By Noah Haglund and Diana Hefley Herald Writers
SNOHOMISH — City officials are now saying a group of homeowners will not be held responsible for thousands of dollars in outstanding building fees that the city neglected to collect.
The City Council voted unanimously Tuesday night after a closed-door session to free the neighbors from any liability associated with the unpaid fees, totaling $112,239. The council’s action reversed the course of city administrators, who earlier insisted that state law forced them to make the homeowners pay for the city’s mistakes.
“The action that the city has now taken, it has consequences for the city, but I’d rather fight this on the side of the citizens and property owners than to be against them,” Councilwoman Lynn Schilaty said Wednesday. “It has to be resolved one way or another. I’d rather work with them to resolve this than against them.”
Since 2012, Snohomish officials insisted that the city couldn’t waive fees the building department never collected when houses in the Denny and Kendall development were constructed, starting about six years ago.
Homeowners never learned of the problem until they received a threatening letter from the city in April 2012. Later, one of the developers involved in the project paid some of what was owed. Still, by this fall, 13 homeowners remained on the hook for about $3,000 to $20,000 each, whenever they sold or refinanced.
City manager Larry Bauman told the frustrated homeowners at a City Council meeting two weeks ago that Snohomish was legally obligated to collect from the current property owners. That same meeting also offered the homeowners the first clear signal that the city might resolve the situation in their favor. That happened when the City Council vowed to explore other options to recoup the unpaid sewer connection and school impact fees, including trying to make the developer pay up.
“This situation from a legal standpoint is both complex and ambiguous. It’s not a clear-cut issue in a lot of ways,” City Councilman Greg Guedel said Wednesday. “If you have these ambiguities, then the responsibility of the city government is to support the citizens of the city we serve.”
Guedel and other city leaders say their intent is to provide the homeowners as soon as possible with written confirmation that they’ve been released from the fees. It’s unclear how long that will take.
Bauman on Wednesday said the city could have considered taking this route earlier.
“I suppose so,” he said. “The problem is to consider the different kinds of risk in the options that we have.”
Specifically, by giving the homeowners a pass, he said, the city could incur a negative finding during a future state audit. While state auditors don’t take enforcement action, a negative audit carries a risk in itself, Bauman said.
“There is the potential that it could affect the city’s standing for grants and loans, but that’s probably not a likely outcome,” he said.
State auditors already noted problems with permit fee collections in Snohomish in 2009. The office recommended in 2010 that the city implement better internal controls in its building department. The state never issued a written finding, however.
State auditors are expected to take another look at the permit fee issue at the next regularly scheduled audit. That’s not expected to happen until at least next year.
Meanwhile, the city will investigate other avenues to collect the unpaid fees from the developers, Bauman said.
City staff previously concluded they were unlikely to recoup any additional money from the developer, the now defunct Dynasty Homes of Everett. They think the same is true of the developer’s insurance policy.
Mayor Karen Guzak, who was part of Tuesday’s unanimous council vote, said the new approach will not remove concern about running afoul of state law prohibiting the gifting of public funds.
“There were a series of difficult choices with all of them having negative consequences,” Guzak said.
The city’s change of heart was welcome news for neighbors, who are optimistic that this will end more than 18 months of wrangling.
Buck Hensley, whose home has $6,000 in outstanding school fees, was skeptical two weeks ago when the City Council first promised to look into solutions. The turn of events left him pleasantly surprised.
“The letter from the city — that will give everybody some piece of mind,” Hensley said.
Said neighbor Carsten Buus: “It’s awesome. I’m just waiting for the letter from the city.”
“I’m still curious what happened between 2008 and 2012,” Buus said.
City records show that Bauman and other top managers were aware of the unpaid fees by late 2008 — well before some of the homes were sold. At one point the uncollected fees on the two neighborhoods, and some others, approached half a million dollars.
Before issuing building permits, the city should have required Dynasty Homes to pay sewer-connection and school-impact fees. That procedure is laid out explicitly in city code. City leaders blamed the former permit coordinator for the lapse. She was fired in 2008. The city later paid her $20,000 to settle her labor grievance and agreed to write her a letter of recommendation for use in a job search.
Meanwhile, city officials last year asked the police department to investigate the possible forgery of a city inspection document. A sheriff’s detective concluded that the document was likely forged, but there wasn’t enough evidence to prove who was responsible. The questionable document was for a house that the city’s books show has no outstanding fees.
The detective also concluded that it appeared that the city failed to disclose to title companies that the fees were owed. Records show that the city only notified companies about outstanding water and sewer bills, not that the connection fees were unpaid.
The controversy began to become public in April 2012 when city attorney, Thom Graafstra, sent a letter to the affected homeowners, advising them that they had two weeks to make immediate arrangements to pay the city.
Noah Haglund: 425-339-3465; email@example.com.