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

[Jonathan Duncan]

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.


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.
>
> 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.
>
>
> 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?
> 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.
>
>
> IF YOU LIVE IN A UTOPIA CITY, CALL YOUR MAYOR AND CITY COUNCIL, AND  
> TELL THEM TO VOTE “NO!” ON THE NEW PLEDGE AGREEMENT.
> You can find the email addresses of the Mayors and city councils in  
> UTOPIA cities on our website, www.utahtaxpayers.org.
>
> Utah Taxpayers Association
> 1578 West 1700 South, #201
> Salt Lake City, Utah 8410
>
> 801-972-8814 -- www.utahtaxpayers.org -- utahtaxpayer.blogspot.com

Regards,
Jonathan