legislation was drafted in response to proposals made by the Utah Association of Counties. He explained that "County Officers Amendments" changes the statute to state that an officer's absence for a continuous period of 60 days without the consent of the legislative body constitutes malfeasance in office if the officer substantially fails to perform the officer's official duties during the absence. Section 77-6-1 allows the removal of an officer through a judicial proceeding.

    Mr. Brent Gardner, Utah Association of Counties, explained that there are instances where there have been problems with the 60-day provision. The court would have to interpret what is malfeasance. All the governing body can do is bring about a review. It cannot remove the individual from office. Mr. Gardner said there is some review of an absence and of substantial performance of the duties of the office.

    Rep. Ure suggested the committee allow Mr. Gardner, Mr Rees, and the chairs to refine the language and present the new legislation at the next meeting.

    Mr. Rees discussed proposed legislation, "Reassignment of Elected County Officials' Duties." The bill provides that a county legislative body may by ordinance reassign duties of an elected county officer to another elected county officer under one of two conditions: 1) the officer whose duties are proposed to be reassigned consents in writing; or 2) the reassignment is first approved by voters at a county-wide election.

    Rep. Swallow expressed concern about who should be making policy decisions about which functions are assigned to which elected office.

    Mr. Rees explained that the functions and duties of a county officer or the officer of another political subdivision are defined by both state law and county ordinance.

    Mr. Gardner indicated the statutes are very broad in what they assign functions and duties to be. Most of the duties and responsibilities are worked out on the job.

    Rep. Ure suggested the legislation be reworked and discussed at the next meeting.

4.    Follow up Legislation - School Building Inspections -  Sen. Evans explained the State Superintendent was asked to appoint a committee to study this item. He distributed a list of the committee membership. The two bills being proposed are "Inspections of Public School Buildings" and "School Board Oversight of School Inspections." He suggested that the bills be referred, along with other suggestions from the interim committee, to the committee formed by the state superintendent. The bills would be put on the agenda for the next meeting.

     MOTION: Sen. Evans moved to refer the two bills to the School Construction Inspection Study Committee for its input. The motion passed with Rep. Arrington voting in opposition.

5.    Legislative Audit - Construction Management by Political Subdivisions - Ms. Leslie Marks, Audit Supervisor, Office of the Legislative Auditor General, distributed copies of the audit. She stated the audit reviews concerns about construction management practices used by local government and school districts. In general, the auditor found that public owners should do more analysis of construction projects and its own staff's capabilities before choosing between CM and general contracting (GC). She said a cost comparison between CM and GC was inconclusive and showed the need for consideration of factors beyond cost such as design, time, and owner considerations. Counties and school districts do not always give enough consideration whether to use CM as a project delivery system versus GC. The lack of sufficient initial analysis can result in an inexperienced owner becoming involved in a project delivery system that takes more time and expertise than the owner has to give because the CM approach succeeds best when the owner is a knowledgeable and hands-on partner in the construction team.

    Mr. Ken Nye, Division of Facilities and Construction Management, said there are times when lease revenue options are very necessary to do a project, but they generally try to avoid them.

    Mr. Wayne Welsh, Legislative Auditor, stated that the Audit Subcommittee asked them to prepare a checklist to send to political subdivisions in an effort to keep them more informed.

6.    Review of H.B. 194 - Rep. Ure stated that those addressing the committee on this issue would be placed under oath prior to speaking. The following individuals were placed under oath: Jeff Budge, Paulina Flint, Garry True, Shawn Turner, Blaine Carlton, Melody Shock, Craig Moody, Susan Schildmeyer, and Diana Stevens.

    Mr. Craig Moody, Sandy Citizens for Fair Water Rates, said they are a political issues committee (PIC) formed in his area. A petition was circulated for residents who wanted to opt out of the White City Water Improvement District. The petition was certified by Sandy City and was to be voted on November 3. Since that time, the district filed action in court to stop the election. A judge determined that the election will go forward but the ballot box will be held in abeyance until December 7 when the issue will be litigated. The litigants are trying to invalidate the petition by saying that some of the people who signed the petition were not eligible to sign. The lawsuit also contends that H.B. 194 is unconstitutional. There is a section of people that are part of the White City Water Improvement District that were not able to sign the petition. There are residents in Sandy that are being served by Sandy and yet they are in the district and can be taxed by the district. There is an issue which needs to be resolved and that is whether or not a

public entity can spend public funds on a political issue. He stated information was mailed from the district taking positions against the citizens' withdrawal.

    Mr. Moody indicated that after the district was formed it bought all the assets from White City Water Company. The district transferred the assets over to a for profit company which now does business as Lone Peak Water Company. The district's attorneys have indicated the action was taken to avoid capital gains. Mr. Moody said they have requested information from Lone Peak Water company under GRAMA. They were told that it is a private company and did not have to furnish the information.

