By JACK HOPKINS
SEATTLE POST-INTELLIGENCER REPORTER

The topic of development is a hot one in town.

When Wal-Mart came a courtin' several years ago, the romance was short-lived and one-sided. "It would have just killed Anacortes," says Mayor Dean Maxwell, a tanned, easy-going 42-year-old who looks like he should be outdoors and often wishes he were. "We told them, 'You're exactly the wrong kind of people.'"

Still, visions of a strip mall continue to haunt many Anacortes imaginations -- as do visions of wall-to-wall tract homes.

When lots were scraped bare of trees in a deer-friendly habitat along 12th Street, protesters hung black balloons from the "For Sale" signs. And a developer who encroached onto Anacortes Community Forest Lands after clearing a hillside on the island's west end was forced to re-create the destroyed wetlands when environmentalists complained.

"Unless someone is watching to make sure the city enforces the meager regulations that are there, it's not going to happen," says longtime activist Kathryn Alexandra, treasurer of Evergreen Islands, a local group trying to ensure that developments remain environmentally sensitive.

The most cantankerous debates concern development of the city's downtown waterfront.

Some locals want to see it transformed from industrial to recreational. They envision a long promenade along the water's edge. "I can't understand why a city in one of the most beautiful parts of the world doesn't have a big park along its waterfront," says Kecia Fox, co-owner of The Business, an eclectic book/camera/music store with a cafe that steams up a mighty cup of organic, shade-grown Guatemalan.

Others would like to see the waterfront develop into an active industrial center. "A lot of people who grew up here earlier in the century dreamed of this city fulfilling its historic destiny with a strong manufacturing presence," says town historian Wallie Funk.

"But times are changing. And, while Anacortes depends on a strong industrial base, tourism will also have to play an important role in the city's future."

Funk, a fourth-generation Anacortesan who remembers being taunted by out-of-town kids calling his hometown "Annie's Corset," used to own the town's weekly newspaper, the Anacortes American. He still writes a column for it, illustrated with historic photos he has collected over the past 45 years, including photographs currently on display at the Anacortes Museum.

Funk's columns tell juicy tales from the town's past, like the story of the first citizen to die in the late 1800s, leaving town leaders uncertain what to do with the decomposing body.

"Some said, 'Let's roll him in a tarp, take him to Guemes Channel and dump him,'" says Funk, who revels in the retelling. "But good Christian folk insisted on a Christian burial. When the mortician finally arrived by boat from Seattle, they had to hold the funeral outdoors, (the body) had become so fragrant."

Today, Anacortes is growing about 3 percent a year. Maximum population, determined by sewer capacity, is 18,500. Mayor Maxwell predicts that the city has 10 to 15 years to reach that number.

What this salty town will look like by then is a constant topic of conversation as locals cruise down Commercial, stopping for a latte at a sidewalk table or chewing the fat over the counter at a boutique.

Will one of America's "top small towns" remain small? Will houses replace the trees? Can the Magic City maintain its magic?

Wendy Kremmer, a fourth-generation Anacortesan, has watched the city almost triple in size since her childhood. "When I was growing up, you couldn't do anything without someone knowing whose child it was," says Kremmer, who owns Days Gone By Antique Mall. "Now I run into people all the time I don't know."

Kremmer sits outside her store, enjoying a smoke and warm sunshine. Customers come and go. She tells them to yell if they need anything.

On the wall of the 1891 building that houses her shop is a mural of The Joker. It's one of more than 75 murals produced by artist and history buff Bill Mitchell, whose life-size re-creations of historical figures, local characters, old ships and nifty gizmos hold a mirror to life in Anacortes.

Mitchell himself is one of the town's most colorful characters. Partially paralyzed by a rollover auto accident in 1971, he tools about town in a colorful, three-wheeled electric cart, puffing on a corncob pipe stuffed with Captain Black Gold and commenting wryly on the past, present and future of his native town.

"I don't want to see this town get 'malled,'" Mitchell says at home, where he is surrounded by his curious collections of mermaids, toy tanks, Buddhas, skulls and, outside, pink flamingos set amid a rusting car garden of '50s coupes and station wagons.

"This city's got plenty of soul, but it needs to be very careful," he says.

Mitchell tamps down the Captain Black in his pipe as he talks.

He loves his hometown -- especially late at night. "I go out after the bars close and all the drunks go home."

That's when he sits and listens to the city -- to the sound of throbbing tugboat engines, or a blue heron squawking like a pterodactyl as it takes flight off a piling.

"Sometimes, it's so quiet I can almost hear the murals talking to one another," he says.

What they're whispering is anyone's guess.