Minutes of the Centerville City Council Special Meeting held Tuesday, April 22, 2008 at 7:00 p.m. in the Centerville City Council Chambers, 250 North Main, Centerville, Utah.

MEMBERS PRESENT

Mayor:                            Ronald G. Russell

Council Members:      Justin Y. Allen
                                        Ken Averett
                                        Paul A. Cutler
                                        Sherri Lyn Lindstrom
                                        Lawrence Wright

STAFF PRESENT        Steve Thacker, City Manager
                                       Blaine Lutz, Finance Director/Assistant City Manager
                                       Randy Randall, Public Works Director
                                      Jaysen Oldroyd, City Attorney’s Office
                                      Kathy Streadbeck, Recording Secretary

VISITORS  Interested Citizens

PLEDGE OF ALLEGIANCE

OPENING COMMENT/LEGISLATIVE PRAYER Councilman Allen

PUBLIC HEARING – Utah Telecommunications Open Infrastructure Agency

Mayor Russell welcomed the public and explained that tonight’s public hearing is being held in order for the public to comment on UTOPIA’s proposed refinancing plan and also on the impact that the proposal may have on the private sector.
 
Presentation by UTOPIA

Alex Jensen, UTOPIA Chairman of the Board and Layton City Manager, said UTOPIA is asking each member city to review and adopt the proposed refinance plan in order for UTOPIA to meet their debt obligations. He said the refinance plan will allow UTOPIA the means necessary to continue to deploy the most effective and advanced telecommunication network in Utah. He said UTOPIA is on the leading edge of technology. Mr. Jensen reviewed UTOPIA’s current status, successes, challenges, key objectives, and board recommendations via a slide presentation (see attachment). He also reviewed the benefits of a UTOPIA connection and the proposed refinance plan.

Public Hearing

Mayor Russell reminded the public that tonight’s hearing is for the public to comment on the proposed refinancing plan and the impact this plan may have on the private sector. He explained that Centerville’s current obligation (maximum yearly sales tax pledge) is $334,126 for approximately 20 years. The new pledge amount (under the refinance plan) would be $387,378 the first year and then a 2% increase every year after that for 32 years. The present value of the existing obligation is $4,855,454 and the present value of the new proposed pledge amount is $8,327,732.

Mayor Russell opened the public hearing.

George McEwan, resident, said he is against UTOPIA and sees the same tactics being used today that were used four (4) years ago when UTOPIA was first presented. He said there is no financial model that makes sense with the numbers that have been provided. He said the city is already taking a lump with UTOPIA and he asked the City Council not to ransom the future of the community with a project that has already proven to be a failure. He said the documents provided do not show what the proceeds will be used for. He said the majority of the refinance will go toward debt obligations with only $11 million dollars left to move forward.  He said he cannot see how 11 million dollars will be enough to complete UTOPIA in all 11 member cities, when the average fiber price is $1 million dollars a mile. The math does not make sense. He said the City should pay their current obligation and not move forward with the proposed refinance plan. He said he believes technology will move forward and other options will become available.

Dwight Stringham, resident, said he spoke in favor of UTOPIA when it first came out, but with caution. He said three questions need to be answered with respect to UTOPIA. Is it technology truthful, is it politically proper, and is it financially feasible? He said it is technologically truthful in that it can deliver a wider band width. He said it is politically proper in that is allows more choices for the subscriber. This is the first time that the content of a network and the ownership of the network are separate. This will allow service providers to deliver more choices to their customers. He said he can see several creative services being possible on this network. He said the refinance plan could prove to be financially feasible. The debt consolidation could work, but he sees a barrier with the proposed start-up/connection fee (between $1,000 and $3,500 per house hold). He said the network needs to be mass marketed. This could eliminate the need for a start-up fee. He would like to see some creative options for getting past this barrier. 
Pete Ashdown, Founder and President of Xmission, said Xmission is a service provider on the UTOPIA network. He said he is not here to speak about the refinance plan or to protect his self interests. He said he would like to discuss the past and the future. He said he started Xmission with a 1.5 megabyte connection, which was considered vast at the time. Today Xmission services its customers with a 3 gigabyte band width, this is 200 times larger. He said band usage will continue to increase. He explained that roads have not turned a bit of profit and there was no business model for roadways when they were envisioned, yet the economic benefit is clear. He said not to sell the future short by leaving services to the incumbents. There is no other way, than fiber, to provide services across nations and under the sea floor. He said his services cannot be run on cable or wireless, at some point fiber will be the only option. Fiber optics is the end game. Government should provide the level playing field for service providers.

Troy Laneir, resident, said his family moved to Centerville because it was a cut above the rest. He said UTOPIA will keep Centerville on that edge. He encouraged Centerville to approve the refinance plan.

