The Annapolis city council has voted to claim the more than $1.7 million held in escrow during lengthy, but ultimately fruitless, negotiations to annex an upscale county neighborhood along its border.
The decision Monday night is expected to spark a lawsuit by the community, adding a chapter to the city's 17-year attempt to annex the Villages of Chesapeake Harbour, a 452-unit waterfront townhouse and apartment condominium community. In the end, the council balked at proposed tax breaks and narrowly voted against the annexation proposal.
Sara H. Arthur, the community's attorney, said she would file a lawsuit against the city this week, to bar the city from taking the funds. She also is seeking an additional $100,000 for the community's expenses during the annexation process.
"Our position is that we did everything that was required of Chesapeake Harbour for annexation, and the city only got the funds if we didn't take those necessary actions," Arthur said yesterday.
During the annexation debate, she and another community attorney had warned the city that the community would not turn over the escrow funds without a fight.
But Alderman Sheila M. Tolliver said that because the annexation proposal collapsed, taking the money was "the only responsible thing to do." Turning the money over to the community, she said, would be "indefensible."
Alderman Samuel Gilmer, who sponsored the resolution to receive the escrow funds, said he is not worried about a lawsuit and questioned the intentions of the community.
The money "belongs to us," he said. "Who's the culprit here? I don't think we are. They are wealthy, and they want more."
The proposed annexation began with a 1984 agreement between Chesapeake Harbour developer Jerome J. Parks and the city. The agreement enabled Parks to get city water for the gated community he planned around a private marina on the Chesapeake Bay. The city's policy is to require property that receives city water be annexed, but a clause in Parks' purchase agreement prohibited annexation at that time.
Parks agreed to pay the city $50,000 and put $250,000 in an escrow account. Residents would pay twice the normal rate for city water and contribute $100 per housing unit per year to the escrow account. If the property was not annexed within 10 years, the money in the escrow account would be turned over to the city. If annexation occurred, all but $200,000 would go back to the community.
When the 1994 deadline approached, Chesapeake Harbour residents - reluctant to pay the higher city tax rate, even if it meant a reduction in their water rate - turned down the chance to be part of the state capital.
But the city, eager to get the affluent development on the tax rolls, returned to the negotiating table and offered a 10-year waiver of city taxes, to which the community agreed.
Since then, the annexation petition was amended twice, most recently to add the newest section of the community and the marina.
That agreement - which would have waived city taxes for current residents for 10 years, but put all new residents on the tax rolls right away - went before the city council this year for approval.
At the May meeting when the council finally took up the issue for a vote, several attempts were made to amend the agreement to change the length of time, or the amount of, the tax waiver, a move that Chesapeake Harbour attorneys said could cause the community turn down the offer. It was finally amended to give a limited tax break for 10 years that would extend to all residents.
Still, the plan failed to garner the six votes on the council it needed to pass.
Arthur said that by not voting to annex - under whatever terms the council chose to set - the city gave up its rights to the escrow fund. The situation would have been different if it had been the community that had turned down an offer from the city, she said.
But Tolliver said she believes the city's case rests on the original deal - which said the community must be annexed within 10 years or forfeit the escrow money.
"The issue is whether a conditional agreement to annex meets the terms of the original agreement," Tolliver said. "In my judgment, it doesn't, but that will be up to the courts to decide."
Mayor Dean L. Johnson, who missed Monday's vote, had pushed the council to approve annexation, noting the $1 million a year in tax revenue that would have been expected from the community after the initial 10-year period.
Still, he said he agreed with the council's move to receive the escrow funds.
"The council has to act," he said. But, he added, "With lawyers on both sides and a large amount of money in the middle - I'm sure it will go for a while."