The City Council voted 5-1 on Tuesday night to tweak the proposed 2007-08 budget and steer up to $1.2 million in surplus sales-tax revenue to iProvo.

Mayor Lewis Billings had called for giving iProvo an interdepartmental loan for a third straight year to prop up the fiber-optic system, which provides network space for Internet, television and telephone service.

The council's change would not take effect until it approves the budget June 19. The change would allow iProvo to meet its annual $3.2 million debt payment without slumping further into the red. The network received a $39.5 million bond at startup and has since incurred two loans from Provo's energy fund, totaling an additional $3.08 million.

Council Chairman George Stewart encouraged his colleagues to plug this year's shortfall with the sales-tax surplus to avoid amassing more debt.

"It would be fiscally irresponsible to burden iProvo with more debt," Stewart said. "If past economic cycles are repeated, the city might not have the favorable economic conditions we have today, which could result in cutting city services to fund iProvo debt."

Projections from 2003 predicted iProvo would break even when it reached 10,000 customers, meaning it would generate enough revenue to pay its yearly debt payment on its own. But the network is approaching 9,830 customers and still struggles to cover its bills, which will jump by $600,000 in three years when it begins to pay back loans from the city's energy fund. Stewart noted a third loan would tack on another $230,000 to that.

Besides, the latest estimates show iProvo needs about 18,000 customers before it breaks even.

Billings warned it would be dangerous for the council to pluck from the city's general fund because it varies from year to year. He also chided Stewart, a former mayor, for making iProvo funding political. He said the council chairman misconstrued interdepartmental transfers by equating them to bank loans.

Billings said iProvo should pay for itself because city subsidies would undermine the project and invite lawsuits from private entities.

"I've been told there's a very strong likelihood that we'll see litigation against the city," Billings said. "I would like to set the politics aside and do what's best for the city."

Stewart countered that legal counsel OK'd tapping sales-tax revenue to pay back the bond.

Councilman Steve Turley sided with Billings, saying iProvo "needs to carry its own debt."

"It's a little premature," Turley said, "to change the course on the funding mechanism without a plan in mind."

At a public hearing before Tuesday's vote, resident David Griffith complained about technical glitches with iProvo. He warned customers would bolt if those weren't fixed.

"In the marketplace, it doesn't matter what promises are made. It doesn't matter what the potential is," Griffith said. "If a customer doesn't get what he thinks he paid for, he's going to go somewhere else. That's what we're seeing with iProvo."

sgehrke@sltrib.com