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Senate Passes Bill Limiting Municipal Financing of Network

Senate Passes Bill Limiting Municipal Financing of Network

Posted - Feb. 20, 2004 at 7:37 a.m.



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SALT LAKE CITY (AP) -- The state Senate has passed the Qwest- and Utah Taxpayers Association-backed bill limiting how Utah cities may finance their planned fiber-optic network Utopia.

Senators voted 20-9 Thursday to pass Senate Bill 66, which prohibits municipalities from pledging existing tax revenue to support such projects.

The bill, which now goes to the House, would require cities to either use revenue bonds or general obligation bonds to finance their project to give every home and business in 18 communities Internet, phone and television access through a high-speed fiber-optic link.

If revenue bonds are used, only income from Utopia's operations could be pledged to pay off the cities' financial obligations to the network. If general obligation bonds are used, cities first would have to get taxpayer approval before committing money to the project.

Sen. Curt Bramble, R-Provo, unsuccessfully sought to allow cities to pledge sales-tax revenue as security for Utopia's bonds.

So far, West Valley City, Midvale, Brigham City, Tremonton, Lindon and Perry have pledged to back their share of the bonds needed to construct the Utopia system within their communities.

Opponents fear Utopia could drive Qwest, Comcast and other telecommunications companies out of the broadband business in the project's areas. However, the arguments in support of Sen. Bill Hickman's SB66 have focused on taxpayer risk.

Sen. Howard Stephenson, president of the Utah Taxpayers Association, said cities that have pledged sales tax revenue in support of Utopia are "placing their taxpayers at extreme risk."

However, without the sales tax backing, Utopia is viewed as extremely risky on Wall Street. That means bonds would carry a projected interest rate of approximately 12 percent to offset the risk to investors interested in purchasing the debt.

If cities could pledge their sales taxes, Utopia could raise money at a reduced interest rate, making the project more financially feasible.

Utopia President Paul Morris expected the Senate to pass SB66 and said before the vote, "We'll have a much better chance (to defeat the bill) in the House. That is where the fight will be."

He said SB66 does nothing to help the project or taxpayers.

Morris said that if general obligation bonds are used to finance Utopia, then taxpayers in participating cities may end up providing a financial guarantee for 100 percent of the value of the bonds floated for the project, instead of the 39 percent guarantee if sales tax revenue is pledged.

Morris said Utopia's supporters continue to believe the project poses little, if any risk, to taxpayers.

(Copyright 2004 by The Associated Press. All Rights Reserved.)

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