(UTOPIA) Tax Alert : Stop 150% tax pledge increase

Lonnie Olson lists at kittypee.com
Tue Apr 15 12:19:22 MDT 2008


On Tue, 2008-04-15 at 11:25 -0600, Jonathan Duncan wrote:
> For anyone that does not get these messages, I thought it would be  
> interesting to get the opinions of the group.  I am still waiting  
> after several years for UTOPIA to pull into my neighborhood.  My  
> opinion is, pull the plug and sell the existing service off to a  
> private company.  I will not support a raise in tax for UTOPIA.

This "alert" didn't mention anything about a raise in taxes for anyone,
only more money being given to the project.  The wording was carefully
chosen to make it sound like that is what it is about, but it isn't.
More sensationalistic propaganda from the anti-UTOPIA groups.

> Begin forwarded message:
> > From: "The Utah Taxpayers Association" <taxwatch at utahtaxpayers.org>
> > Date: 14 April 2008 11:21:08 MDT
> > Subject: Tax Alert : Stop 150% tax pledge increase
> >
> > Experiment with socialized telecom has failed, yet member cities are  
> > considering 150% increase in their tax pledges.
> >
> > UTOPIA: Utah’s $504 million boondoggle
> > Utah’s experiment in socialized telecom has failed. After 4 years,  
> > operating revenues are 3% of projections and like the subprime  
> > mortgage fiasco, UTOPIA wants City Councils to keep them afloat on  
> > the taxpayers’ credit card by increasing their debt by 150% and  
> > extending their payments to 33 years.

Failed?!  I disagree.  It hasn't been a complete success, but it hasn't
failed either.  The definition of failure hasn't been met.

> >
> > The Utah Open Infrastructure Association (UTOPIA) began constructing  
> > its network in 2004. Promising a “future-proof” fiber-optic network  
> > offering super-high speed internet, the UTOPIA propagandists  
> > promised city council members “ubiquitous” coverage. In return, the  
> > city councils agreed to collectively guarantee hundreds of millions  
> > of dollars in UTOPIA bonds with sales tax revenues normally used for  
> > essential services like police and fire protection. (A clearer  
> > example of Marx’s infamous dictum, “From each according to his  
> > ability, to each according to his need,” couldn’t be found.)
> >
> >
> > Your Utah Taxpayers Association urged Utah cities not to join  
> > UTOPIA. We told them that cities shouldn’t compete with the private  
> > sector, that they shouldn’t wager millions of taxpayer dollars in a  
> > risky scheme.
> >
> >
> > We succeeded in keeping most Utah cities out, but 11 joined, and  
> > they pledged up to $202 million in sales taxes to pay off UTOPIA’s  
> > bonds. Of course, no one ever thought that might be necessary.  
> > Today, things look a little different.

These actions, by this organization and others like it, have been the
largest contributors to the lack of success of the project as a whole.
UTOPIA cannot "succeed" without gaining more traction into more areas.
They missed the whole point of the project.

> > UTOPIA’s next bond payment is due in just weeks, and they don’t have  
> > the money. Instead, they want member cities to adopt a new pledge  
> > agreement that increases each city’s annual payment, and stretches  
> > the pay-off time from 20 to 33 years. These changes increase  
> > taxpayer exposure from $202 million to $504 million. Call the City  
> > Council members in these cities, and tell them “No!” Tell them you  
> > have better things to do with the $504 million subsidy UTOPIA wants.
> >
> >
> > HOW MUCH WILL UTOPIA’S NEW AGREEMENT COST?
> > UTOPIA is asking for a massive 150% increase in sales tax pledges.  
> > If UTOPIA fails to meet their bond obligations, taxpayers could end  
> > up paying up to $504 million.
> >
> >
> >
> > SHOULD YOUR GRANDCHILDREN PAY FOR UTOPIA’S MESS?

More sensationalism... Just shut up already.

