The Utah Legislative Auditor General released an audit of the Utah Telecommunication Open Infrastructure Agency (UTOPIA) today. The audit, according to The Deseret News, “blasts UTOPIA’s planning, use of bond funds.” Below is the summary of the audit from the Office of the Legislative Auditor General. The full audit can be viewed by clicking here.

The Utah Telecommunication Open Infrastructure Agency (UTOPIA) is an interlocal agency aimed at providing its users with some of the most advanced communications services available. The agency is building a wholesale fiber-optic network that offers its users access to high-speed video, data, and phone services. Once completed, supporters of the network believe it will help improve the quality of life for city residents and promote economic growth for the business community. Due to a number of unforeseen challenges, the agency was unable to complete construction of the network as quickly as planned. This report describes some of the challenges UTOPIA faces, the possible causes for those challenges, and suggestions for strengthening organizational oversight and accountability.

UTOPIA’s Ambitious Goals Have Not Been Met. UTOPIA originally planned to build a broadband network in three years and to achieve a positive cash flow in five years. However, it has not met that schedule. Instead, the cost of financing and operating the network increased before UTOPIA could provide a substantial number of customers with service. As a result, revenues have not been sufficient to cover its costs. Year after year, as operating deficits have accrued, the agency has developed a large negative asset balance.

UTOPIA’s Bond Proceeds Were Not Put to Productive Use.

UTOPIA has issued $185 million in bonds to pay the cost of building its fiber-optic network. Most of the bond proceeds have been invested in poorly utilized and partially completed sections of network. As a result, the network is not generating sufficient revenue for the agency to cover its annual debt service and operating costs.

UTOPIA Used Bond Proceeds to Cover Operating Costs and Debt Service. Slow progress in building the network and a general lack of subscribers have forced UTOPIA to use a large portion of its bond proceeds to cover operating deficits and debt service costs. The use of debt to cover the cost of operations and debt service is symptomatic of an organization facing serious financial challenges.

Poor Planning, Mismanagement, and Unreliable Business Partners Have Contributed to the Agency’s Financial Difficulties. UTOPIA’s board members, staff, and outside consultants readily admitted that mistakes were made during the rollout of the network. To summarize, the mistakes they described generally began before UTOPIA’s current management’s tenure and fall into one of the following three categories: (1) poor construction planning, (2) mismanagement, and (3) unreliable business and finance partners.

A Lack of Sufficient Subscribers Also Contributes to UTOPIA’s Condition. In addition to UTOPIA’s problems with poor planning, mismanagement, and unreliable business partner performance, a lack of sufficient customers is also a cause for the agency’s slow progress. UTOPIA’s historic and current subscriber rates, coupled with its revenues, strongly suggest either a lack of consumer demand or an agency inability to meet the consumer demand that does exist. A contributing factor to UTOPIA’s difficulty in meeting targets may also be its wholesale-only operating model.

Better Management and Financial Controls Are Needed to Improve Accountability. UTOPIA can increase its chances of success by taking steps to hold its staff and business partners accountable for results. Even if UTOPIA has prepared a viable new development strategy, it will not be successful unless the agency and its partners can execute that plan. For this reason, we suggest that UTOPIA’s board and management team adopt a number of management and financial controls that will strengthen their oversight of the agency and their ability to hold people accountable for the results they seek.

Chapter IV describes four steps UTOPIA should take to strengthen its oversight and accountability:

  •   Adopt better management controls, including written narrative plans, formal policies, and performance measures.
  •   Adopt the financial controls commonly used by public agencies.
  •   Improve compliance with the Utah Open and Public Meetings Act.
  •   Strengthen board oversight of agency operations.