The state has offered to settle a lawsuit brought by an organization of thrift depositors, but the settlement will probably not be accepted, sources familiar with the settlement said.

Sources have confirmed the state's proposal to return about 60 percent of depositors' money lost in the 1986 collapse of Utah's privately insured thrift and loan industry. One source understood the state offered a 75 percent reimbursement in return for dropping all claims against the state.It is unclear exactly when the state made its settlement offer, but sources indicate it was sometime last month.

Sources, speaking on condition of anonymity, said the settlement would require $10 million in state funds, combined with liquidation proceeds and money left in the Industrial Loan Guaranty Corp., the bankrupt insurance fund that was to guarantee thrift deposits.

State officials declared the ILGC insolvent on July 31, 1986, and seized control of the fund's troubled thrift companies. Five of those thrifts are being liquidated and about 15,000 depositors stand to lose an estimated $38 million in total savings.

One source said the offer was "woefully inadequate" to settle claims and attorney fees, while another said something better will be required to drop depositor claims.

Attorneys for Depositors of Insured Thrifts (OIT), which has filed a class-action suit against the state to recover losses suffered in the thrift crisis, were out of town and unavailable for comment.

State officials have also declined comment on any settlement negotiations.

Settlement talks had started as early as last February, when counsel for the depositor group proposed legislation that would have settled depositor claims and paid legal fees.

"Early talks with the governor indicated negotiations (ere ongoing) with depositors, but I haven't been updated since," said Sen. Fred W. Finlinson, R-Salt Lake.

Finlinson sponsored a bill last legislative session that replaced the depositor group's legislation by setting up a task force to investigate and possibly recommend a settlement to depositor claims.

At a task force meeting this week, Finlinson asked Utah's risk management manager Alan Edwards for an update on settlement talks, but while Edwards declined to comment publicly on negotiations, he did say the state is considering that avenue. Finlinson requested an executive session of the task force to find out about settlement developments.

Task force co-chairman Rep. Franklin W. Knowlton, R-Layton, told the Deseret News that negotiations by state legal counsel are done independently of the task force. He said the task force's mission is to only make a recommendation, not conduct settlement talks.

The question of whether the state has either a legal or moral obligation to refund depositor losses will be looked at by the task force, Finlinson said, but a direct statement on that issue won't be made.

"There will be some bobbing and weaving, but we won't come right out and say it," Finlinson said, noting that if the legislative task force recommends the state pay any money, that will say something.

Defense attorneys for the state and other defendants named in the depositor group's lawsuit have placed blame for their actions in handling the thrift crisis on the Legislature and the statute it passed creating the Industrial Loan Guaranty Corp.

The ILGC was established by the 1975 Legislature to insure deposits in the state's thrift and loans up to $15,000. State regulators have said that since the ILGC's inception it was never adequately capitalized to guarantee thrift deposits, and on July 31, 1986, the state took the ILGC into receivership and took control of the fund's seven failing member thrifts.

The depositor lawsuit filed in 3rd District Court charges the state and private individuals involved in the ILGC mismanaged the thrifts and defrauded depositors by allowing insolvent and uninsured institutions to take deposits.

When asked if it makes sense for the thrift crisis to come back to roost with lawmakers, Knowlton said the task force will determine that.

Finlinson said the Legislature should have acted sooner in resolving depositor claims, but the state's financial condition didn't make it politically viable. "We would have had to raise taxes," he said.

He and Knowlton added that the current tax surplus won't determine whether the state should settle with depositors. But Finlinson said it could make funding a settlement easier.

Other possible funding sources the task force could consider include state liability policies which expired in 1985, but were in effect when the ILGC was operating. Public documents indicate the liability limits of the policies total more than $200 million.

State Treasurer Ed Alter told the task force that revenue bonds backed by non-tax sources such as state liquor control funds are a feasible alternative that would not hurt the state's credit rating.

He said Wall Street analysts are aware of the state's potential liability in its litigation with thrift depositors, but as of yet the state's credit rating has not been affected.