development Agreement that got them into this position, but also for how it has been handled since the Arbitration Award was received in November of 2024.
Besides rushed signals leading the town towards bankruptcy, little has been shared by the City with the general public or City Heights on the city's plan moving forward. This silence and inaction is costing the City $7,300/day ($250,000/mo) in additional interest expenses alone.
At the beginning of the meeting, Council announced that it would offer City Heights $100,000 payment, and a reduction in development costs totaling an additional $400,000 so long as City Heights would agree to "bankruptcy mediation" with an accredited mediator. This appeared to be a gesture of good faith, but as of today, there does not appear to be any urgency on behalf of the City to schedule this mediation. Earlier today, City Heights released its communication with the City in a Facebook post.
Due to the lack of action from the current Mayor and Council, there are increasing calls by residents for a recall of the Mayor and likely some of the Council Members.
In the case of the Mayor, a recall could be initiated by petition with 220 signatures from residents of Cle Elum (35% of the total number of votes received for the position in the prior election, which was 629 total votes cast for Mayor of Cle Elum).
There are organized efforts currently underway to identify potential candidates for Mayor and City Council to replace those who may be recalled and removed.
Something I would mention about the Cle Elum City Government; this area demands an unusually high level of competency and creativity out of our leadership. We are not just a 3,000 plus community. Due to Suncadia, the nature of our visitors, and other factors, the issues are much more complex and require an enhanced level of expertise and commitment from our elected leaders.
That said, I would caution residents to be wise in not only filling these upcoming positions, but all positions in future elections. Sometimes the best people are NOT the ones seeking office. We need to look at ourselves, our neighbors, and friends…encourage those who can really make an impact to consider these positions. I say this not to solely to criticize the current administration, but more as a forward-thinking comment, steeped in honesty about the reality of what has and has not worked in the past.
As part of this update, please see the two emails with Mayor Lundh and the city's attorney below, dated Jan 15, 2025 and Jan 16, 2025.
** I will add more comments here as appropriate in the upcoming days and weeks **
Please circulate this website and my contact information below to anyone interested. I'm a neutral party in these discussions, and happy to have discussions from people on either side of the equation.
(Since the forums are not the ideal place to establish a consistent and non-repetitive conversation, I will continue to make updates on the “community” website WeHeartCleElumRoslyn.com)
Please feel free to contact me if you have questions or suggestions about this topic.
Karl Ohlemann
(Full-Time Roslyn Resident)
Cell (509) 856-5676
Previous Updates
Update 12/22/2024
In a special meeting held on Thursday, December 19, 2024, the Cle Elum City Council voted to table (delay) voting on a resolution giving authorization to file for Chapter 9 Bankruptcy. While not unanimous, it sends a signal that maybe other options should be pursued, and that the residents of Cle Elum (and the surrounding area) would not support such a decision, at least not without more communication, cost/benefit analysis, and community involvement.
I commend Mayor Lundh, council members, and their legal counsel for listening to public comments and taking a step back. Hitting pause for a moment.
HOWEVER, UNTIL THIS IS FULLY RESOLVED THE INTEREST COST ALONE TO THE CITY OF CLE ELUM IS APPROX $250,000 PER MONTH.
I would encourage all who desire to weigh in with public comments on Facebook and otherwise to listen to this city council meeting (link here) before making assumptions about what is or isn’t part of this equation. Be educated, keep our comments productive, and be forward thinking.
There are paths forward that I believe we all can live with. It does not necessarily mean tax increases, additional fees, and a “public bailout”. What it does mean is that we need work together. We are one community. This is a decision that will affect not only Cle Elum, but Roslyn, Ronald, South Cle Elum, and potentially a great part of Kittitas County.
RECEIVERSHIP is a less lethal option than Bankruptcy, and one that absolutely should be considered. I have posted some information on that below.
We cannot go back in time and make different decisions. Focusing on who is to blame is not productive at this time. We can only look forward and must devote our collective efforts to navigate intelligently. Be informed. Ask questions. Be solutions oriented. All else is irrelevant, and can come later, if needed, when positions are up for vote.
Something I would mention about the open position on Cle Elum City Council; this area demands an unusually high level of competence and creativity out of our leadership. We are not just a 3,000 plus community. Due to Suncadia, the nature of our visitors, and other factors, the issues are much more complex and require an enhanced level of expertise and commitment from our elected leaders.
That said, I would caution residents to be wise in not only filling this open council position, but all positions in future elections. Sometimes the best people are NOT the ones seeking office. We need to look at ourselves, our neighbors, and friends…encourage those who can really make an impact to consider these positions. I say this not to criticize the current administration, but more as a forward-thinking comment, steeped in honesty about the reality of what has and has not worked in the past.
This doesn’t have to be a lose-lose scenario. There are positive things that could come from this, such as a real focus on affordable housing. The city has some moves here that could address this, even in the Cle Elum City Heights project itself. I sense a willingness from the developer to take a close look at this. This would be a big win for our community. We need more sub-$500k built product, and potentially some rental home considerations geared towards full time residents who are in supporting roles for businesses in our community. We are having to pull from Ellensburg and farther to find and secure the staff needed for our community. This is not ideal, and not sustainable.
