The state auditor will host the U.S. Securities and Exchange Commission at the Utah State Capitol in October.
Auditor Tina Cannon told legislators during a recent interim session meeting that the SEC has noticed developers are issuing government bonds to support their projects in Utah and around the country.
“They will be having a speech, a policy speech regarding their concerns and what they are seeing nationwide over public infrastructure district financing, or this type of bond financing,” she said Aug. 19 at the Utah Legislature's Political Subdivisions Interim Committee.
Public infrastructure districts, or PIDs, are boards often led by private developers that can levy a tax and issue bonds to cover infrastructure costs.
They’re created with the permission of local governments. The Utah Legislature passed a law this year clarifying that cities and counties are separate and not liable for PID debt.
Cannon has raised concerns as PIDs have exploded onto the development scene in Utah, issuing up to $4 billion in debt for taxpayers in their boundaries to repay.
The SEC regulates municipal bond markets. Cannon previously said Utah’s public infrastructure district program might run afoul of SEC rules.
“I think that's their concern, is what used to be financed in the private market is now being funded with municipal bonding,” Cannon told lawmakers. “Is that appropriate?”
For bond attorney Randy Larsen at GilmoreBell, that’s “the beauty of the tool.”
“We're leveraging capital markets, out-of-state money, to bring in terms that are superior to any other financing tool… That allows them to take these bets that a local bank never could or should,” he said.
Resort developers have been prolific with PIDs, including in Summit and Wasatch counties.
The Military Installation Development Authority, or MIDA, is using multiple PIDs to build Deer Valley’s East Village base. Deer Valley has three PIDs to redevelop Snow Park, and Summit County granted one in Canyons Village to compete.
Cannon’s office first flagged PID concerns after the developer of Wohali, a luxury golf course development in Coalville, filed for bankruptcy last year.
The auditor wanted local governments like Coalville to list PIDs on their own financial reports to comply with best practices in accounting.
Rep. Jordan Teuscher, R-South Jordan, an attorney, sees how that could create the impression that a city or county is potentially responsible for millions more dollars in debt.
“Well there isn't any liability per se just by putting it on the financial statement — but according to whom? I think that would come down to litigation,” he said during the interim session meeting. “That could be one piece of the evidence to say, ‘Well, look, you reported this PID’s balances and transactions on your financial sheet. There seems to be some relationship there, and thus you ultimately should be responsible.’”
That’s why attorneys like Larsen have balked at Cannon’s recommendation to include PIDs on local government financial statements. Lawmakers intended for PIDs to be independent when they created them in 2019.
“Wohali, while no one wants to see a bankruptcy or or a risk to bonds come into play, it exactly is working the way you would anticipate. There is no debt to Coalville City. There's no debt to Summit County. No one is looking to them for repayment,” Larsen told lawmakers. “The only source of collateral is the development itself.”
Cannon said Utah is on track to have hundreds of more PIDs in the next decade. Her office estimates there are currently 221 such districts, and 71 have actually issued debt.
“One of the things that we have found through our discussions on these over the last two years, it is a universal factor: Everyone wants to wield the power of government while claiming the privacy and independence of a private corporation,” she said.
The auditor’s office plans to release additional details about its meeting with the SEC closer to October.
