Water Follies

Water Follies by Peter Burrows, elburropete@gmail.com 7/7/15

I wonder how many thousands of hours people in our area have spent in the last ten years traveling to and attending meetings related to the Arizona Water Settlement Act?  Add another thousand or so over the past few weeks as Luna County, Grant County, Deming and Silver City elected officials held hearings and voted on whether or not to be a part of the governing body that will build and run a proposed $500 million to $1 billion project to tap “excess” water from the annual flooding of the Gila and San Francisco Rivers.

Emotions are running pretty high, with the two sides roughly divided into “Boondoggle” vs. “Build it for our children.”   I’ve attended a number of meetings on this issue, and my unscientific sampling of attitudes is that about 90% of the participants are in the “Boondoggle” camp.

This hasn’t done much good as far as persuading elected officials to not be a part of the governing group that will oversee the proposed project. All the above governments voted unanimously to participate, with the exception of Silver City, which voted unanimously to NOT participate.

Silver City’s attorney had some strong objections to becoming entangled in an open-ended project that he thought could involve the city in huge liabilities.  Since the Joint Powers Agreement specifically states, Section III (f), that any financial support is up to the individual governments, i.e. not subject to majority rule, I’m not sure that’s the case.

In any event, I thought it would be a good idea to get all the government-retained attorneys involved, from Grant County, Luna County, Deming and Silver City, in a public forum to publicly vet the legal pros and cons. Since three of the four gave different advice than Silver City’s attorney, I thought that would be a fun forum.

A wiser friend, Vic Topmiller, looked at me and said, “Wait a minute, Burro. You think you can get four  attorneys to air their differences in public for FREE?”  I immediately saw the utter stupidity of my idea. Still, it would be nice.

Some of those opposed to a huge diversion project e.g. Dutch Salmon, have long maintained that the big diversion was the goal of the NM Interstate Stream Commission (ISC) all along. Such cynicism was warranted.

Last July, the Bureau of Reclamation (BOR) released a report with the somewhat lengthy title, “Appraisal Level Report on the Arizona Water Settlements Act Tier -2 Proposals and other Diversion and Storage Configurations – Technical Support Provided to the New Mexico Interstate Stream Commission.”.  The graph on page 18 says it all: A few minor projects  MAY make economic sense, but not the big $500 million-plus diversion that the ISC is pushing.  That one’s way off the chart.

As soon as I saw the BOR report I called Craig Roepke, Deputy Director of New Mexico’s Interstate Stream Commission (ISC) and asked him if the BOR report was the death sentence for the big diversion. Oh, gosh no. The ISC disagreed with the BOR study and the ISC had their own much better analysis that supported the big project.

That’s when it hit me.  “Burro,” I thought, “you are a damn fool.  Dutch has been right all along. This diversion has been the goal of the ISC from day one. All the hearings, all the studies, just a big Kabuki Dance.”  (Years ago I read “Cadillac Desert,” and I should have known that if there’s a cup of water anywhere in the Southwest, some bureaucracy will spend a billion dollars to save it.)

I like Craig Roepke. I met him a few years ago when he addressed the TEA Party here in Silver City about the AWSA.  He is passionate about the water future of New Mexico, and  he worries that we are using, in his words, “Ice Age water” that isn’t being replaced.  Combine that with the time honored practice of bureaucratic empire building, and of course he’s all for the big diversion project.

This big diversion project has crowded out all other less grandiose projects that have been proposed, some of which could be paid for out of funds that will be spent on environmental and archeology studies necessary for the big project to begin. That will take years.  But it needn’t get that far. The big, perhaps insurmountable hurdle is financing.

The only possible way to raise the necessary funds is through a public bond offering. Any public bond offering has to be accompanied by a prospectus that lists all the pertinent details concerning the project, including all the potential problems. This means the prospectus will have to include the conclusions of  The Bureau of Reclamation.  It will also have to include the objections of Norm Gaume, an engineer and former head of the ISC.

Norm has described the project with the memorable word “infeasible.” His studies raise big doubts about the amount of water available, doubts that have been vindicated by proponents of the project suddenly talking about the need to tap the San Francisco River as well as the Gila.  That should raise the cost considerably.

Norm presented his objections in some detail at a well attended TEA Party sponsored presentation last summer. (Damn, our local TEA Party is GOOD!!)

The bottom line is that nobody’s going to buy bonds to finance a project with such huge questions concerning its viability.  Kyle Johnson was essentially correct when at the recent Grant County Commission meeting he said, as reported in The Grant County Beat, that investors “want a guaranteed return, water or no water.”

In my opinion, to get that guarantee bond buyers will need the backing of the state of New Mexico, something I doubt very much will be forthcoming, especially given the state‘s two existing financial tar babies, The Rail Runner and the Spaceport.  Too bad those boondoggles didn’t get the public scrutiny the water diversion is getting.

Having a government guarantee means the bond will be a general obligation (GO) bond as opposed to an industrial revenue bond, which is a bond backed by the financial results of the project itself.  Bond buyers would balk at buying bonds only secured by the financial results of a project so vulnerable to such unknowables as the amount of rain in the area.

A lot of time and money could be wasted  before this financial roadblock is faced. Best to accelerate the process with the following suggestions for the new Central Arizona Project entity.

1. Contract with a major construction firm to do a cost estimate independent of either the ISC or the BOR.  Off the top of my head, I would suggest calling Fluor Corporation, down in Irving Texas.  If they can’t do it, they probably know of a firm that could do it. Regardless, it should be a big, respected construction firm with expertise in water projects.  This may cost several million dollars, but a hard cost estimate is absolutely essential before anything else.  Once this is in hand, the financing can be responsibly addressed. Not before.

2. With cost estimate in hand, call in at least two investment bankers for their opinion on financing feasibility, given the caveats that must accompany any financing.  G.K. Baum has been involved in the background of all the discussions about the diversion project, so they are familiar with the details and should be one of the firms, but not the only one.   Their recommendation(s) will include the advisability of an industrial revenue vs. general obligation.

3. If, in the unlikely event the bankers give their approval contingent on the offering being a New Mexico GO,  the next step is take it to the state legislature for approval, where it will not fly.  If by some unbelievable lapse of judgment the bankers think the four county area could support a GO, then it should be put to a referendum vote,  ASAP, where it will be overwhelmingly defeated, IMHO.

The idea is to get a yea or a nay on the project as soon as possible.  This could save a lot of money that would otherwise be wasted in  environmental and archeological studies, and perhaps lawsuits, if the skeptics are right

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