A Performance Audit of the Utah Telecommunication Open ...

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efinancing, the maximum amount pledged by the cities for 2012 isonly about $6 million. Figure 2.7 shows the maximum amount thatUTOPIA’s member cities may have to pay in 2013. The obligationincreases at a rate of 2 percent a year and will continue until the year2040.Figure 2.7 Cities May Pay Nearly $13 Million in Fiscal Year 2013.UTOPIA’s 11 member cities pledged a portion of their sales tax revenueas security for UTOPIA’s bonds. Due to revenue shortfalls, the cities maybe required to pay nearly $13 million next year for UTOPIA’s debt service.City2013 PledgeMidvale $778,700Brigham City 430,039Centerville 427,697Layton 2,146,598Lindon 395,126Murray 1,580,908Orem 2,802,924Payson 259,920Perry 105,494Tremonton 324,459West Valley City 3,593,091Total $12,844,956Source: UTOPIA financial statements.UTOPIA’s membercities must pay about$13 million (growing 2percent annually) eachyear that UTOPIA isunable to service thedebt on its bonds.The pledges represent the amounts needed to pay the annualinterest and principal owed to bondholders in the event UTOPIA isunable to pay. As of June 30, 2011, the total city contributions toUTOPIA’s Debt Service Reserve Account had reached almost $16million. That amount will continue to grow by about $13 million eachyear that UTOPIA continues to have an operating deficit. Thecontributions consist of public funds the cities have had to pay to helpUTOPIA cover its debt obligations. UTOPIA intends to repay thecities for their pledge payments once the network begins to generate apositive cash flow. In addition, eight cities also made financialcontributions to start the UIA. The following section describes someof the reasons that UTOPIA’s network is not generating the level ofrevenue needed to cover its operating expenses and debt service.- 12 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
UTOPIA’s Bond Proceeds WereNot Put to Productive UseFor any self-sustaining enterprise to succeed financially, whetherpublic or private, investment capital must be used for activities thatproduce a positive cash flow. UTOPIA has issued $185 million inbonds to pay the cost of building its fiber-optic network. Most of thebond proceeds have been invested in poorly utilized and partiallycompleted sections of network. As a result, the network is notgenerating sufficient revenue for the agency to cover its annual debtservice and operating costs.UTOPIA Has Raised $185 MillionIn Debt FinancingOn three occasions, UTOPIA has entered the bond market to raisethe capital it needs to build its fiber-optic infrastructure. UTOPIAissued bonds in 2004, 2006, and 2008 that raised a total of $185million in debt financing. By June 2010, UTOPIA had spent virtuallyall its $185 million bond proceeds. Figure 2.8 shows that 59 percentof the bond proceeds, or about $110 million, was spent on theconstruction of its fiber-optic network. UTOPIA used 26 percent ofthe bond proceeds, or about $48 million, to pay its debt service.Another 15 percent, or $27 million, was used to cover the agency’soperating deficits. These amounts only include costs through fiscalyear 2010 and do not include contributions or loans from membercities.UTOPIA’s bonds raised$185 million. Of thatamount only 59percent was used tocover infrastructurecosts.Figure 2.8 UTOPIA Has Raised a Total of $185 Million in DebtFinancing. The funds have been used to build the network infrastructure,cover the agency’s operating deficits, and pay debt service.Source: UTOPIA financial statements.Office of the Utah Legislative Auditor General - 13 -
Page 1: REPORT TO THEUTAH LEGISLATURENumber
Page 5: DigestA Performance Audit ofUtah Te
Page 9: Table of ContentsDigest ...........
Page 12 and 13: will be funded through UIA financin
Page 14 and 15: the organization’s general manage
Page 16 and 17: UTOPIA Did Not Reach Its Goal to Bu
Page 18 and 19: UTOPIA did notachieve its goal toco
Page 20 and 21: Figure 2.4 Summary of the Agencies
Page 24 and 25: One consequence of the slow growth
Page 26 and 27: factors in deciding where to build.
Page 28 and 29: completed in a timely fashion and h
Page 30 and 31: Figure 2.10 Seven Years of Operatin
Page 32 and 33: Figure 2.11 By 2010, UTOPIA Had Spe
Page 34 and 35: plan did not anticipate the difficu
Page 36 and 37: end of 2010, 3,698 former subscribe
Page 38 and 39: Uncollected revenuesfrom retail pro
Page 40 and 41: agreed to provide UTOPIA with a $66
Page 42 and 43: As problems mounted, the board deci
Page 44 and 45: The data in Figure 3.2 shows that,
Page 46 and 47: As stated previously, two possible
Page 48 and 49: This Page Left Blank Intentionally-
Page 50 and 51: UTOPIA Has a New Development PlanAi
Page 52 and 53: Centerville and in its legacy areas
Page 54 and 55: UTOPIA shouldidentify specific area
Page 56 and 57: e applied. Not surprisingly, we fou
Page 58 and 59: act in its entirety. Also, the agen
Page 60 and 61: Manual, which describes how local a
Page 62 and 63: in public, the executive committee
Page 64 and 65: separate public body that must comp
Page 66 and 67: public entities that are subject to
Page 72 and 73:
- 62 - A Performance Audit of the U
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This Page Left Blank Intentionally-
Page 76 and 77:
Page 78 and 79:
Five‐Year Plan Summary 2Agency (U
Page 80 and 81:
Five‐Year Plan Summary 4cities’
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