BELLINGHAM - Sales tax revenues in Whatcom County have been creeping up, and that is improving the financial prospects for the Bellingham-Whatcom Public Facilities District.

At a Wednesday, Jan. 23, meeting, City Finance Director John Carter told district board members that sales tax receipts for 2012 were $1,117,000, compared to the $1,050,000 that the district had been expecting at the beginning of the year. The total is more than 6 percent above what was collected in 2011.

If annual growth at that brisk pace were to continue for the next few years, the district could avoid a potential financial crunch projected for 2019. By that year, under a less rosy sales tax growth scenario, the district would lack sufficient funds to cover payments on about $17 million of bond debt that financed construction of Whatcom Museum and improvements to Mount Baker Theatre.

But Carter also cautioned board members that it would not be prudent to rely on optimism about tax receipts in future years.

Optimism got the district into its current financial straits in the first place.

At the time the district issued bonds in 2004 and 2007, board members and city officials thought they could expect about 4.5 percent annual growth in sales tax revenue, based on past experience. State law provides the local district, and others around the state, 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.

But in 2009, after the real estate bust triggered a prolonged recession, sales tax revenue to the district dropped more than 11 percent from the year before, and recovery has been slow. Carter told the board that the city's overall sales tax revenues are only now getting back to 2007 levels.

Other facilities districts around the state are facing similar financial issues, and Carter said state auditors are asking districts to show evidence that they are taking steps to deal with future financial shortfalls.

To that end, the district board approved sending a letter to the City Council to raise the possibility of renegotiating repayment terms on a $1.8 million loan from the city. As of now, the facilities district is expected to begin repaying that loan with interest beginning in 2014, with an annual payment of $350,000. Carter told the board that if the city agrees to terms for postponement of those payments, the district would have some more financial breathing room.

Board members also agreed to contact representatives from the Campaign for the Arts to see if there is any hope of collecting about $387,000 in unpaid pledges to the campaign's capital fund drive for the museum and theater. That money also could be applied to bond debt, but board members did not appear optimistic.

Board member Charles Self said it was time to either collect the money or get a candid admission from those who made the pledges that the money will not be paid. The pledges are not legally binding.

Carter reminded the board that the only question is who will pay off the district's bonds, and how. If the district's own sales tax revenues come up short, the city could issue new bonds, taking advantage of its AA credit rating to pay off the old bonds and refinance the earlier debt.

"The city is a guarantor of all this debt," Carter said. "The debt will get paid at some point."

Reach John Stark at 360-715-2274 or john.stark@bellinghamherald.com. Read his politics blog at blogs.bellinghamherald.com/politics or follow him on Twitter at @bhamheraldpolitics.