Augusta Township officials made deal that cost the utility department at least $400,000, documents show

Residents packed two public meetings on the issue last spring to ask for answers and voice anger over rate hikes of 20 percent or more for homes with higher than average water usage.

What they didn’t know is that part of the utility department’s roughly $1.5 million operating deficit is tied to lots in the Lincoln Pines subdivision.

In that development, former supervisor and current Augusta Township Trustee Kathy Jackson, former township attorney and current Washtenaw County Commissioner Ken Schwartz and former township treasurer Bill Babut allowed the developer, Dale LaClair, CEO of LaClair Builders, to pay $407,000 less than township ordinances called for in water and sewer connection fees without the knowledge of some members of the board.

In return, LaClair’s company made a $33,000 donation to the township fire department.

By the time the subdivision is built out, the township’s total loss of potential revenue could exceed $500,000.

Trustee Bill Tobler, who investigated the deal, expressed disappointment.

“I was shocked. The utility department desperately needs these funds,” Tobler said. “It is very important to treat all citizens and applicants equally according to our ordinances and procedures, and to make all decisions in open public meetings, with the necessary documentation.”

Jackson and Babut did not return repeated phone calls or e-mails from AnnArbor.com. Schwartz denied any wrongdoing and said proper consent was given by the board to allow the developer to pay the lower amount.

Early in 2008, Tobler and several other officials formed the Accounts Receivable Committee to collect outstanding debts from developers.

That committee discovered the deal and questioned Jackson about it in March 2008, but the investigation was put on hold until after the fall election.

When the committee got back to work earlier this year, current Supervisor Pete Hafler supported a motion to “evaporate” the group. The motion passed 4-3. Jackson, who was appointed back on the board by Hafler in April after losing her re-election bid to him in November, voted yes.

“Your first reaction to something like this is dismay of your local government,” Tobler said.

The Agreement

Augusta Township is a rural, bedroom community southeast of Ann Arbor.

LaClair was the first in a line of developers to see its potential some 10 years ago.

During the early stages of the housing boom, he began planning the 132-lot Lincoln Pines subdivision at Whittaker and Bemis roads, receiving board approval in 1999.

At the time, developers were to pay $1,500 per lot to tap into the Ypsilanti Community Utility Authority’s water and sewage systems, per section 6.5 of Augusta Township’s 1999 planned unit development agreement.

The PUD agreement details ordinances and guidelines that residential developers must follow in building homes, along with the fees required. The connection fee is in an ordinance set by the Augusta Township board. It charges all developers the same rate to connect into the systems and notes that it can’t be changed, extended or altered without a board vote.

Section 6.5 also stipulated the $1,500 fee was valid for a 42-month period after the first building permit for a home in a development was pulled. At the conclusion of the 42-month window, developers pay fees in effect at that time.

The Washtenaw County Building Department Web site shows the first building permit for LaClair’s Lincoln Pines development was pulled on May 18, 2000. Under the 42-month window, the company had until Nov. 18, 2003, to pay the $1,500 connection rate.

According to documents provided to AnnArbor.com, LaClair Builders paid for 58 connections on Lincoln Pines’ 132 lots before Nov. 18, 2003. That left 74 to be charged at the new rate, set at $7,000 by the board on Jan. 28, 2003.

But LaClair Builders still paid $1,500 on the remaining 74 lots - a $5,500 difference for each connection. That amounts to $407,000.

LaClair contends he deserved the break because construction was behind schedule, and his company paid for a substantial portion of the piping. He added his company was the first to build a subdivision in Augusta Township in 60 years, and it paid for the sewer main, water main and physical taps.

“Had the township told me ‘Hey, even though you paid for everything, we’re going to make you pay the additional amount to build these lots,’ it wouldn’t have made me feel nice and warm and fuzzy toward them,” he said.

Tobler said the board didn’t question the deal because the treasurer’s office, which was run by Babut, collects and deposits money from developers. The board only sees summary statements, which offer few details, Tobler said.

The deal

Documents, recordings and e-mails obtained by AnnArbor.com show how Jackson, Babut and Schwartz arranged the deal with LaClair in 2004 to continue paying the lower rates beyond Nov. 18, 2003.

Others on the board when the deal was arranged - including trustees Lynda Dew, Tobler, and JoAnn Kidder and Clerk Kathy Giszczak - told AnnArbor.com they were unaware of the deal. Trustee Bill Manty couldn’t be reached.

Jackson did not return calls requesting comment. But in a recorded interview with the committee and in an e-mail exchange between LaClair and Jackson, she discussed the deal and said LaClair should have been paying $7,000 per connection after the 42-month period elapsed.

