Wednesday, December 19, 2012

Food tax hike could pass the Senate, new leader says. Robert Gehrke. The Salt Lake Tribune

Politics » Uncertainty over fiscal cliff could complicate plan to increase sales tax on groceries.
A proposal to more than double the state sales tax on food would likely be able to pass the Senate, according to the body’s incoming president, Wayne Neiderhauser.
But the sponsor, Sen. John Valentine, R-Orem, said he isn’t pushing ahead with his proposal, at least until he sees what happens in Congress with the so-called fiscal cliff, which could create havoc with Utah’s budget outlook.
Valentine’s proposal would raise the state’s sales tax on food from 1.75 percent to 4.75 percent, reversing a cut enacted several years ago. Low-income Utahns could qualify for a refundable income tax break or direct payment that Valentine says would more than offset the increased tax burden.
Many low-income advocates oppose such a change, saying it would shift more burden to the needy.
His proposal, which would lower the overall sales tax rate slightly on all retail purchases, would not bring any new tax dollars into the state budget, but future revenues would be less prone to fluctuation because of the change.
Valentine said there was support for the concept, but concern that making the change when the economy is still recovering and there is uncertainty involving the impacts of the fiscal cliff — which would impose major federal tax hikes and spending cuts — and implementing the Affordable Care Act, also known as Obamacare.
"It seemed like the uncertainty was causing concern about trying to implement something like this at this time," he said.
Neiderhauser said he thought the bill could pass the Senate. It’s fate in the House would be uncertain.
Republican senators, who met in their all-day caucus Wednesday, also decided to support Gov. Gary Herbert in his effort to persuade the U.S. Department of Health to allow Utah’s existing health insurance exchange to meet the requirements under Obamacare. If it does not, then Utah would let the federal government run the exchange.
There was also general opposition to expanding Medicaid coverage under Obamacare. Neiderhauser said there were concerns about how much it would cost the state and how the program would increase the federal deficit.

Audit shows concerns on UTOPIA, insurance, general funds. Genelle Pugmire - Daily Herald

OREM -- A statement in an audit cover letter composed by city manager Bruce Chesnut sums up the city's financial health: the city is "in relatively sound condition" -- for the condition it's in. Which isn't exactly pretty.
While auditors do not provide an opinion, administrative services director Richard Manning noted that the general fund balance has been declining in the past three years despite sales tax increases.
"This is an area of concern," Manning noted. He also noted the self-insurance fund has only $424,000, significantly lower than it has been. "One significant accident or lawsuit to the city and it could be gone."
The worker's compensation deductible also is going up $200,000, a premium increase of 10 percent. That amount was approved by the council for transfer to the self-insurance fund to compensate for the increase.
Chesnut's cover letter warns elected officials and residents of deteriorating and ongoing concerns with funding and infrastructure maintenance.
"Revenues related to the building industry continue to be inconsistent as the current fiscal year decreased substantially from the prior fiscal year," Chesnut reports. "Revenue growth, if any, in this area will be very slow over the next few years."
He notes that the street lighting fund also continues to struggle without dedicated operational funding.
"The city's biggest challenge is finding a long-term solution to pay for the city's UTOPIA pledge obligation," Chesnut said.
While Orem's infrastructure is stable, the auditors reported that it continues to deteriorate as needed improvements or maintenance continue to get pushed into the future.
Among a long list of projects that need capital funding are the construction of a new fire station in the northern part of the city. That request has been put on hold since the 2009 budget approval. There is also great need for cemetery expansion. Water and sewer improvements in the southern part of the city are also desperately needed.
Over the past several months the accounting firm of Keddington & Christensen, LLC has been reviewing Orem's financial records and the auditor's opinion with no qualifications is a "clean" opinion for the city. But even a clean audit report won't fix the numbers. With the city in nearly a complete freeze until residents vote next November on a city property tax increase, the city coffers, infrastructure, and revenue growth will stay stagnant or continue deteriorating, leaving the city in greater financial stress.  Herald

Tuesday, December 11, 2012

Highland taxpayers on the hook for interest accrued from missed bond payment. Cimaron Neugebauer. The Salt Lake Tribune

