By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
Sewer district board chairman Tony Vehon admits that he and his fellow board members did little more than approve checks.
"We had Interwest telling us everything was fine, we had Metcalf and Eddy [the construction management firm] telling us everything was fine, we had Jeff Zimmerman telling us everything was fine . . . and there was never any disagreement," Vehon says.
Vehon says Interwest's share of the deal was 5 percent of the project's roughly $32 million budget--or $1.4 million.
Michael Lavelle, an attorney representing Allstate, is eager to learn how the bond money was disbursed. "A lot of times in these deals, these guys are getting paid six different ways," Lavelle says. "That [Interwest's compensation] is still a matter of great interest to us."
In January, one year after going online, the Superstition Mountain Community Facilities District filed for protection under Chapter 9 of the U.S. Bankruptcy Code. The filing came after Allstate twice agreed to restructure the district's debt.
Today, the district takes in about $160,000 per month--a figure that covers operating expenses but can't begin to touch its debt payments of $234,000 a month.
Allstate's allegation that Interwest and its partners engaged in federal securities fraud has piqued the interest of federal investigators.
Several sources contacted for this story say they have also been questioned by the FBI. Jack Callahan, spokesman for the FBI's Phoenix bureau, confirms that agents have been looking into Interwest's activities.
"But we're still in the extreme early stages [of an investigation]," Callahan says.
So was this public-private partnership a "win-win" all the way around?
Discounting the bondholders who got soaked, one could make an argument that in the long run, the district, even in bankruptcy, will benefit Apache Junction. Or at least landowners within the district.
"The people behind these things [improvement districts] never usually care too much if the deal goes belly up or not," explains Lavelle, Allstate's attorney. "Usually, you've got your board, and they're often real estate types who're tied to the landowners and the developers. And the landowners win either way. If the thing's viable, so be it. If it goes belly up, they still have their road, or their sewer, or whatever, and their land values go up."
Apache Junction City Manager Curtis Shook confirms that, despite its problems, the sewer system has allowed the city to lure commercial development, including several hotels.
"The idea wasn't bad, but the implementation definitely left something to be desired," Shook says.
In addition to the Allstate and sewer district lawsuits against Interwest and its partners, Apache Junction is suing Lee's Backhoe and another contractor hired to lay sewer lines. The city alleges the contractors failed to backfill their trenches properly, resulting in sagging spots in the roads. Both contractors are suing the district, claiming they were never paid for work they performed.
Richard Carr of Interwest has been quoted as saying the lawsuits against his company and others in on the deal is "a bunch of nonsense." Another Interwest official told a reporter that the fact that toilets in Apache Junction flush is proof that Interwest upheld its end of the agreement.
All of which sounds like so much crap to sewer board chairman Tony Vehon.
"Sure, the toilets flush," says Vehon, a real estate agent and former city councilman. "The real question is, will they still flush five years from now?"
One city's trash is another's treasure, and nothing illustrates this more poignantly than the recent boom in jails. Small towns have been known to fall all over themselves to lure a jail. (A privatized jail proposal was part of Richard Carr's original pitch in Quartzsite, but it was dropped for reasons that aren't entirely clear.)
Just as the Apache Junction project was ossifying, Richard Carr set his sights on the southeastern Arizona border city of Douglas, which in its heyday was the western headquarters of Phelps Dodge Corporation. Like the Phelps Dodge smelter stack that once loomed over the city, Douglas' economy had come falling down.
"Interwest President Richard Carr--calling the deal a 'public-private partnership'--told a gathering of 40 people that the 250-bed minimum to medium-security jail would be built at no cost to Douglas," the Douglas Daily Dispatch reported in October 1992.
To build and run the jail, Carr proposed a mechanism similar to one he had pitched in Quartzsite: a municipal property corporation that could issue bonds, which would remain the obligation of the corporation--not the city. Carr suggested that bondholders would be repaid from revenue generated by fees paid by the agency he said would use the facility, the U.S. Immigration and Naturalization Service.
According to the article, one council member expressed reservations about the impact the jail would have on the image of the city, already home to two state lockups. All others said they saw it as a clean industry that would create badly needed jobs.
Once again, things were going Carr's way. He had a compliant council that saw only good in his proposal, and it is reasonable to think that Interwest's jail would be standing on the outskirts of Douglas today had it not been for two unrelated developments.