> > Unfortunately these city councils imagined that they’d do a  
> > municipal telecom project better with taxpayer dollars than the  
> > private sector with private investment. After all, the capital  
> > markets let them repay this debt over first 20, and now 33 years.  
> > And the capital markets let them put 4 years of payments on their  
> > credit card. If the private sector is so good at this, why do the  
> > capital markets require them to repay their debt in just 5 years?
> >
> > The problem with that analysis is that capital markets don’t care  
> > whether a city can run a telecom system. To repay its debts, UTOPIA  
> > and other municipal providers can simply increase taxes. For private  
> > providers to repay their debts, they have to actually succeed, and  
> > make enough money to cover their debt service, interest payments and  
> > operating costs.
> >
> >
> > The question these City Councils have to ask is, do they really want  
> > their grandchildren and great grand children to pay for UTOPIA’s  
> > mess? With a 33 year term, that’s exactly what will happen.
> >
> >
> > WHY HAS UTOPIA FAILED TO MEET ANY OF ITS FINANCIAL GOALS?
> >
> > As the next chart shows, UTOPIA painted a very rosy picture about  
> > their operating revenue. The reality has been very different.
> >
> >
> >
> >
> > The huge gap between their projected and actual revenues is hardly  
> > surprising, when you look at how many customers UTOPIA thought would  
> > buy their service and how many actually did, and at how much the  
> > average customer would pay for UTOPIA.
> >
> >
> >
> >
> >
> > Projected
> >
> >
> >
> > Minimum
> >
> >
> >
> > Actual
> >
> >
> >
> > Take Rate
> >
> >
> >
> > 55%
> >
> >
> >
> > 20%
> >
> >
> >
> > 17%
> >
> >
> >
> > Average Revenue per User
> >
> >
> >
> > $58
> >
> >
> >
> > n/a
> >
> >
> >
> > $28
> >
> >
> >
> > Difficult as it may be to believe, UTOPIA actually expected they  
> > would grab more than half the market. But to be conservative, they  
> > noted that a take rate of just 20% would allow them to pay their  
> > bills. Just 17% have actually signed up. And instead of paying an  
> > average of $58/month, they are paying less than half that, just $28/ 
> > month. In other words, the average customer isn’t buying anywhere  
> > near as many services as UTOPIA expected them to.
> >
> >
> > HOW WELL DO UTOPIA CITIES UNDERSTAND THE TELECOM INDUSTRY?
> > How could UTOPIA’s board and management have been so wrong about  
> > these basic financial projections? They don’t know the telecom  
> > industry. Their experience is in building and maintaining parks,  
> > sewers and roads. Those are critical infrastructure systems, but  
> > vastly different from the highly competitive telecom industry.
> >
> > In light of their failure, at least one UTOPIA city is finally  
> > willing to admit that they don’t understand the industry.  
> > Centerville Mayor Ron Russell recently told the Davis County  
> > Clipper, “I don’t think we have the expertise to do  
> > telecommunications analysis in-house.” That’s a rather astounding  
> > statement: Centerville is the only UTOPIA city with a city council  
> > member who works in the telecom industry.
> >
> >
> > STOP UTOPIA NOW
> > Given the utopian promises of “ubiquitous” build out, revenues  
> > streaming into the city coffers from new economic development, and  
> > the 2-year delay in making its first bond payment, UTOPIA and  
> > backers never believed the day of reckoning would come. But come it  
> > has.
> >
> > UTOPIA’s sheer cheek is utterly astounding. They have failed to  
> > achieve a single goal, but now they want a massive 150% increase in  
> > sales tax pledges. Now is the time for the 11 city councils to stand  
> > up and say NO! UTOPIA was a bad idea to begin with, but the new  
> > pledge agreement throws good money after bad. Instead of using the  
> > taxpayers’ credit card to pay for UTOPIA’s mortgage, the Mayors and  
> > City Councils in these cities should cut their losses by paying  
> > their bills, and salvaging what value they can by selling the  
> > network to private providers.





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