Government » Council member questions how previous audits and financial managers missed the bond payment.
Some Highland taxpayers are questioning how a bond payment for a pressurized irrigation system slipped through the cracks for more than a decade, resulting in $277,000 in interest payments from 1996 to 2012 that residents now must pay.
In 1996, Highland residents approved $1.4 million for a bond from the state for pressurized irrigation in the city. Highland paid the majority of the principal bonds off in 2000 with the help of a grant, said City Manager John Park.
The initial bond stated the city didn’t need to start making payments until 2018, but a 3.6 percent interest rate would begin immediately. The remaining balance of $123,000 was apparently forgotten, while $277,000 in interest accrued from 1996 until this year.
At least one city council member is questioning how previous audits and financial managers missed the unpaid bond payments, leaving taxpayers to now foot a bill that could have been taken care of years ago.
“That is one of those things that [independent auditors] should have picked up and our own financial guy should have picked that up. That’s my opinion,” Councilman Tim Irwin said.
City officials have no explanation for why the interest accrued went unnoticed.
Accountant Greg Ogden was hired in 2006 to audit the city’s books. For the next five years, Ogden would identify in his audits that the city’s pressurized irrigation revenues were short of its expenses.
However, the audit never mentioned a summary of accruing compounding interest debt the city could pay off. The audit only noted a line item each year for an irrigation bond from 1996 with 3.6 percent interest that was due by 2018. The line item also cited the remaining balance of about $123,000.
It wasn’t until 2011 that an independent auditor picked up the discrepancy. When Ogden’s contract with the city expired, the city hired Jensen & Keddington P.C., an audit firm based in Salt Lake City. That firm’s audit in 2011 noted the irrigation bond payment was never paid off and stated to city officials that the bond was accruing interest.
“We found this bond and figured out not only was it accruing interest, but it was accruing interest on the interest,” Park said.
Once it came to the city’s attention, Park said he realized “it was just stupid” for the city to accrue interest on something it could have paid off a long time ago.

Friday, December 7, 2012

Mismanaged loan costs Highland taxpayers $500K. Caleb Warnock - Daily Herald

A mismanaged loan for $123,000 has cost Highland taxpayers nearly $500,000 in interest.
That money is a huge hit to the budget of this city, which is cash-strapped and struggling to pay for the basics.
Speaking to the Daily Herald, Highland officials were quick to point out that the mismanagement happened before their time; no one claimed responsibility. But yearly internal and external audits missed the loan, allowing it to accrue $50,000 in interest year after year after year.
Officials in a recent meeting revealed that the loan for the city's pressurized irrigation system was somehow forgotten for more than a decade, accruing interest all the while.
Lynn Ruff, Highland's finance director, told the Daily Herald that the original $1.4 million bond was issued in 1996, when he was a new part-time employee. The money was borrowed from the state and used to construct Highland's new pressurized irrigation system.
In 2000, the city won a grant from the Central Utah Project and part of the cash went to pay off this bond.
"We paid just under $1.3 million," he said.
But the bond contract stipulated that the entire bond could not be paid off early, so some portion had to be left outstanding for a time. Because of the lump-sum early payment, no other payment was due until a final balloon payment in 2018. Because there was no payment schedule, the loan was forgotten.
"I have no idea why it was set up this way," Ruff said.
Both city and private auditors missed the debt in yearly reviews of the city's finances.
Between 2000 and 2012, the city accrued a staggering $494,000 in interest on the $123,000 loan balance. That does not include the $217,000 the city paid from 1996 to 2000.
The city happened to find the loan in May and immediately began paying off the principal and interest in installments, as it could afford it. The entire bill has now been paid.
At least the city found it, said both Ruff and Mayor Lynn Ritchie. If the bond had been lost until maturity at 2018, roughly another $300,000 in interest would have accrued. The mayor went so far as to say that the snafu was actually a win for taxpayers because at least the city found it before 2018.
"It is a bond we paid off early and reduced our debt," the mayor told the Daily Herald in an interview. "Even the bonding company was unaware of it. When we discovered it and got to discussing it, we decided to pay that off."
How did this happen?
"We've researched it," the mayor said. "The auditors did not pick up on it in the audit. It was an unusual type of bond where you are not paying principal. It was not due on interest until it was at maturity. There were no payments visible."  Caleb Warnock Daily Herald

Monday, December 3, 2012

Spanish Fork steers clear of UTOPIA, builds own network. Cimaron Neugebauer. The Salt Lake Tribune.

