Queen Creek spent nearly $37 million to buy Queen Creek Water Co. but now taxpayers are on the hook for millions more to fulfill developer agreements the private company used to expand the system.

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The company entered into "mainline extension agreements," which allowed developers to come to town, put in water infrastructure needed for their projects and recover a small fraction of their costs, said Paul Gardner, Queen Creek water director.

"At the end of the day, because of where the rate structures are, the developer gets back 25 to 40 percent of what they put in," Gardner said.

The agreements generally last 10 years, with the developer being paid from a percentage of water proceeds coming from their project.

There are 130 agreementsin place right now, Gardner said.

"We are required to pay the developers back what the company owes them," said Assistant Town Manager Patrick Flynn. "It was a good deal for the company when they did this - they got millions in infrastructure and what they pay back is ultimately less than that."

Councilman-elect Jeff Brown said learning taxpayers could be liable for more than the water company purchase price is "shocking."

"It's almost a bait-and-switch situation," Brown said. "You're quoted one thing on the showroom floor and then in the finance office it's a different situation."

Brown said Town Councils make decisions based on cost and he is concerned if the council did not have all of the information or if it was glossed over. The situation could lead to public mistrust, he added.

Mayor Art Sanders said the information is not surprising and was discussed during the water company purchase.

"All of those discussions were there," Sanders said. "There's nothing sneaky about any of this. The water company was wise to do this because when the developer leaves, the water company owns the infrastructure."

When the town purchased the company at the end of March, the town negotiated so that two years of the developer payments come from the company - about $850,000. That should cover the financial obligation through fiscal year 2009-10, Flynn said.

Town officials anticipate paying out about $400,000 a year for the eight remaining years, but that amount could be more should development begin to increase again.

Gardner said the town could potentially have to pay back between $13 million and $14 million to developers, but with a development downturn, the town might only have to pay between $2 million and $3 million.

Some of the agreements expire each year and the town will never enter into another one, Gardner said.

"By the time the town gets out to 2012 there probably will be only about half of those agreements left," he said.

Gardner said covering the agreements was an important part of getting Arizona Corporation Commission approval of the sale of the company to the town.

"This transaction would have been harder to complete if we hadn't taken care of it this way," he said.

But with the water company in public hands, now town officials can decide to pay the agreements until they expire, or they could negotiate with developers to pay off sooner.

"The town could negotiate to pay off the obligation at a lower cost to the town and the developer may want it just to close it out," Gardner said.

Queen Creek took out a $40 million loan from the Water Infrastructure and Finance Authority of Arizona at 4 percent interest - the extra money beyond the purchase price is for system repair and maintenance.