A legislative task force investigating the causes and possible solutions to Utah's thrift crisis will begin its final deliberations next week on how to settle depositor claims against the state.
After hearing more than three hours of speeches Tuesday on what the state knew, when it knew it and what it did about it, task force chairman Rep. Frank Knowlton, R-Layton, called for an executive session next week to plan strategy and review possible solutions."Everybody has had their turn to speak, and now we need to decide what moral obligation the state has," said task force co-chairman Sen. Chuck Peterson, R-Provo.
A recommendation is due July 1 to Gov. Norm Bangerter.
The state has already offered a settlement to depositors who filed a class-action suit in state court to recover anticipated losses. Details of the offer have not been publicly disclosed, but sources say it would reimburse 60-75 percent of the value of depositors' accounts and that depositors feel a better offer is needed to settle their claims.
Peterson said the task force will consider that along with proposals from depositors on the task force. He said they will try to look into the best ways of funding a settlement with depositors. Suggestions were made that the state tap into its $100 million tax surplus, bond for the money and make claims on its liability insurance.
More than 200 depositors, out of the 15,000 who stand to lose nearly half of their life savings because of the failure of Utah's thrift and loan industry, attended Tuesday's meeting, which had to be moved from a cramped committee room at the State Capitol to an auditorium in the nearby State Office Building.
Frustrated depositors jeered at state officials describing their intentions behind desperate efforts to avoid a crisis, and cheered attorneys who said the state misled depositors and has a legal and moral obligation to reimburse depositor losses estimated at $47 million.
Touted as the smoking gun that task force members need to nail down state liability, attorneys for Depositors of Insured Thrifts (OIT), which is spearheading the class-action lawsuit, distributed unpublished minutes of a June 1985 meeting of thrift industry leaders.
The minutes, which were left out of the final official version, record former Commissioner of Financial Institutions Elaine B. Weis telling officials of the Industrial Loan Guaranty Corp. that the ILGC's days were numbered and work had to begin in phasing out the privately insured thrift and loan industry.
Weis' directions came at a monthly meeting of trustees of the ILGC, a private company created by the 1975 Legislature to protect deposits in the state's thrifts.
According to the minutes, Weis said that based on action taken by other states where private deposit insurance had failed, the state, or in other words Utah's taxpayers, are liable to make up any losses suffered by depositors.
"The state has a 100 percent liability for the ILGC . . . and my recommendation would be to make the ILGC a state agency with not the general obligations behind it, because that is unconstitutional, but the moral obligations," the minutes record Weis as saying.
"I think that since the state of Utah already has the liability, that to make this a state agency with the moral obligation of the state makes the most sense."
That plan failed, however, forcing Weis to seize the assets of the ILGC on July 31, 1986, and take over its seven member thrifts - five of which are now under liquidation and their depositors standing to lose almost half of their savings.
Weis told the task force Tuesday that she believed the Legislature would put up the money to pay for any losses suffered by depositors, and that her intention was to reduce losses as much as possible.
"I took the position of how to minimize the cost to the state, because that's the lender of last resort," she said. "I wanted to reduce the cost that the Legislature had to deal with."
But attorneys for depositors told the task force that such a policy resulted in a small number of depositors and their savings being sacrificed for the good of others. They said the larger, healthier thrifts were allowed to flee the ILGC for federal deposit insurance, leaving the smaller troubled institutions behind to face the fund's eventual failure.
Attorney Ross C. Anderson, representing depositors of Copper State Thrift and Loan, compared Weis' policy to government condemnation of private property for public use and cited a Utah Supreme Court ruling that said private property shouldn't be forfeited for the public good without just compensation.
"The law, fairness and reason all dictate that the state, having made and implemented its policy decision that the funds of thousands of depositors should be sacrificed in order to obtain protection for certain financial institutions and their depositors, must now pay those who have lost their savings as a direct result of that policy. Any other course would be unbecoming of a free and fair society," Anderson said.