Evaluating UTOPIA’s Audit

The Legislative Auditor General has published an audit of UTOPIA, and, as expected, it drags a fair amount of ancient history back into the spotlight.  The report concludes that additional accountability will alleviate the problems that UTOPIA has experienced, but it missed the mark on a number of points.

While the report does mention the state law that requires a wholesale model, it neglects to also include that UTOPIA was prohibited by statute from bonding for more than 50% of total construction costs. Omitting this crucial detail creates a number of problems in the later analysis. For one, it insinuates that the current bond amount would have been enough to build the entire network. This is patently false. The approach in the beginning was to hook up as many users as possible using the initial bond money, then use the revenues to build out the remainder of the network. This false premise only serves to color the rest of the report.

The failure to take in the big picture doesn’t end there. The report seems to characterize the pursuit of RUS funds as some kind of hasty money grab. The reality is that UTOPIA had always planned to have two separate pools of money, one based on sales tax pledges and the other based on system revenues. In the search for system revenue money, they found the RUS loan program which fit their criteria.

There’s also no mention of how the bond market went sideways and drove UTOPIA’s interests costs much higher than planned, just a mention that it did. For those of you that have been paying attention, you may recall that UTOPIA’s bonds were tied to the Libor. You may also recall that this rate, which drives much of the interest rate market, is in the midst of an unprecedented worldwide manipulation scandal. Failing to note that financial fraud is the cause of the increased interests costs is negligent at best.

The report fails to make a distinction between the different phases of UTOPIA’s lifetime. While the effects of poor early planning are still being felt, the report doesn’t seem to explore if the course of the agency has changed since its management did in 2008. Instead, everything is lumped into one big pile. Failing to distinguish between those distinct approaches to management and deployment of the network eliminates needed context and fails to help answer the question as to if the situation has been improving or not.

Stranded infrastructure is cited as a huge liability, but nothing is said as to why that infrastructure is and remains stranded. The biggest holes right now are Perry and Payson. Neither city opted to join the UIA, and Payson wouldn’t even vote for the refinance in 2008. Both cities have effectively sent the message that they’d rather make another city pay for their infrastructure. Without that nuance, the report makes it look like UTOPIA is leaving stranded investments just sitting around like some kind of Keystone Kop rather than navigating treacherous waters as a few rogue member cities try to play hardball.

Centerville is receiving a harsh treatment since the city has been build out almost fully despite not having pre-committed take rates, but nothing is said regarding the ARRA funds that built it out. Because that grant was reserved for exclusively rural areas and had a time limit on use, it made perfect sense to build out the city with or without demand. It’s another example where omitting details makes the situation look a lot worse than it is.

Now that the criticisms are out of the way, there’s a lot of valid points being made. Documentation was and in many cases still is kind of sloppy. This only serves to reinforce my long-held point that UTOPIA needs to get more information into the public view, something it has never done very well at. Failing to properly document everything is likely why there have been a number of execution issues, and the lack of public review means good ideas on how to improve operations may not be getting heard.

Many of the problem with controls come right back onto the cities themselves. Many of them simply are not taking responsibility for the network and are not participating as if they own it. Payson hasn’t even bothered to send a board member to meetings on a regular basis for several years. This leaves UTOPIA in a position of trying to do what needs to be done on an ad hoc basis. If there’s disorder in their processes, it’s because the cities want to pretend it doesn’t exist. Imagine if they ran a police department that way.

The rate of subscriber growth is way below where is needs to be, even if revenues are growing at a healthy clip. The UIA money has been set aside for about two years now, but construction seems to be more-or-less stagnant. Even supporters of the network are starting to throw up their hands and figure that i’s never going to happen. Those are the most valuable asset for getting people signed up, and UTOPIA can’t afford to lose them. Letting the committed money sit unused for so long means more bleeding when there should be more digging. The significant interest in Orem especially needs to be addressed and met.

