Free Market

Utah’s UTOPIA: Necessary Infrastructure or an Illegitimate Pseudo-Market?

A showdown in Orem earlier this week highlighted some of the (significant) problems faced by the Utah Telecommunication Open Infrastructure Agency, commonly known as UTOPIA. It also puts on open display the rampant violation of property rights and the fundamental misunderstanding many people have of what free enterprise actually is.

A decade ago, UTOPIA began as a confederation of sorts between its member cities, now numbering at 16: Brigham City, Cedar City, Cedar Hills, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Riverton, Tremonton, Vineyard, Washington, and West Valley City. Banding together to build an infrastructure for fiber internet access, they were told by UTOPIA that the service would be high in speed but low in cost.

To date, around $185 million in taxpayer dollars have been funneled from taxpayer pockets to those of UTOPIA. Member cities are required to make annual payments of nearly $13 million simply to discharge the debt on the bonds.

And while all property owners are being forced to fund this technological morass, not all of them can even benefit from the service. UTOPIA promised to have their network built out to all 141,000 households within the member cities by 2007, but to date have only made it available to well below half that number, 58,000. Further, while estimates predicted that 58,000 people would become UTOPIA subscribers by 2007, only 10,000 are subscribers to date.

The underwhelming adoption rate of the UTOPIA network only complicates the issue for member cities, who committed themselves to fund operations and because of low subscriber dollars, believe they must then forcibly tax everybody, subscriber or not, to prop up the failing system.

This brings us to Orem, where city officials were proposing a 47% increase in property taxes to cover nearly $3 million owed to UTOPIA. In an eight hour long taxation hearing earlier this week, the council voted 4-3 to approve a $1.7 million property tax increase, which is about half of the original proposal. The remainder of the shortfall will be accomplished by buying a few less vehicles, dipping into the city’s reserves, and not giving employees any raises this year.

What an absolute mess.

The painful truth is that the city’s obligations might more easily be met through other means, such as stopping subsidies to other businesses and ever-so-slightly reducing the enormous compensation package given to employees. Raising taxes is never the answer; if the city made commitments, then the city should make necessary cuts to come up with the money from existing sources. That limited government, free market conservatism many people in Utah preach? We’d love to see it actually see the light of day, somewhere.

The Orem issue has also ignited some back and forth between UTOPIA and the Sutherland Institute, which opposed the Orem property tax increase. Sutherland conducted robocalls in advance of the taxation hearing, encouraging people to attend and oppose the tax hike. In response, UTOPIA penned a defensive blog post aiming to take on Sutherland and justify its indebted existence.

Sutherland’s take on the issue, to which UTOPIA objected, reads as follows:

After studying the issue in-depth, doing the interviews, reading the legislative audit, we can’t help but conclude that UTOPIA is a failed project. By any objective measure, an organization that has net assets of negative $120 million after ten years of operations is a failed project… unless it’s a government program. And in that respect, we fundamentally disagree with the premise that UTOPIA is infrastructure that government must provide as a ‘public good.’ We also recognize that truth is scary sometimes… as is a distorted perspective that is given a reality check. By government program standards, like the US Postal Service, UTOPIA could be doing what it said it would do. As a viable ‘free market’ project, it is a literal failure.

Libertas Institute wholeheartedly agrees.

In response, UTOPIA argues several points. First, they assume that “when it comes to broadband options, Sutherland actually believes in monopolies or duopolies of private companies.” In other words, UTOPIA says that its critics necessarily become supporters of the highly subsidized and monopolistic companies Comcast and CenturyLink. This is fallacious and disingenuous. Libertas Institute believes that all of these companies are involved in crony capitalism, profiting by their close ties to the government. Opposing one does not require supporting the others; all subsidies to businesses should be stopped.

UTOPIA further claims that they “give consumers a real choice for broadband, and allow ISPs to compete on our network.” Because of this competition, many claim that UTOPIA is acceptable because it helps foster a marketplace that otherwise might not exist. But it is only a pseudo-market when it is based upon a government program that forces everybody to fund its existence, whether or not they want to choose from any of the subsequently competing companies.

UTOPIA and its supporters therefore argue that the ends justify the means—that the confiscation of millions of dollars from Utah families is acceptable because in the end, internet access is improved (well, for some, anyway). They quote the Institute for Self Reliance which opines that “People living within the UTOPIA footprint have a more vibrant market for broadband than any other Americans. Local businesses have a competitive advantage in telecommunications over all of Utah and much of America.” But is it really a market, let alone a vibrant one, when people are forced to support it at gunpoint?

Proceeding with its defense, UTOPIA argues that organizations such as Sutherland (and thus Libertas as well) should mind their own business and let the member cities decide what’s best for them. “If a handful of Utah cities want to do something on their own initiative,” they write, “and decide it’s what’s best for their communities, who are the Sutherland Institute, the Utah Taxpayer’s Association or any other peripheral group to say otherwise? Let’s allow the elected officials of each city decide what is best for their city.”

The problem here is one which we recently discussed in regards to Highland’s Sunday business-closing initiative. To refer to abstractions such as cities when discussing taxation and other government actions is highly misleading; cities do not decide things—individuals do. Majority votes does not mean that a “city” or “community” has “decided” something. It only means that a large group of people have opted for something that they’re going to make the minority go along with as well. UTOPIA would therefore more accurately state their point if they said: “If a majority of individuals in a handful of cities want to do something on their own initiative, and force the minority to fund it as well…” Even many of those voting in the majority have been duped, since they consented to be taxed at a higher rate in hopes of getting fiber access, and still don’t have it all these years later.

Reviewing the UTOPIA situation from a high level raises one important question each city must address: double down, or get out? UTOPIA, of course, argues that cities should stay the course, and in its words, “propose the only solution that really benefits the taxpayer: do what it takes to grow the network as quickly as possible and drive up the subscriber base so that the subscriber revenue can cover the costs, not city revenues (i.e., taxes).”

In contrast, we believe that cities would be better served by opting out of UTOPIA entirely, paying the debt obligations to which they foolishly agreed, and await a true market-based solution. To the extent that the Comcast/CenturyLink duopoly impedes that progress in any way, then individuals in those cities (and all cities in Utah) should band together to create enough political pressure to remove their subsidizes and government-granted advantages as well.

It is claimed by supporters of UTOPIA that a fiber network for internet access is necessary infrastructure, and therefore merits funding by taxation. Further, they argue that the marketplace created by building the infrastructure allows for competition and therefore should be supported by free-market conservatives. Both of these points are understandable, though fundamentally incorrect. Internet access is not necessary to live, and therefore cannot be classified along with things like water and sewage. (Though even these can and should be services offered not by the government, but by private institutions.) And regardless of what some may say, the positive ends can never justify the negative means; while competition is a good thing, it is fraudulent when created through collusion with government and the forced taxation of people who don’t want the services being offered.

If UTOPIA truly was a good idea that can achieve success by competition between companies, then those companies should be the ones to raise funds and build the infrastructure upon which they wish to offer their services. Then, those who actually subscribe to the services will be the ones to pay for the system, rather than forcing everybody to do so. The low number of subscriptions UTOPIA currently has stands as a testament that the market does not support the current system. It should therefore be sold off and put into the hands of private companies.