Cities: UTOPIA hurts, but sales tax drop hurts more
By Katie Drake
The Salt Lake Tribune
Coupon-clipping moms aren’t the only ones who had to tighten budgets during the recession. Many Utah cities also are feeling the pinch.
Eleven Utah cities — Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton and West Valley City — have pledged more than $500 million over 32 years to back bonds to finance the construction of UTOPIA, a fiber-optic network. Among them are several cities trying to make up large budget shortfalls. And those bond payments raise the question: Is UTOPIA squeezing cities’ finances?
Not entirely, said Kane Loader, Midvale’s city manager and president of the UTOPIA board. He said the bond payments are equivalent to about one-third of that city’s $2.1 million shortfall, but the bigger culprit is reduced sales tax revenues. Four of the city’s largest tax producers are tied to the building industry, and their contribution to the city budget is down 50 percent from the pre-recession boom.
The city council chose to merge its police and fire departments with the Unified Police Department and Unified Fire Authority effective July 1, saving the city $2.3 million in operating costs.
Although UTOPIA may not solely be to blame for the cities’ budget crises, it is a contributor, says Royce Van Tassell of the Utah Taxpayers Association, and a longtime critic of UTOPIA.
“We are seeing all too clearly why cities shouldn’t compete with the private sector,” Van Tassell said. “No one wants to see these kinds of taxpayer problems, but unfortunately they are of the cities’ own making.”
Van Tassell points to a news release that bond-rating agency Fitch’s recently sent to West Valley City, warning that the city’s bond rating may be damaged if the city’s fund balance reserve declines further. West Valley owes about $3.4 million to UTOPIA for the 2011-2012 fiscal year, and it faces a budget shortfall of about $7.6 million.
Placing the blame for the city’s financial woes entirely on UTOPIA “just seems unfair to me,” said City Manager Wayne Pyle. “It’s just one part of the overall pie.”
Pyle points out that the city has seen a sales tax drop of 17 percent this year, which has been much more detrimental to its bottom line. City staffers are recommending a property tax increase this year to help make up the difference, Pyle said.
Alex Jensen, Layton’s city manager, also identified UTOPIA as just one issue.
“It’s interesting we try to frame [UTOPIA] as the bogeyman, when that is just one of hundreds of obligations that we have tied ourselves to,” said Jensen.
Fiber-optic cable is essential infrastructure, Jensen said, and though it is expensive, it should be treated the same as garbage removal and water systems. Although economic downturns can force cities to tighten their belts, that also requires them to prioritize services and eliminate waste, Jensen said, adding that Layton residents will not see a property tax increase this year.
Not every UTOPIA city is facing financial crisis. Centerville needs to find only $66,362 more this year to meet its annual UTOPIA obligation of $403,006, said city finance director Blaine Lutz. The city will pay off construction bonds on City Hall next year and has only a partial payment this year. Instead of returning that money to the general fund, the city will continue payments at the same level, and switch them to UTOPIA. The shift should help the city avoid any major budget cuts or tax increases, Lutz said.
Although each city has worked out a way to meet its bottom line next year, Van Tassell warns the price of UTOPIA is likely to go up in the future.
“Every couple, three years, they burn through the money they got through the last round of bonding, and come back to ask for more,” Van Tassell said. “It’s time for UTOPIA to live within its means, say, ‘We’re not going to make taxpayers be on the hook for another round of financing.’ ”
Loader remains optimistic that won’t happen. With a new marketing plan rolling out over the next few months, the network hopes to add an additional 19,000 subscribers over the next five years. As of June 30, 2010, there were 8,782 homes and businesses getting service over the network.
The 19,000 number is reachable if new construction picks up, Loader said. With 15,000 subscribers, the network would be able to meet its operational costs, and anything beyond that would allow the network to begin repaying bonds, reducing the amount owed for each city.
“It’s something that needed to be done,” Loader said, reiterating the need for fiber-optics in the community. “And somebody had to do it.”