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A heated land dispute on the banks of the Jordanelle Reservoir has been taken to the Utah Capitol, where lobbyists and lawyers are waging an intense battle over who should be responsible for more than $41 million in liabilities — and whether the Legislature should step into the fray.

On one side is a group of landowners, wealthy developers who allege they have been victims of government corruption and deceit in the construction of water and sewage improvements intended to serve hundreds of posh vacation homes along the picturesque reservoir.

On the other side is the service district, which claims that the developers, with dollars in their eyes, were stung by a housing crash and are now looking for a bailout from the Legislature.

Add to that a trio of banks that are still owed tens of millions of dollars for putting up the money for the construction.

More than 20 lobbyists have been hired by the competing parties to work on the issue and Sen. Steve Urquhart, R-St. George, is looking into what, if anything, can be done by the Legislature to resolve the situation without upending contracts or leaving taxpayers holding the bag.

"What I'm ultimately wanting to do is provide a legislative forum to find resolution to a messy situation," Urquhart said. "Right now I think we're looking at a situation where it's headed to the courts and I believe the Legislature is also a body where tough issues can be resolved and I think a lot of our resolutions are better than court resolutions because courts are often black and white … it doesn't have the flexibility of a legislative process where you put people in a room and say, 'What about this?' "

One option is letting the small handful of developers incorporate the town and take over the $40 million in water and sewage improvements built by the Jordanelle Special Service District, along with the debt for the state-of-the-art treatment system that sits idle — and likely will for years — because it doesn't have enough homes hooked up to operate efficiently.

Another, Urquhart said, would be for Wasatch County to issue new bonds — replacing bonds that Jordanelle has already defaulted on, and pay them back with property taxes.

But officials with the Jordanelle district and its governing body, the Wasatch County Commission, contend that despite a full-court press by the landowners' lobbyists, the Legislature is the wrong place to resolve this kind of property dispute.

Randy Larsen, a bond attorney representing JSSD, said a new town, if that's what the Legislature envisions, would have 10 full-time residents and about 45 secondary homes.

"So it's a town in name, but what is it really?" he asks. "It's governmental entity empowered to meet the narrow objectives of a few property owners and bondholders."

Shifting the debt to the county would also be a non-starter. Even if Wasatch County could get banks to buy a new series of bonds, it would mean a huge property tax increase of between $377 and $686 a year for Wasatch County homeowners and businesses, according to preliminary calculations by former commissioner Steve Capson.

Representatives of the banks that have been stuck with the bad debt for the Jordanelle water and sewage say that, if the Legislature doesn't step in to resolve the disagreement, other local governments could feel a ripple effect. "If those investors lose confidence, it will raise borrowing costs for Utah local governments — costs ultimately borne by Utah residents," Regina Shafer, a vice president with USAA, the largest purchaser of the Jordanelle bonds, wrote in an editorial in The Tribune over the weekend.

Wasatch County's bond rating was recently upgraded and Larsen contends that changing the rules on municipal borrowing would impede bonding far more than any issues with JSSD.

It's perhaps not surprising that the competing sides don't agree on a solution — since they disagree over just about every facet of the dispute.

In 2009, the Jordanelle Special Services District issued nearly $41 million in bonds to build a water and sewer system for the 3,300 homes planned for the area on the south side of the reservoir. Then the bottom dropped out of the market and the demand for homes disappeared.

The sewage treatment plant built inside a towering barn sits idle as development has all but ceased, leaving the district without the volume of waste needed to turn on the plant.

Several landowners, unable or unwilling to pay millions of dollars in assessment fees, have seen their land foreclosed on. Others have paid, but gone to court to contest the levies.

Without money coming in to make bond payments, the service district has defaulted on its bond payments and now is slapped with a 20 percent interest rate. The district had sought to turn over the foreclosed-upon land to the banks, but the banks have no interest in the property and instead demanded tens of millions of dollars in payments, which was due last week. The landowners and banks have filed separate lawsuits, alleging mismanagement and self-dealing.

Amid the sparring, publicly and in court filings, JSSD's embattled executive director Dan Matthews abruptly resigned in December. An investigation by the state auditor is nearing completion and could be released in a matter of weeks. And the FBI is interviewing potential witnesses as part of an ongoing investigation.

County officials say they have not seen a shred of proof to substantiate any of the claims of malfeasance and believe the state audit will mostly prove the allegations lack merit. They also point to a "findings of fact" issued recently by U.S. District Judge Dale Kimball who found that the evidence supports Jordanelle's version of the disputed events.

David Bryant, an attorney who is part of the team that bought Victory Ranch, one of the properties along the reservoir, said he and his group were prepared to pay the costs and take the risks associated with the property development.

"What we weren't prepared for was government oversight more motivated by self-interest than anything else, and that is willing to go so far as to destroy records during a state audit to save face," he said.

Urquhart believes that a legislative fix might be possible.

"I think all three groups [developers, county officials and banks] understand they are in this together and I think there is legitimate desire to at least explore possibilities of resolving the mess," Urquhart said. "Again, maybe we can, maybe we can't, but it's worth a try."

Twitter: @RobertGehrke

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