Utopia to tell its member cities: Get ready to pay

Despite promises by its early promoters that it would never happen, the Utopia fiber-optic communications system is preparing to call upon its 11 member cities to pony up millions in taxpayer funds to help pay the network's debts.

Todd Marriott, Utopia's chief executive, said the network likely will need its member cities to begin contributing so the system can make its bond payments by late this year or early next.

"All the cities know it is coming," Marriott said. "We hired the best financial minds that money could buy, but unfortunately, things didn't turn out the way the experts thought they would."

The Utah Telecommunication Open Infrastructure Agency, or Utopia, was set up in 2002 to run a wholesale network that would lease capacity to any service provider who wanted to use the system's fiber-optic lines to serve customers.

In all, 11 communities -- Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton and West Valley -- bought into the Utopia sales pitch that the system would bring in millions in new business development and generate a healthy profit.

To help it succeed, cities pledged a combined $202 million in sales tax revenue over 20 years so the bonds needed to be sold to finance construction would carry lower interest instead of a junk-bond rating reflecting the riskiness of the project.

But by mid-2008, low customer counts and financial missteps had drained Utopia's bank

accounts to the point it was teetering on insolvency. The network's new operators convinced 10 of the 11 cities to approve a major refinancing. Only Payson declined to participate.

Under that restructuring, the 10 communities agreed to increase their pledges of sales tax revenue to $500 million over 32 years, or essentially doubling down on their earlier wager that Utopia would succeed without the cities ever having to make good on their pledges.

It isn't going to happen.

Marriott said it will be necessary to begin calling on the cities for their pledge money because the credit and bond markets moved against Utopia and drained away the funds it had set aside from the refinancing to make the payments on its bonds through June 2010.

"We were being forced to pay as much as $300,000 more a month than we had planned," he said.

But Marriott, who took over Utopia last year shortly after the refinancing was approved, said the network will continue to push forward with its development plans and soon will reach the point where the system is breaking even "possibly as early as next year."

But long-time Utopia critic Royce Van Tassell of the Utah Taxpayers Association said it was inevitable that the cities would be called upon to make good on their pledges, despite promises to the contrary.

"The credit markets right off the bat recognized how risky this project was" by demanding Utopia's bonds carry a junk-bond interest rate, he said.

And he predicts the participating municipalities will have to raise property taxes to replace city sales tax revenue that soon will begin flowing to Utopia to pay for the network's debt.

"They just can't turn on a spigot somewhere and start replacing those sales-tax revenues," he said. "And if I was a taxpayer I'd be outraged they are sending money to Utopia that could be used for police, fire and other city services."

Murray Mayor Dan Snarr, an avid Utopia supporter, argues that no matter what the cities have to pay, it will be worth it in the long run. "I firmly believe that this is a valuable service that will allow us as a city to operate more efficiently. We'll definitely be able to save more money with it than without it."