BELLINGHAM - The Bellingham-Whatcom Public Facilities District board is developing a strategy to avoid a financial crisis that is still six years away.

The last-resort scenario: City voters could be asked to approve a property tax levy to cover a looming 2019 shortfall on repayment of about $17 million of bond debt that financed the construction of Whatcom Museum as well as Mount Baker Theatre improvements.

But at this point, board members hope things won't get to that point.

At the time the bonds were issued, in 2004 and in 2007, board members and city officials thought they would get more than enough sales tax revenue to cover repayment of the interest and principal. State law gives such districts a sales tax rebate of 0.033 percent for 25 years - money that would have remained in state coffers if the district had not been established.

The optimistic projections - believed to be conservative at the time - were based on the slow but steady increase in sales tax revenue that had been the norm for years.

But then the real estate bust triggered a prolonged recession. In 2009, sales tax revenue to the district dropped more than 11 percent from the year before. On Thursday, Dec. 6, City Budget Manager Brian Henshaw told the facilities district's board that 2012 sales tax revenue has only now worked its way back to 2008 levels - about $1 million.

Henshaw and City Finance Director John Carter foresee a possible shortfall in 2019, when bond repayment requirements move up sharply. In 2014, accelerated repayment of a loan from the city will begin to eat away at the district's current reserve of about $1.4 million.

The district has been making interest-only payments that amounted to about $26,000 this year and in 2013, but the district is scheduled to repay the city $376,000 a year from 2014 through 2018 to retire the principal.

"The loans and the bonds were all backloaded," Henshaw said. "That's the unfortunate part."

At their Thursday meeting, board members discussed a plan developed by Carter to head off the 2019 problem. Among other things, they expect to ask the city to extend the terms of its loan to take off some of the financial pressure.

But board members rejected Carter's suggestion that they ask the city to reduce its current $1.5 million general fund contribution to the museum budget, to make city general fund revenue available for bond repayment. A memo from Carter explained that the city could then shift tourism fund money - generated by the hotel occupancy tax - to the museum.

Board member Charles Self said he didn't like the idea of encouraging the city to reduce its general fund support of the museum. Board member Dunham Gooding noted that if more tourism money were shifted to the museum, there would be less money available for tourism promotion that is supposed to stimulate tourist spending that generates tax revenue.

Henshaw said the tourism fund already provides $150,000 to the city's general fund to help cover the city's $1.5 million annual museum subsidy.

Board members again rejected Carter's proposal that they urge Mayor Kelli Linville to seek the state Legislature's approval of an extension of the district's sales tax rebate, which would expire in 2027 under current law. Pushing that date back would help the district refinance and extend its debts at more favorable terms.

Gooding noted that the board rejected that extension at their meeting in February 2012, recognizing that the state has its own bills to pay for education and social services.

Board member Dean Brett said the district can always join other districts in a legislative push later, if circumstances require.

"The only way it's going to pass the Legislature is if public facilities districts are in trouble all over the state," he said.

For now, board members are relying on renegotiation of the city loan and possible restructuring of bond debt to close the projected gap.

But the final step on Carter's list is a tax increase: "Should the previous ... steps fail to secure the repayment of all debt obligations of the PFD by 2018 ... the city would bring forward to the voters a special property tax levy lid lift to repay all remaining balances."

Henshaw said state auditors have been looking closely at facilities district finances since the Wenatchee district defaulted. Voters there eventually approved local sales tax hikes to cover shortfalls.

Henshaw told the board that state auditors want to see the Bellingham-Whatcom district develop a solid plan to avoid similar problems here in 2019.

There are 25 public facilities districts in the state.

Reach JOHN STARK at 715-2274 or john.stark@bellinghamherald.com . Read the Politics Blog at blogs.bellinghamherald.com/politics.