Ratepayers remain 'on the hook'
July 3, 2008 · Updated 1:41 PM
"Citing advice from an insurer, the state Attorney General, and the state Auditor's Office, the commissioners of the troubled Holmes Harbor Sewer District said last Thursday they want to appoint an independent counsel to investigate the district's actions surrounding the $20 million Silver Sound bond issue.The commissioners sent out requests for proposals to six law firms specializing in municipal bond law and litigation. On Aug. 14, the board will hold a special meeting to decide whether to name an independent counsel. If the commissioners choose to do so, they will pick counsel from the proposals they receive.Two meetings this week regarding an allegedly illegal $20 million bond sale by the Holmes Harbor Sewer District showed the district's 200-plus ratepayers that they may not be safe from financial risk for several years.At a ratepayers' meeting Wednesday night in the Trinity Lutheran Church sanctuary, attorneys Linda Moore and Frank Cordell told more than 100 property owners that they will not be held responsible for repaying $20 million in bonds declared illegal Friday morning by the Washington State Auditor's Office. That was the good news.Moore, who donated both meeting and research time to the group, did not let the ratepayers wait long before dropping the other shoe.The bad news is that you're not off the hook, she said. Moore and Cordell, who is an attorney with the Seattle firm of Gordon Murray Tilden, said sewer district property owners may still have to pay out money related to the bond if investors damaged by the deal choose to sue the district.Cordell, who met with state Special Attorney General Roy Koegen last weekend, said it is Koegen's opinion that the bond will go into default. If it does, Cordell said, the investors will want their money back.Moore said this scenario is not a pretty picture.They will start suing anyone they can conceivably think of, she said.Cordell did not meet with Koegen pro bono. At Thursday's meeting, he told the property owners he is interested in being their attorney as the lawsuits begin to crop up. Though investors will probably go after the big players in the deal first - developer Terry Martin, bond counsel Mike McCall, and project backer Goldman-Sig (Goldman Sachs-Signal Mortgage) - Cordell said the Holmes Harbor Sewer District could well be named in lawsuits as well.The meeting was organized by several sewer district property owners who refer to themselves as The Group of Seven. Group members Meg Wingard and Bob Randolph recommended to the other district ratepayers in the room that they pay $100 each to hire an attorney to act as a watchdog for any lawsuits. Cordell said his firm needs $25,000 to perform that function. He estimated that legal entanglements associated with the bond will take at least two years to unsnarl.Former sewer district commissioner John Dingman cautioned against keeping separate counsel from the sewer district. He recommended that property owners petition the district's board of commissioners to fire the district's attorney, Charles Tull, then replace him with an attorney of their choice.Several people in the room, including real estate broker Erl Bangston, took the opposite view. He said commingling the property owners' interests with that of the district and the commissioners was a bad idea.Cordell said whomever the district ratepayers hire to represent them should eventually work as the district's attorney. That process, he said, should happen over time.The next night, Thursday, about 40 of the people who met at the church were on hand for the district commissioners' regular monthly meeting at the Holmes Harbor Golf Course clubhouse.Spalding admits hearing warningUnlike at the commissioners' meeting last month, commissioner Linda Zoll and Don Cardner, and former commissioner Bill Spalding were open with details about the bond sale. Spalding acknowledged that he spoke with officials from the state Auditor's Office prior to the bond sale and was warned not to sell the bonds. He said he turned this information over to the district's counsel, Tull, and bond counsel Mike McCall, and told his fellow commissioners about the advice. Even with that information, the attorneys agreed the bond sale was still legal, Spalding said.Zoll then pointed the finger of responsibility at the district's engineer, Les Killingsworth. She said Killingsworth introduced Terry Martin and several of his development projects to the commissioners. Mr. Killingsworth is the one who brought Mr. Martin to our table, she said.Zoll noted that the commissioners were eager to see the results of the state audit, which was released Friday. Once they have the document in hand, she said, they can take action to prevent financial harm to district ratepayers.We will go after whomever and whatever is necessary to make this district whole, she said.The three commissioners who attended the meeting, Zoll, Cardner, and Don Wills, took a step toward making their board whole. They appointed Meg Wingard to fill Bill Spalding's vacated commissioner seat. "