By Mary Drier
Staff Writer
CARO — Tuscola County is poised to take legal action against a township for breach of a financial obligation.
During Thursday’s county meeting, commissioners authorized their attorneys to begin proceedings to recover about $395,000 the county had pledged for Denmark Township to be able to do a water extension project, which was later stopped.
Earlier this year when the township board voted to dissolve the water district, that placed the financial burden on the county because commissioners had pledged the county’s credit to back the project so the township could receive a better interest rate, explained commission Chair Thom Bardwell, noting having the county pledge its credit on a costly municipal project is standard procedure.
“This is the first time our county has ever had to take legal action against a municipality for breach of contract for bonding a project,” said county Controller Mike Hoagland.
Although this situation hasn’t happened before in Tuscola County, it has in others. One way for such a debt to be satisfied is the court can order an assessment on each property in a township until the debt is paid in full.
The matter started when the county agreed to bond the project on June 1, 2011, and then amended it on Sept. 1, 2012, when the scope of the work changed.
“The original contract grew out of a request by the township on March 28, 2011, for the county to assist the township in financing an extension of the water system by issuing bonds,” said Hoagland.
The plan was to extend water lines from the Reese – Blumfield Water Authority to parts of the township around the village of Reese, which added about 15 miles of water main to the system.
Wilcox Engineering, which did the original extension design, estimated the cost at $3.5 million, of which an amount not exceeding $3 million was to come from the proceeds from a Tuscola County Bond issue through the county’s board of public works, explained a press release from the county.
Also, a special assessment district was created where properties that benefited from the water project would be assessed no more than $9,000. However in mid-2012 when bids were received, the final cost came in at $17,000 instead.
When the bids came back nearly double on special assessment cost, property owners objected and some threatened to sue the township to stop the construction because of the tax burden it would cause.
Because of threatened litigation and tax tribunal challenges, Attorney John Axe, who is the county’s legal counsel, said it was “impossible to deliver the bonds” which had to be done by July 2012.
That was when the agreement was amended instead for the county to issue a bond anticipated note for just $395,000 with a due date of May 2014, to help the township pay for engineering and legal costs that had already been incurred.
“At the time that the bond anticipation note was issued, the township confirmed special assessment, which had not been appealed to the Michigan Tax Tribunal, in excess of $1 million that could have been used to retire the note if bonds had ever been issued,” explained Hoagland. “Plus at that time, the township told us (the county) they would proceed with the project with USDA purchasing the bonds once the tax tribunal appeals had been resolved.”
However, that agreement and plan started to fall apart on Nov. 19, 2012, when the township made a decision on the project without informing the county. The township voted to abandon and discontinue the water project but continue in effect the special assessments on the benefited properties within the special assessment district to cover the preliminary costs for the bond anticipation note.
The final financial blow came on Feb. 25, 2013, when the township dissolved the special assessment district that would have gone towards paying the bond without notifying the county.
The township’s action subsequently voided all of the assessments which were to be collected to make the payment for the county against the amount of the bond anticipation noted, explained Hoagland.
County and township officials and their attorneys met in May to discuss the matter, and the township wasn’t able to provide a satisfactory assurance it could repay the county for the bond. That’s why the commissioners approved taking necessary legal action to recoup what is owned.
“The documents have not been filed with the court yet, but will be soon,” said Attorney Patrick Kaltenbach, noting the case will be in Tuscola County Circuit Court.
After the case has been filed, the court will determine how the township’s financial obligation to the county will be satisfied.
Mary Drier is a staff writer for the Tuscola County Advertiser. She can be reached at drier@tcadvertiser.com.