Mismanaged loan costs Highland taxpayers $500K. Caleb Warnock - Daily Herald

A mismanaged loan for $123,000 has cost Highland taxpayers nearly $500,000 in interest.

That money is a huge hit to the budget of this city, which is cash-strapped and struggling to pay for the basics.

Speaking to the Daily Herald, Highland officials were quick to point out that the mismanagement happened before their time; no one claimed responsibility. But yearly internal and external audits missed the loan, allowing it to accrue $50,000 in interest year after year after year.

Officials in a recent meeting revealed that the loan for the city's pressurized irrigation system was somehow forgotten for more than a decade, accruing interest all the while.

Lynn Ruff, Highland's finance director, told the Daily Herald that the original $1.4 million bond was issued in 1996, when he was a new part-time employee. The money was borrowed from the state and used to construct Highland's new pressurized irrigation system.

In 2000, the city won a grant from the Central Utah Project and part of the cash went to pay off this bond.

"We paid just under $1.3 million," he said.

But the bond contract stipulated that the entire bond could not be paid off early, so some portion had to be left outstanding for a time. Because of the lump-sum early payment, no other payment was due until a final balloon payment in 2018. Because there was no payment schedule, the loan was forgotten.

"I have no idea why it was set up this way," Ruff said.

Both city and private auditors missed the debt in yearly reviews of the city's finances.

Between 2000 and 2012, the city accrued a staggering $494,000 in interest on the $123,000 loan balance. That does not include the $217,000 the city paid from 1996 to 2000.

The city happened to find the loan in May and immediately began paying off the principal and interest in installments, as it could afford it. The entire bill has now been paid.

At least the city found it, said both Ruff and Mayor Lynn Ritchie. If the bond had been lost until maturity at 2018, roughly another $300,000 in interest would have accrued. The mayor went so far as to say that the snafu was actually a win for taxpayers because at least the city found it before 2018.

"It is a bond we paid off early and reduced our debt," the mayor told the Daily Herald in an interview. "Even the bonding company was unaware of it. When we discovered it and got to discussing it, we decided to pay that off."

How did this happen?

"We've researched it," the mayor said. "The auditors did not pick up on it in the audit. It was an unusual type of bond where you are not paying principal. It was not due on interest until it was at maturity. There were no payments visible."  Caleb Warnock Daily Herald