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Alt. Water Transfers

Cover HW Fall 2017

Water sharing and banking, coined "alternative transfer methods" or ATMs, could provide flexibility for stretched water supplies —but not without marked challenges. Read the Fall 2017 issue of Headwaters magazine and explore options to:

  • keep water in farming
  • help municipalities plan ahead
  • share between ag and environmental uses
  • bank water on the Colorado River

Browse articles and find a flipbook of the magazine here.

Connecting the Drops

connectingdropslogo4.1Bringing you the reporting you crave over the radio airways with extras and archives on our website. Visit the audio archives or listen to the latest story on the National Wild and Scenic Rivers Act and the Colorado river that could become the state's second wild and scenic protect river—Deep Creek:

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Water Education Colorado

The CWCB’s Loan Programs

by Jerd Smith

In the summer of 2002, Pinewood Springs was bitterly, desperately dry.

The Little Thompson River, which wanders through the scenic foothills below Rocky Mountain National Park, had evaporated. “The Little Thompson River has gone dry every year for the past ten years. But in 2002 it was the worst it ever was,” says Pinewood Springs Water District superintendent Carl Pender.

The Pinewood Springs Water District had always diverted water directly from the Little Thompson and relied on wells to supplement its river diversions. But during that summer both the river and the wells went dry. The community, which had no storage reservoirs, was forced to begin buying water from neighboring towns and trucking it up the mountain. “We hauled water from Longmont every day, 30,000 gallons a day,” Pender says. For months, the caravan would begin at 5 a.m. and end at 9 p.m., when Pender would drain the last truck and prepare for another day.

While the tankers rolled down Highway 36, the district was scrambling to find help. It would need millions of dollars to build a storage reservoir and upgrade an aging water system designed to support a small group of summer cabins, not the year-round residential area that had since developed. “I was just starting here at the time,” Pender says. “I told the homeowners, ‘You’ve got to have a year’s worth of storage, somewhere.’ They needed help bad.”

After months of making phone calls to state and county agencies, the homeowners found a loan program at the Colorado Water Conservation Board. The CWCB would prove to be the only entity willing to lend money to help the small district solve its water woes. The agency provided Pinewood Springs with a low-interest, $2.8 million loan.

The loan was one of dozens the CWCB’s finance arm has made over the years. Started in 1971 with money from Colorado’s General Assembly, the loan program has helped farmers and cities build small reservoirs, install pipelines and repair dams. “The CWCB provides an opportunity that doesn’t exist in other parts of the economy,” says Kirk Russell, marketing manager for the loan program. “It’s pretty standard knowledge that we’re the only game in town when it comes to ditch and reservoir companies. Small banks typically don’t want to have anything to do with water projects because they don’t understand them.”

The CWCB sets its interest rates annually, charging agricultural borrowers slightly less than their municipal customers. As the loans are paid back and interest accrues, the money is lent out again. To date, the loan program has had a low failure rate—one in roughly 370 loans—in part because of the high level of scrutiny CWCB staffers give each deal, Russell says. “We’re water people. We know it. We understand it,” he explains. “We put borrowers through a very strict, very detailed review because we want to protect taxpayers from a defaulting borrower.”

In 1996, the CWCB’s loan program expanded significantly when the legislature authorized the agency to begin receiving 25 to 30 percent of the state’s severance taxes collected on oil and gas revenues. As the oil and natural gas boom of 2006, 2007 and 2008 took off, those taxes helped expand the agency’s program even further and it was able to make much bigger loans.

In 2001, the agency loaned the largest sum it had ever approved at that time—$27 million—to Ute Water on the Western Slope. The loan helped the domestic water provider install a 12-mile water supply pipeline in the Grand Valley to meet future water demands. “At the time the CWCB had a lot of money,” says Larry Clever, Ute Water’s general manager. “They were encouraging us to take as much from them as we needed.”

Following the 2002 drought, the loan program helped keep hundreds of South Platte Basin farmers from losing their land after a series of legal battles forced them to dramatically reduce or stop pumping irrigation wells. New rules required the farmers to put more water back in the South Platte River to augment—or compensate—for their pumping. But water was scarce and prices were skyrocketing. “All hell was breaking loose,” says Tom Cech, executive director of the Central Colorado Water Conservancy District. “Things looked dismal for the well owners.”

Using $37 million in CWCB loans, farmers were able to purchase water rights and to buy and line gravel pits in which to store the new water, releasing it to help replenish the river’s surface supplies as they pumped water from the aquifer that lay below the South Platte.

