A Performance Audit of the Utah Telecommunication Open ...

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Figure 2.10 Seven Years of Operating Deficits Have Cost $27 Million.During UTOPIA’s first seven years of connecting customers (since 2005),it did not generate revenues sufficient to cover the agency’s operatingcosts, which have averaged $5.5 million a year.UTOPIA’s increasedrevenue in 2011 isattributable topayments made byUIA.Source: UTOPIA financial statements.Figure 2.10 shows that UTOPIA’s operating revenues, shown ingreen, have been consistently below its operating costs, shown inyellow. During fiscal year 2011, roughly $3 million in residentialaccess fees (green bar) plus a $2.1 million payment from the UIA(light green) comprised the operating revenues. Business installationfees also generated a small amount of revenue.As for the operating expenses (shown in yellow), the payrollrepresents the largest single operating cost at about $2.5 million infiscal year 2011. Professional services cost $1.4 million that year. Thecost of accessing the network added $1.5 million and UTOPIA spentanother $700,000 for materials and supplies.Figure 2.10 shows that after seven years of connecting customers,UTOPIA has yet to achieve a positive cash flow. In 2011, UTOPIA’srevenues increased to the point of almost equaling its operating costs.However, the increase in revenue is largely attributable to theadditional funds received from UIA. Although UTOPIA hassuggested that the increased revenue in 2011 demonstrates a markedimprovement in the agency’s financial condition, we question whetherreliance on payments from an affiliate truly represents animprovement. Because those receipts are actually payments from- 20 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
UIA’s bond proceeds, rather than customer receipts, we believe that“revenue” is actually a transfer of debt financing from one entity toanother.Because UIA had no real operating revenues of its own and useddebt to pay for its use of the UTOPIA network, UTOPIA should notview UIA’s payments in the same light as revenue from sales. Whenthe revenue from UIA is excluded, UTOPIA’s operating revenues arestill below the levels posted in fiscal years 2008 and 2009.Furthermore, during fiscal year 2011, UIA posted an operating deficitof its own, amounting to $687,780. That deficit was largely due to theagency’s start-up costs and the cost of financing its bond issue.Combined, UTOPIA and UIA suffered operating deficits in fiscal year2011 amounting to $1.6 million. A true improvement in the agencies’combined financial position will occur if and when they can reducetheir combined operating deficits.UTOPIA Has Also Used Bond Proceeds to Cover Its AnnualDebt Service Obligations. If UTOPIA’s business plan had beencompleted in 2007 as intended, a larger number of subscribers wouldbe receiving service and paying the fees UTOPIA needs to cover itsdebt obligations. In fact, the original plan anticipated the networkwould have been built and generating revenues before interest expensegrew to the present levels. Instead, completion of the network wasdelayed. UTOPIA was therefore unable to develop the customer baseit needed to generate revenues and cover its annual debt obligations.By 2008, the annual debt service grew to roughly $13.1 million (seeFigure 2.11).UTOPIA has beenusing bond proceedsto make interestpayments on thebonds.Office of the Utah Legislative Auditor General - 21 -
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 22 and 23: efinancing, the maximum amount pled
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 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
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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
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Page 78 and 79: Five‐Year Plan Summary 2Agency (U
Page 80 and 81:
Five‐Year Plan Summary 4cities’
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