Following the release of the state Legislature's audit on the Utah Telecommunication Open Infrastructure Agency, House Speaker Becky Lockhart made a strong statement on the viability of the costly multi-city owned fiber-optic network.
"I am personally glad I don't live in a UTOPIA member city," Lockhart said.
The Provo Republican noted that she already has seen the bleak results of a city attempting to run its own fiber-optic network with iProvo and stated that she is concerned about the consequences for residents of the UTOPIA member cities.
"What is the impact to the taxpayers of the cities if this doesn't work?" Lockhart asked.
UTOPIA officials were a little murky on that during a meeting with state lawmakers on Wednesday at the state Capitol. The audit was made public at about the same time.
"The only way out of this is to work our way out of it," said Kane Loader, Midvale city manager and chairman of UTOPIA's board of directors.
UTOPIA executive director Todd Marriott said he believed that UTOPIA could be close to breaking even now, were the agency not trying to expand at such a rapid pace. He noted that he feels the future is bright for UTOPIA even if the audit isn't as glowing about its past.
Five Utah County cities are members of UTOPIA; Orem is the largest of those and second largest in the whole group, but the network is only available in parts of the city. West Valley City is the largest city in the group.
The audit was an 18-month project that came at the request of Rep. Brad Daw, R-Orem. It took a considerable amount of time because the audit team found documenting much of UTOPIA's operating activities difficult. Auditors noted in their report that staff was required to rely heavily on information gathered during interviews with principal staff, board members and consultants as opposed to reporting documents that contained information such as number of subscriptions.
The audit states that UTOPIA has faced multiple management problems since its inception in 2002, which have led to the questionable state in which the multi-city owned business now sits. The audit stated that failure to meet the ambitious goals set by the original management team, bond proceeds not being put to productive use, poor planning, unreliable business partners and a lack of sufficient subscribers all have led to the company having a book value of negative $120 million.
"UTOPIA has had nine consecutive years of operating losses. These annual deficits have caused serious damage to the agency's financial position," the audit states.
The audit states that most of the proceeds of the $185 million in bonds taken out to pay for the cost of building the fiber-optic network was invested in poorly utilized and partially completed sections of the network. Only 59 percent was used to cover infrastructure costs; 15 percent went to operation costs while 26 percent went toward debt service.
The audit also states that UTOPIA staff and board members describe their problems as arising from poor construction planning and mismanagement. Staffers told the auditor that it was a mistake for UTOPIA to build sections of the network in many different cities at once and that practices like not charging residents an installation fee show the mismanagement of the agency. The report notes that it is unclear if management ever had a prepared development plan with the initial contractor when it began construction of the network.
"We would find it alarming if a government entity attempted such a highly complex and expensive construction project without drafting a formal written plan approved by a governing board," according to the audit. "Costly management mistakes have also contributed to UTOPIA's financial problems. Interviews with UTOPIA board members, staff and consultants uncovered a number of poor decisions and weak business practices."
The audit also found that management's decision to purchase $3.3 million worth of set-top boxes to be used to display the network's video content on subscribers' televisions was a poor use of funds. Due to slow construction of the network only 32 percent of the set-top boxes were used, and with the creation of the DVR the boxes quickly became obsolete. UTOPIA eventually sold some of the boxes for $274,000 total.
In 2008 UTOPIA put in a new management team to address many of the issues that are now being unveiled by the Legislature's audit. The audit gave UTOPIA four recommendations to improve its practices. They include adopting better management controls, using better financial practices, complying with the Utah Open and Public Meetings Act and strengthening board oversight of the agency's operations.
UTOPIA officials noted that many of the issues identified in the audit are being addressed now by the current management. Loader stated that the current management team is expecting success in the coming years, not the predicted failure that Lockhart perceives may be coming for the network.
"Many people refer to me as the captain of the Titanic, I don't think I am the captain of the Titanic," Loader said. "I think I'm the captain of the Starship Enterprise. I am boldly going where others have not gone before."
Despite Loader's and Marriott's optimism that the agency will become successful, UTOPIA lost $18 million during fiscal year 2011, the third year that the management team has been in place. Billy Hesterman. Herald Extra.com
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