In 2004, the CWCB served as the lead financier on the expansion of Elkhead Reservoir outside Craig, lending $11 million to the Colorado River Water Conservation District, which had partnered with several other entities, including the town of Craig and the U.S. Fish and Wildlife Service. The CWCB loan was the centerpiece of a $30 million project that provided important water storage for the West Slope as well as water to augment flows for endangered fish on the Yampa River.

Then, in 2007, the agency would make the largest loan in its history: $75 million to the city of Aurora to help build a cutting-edge reuse project that would capture treated wastewater from the South Platte River, purify it, and store it for use by city residents.

The project represented a major turning point for the loan program. For decades it had served small irrigation districts and farmers across the state. Bringing a major city into the loan portfolio caused concern in the agricultural world. In rural farming communities, there was no access to big city investment bankers whom Aurora could have used. But the CWCB, as it had with all of its borrowers, was able to offer a lower interest rate than Wall Street.

And the program fit within the CWCB’s mission, part of which is to help finance water supply projects for the citizens of Colorado. The loan generates enough cash in interest payments—3.75 percent on $75 million—to support nearly the entire CWCB budget, according to Mike Serlet, former section chief of Water Supply Planning and Finance at the CWCB who retired in August.

“We took a lot of heat for it,” Serlet says, “but it made sense. Aurora was a good borrower and it was a great investment for the CWCB. A lot of people said we shouldn’t lend money to Aurora because the city didn’t fit within the intent of the program. But we said there is no restriction against it. And as money comes back from Aurora, it will generate more money for loans to others.”

The CWCB, a relatively small agency with an operating budget of just $7 million, has financed its own operations since 2002, thanks to its interest income. It receives no money from the state’s general fund, the giant purse of public tax dollars that most state agencies use to operate, according to the CWCB’s Russell.

As its loan pool has grown, the agency has used its earnings to generate more loans and more interest. The resulting cash funds have drawn attention from lawmakers in several different budget crises. The last two years have been no different.

In 2008 and 2009, as the crisis unfolded, lawmakers tapped the CWCB’s cash pool by $107 million, taking money from two different cash accounts the agency uses to make loans: the Construction Fund and the Severance Tax Trust Fund Perpetual Base Account. The money was desperately needed to help balance the state budget, but the reduction means the agency’s loan capacity will be cut by two-thirds this year, according to Jennifer Gimbel, the CWCB’s director.

As a result, the agency was forced to do something it had never done before—break a promise to make a loan. “When the budget crisis hit, legislators reached into our severance tax pot and took $97 million,” says Russell. Another $10 million was taken from the Construction Fund. “Unfortunately that money was waiting for the Arkansas Valley Conduit Project.”

Bent County Commissioner Bill Long, a key proponent of the project, says other funds authorized by the federal government have been found to fill the gap, but he’s concerned his group will need more help from the CWCB in the future. “We were disappointed, although we understand the problem,” Long says. “Now we’re looking very hard at alternatives.”

Russell says the CWCB’s hope is that the loan pool will gradually return to health and be available for the Arkansas Valley should it be needed. But most believe it will take at least five years for the loan fund to recover unless lawmakers create another source of revenue.

Rep. Kathleen Curry, a Democrat from Gunnison County, says the state must find a permanent source of funding for water projects because they require years of advance planning and certainty when it comes to financing. “I’m worried that these year-to-year transfers [from the CWCB back to the state’s general fund] aren’t over,” she says. “I think the legislature will be in a bind for a while, and unfortunately, water planning is not a year-to-year exercise. The water community needs stability.”

Like others, Central Colorado’s Cech is concerned that the CWCB loan program will go dormant for the next several years as it recovers from the budget crisis. “It’s critical for irrigated agriculture that the state continue the loan program. It’s an affordable source of funds.”

The agency estimates it will loan just $10 million to $20 million this year, far less than usual. “That’s almost dormant,” Gimbel says. “Last year we lent $45 million. The year before that it was $87 million. Before that it was $158 million. We’re going from giving out a significant amount of money for infrastructure to giving out really small amounts of money.”

How the Board will proceed with such small amounts of money to loan isn’t clear. Travis Smith, the Board’s Rio Grande Basin representative, admits they are in new territory. But he also says the Board has financial policies that provide some guidelines, such as prioritizing projects that meet a statewide interest, help achieve compact compliance or have greater delivery efficiencies.

If nothing is done to recapitalize the loan funds, water project planning is likely to languish, says Curry. With state water planners poised to address the potential impacts of climate change, population growth and aging infrastructure, the recession’s timing could hardly be worse. But few see any near-term solutions.

“I think it will take five to six years for us to get back up to speed,” says Gimbel, “assuming the economy recovers.”

The water community can only hope.

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