1 of 30
Ravell Call, Deseret News
Jordanelle Special Service District treatment plant, Monday, Feb. 23, 2015.

SALT LAKE CITY — A multimillion-dollar, publicly funded wastewater treatment plant sitting idle in the picturesque Heber Valley is at the center of an ugly dispute that has found its way to the state Capitol.

High-priced lawyers and lobbyists are lined up on both sides of the battle pitting the Jordanelle Special Service District against property owners and bondholders. The prolonged conflict resulted in the largest government bond default in Utah history.

It has sparked several lawsuits, state and legislative audits, and apparently an FBI inquiry into how Wasatch County officials conduct business. Now, the Utah Legislature might try to resolve the matter, though the service district says it should be left to the courts and existing state law to settle.

Furthermore, attorneys for companies that bought $30 million in bonds for the project say the fight is damaging Utah's reputation as a good place for investing. They say it could also hurt the ability of counties and cities to sell bonds or obtain credit for public facilities and infrastructure.

But district officials say it's not the Jordanelle situation that's hurting bond ratings but the Legislature's meddling in a real estate deal gone bad that would make investors skittish. They say the property owners and bondholders took the risks and now must live with the consequences, and not look for lawmakers to bail them out.

Sen. Steve Urquhart, R-St. George, is tasked with seeing whether there's something the Legislature could do.

"This is a situation desperately in need of a fix," said Urquhart, who is meeting with the parties. "Someone's going to have to step in and either negotiate or decree a resolution. Right now, that's pointed to the courts, and that might be where it ends up."

Urquhart said he prefers a legislative solution because it allows for discussion and different ideas to be stirred around among the various interests.

Both sides paint starkly different pictures of what transpired the past dozen years to get them to this point.

It started when landowners southeast of Jordanelle Reservoir wanted to develop lots for about 3,300 high-end homes on the heels of the 2002 Salt Lake Olympics. They worked with the district to build a sewer plant using publicly financed assessment bonds to cover developers' costs.

The district created an assessment area with the assurance that property owners would pay the costs for that capacity, said Steve Capson, a former Wasatch County commissioner who served on the district board.

As the $16 million state-of-the-art plant was being built, the economy took a downturn and the developers weren't able to sell the lots but were still obligated to pay the service district assessments, Capson said. When they didn't pay, the district foreclosed on the property and tried to sell it to pay the bonds.

After there were no takers at a public foreclosure sale, the district deeded the land to bondholders as payment.

But the district picked the wrong way to finance the project, said Wade Budge, an attorney who represents the largest buyer of the bonds.

Assessments or "dirt" bonds are typically used for localized roads and sewer lines, not for a project that appears to be able to serve a large part of the county at the expense of only a few in the service district boundaries, according to attorneys for bondholders.

"This is being done in way that's not done anywhere in the country," Budge said, noting his clients can't legally own property. "This outlier is really creating a problem for the state's reputation."

Bondholders, he said, are feeling "hometowned" by Wasatch County.

District officials say the default happened four years ago and there have been other assessment bond defaults in the past that have had no impact on the state's bonding or reputation. In fact, Capson said, the county's bond rating has actually gone up.

"The problem will be created if the Legislature messes with it because the certainty will be broken up," said Wasatch County Councilman Mike Kohler.

Capson said all the property owners voluntarily entered the agreement and the bondholders helped write the contract.

"At the time, everybody thought it was a good idea," said Randy Larsen, a bond attorney working with the district.

Now, Capson said, bondholders and property owners are at the Legislature asking for a bailout instead of paying their debts and keeping their promises. He said the courts are the appropriate place to settle the issue, adding that judges so far have sided with the district.

Brett Tolman, a former U.S. Attorney for Utah who represents one of the property owners, said it seems like the district is trying get a sewer plant without having to pay for it.

Landowners weren't and aren't looking for a free ride or a bailout but want to pay the appropriate amount, not the "exorbitant" fees the district seeks for services they haven't received and may never receive, Tolman said.

Attorneys for the landowners and bondholders suggest allowing other developments around Jordanelle Reservoir be allowed to run their waste through the treatment plant.

But Capson said that wouldn't be fair to Wasatch County because those in the assessment area agreed to and are obligated to pay the costs. The plant, he said, is geographically tied to the 5,200 acres where the development was proposed. It would take at least 350 homes in that area to make it economically feasible to operate the plant, Capson said.

As a public facility, the plant should be up and running, Budge said. He said the district doesn't want to let other customers hook into the system because it would undercut its position that only the landowners in the assessment area should pay for it.

"We have a situation here where legal arguments are driving insane positions," Budge said. "When has it ever been a good position to take public moneys to build a public facility and then not turn it on so that you strengthen a legal argument?"

Larsen said the district has offered to resolve issues with bondholders by forgiving $1.2 million in taxes and taking title to the foreclosed property for five years to sell it. But that offer was rejected, he said.

Attorneys for the property owners and bondholders say the district has just thrown up roadblocks to any settlement. They say it would cost the stakeholders and taxpayers millions more if the Legislature doesn't step in and the issues have to resolved in court.

The Utah League of Cities and Towns is watching the situation closely from the periphery.

Ken Bullock, the league's executive director, said he doesn't know what the solution is but conflicts like this cause alarm in municipalities. He said he's most concerned that cities and towns be transparent and conscientious with taxpayer dollars.

"These kinds of issues do have an impact on local government," Bullock said.

Email: [email protected]

Twitter: dennisromboy