The Freeland Water and Sewer District made it clear this week that it does not consider all developments to be equal and that water commissioners can force some customers to pay upfront for some services and not others.

District commissioners told leaders of the 26-unit Sunny View Village project Monday that it would work to resolve a logistical problem with a years-old policy that forces future customers to pay water-right fees upfront when seeking a water availability letter — a document that states whether the utility has enough water for a development — but that it would not simply waive the rule.

But later at the same meeting, district commissioners agreed to do just that for Freeland resident Steve Smith, who complained that his plans to build a single family home were being hobbled by the same rule.

District commissioners defended the decision, saying the size and complexity of the Sunny View Village project make them two very different developments, and that district guidelines provide water commissioners with the flexibility to make some decisions on a case-by-case basis.

The fee policy under fire has become a headache for some developers, largely for permitting and funding reasons. Island County government won’t issue project permits until regulators are assured an area has sufficient water to serve the development, and bank loans and state grant funds — such as those helping to foot the bill for the $6.3 million Sunny View Village project — aren’t released until those permits are issued.

“It’s kinda like what comes first, the chicken or the egg,” said Teri Anania, executive director of the Island County Housing Authority, during Monday’s meeting.

The organization, which is not a branch of county government, is a state special-purpose district with the aim of providing affordable housing to low-income and elderly residents.

It currently owns and manages 110 public housing units on properties in Oak Harbor, Coupeville and Langley.

The Housing Authority wants to build Sunny Side Village on a nearly nine-acre lot off Fish Road, between Highway 525 and Scenic Avenue. Designs call for the construction of 26 units in four separate two-level buildings.

The project has been the subject of sharp criticism from Freeland residents, who have complained about issues that range from rural road and Highway 525 access problems to concerns about the environment and the project’s high price tag.

The biggest issue, however, concerned the development’s original plans for wastewater treatment. The initial system would have overloaded nearby district wells with nitrates, and in 2013 county regulators required the Housing Authority  to make plans for a more effective, and more expensive, system.

There were concerns the added cost would force the Housing Authority to scrub the project altogether, but funding solutions were hammered out and the state Department of Health recently issued a permit for a Large On-site Sewage System.

But progress in the permitting process has again been brought to a standstill, this time by the sewer district’s internal policy that requires upfront payment for water availability letters. The letter is not a commitment for service, but it is required as a precursor for the county to green light development projects, said Keith Higman, director of Island County Public Health, in an interview earlier this year.

“They can’t apply for a building permit until they submit an approved water availability form,” Higman said.

A letter was issued at one point, but was essentially rescinded by district officials, Higman said. Until a new letter is received, nothing can move forward.

“We’ve been on hold,” he said.

The contingent of Housing Authority officials and project leaders that attended the sewer district’s meeting Monday said they wanted to discuss the problem “face to face” and make clear the project’s funding restrictions and their reservations about paying for a document before the acquisition of a building permit.

Several also expressed frustration with the policy, criticizing it as highly irregular within the building industry.

“I’m an architect, I deal with plenty of other water authorities, and issues of letters of water availability are commonly issued without lots of money being exchanged,” said Doug Hofius, a member of the Housing Authority’s board of commissioners and a Clinton resident.

Shirley Bekins of Bellwether Housing, the Bellevue-based developer hired by the Housing Authority to complete the Sunny View Village project, echoed those concerns, saying her company has done work all over the state and that securing water availability reports have never been a problem in the past.

“If we really have to pay $185,000 just to get a letter that says, ‘Yes, this district has capacity for your project,’ that’s not a fee for anything,” she said.

But Commissioner Lou Malzone, president of the board, said the policy has been in place for years and for good reason. Giving out a water availability letter is all that’s needed from the district for county regulators to issue building permits, which could leave the district in the position of having a built development with unpaid water rights.

“Then we look like the bad guys for not turning your water on,” Malzone said.

He also said the district is not going to sign off on the project when there are still application requirements that  haven’t been satisfied by the Housing Authority.

“As far as the district is concerned, the ball is in your court to complete our application process,” Malzone said.

Commissioner Marilynn Abrahamson also questioned the project itself, saying the district has a right to be assured the development is done correctly before giving a go-ahead.

“In the same way that you need a commitment for a viable project, we also need a commitment that this a viable project in the best interests of the residents of Freeland and customers of the Freeland Water and Sewer District,” Abrahamson said.

The comment raised eyebrows in the crowd, as it seemed to imply that district commissioners were allowing personal opinions about the project to influence their decisions.

“Are you speaking as a private citizen or as a Freeland Water and Sewer District commissioner?” Hofius asked.

Abrahamson said her comment was made as both, and that she didn’t believe it made a difference.

“It does,” Hofius said.

The sentiment was seconded by Malzone.

“It does,” he said. “You can’t say that as a commissioner.”

Abrahamson clarified her comment, saying the district has “an obligation to serve and supply water” but there have been “so many efforts to circumvent the process” and that she wants to see more transparency moving forward.

The issue reportedly revolves around emails between Housing Authority and district attorneys, but as discussion of the topic began Malzone asked that dialogue between lawyers not be discussed in an open public meeting.

He then suggested the Housing Authority send district staff a letter that outlines the organization’s funding and permitting predicament.

“I don’t want this to end in an impasse, but I don’t want to give you a blanket go-ahead either,” Malzone said.

It will be reviewed by district attorneys to see if a water availability letter can be issued without carrying a commitment for future water use.

In a later interview, Malzone said he was confident a solution could be found, but that it would still need to be approved at a future meeting.

“It’s going to take a board action to get it done, just like it did with Mr. Smith,” he said.

Malzone also said he does not believe a change to the existing policy is warranted. Water availability letters essentially obligate the district to provide water, and up until this week, developers have paid for that promise upfront without complaint, he said.

“It’s a complex situation and it’s irrelevant to us what other districts are doing around the state,” Malzone said.

“This is the first time it’s come up so it’s obviously not a big issue for people,” he added.