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Utah Taxpayers Association Skeptical of UTOPIA’s Bailout Plan

June 12, 2014

iStock_000005643842MediumLast week, we reported Utah’s UTOPIA government-owned broadband network, which has been in the red for years, is considering a bailout plan offered by an Australian firm, Macquarie.

The bailout plan requires UTOPIA charge all residents in its 11 communities – regardless of whether they subscribe to UTOPIA’s services – a $20 monthly fee. A new report out this week from the Utah Taxpayers Association (UTA) says the bailout plan, and the proposed “UTOPIA tax,” will not help the failing network and could, in fact, drive put taxpayers further in debt. According to the report the proposed bailout:

  • Could result in $1.8 billion in additional taxpayer debt over the next 30 years;
  • Would result in households subsidizing businesses;
  • Would not help the system reach its subscription goals; and
  • May not result in the repayment of UTOPIA’s existing $355 million debt.

The UTA also found the “UTOPIA tax” will cost the average household $12,000 over the lifetime of bailout contract.

Given Macquarie’s history, UTA is right to be skeptical of the bailout.

Macquarie, an Australian banking, financial advisory and investment firm that has 17 offices in the U.S., has been accused of using “deceit and trickery” in a telecommunication bundling scheme in in its home country. Several small businesses were caught up and hurt in the scandal. Here is how ABC Australia’s “Four Corners” program describes what happened:

“Macquarie has been a major financier of deals for an industry known as ‘telephony bundling’. The business involves the selling of ‘bundled’ packages that put together telecommunications services with electronic goods or other equipment. The ACCC is dealing with a large number of complaints that small businesses have been misled into signing agreements by some players in the industry. … Typically, they have signed up with a telco on the understanding they will receive televisions, laptops, phones or other electronic goods ‘free’, then been hit with bills for tens of thousands of dollars under multi-year rental contracts for the equipment from a separate finance company. … An investigation by Four Corners [television] program has revealed evidence of deceit and trickery in the selling of some of these deals. In some cases it involved misrepresentation; in others outright fraud. … Whistleblowers who worked in the industry have told Four Corners that they were taught to hide the presence of rental contracts for the equipment and to trick people into signing the deals while maintaining the equipment was free. The Four Corners investigation also revealed that Macquarie, through its subsidiary Macquarie Equipment Rentals, has sued more than 300 small business customers caught up in the dubious deals. Thousands of customers have signed up with small telcos only to find the company later goes broke, leaving them without phone services or phone call discounts they had been promised, yet still stuck in an expensive multi-year lease with a finance company for equipment.”

And, according to Sydney’s Daily Telegraph, Macquarie was “named and shamed by the Financial Ombudsman Service as one of the most complained about financial firms” in Australia. The Australian government has also cited “compliance failures” in Macquarie’s stockbroking division while an elderly couple lost their home as a result of another Macquarie scheme.

In its U.S. dealings, which extend from Chicago to Virginia, one analyst, Jim Chanos an early critic of Enron, has called the financing mechanism Macquarie uses for its infrastructure projects “an old-fashioned Ponzi scheme.” Other critics have called the company a “House of Cards.”

In this week’s report, the Utah Taxpayers Association says, “The complexity of the proposed plan and the poor track record by UTOPIA managers and officials should make residents and elected officials wary of” Macquarie’s bailout deal.

We think residents and elected officials should also be wary of Macquarie itself.