Negotiations have broken down between the city of Oak Harbor and the Navy over a proposed sewage treatment partnership.

Mayor Bob Severns released a statement Wednesday explaining that he had decided to end talks with Navy officials over potentially hooking the Navy’s Seaplane Base into the city’s new, $150-million Clean Water Facility.

“At this juncture, it has become apparent that the Navy’s proposals to the city will not be advantageous to our ratepayers,” he wrote. “With this in mind, I cannot in good conscious recommend the city move forward with negotiations.”

Naval Air Station Whidbey Island also released a statement, saying officials on both sides mutually agreed that further negotiations were not likely to close a $26-million gap between the two sides after two years of talks.

“We agree with city officials that the Navy should pay its fair share of costs associated with connecting Seaplane Base to the city’s facility,” the statement said. “Unfortunately, we disagree on what constitutes fair share.”

The Navy stressed that it and the city enjoy “an exceptional relationship” despite the disagreement.

“However, we also had to be firm to ensure an equitable and fair deal for the city, the Navy and the American taxpayers,” according to the statement.

City officials had hoped that an agreement with the Navy would allow the city to cut or at least control rates that residents pay for sewage treatment. But based on the Navy’s offer, officials said hooking the Navy into the plant would cost the city and actually increase rates.

“It is not fair to expect the City of Oak Harbor ratepayers to subsidize the Navy’s connection costs or be impacted by the loss of future growth capacity of the facility,” Severns wrote.

The city and Navy used to partner on sewage treatment at the treatment lagoons on Navy property near Crescent Harbor. But the Department of Ecology warned the city that its sewage treatment wasn’t cutting environmental muster and its aging facilities were nearing the end of their lifespan.

Faced with constructing a new facility, city officials asked the Navy to partner on the project, but Navy officials said regulations prevented the payment of lump sums for infrastructure without congressional approval.

City officials at the time predicted the Navy would eventually come a-knocking, but that the price would be higher in the future.

When the facility was nearing completion in 2018, the Navy started looking at options for sewage treatment and approached the city about the possibility of hooking the Seaplane Base into the new plant. The Navy submitted a request for quotes to the city, asking for cost and rate information under four scenarios. The Navy agreed to reimburse the city for the cost of consultants.

Severns and other city officials stressed that the Navy’s payments had to cover the city’s costs of treating the sewage and also reimburse the city for the loss of capacity and a shorter lifespan of the facility, officials said.

The city and its consultants determined that the Navy should pay $38.5 million in buy-in fees plus millions more in annual maintenance and operations costs.

Under the proposal, the city asked the Navy to pay a $25.7-million system development charge, which is essentially the way a new development pays its share of the cost of a facility. The city’s proposal also asked the Navy to pay a $12.8-million latecomer fee, which is similar to a system development fee but takes into account the interest ratepayers have already paid on the project, city officials said.

The Navy’s counteroffer, however, was just $9.5 million, plus the annual maintenance and operations costs.

A former councilman lambasted the Navy’s offer, saying it was insulting. Severns at the time said he hoped the low offer was just a negotiating tactic on the Navy’s behalf and that a deal could still be worked out. Navy officials said that they had to abide by fiscal regulations and use taxpayer money wisely.

City officials have expressed frustration with negotiations over the last two years.

At one point, Severns complained at a public meeting that the Navy continually missed deadlines without explanation.

According to the statement, Navy officials said they have several other options for sewage treatment. They said they have a plan to maintain and upgrade the sewage treatment lagoons.

The Environmental Protection Agency issued the Navy a National Pollution Discharge Elimination System permit for the treatment lagoons on Dec. 27, 2018. The permit is effective for five years.

According to the permit fact sheet, the lagoon operation has multiple violations in its compliance record. Under the new permit, the Navy will be required to monitor effluent discharged into Crescent Harbor and groundwater. Test wells showed elevated ammonia and high salinity but the source was unclear. Since the facility is built in a sensitive saltwater marsh that is part of salmon restorations efforts, the Navy is required to evaluate the impacts the lagoon will have on the marsh.

The EPA found that the lagoons were unlikely to adversely affect federally listed species or critical habitat.

A spokesperson for the state Department of Ecology said the department was involved in the drafting of the new EPA permit through a provision of the federal Clean Water Act, called the 401 certification process. The process ensured that the permit complies with state water quality standards.

Navy officials are also looking into the possibility of constructing a small plant outside the lagoons — to replace the aging facilities — and operating it with the same team that operates the facility at the Ault Field base.

In addition, the Navy is exploring the privatization of the collection and treatment of sewage at the Seaplane Base.

“While there were good reasons for the Navy to connect its Seaplane Base residents to the new treatment plant, we had to be firm to negotiate an equitable and fair deal for the American taxpayers and the city of Oak Harbor rate payers,” the statement from the Navy said.