Jerry Cook, resident, said adequate high speed internet access is already available in the city if you are willing to pay. He said his business has already run the necessary T1 lines for high speed internet. He said UTOPIA is just a way of getting others to pay for your connection. He said UTOPIA mentioned they are not going to cherry pick construction. However, UTOPIA also said they are only going to construct the lines in viable areas. This is cherry picking. He said the start up fee is significant and he does not believe that individual households will be willing to pay. He also asked why RUS has failed to fund the loans for UTOPIA, perhaps because they have a flawed business model. He said 2% a year does not seem that bad, but over 33 years that is 66%; this is too great. He said UTOPIA is asking Centerville to be a co-signer on a loan. This is a bad decision. Centerville should pay their current loan and not approve the refinance plan.

Mark Koon, resident, said he is in the telecommunications business. He said band widths will not be at 100 megabytes as suggested by UTOPIA. This band width will be shared by service providers and the full capacity will not be entering individual homes at all times. He said wireless does have a new high speed capability coming called WiMax. He said technology is changing. He said funding this does not make sense; other options will become available in the future.

Howard Stephensen, President of the Utah Tax Payer Association, said the Utah Tax Payers Association has been opposed to UTOPIA from the beginning. He said the business model is not based on correct principles. Any loan set out for 33 years should be considered a red flag. The only reason this loan period is allowed is because tax payers are holding the bag. He said this is not a viable plan and Centerville should cut their losses and pay their debts while they can, thus minimizing the strain on tax payers. He said the demand for UTOPIA is not there. UTOPIA’s track record shows that the take rates are only 1/3 of what was originally projected and the revenue per customer is only half of what was projected. No wonder RUS pulled their funding. He suggested the Council take more time to research and obtain information. He said they should not be hasty in making their decision. He suggested that more independent studies be requested to get the facts. The Council should take their time and not make any decisions under duress. He said the City could exercise their pledge (first year already set aside) to request more information in order to make a more prudent decision. He suggested UTOPIA be requested to seek proposals for purchase. The City should get the best deal they can and minimize the exposure to tax payers.

Morris Jackson, resident, said he was skeptical of the business plan in the beginning and it does not appear to be any more sound now. He said he is not encouraged that the new plan will work. He asked what happens if all the members cities do not vote in favor of the refinance plan. He said the proposed start up/connection fee is significant and it would take a subscriber a number of years to make up that cost. He can not see how anyone would be willing to pay this cost. He feels approving this refinance plan will only cause a greater deficit to tax payers.

Mike Wilden, resident, said he is a technology junky. He said the current cost for high speed internet is a burden. He said the start up fee for UTOPIA seems high but could be amortized over a period of time making the cost less of an impact for subscribers. He said UTOPIA appeals to him; however, the cost of the new refinance plan over several years and possible tax increases do not appeal to him. He said there is a lot of technology out there and although fiber optic seems to be the way of the future, there are other technological advances that may take its place in the future.

Dan Ditto, resident, said he has some reservations with the refinance plan. He said he already has adequate and affordable internet service. He said large developers may be interested in UTOPIA, but is Centerville really interested in large developers (i.e., high rise apartment complexes). He said it seems that more cities are steering clear of UTOPIA than are signing up. He feels UTOPIA is not being deployed widely enough to make services cost effective. He said it seems the start up fee is tremendously counter productive. He said he would like to see more detailed financial projections since it is the tax payers that are being asked to be the guarantor of the loans. He said the tax payers need more confidence that this plan will work.

Eric Isom, Qwest Government Affairs Director, said he strongly disagrees with the refinance plan. He said he has worked with many of the members of UTOPIA and has a great personal respect for them, but disagrees with the new plan. He asked why the government is choosing not to fund the RUS loans. He said he wonders what the Federal Government knows about UTOPIA and their business plan that has not been shared with the general public. He said the track record of UTOPIA and the track record of private companies over the past four (4) years have been very different. UTOPIA has struggled and private companies are thriving. UTOPIA is now asking for greater pledges from member cities and start up fees from subscribers. He said UTOPIA’s take rate projections are an aggressive assumption. UTOPIA’s business model does not work and will only subject tax payers to additional risk. He encouraged Centerville to vote against the refinancing plan. He said Qwest has just announced they will spend a significant amount to increase their speed and capabilities. He said Qwest would like to work with Centerville to make sure advanced services are available throughout the city.

Paul Seager, resident, said he currently uses Qwest for services and has been trying to upgrade for the past five (5) years without any luck. He said it would be nice to have some other service provider options. 