    Ms. Paulina Flint, Chairperson of the White City Water Improvement District, stated that in 1991 a citizens group of both Sandy residents and county residents voted to determine what direction to take. In 1994, all of the citizens of the district had an opportunity to vote on whether or not to bond to purchase the White City Water Company. The White City Water Company purchase was a purchase of stock agreement. The board members of the district are elected by the citizenry of the whole district. They met with Jan Furner in 1993 to ask the process they should follow. Mr. Furner guided them through the steps and everything was done legally.

    Mr. Jeff Budge, White City Water Improvement District General Manager, said when the purchase of the company first occurred it was the intention of the district in February 1995 to purchase the assets of the White City Water Company. The then owners of the company insisted that the purchase be a stock purchase rather than an asset purchase to avoid double taxation of the money that would come to them. After a review of the tax consequences by bond and tax counsels, in June of 1995 they realized there was a potential for a huge capital gains tax on the company if certain of the assets were transferred to the district. In order to eliminate the potential expense that would have to be passed on to the ratepayers of the district, the board of trustees met and decided to accept the advice of counsel and leave those certain assets with the company. He noted that financial audits are on record that detail the transactions between the district and the company.

    Mr. Shawn Turner, White City Water Improvement District, said the General Utilities Doctrine allowed a corporation in liquidation or another corporation to transfer assets from it to a parent corporation tax free. That was perceived as a tax loophole by Congress. The tax law was changed in 1984 which made the action no longer possible. Because the White City Water Company was a for profit institution with assets that had appreciated over time, there was a built in gains problem. If the assets that have appreciated are transferred to another entity, it creates a capital gains tax situation payable at the corporate level.

    Rep. Curtis asked if the documents of the White City Water Company are subject to GRAMA requests.

    Ms. Flint said the agreements between the district and the company were handed over to the Sandy City Council upon request by their legal counsel. No GRAMA request was received of the company or the district in relation to information and documents from the company. The only thing the district received was a friendly question by Sandy's legal counsel.

    Mr. Budge explained the Lone Peak Water company has a corporate attorney that has assisted them in the contractual agreements. On counsel's advise the minutes of the company, being a private company, need to be held a little bit closer because of the corporate contract laws.
    Rep. Curtis stated the district is clearly a public entity and the public at large should be able to see the minutes of the district at any time.

    Mr. Budge stated the district has a responsibility to keep its members informed. The newsletters were mailings the district prepared stating what was happening with legal and operational aspects. The current newsletter addresses the cost of a withdrawal if it should happen. According to a Sandy City feasibility study it states that it will take approximately $6.4 million to purchase their proportionate share of the district's bonds.

    Rep. Swallow requested copies of the newsletters that have been sent. He requested staff to research the status of the law concerning whether a public entity can actually purchase private business interests. He also requested staff research if the White City Water Company was a private business and what the rules are with respect to city ownership or political subdivision ownership of private businesses and how it works with boards of directors, shareholders, etc.

    Ms. Susan Schildmeyer, ratepayer and property owner in the area in question, stated when stock in a company is purchased and immediately liquidated, there is no capital gains event. She said the Uniform Transfer Act of Utah is what the IRS uses to go through sham transactions. She questioned why the district did not think about immediately reorganizing into a public nonprofit corporation which might have avoided some taxes. The law in 1984 was to allow corporations to be bought by other corporations on a 100 percent stock sale and have no capital gains.

    Mr. Fred Finlinson, Utah Water Coalition, indicated that the ownership of over ½ the water in the state is vested in corporations that are generally nonprofit irrigation companies. Therefore, instead of buying the water right, a share of the corporation that has a water right is purchased. There is a lot of private stock ownership from water rights for this very purpose.

    Mr. Blaine Carlton, attorney, stated that once the acquisition occurred he contacted the district and tax individuals from his Washington, DC office to determine what could be done by the district in order to avoid the potential of a capital gains tax. A decision was made that in order to avoid or minimize the potential tax risk, it would be prudent on the district's part to

maintain the majority of the assets with the company. The transfers of the assets were in essence undone. As long as that is done within the current tax year, the service allows some transactions to be undone. He pointed out that there was no effort on the part of the district to try to do anything devious.

     MOTION: Sen. Evans moved to request the Legislative Auditor General to audit the White City Water Improvement District and the Lone Peak Water Company. The audit would include the issues of the use of public funds, access to information, use of the public monies to influence the outcome of an election, and other areas that the auditor considers important.

     SUBSTITUTE MOTION: Rep. Curtis moved to request the Legislative Auditor General to audit the White City Water Improvement District and any transactions related with that public entity. The substitute motion passed unanimously on a roll call vote. Reps. Allen, Arrington, Buttars, Chard, and Dillree were absent during the vote.

     MOTION: Rep. Bowman moved to adjourn. The motion passed unanimously. The meeting adjourned at 5:10 p.m.