UTOPIA Muni Broadband Program Facing Debt and Failure

UTOPIA Muni Broadband Program Facing Debt and Failure
December 29, 2012

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

One of Utah’s most ambitious municipal broadband programs is facing serious subscribership and funding problems.

The Utah Telecommunications Open Infrastructure Agency (UTOPIA), a municipal broadband program organized in 2002 by a group of communities in the Wasatch Front area of the state, is facing massive debt, low enrollment, and, despite millions of dollars in taxpayer investments, difficulties raising enough revenue to keep the system running.

Advocates of municipal broadband programs say they create economic renewal and tech sector growth. However, these programs have a very spotty record of success, with many having suffered cost overruns, service disruptions, debt, and limited use. The result: Taxpayers are saddled with expensive, underused broadband systems that cost millions to maintain.

The UTOPIA system was constructed because the partner communities believed private telecommunications companies were not willing to bring high-speed Internet and other broadband services to them. The partner communities committed around $500 million over the next 32 years to back the bonds sold to finance the UTOPIA network’s development and construction. The system failed to live up to its creators’ promises. Of 56,000 households with access to the network, only 8,572 have signed up for service.

In August of 2012, an audit to the Utah Legislature found that UTOPIA has never reached a yearly profit, falling far short of covering its operating costs and debt obligations. UTOPIA lost $18.8 million in fiscal year 2011, in the upcoming year taxpayers in the 11 UTOPIA cities will owe nearly $13 million for debt services.

Even dissolution of the system would lead to a loss for taxpayers; in an article from Digital Liberty, Kaitlyn Ewing pointed out that if UTOPIA were sold today, according to its own 2011 financial audit the total it would receive for its assets would be $120 million, far less than what it owes.

A National Taxpayers Union (NTU) study by Andrew Moylan and Brent Mead found UTOPIA debt has skyrocketed from $85 million in 2005 to $201.5 million in 2011. Moylan and Mead also note the effect of UTOPIA’s debt on the partner cities, arguing the UTOPIA obligations are overwhelming them. The NTU study found the 11 partner cities had four dollars of UTOPIA-related debt for each dollar of debt associated with normal infrastructure operations.

Moylan believes the real cause behind UTOPIA’s failures is the fact that its creators did not accurately gauge consumer demand. “It's hard to pin UTOPIA's failure on any one factor, but perhaps the biggest is that the project developed capacity beyond existing demand. Many of UTOPIA's member cities have relatively small populations, leading to high costs to build network infrastructure and not enough potential subscribers to support them, said Moylan. “Municipal broadband providers are learning that in many cases, there were good reasons as to why private providers hadn't built high-speed networks: cost, complexity, and lack of a sufficiently large customer base.”

In a new paper recently released by The Coalition for the New Economy, Dr. Joseph P. Fuhr Jr., professor of economics at Widener University examined the negative budgetary and economic side effects of government owned broadband networks (GONs) and found that UTOPIA provides a good case study for how the GON business model simply does not work.

“The UTOPIA network is a good example of what can happen when municipal lawmakers take on a project for which they have little expertise,” said Fuhr in a statement. “A series of missteps, beginning with a faulty business plan, have driven this GON to the point that it has to pay more than $500 million in debt obligations. Taxpayers in the participant cities are now being forced to pay higher property taxes to atone for UTOPIA’s missteps.”

According to Moylan, the effect of UTOPIA’s failures will be strongly felt by the 11 partner cities. “UTOPIA's failure could prove a costly millstone around the neck of already-overburdened Utah taxpayers,” said Moylan. “As I pointed out in my study for NTU, partner cities had four dollars of UTOPIA-related debt for every dollar in general obligation debt. That's a huge debt load to carry for a system that lost $6.1 million on operations last year. Debt of this size for what is ultimately something of a vanity project is not fair to taxpayers and may prove unsustainable.”

Internet Info: 

Andrew Moylan and Brent Mead’s National Taxpayers Union policy paper, “Municipal Broadband: Wired to Waste,” can be found online here: http://heartland.org/policy-documents/municipal-broadband-wired-waste

Dr. Fuhr’s case study, “UTOPIA, a Failing Government-Owned Network in Utah,” can be found online here: http://www.coalitionfortheneweconomy.org/wp-content/uploads/2012/12/12.5.12-UTOPIA-Final1.pdf

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)