UTOPIA may get $10M from feds to settle suit

November 15th, 2014

 Article was originally published in the Salt Lake Tribune by Tony Semerand on November 12, 2014

UTOPIA’s managers are close to settling a lawsuit that officials say reflects a painful chapter in the history of the fiber-optic network.

UTOPIA Board Chairman Wayne Pyle said the federal Rural Utilities Service (RUS) has agreed to pay $10 million to end a seven-year dispute about loans for building rural portions of the high-speed system that runs through 11 Utah cities.

The lawsuit, filed in September 2011 with the U.S. Court of Federal Claims, was scheduled for trial last July. Pyle and others said federal lawyers have now approved a settlement and are processing the paperwork.

Court documents indicate the presiding judge, Thomas C. Wheeler in Washington, D.C., has ordered attorneys to provide an official update on the settlement as soon as Monday.”It’s a relief,” said Dave Shaw, a Salt Lake City attorney who serves as UTOPIA’s general counsel.

“This certainly was not the easiest of cases. The settlement amount is enough that we feel vindicated in having brought this action.”

Justice Department spokeswoman Nicole Navas said she could not comment on the case while it remains pending.

Short for Utah Telecommunication Open Infrastructure Agency, UTOPIA was created in 2004 by a consortium of Utah cities hoping to deliver lightning-fast broadband capacity to their residents and businesses. The municipal network remains incomplete and has struggled to make money.

Early in UTOPIA’s 10-year history, it sought up to $66 million from RUS, an arm of the U.S. Department of Agriculture that provides cash and technical assistance for rural development of utilities such as water, power and telecommunications systems.

Although RUS officials initially encouraged UTOPIA to seek the loans, the federal agency took 19 months to approve its first payment, UTOPIA officials later would claim. That delay, according to UTOPIA’s lawsuit, cost it “millions in unanticipated expenses” and put the agency on a shaky footing with vendors and future customers.

RUS split its lending into three parts. UTOPIA received a first installment of about $21.3 million and funneled it toward building the network in more rural communities within its member cities, including Tremonton, Brigham City and Perry. UTOPIA also signed contracts for network construction into Centerville, in anticipation of getting more RUS money.

In 2008, RUS withdrew its support, officially citing what it called “material adverse events.” UTOPIA leaders later said RUS officials pointed to a loss of confidence in UTOPIA’s finances, management and marketing plan.

“There was never a formal reason given,” Shaw said.

Whatever the cause, the RUS reversal dealt a major blow to extending the fiber-optic grid to residential and commercial customers across the member cities, with lasting fiscal and political effects.

“It was probably the biggest setback we’ve faced along the way,” said Midvale City Manager Kane Loader, a UTOPIA board member. “It just absolutely killed us.”

The RUS “debacle,” as Loader recently called it, effectively stalled network completion, leaving nonrural UTOPIA cities such as Layton, West Valley City and Orem with partial buildouts compared to smaller member cities.

Faced with paying back the initial RUS loan, UTOPIA refinanced most of its debt. That restructuring in 2008 forced it to accept some unfavorable conditions that continue to complicate UTOPIA’s budgets.

“The biggest expense to date on this project has been interest,” Shaw said. “But without the refinancing, there was not a path forward.”

Pyle, who is also city manager in West Valley City, said UTOPIA’s governing board has not yet decided how to spend the settlement.