Last Sunday, Provo Mayor Lewis Billings wrote an op-ed in the Deseret Morning News extolling the virtues of iProvo. We would like to cover some points that Mayor Billings overlooked.
iProvo is losing money
Last year, iProvo lost nearly $1 million and is expected to lose about $2 million this year. Provo originally projected that they would need 10,000 subscribers to break even, but now that number is being ratcheted upward.
Of course, iProvo was supposed to make money.
iProvo competes with unfair tax advantage
Since iProvo is government owned, it is not subject to taxes. Unlike Qwest, Comcast, satellite providers, and wireless companies, iProvo does not pay federal and state corporate income taxes, local property taxes, and state/local sales taxes.
Defenders of government-owned telecommunications systems argue that companies that provide services over iProvo's network are subject to taxes. However, iProvo's infrastructure is tax exempt, and private sector competitors like Qwest, Comcast, and wireless companies have to pay taxes on their infrastructure. Payment of some taxes by iProvo providers does not negate iProvo's exemption from other taxes.
Recently, the Legislature partially addressed this issue by exempting certain telecommunications purchases from state and local sales taxes.
However, the bottom line is that iProvo competes directly against private sector companies but does not pay property taxes or corporate income taxes. Some may argue that non-payment of federal and state corporate income taxes is a moot point since iProvo is losing money. Nevertheless, iProvo's competitors are subject to federal and state corporate income taxes.
Does the airport analogy justify iProvo?
UTOPIA and iProvo supporters have used the airport analogy to justify government-owned telecommunications systems. Supporters argue that it would be unrealistic for each airline to build its own airport. Therefore, government builds an airport and charges airlines to use it.
That's not a bad analogy from a PR sound bite perspective, but the analogy is seriously flawed from a logical fiscal policy point of view. Prior to iProvo's and UTOPIA's creation, private sector companies had invested hundred of millions of dollars in Utah's telecommunications infrastructure, and cumulative total private sector investment now exceeds $1 billion. It's simply not fiscally responsible to walk away from this investment, which is subject to taxes and does not expose taxpayers to risk, in order to start something from scratch and expose taxpayers to financial risk.
The airport analogy could make sense if the private sector had not been willing to build telecommuncations infrastructure in the first place, but that has not been the case.
But haven't Qwest and Comcast have lowered their prices because of iProvo?
Qwest offers the same prices and service throughout its entire multi-state service area. Comcast offers certain short-term promotional pricing which proponents of government-owned telecommunications systems cite as proof that iProvo and UTOPIA are benefitting taxpayers. However, Comcast's long-term pricing is independent of whether the customer lives in a city with government-owned telecommunications system.