The artificial islands proposed for the Utah Lake are years away from approval, but the real estate created by the controversial dredging project is already being offered to back up complicated investments that would help finance it.
The debatable proposition of dredging Utah Lake to ecological health would cost billions, with all the money supposedly coming from private sources.
For the past four years, the company behind the proposal has declined to reveal how it is raising the $6.4 billion it says would be needed to fix the many environmental woes of the West’s third-largest freshwater lake.
But documents obtained by The Salt Lake Tribune shed some light on the Utah Lake Restoration Project’s murky financing. The documents promote investments supported indirectly by loan guarantees courtesy of federal and state taxpayers.
Some of these investments would be structured on debt securities issued by an unnamed municipal entity through an instrument known as “conduit financing,” according to a prospectus presented to potential investors. It says as much as $1 billion has already been pledged to purchase real estate that doesn’t, and might not ever, exist.
After acquiring the documents, the Tribune reached out to key players in the project, and several declined or did not respond to invitations to comment for this story.
Artificial islands, real money
A company called Lake Restoration Solutions (LRS) has proposed excavating a billion cubic yards of lakebed sediments and sculpting the material into 20,000 acres of artificial islands. In exchange for its $6.4 billion investment in the long-impaired lake, the company proposes to sell about half this new land for commercial and residential development in what is being billed as a “public-private partnership.”
LRS is seeking nearly $1 billion in state and federal assistance, most of it coming from the Water Infrastructure Financing and Innovation Act (WIFIA) program administered by the U.S. Environmental Protection Agency. Investment materials cite the EPA’s assistance, which has yet to be approved, as proof of a “partnership” with government agencies.
The federal and state loan guarantees sought by LRS could reduce the project’s borrowing costs and shift financial risks from investors to taxpayers.
(Trent Nelson | The Salt Lake Tribune) Utah Lake at Vineyard Beach on Wednesday, Jan. 26, 2022.
The company has lined up Citigroup Global Markets to underwrite $5 billion in debt securities, according to a March 2021 letter from Citigroup executive Cameron Parks to LRS chief executive Ryan Benson. While LRS has previously declined to identify its financiers, citing non-disclosure agreements, the Citigroup letter was included in a June 2021 investment presentation conducted by third-party firms Prospera Fund and Foresight Wealth Management.
Those two Utah financial services firms have formed a limited partnership called the Utah Lake Development Fund and claimed to have made substantial investments in the project, $15 million and $10 million, respectively. In a com, the Utah Lake Development Fund reported it offered $10 million in securities last year and sold $2.25 million.
Prospera also pledged loan guarantees totaling $100 million to support the project’s creditworthiness, according to a letter from CEO Sean Clark that accompanied the prospectus. More significantly, the firm said it intends to pay $422.5 million for 500 to 650 acres formed by dredged materials.
According to the letter from Parks, who manages Citigroup’s public finance department, the debt securities would be issued by an unnamed “municipal conduit issuer.”
A proposed bill creating the Utah Lake Authority — which would wield sweeping control over land use, improvement and rehabilitation decisions on the state’s largest body of freshwater — could potentially serve as that conduit.
Phone messages left for Parks, Clark and Foresight CEO Adam Nugent were not returned.
Since its public unveiling in 2018, the massive dredging proposal has enjoyed the support of Utah County’s elected representatives, who championed HB272, which directed the Department of Natural Resources to give the project serious consideration. Last year, the Legislature appropriated $10 million for loan guarantees to support the project.
Vineyard, the fast-growing municipality on the lake’s northeast shore, has pledged $5 million toward the project, according to Mayor Julie Fullmer’s September 2020 letter to the EPA endorsing the company’s loan application. The prospectus shared with potential investors last year included the Fullmer letter, along with other letters endorsing the project.
“Vineyard strongly supports the efforts of Lake Restoration Solutions to implement the project and obtain the WIFIA loan and in that regard hereby appropriates $5,000,000 cash or cash reserves to be used for eligible approved project-related costs,” Fullmer wrote in the Sept. 20, 2020, letter to the EPA.
The Tribune requested the EPA release Lake Restoration’s two WIFIA applications and their supporting materials, but the agency declined, saying the company has classified it as “confidential business information” that is protected from public disclosure.
