One Oak Harbor city councilman’s attempts to scuttle the controversial Pioneer Way improvement plan may have paid off as state regulators are now asking questions about how the city is planning to pay for certain elements of the project.

Officials from the Washington State Auditor’s Office, who will be in Oak Harbor in September to perform the annual audit of the city’s books, have confirmed that they will be looking closely at the City Council’s plan to tap into its real estate excise tax fund, otherwise known as REET money, to cover the cost of putting utility lines underground on SE Pioneer Way.

The money is what’s considered non-discretionary funds, which means they can only be used for certain kinds of projects. No official determinations have been made, but the city’s planned use of the money is generating concern at the state level, according to Sadie Armijo, an audit manager for the auditor’s Bellingham office.

“When we are out there, we will definitely look into this,” she said.

Armijo was tipped of by City Councilman Scott Dudley, who said in an interview Friday that he couldn’t let the issue drop after the council approved in a 4-2 decision this past June to use up to $2 million in REET funds. However, Armijo said a member of her staff keeps up with local newspapers and read a story about the issue published by the Whidbey News-Times.

“It was on our radar before it was ever reported,” Armijo said. “We watch you too!”

Council members Rick Almberg, Jim Campbell, Beth Munns and Bob Severns voted to approve the use of REET funds for burying utility lines while Dudley and Jim Palmer voted nay. Mayor Pro-tem Danny Paggao did not vote as he was filling in for Mayor Jim Slowik, who was on vacation.

Along with contacting the auditor’s office, Dudley also contacted the Municipal Research and Services Center of Washington. In emailed responses to Dudley, neither group said the city was definitively wrong but both said the decision could be questionable.

According to state law, REET funds can be used “solely for financing capital projects specified in a capital facilities plan element of a comprehensive plan.” One email from Armijo, which contained comments from a member of the auditor’s technical staff, said that burying utility lines was not specifically mentioned in the facilities plan so city officials would have to “show that it is a necessary element of effectuating the specified plan.”

Slowik said he didn’t know whether burying utility lines was specifically mentioned in the city’s plan. He hasn’t reviewed the issue with city staff because he didn’t know state regulators were concerned.

“That’s a good question; I’ll have to check on that,” he said.

Armijo said she has left at least two messages with key city staff over the past week and has yet to hear back from anyone. Slowik said he doubted anyone was “dodging” her calls. Several people were out of the office this week and that is likely the reason for the delay.

He also said that even if burying utility lines is not specifically mentioned, the overall street project has been on long-range plans for decades.

“Really, it’s a project that’s been in the comprehensive plan for 35 years,” Slowik said.

Burying utility lines is mentioned in the city’s capital “improvement” plan but that is not enough to meet the state rule, which is very specific about citation in a capital “facilities” plan. Armijo said again that she won’t know for sure whether the city can use the REET funds until she and her team conduct their annual audit next month. The audit should be finished before the end of the year, she said.