Behind the recall

Commissioners say transaction legal, valid

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The sale of a portion of the Public Safety Center is the focal point of a campaign to recall two Moffat County commissioners, but the targeted commissioners say all parties involved in the transaction approved the sale.

The recall committee, known as Concerned Taxpayers of Moffat County, claims that Moffat County erred when it sold an 11.73 percent interest in the Public Safety Center to the Colorado State Patrol, which had originally leased the space. The claim is a key plank of the recall platform.

Stan Hathhorn, who is leading the recall effort, said he uncovered what he believes are contract and state statute violations while investigating county records regarding the $1.2 million sale.

Hathhorn claims the sale violated articles in the 1998 Certificates of Participation contract between Moffat County and the Moffat County Finance Corp. The sale also violated a Colorado Revised Statute regarding lease-purchase agreements, he says.

But the commissioners maintain that the sale was proper.

"We had legal guidance every step of the way and everything was done in a public process," Commissioner Marianna Raft-opoulos said.

The county paid for the Public Safety Center by committing a percentage of sales tax collected in Craig and Dinosaur to the jail fund. The county also raised money through two series of certificates of participation, one in 1998 and another in 2001.

A certificate of participation is different from a bond in that a government can enter into a certificate of participation contract without receiving approval from voters. Bonds require voter approval. Lease payments for certificates of participation are subject to annual revenue appropriations, creating a risk for the lender since revenue could fall short of the required payment. That's why certificates of participation have higher interest rates than bonds.

If the recall committee collects enough signatures to force a recall election, Hathhorn intends to run against Raftopoulos. She and Commissioner Les Hampton are the targets of the recall effort.

Hathhorn points to the 1998 Certificate of Participation contract that states the county will not "mortgage, sell, assign, transfer or convey" any portion of the Public Safety Center while making payments on it. Hathhorn said the sale violated this provision and put county taxpayers in the position of making payments on property they no longer own, he said.

"Here we are stuck with this thing for 23 more years and we don't even own it," he said.

If the county commissioners did violate their own contract, it's unlikely they will face legal repercussions for their actions, Hathhorn said. He calls the situation "a violation of the public trust."

Hathhorn cites a state statute that says local governments shall not enter into lease-purchase agreements that exceed the average useful life of the asset the government is paying for. In this case, Hathhorn claims the county's financing agreement exceeded the value of the Public Safety Center once the interest was sold to the state patrol.

The statute also states that governments may only sell or release property after the principle amount of the amount then owed is less than the value of the project.

It is Hathhorn's belief that the county sold the interest in the building for less than it was worth.

Hampton and Raftopoulos have said on repeated occasions that they received legal advice during the entire sale, and the process was completely open to the public.

Because the sale didn't occur until 2001, commissioners say the deal fell under the authority of the 2001 Certificates of Participation contract. They say the 2001 contract acts as an amendment to the 1998 contract.

Originally, the state patrol intended to rent office, garage and common space in the Public Safety Center, Commissioner Marianna Raftopoulos said. But in 2001, the state agreed to purchase an undivided interest in the Public Safety Center.

Commissioners said the agreement benefited the county, which needed money over and above what it had already borrowed to pay for construction, Raftopoulos said.

Dee Wisor, a lawyer with Sherman and Howard LLC of Denver, drew up the 2001 Certificates of Participation contract, which spells out the terms and conditions of the county's financing. Wisor said Tuesday that the county got the consent of the loan insurer, Ambac Financial Group. The consent validated the sale of space to the state, Wisor said.

The county sold the 11.73 percent interest to the state patrol for $1.2 million. That sale price was based on a construction cost of $140 per square foot for 4,875 square feet of exclusive square feet, a $64,000 contribution for construction costs of common areas such as hallways and space in the weight room. The remainder of the price includes 11.73 percent shares for site development, professional fees for an architect, project manager and others, a pro rata share of contingency costs and a pro rata share of construction costs for the maintenance building and garage.

Hathhorn says the sale diminished the value of the PSC, because the county commissioners didn't use the proceeds to retire debt on the facility. The value of the PSC is the collateral the county put up for the loan.

Another critic of the sale, former county resident Jeff Taylor, has centered his arguments on the fact that the county didn't use sale proceeds to pay down the PSC debt and objects to the county's calculations for the sale price.

In an e-mail to the Daily Press, Taylor said, "Both series of COPs permitted a sale or removal of real or personal property. A sale was never prohibited by either series of COPs providing the asset was either substituted with property of equal value or cash or a combination of both. However, the lease agreement between the county and Moffat County Finance Corp., prohibited any sale or release of property that would diminish the value of the project below that of the COPs principal, $12,070,000.

"My entire argument is based upon the fact that commissioners never paid for or replaced the assets removed from the Public Safety Center."

Moreover, Taylor said, the sale price of $1.2 million "short-changed" county taxpayers because the value of the PSC at the time of the sale was $12,070,000 and 11.73 percent of that figure should have resulted in a sale price of $1,415,811.

But Moffat County personnel don't agree with how know how Taylor calculated his figures.

"I have no idea how he got his numbers, none whatsoever. We have ours all pulled out in the contract," Moffat County Financial Administrator Tinneal Gerber said.

Taylor and Hathhorn make their claims citing an article under the heading "Replacement and Substitution of Certain Equipment" of Appendix B of the 1998 Certificates of Participation contract. The agreement states that in the case of any sale of equipment, the county shall pay the money received to the trustee of the loan, in this case Wells Fargo Bank.

Hampton disagrees with Hathhorn's interpretation. Hampton said the language refers to equipment, not building space.

Instead of going toward debt payment, the money went toward construction costs, Raftopoulos said. She said the $1.2 million was put in the jail fund and was spent over the next several years to pay construction bills.

Wisor said Ambac approved the construction allocation rather than insisting the money pay off the debt.

But for Hathhorn, Ambac's approval isn't the issue. The county broke its own rules, he said.

If the county defaults on a payment, the loan provider, Wells Fargo Bank, has the right to foreclose. The bank could evict the Sheriff's Office, but the state patrol would be protected by a non-disturbance clause in the sale contract.

But because the county sold an 11.73 percent stake in the property, Hathhorn questioned how the bank could recover its money.

Raftopoulos and Commissioner Les Hampton said Tuesday they didn't whether the sale diminished the value of the county's collateral. But Gerber said Wells Fargo management knew the implications of the sale and still approved it.

Taylor has contacted Wells Fargo Bank, Ambac, Sheriff Buddy Grinstead and the Colorado Attorney General's Office with his questions about the sale.

Ethel Vick, a trustee at the bank, said she forwards the e-mails to Ambac. Pete Poillon, director of external relations as Ambac, said his company "isn't very concerned "about Taylor's reports. Grinstead said he has been collecting Taylor's reports in a folder but has not yet investigated anything. Ken Lane, deputy attorney general, said he has repeatedly informed Taylor that the attorney general doesn't investigate complaints of local government. Such complaints fall under the jurisdiction of the local district attorney.

Previous complaints to the Moffat County District Attorney's office have been referred to the Aspen District Attorney.

Rob Gebhart can be reached at 824-7031 or by e-mail at rgebhart@craigdailypress.com.

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