We should see this as an opportunity, not as a loss. This only forces us to make better decisions that will enhance our community well past Cle Elum City Heights, and for generations to come. Encourage our elected leaders…help them make the best decisions possible…be better and don’t wage a war of words against them. That will not help us get through this as “one”.
Update 11/22/2024
I am in direct communication with both parties and I believe there are a couple options for a path forward that we could all live with, and would address affordability of housing, which is my biggest goal of these talks.
I briefly discussed both a $400-500k product and the idea of rental product with the City Heights Cle Elum during their town hall meeting on July 10, 2024 (Video Below). They were sympathetic to the need, but it would require concessions/permissions from the City in order to provide either/both option. This would be a huge win for this community...it seems there is willingness from the developer to provide and work with the city. This would be a win for the community and businesses who employ staff from Ellensburg and further because there are not enough options here.
One thing I would suggest is that we collectively to take a step back from doom and gloom talks of the end of Cle Elum and focus on SOLUTIONS.
Bankruptcy IS NOT the answer. That is nuclear. There are measures less severe that I think the developer could work with and would allow the city to avoid such drastic measures.
I believe there is potentially a silver lining here for Mayor Matthew Lundh, the City of Cle Elum - Government, and its residents as far as affordable housing and other important necessities to this community. Let’s not be too hasty…we have some opportunities here, but it needs to be handled with decorum and professionalism.
IN MY OPINION, AFFORDABILITY OF HOUSING IS THE REAL CONCERN AND OPPORTUNITY HERE.
WHAT IS RECEIVERSHIP?
I did a relatively deep dive on this a couple years ago for a similar situation.
In basic terms, receivership is used with companies, and in some cases municipalities, to assign a “manager” or “receiver” to take over control of the organization when they become insolvent, overburdened with lawsuits, etc and there is a risk that the organization or city has a decent likely of failure without some form of intervention.
Often in the case of a city, using Cle Elum as an example, the court would assign a "receiver" or “city manager” to oversee all major decisions until the city is solvent and has corrected the defect(s). This person would essentially have the keys to the organization for a period of time, and would make sure that all financial and operational changes that need to be implemented to repay creditors, reduce unnecessary expenditures, and increase economic viability are so executed. Once equilibrium is achieved, the court and the "city manager" would turn back control of the city functions to the elected officials. There is precedent for this, and I put a few links below to help understand.
In terms of benefits, the city is allowed to maneuver through necessary decisions, the claimants and creditors are assured payment of claims over time.
I truly believe that receivership may be the smartest path forward for all parties, including town residents and businesses, and I have presented this to Mayor Lundh and the leadership of Cle Elum City Heights as a possible path forward. It would also formalize the non-monetary “concessions” The City and Developer allude to as a possible remedy to offset some of the financial burden of the arbitration award.
Links on Receivership and Bankruptcy of Municipalities:
https://www.ptleader.com/stories/fort-worden-pda-in-receivership,183637
https://www.alston.com/files/docs/MAD-TaskForce.pdf
https://app.leg.wa.gov/RCW/default.aspx?cite=7.60.025
https://app.leg.wa.gov/rcw/default.aspx?cite=7.60
This is just an overview. I'm happy to discuss further. I believe our this situation is a microcosm of what is happening in many small towns with large development growth all over the country. We are not alone.
Cle Elum City Heights' Comment
Karl Ohlemann, City Heights echoes your sentiments. With binding arbitration, there are two options avaiable to the CIty to pursue: negotiate a settlement or attempting bankruptcy. Regarding settlement, City Heights has continually expressed willingness to consider payments over time and other non-cash offsets the city could offer. However City Heights needs earnest participation from the City to make any progress at settlement, and we encourage all stakeholders to seek resolution by settlement engagment from the CIty. The City has resources including cash, bonding capacity, an open line of credit, and additional claims they can pursue to obtain funds to resolve the liability. If they consider pursuing bankruptcy, here is an opinion of the likely outcome: https://heyzine.com/flip-book/MunicipalBankruptcyChapter9... City Heights would like the city to avoid the long term negative financial implications of attempting bankruptcy.
Case Study - Mammoth Lakes, CA Arbitration
A town in Mammoth Lakes, CA went through a very similar situation. A review of this could provide some guidance.
Cle Elum City Heights Town Hall Meeting - July 10, 2024
For anyone who would like to view the developer's (Cle Elum City Heights) Town Hall meeting on July 10, 2024, here is a video I took with their consent (I would suggest in particular listening to the segments from 21:45 - 26:30; 33:00 - 40:00; 42:00 - 42:30; 1:13:30 - 1:15:40)
Email From Kittitas County Commissioner Cory Wright
So helpful that our elected leaders bash residents/community members for trying to help. I'd love to know what I have to gain in this. Such incredibly poor taste, Commissioner Wright.
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