SALT LAKE CITY — New details have surfaced about a mysterious trust fund connected to the Utah League of Cities and Towns and its embattled former leaders — but the information has only added to the concerns of the league’s current leadership.
Two ex-league leaders, former director Ken Bullock and former chief financial officer Michelle Reilly — who both stepped down from their positions before a state audit was released that accuses them of misusing public funds — both help manage the trust, called the Utah Municipal Cooperative II.
But that trust, which financial records say contained more than $500,000 in 2016, should have been terminated and its funds released to the league years ago, according to documents obtained by the Deseret News through an open records request.
“This trust shall terminate when all of the bonds remarketed by or through the Utah Municipal Cooperative No. II have been paid and discharged, or on Dec. 31, 2012, whichever comes first,” the trust's 1993 agreement states.
Once dissolved, the trustees would "distribute all assets of the trust to the league or a foundation for the continuing benefit of the league," according to the agreement.
That's a requirement that even two of the fund's trustees — Midvale Mayor JoAnn Seghini and former Salt Lake City Councilman Tom Godfrey — said they didn't know about until recently.
"I don't think we were aware of that," Godfrey said. "Nobody had looked at those documents for years."
Bullock and Reilly didn't respond to requests for comment Wednesday.
"It certainly leaves some questions to be answered," Steve Hiatt, Utah League of Cities and Towns board president, said when asked about the agreement. "I'm certainly not an attorney, but from a layman's standpoint, the wording seems pretty simple to me."
The fund's origin and purpose has been somewhat of a mystery to current league leaders, Hiatt has said. Trustees say it was formed as an "endowment fund" to benefit the league and certain projects that trustees agreed would be worthwhile to fund.
According to Seghini and Godfrey, the trust was formed from what was once a bond pool of roughly $200 million created decades ago to finance capital improvement projects for cities that are members of the league.
Since then the bonds have been paid off, the trustees say, and what's left in the fund is the "arbitrage" or "interest" that the fund earned from the existence of the bonds.
After learning of the fund during his audit of the league, Utah State Auditor John Dougall began an investigation of the trust to determine whether its funds are public money and should belong to the league, under control of the league's board.
The trust agreement came into the league's possession after Bullock gave Hiatt the documents last month when questions about the fund began surfacing.
In an email relaying the trust agreement to other league leaders, Hiatt said he received a recommendation from the auditor to begin pursuing options to claim the funds.
After league attorneys took some time to weigh the documents, Hiatt said he and other league leaders have determined to begin reviewing those options.
"In an ideal situation, we would come to a resolution without a complicated legal battle. That would be best case scenario," Hiatt said, adding that he's not certain what would happen if the trustees don't decide to dissolve the fund.
"It puts us in an awkward position because we now have documentation that suggests indeed that those funds belong to the league, but the actions of the (trustees) are outside of our authority," said Hiatt, who is the mayor of Kaysville.
When asked about the termination requirement, Seghini and Godfrey said the trustees plan to meet Thursday to decide what to do.
"That's what we have to deal with," Godfrey said when asked whether the trust should still exist. "That's what we're trying to figure out."
Asked whether she was concerned about not knowing that the trust should have been terminated, Seghini said: "A lot of this is troubling to me."
In a Feb. 6 email to Bullock and Reilly, Seghini requested all documents regarding the trust so she could learn more while the auditor conducts his investigation.
"In my many years of public service, I have always striven to keep the public trust. I think the public revelations which have occurred over the last two months have undercut some senses of public trust, both for the (league) and me," Seghini wrote. "I remain strongly committed to right the ship and make sure all future activities of the (league) are conducted in the most transparent manner."
Neither Godfrey or Seghini knew how much was left in the fund when the Deseret News inquired last month, but according to records Bullock gave to Hiatt, the trust contained nearly $740,000 in 2012.
That figure has since reduced to slightly less than $550,000 as of June 2016, according to the most recent statements the Deseret News obtained from the league.
Within the statements, checks ranging from $250 to $40,000 were made out to Reilly, Bullock, trustees and other parties, but little or no expense or reimbursement explanations were included in the documentation.
According to other financial statements that were included in Reilly's emails, however, some explanations were provided. On a fairly regular basis, trustees would receive $250 in "meeting fees" and Reilly would receive $1,000 for "admin fees." Bullock would receive checks with varying dollar amounts and reasons, including "travel," "equipment" and "office supplies."
Between 2012 and 2016, Bullock received checks totaling nearly $45,000, while Reilly received $40,000.
In January 2014, Bullock also was written a check for $3,517 for "Christmas."
Godfrey said he and other trustees received Christmas gifts in the past, but he declined to discuss them with the Deseret News.
Godfrey said he's confident all the funds were being used for the benefit of the league — whether that be for appropriate compensation for trustees, Bullock and Reilly or expense and travel reimbursements.
"The money was still going to the league," Godfrey said. "That was the big picture. We weren't dealing with the details, and maybe we should have, but the big picture was that we had projects we were funding for the league."
According to trust's agreement, the trustees were to provide "full accounting of the trust's receipts, disbursements and investments" to the league's board, but Godfrey said, "We weren't doing that."
Hiatt, too, said he didn't believe the board had received any accounting details from the fund.
"I do have some questions if it turns out those are our funds," Hiatt said when asked about the expenditures. "It would be too early to cast judgment to say anything is concerning."
Hiatt added: "Our primary goal is getting a clear understanding of whether or not this should have been dissolved in 2012 and, if so, pursuing the transfer of funds. Our next step would be to ensure that in fact the claims that the funds were used soley for league purposes are indeed accurate."
That's a question Hiatt hopes will be answered by the state auditor.
In response to questions about the investigation, the auditor's office has declined to comment or disclose a timeline of when the report will be complete.
The Deseret News first learned about the trust after its sister company, Deseret Digital Media, began receiving payments from the trust as part of an advertising buy with the Utah League of Cities and Towns, a one-year $120,000 contract for sponsored content published on deseretnews.com.
The content features advertisements such as, "Can you spot the services offered in Utah's cities and towns," "Recycling in Utah: How it works," "Cities team up to curb underage drinking" among others.
Though the contract was with the league, Bullock wrote checks to Deseret Digital Media from the Utah Municipal Cooperative II, though Bullock had previously told the league's board the contract would be funded through an "anonymous donation."
In an email to league leaders Jan. 28, however, Bullock said: "The state auditor has requested that the co-op trust freeze any disbursement of its funds. Therefore, the league will need to take responsibility for future financial obligations it has with the Deseret News until the issue with the co-op trust is resolved.
"Upon resolution of questions regarding the co-op trust, the trust will immediately meet its obligation it has made to the league. I am sorry for the inconvenience this has caused for the league and I am working diligently to have this issue resolved," Bullock wrote.
According to another email that same day, Bullock informed league leaders that the trust would not be able to pay a video editor for three months worth of services, totaling $5,525, until the trust's issues were resolved.
Hiatt said the league will "make good on any obligation" the league has properly entered into, but it does put the league in a "tough position" when board members were under the impression that those contracts were being paid through grant money.
"I don't think it's ever good policy for anybody outside of an organization to allow others to pay contracts directly without those funds first funneling through the entity," he said, though he added the board supports the projects and intends to keep them intact.