Community • City goes its own way, succeeds as retailer where others struggle as wholesalers.
Kim Raff | The Salt Lake Tribune News anchor Natasha Lockhart reads the teleprompter during a taping of Spanish Fork News at the Spanish Fork Community Network in Spanish Fork, Utah on September 26, 2012. The city provides the residence of Spanish Fork with high speed fiber optic internet that competes with pricing that beats out CenturyLink and Comcast. They are the only city in the state that has it's own communications service
Spanish Fork •One Utah city seems to have achieved the community-based, high-speed communications network UTOPIA set out to create.
Spanish Fork runs its own municipal network to deliver telephone, cable TV and Internet services. The network has deep ties with the community and is popular with residents, nearly 80 percent of whom are customers.
“It’s exciting to live in community that invests in this kind of thing,” resident Bret Bills said.
Twelve years ago, Spanish Fork was limited to Internet access via dial-up modem. Elected leaders feared they would lose key businesses to neighboring cities where private providers offered high-speed connections.
“We knew that if you didn’t have Internet in your community, you were going to be a second-class town,’’ said John Bowcut, the city’s director of information systems.
Spanish Fork Community Network construction began in 2001, following city approval of a $7.5 million revenue bond to build the system. The bond was floated without a public vote, along with borrowing to build a substation for Spanish Fork’s well-established electrical utility.
Today, the city currently makes about $1 milliona year profit from the service and its bonds of $600,000 annually will be paid off in 2015.
Bowcut attributes the network’s success to effective marketing and “aggressive, competitive pricing.” Internet access ranges between $35 and $75 a month for homes for 12-55 Mbps and $55 to $85 for business — with substantial discounts for adding TV services. A $90 monthly fee bundles phone, internet and expanded TV package together. Installation is free for Internet services. There is no contract required and the first month is free.
So, why haven’t other Utah communities adopted the same model?
Spanish Fork’s foray into network services prompted state legislators in 2001 to pass the Municipal Cable TV and Public Telecommunications Services Act at the urging of private telecommunications companies seeking protections from what they saw as public-sector competition.
Spanish Fork was exempted but the law limited future municipal networks — including UTOPIA and iProvo — to operating as wholesalers. It also effectively barred cities from subsidizing network operations with taxpayer dollars or income from other city-run utilities.
The Spanish Fork network operates as a service retailer, meaning it deals directly with its customers, who buy TV, phone or Internet access along with other city utilities, such as electricity and water. All costs appear on one monthly bill.
“So far, the wholesale model has not proven successful.” Bowcut said. “I don’t envy the position of being millions of dollars in debt and having someone else do your customer service.”
Meanwhile, the high-bandwidth network has reached widely into daily life in the Utah County community.
The Spanish Fork network provides access for most the city’s churches and the Nebo School District. High school students produce a weekly community news show, all testing is now computer based and teachers routinely use wireless devices in the classroom.
The network has its own TV channel and production studios, creating hundreds of original programs a year on topics ranging from emergency preparedness to geocaching. The channel broadcasts a biweekly city news show and covers community sporting events, Rotary Club luncheons and city council meetings live.
Municipal buildings and facilities are all wired and government officials often use the network to reach out to residents. During a recent flooding emergency, Spanish Fork’s director of public works provided televised updates on road blockages and the city’s clean-up efforts.
The network has launched fiber-optic speeds of up to 55 megabits per second and is in the process of converting all its cable channels from analog to digital.
“I love Spanish Fork cable,’’ resident Marietta Pruitt said. ``They are doing a fabulous job.‘‘
Twitter: @CimCity

Cimaron Neugebauer. The Salt Lake Tribune

Utopia: World Class Broadband, sky-high debt. Tony Semerad. Salt Lake Tribune.

