Documents: UTOPIA burdens Orem finances, elected leaders

Orem • Provo is getting out of the broadband Internet business, but Orem is still very much in it.

The April announcement that Google will buy Provo's fiber-optic network iProvo came after a contentious nine months for city leaders in Orem, the second largest of 11 Utah cities backing another financially troubled municipal network, known as UTOPIA.

"I was very surprised," Richard Manning, Orem's director of administrative services, said of Provo's Google deal.

"We wish them nothing but great success,'' said Manning, who also heads one of UTOPIA's governing boards. "And you know, if Google does well there, then their wandering eyes may look north.''

Orem also tried to woo Google into taking over its UTOPIA network and even submitted a slick two-minute promotional video to the Internet search company in 2010. So did several other Utah cities that have pledged millions of dollars in tax money to UTOPIA (Utah Telecommunications Open Infrastructure Agency).

Cities created the agency 10 years ago to build a hyper-fast network capable of delivering light-speed access to residents of participating cities. But mismanagement, bad luck and a lack of subscribers have left the network only 40 percent complete and saddled with huge debt. Orem alone owes over $100 million and network construction within its city limits is only about a third complete.

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Mounting concerns • Emails The Salt Lake Tribune obtained from Orem through an open-records request offer a glimpse of the complex and sometimes messy relationship between public officials and professional managers tasked with making UTOPIA, and its sister agency, the Utah Infrastructure Agency or UIA, financially solvent.

While data show UIA and UTOPIA have improved their finances recently, the agencies are losing at least $200,000 a month after years of running higher deficits. That's on top of up to $500 million or more member cities from Tremonton to Payson could eventually owe UTOPIA bondholders, including principal and interest.

Orem is on the hook for about 20 percent of that debt, and internal city documents reveal the stress its UTOPIA involvement is creating. Those difficulties have been compounded, several officials said, by the death in 2010 of longtime Orem City Manager Jim Reams, who many described as a font of knowledge on UTOPIA and its finances.

"Both Orem and UTOPIA suffered greatly from his loss,'' UTOPIA Chief Executive Todd Marriott said.

Orem's leaders faced tough questions and a few verbal attacks from constituents starting in August when a state audit criticized UTOPIA's management and business practices, questionable accounting and massive debts.

Noting in October that UTOPIA's business model and its levels of borrowing will make breaking even "very difficult,'' Manning told his Orem colleagues: "I have no answers.''

In one of several irate constituent emails, resident Michael Arnold accused Councilwoman Mary Street of "bias'' and "entanglement'' simply for representing Orem on UTOPIA's board. Arnold also demanded an explanation for why Provo's fiber network appeared on paper to be better off than the one in Orem — well before Google stepped in.

Provo has its own electric utility, Street shot back, "so their own city employees installed the fiber.'' As to the accusation of bias, she said, "It isn't a matter of bias for me to say that we have to finish what we started,'' Street wrote to Arnold. "We are going to pay for it whether we finish it or not.''

Not all citizen input was negative. Orem resident Aaron Orullian wrote to thank key council members "for your courage'' after one confrontational meeting and called those in attendance "rude and disrespectful.''

"I didn't know we had so many uninformed and ignorant people in our city,'' Orullian wrote. "I understand your pressure with this UTOPIA issue, but we as citizens need to stop being crybabies and deal with the problem.''

UTOPIA controversy also divided the City Council, at times bitterly.

Several elected leaders took issue with statements by fellow Councilman Hans Andersen, who at one point was a lone vote opposing a UTOPIA funding proposal. Amid the debate, Andersen routinely sent run-on and sometimes sarcastic emails to his colleagues, slamming UTOPIA and straining the council's prevailing tone of politeness.

Councilwoman Margaret Black drafted a list of concerns over Andersen's "denigrating remarks in newspaper articles, group emails and on his weekly radio program about the City Council. … Many citizens are offended by his behavior.''

Behind the scenes, Manning and elected leaders pressed UTOPIA managers for a thorough discussion of the audit, along with information on alternative directions for the agency, including the prospects of selling the network or even "going dark.'' Emails suggest UTOPIA managers seem hesitant to entertain the "go-dark" scenario. At one point, Manning called their evaluation of the option "cursory.''

In October 2012, UTOPIA lawyer Dave Shaw produced a detailed look at "going dark."

Even if the network was shut down, Orem still would have to contribute up to $116 million of its sales and business-franchise tax revenue toward the bond obligations, his analysis determined. Refusing to pay would lead to litigation by bondholders as well as lawsuits from third-party contractors, Shaw wrote.

The risks, the lawyer concluded, "are broad, varied and costly.''

In the months that followed, angry Orem residents filled public meetings; some urged the Orem officials to halt UTOPIA support and shut the project down. After one fractious meeting in February, Orem put on hold a plan to loan UTOPIA money for operational expenses. Murray would ultimately do the same, while Centerville only approved the loans with specific conditions. Other cities have approved them.

Manning emailed Kirt Sudweeks, UTOPIA's chief financial officer, to say the city wouldn't provide the funding "until we get everyone settled that we're acting appropriately in paying without holding a public hearing to amend the budget.''

"We feel we are on good footing in how we have handled this,'' Manning wrote.

"OK, I understand,'' Sudweeks replied. "Nothing we do can ever be easy!!''

The emails also make clear that UTOPIA continues to operate with powerful business competitors and advocacy groups breathing down its neck.

In late February, a lobbyist for telecommunications giant CenturyLink sent an unsolicited analysis to officials of all member cities, saying it had "serious legal concerns'' over the plan to loan UTOPIA funds for operational expenses and threatening to sue.

"CenturyLink understands that UTOPIA is in a very precarious financial situation,'' the letter, penned by Salt Lake attorney Gregory Monson, warns, "however, this situation does not entitle UTOPIA to disregard the law.''

UTOPIA officials quickly mobilized their lawyer in formulating a response "to head this off!'' wrote UTOPIA board Chairman Kane Loader.

The "UTOPIA conundrum,'' as UTOPIA Chief Executive Marriott calls it, is often a high-pressure and time-consuming distraction for officials from member cities, including Orem. For their part, Orem's leaders acknowledge the legal, financial and public-relations difficulties created by their UTOPIA involvement.

But UTOPIA bonds obligate the cities to keep paying for decades, making the prospect of junking the struggling fiber network and emerging with nothing even less palatable than the status quo, officials say.

"We're not taking care of our own assets like we should because of UTOPIA,'' Manning said of the city's budget. "We've been very open about that. We've taken a fair amount of heat both from our partners in UTOPIA and from the public.''

"They tell us, 'Well, get out!''' he said. "But we can't."

tsemerad@sltrib.com —

What is UTOPIA?

Short for Utah Telecommunication Open Infrastructure Agency, UTOPIA is a municipal fiber-optic Internet network for residents and businesses. Being built in 11 Utah cities, it has download and upload speeds up to 100 times faster than Xfinity's cable Internet or CenturyLink's DSL network. Customers buy broadband service from independent Internet service providers contracted with UTOPIA to use its open network. —

Read the documents

Emails and other documents The Salt Lake Tribune obtained through an open-records request are available online at sltrib.com. —

Let's chat about UTOPIA

At 11 a.m. Tuesday, UTOPIA Chief Executive Todd Marriott, Provo Mayor John Curtis and others will join Trib Talk host Jennifer Napier-Pearce for a live video chat at sltrib.com. You can ask questions or make comments via Twitter or Google+ using the hashtag #TribTalk.