“He blew the deadline for that,” she said on the tape. “He came to the township and asked for reprieve … between Bill (Babut) and Ken (Schwartz), (they) negotiated that he could go ahead and pay the lower rate, just pay them late.”

Jackson told the committee she, Schwartz and Babut weren’t going to cut the deal for free and informed LaClair, “You need to do something nice for us.”

“So he donated $33,000 for the fire department,” she told the committee.

LaClair denied anything inappropriate occurred.

“This was done with the township supervisor and attorney, so if it was (inappropriate), I have no idea,” he said.

Later in the tape, Jackson told the committee LaClair said he would pay the $33,000 donation, “As a thank-you for not sticking it to me for being a couple days late on my fee.” Records show he was actually six months late paying for most of the connections.

In the e-mail exchange with LaClair, Jackson identifies Schwartz as the one who came up with the idea.

“Ken suggested that we should cut you some slack whereby we would allow you to pay the fees at the original rate … and you donated the $33,000 (negotiated by you and I) to the fire dept,” she wrote to LaClair.

Schwartz denied it was his idea and said proper consent was given for the extension.

“Anything that happened was approved by that board,” he said.

The township clerk’s office said it could find no record of the board approving the deal. AnnArbor.com asked Schwartz to provide any documentation or dates of such approval; he didn’t respond to the request.

Schwartz also said there was a grace period for the developer to pay lower fees after the 42-month period in the PUD agreement, but the document lists no such exception.

Receipts from the Augusta Township Treasurer’s Office confirm LaClair’s company made the donation of $33,000 on March 31, 2005. And an oversized check is displayed on a wall at the township hall.

More potential lost revenue

As the economy nose-dived, construction in Lincoln Pines halted.

Empty lots sit overgrown, and just 22 building permits were pulled after 2004. Yet receipts from the treasurer’s office show LaClair Builders paid for 64 water and sewer connections on May 12, 2004 - before the final 22 permits were pulled.

The PUD agreement says connection fees are to be paid at the time building permits are pulled, not before. By paying for all the remaining permits with no immediate plans to build, LaClair will save even more money. The last building permit was pulled in 2007.

“I don’t think the intent (in the PUD agreement) was to allow anyone to pay tap fees without also pulling the building permits - that’s how I interpret it,” current township attorney Doug Winters said.

Tobler said the township is already considering raising the connection fees to $11,000 per lot based on a recommendation from a utility consulting firm.

If building resumes at those rates, LaClair will have saved an additional $120,000 to $150,000 that would have gone to the township’s utility department.

Jackson spelled out what the deal meant to the financial health of LaClair Builders in an e-mail to LaClair.

“The long and short of this is that if we had required you to pay the fees at the new rate, it would have cost you several hundred thousand dollars that you said you didn’t have,” she wrote.

LeClair did not return calls requesting a response to the e-mails.

The investigation

Early in 2008, Giszczak, Tobler, Winters and Jackson formed the Accounts Receivable Committee to collect an estimated $500,000 in outstanding debts owed to the township. Those debts are unrelated to the deal the committee investigated involving LaClair.

Giszczak said she had heard “whispers” about the deal, but the group was shocked at what it found.

“You just say to yourself ‘Oh my gosh! This is unbelievable that these events were taking place,’” Tobler said.

Tobler said the investigation was put on hold as the 2008 election approached, but the committee revisited it early this year.

Hafler came to a meeting to ask what the committee was investigating and said he was told of the deal and other matters. He then voted for a motion sponsored by Trustee Mike King to “evaporate” the committee at the next board meeting on April 28.

The vote was 4-3, with Jackson, Hafler, King and Trustee Dan Lula saying yes. The usual voting bloc of Giszczak, Tobler and Trustee Angela Sherbine voted against it.

Hafler said he voted to disband the committee because it never reported back to the board and raised Open Meetings Act concerns.

Tobler called the charge untrue. He said the committee had no decision-making powers, and said he believes it was dissolved for discussing Jackson’s activities.

He said he doesn’t understand why elected officials aren’t pursuing recourse.

“I’m dismayed that the township is potentially going to lose out on all this needed revenue for a utility department that is failing financially,” Tobler said.

From here, the township’s options appear limited.

Winters said a decision to try to recover the money through civil means or any other action lies with the board, and declined to comment or speculate on the case.

“I can only proceed to investigate the possibility of trying to recoup those dollars if authorized by the township board,” he said. “I think it would stick in anyone’s craw if someone benefits at the expense of the taxpayer, but it’s up to the board.”