Tom Clyde: Lambs for lots
December 12, 2014
The Nov. 30, 2014, issue of The Salt Lake Tribune featured an article by Robert Gehrke that took a close look at a nasty problem brewing over in Wasatch County. Nobody else has touched it. You should find it online and read the original piece. I don’t have space here to fully explain it. Then rent the movie "Chinatown."
Years ago, Wasatch County approved a jaw-dropping 12,000 unit equivalents (or maybe as many as 20,000 doorknobs) all around Jordanelle Reservoir. To provide water and sewer service to all of that, they created the Jordanelle Special Service District (JSSD). This is a branch of local government that began building water and sewer systems to serve the area with beaver-like tenacity, whether there were houses flushing toilets or not. The most speculative development proposals were on the south side of the reservoir, from Victory Ranch downstream to the dam.
With maniacal efficiency, JSSD built miles of sewer pipe, pump stations, and a fully operational treatment plant that could handle about 3,300 houses that don’t exist on the south side. The intentions were good, but the economy tanked and there are only about 20 houses, mostly vacant second homes. The system is so oversized that a flush from Victory Ranch might take months to reach the plant. The plant can’t function without about 350 houses, so it’s completely built, but not doing anything except rusting. This problem seemed evident to the lender, who charged 12 percent interest on the bonds, because the odds of getting paid back seemed pretty slim.
To pay the loan, JSSD assessed the landowners "served" by the plant, based on the maximum number of houses they might build on their land between 2005 and the Rapture. One guy was quite happy raising sheep and had no intentions of building, ever. But he owes $830,000 in sewer charges, even though his sheep refuse to use the toilet. The property owners couldn’t pay that, so they defaulted.
Their remedy was to foreclose on the property, which JSSD did. That made them the proud owner of the land, complete with the obligation to repay the debt. Foreclosing on the collateral didn’t produce any income. JSSD could go assess itself. For obvious reasons, JSSD is finding it difficult to sell the property to private developers while it is subject to that kind of debt. Without income, JSSD defaulted on the bonds. The lender, Wells Fargo, was not amused.
Wells Fargo has filed suit in Federal Court to collect. JSSD tried to give them the collateral property, but that only meant that Wells Fargo could then levy assessments against its left pocket to repay its right one. It’s difficult to find much sympathy for Wells Fargo, who played a big part in blowing up the economy, which contributed to the default in the first place. They really ought to have known better than to make a loan that was to be repaid by the monthly sewer service bills from imaginary houses. Charging 12 percent on a municipal bond suggests they knew it was a bad loan. But still.
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According to the lawsuit, things got weird. JSSD allegedly super-sized the plant to treat more imaginary sewage from properties that weren’t being assessed. If the plant weren’t big enough already, the lawsuit claims JSSD also bought more land, maybe for expansion. They bought it from a company called "Fishin’ With Bread, LLC" for $2,790,000. Fishin’ With Bread was created, bought the land for $2,500,000, flipped it to JSSD for a $290,000 profit, and went out of business, all inside of a week. Wells Fargo says something smells fishy. The FBI is looking at it.
The article in the Tribune says that some developers claim that to get their projects approved, they were pressured to buy 4-H Club livestock, raised by officials’ children or grandchildren, at the County Fair. Buy an angus steer, and you get steaks and density. I have this image of a lawyer from Chicago trying to board a plane with a freshly coiffured 4-H lamb in his carry-on luggage, and a conditional use permit in his brief case.
So why does this matter? Well, somebody, in addition to people who lost their property paying to treat sewage that doesn’t exist, will get screwed to the tune of $40 million, plus interest. The smart money says it won’t be Wells Fargo. The lawsuit claims that all Wasatch County taxpayers are now on the hook to pay off the $40 million, plus default interest at 20 percent. The county’s annual budget is about $28 million. What’s tripling your property taxes among friends?
The funny thing is the original goal was to make sure new development paid for itself, rather than shifting costs to the existing residents. Local elections really matter.
Tom Clyde practiced law in Park City for many years. He lives on a working ranch in Woodland and has been writing this column since 1986.
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