Salt Lake City would shoulder a lot less financial risk but share a lot less profit under a new, 11th-hour deal to induce the city to stick with UTOPIA.
Wexford Capital, LLC, a private Connecticut-based venture capital firm that already has ties to the proposed Utah Telecommunications Open Infrastructure Agency, is offering to cut the city's potential initial costs for the publicly owned fiber optic network.
While final details of Wexford's deal are still being hammered out, the company's verbal offer to cover 75 percent of the city's costs the first 10 years would come in exchange for 75 percent of the city's UTOPIA profits for 25 years. That plan would slash the city's potential costs to $7.7 million from $28.7 million in the first decade of UTOPIA's operation.
A week ago, the company first offered a slightly different written deal, saying it would cover half the city's costs for 10 years in exchange for half of the city's profits for 15 to 25 years.
Proponents say the offer shows that the private sector realizes UTOPIA will make money.
"This is an exciting opportunity for Salt Lake City," said UTOPIA director Paul Morris. "The fact that they would back a significant portion of the tax pledge shows their belief in the network."
The firm already an investor in Dynamic City, which has been chosen to build and operate UTOPIA says the project is a good business model and will generate big cash returns.
"We're investing without the benefit of any guarantees," said Wexford Capital principal and general counsel Arthur Amron from his office in Greenwich, "but we think the (UTOPIA) project is innovative and exciting."
City Council Chairwoman Jill Remington Love said Wexford's offer to take away taxpayers' risk is intriguing. "But if there is an investor that will take away that risk, is it because (UTOPIA) is such a good deal that maybe we shouldn't pass up getting that revenue?"
Still, Love concedes that even with the new deal, UTOPIA is probably dead in Salt Lake City. She said she expects when the council decides Tuesday if Salt Lake is in or out, at least three members will vote against UTOPIA.
"There are three pretty solid no's," she said.
Those three no votes would effectively kill the network in Salt Lake City.
Councilman Dale Lambert has recused himself from the vote because as an attorney, he has represented telecommunications clients that could stand to benefit from the UTOPIA decision.
His recusal leaves only six voting council members. A three-three tie would mean Salt Lake City is out.
Councilmen Dave Buhler and Eric Jergensen are two of those three no votes, and some council members say Van Turner is the third. Turner, for the record, noted: "I need to be swayed a little bit more if I'm going to vote yes."
Turner said the Wexford deal is not an option for him.
"My take is that's too late to worry about it and too late to check into it at this stage," he said. "A city our size doesn't need a private individual to back our backstop."
Buhler and Jergensen say they will vote no on UTOPIA despite the Wexford proposal because the city will still be on the hook to spend some taxpayer monies if UTOPIA doesn't meet expectations.
The latest Wexford deal, according to documents obtained from Salt Lake City, would still require the city to pay the first $1.1 million of any UTOPIA losses, with Wexford picking up the rest of the city's financial commitment during UTOPIA's first 10 years. That financial commitment is a pledge of sales tax revenue of up to $4.1 million yearly for 17 years to pay for UTOPIA's construction costs. That money would only be spent if subscription rates on to the network were less than UTOPIA's estimates. If subscriptions rates met expectations, the city would keep its money and also turn profits that could reach millions annually.
Even Councilman Carlton Christensen, the only council member to say publicly that he will vote in favor of backing UTOPIA, says the Wexford deal would be his "last resort."
Christensen, Buhler and Love agree if the city were to accept an offer from a venture capital firm it should get the best deal possible. Instead of taking Wexford's deal, the city should put out a public request for bid; that way the city might find another firm with an even sweeter offer.
But with less than a week until a state-imposed deadline for Salt Lake City to vote on whether it will financially commit to UTOPIA, time for such a bid process is short.
Christensen, however, said the council could vote to financially back UTOPIA at its Tuesday meeting only on the condition that a private financial backer is involved. Then the city could conduct a two- or three-month bid process to find the best deal.
According to Wexford's Web site, the venture capital firm was formed in 1994 and has invested over $1.5 billion in private investments and has realized over $1.9 billion in proceeds. The company has been known to invest primarily in transportation, technology and natural resource industries.
Morris said he believes Wexford's offer flies in the face of UTOPIA opponents, such as the Utah Taxpayers Association, which said the project was too risky for even private investment.
Amron said his company has done its homework, adding Wexford feels UTOPIA could be the example to other U.S. metropolitan areas.
Council members and city staffers also say this isn't the first potential UTOPIA deal the city has received. One other venture capital firm with a similar but less defined proposal has offered a deal. And council staffers have pondered getting a private insurance company to back Salt Lake City's potential costs, leaving the city to only pay the insurance premium. Those plans, however, have fallen through.
Wexford's is only offering its deal to Salt Lake City, which would see the largest revenues if UTOPIA succeeds. Still, at least one other member city in UTOPIA isn't jealous.Comment on this story
"We have never been approached by a venture capital company," said West Valley Mayor Dennis Nordfelt. When asked if he has any resentment over his city not being offered a similar deal, Nordfelt said he and the West Valley City Council were confident enough in UTOPIA from the beginning that they saw no need for private backing.For fear of upseting the 11 other UTOPIA cities who voted to pledge tax money, Morris said he wanted to make it very clear that it was Wexford who approached UTOPIA with an offer, specific to Salt Lake City. Morris said Wexford does not stand to see a dime of profit if UTOPIA does not succeed.