May 19, 2010
At what point is it smartest just to accept your losses and walk away?
That’s the question UTOPIA’s member cities will find themselves facing once again in the coming months. The fiber-optic system will ask city councils to finance another $60 million bond to help the nearly bankrupt network push ahead with construction and continue to meet operating expenses.
Though UTOPIA has yet to bring the matter before any of the participating city councils, the cities are already wrestling with the question of whether or not to buy in one more time.
“It’s a tough decision,” said Centerville City Financial Director Blaine Lutz. “If we don’t do anything, we’ll always know what our obligations are but there’s never a chance they’ll get any better. If we do something, we could start generating some money that would start eating away at our debt obligations.
“Do we sit back and do nothing, or do we try and get service?”
Centerville’s debt payment in 2009 was $395,126, and like all the other cities the number will continue to rise 1.8 percent each year since the refinance. Lutz said the cities are aware that the bulk of that refinance, which occurred in 2008, went to cover debt incurred by the previous UTOPIA management. Higher interest payments took the extra money that the group thought would be left over.
The current bond is more like a line of credit in a bank, where money will actually be borrowed only after UTOPIA knows there will be enough subscribers in an area to support construction.
Depending on the level of interest from residents and how many sign up, Lutz added that Centerville should finally move to the top of UTOPIA’s construction list.
“UTOPIA wouldn’t go into an area until they were sure they could get subscribers, but Centerville is one of the first they’re looking to come into,” he said. “But if we don’t try to expand the network with this bond, we probably won’t ever get anything in Centerville.”
If there’s no subscribers, of course, UTOPIA will move on anyway.
“That would be our risk,” he said. “But based on what we’ve been hearing around the country and in other Utah cities with similar demographics, we think it won’t be a problem.”
Davis County Senator Jerry Stevenson, who was mayor of Layton when the city first got involved in UTOPIA, is no longer so sure.
“Their business model was to put high speed in every home, but as I think about it now, everyone doesn’t need high speed,” he said. “Of course, there are so many things going on in the world right now I’m not sure anyone’s business model is working.”
Layton, which is currently paying $1,983,125, has the second largest debt payment of all the participating cities (West Valley City, with $3, 319, 461, is the first). Though only about 1,800 homes in the city are receiving service, Layton City Manager Alex Jensen said the city is keeping the future in mind.
“We’re worried, but we’re not losing sleep over it because we know we’re all in this together,” he said. “We feel that as this continues, the imbalances will work themselves out.”
Even cities who are currently getting more of the balance, however, have concerns. Brigham City approved a bond finalizing terms for a special assessment area that would create the funding needed to push ahead construction of the network. Currently, all of the infrastructure is laid down, and about half the homes have been connected, but the fact that the special assessment area caused liens to be put on some homes has caused some lingering difficulty for residents.
“In general, people have liked the service, but the liens have been very difficult to manage,” said Brigham City Mayor Dennis J. Fife.
The city, however, is in a slightly different situation from the rest of the network. They’re the ones who issued the most recent bond, and according to Fife the money’s been put in a trust so that the city can assure that construction will be completed.
Naturally, this has left them with mixed feelings. “All of the city council are second generation from the ones that approved this,” said Fife. “Do we say no, or do we take this on?”
One city that has already made the decision not to take more on is Payson, which voted not to take part in the 2008 refinance. Despite that, the city still sends representatives to meetings and will have to make a decision about the new financial request.
When it comes to their earlier “no,” however, there seem to be no regrets.
“I don’t think the council’s even talked about it since then,” said Payson City Manager Rich Nelson.
As to whether or not the council will OK UTOPIA’s new request for money, Nelson echoed Lutz’s feelings.
“It’s a tough decision to make,” he said. “It will be interesting to see what happens.”