UTOPIA • Utah’s broadband network stands out among its peers for level of indebtedness.
Francisco Kjolseth/The Salt Lake Tribune State law requires UTOPIA to operate as a wholesaler, a limitation conceived at its inception when companies such as CenturyLink grew wary of plans by Spanish Fork and Provo to get into the cable television business and lobbied state lawmakers for protections. The law’s main sponsor, former House Speaker Greg Curtis, now says it was intended to apply only to cable TV services, not Internet access.
UTOPIA isn’t unique among broadband networks for its debt-burdened finances.
Both public and private fiber-optic networks commonly borrow heavily as they build infrastructure and develop a viable subscriber base, several industry observers said.
“When you build a network like this, it takes a minimum of several years of spending a lot of money before you start to get it back from your customers,’’ said Christopher Mitchell, an expert in municipal broadband-network financing with the Institute for Local Self-Reliance, a Minneapolis-based nonprofit think tank for sustainable community development.
But by any definition, Mitchell said, “UTOPIA is at the far end. Its debt far exceeds what it should.’’ And although he praised UTOPIA for what he said is world-quality broadband service at a competitive price, Mitchell said its model of “borrowing a lot of money to build an open-access network just does not work.’’
An informal survey by the Utah Taxpayers Association, an avid UTOPIA critic, found the Utah network had the single highest bond indebtedness of about 40 municipal grids the group studied.
As many as 834 companies, government agencies and other providers offer some combination of broadband data, video, voice or other services to U.S. residential and business customers, according to an industry database kept by Broadband Communities, a New York-based industry publisher and consultant to broadband users.
UTOPIA and iProvo are among at least 114 municipal fiber-optic networks across the country, the industry survey shows.
At least 24 providers offer broadband access of some kind in Utah, most of them telecommunications firms, ranging from CenturyLink, formerly Qwest, to an assortment of local phone exchanges such as Beehive Telephone and Manti Telecommunications.
Phone companies are by far the largest segment of the fiber-to-customer market nationally with about 625 U.S. broadband networks, run by the national carriers left over from the early 1980s breakup of AT&T and by smaller companies created since then.
Intense competition between municipal networks and private companies plays out on many fronts; battles are especially fierce in public relations, lobbying government for regulatory advantages and municipal rights of way for cable conduits alongside roads and on telephone poles.
State law requires UTOPIA to operate as a wholesaler, a limitation conceived at UTOPIA’s inception when telecommunications giants such as CenturyLink and Comcast, now called Xfinity, grew wary of plans by Spanish Fork and Provo to get into the cable television business and lobbied state lawmakers for protections.
“We shouldn’t have to compete with the government,’’ said Steve Proper, a lobbyist for Comcast in Utah and Arizona. Proper said the company sought to curtail how municipal networks operate “to maintain a level playing field.’’
The result was the Municipal Cable Television and Public Telecommunications Services Act.
The law’s main sponsor, former House Speaker Greg Curtis, R-Sandy, now says it was intended to apply only to cable TV services, not Internet access.
Spanish Fork launched its services before the bill passed and was exempted. But the wholesale rules require iProvo and UTOPIA to work through separate retailers to market and sell their bandwidth, as well as provide customer service and collect monthly bills.
At the time, UTOPIA did not object, claiming it was working under a new paradigm and wouldn’t be hampered by the rules. A decade later, however, Curtis is now a UTOPIA lobbyist and claims the legislation is unfairly restrictive for a municipal utility.
``It ought to be revisited,’’ he said, “and let the current officials decide.’’

Sunday, December 2, 2012

UTOPIA: Titanic or Starship Enterprise? Pamela Manson, Cathy McKitrick and Cimaron Neugebauer . The Salt Lake Tribune.

