Payson officials have been unable to locate the bond representative who promised a $500,000 savings and delivered a $161,000 loss.
A year ago, the Payson City Council voted to refinance a 1986 electrical bond that had allowed the city to purchase two generators. In February of 1988, a bond salesman told council members refinancing could save the city half a million dollars and help with cash-flow problems.Although the cash-flow benefits were real, the savings were not.
"We had benefited from his bond advice in the past, but it appears we got burned this time," said Mayor Curtis Arrington at the Wednesday city council meeting. "I hope there is some simple explanation for the discrepancy, but I am afraid we have been misled, and that blemishes all our (council members') records."
The council voted unanimously to have the city attorney research possible fraud.
Dave McMullin, Payson city attorney, said on Friday it may take some time to locate the bond representative and determine if legal action would be appropriate. He will hire someone with "expertise in this matter because it is so specialized," he said.
"The case involves thousands of pages of documents and will take a while to get into it and understand what happened."
Councilman Steve Hanson said the situation gave him "a real sick feeling in my stomach." He said the council had no motives other than to save taxpayers' money and he hoped the public would understand the mistake was an honest one on the part of city officials.
Hanson said cash-flow benefits and the chance to delay a possible increase in utility rates were advantages discussed after the fact, but savings was the primary reason for considering the proposal the bond representative presented.
Councilman Mike Stewart said in his mind, the savings was not the primary reason, "but the only reason" for the refinancing.
Hanson said the council should have been wary of "Greeks bearing gifts" and thanked the auditor for showing that "all that glittered was not gold."
Rod Watkins, city administrator, would not speculate on whether the city had been defrauded.
"That's up to the legal people to decide."
Payson's auditor, Kim Peterson, said he set up several appointments last winter to review papers with the bond representative, "but he didn't show up." The representative sold the bond through Marine Midland Bank, which does not have an office in Utah.
Peterson added that despite the unexpected loss, Payson City is "in good financial shape and is sound."