UTOPIA cities may have to pay this year

WEST VALLEY CITY — The UTOPIA fiber-optic network has suffered another major financial setback and could call on 10 of its 11 municipal partners to pay on sales-tax pledges within a year.

The Utah Telecommunications Open Infrastructure Agency refinanced all of its debt in 2008 to gain about $10 million, which was expected to pay for build-out of the system in targeted areas.

Almost exactly one year later, four of those target areas are being serviced — successfully — according to UTOPIA chief executive Todd Marriott, who was hired at the same time the refinance was going on. But complications in the national credit-swap market mean that member cities will likely have to pay before June 2010.

It happened because UTOPIA was forced to refinance using a 30-year, variable-rate bond, which it then tried to stabilize by contracting with a bank for credit swaps, with the net result being "a wash" for the fiber-optic company's finances, according to UTOPIA finance director Kirt Sudweeks. When Lehman Brothers declared bankruptcy and the credit markets went haywire last autumn, that deal fell apart, leaving UTOPIA with monthly interest payments between $50,000 and $300,000 higher than planned.

The cities were required to put away money just in case the refinance did not work out, but many local elected officials hoped the network would reach profitability quickly enough that their sales-tax pledges would never be called upon.

Marriott broke the news to the West Valley City Council during a tour of his offices Tuesday afternoon. The admission drew the ire of city Councilwoman Carolynn Burt, who complained that although West Valley City owes the biggest pledge, only about one-third of city residents and businesses can access UTOPIA fiber.

"That is a problem for me," Burt said.

Marriott explained that UTOPIA has been forced to operate in a very targeted way. Money can only be spent to complete fiber-optic rings in areas with both sufficient customer support and sufficient underlying infrastructure, he said.

The entire UTOPIA network, including the western two-thirds of West Valley City, could be finished in one to seven years, Marriott said.

The CEO also recommended that the West Valley City Council ignore "armchair critic" comments by the likes of the Utah Taxpayers Association, which recently published a newsletter article saying UTOPIA promised its cities the tax pledges would never be called upon.

Murray Mayor Dan Snarr explained his take on the situation in a monthly message to residents.