FREELAND – A small Whidbey Island sewer district is now in good financial shape and is paying off debt borrowed about 10 years ago to develop the utility at Holmes Harbor.
Its governing board also checks its legal advice carefully and is cautious to stay on the right side of the law.
That’s according Holmes Harbor resident and retired FBI agent Stan Walker, current president of the Holmes Harbor Sewer District. What’s remarkable is that he even had to make such a statement.
Jennifer Buchanan / Herald file photo
The small sewer district of about 270 customers was up to its proverbial neck in controversy after a Mukilteo developer sold it a bill of goods in 1999. It’s been an expensive lesson.
A previous Holmes Harbor board agreed to sell more than $20 million in municipal bonds to finance a commercial center in south Everett. For helping out Mukilteo developer Terry Martin, the district was to receive a $100,000 windfall.
After the illegal deal fell apart, about 400 bond investors were left high and dry, which led to a class-action lawsuit against a variety of individuals and some national bond brokers. Trial is scheduled for March in Island Country Superior Court.
Martin and four other men were scheduled for sentencing today in U.S. District Court in Seattle after pleading guilty to a variety of criminal charges in connection with the scheme. However, a spokeswoman for the U.S. Attorney’s Office said Thursday that one of the defendants withdrew his guilty plea, and sentencing of the other four has been put off until after the trial.
In hindsight, the five people on the board at the time might have guessed something was wrong with the deal, Walker said.
“There were more warnings on this than a pack of cigarettes, and people still smoke, don’t they?” he said Thursday.
His disappointment extends to state agencies, including the state Attorney General’s Office, which knew of the proposed deal but failed to stop it.
“It just irks me that Washington state agencies sat on the sidelines and watched this train wreck happen,” Walker said.
Martin’s introduction to the board came through a consulting engineer for the district, the man who had successfully guided Holmes Harbor through the construction of its facilities. The engineer, Leslie Killingsworth, 68, pleaded guilty to wire fraud in the scheme.
The five board members who made the bond-sale decision resigned in 2001, and the district has been floating on an even keel since then, though sewer fees had to be increased $20 a month to $58.33 for district members. The district’s financial situation, and for now an inability to borrow more money, also has meant putting off some construction projects.
In addition, the district had to forgo the purchase of a small water district that serves the same area.
The district received a scathing state audit report in 2001 citing eight violations of state law in connection with the bond sale, including that it created a utility district outside its boundaries in Snohomish County.
In May, the state auditor issued its latest report, saying the district has complied with state laws and regulations, as well as the district’s own policies and procedures.
“We did not identify any conditions significant enough to report as findings,” the report said.
By the time all the lawsuits are over, Walker figures the bond sale will have cost the district more than $300,000. “It cost us money, and it cost us time,” he said. “We regret the bondholders will probably not get all their money back.”
But it’s a lesson learned.
“What matters is we get good legal advice and we make good decisions,” Walker said.
Reporter Jim Haley: 425-339-3447 or haley@heraldnet.com.
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