Highland taxpayers on the hook for interest accrued from missed bond payment
Some Highland taxpayers are questioning how a bond payment for a pressurized irrigation system slipped through the cracks for more than a decade, resulting in $277,000 in interest payments from 1996 to 2012 that residents now must pay.
In 1996, Highland residents approved $1.4 million for a bond from the state for pressurized irrigation in the city. Highland paid the majority of the principal bonds off in 2000 with the help of a grant, said City Manager John Park.
The initial bond stated the city didn't need to start making payments until 2018, but a 3.6 percent interest rate would begin immediately. The remaining balance of $123,000 was apparently forgotten, while $277,000 in interest accrued from 1996 until this year.
At least one city council member is questioning how previous audits and financial managers missed the unpaid bond payments, leaving taxpayers to now foot a bill that could have been taken care of years ago.
"That is one of those things that [independent auditors] should have picked up and our own financial guy should have picked that up. That's my opinion," Councilman Tim Irwin said.
City officials have no explanation for why the interest accrued went unnoticed.
Accountant Greg Ogden was hired in 2006 to audit the city's books. For the next five years, Ogden would identify in his audits that the city's pressurized irrigation revenues were short of its expenses.
However, the audit never mentioned a summary of accruing compounding interest debt the city could pay off. The audit only noted a line item each year for an irrigation bond from 1996 with 3.6 percent interest that was due by 2018. The line item also cited the remaining balance of about $123,000.
It wasn't until 2011 that an independent auditor picked up the discrepancy. When Ogden's contract with the city expired, the city hired Jensen & Keddington P.C., an audit firm based in Salt Lake City. That firm's audit in 2011 noted the irrigation bond payment was never paid off and stated to city officials that the bond was accruing interest.
"We found this bond and figured out not only was it accruing interest, but it was accruing interest on the interest," Park said.
Once it came to the city's attention, Park said he realized "it was just stupid" for the city to accrue interest on something it could have paid off a long time ago.
The city then paid the remainder of everything owed for the bond, Park said, with $275,000 of interest and the remaining balance of the bond paid off in July before the end of the 2012 fiscal year. A mention of the situation was made in a council meeting earlier this month.
Park said it may be frustrating for some residents to not receive an explanation for why previous city councils didn't pay off the remaining balance of the bond earlier. But, he noted, it's easy to be a critic and "hindsight is not always perfect."
The bond was one of two irrigation bonds the city took out and the first to be paid off.
Over the years residents have faced increased monthly costs to help make up the cost difference for the irrigation service. Last year the pressurized-irrigation fund was balanced by an increase of $10 per average household, according to city budget reports.
In 1996, Highland residents approved $1.4 million for a bond from the state for pressurized irrigation in the city. Highland paid the majority of the principal bonds off in 2000.
Initial bond • City didn't need to start making payments until 2018, but a 3.6 percent interest rate began immediately
Remaining balance • $123,000 was forgotten
$277,000 • Interest that was accrued from 1996 until 2012