David Dean, resident, said the refinance plan will only increase taxes. He said it appears UTOPIA is cherry picking construction and the start up fee is too high. He said the City should use bond money to maintain critical infrastructure, not to dabble in the private sector. He encouraged the City Council to take their time in making this decision and to carefully consider each issue.

Donald Dean, resident, said he would not be willing to pay the excessive start up fee for services with UTOPIA, especially in addition to raised taxes.

Mark Austin, resident, said he has reservations about the refinance plan. He said the City should oppose the refinance plan and cap their losses. He said the start up fee seems pretty high. He said most people don’t need 80-100 megabytes per second and will not be willing to pay the start up fee. He questioned what the monthly projected costs for services will be. It seems there are still a lot of unanswered questions. He said there needs to be a bigger effort to inform citizens since they are the ones that are standing behind the financial commitments. He feels the majority of the citizens do not want UTOPIA. He said a poll should be conducted to see how citizens really feel.

Steve Allen, resident, said he would like to see UTOPIA and their increased speed at his house. He said the only option he has for services right now is Qwest. He said he could get Comcast to come to his home for about the same start up fee as projected by UTOPIA. He said although he would like to have other service options, he does not believe that most individuals will be willing to pay the start up fee. He said his wife polled one-hundred (100) residents in his neighborhood and only one (1) said they would be willing to pay that fee. He said this does not bode well for the take rate in his area. He said it is true that developers are interested in running fiber optics in new subdivisions until they discover how much it costs. He said fiber optic is desirable, but he is not convinced that the refinance plan has been thoroughly thought through and will work in Utah.

Jeff Burnham, resident, said he does believe that government should be in the business of infrastructure, yet this particular case raises a lot of questions. He asked if it would make sense to discuss with private companies what other options may be available. He said high speed technology already exists. Qwest will run the necessary lines for a price. If residents are not willing to pay for that cost, why would they be willing to pay for UTOPIA.

After seeing no one else requesting to speak, Mayor Russell closed the public hearing.

Deliberation

Councilman Cutler responded to several of the questions raised by the public. He explained that $10 million dollars will be left over from the refinance plan for construction and there are additional monies (from other sources) that will also be used for continued construction. He said the start up fee may sound counter productive, but explained that UTOPIA studied the markets where similar networks have been financially successful and which required a connection fee. He explained that services can be acquired with zero down. The connection fee does not have to be paid up front. Programs will be made available to pay this fee on a monthly basis. He said that the fees for services on the network will be significantly reduced. UTOPIA does not expect anyone to take services if they do not view it as a better value than what is currently available.
Councilman Cutler explained that it may not be necessary for all member cities to vote in favor of the refinance plan. However, if one of the larger member cities opposed the plan then it may be detrimental to UTOPIA. Centerville is not considered one of the large member cities. He said UTOPIA will provide a level playing field for service providers and it is better for government to pay for that playing field. If the Council chooses not to support the refinance plan then the City will be required to pay their debt service of $334,000 a year for the next seventeen (17) years. He said he believes there to be more value to Centerville to refinance and fix the problems. This will make service providers more successful in offering services to subscribers.

Alex Jensen said that RUS claims they pulled their funding because they became concerned with the take rates (less than projected) and the delays in construction. He said this then became counter productive for UTOPIA who could not continue construction without funding. He said that Congress has provided RUS with $3 billion dollars to help fund telecommunication systems in rural areas because the government recognizes that some areas of the country may not be economically viable for private companies. UTOPIA is trying to service a need that may not be feasible for private companies.

Mr. Jensen explained that if the refinance plan is not approved then taxpayer money will be used. He believes there is enough interest in the network that UTOPIA will move forward in some form. He explained that it is possible for Centerville to sell their portion of the network. Private companies would be interested in purchasing those assets. He said the overall goal of all the member cities was to do what was best for the network. He said he is hopeful that the member cities will pull together and continue to make this network a success. The refinance plan will ensure that Centerville will get built.

Councilman Averett questioned if it would be possible to opt back into the network at a later date. He said if Centerville opposes the refinance plan and UTOPIA moves forward proving it can be successful, could Centerville increase their pledge and opt back into the program in the future. Mr. Jensen said if cities start to pull out of the network to protect their interests then less money will be available, thus diminishing the probability of success. He said the refinance plan takes into consideration all member city pledges, any one of those lost pledges could potentially hinder UTOPIA’s success.

Councilman Wright said he is concerned with the details of the refinance. He feels that by the time UTOPIA finishes restructuring and pays their debts there will not be enough money to move forward. He said he would also like to see an audit done by the State Auditor of UTOPIA to identify where mistakes have been made.

Mr. Jensen clarified that the refinance will pay all of UTOPIA’s debt obligations and still provide $10 million dollars for continued construction and deployment of the network.

