This November, the residents of Kaysville will be voting on a proposal to have the city issue $22 million in debt to finance the buildout of a government owned fiber network. Evidently, the proponents of the project did not get the memo that the Berlin Wall fell more than 30 years ago, and the great experiment with government ownership of society was a failure. As we see far too often, government officials are quick to come up with unrealistic plans and pipe dreams when taxpayer money is available.
Previous attempts at government run fiber in Utah have been a failure. The greatest example of this is Provo City’s foray into this arena about 15 years ago. The city borrowed and spent $39 million dollars on the buildout and soon after completion, things went off the rails. What city leaders failed to realize is that in addition to the initial construction cost of building out a basic fiber network, frequent and expensive technology upgrades are necessary in order to remain current in such an innovative field. Government entities rarely consider this fact, however, and thus grossly underestimate the true costs of the project. After several attempts to sell the system at a steep loss, Provo handed the whole system over to Google Fiber for the paltry sum of one dollar. It was a complete loss and the taxpayers of Provo were left holding the bag.
Around the same time in the early 2000s, another government run fiber system was launched known as UTOPIA. With about a dozen or more participating cities around the state, the project has hemorrhaged cash and amassed debt for more than a decade now. Participating cities were romanced into the idea that they would never be called upon to use their critical sales tax revenue to rescue the project or pay its debts. Within just a few years (2008), that promise was broken and member cities are now forced to pump millions of dollars of badly needed sales tax revenue into debt service costs to keep the lights on. According to the most recent June 2019 financial report from UTOPIA, a total of $14.4 million was drained from cities budgets. The biggest victims are West Valley City at over $4 million and Orem at over $3.1 million for that budget year alone.
One of the other major flaws in the projections for the Kaysville fiber project is the “take rate” they are assuming in their financial model. Take rate is the projection of the percentage of residents that will sign up for the service. Their materials cite an “expected case” of 50%-58% and a “self-sustaining” rate, where subscribers would be high enough to pay for the debt costs, of 38%-44%. We believe those assumptions are wildly optimistic. For example, out of 14 cities that have launched UTOPIA in Utah, there are only two cities, Woodland and Lindon, that have a take rate over 40%. All of the other cities have take rates that are much lower with the vast majority of them being between 20% and 30%.
This idea is a solution in search of a problem. Kaysville already enjoys 99.6% broadband coverage by private industry and ranks 11th best in the state on that metric.
In addition to all these specific problems, on principle, government should not be competing with private enterprise. This is particularly egregious when private industry already delivers the product or service to virtually the entire city.
We think it is only a matter of time before the project fails to gather enough subscribers to pay the debt service costs on the $22 million for this project and Kaysville taxpayers will be forced to funnel badly needed sales tax revenue away from police, fire and other city services to bail out the project. Your Taxpayers Association strongly urges voters in Kaysville to vote NO on this proposal on November 3rd.