UTOPIA: Titanic or Starship Enterprise? Eleven cities are heavily invested in the high-speed fiber-optic network known as UTOPIA. In addition to the three cities — Orem, Brigham City and Centerville — highlighted more fully, eight others have a stake in the decade-old project. Here is the status of each:
Tremonton • UTOPIA fiber winds through 96 percent of this Box Elder County city, but only about 15 percent of residents who can access the network have connected. Though pledged to pay about $12 million in UTOPIA debts through 2040, the city has refused to join the Utah Infrastructure Agency, created by UTOPIA to borrow an additional $60 million to finish its network.
Perry • UTOPIA conduits wind beneath about two-thirds of the small city just south of Brigham City, “but there is no fiber inside it,” Perry Public Works Director Paul Nelson said. “They left us high and dry, except for the bill.” As a pledging UTOPIA member, Perry’s 4,500 residents are on the hook for just over $2 million of its debt, but the city’s grid remains unfinished and has no subscribers. Perry officials opted not to join the second round of financing.
Layton • Mayor Steve Curtis believes UTOPIA fiber-optic lines already are luring business to his Davis County city and benefiting residents. The grid is built out to a small portion of Layton, one of eight municipalities that have signed on for a second round of UTOPIA bonds. “A lot of legislators don’t understand UTOPIA and haven’t taken the time to know it,” Curtis said.
West Valley City • The largest of UTOPIA cities, West Valley City shoulders the biggest financial obligation but has one of the smallest network build-outs, at 16 percent. UTOPIA invested more than $1 million to install cable and conduit systems in one West Valley neighborhood that has 27 subscribers. Nonetheless, there are key UTOPIA supporters among the city’s elected leaders, including Mayor Mike Winder, and a majority of council members voted in 2010 to back UTOPIA’s new bonds.
Murray • This mid-sized city has fiber-optic conduit laid under almost two-thirds of its 12-square-mile span. Jim Brass, an eight-year Murray city councilman, is among city leaders with mixed feelings about UTOPIA, though the city is a part of the second round of network debt. “I recognize the fact that we’re going to pay this bill regardless,’’ Brass said. “My big concern is how big is that bill going to get?”
Midvale • City Manager Kane Loader also is chairman of UTOPIA’s board of directors. He laments that relatively few Midvale residents have signed on to UTOPIA, but credits it with attracting major businesses such as FLSmidth Minerals to the community. “Many refer to me as the captain of the Titanic. I don’t think I am,” Loader told lawmakers in August. “I’m the captain of the Starship Enterprise, boldly going where others have not gone before.”
Lindon • This Utah County city’s relatively high UTOPIA subscriber rate is attributable to large numbers of residents wanting access for their home-run Internet businesses, which account for at least half of Lindon’s 850 business licenses, City Manager Ott Dameron said. A recent UTOPIA marketing campaign pushed subscription rates from 31 percent in early 2012 to about 45 percent or higher today, Dameron estimated.
Payson • In spite of promising subscription rates among residents and a belief in UTOPIA’s value to the community, the Payson City Council chose not to back the newest round of borrowing. “It just came down to budget,’’ City Manager David Tuckett said. “We didn’t have the money.”
The Salt Lake Tribune.

More than 46% of Americans use full-feature smart phones. Vince Hiriuchi. Salt Lake Tribune.

UTOPIA stuck in debt, technology marches on
Back then, it may have seemed visionary to build a fiber-optic network that would be much faster than conventional dial-up services such as America Online or cable Internet services such as Xfinity.
But 10 years later, UTOPIA is mired in debt and is only 40 percent complete. Meanwhile, technology marches on. Here are some of the technological milestones achieved in the past 10 years:
Broadband • In 2002, dial-up Internet was out, and high-speed broadband over cable or DSL (telephone lines) was in. By 2010, 66 percent of homes had access to broadband Internet connections.
Mobile wireless • While wired broadband was becoming popular at home, the ability for smart phones to connect to the Internet became ubiquitous. First there was slower networks such as EDGE and 3G. Now 4G has become the standard for mobile connectivity.
Digital TV • Analog television was replaced by digital TVs, and all broadcasters switched to digital signals in 2009. Meanwhile, high definition TV became the norm in living rooms.
Apple iPod • The portable MP3 music player that revolutionized the music industry was only a year old when UTOPIA began. Since then, 10 generations of the iPod (including the iPod Touch) have been introduced. Apple also ignited the computer-tablet market in 2010. The iPad has become the hottest consumer electronics device.
Smart phones • Touchscreen smart phones, beginning with the iPhone in 2007, began to overtake the mobile market in sales. Today, more than 46 percent of Americans use full-feature smart phones.

Only 41% of Orem can access UTOPIA. TONY SEMERAD and VINCE HORIUCHI. Salt Lake Tribune.

