While I was on KVNU’s For the People tonight, a caller expressed concerns about how UTOPIA is financed. It became clear to me that this caller had confused the various funding models and bonds UTOPIA has been and is currently using. I thought I should clarify how exactly UTOPIA got its money and who is on the hook for what. There’s a lot of confusion about how UTOPIA is backed and financed and this is because there have been two rounds of bonding under one financial model and new potential rounds of bonds under a new financial model.
The original model called for a portion of construction to be backed with sales tax pledges from the various pledging member cities and the remainder to be paid for with loans backed by system revenues. That second tranche of funding came in the form of loans from the USDA’s Rural Utilities Service (RUS). They would approve a phase of construction and then repay UTOPIA once construction had finished. Almost immediately, RUS become uncommunicative with UTOPIA and would reimburse them for approved construction costs weeks or months late. Finally, RUS declined to reimburse them for almost $11M of approved construction expenses and notified UTOPIA that it would not approve any further construction.
Obviously, UTOPIA had been left in the lurch as they now had bills with no money to pay them and had been shorted million in additional expected funding. This is where the second bond came in. UTOPIA, not having finished the construction they had expected and being months behind schedule, had to ask the cities to create a new bond. The new bond covered the original bond, the loans from RUS, outstanding construction bills from RUS’ lack of promised reimbursement, capitalized interest payments for two years, and about $11M to cover operating expenses and complete some partially-finished sections of the network. They did not pull out more money because they did not want to overextend the cities.
Both of these fall under what I call the “Free Lunch” Model. The legislature restricted any municipal telecommunications effort from being able to bond for more than 50% of the total construction costs. Under such a financial model, the plan is to build quickly with the money that can be obtained and use system revenues to continue expansion. It was certainly very ambitious and, in hindsight, fraught with pitfalls. The biggest problem is that the common infrastructure such as the NOC and fiber backbones consumed a disproportionate share of the available funds, thus little was left to actually get out to customers. The build “plan” (if it can even be called that) also had little rhyme or reason and was not matched to areas with higher demand. This also left pockets of service throughout cities instead of a contiguous footprint. To call it a bucket of fail would be charitable.
There’s also the problem that the collective project carried collective risk. If it didn’t succeed as a whole, all cities had to pay into the pot. This is part of what caused problems with the build plan. UTOPIA wanted to try and make sure that every city got at least some service, something that might not have necessarily matched demand. Voters are always a bit touchy when they feel that their tax dollars are going to someone else.
With the implosion of the “Free Lunch” Model, UTOPIA has started trying out the Special Assessment Area. The SAA comes in two flavors: voluntary and involuntary. As the names imply, one of them requires everyone in the area, participating or not, to pay up. The other, however, divides the costs between all participants and assesses no costs to the non-participants. UTOPIA is using the voluntary SAA. Only those who want service will be expected to pay for it and the cost assessed per participant decreases as more people join. This type requires a minimum percentage of homes and businesses to commit to service before it can be executed to prevent the per-address cost from being prohibitively high.
This new model has several distinct advantages. UTOPIA is no longer required to secure financing for construction as participants will pay it directly. Additionally, only those who want the service will be paying for it, relieving critics and naysayers of the potential tax burden. It also allows those who want service to get it much quicker than if they waited for UTOPIA to go revenue-positive. Each SAA will also be required to be revenue-neutral in order to be executed, so no additional burden is created on the network. The SAA isn’t currently in use, but it is being worked on in Brigham City. So far, it appears to be well-received.
Hopefully this helps dispel any of the confusion and rumors concerning where the money is coming from.