Executives of the UTOPIA fiber-optic network were met with blistering criticism by Utah lawmakers Wednesday, some wondering if the high-speed broadband network ought to just cut its losses and pull the plug.
Members of the Revenue and Taxation Interim Committee were presented with the results of a scathing legislative audit into UTOPIA’s operations and finances that asserted the broadband company is failing because of poor management and wasteful spending.
After the presentation, Rep. Jim Nielsen, R-Bountiful, said he didn’t think the audit’s criticisms went far enough.
“It feels like the direness of the situation is very much understated,” he said. “I would have hoped for a more bold recommendation that says, ‘We should shut it down. We should find a way to get out of this.’ ”
The Utah Telecommunication Open Infrastructure Agency is a consortium of 11 Utah cities from Brigham City to Payson that has fallen into debt building a high-speed fiber-optic network.
The cities have pledged about $500 million over 32 years to back the bonds that UTOPIA sold to finance network development, but the network has been plagued with continuing losses and over-optimistic projections. It has yet to earn a profit.
Lawmakers acknowledge there is not much they can do directly about UTOPIA’s financial issues because they involve the cities.
But to prevent a future drain on taxpayers, Sen. John Valentine, R-Orem, said he is working on legislation that would prevent county or city governments from borrowing money to pay for more than 90 days of operating expenses or to cover the interest payments on UTOPIA’s debts, something the network has asked its member cities to do to provide financing.
In an op-ed written by Valentine Sunday for newspapers in Ogden and Provo, and posted this week on the state Senate blog, he accused UTOPIA executives of not being truthful with taxpayers about how much UTOPIA is really costing the cities.
“It’s clear that the longer they operate, the deeper they dig the financial hole. Taxpayers should not have to backstop this financial failure any further . . . nor should they stomach UTOPIA’s lack of transparency,” wrote Valentine, who was at Wednesday’s committee meeting.
UTOPIA officials argue that the network should be viewed as a public utility, such as that for electricity and water, that will be necessary for the cities as technology requires faster Internet connections.
Executives also believe UTOPIA can help bring new business to those cities, especially high-tech and medical companies that can use the faster bandwidth.
A Legislative Auditor General’s report released the end of July showed that the network has been continually losing money since it began in 2002.
In fiscal 2011, the network lost $18.8 million, and has a negative net worth of more than $120 million, which means that if all of UTOPIA’s assets were sold it would still owe that amount to its creditors.
The report stated that UTOPIA had been mismanaged, the network’s construction was poorly planned, and that the company formed partnerships with failing providers that ended up costing UTOPIA more money. It also noted that the rate at which the network has been signing up subscribers has been far below its projections.
For their part, the 11 cities continue to make payments on more than $500 million in bonds that were sold to finance the development of the network.
“The city’s have the obligation, and it’s not going away,” audit supervisor James Behunin told lawmakers.
Rep. David G. Butterfield, R-Logan, called the details in the audit “horrendous” and “horrifying” and wonders if a viable option for UTOPIA is to liquidate its assets and get out of the broadband business.
“With this mess and seeing no real change . . . then I think we’re left wondering at what point do these cities come to the state and ask for a bailout?”
Layton City Manager Alex R. Jensen, who serves on UTOPIA’s board of directors, admits “we have made mistakes” but insists the cities are committed to moving forward.
Since 2008, UTOPIA has changed management, dropped the general contractor that was building the network and has developed a five-year plan it says will have UTOPIA breaking even in 2016.
“We have the courage of our convictions,” he said. “We’re hopeful.”
Sen. Curtis Bramble, R-Provo, said one positive that came out of Wednesday’s meeting was the suggestion that lawmakers form a working group with UTOPIA executives, other entrepreneurs and officials to see if there are solutions to UTOPIA’s financial troubles.
“I would want to see that dialogue before we go forward with any possible legislation,” Bramble said. “There are people who can draw on their experience, and they can put their heads together to come up with something that might work.”
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