Look at link at the bottom of this post for graphics containing the following:

Patchwork UTOPIA: See UTOPIA's coverage in 11 cities

Each city has maps showing where the residents can sign up for Utopia.
UTOPIA: Fiber-optic nirvana or a nightmare with no way out?Technology • Eleven Utah cities are shackled by debt as the light-speed broadband network continues its decade long struggle to become a success.
At worst, the Utah Telecommunication Open Infrastructure Agency, or UTOPIA, is a half-billion dollar fiasco menacing city budgets in four counties.
UTOPIA already has obligated its backing municipalities to massive bond debt, spawning tax hikes, property liens and budgetary headaches in several cities. The network that promised to spur economic growth from Tremonton to Payson is barely 40 percent complete, and large portions of the grid remain offline. In one dire example, Perry has $2 million in UTOPIA lines laid under its streets, none of them operational.
UTOPIA has fewer than 10,000 subscribers, between a tenth and a quarter of its potential customer base. The low “take” rate has translated into nine consecutive years of operating losses — and counting.
While UTOPIA managers remain sunny on the municipal network’s outlook, recent revelations draw questions about its future into sharp relief:
Can UTOPIA pull itself out of a financial abyss and at least break even or should the cities cut their losses and sell the network’s assets for the high-tech equivalent of scrap as some critics suggest?
Whatever the answer, there appear to be few ways out.
Light-speed promises • UTOPIA uses fiber-optic instead of copper coaxial cables like Comcast, now Xfinity, or telephone wires like CenturyLink, formerly Qwest. Fiber transmits data through pulses of light, boasting speeds up to 100 times faster than competing technologies.
Originally conceived by 16 Utah cities but ultimately funded by only 11, the project was among America’s first open-access, fiber-to-the-home networks, an idea originally promoted to city sponsors as a moneymaking venture. A host of problems — overly rosy projections of customer demand, miscalculations on borrowing and construction strategies, poor choice of contractors, business-model flaws and, some say, flat-out mismanagement — have hobbled the public agency almost from its launch.
In fiscal 2011, UTOPIA lost $18.8 million, while a newly created sister agency shed an additional $916,236. As of June, UTOPIA’s bottom line — total assets minus liabilities — had drifted $120 million into the red.
Having already bound supporting cities to cover more than $475 million in potential debts with their sales tax revenue over the next three decades, UTOPIA has set up the Utah Infrastructure Agency, or UIA, to borrow more money. That new agency is halfway into issuing a second round of $60 million in debt, this time to be funded by future city franchise taxes — ostensibly to finish the UTOPIA network.
Yet a recent state audit found that rather than being used to build infrastructure, at least part of the new cash stream is being spent on UTOPIA’s prior debts and operating expenses.
“The use of debt to cover the cost of operations and debt service is symptomatic of an organization facing serious financial challenges,” auditors wrote in August.
The audit has reignited allegations of waste, shortsightedness, bad decisions and a lack of transparency at UTOPIA, as well as further shaking of confidence in the project.
“They have borrowed money to pay back money that they have borrowed,’’ said state Sen. John Valentine, R-Orem, who will push legislation to tighten UTOPIA’s accounting practices when state lawmakers convene in January. “It’s just getting deeper into debt that you can never get out of.’’
UTOPIA managers say they have new plans for digging out of the hole but won’t, as yet, make them public. They declined repeated interview requests from The Salt Lake Tribune.
Is there an off-ramp? • The nature of UTOPIA’s finances leaves cities no easy exits.
Over its 10-year history, UTOPIA has switched network-construction strategies many times. What remains is a fiber-optic grid nearly finished in some communities and just begun in others, with large swaths isolated or “stranded’’ from the rest.
Liquidating the network now — by selling it off in pieces to individual cities, telecommunications companies or existing Internet service providers — likely would yield pennies on the dollar, while doing little to lessen UTOPIA’s debts.
The original 11 founding municipalities are legally pledged to cover UTOPIA’s bonds, an initial $185 million liability that, if UTOPIA keeps bleeding, will cost cities more than $475 million in annual sales tax payments growing by 2 percent yearly, through 2040. UTOPIA owes another $16 million borrowed from member cities to cover various costs over the years. Eight cities have signed on for more UTOPIA-related debt, backing the additional $60 million in UIA borrowing by promising shares of future franchise tax revenue, levied on businesses.
And because of the way much of UTOPIA’s debt is structured, it is almost impossible to refinance, even if managers wanted to take advantage of today’s historic low interest rates.
In 2004, UTOPIA sought to borrow $85 million to pay off an earlier round of $30 million in debt and to raise added capital for laying more fiber cable. Ignoring advice from their bond attorney, senior agency managers sought a variable interest rate loan, instead of securing a fixed interest rate.
Documents indicate the variable-rate approach was pushed by officials with DynamicCity, a Lindon-based consulting firm that helped devise UTOPIA’s early network build-out plans. The loan gave what UTOPIA’s bond attorney Laura Lewis described as “a huge advantage’’ to Bank of America, which underwrote the transaction.
In interviews late last year, Lewis told state auditors she clashed mightily with UTOPIA’s then-General Manager Paul Morris and DynamicCity representatives over their insistence on the deal. It was, Lewis said, “the only time I ever screamed at a client’’ and that she “objected as strongly as she ever has in her career.’’ The lawyer reportedly later infuriated Morris by attempting to take her concerns to UTOPIA’s board.
Managers went ahead anyway, even though the variable-rate borrowing came with another major string attached. Lenders locked UTOPIA into an interest rate swap, a complex debt instrument amounting to a hedge against dramatic swings in interest rates. With the huge drop in rates since then, the swap has, in effect, turned into a poison pill, requiring UTOPIA to swallow at least $52 million in penalties if it sought to refinance the loan.
City hopes and doubts • A core of prominent municipal leaders stands firm on UTOPIA’s future, for now. Layton Mayor Steve Curtis, for example, says the network has helped his city land businesses that otherwise would not have come, citing precision aerospace-components manufacturer Janicki Industries. With its network finished, Centerville has entertained building a high-tech business park nourished by UTOPIA bandwidth.
But cracks have developed in city support for the network. Three cities —Perry, Tremonton and Payson — withdrew from UTOPIA’s second round of borrowing. Orem leaders face vehement citizen opposition over property tax hikes related to UTOPIA costs.
Scores of Brigham City residents rebelled after learning that special-assessment liens had been placed on their properties to pay for UTOPIA hookups. Brigham City Mayor Dennis Fife was elected in 2009 on an openly anti-UTOPIA platform. With that city’s network more than 90 percent built, he now touts its benefits but remains deeply concerned about UTOPIA’s leadership and mounting debts.
“How much money do you keep putting after it?’’ he asked. “UTOPIA management is still taking some of the same approaches and still has some of its original board members.”

