A Performance Audit of the Utah Telecommunication Open ...

UTOPIA’s major liabilities include $185 million of bonds payable,nearly $16 million in notes payable to member cities, and over $52million in interest rate swap liability. The swap liability is somethingthat need only be paid if UTOPIA terminates the bonds beforematurity. UTOPIA’s major asset is the fiber-optic network. Thedeferred outflow of resources, although shown as an asset, reflects theaccounting treatment of the swap liability. The interest rate swap isdescribed in greater detail in Chapter III.UIA had limited operations in fiscal year 2011, but Figure 2.6shows its year-end financial position statement. Most of the bondswere not spent and are shown as restricted investments. In addition,UIA and UTOPIA agreed to a capital lease agreement allowing UIAthe right to use the UTOPIA network over the next 30 years inexchange for lease payments.Figure 2.6 Summary UIA Statement of Financial Position, June 30,2011. UTOPIA’s liabilities exceed its assets by less than $1 million.AssetsMillionsFiber-Optic Network $ 1.5Intangible Right to UTOPIA Network 17.4Restricted Investments 25.1Other Assets 1.7Total Assets $ 45.7LiabilitiesRevenue Bonds Payable $ (29.8)Capital Lease Payable to UTOPIA (16.2)Other Liabilities (0.6)Total Liabilities $ (46.6)Net AssetsSource: UIA financial statements.$ (0.9)UIA also now has anegative financialposition.The financial statements shown above demonstrate that UTOPIAfaces serious financial challenges. However, as a public entity, backedby city sales tax obligations, the organization can continue operationsas long as it receives support from its member cities. The followingsection describes the liability to which the cities are exposed.Cities Must Follow Through on Their Pledges to BackUTOPIA’s Bond Payments. Because revenues have not beensufficient to cover expenses, let alone to cover debt service, andbecause UTOPIA has spent its entire bond proceeds, its member citiesare obligated to follow through on their pledges to provide sales taxrevenue as security for UTOPIA’s bonds. Because of recentOffice of the Utah Legislative Auditor General - 11 -