May 20, 2010
Operators of the Utopia network were sharply criticized this week by state lawmakers who questioned whether the fiber optic system could ever reach the point where its revenue was covering its operating expenses.
Long-time Utopia critic Sen. Howard Stephenson, R-Draper, who also is president of the Utah Taxpayers Association, described the community-backed network as a failed effort that “simply does not work.”
Stephenson’s remarks followed a presentation by Layton City Manager Alex Jensen. He told members of the Revenue and Taxation Interim Committee that Utopia is ready to launch a new business model that requires an additional ($60 million) capital infusion.
“We believe in it fervently,” Jensen said, contending the system will be “transformational” for the 11 cities that have pledged more than a half billion dollars in tax money to back the network’s bonds. “We are not embarrassed or ashamed about this.”
Since its 2002 launch, Utopia has spent more than $200 million and had a negative net worth of $126 million, which means if Utopia’s cities sold off all of the network’s assets they still would owe another $126 million.
It is projecting that it will record another $25 million in losses for its 2010 fiscal year.
“You have to be able to cover your operating expenses with your operating revenue,” said Sen. John Valentine, R-Orem. “But as you’ve built out your network, the gap between your revenue and expenses has increased every year.”
Utopia’s new business model will take care of that problem, Jensen said, adding though that much of the details are proprietary. He invited legislators who would be willing to sign non-disclosure agreements to meet with Utopia one-on-one to learn about the new model.
Jensen noted that Utopia is not asking for anything from the Legislature, rather its appearance before the committee was to inform legislators where Utopia is going.
But Utah Taxpayers Association Vice President Royce Van Tassell said it is difficult to see how the growing gap between Utopia’s expenses and revenues can be reversed.
“The acceleration of their net-asset deficit over the last two years is staggering,” he said. “There is no reason, based on their ability to project their revenues or expenses accurately, to believe that this trend is going to change.”
Utopia, like virtually every other municipal telecom system in the country, is a failure, he said.
But Todd Marriott, Utopia’s CEO, said following the committee meeting that he is excited about the future.
“Under our new model we will only be making investments when we are certain that we will be able to earn a return.”