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Reason Foundation

Think Tank: iProvo's Losses at $8 Million and Counting

At what point do taxpayers cut their losses?

April 16, 2008

Los Angeles (April 16, 2008) - iProvo has already posted over $8 million in losses according to a new Reason Foundation policy brief that concludes that Provo is destined to join a list of cities like Ashland, Oregon, and Marietta, Georgia, that have "thrown away millions of dollars on broadband projects that, in the end, failed to deliver any of the promised benefits."

iProvo's total losses are likely to exceed $10 million by the end of this fiscal year - and that figure doesn't include the $39.5 million borrowed to launch the project, most of which still needs to be paid back. The Reason Foundation report says Provo "faces the dilemma of continuing to fund iProvo with no break-even point in sight, or it can sell and recoup as much of its investment as it can."

"Provo's taxpayers are being fleeced," said Steven Titch, policy analyst at Reason Foundation and author of two reports on iProvo. "The only question is how much of this fiscal recklessness they are willing to take before saying 'enough.'"

In 2003, iProvo lost $1.3 million in taxpayer money. It posted a $1.4 million loss in 2004, a $1.6 million loss in 2005, another $1.9 million loss in 2006, and in 2007 iProvo was over $2 million in the red. That's over $8 million in losses, and things don't look much better for 2008. In January, iProvo posted a net-gain of just 29 subscribers and could be headed for over $2 million in losses again this year.

"The city can continue to prop up iProvo by shifting and transferring money around, but taxpayers are ultimately going to be stuck with the multi-million dollar bill," Titch stated.

A December 2006 Reason Foundation study found that iProvo's financial losses were inevitable and correctly predicted the red ink would only get worse. Yet, in a response to the Reason Foundation report, Mayor Lewis K. Billings said that iProvo just needed more time and lamented, "How would you like it if the world judged your entire education only on the grades you received during your freshman year?"

Well, iProvo and Mayor Billings aren't freshmen anymore. iProvo has failed to meet nearly every benchmark set for it and is on pace to hit $10 million in total losses this June.

"No matter how many times the city tries to move the goalposts for what success means or how many subscribers iProvo needs, it can't get away from the fact that iProvo is a dismal financial failure by any standard," Titch said.

The Reason study notes large cities like Los Angeles, Houston and Chicago have recently backed away from municipal broadband plans because it is increasingly clear that government agencies aren't equipped to compete in the fast-moving, ever-changing Internet, phone and cable television business.

Full Report Online

The Reason Foundation policy brief iProvo Revisited: Another Year and Still Struggling is available at www.reason.org/pb69.pdf.

Reason Foundation's detailed analysis of iProvo's municipal broadband efforts, published in 2006, can be found online at www.reason.org/ps353.pdf.

Jerry Ellig, former deputy director of the Federal Trade Commission's Office of Policy Planning, wrote a 2006 Reason Foundation study that concludes cities shouldn't fool themselves into believing that their experience running water, gas and electricity systems has prepared them for the fast moving Internet world. The full study, A Dynamic Perspective on Government Broadband Initiatives, is available online at www.reason.org/ps349.pdf.

Reason Foundation's municipal broadband research and commentary is here: www.reason.org/telecom/index.shtml.

About Reason

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically acclaimed Reason magazine and its website www.reason.com. For more information, please visit www.reason.org.

Contacts

Steven Titch, Telecom Policy Analyst, Reason Foundation, (312) 925-0464
Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-6109



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