A utopian future? • UTOPIA executives, for their part, say the network will proceed because it must.
While refusing to comment publicly, UTOPIA Executive Director Todd Marriott and board Chairman Kane Loader, who also is Midvale’s city manager, have said in the past they have a five-year strategic plan that will enable the company to break even in 2016.
Auditors noted in their report that few have seen the details.
In a statement released to The Tribune, Loader and UIA Vice Chairman Alex Jensen, who is city manager for Layton, said they expect the plan to be ready soon for review by cities and the public. Discussing it before that, they said, “is premature.’’
“Our attention is focused on refining our plan for moving the network forward successfully, and we have no new information to report at this time,’’ UTOPIA’s managers said.
In a letter responding to the August audit, Loader pointed to major steps in the past three years addressing financial and management problems.
A new management team took over in mid-2008 and terminated contracts with prior consultants and contractors building the network. Day-to-day operations are now handled in-house, instead of being farmed out to various city officials. A new pricing structure for customers is in place to boost revenue per user, including charging a $2,750 installation fee instead of it being free. UTOPIA is setting up committees to allow more involvement from its member cities.
There are separate calls to tighten budget controls and for altering state laws that require UTOPIA to operate as a wholesaler, instead of being able to market and sell its bandwidth directly to end customers.
But key lawmakers, especially some whose districts encompass UTOPIA’s member cities, voice fears the audit may have exposed only part of the agency’s distress — and that more drastic action is needed.
“It feels like the direness of the situation is very much understated,” Rep. Jim Nielson, R-Bountiful, said during a legislative hearing in September. “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.’ ”
That said, there are few options even for legislators. Defaulting on the bonds or a state bailout for UTOPIA cities appear highly unlikely.
“The Legislature will not have state taxpayers footing the bill for the foolish decision by the 11 cities that pledged their revenue to this venture,’’ said Royce Van Tassel, lobbyist for the Utah Taxpayers Association and perhaps UTOPIA’s staunchest critics.
One of Utah’s Internet pioneers has called for city ballots to let citizens decide if supporting UTOPIA’s build-out is worthwhile, likening network investments to big-ticket taxpayer expenditures on transportation, power and water systems — vital public facilities that are rarely profitable.
“Fiber optics are the endgame for all communications,’’ Pete Ashdown, founder of Salt Lake City-based XMission, Utah’s first Internet service provider, wrote in a recent open letter in support of UTOPIA. Voters, he said, “should decide whether open fiber networks should sit with roads, water and sewer as an essential and cohesive part of city infrastructure.’’
Tribune reporters Steven Oberbeck, Pamela Manson, Cathy McKitrick and Cimaron Neugebauer contributed to this story.
What is UTOPIA?
Short for Utah Telecommunication Open Infrastructure Agency, UTOPIA is a municipal fiber-optic Internet network for residents and businesses. Being built in 11 Utah cities, it has download and upload speeds up to 100 times faster than Xfinity’s cable Internet or CenturyLink’s DSL network. Customers buy broadband service from independent Internet service providers contracted with UTOPIA to use its open network.

