As I have mentioned before, UTOPIA is bound for failure. I can’t find the original post I made about UTOPIA, but I remember posting that when it failed the burden would be placed back on the citizens.
Well, the failure is eminent, and the burden is already falling on to the backs of the citizens.
First let me address why UTOPIA is failing. And while I don’t wish to discount the flawed business model, it appears from this article, that the failures are from the directors of UTOPIA who are making very poor financial decisions:
It happened because UTOPIA was forced to refinance using a 30-year, variable-rate bond, which it then tried to stabilize by contracting with a bank for credit swaps, with the net result being “a wash” for the fiber-optic company’s finances, according to UTOPIA finance director Kirt Sudweeks. When Lehman Brothers declared bankruptcy and the credit markets went haywire last autumn, that deal fell apart, leaving UTOPIA with monthly interest payments between $50,000 and $300,000 higher than planned.
I am no financial expert, but I do know better than to get involve in variable-rate loans. But when you start bouncing money around like a child’s toy ball, you need to really start asking yourself if it is worth the effort, let alone the risk. While one can’t discount the struggling economy as part of the problem, that is a risk that you take when you get a variable-rate loan, and then move it around like they have.
The saddest part of this whole ordeal is that the tax payer is going to have to pay the brunt of it. In order for a city to sign on to UTOPIA, they had to set aside money as a back back up for the project. It was promised to the cities that this money would go untouched until the project became financially stable. And yet, the promise is now broken.
At least one of the cities is now reporting that they only have a third of their city cover with fiber-optic networking. With only a third of the project done and they need more money. It makes one wonder. Even if this money was enough to get the second third built, where are they going to get the money for the last third of the project. It most likely isn’t going to happen.
This brings me back to the fundamental point I have always made about government involvement in the private sector. Get your hands off. If this was bound to be successful, then banks or venture capital or some other form of private funding would have funded the project. But because they couldn’t get private money to build the fiber optic infrastructure, they went to the cities. And city council members bought the idea because they were promised big returns for a small investment.
It’s time for the UTOPIA cities to wisen up. They need to get out of this project now.
Unfortunately, it is probably too late because the building has begun. Sorry, if you live in a city that is funding UTOPIA, you might as well start preparing to pay more taxes, because your neighbor wants a fiber optic line that he can’t afford.
Update (22 Jun 2009): Representative Craig Frain offers a brief commentary on this same article.