By Brian Kelly

Herald Writer

FREELAND — The revolving door continues to spin wildly for the Holmes Harbor Sewer District board of commissioners. Two commissioners resigned Tuesday night, leaving the board empty of those who had worked on a controversial bond sale.

Commissioner Don Cardner said he was stepping down because Holmes Harbor ratepayers have called for board members to resign and have threatened a recall election to oust commissioners who played a part in a recent $20 million bond sale deemed illegal by the state. Cardner said he wanted to spare the district further conflict.

Commissioner Don Wills said he was resigning because he did not have time in his busy schedule to perform the duties of sewer district commissioner.

Four new commissioners were appointed at the meeting: Stan Walker, Jim Gervais, Don LaMontagne and Susie Yeilding.

"This is remarkable. Five new commissioners all within the last two sessions," Gervais said.

Talk of the bond sale controversy has consumed the district in recent days. The district serves roughly 500 customers in a golf course community near Freeland, and many are worried that they will face assessments of $40,000 or so to help cover the bond sale if it ends in default.

On Aug. 3, the state Auditor’s Office released an audit report of the district that said commissioners may have broken state laws when they set up a special assessment district well outside the Holmes Harbor area and allowed the sale of $20 million in bonds that benefited a private developer.

The Holmes Harbor district created the special assessment district, called a utility local improvement district, in south Everett for the Silver Sound Corporate Center, a six-building office complex that developer Terry Martin wanted to build and lease. Commissioners told auditors they had agreed to the deal because their attorneys told them it was legal and the developer had promised to pay the district $100,000 in administrative fees.

State officials got word of the proposed project in early 1999 and warned commissioners that state law prohibited a sewer district from creating a utility district outside its established boundaries. Holmes Harbor commissioners approved the deal anyway, despite warnings from the district’s previous attorneys and others.

The state auditor, however, said the arrangement violated the state constitution, which prohibits public money being used for private projects. Martin, the developer, used $6.2 million from the sale of the bonds to buy the 39.45-acre property in Everett for the project. No permits have been issued for the office park, and no construction has taken place.

The bond sale controversy has taken a toll since the release of the audit. Two members quit less than a week after the audit report was released.

Heather Houlihan resigned from the five-member commission on Aug. 8, and commissioner Linda Zoll stepped down when the audit was released on Aug. 3.

Tuesday night, the new board quickly turned its attention to dealing with the fallout from the controversial bond sale. Commissioners plan another special meeting on Tuesday to discuss hiring a new attorney.

"This is going to fly fast and furious," Gervais said, adding that he has heard that some bondholders have already started working on lawsuits.

"The crossfire is going to be fierce," he said.

Five law firms in Seattle and Bellevue have expressed interest in serving the district. Charles Tull, the water district’s attorney since October, has also submitted a letter expressing interest. That announcement at Tuesday’s meeting brought laughs from some commissioners and audience members.

Tull, who became the district’s lawyer one week before the bond sale, has been criticized by state officials for his role in the deal. Tull was paid $100,000 for his work on the bond sale. The state auditor has told the district it should hire an independent lawyer.

You can call Herald Writer Brian Kelly at 425-339-3422 or send e-mail to kelly@heraldnet.com.