Troubled sewer district finds its footing

Though it is more expensive to flush the toilet in the Holmes Harbor Sewer District these days, the financial trauma suffered by the area's sewer district last year is starting to fade like a bad memory.

Home sales are back up after the property market in the district froze last summer in the aftermath of an illegal $20 million bond sale, and the district is taking steps to pay the high price of attorneys and to pay off on the debt it still owes the Washington State Auditor's Office.

Last month, the district filed lawsuits against three attorneys who, alleges an attorney representing the district, led the sewer district into selling the bonds in October 2000 against the advice of the state. The lawsuits are just part of a long-term cleanup of a mess elected officials in the district believe will eventually go away.

"Bond issues are resolved over time," Stan Walker, president of the Holmes Harbor Sewer District Board, said this week.

All it takes is money -- money for attorneys, money to pay auditors, and money to run the district's sewage treatment plant -- and the district has taken a number of steps to make sure there is enough. Still about $20,000 in debt to the state auditor's office for the investigation that brought the alleged bond malfeasance to light, and to a new attorney who requires a $750 a month retainer, the district raised sewer rates in March for the second time in less than a year. Now Holmes Harbor homeowners pay about $700 a year to drain away their wastewater, while people who own undeveloped lots pay about $580. That is a jump of about $250 for both types of property over pre-audit prices.

Those fees, spread across about 450 lots, should keep the district running this year, at least in terms of its daily operations and increased legal fees. However, to take care of some of the bigger bills that might come in the future, the district is going to Island County Superior Court to ask a judge and jury for the return of several hundred thousand dollars in legal fees -- plus damages -- it believes it is owed by attorneys Charles Tull, Mike McCall and David J. Smith. All three were involved in crafting the bond sale, a sale the state concluded was not for the benefit of the district, but for the benefit of Mukilteo developer Terry Martin.

The project the money was to be used to develop -- an Everett office park -- still has not started, due both to legal action regarding the bond sale and the city of Everett's refusal to grant a building permit.

While the district does expect to see some lawsuits filed by bond investors naming it as a defendant over the sale, district residents have reasons to believe life is returning to normal. Todd Bitts, a real estate agent with Coldwell Banker/Tara Properties Freeland office, said homes in the sewer district are actually selling better now than they did prior to last May, the month before a story in The South Whidbey Record uncovered the particulars of the bond deal. Between May 2001 and May of this year, 15 homes sold in the district, three more than the same period in the previous year.

At the same time, the district's sewer operation is running smoothly, said Stan Walker. For example, the sewer plant's holding pond -- which stores treated sewer water for later use irrigating the Holmes Harbor Golf Course -- is at its highest level ever.

"Operations are going great," Walker said.

Walker did say that there are some lasting complications due to the newspaper coverage the district received last year. He said some property owners are not paying their quarterly sewer assessments, possibly out of a belief that the legal trouble the district is having could affect private property values. State auditors and district attorneys have since shown this to be a misperception.

As the district continues to untangle its legal mess, property owners in the district are staying informed, Walker said. The district's board of directors has a regular audience at its monthly meetings, and a community group that formed shortly after the state audit report last August continues to meet.

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