Alderwood Water District owes Lynnwood $350K after no record of tax payments since 2010, staff say

A handful of Lynnwood residents might see higher water bills as the Alderwood Water and Wastewater District (AWWD) works to pay back the City of Lynnwood for at least five years of missed taxes. 

While the City has no record of the water district paying taxes since 2010, AWWD agreed to pay more than  $350,000 in retroactive taxes for the past five years – with the District’s roughly 650 Lynnwood customers footing the bill. The average household could see an additional one-time fee of between $350 to $500, depending on usage, AWWD spokesperson Michael Kundu told My Lynnwood News. District customers living outside Lynnwood will not be impacted by these taxes, he said. 

“These bills stem from the retroactive collection for a City of Lynnwood (COL) utility services tax. Both the City and AWWD have been working diligently to address the communication shortfall that led to this matter,” Kundu said. “AWWD is committed to keeping rates reasonable and as low as possible, and we continue to value our cooperative and collegial relationships with all of our wholesale customers.” 

Kundu said the district is up to date with tax payments in all other jurisdictions it operates in.

Neither Kundu nor Lynnwood Finance Director Michelle Meyer – who oversees the City’s tax collections – said their respective agencies have any records of the District’s payments since 2010, nor any contract detailing a prior payment arrangement. Meyer said the City is only legally required to retain six years of revenue records, but its archive dates back to 2014 when the City switched to its current financial tracking system. 

While the City doesn’t have a formal auditing schedule, Meyer said staff typically review collections when the changes are made to the tax code. Meyer was doing such a review in July 2025 after the City Council approved changes to the City’s tax schedule, and she noticed a lack of collections from AWWD. She said she contacted the District’s finance department and they quickly reached an agreement to repay the retroactive amount in full, while the city waived all penalties and late fees. 

Prior to 2025, the City increased its utility taxes in both 2015 and 2010, but had no payment records or records of agreements to suspend payments from Alderwood during that time, Meyer said. 

“The City went 15 years without noticing AWWD’s lack of payments, and AWWD went 15 years without realizing they were out of compliance with local utility tax requirements,” Meyer told My Lynnwood News. “I am unable to speak for the finance directors who held the role before me,  but when I took over in 2021 during the pandemic, there was no indication that it should be a priority to review a tax that had been in place for over 10 years to confirm compliance.” 

Meyer said all other utility providers in Lynnwood were up to date on tax payments. Last year’s tax schedule changes placed all providers in Lynnwood on the same schedule, making it easier for the City to monitor compliance going forward, she noted. 

The City didn’t set a deadline for AWWD to pay the full retroactive amount, and as of last week Mayor George Hurst said the District hadn’t made any regular payments. However, Hurst said that  AWWD has provided the City with water for over a decade with no other issues. The mayor said he believes this was a “poor PR” issue that arose after residents learned their bill would increase. 

“The water district is an important partner for us,” the mayor said in a phone interview with My Lynnwood News, emphasizing that he had no reason to believe they wouldn’t pay the owed balance. 

Hurst, who was on the Council at the time, said he was frustrated that former Mayor Christine Frizzell didn’t notify the Council about the issue when it arose in July. At the time, the Council was in the thick of discussing the City’s multi-million dollar budget deficit. Hurst said the Council didn’t know about the issue until December, when residents called the City to complain after AWWD sent a letter to customers about the retroactive tax fee.

“Under the former mayor back in July we were all trying to figure out how we were going to handle this deficit,” said Hurst, who was campaigning against the former mayor at the time. “That was disappointing to me because we had departments trying to figure out; do we lay off somebody? Man, $350,000, if we knew that was there, it would have been OK.” 

Finance Director Meyer said the $350,000 retroactive payment was small in comparison to the larger revenue shortfalls, which combined for a total projected $20 million under projections for the 2025-2026 budget. The largest underperforming revenue sources were sales tax, building permits and red-light camera tickets. Meyer said AWWD’s missed payments would have been small in comparison on an annual basis. 

“It would not have been appropriate to attribute the current budget issues to AWWD’s lack of prior payment or to look at their future payments as some sort of relief for the budget constraints,” Meyer said. “Although they would need to make a large retro payment to get current, we did not have a confirmed expected receipt date for that payment that would allow us to include it in budget gap tracking, and the ongoing payment amounts would be relatively small in the scope of the overall budget and would not have a material impact on the budget forecast.” 

AWWD customers with questions about their bill can visit the District’s website for more information. 

— Contact Ashley at ashley@myedmondsnews.com.