One particularly delicious point to be made is on UTOPIA’s adherence to budgets. The Utah Taxpayers Association has repeatedly stated that UTOPIA fails to meet its budgets on a regular basis. The audit found, however, that this was the case in only two our of eleven years. Odds of the UTA owning up to sucking at math and publishing a correction (or, better yet, an apology)? Well, I won’t be seeing a Vegas bookie anytime soon if you know what I mean.

Most disappointing about this audit is that the omission of critical facts and lack of distinction between pre-2008 and post-2008 has lead the news organizations to universally paint the picture as hopeless. The audit fails to detail the trajectory that UTOPIA is following, and the bad-news-hungry media has latched onto the more salacious details without doing any real research of their own. I’d like to pretend to be surprised, but this reflects exactly what the editorial boards have been doing for almost a decade. UTOPIA puts on a game face for it, but a snarky blogger like me doesn’t have to deal in such pleasantries. (Sorry, reporter friends, but you sometimes kind of suck.)

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15 Responses to Evaluating UTOPIA’s Audit

  1. charlesH says:

    “Documentation was and in many cases still is kind of sloppy.”

    I think this is an understatement. Why have the cities (Orem) put up with this?

    “Many of the problem with controls come right back onto the cities themselves. Many of them simply are not taking responsibility for the network and are not participating as if they own it. …. ….This leaves UTOPIA in a position of trying to do what needs to be done on an ad hoc basis. If there’s disorder in their processes, it’s because the cities want to pretend it doesn’t exist. Imagine if they ran a police department that way.”

    One certainly get’s this feeling from Orem City. They blame the proposed tax increase on Utopia but make no effort (nothing I can see) to use Utopia to improve city services and reduce operating costs. [One example: The use of networked neighborhood street cameras to reduce police patrols.] The city also makes no visible effort to market the service to it’s taxpayers. I think they should tie Orem city management compensation to Utopia success in a material way.

    “The significant interest in Orem especially needs to be addressed and met.”


    • Jesse says:

      The cities put up with it because it’s an easy out. Getting into the middle of it means owning the bad, and my experience is that a lot of elected officials are skittish about that. Success has a thousand fathers; failure is a bastard child.

  2. Gee-Enn says:

    Very good job explaining some of these nuances Jesse! Thank very much for your well thought out and written article!

  3. Andrew says:

    Really need to get it built out to the rest of Orem for sure. I am no marketer but I have been telling everyone how awesome utopia is, why doesn’t utopia do more themselves (beyond their funny yard signs)?

    • Jesse says:

      UTOPIA has always been shy about advertising much, mostly from fear that the legislature will come up with new punitive legislation. They’re getting better (I like the idea of supporter-hosted block parties), but there’s still a ways to go.

  4. Matt P says:

    The point about cities not playing well and not taking ownership is a good one. In what I’ve seen, the political climate since 2008 has shifted significantly toward getting governments, even local city governments, out of everything business-like.

    In an effort for “responsible” government, pressures are placed to ironically be irresponsible for past commitments. Whether or not people agree with the past commitments is, to me irrelevant. I frankly agree that governments should never have been involved, but since they are, agreements made should be fulfilled. Whether that means paying a hefty cancellation fee to get out of a contract or seeing the job through may be a matter of debate, but completely reneging on a prior commitment should not.

    My 2 cents.

    • Jesse says:

      That’s why I strongly respect mayors like John Curtis (Provo) and Mike Winder (WVC). Despite neither really supporting municipal broadband, they know that walking away is the worst possible option at this point, and the calls from the Utah Taxpayers Association to do so are fiscal suicide. Unfortunately, too few people understand that the money is going to have to be paid back somehow and that it would be best if there’s at least something to show for it.

