This is an archived article that was published on sltrib.com in 2008, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
People with subprime mortgages aren't the only borrowers in Utah looking to refinance.
So is the Utah Telecommunications Open Infrastructure Agency, otherwise known as UTOPIA, a troubled public venture to build fiber-optic networks. It is backed by pledges of sales taxes in its 11 member communities.
UTOPIA wants to issue up to $189 million in bonds, part of which would be used to retire $135 million in existing debt that carries a higher interest rate. But the term of the new debt also would change, from 20 years on the current bonds to 33 years for the new ones.
Taxpayers in the 11 Utah cities that are part of UTOPIA already are on the hook for up to $202 million in sales-tax revenues if the venture fails. If the new debt is issued, that risk would be magnified for a longer term.
Given UTOPIA's track record so far, that's not a good investment. The cities might be better advised to take their losses now and unwind this deal before they get in even deeper. Doubling down is not a good bet, particularly in a recession.
We have been dubious about UTOPIA since it was first pitched to Utah cities in 2004. At the time, we argued that governments should not be dabbling in the high-risk, volatile telecommunications market when private companies already have invested heavily in their own systems. When Qwest, Comcast and other suppliers are competing to provide a service, we do not see the need for a government-financed, tax-exempt network.
What's more, we worried about betting tax revenues in this high-stakes game.
Our fears of a bad deal going bad have been realized. UTOPIA has not called on tax revenues to bail itself out yet, but the venture's dismal financial performance has made that a distinct possibility. That's why it is attempting to refinance.
So far, the number of subscribers and the amount of revenues have fallen spectacularly short of the break-even point for operations and debt service.
Now, the city councils in West Valley City, Orem, Layton, Murray, Midvale, Brigham City, Centerville, Lindon, Payson, Tremonton and Perry must decide whether they are willing to back UTOPIA's refinance plans with a longer, deeper exposure of their sales tax revenues. Instead, they should be looking to fold this deal, liquidate the assets and take a smaller loss now rather than risk a bigger one down the road.