This question tests your facility with verb tenses. Both the first and second clause use the past perfect: "had been" and "had become." The past perfect refers to something that happened up until some point in the past; that requires that a simple past tense must be included in the sentence as well. There isn't one in the sentence as written, so (A) is incorrect.

Choice (B) uses past tense in "they recognized," but the construction "having had become" is awkward and overly wordy. Choice (C) is better, using "recognized" as the central verb and the simpler "had become" at the end of the underlined portion.

Choice (D) has the same unnecessarily awkward construction ("as having had become") as (B). (E) has several problems. "Were seen" is passive voice. "Who" should refer to something that immediately precedes the comma, but "municipal officials" isn't there. Finally, the sentence is not complete as there is not a subject or verb. All three clauses are modifiers. Choice (C) is correct.