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Audit: Several of Utah’s water districts may be wasting taxpayer dollars in the way they bond for projects

Utah taxpayer dollars could be at risk by the way several large public water districts in the state have been issuing long-term, noncompetitive contracts for bond underwriters in construction projects.

The state auditor’s office issued separate audits Monday critical of several water districts, foremost among them the massive Central Utah Water Conservancy District. The Orem-based agency oversees the $3 billion Central Utah Project that brings water to the Wasatch Front from the Colorado River Basin in eastern Utah.

Auditors say the district violated state procurement code by awarding a sole-source contract with an open-ended term to its underwriter handling bond issues. A competitive award process was required and a bond-by-bond selection of an underwriter would better safeguard public dollars.

The audit notes that “the district and the underwriter have competing interests, with the district seeking to minimize costs and the underwriter motivated to maximize its earnings.

There is a risk that the underwriter may not be motivated to offer the lowest costs once it is engaged in a long-term contract with the district," the audit says.

Auditor John Dougall told The Salt Lake Tribune in an interview that the underwriter, George K. Baum & Co., has no fiduciary responsibility to the district, unlike the financial adviser and bond counsel.

In the case of the Central Utah Water Conservancy District, the underwriter has an indefinite long-term contract and has handled each of the agency’s bond issues — totaling hundreds of millions of dollars — for more than 20 years.

Auditors recommended that the district terminate its contracts with the underwriter, its financial adviser and bond counsel and contract for those services based on a competitive process.

They also recommended selecting an underwriter on a bond-by-bond basis “unless the district can demonstrate that contracting with an underwriter for a specified length of time saves taxpayers and ratepayers money.”

The district board president, N. Gawain Snow, in a one-page response told the auditor it “will follow” each of the recommendations.

Other districts that were the subject of separate audits critical of their sole-source contracts with an underwriter for terms of five years were the Jordan Valley, Washington County and Weber County conservancy districts. Dougall said his understanding was that in each case it was the same underwriter, George K. Baum.

So how much in taxpayer dollars have been wasted by these districts in issuing bonds? Dougall said there’s no way of determining that.

“I don’t have a time machine so I can’t say, ‘If we would have done the competitive process, here’s what [the cost] would have been.’ So we’re unable to put any kind of dollar number on that," Dougall said.

“It might have been no harm, no foul in terms of the amount that was paid or there might have been abuse — we don’t know."

While Dougall said the districts' responses were “acceptable,” he added that what “we care most about is the behavior going forward and the accountability that’s there. So I do anticipate at some point in time we will do a review to see what actions were taken to correct and address our concerns.”