UTOPIA unwilling to fix its problems

Last summer, the Pacific Research Institute documented that municipal telecom projects had already squandered $840 million in taxpayer money. Unfortunately, Utah's largest muni-telecom project, the Utah Telecommunications Open Infrastructure Agency, or UTOPIA, failed to take a lesson and is now poised to increase that number by more than $500 million itself. UTOPIA's abysmal track record should warn member cities not to approve the new pledge agreement. The board of directors and management have done nothing to warrant entrusting them with even more taxpayer-backed bonds.

UTOPIA began constructing its network in 2004. Promising a "future-proof" fiber-optic network offering super high-speed Internet, the UTOPIA propagandists promised city council members "ubiquitous" coverage. In return, the city councils agreed to collectively guarantee hundreds of millions of dollars in UTOPIA bonds with sales-tax revenues normally used for essential services like police and fire protection (a clearer example of Marx's infamous dictum, "From each according to his ability, to each according to his need," couldn't be found).

Four years later, the "Field of Dreams" is crumbling. To avoid defaulting on its bond payments and having to call on the sales-tax pledges, UTOPIA has asked its member cities for the ability to refinance its debt. Extending their current 20-year bonds to 33 years, the cities would have to increase their sales-tax pledges by 150 percent. Just as galling, the new scheme reneges on UTOPIA's promise of "ubiquitous" build-out: Now they'll only build in neighborhoods where 40 percent of customers commit to purchase the service.

From the perspective of these city councils, it's easy to imagine that they'd do a municipal telecom project better than the private sector. After all, the capital markets let them repay this debt over first 20, and now 33 years. And the capital markets let them put four years of payments on their credit card. If the private sector is so good at this, why do the capital markets require them to repay their debt in just five years?'

The problem with that analysis is that capital markets don't care whether a city can run a telecom system. To repay its debts, UTOPIA and other municipal providers can simply increase taxes. For private providers to repay their debts, they have to actually succeed and make enough money to cover their debt service, interest payments and operating costs.

In evaluating this massive 150 percent increase, UTOPIA member cities must ask whether UTOPIA understands the competitive risks well enough to avoid the problems that brought them to this point. The management discussion of its board-approved financial audits gives a clear answer: They don't.