Orem residents reject tax bill for UTOPIA. Cimaron Neugebauer. The Salt Lake Tribune .

Budget • Vital city services could face cuts after residents revolt at 50% property-tax jump to pay the UTOPIA bill.
Francisco Kjolseth | The Salt Lake Tribune Katie Hawker, account clerk for the City of Orem Department of Administrative Services works on one of the office computers. The City of Orem has UTOPIA service which provides high speed internet services.
Are consumers willing to pay higher taxes to finance UTOPIA?
In Orem, the answer apparently is no.
When the city fell short in paying its $2.8 million UTOPIA bill for 2013, the Orem City Council in June proposed a 50 percent property tax increase to make up for the gap. The owner of a $184,500 home would have paid $97 more a year under the plan — the first hike of its kind in the city in nearly three decades.
Residents rebelled in heated public hearings. The council eventually relented after more than 5,000 signed a petition to require a public vote on the proposed increase. Orem now plans to make other cuts to pay for UTOPIA, potentially from vital services such as police or fire protection. But even that will not cure the problems, one Orem councilman points out.
“What [the council] did not tell the people is this would only last for about four years before they would come back and ask for more,” Councilman Hans Andersen said.
UTOPIA has its ardent supporters in Orem, the second largest of 11 Utah cities backing the open-access fiber-optic network. The city has nearly 3,000 subscribers, and the grid is about 41 percent built out in the city.
Subscriber Ace Sorensen uses its scorching Internet speeds to run a small public-finance business out of his home. He says he loves it.
“It blows the socks off Comcast,” Sorensen said.
But others in this Utah County community of 90,700 are increasingly wary of the project’s implications for city coffers. Orem is legally obligated for up to a $103 million share of UTOPIA’s bond payments, in gradually increasing annual installments due through 2040.
A powerful state senator from Orem, Republican John Valentine, is now among legislators calling for reforms to UTOPIA’s budget standards, after an August audit brought to light that the agency was using newly borrowed construction funds to pay old debts and run operations.
Valentine has heard his share of complaints about UTOPIA. The tax attorney likened its financial practices to using a credit card to pay off a mortgage.
“The state feels very concerned when the cities get in the kind of trouble that UTOPIA caused,” he said.
Resident Wayne Burr, who led the anti-tax-increase petition drive, said most Orem residents have no hope of getting UTOPIA’s services but are paying for them anyway. He called the network “a black hole to dump money into.”
“The government shouldn’t be into providing services that free enterprise can do very well,” Burr said.
Twitter: @CimCity
Cimaron Neugebauer. The Salt Lake Tribune