Rising Debt of Utah’s Fiber Project Causes Controversy

Utah’s Office of the Legislative Auditor General performed the audit released in early August(http://xrl.us/bnjvy2), which identifies poor planning, poor spending and revenue far short of projections. “At the end of fiscal year 2011, UTOPIA had total net assets of negative $120 million” and each of the member cities may have to pay nearly $13 million in FY 2013 due to pledged bond security, the report said. The audit recommends stronger oversight, accountability, financial controls and better planning. UTOPIA invested $117 million in unused or underused infrastructure, the audit said. A UTOPIA spokesman said there were assets in the ground worth $112.9 million as of mid-2011. The audit’s information is “old news,” Marriott said.

"These types of problems permeate the municipal telecom sector,” Vice President Royce Van Tassell of the Utah Taxpayers Association told us. He’s cited various government-run networks around the country, saying “the trajectories are all the same,” with the exception of Chattanooga, Tenn. Municipal projects often include city leaders and officials with “no expertise,” which contributes to mismanagement, he said. “They're in over their heads when they get into telecommunications.” UTOPIA has been “in a similar situation a number of times” and required re-bonding to stay afloat, he said. Leading officials “present a platform of hope” to their member cities each time, but the cities have “grown much more jaded” about the project, he said. Mayor Dennis Fife of UTOPIA member Brigham City told us he agrees. But Mayor Jim Evans of member city Orem is still “optimistic” and sees fiber as “worth the investment,” he told us. “I've talked to people who say they intentionally bought their homes in areas where they could get UTOPIA."

Marriott questions the Utah Taxpayers Association’s motives and other influence. It’s “nothing more than a lobbyist organization” and the audit reveals “lobbyist dollars at work” in what amounts to “the biggest conflict of interest ever,” he said. He contends CenturyLink and Comcast represent strong opposition that take advantage of Utah’s “red state” culture of Republicans dominating state politics. His opponents “see this [UTOPIA] effort as not being the government’s role,” he said. The association has “manipulated data, knowing it was wrong, and published anyway” and try to “muddy the water,” he said. It was “online with the auditors consistently,” he said.

The taxpayers association denies the influence, Van Tassell said. “We do not take our cues” from membership, he said, members Comcast and CenturyLink included. UTOPIA has “never tried to substantiate those claims” about dishonesty, he added. He confirmed the association contacted auditors but doubted it had more influence than anyone else. The auditors “let the facts speak,” he said. Utah State Auditor John Schaff denied bias and directly speaking with the association. Marriott is “not at all accurate,” Schaff said. “My reputation is built on telling the truth.” This audit was “a very difficult process,” he said.

"The taxpayers association gets ripped by a lot of people now,” said Mayor Dan Snarr of member city Murray. “They're bogus -- and people still buy into it.” He remains optimistic about UTOPIA, sees the value in fiber and sees corporate influence of CenturyLink and to a lesser extent Comcast in the association’s opposition, he told us. A Comcast spokeswoman said “there is no truth to these allegations.” CenturyLink declined to comment.

Responding to the audit, UTOPIA identified opportunities to improve but also deflected criticism and underscored service demand. The audit “emphasizes past mistakes,” the organization said (http://xrl.us/bnjw5f). Van Tassell attributed much of past mismanagement to former executives there, who left in a 2008 leadership change, and contracting companies that have since been removed from the project. But Van Tassell said the audit cites “failure by the current management team.” The audit said “many of the agency’s past practices have not changed."

The fiber project has created “impossible strain on the local municipalities” and is a “boondoggle,” the Deseret News editorial board said Aug. 3 (http://xrl.us/bnjw3o). The board contrasted projections of five-year profitability and 49,000 subscribers by 2007 and the reality of a “paltry 9,300 subscribers” in April and no profit. The board recommended Utah sell its assets to private companies and judged UTOPIA “squandered” bond money, 40 percent going to operating deficits and debt service.

The damning editorial inspired defenders, some acknowledging struggles and high costs. UTOPIA “made some stumbles out of the gate,” wrote UTOPIA Board Chairman Kane Loader in a Salt Lake Tribune op-ed (http://xrl.us/bnjvu2). “That’s part of trying to do something pioneering.” He acknowledges UTOPIA has taken “plenty of hits” but insists “UTOPIA has built the most advanced telecommunications network in Utah.” The fiber network is “not broken” and is, in fact, “future-proof,” Loader wrote. The critical editorial was “kneejerk,” wrote Alex Jensen, Layton city manager and Utah Infrastructure Agency first vice chairman, in a Deseret op-ed Wednesday (http://xrl.us/bnjvw2). Selling is a bad idea due to the assets’ debt and the possibility a buyer would switch to a “closed, proprietary” model, he wrote. “Success is assured,” UTOPIA said following the audit (http://xrl.us/bnjw7d), “as continued network expansion meets demand and connects more subscribers.” Marriott also expressed optimism about UTOPIA’s potential success over the next decade.

Van Tassell said he wonders whether it should even be legal for government entities to repay bond debt with more re-bonding money. He points to an audit chart that shows 26 percent of the $185 million UTOPIA raised in debt financing goes to pay its debt obligations. “There are hundreds of millions of dollars that are spent and gone,” he said. Of the $120 million negative net worth, he said: “That’s a hole that they're not able to dig out of.” Selling off the assets to a private company “sounds painful,” but would be better for taxpayers than the alternative, he said. The association is still reviewing the audit and expects additional “written responses,” he said, as Utah’s different legislative committees review UTOPIA in months to come.