How to best finance an $8 million plan by the Dolores Water Conservancy District that involves purchasing additional water for the Dolores Project and building the infrastructure needed for delivering it to dryland farms was discussed during a recent special DWCD board meeting.

Whether or not 15 dryland farmers will have an opportunity to raise crops on some 4,000 acres now without irrigation depends on the Colorado Water Conservation Board’s willingness to come up with a $7.2 million loan. The board provides low-interest loans (at around 4 percent) for projects that benefit state agriculture.

McPhee Manager John Porter said the water district is hopeful but unsure about the plan’s chances for obtaining the financing and regulatory approval for completing Phase I of DWCD’s so-called Water for Everyone Tomorrow Package, or WETPACK.

That long-term initiative aims to develop more water for agriculture, and improve fish and wildlife habitat downstream from McPhee.

"They have not loaned money for a long time for something that actually expands the amount of irrigable farm land in Colorado," Porters said. "We made the pitch on the behalf of the preservation of open space and agriculture, which the state has an interest in, and also for preservation of water rights to see that they do not flow downstream to be purchased by cities."

For its part the district would, under one of several closely related financing options being considered, ante up $4.2 million from its own coffers, which would be put into a repayment fund and be invested on the open market. The rate of return would be around 6 percent, according to Charlie Langhoff, a financial advisor with Langhoff, Brooks and Company, a Denver financial firm that specializes in investing money for governmental entities.

Of the money collected from the predicted returns and the loan, $2.25 million of it would be used by the district to purchase 6,000 acre-feet of additional water from the Montezuma Valley Irrigation Company by 2003. The $5 million price tag for building a pumping station at Totten reservoir (where part of the purchase water sits) and for construction of a series of canals and laterals to deliver the water to drylands adjacent to the Dove Creek Canal would also be paid for from those funds, according to a feasibility report released this summer.

Adjusted for inflation, total cost is estimated at $8 million.

If the plan goes through, newly bought Dolores Project irrigation water could begin flowing in three years, with the total 4,000 acres under irrigation by 2005.

Repayment of the $7.2 million loan, at 4 percent or lower for 30 years of debt service, would be derived from interest earned form the district’s investment, plus from fixed revenues of $1 million gained from selling the new water to customers.

A feasibility report shows that under the 4/6-percent interest-paid-and-gained-scenario, after 30 years, the district would recoup its investment of $4.1 million and pay off the loan in full, assuming the market holds steady. In the meantime, the project would be completed and on line by 2005.

Upfront, the district is providing 10 percent of the project cost, or $800,000. It currently holds $6.6 million (out of $10.4 million total reserves) available for discretionary spending or investing as is the case here.

Because the board is unsure of what interest rate it will get, assuming the loan is approved, several other financing scenarios were taken to their logical conclusions, variously lowering and raising the amount invested, loaned, and to be left in reserves.

"We do not want to spend it all on the first phase; we need some for future WETPACK plans," warned DWCD board member Bill Smart.

More hurdles must be overcome before the plan becomes reality.

While downstream rafters and kayakers prefer that the unused water be spilled for whitewater purposes, the MVIC would rather sell it to the DWCD, which does have the capacity under the U.S.-owned Dolores Project system (McPhee Reservoir, pumps and canals) to sell and deliver it to dryland farmers in Montezuma and Dolores counties.

MVIC officials have said it is their policy to ensure any water they sell goes towards agricultural use within the community.

The bureaucratic web of water regulations grows even more complicated. Because the water purchase would involve carrying "non-project," private water through a U.S. government-owned system, a carriage contract was legally required to be drawn up between the U.S. and the DWCD, which has yet to be signed by either party pending the completion of an Environmental Assessment.

A draft EA of the proposed projects was drawn up last July by the Bureau of Reclamation Western Slope office. Once public comment is considered and reviewed, the final draft will be completed, probably by the first of the new year.

"The comments fell into two groups. One wanted the 6,000 acre-feet to go towards the fishery and rafting, and the other said the plan was good for agriculture," said Steve McCall, an environmental specialist with the Bureau of Reclamation.

Another pending decision involves whether or not the Internal Revenue Service will approve the tax-free sale of 1,500 Class B water shares from MVIC, a private, non-profit company, to the district for Phase I of WETPACK.

MVIC has agreed to sell the water because it does not have the capacity or demand to deliver all of the water it owns, due in part to increased canal efficiency and the trend towards subdividing farmland.

But because of its non-profit status, any time MVIC receives more than 15 percent of its annual revenue from a non-member, in this case selling Class A water stock to the DWCD, then the MVIC would have to pay income tax.

To avoid that, the district and MVIC agreed to buying and selling Class B shares, a category that makes the district a member, therefore avoiding the tax.

"When they proposed that, the IRS said it wouldn’t work and that they were trying to get around the rules," Porter said. "But together they fashioned a plan, but it needs approval from higher up," a process that will take more time.