By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
DeHaan says that since one of the 1995 bond issues was insured, investors will get paid the rate they were promised, no matter what.
"In those other deals, people got mad, not because they questioned whether they were going to get paid, but because their bonds were rated less than they expected," he explains. "In this context, the bonds will always be rated triple-A because of the rating of the bond insurer."
DeHaan says that even if the environmental numbers are wrong, it still might not affect the county because the amount of cleanup costs might not be relevant. The county only has to report what's "material" to the county's financial health or to the particular bond, he says.
However, if the county's bond rating is lowered again, DeHaan concedes that it could affect other county bond issues, which are not insured.
The bond agencies don't yet know if a lack of disclosure of environmental hazards could affect the bond rating.
Eric Goldstein, who works with Maricopa County for Moody's Investors Service, is inclined to think not.
Since litigation--especially environmental litigation--is highly speculative anyway, Goldstein says, the amounts don't mean much. "So I think we felt, in and of itself, it was not a rating factor," he says.
David Hitchcock, a director in the public finance division of Standard and Poor's, isn't so sure no harm has been done. His company has downgraded counties' bond ratings for environmental costs before.
"I can't say, without knowing more about the issues, whether there's any sort of misleading element or not. We have followed up with the county, and they seem to have some good explanations at this point," he says.
Still, Hitchcock says his firm wants more information from Maricopa County.
Standard and Poor's will be asking Maricopa County exactly how it estimated environmental liabilities at the next meeting with county officials, Hitchcock says. Right now, though, the county isn't exactly forthcoming about how it did its math.
Maricopa County's elected officials and staff won't say much about Michael Walters' claim or about environmental liability.
County staffers initially agreed to interviews, then canceled. Then they agreed to answer questions only in writing. Then, citing potential litigation with Walters, the Arizona attorney general and the SEC, Maricopa County's Board of Supervisors and county officials refused to comment beyond a two-page written statement.
"Maricopa County categorically denies that false information was reported in its financial statements and/or any other financial reports including those submitted to rating agencies or potential bond buyers," county administrator David Smith said in a letter to New Times. "The estimates provided by the County Attorney's Office to the State Auditor General and reported by the Department of Finance were based on the best information available at the time. The County's financial statements clearly state that the reported amounts are estimates."
Smith refuses to answer questions about why Walters was fired, even though Walters signed a release allowing the county to discuss his personnel matters with New Times.
Beyond defending the reliability of the estimates, Maricopa County officials won't say how they came up with the numbers.
Andrew Kuhn, who works in the division of finance, was the one who actually put the estimate of liability in the county's most recent financial statements. He told New Times he got the amounts from an August 29, 1996, memo written by John Paulsen, the deputy county attorney assigned to risk management.
The memo, which was written to the auditor general in response to a request for an evaluation of environmental claims, is the same one Walters says contains the dummied-up numbers. Tom Manos, the county's chief financial officer, gave a copy of the memo to New Times upon request.
Paulsen, however, can't or won't say what the memo's estimates were based on. Instead, he threatened to have New Times charged with a crime for having the memo.
"Well, that's a confidential document, and if you have a copy of that, I have to know where you got that," Paulsen says. "Did Mr. Walters give that to you? Well, if you have a copy of a confidential document, I think you should talk to our charging agency before I answer any of your questions."
Paulsen refused to make any further comment even though other county staffers say that he is the source of the estimates. The county's bond counsel, the bond-rating agencies and a bond underwriter also say the information was supplied by the county attorney.
Without an explanation from the county, it's hard to tell exactly where Maricopa County officials pulled the numbers from.
In the official 1995-96 financial report, Maricopa County lists a probable environmental liability of $38 million, and a possible environmental liability of $314.6 million.
But when Bergen prepared the numbers for that annual report, he estimated a probable liability of $45 million in an e-mail. In an August 1996 memo to the auditor general, Paulsen reported probable liability as $33.3 million to $48.6 million. Possible liability is listed at "up to $349 million."
In another e-mail in September, Bergen conceded no one knows the extent of the county's environmental liabilities--an admission that supports Walters' contention.
"Because we do not know the extent of the County's enviro exposures," Bergen wrote, "we do not want to foreclose any future financial recovery options at this point."