Edgewood property owners have sued the city in an ongoing dispute over how the city financed its sewer system, spurred by a state Court of Appeals ruling that favored the owners on two key issues.
Eight landowners are seeking damages, claiming the city in East Pierce County wrongfully “hauled its own citizens before the Court of Appeals” and violated their constitutional rights, according to the lawsuit.
It also alleges that one property owner died as a result of stress related to the dispute.
The new complaint comes after the appeals court ruled in March that the city erred in some property assessments for a local improvement district, or LID, that was formed to pay for Edgewood’s $21 million sewer project.
The court annulled the LID amounts for the eight landowners and ruled the city denied them due process.
City Manager Mark Bauer argued that the city followed the law when it assigned LID fees to property owners.
He says the uncertain fight over property values has created a “financial nightmare,” leaving the city scrambling to keep its loans and avoid mounting costs for LID property owners while both sides seek a resolution.
The sewer system — which runs almost the entire length of Meridian Avenue from 32nd Street East to Enchanted Parkway north of the city limits — was completed in 2011. Residents petitioned in 2008 to form the LID.
The city obtained loans to cover costs, and 106 landowners are responsible for paying the city back over 20 years.
Bauer said 98 property owners not involved in litigation have either paid their share of the total cost or agreed to pay fees annually. The court ruling will not change their fees.
Following construction of the project, officials hired an appraiser to assess property values within the LID area and calculate how much each owner would pay.
The city moved forward with those assessments despite opposition from about two dozen property owners. Some appealed their amounts to Pierce County Superior Court.
Several years and two rulings later, the city is adjusting appraisals for the handful of properties — 11 of the 163 parcels in the LID — in response to the appeals court’s ruling.
The ruling states the city erred in its assessments by factoring in “oversizing” costs. That means the value of benefits to future sewer users was levied against current property owners in the LID.
“The record shows that the city deliberately built the pipes larger than was needed to serve the LID because it wanted to have capacity to serve future users outside the LID,” the ruling states. “(T)he city cannot shift costs in this manner.”
The court said those oversizing costs must be covered by other means, such as latecomers’ fees, and the new appraisals must be made without those additional costs. The court also ruled that the city denied property owners their right to due process when they improperly notified them of a hearing to challenge the appraisals.
The city has sent preliminary notice about the new appraisal process. A hearing date to review the new amounts hasn’t been scheduled.
“Now we’re starting with a clean slate,” Bauer said of the remaining 11 properties.
Bauer said the goal has always been to keep costs down, and the longer the legal battle continues the more challenging it will be to control costs.
“All it’s doing is dragging out the process and costing everyone more money,” Bauer said of the ongoing dispute.
He said a resolution is vital to avoid mounting interest and to keep the city’s bank loan, which has a term that’s been extended three times since litigation started.
Bauer said an additional $2.5 million in interest could trickle down to all the residents in the LID. If the amount collected isn’t enough to cover any additional costs, the city would have to complete a supplemental assessment and collect more from all 106 properties, he said.
Bauer acknowledged that the sewer project isn’t cheap, and many residents may have suffered “sticker shock.” Confirmed per-parcel assessments — those that are paid off or under payment plans — range from about $7,000 to more than $1 million.
The city’s initial assessments of the properties in the LID were substantially different from the county’s assessed value, court records show. For example, the city assessed one parcel at nearly $105,000, while Pierce County valued it at about $68,800.
Bauer said the city’s appraisals were higher because they factored in the sewer’s added value to the property — something not taken into account in the general county assessment.
Landowners’ fees vary based on several factors, Bauer said. The city didn’t want small parcels and large parcels with varying development potential to pay the same share of the cost, he said.
Among those seeking compensation in the lawsuit is the family of a property owner who died during the appeal. The complaint alleges the man’s death was a result of “stress related to the city’s decision to uproot” the family, and he died not knowing if his widow was “secure in their land of 40 years.”
An attorney for the property owners says the city should be held responsible for the “substantial amount” of legal fees his clients spent fighting for their rights.
“It’s important that government and people that work for government respect the rights of the individual citizen,” attorney Richard Sanders said. “This is what this lawsuit is all about.”