  5. Paul Larsen says:

    Wouldn’t it be wonderful if there could be a “legislative audit” of the legislature? Don’t hold your breath waiting for that one, it wouldn’t serve the right political agenda. Using the term “audit” conveys an air of objectivity that really shouldn’t be given to this document. UTOPIA has received actual audits annually, just like any other governmental entity, and has been given clean bills of health. This document is more of an investigative journalism piece a la Geraldo Rivera, which highlights the internal failings that UTOPIA has been trying to fix, but which is selective in identifying the roots of the problems UTOPIA faces. When the legislature runs the table on which the game is played, makes rules that disadvantage the player, and then complains that the player isn’t doing as well in the game as the player had planned before the rules were changed, then the legislature is being disingenuous at best. The “audit” states that “in December of 2003, UTOPIA stated that ‘within a 3 to 4 year period the network will be available to every home/business in each member city.'” What it does not point out, is that in January of 2004, Sen. Hickman introduced Senate Bill 66, which directly targeted UTOPIA’s financing plan under which that build-out would have been achieved, and which was signed into law by Gov. Walker. Many of the legislators who are still around to crow about UTOPIA’s failings voted enthusiastically for SB 66, which they thought would kill UTOPIA before it ever got off the ground. It seems shady to me for the legislature to criticize UTOPIA for failing to meet goals it set in 2003, when the legislature then took away the financing mechanism that would have allowed UTOPIA to meet those goals. The “audit” also fails to point out the very real concerns and issues that led these cities to establish UTOPIA in the first place. There is a prevailing notion among its critics that the UTOPIA cities simply didn’t have anything better to do with their time than play around in telecommunications. The assumption, according to this narrative, is that cities are just too eager to jump into efforts that they don’t really need and which they should leave to the private sector. This “audit” reinforces that notion. I could go on in detail, but you, dear reader, probably already know about all of this. There is a tremendous amount of ignorance, Monday morning quarterbacking, and outright ill will out there when it comes to UTOPIA. The only thing that will silence that in the end will be success.

  6. eddie says:

    I wish Google would buy Utopianet and switch it all over to Google Fiber. At least big G knows how to get a subscriber base and build excitement around their products.

  7. bill says:

    Amen to the Google Fiber idea. One of the audit observations was that 50% of the bond proceeds used so far were not used for installation of the fiber, rather overhead and operation expenses. Are there no rules or provisions for use of bond money? Utopia is totally reliant on future connection fees, apparently they are not nimble enough to effectively market in a competitive environment. The longer this sloshes in the mire the greater the opportunity for private enterprise to do what they do best. Which is a better product and or delivery system at a better price. The quicker the cities seriously work toward selling their interest in Utopia the less chance of being overtaken by the ever evolving world of technology.

  8. Just for the record, UTOPIA already offers what Google began promising 2-3 years ago (but still hasn’t turned on a single connection). UTOPIA’s problem is getting people aware of it and getting some assistance in marketing the product.

    • Paul Larsen says:

      This is an excellent point, Christopher. Another point is that Google is using a tactic that has been employed by UTOPIA, in that it will not build in a neighborhood until enough people sign a commitment to create a critical mass of subscribers. The Ogden Standard Examiner editorialized on August 8 (http://www.standard.net/stories/2012/08/10/our-view-dystopia) that “advances in high-speed Internet, and its access to Utahns, could very well make UTOPIA an obsolete choice in the near future. Google, for example, is already testing Internet access that is 100 times faster than conventional broadband.” Apparently they didn’t take the time to check into their claim, and either didn’t realize or glossed over that the Google project is an FTTx project, identical in most respect to UTOPIA, or that as you point out those speeds and capabilities are available on the UTOPIA network, or that Google’s marketing approach is similar in a lot of respects to UTOPIA. Unfortunately, UTOPIA has attained a brand in Utah that puts up blinders over too many people’s eyes. Its opponents have been very effective in playing on the anti-government, CAVE (look up that acronym) sentiment that is prevalent in many communities. Success will be the best rebuttal.

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