Though dramatically increased interest rates have depleted UTOPIA’s two-year reserve faster than was expected, UTOPIA Executive Director Todd Marriott and representatives from both Centerville and Layton see the money as a temporary need that will cover the payments until earnings can increase enough to refill it.
“We have some optimism that UTOPIA’s new management team is turning the situation around,” said Centerville City Manager Steve Thacker. A new management team was put in place at UTOPIA in early 2008 to help repair some of the poor business decisions made by earlier leaders.
“We’re hoping this [the need to pay the debt service payments] doesn’t go for more than a couple of years,” Thacker added.
Layton Mayor Steve Curtis is even more optimistic.
“I’ve been reviewing what (financial information) they have,” he said. UTOPIA officials are also currently looking at some other financial options to help cover them through the gap. “I’m not worried.”
Both Centerville and Layton have the first year’s debt payments already set aside ($395,126 for Centerville and $1,983,125 for Layton), as well as budget plans in place to make payments without cutting city services or increasing property taxes.
According to Marriott, the shortfall in the two-year reserve that UTOPIA created after its 2008 refinance came after the economy collapsed following last year. UTOPIA had connected its interest rate to the London Interbank Offered Rate (LIBOR), or the interest rate used by banks when they borrow money from each other. After so many banks collapsed, that interest rate shot up dramatically.
“The difference between the LIBOR and other interest rates split wide open,” said Marriott, who said that there may be a possibility of getting that interest rate adjusted further down the road. “It’s cost us a lot of the money we’d had set aside for growth, and our window shortened on us.”
The two-year reserve was all the extra money UTOPIA had to work with, since the business practices and financial decisions of the previous management (before Marriott came in and the board was reorganized) had left UTOPIA nearly bankrupt before the refinance.
Still, Marriott says that income rates have remained steady, and that in a few years the network will be able to handle its own payments.
“We have a path to success,” he said. “We’re simply not going to be able to get there in enough time.”
Even if the worst happens and the debt service payments continue to be called in, both Centerville and Layton are prepared.
Centerville has been planning how to stock their contingency fund for more than a year now, using money from freed-up debt service payments and park reimbursement funds.
“We’ve projected ahead a number of years, and plan to get through it with careful management of the city’s finances and the postponement of some capital improvements such as parks,” said Thacker. “No city services would be affected.”