Fullmer told The Tribune that the Vineyard Redevelopment Agency intends to use that $5 million to restore some of the town’s three miles of shoreline.
“Shoreline improvements and barrier estuary islands offer potential protections of these redevelopment investments on the shoreline, in our conservation zones and in our surrounding burgeoning transit-oriented development, which has been patterned to offer sustainable design for our environment and community,” she wrote in an email.
Providing additional behind-the-scenes support is the Utah Governor’s Office of Economic Opportunity.
According to documents obtained from the agency through a records request, the $10 million legislative appropriation is intended to help convince the EPA to support the project and demonstrate the state’s commitment.
“Unfortunately, the cost of a holistic, comprehensive solution is beyond the financial abilities of the State’s normal budgeting parameters,” wrote GOEO Executive Director Dan Hemmert in a June 1, 2021, letter of support to EPA. “Through this unique public-private partnership, Lake Restoration Solutions will provide dredging, lakebed restoration, shoreline restoration, wetlands rehabilitation, removal of invasive plant and animal species, upgrades to five wastewater treatment facilities, islands to suppress wind and wave damage, and an increase in storage capacity of more than 30 billion gallons of water through decreased evaporation.”
Last month, the EPA put an LRS request for $893 million in loan guarantees on a waitlist for WIFIA funding, indicating it could be invited to apply if other applications fall through.
Company officials say they will make the project’s experts available to speak with the news media at a Feb. 8 press event.
A previous press event scheduled for late last year was canceled after a memorandum of understanding between LRS and Utah Gov. Spencer Cox memorializing the terms of the public-private partnership went unsigned by the governor, according to email exchanges obtained through a record request. The governor’s office declined to release the proposed MOU, arguing it was protected as a draft document.
A contentious debate
Over the decades, effluents from agricultural, industrial and sewage sources have been flushed into Utah Lake, depositing nutrients and heavy metals into lakebed sediments. These contaminants, along with the proliferation of non-native carp and phragmites, contribute to myriad ecological problems, such as frequent algal blooms, rendering the eastern parts of the lake difficult to use or enjoy.
Pitched as a way to solve these problems and turn the lake into a recreational and wildlife paradise, the island project has drawn intense objections from academic scientists who say deepening the lake could worsen its condition and disrupt its natural ecosystem.
The debate has grown so contentious that LRS is suing Brigham Young University professor Ben Abbott for $3 million, alleging his criticism of the project amounts to defamation because it contains factual inaccuracies. Abbott’s supporters say he is the target of a malicious lawsuit aimed at shutting him up. They are raising money for his legal defense, which may include a countersuit.
(Christopher Cherrington | The Salt Lake Tribune)
Company officials allege Abbott has led a “misguided” effort to turn the public against the project, which is to be vetted according to the National Environmental Policy Act, or NEPA.
“That is the process for dealing with this. There are some that don’t want to let that process go forward. They want to stop this now,” LRS’s operations chief Jon Benson told the Utah Lake Commission earlier this month. “If they want to stop it, let’s do it through the process, but give us a chance to share publicly our data. Give us a chance to show our side of the story in the most public forum possible.”
Benson went on to provide new information about the project, which he said is to unfold over 15 years in five phases. The first phase, to be dredged as early as next year, would form a chain of islands framing a new bay off Vineyard.
The company recently scaled the project down to 18,000 acres of islands, according to Benson. The new plan no longer includes dredging and island-building in Provo Bay to avoid interfering with the costly restoration of the Provo River Delta now underway, he told the commission.
The prospectus gives additional details that paint an optimistic view of the new land’s value. Commitments have already been secured on 2,466 acres to the tune of $1 billion, it claims. The northernmost island would span 119 acres and provide 60 lots ranging in size from a half-acre to 7 acres. The document predicts the land sales, which would begin in May 2025, would fetch on average $480,000 an acre.
The prospectus claims the Vineyard phase is not dependent on whether the rest of the project, described as “one of the largest master-planned communities ever undertaken in the U.S.,” moves forward.
“Having some beautifully master-planned communities that are done environmentally responsibly, sustainable communities, that’s a benefit,” Benson told the Utah Lake Commission. “This county needs additional housing. We need affordable housing. We have a shortage of land that’s available for developers. We’re not developers. Our role is … to bring resources to the table and developers that can build within the standards that will be required environmentally.”