 Mayor Russell said it was requested by the public that the City Council take their time, solicit additional information and make a more informed decision at a later date. He questioned what ramifications this course of action may have. If all member cities chose, collectively, to step back what defaults may occur?

Mr. Jensen said there is a fine balance between due diligence and pushing forward. UTOPIA has done their due diligence. He said UTOPIA has obtained an independent feasibility study that has shown this refinance will work. At some point a decision needs to be made. He said it seems a better position for a City Council to convince their citizenry of a plan when there has been no default on a loan.

Councilman Wright said the refinance plan is significant. He said there is no way of knowing what crisis or other obligations may face the City in the future and having this type of debt could be detrimental. He said if taking more time would help understand the situation better or provide for better options, then he would rather pay the debt service now and take that time. He feels the take rate projections and marketing plan are problematic. He said, with UTOPIA’s track record, he does not feel he can vote in favor of the refinance at this time.

Councilman Cutler said he has been working closely with UTOPIA (on a volunteer basis) for the past six (6) months. He said Centerville could take more time to make a decision, but it would cost. He feels it would be better to put the assets that are already in the ground to use and start to recoup some money in order to move forward. He said if the refinance was approved construction in Centerville could start again by June.

Steve Thacker, City Manager, said there were some illustrations provided in a previous meeting showing how the start up fee, paid on a monthly basis, combined with the monthly service fees would be about the same as the monthly fees currently being paid to existing private companies by individual subscribers. He asked if those illustrations could be shared with the public.

Mr. Jensen said those illustrations are available, but he does not have copies of them this evening. He said it is likely that the monthly service fees (including start-up portion) will be less than what individuals currently pay for the same services. He said it would not be wise to reveal UTOPIA’s pricing as there are competing private companies in attendance this evening. Mr. Jensen explained that UTOPIA hosted three focus groups and it is clear that there is a demand for this service and that demand will increase over time.  

Councilman Wright said he agrees there is a demand for high quality telecommunications. He said he is not sure if UTOPIA’s model is going to fill that demand or if it is in sync with the demand. He said this is why he feels taking a little more time to research the issues may be prudent.

Councilwoman Lindstrom said private companies already have plans to roll out high speed telecommunication packages. She reviewed Comcast’s and Qwest’s plans for high band width and the costs associated with those services. UTOPIA connections will become a part of that home and its value. She said some member cities are already seeing the economic development benefits of UTOPIA and she would like to gather that information for further review if possible. She agreed that a 33-year debt is significant, but she also does not want to deny the community the opportunity of educational value in a global economy. She said she was concerned at the onset of UTOPIA, but feels that sometimes you need to have the courage to be a pioneer. She said she feels she has been adequately informed and educated regarding the issues and she is happy to move forward with a vote. She said she is also comfortable tabling this issue in order to gather additional information if that information is provided in a short amount of time.

Councilwoman Lindstrom made a motion to table this item and direct staff to gather data on Centerville’s economic development prospects as well as information on the current demand for this network. Councilman Wright seconded the motion.

Mayor Russell said there may be some wisdom in sitting back to see how other member cities are voting. Centerville is a relatively small player. He asked when this decision needs to be made. Mr. Jensen respectfully recommended the Council make their decision by April 30, 2008. He said UTOPIA would also be happy to help Centerville’s staff gather any desired information.

Mayor Russell questioned what information could be gathered in this short period of time that might be useful in this decision. He said, in the end, the decision will be made on the information that has been gathered thus far and how confident individual Council members are with the studies that have already been provided. If more time is needed to review that information and ask questions, then that may be appropriate.

Councilman Averett said he does not think there is any benefit in delaying the vote. He said he has spent a great deal of time pouring over the information and is prepared to make as intelligent a decision as he can. He said it would be a disservice to City staff and UTOPIA if this decision is delayed. He said the question is very clear, is the City willing to double their commitment to UTOPIA, based on the facts already presented. He said the Council members have been elected as leaders in the community and it is time for the Council to lead out, whether it is popular or not.

Councilman Wright withdrew his second to the motion. Councilman Allen seconded the motion to table this issue made by Councilwoman Lindstrom.

Councilman Cutler said making this decision based on the marketing plan is not a wise choice. The Council needs to decide if they are committed to funding a high quality telecommunication infrastructure or whether they would rather pull the pledge amounts now.

The motion to table passed with a roll-call vote of 3-2. Councilman Averett and Councilman Wright opposed.

Councilwoman Lindstrom made a motion to continue this item to Tuesday, April 29, 2008 at 7:00 p.m.  The motion was seconded by Councilman Wright and passed by unanimous vote (5-0).

At 10:45 p.m. the meeting was adjourned.