The city council of American Fork will be considering a proposal to possibly issue $30 million in debt to finance the buildout of a government owned fiber network. Apparently 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 great plans and dreams when they are using other people’s money, particularly taxpayers money.
This idea is a solution in search of a problem. American Fork already enjoys 98% broadband coverage by private industry (https://broadbandnow.com/Utah ) and ranks 9th best in the state on that metric. Despite this, the city council is considering a build out of a government owned fiber network to try and compete with current private market providers. The project would use precious general fund revenue from the city to guarantee the debt payments if the project is not as successful as planned.
Previous attempts at government run fiber in Utah have been a failure. American Fork already went down this road around the year 2002 and suffered losses. The greatest example of failure, however, 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 2000’s 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 a recent June 2021 financial report from UTOPIA, a total of $15 million will be drained from cities budgets. The worst victims are West Valley City at over $4.2 million and Orem at over $3.2 million.
One of the major flaws in the projections for all municipal fiber projects is the “take rate” they assume in their financial model. That is the percentage of residents that will sign up for the service. Most 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%.
We think it is only a matter of time before a proposed project like what is being considered by American Fork fails to gather enough subscribers to pay the debt service costs on the millions for this project. American Fork taxpayers will be forced to funnel badly needed sales tax revenue away from police, fire and other city services to bail out the project.
We urge voters in American Fork to demand the city council not move forward with any such proposal and demand that any consideration of a project of this magnitude be put to a vote by the taxpayers that will be saddled with it.