February 29, 2016

Colorado water officials discuss statewide tap fee

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Coors on tap

BROOMFIELD – State water officials at the Colorado Water Conservation Board are looking for $100 million a year from a new and reliable source of public funding to help build water projects and programs in Colorado over the next 30 years.

“A dedicated statewide funding source of some kind, outside of existing funding, is probably going to be needed in order to make some of this reality,” Tim Feehan, a deputy director at the CWCB, told the members of the Interbasin Compact Committee on Feb. 23.

One such source of funding could be a statewide water tap fee.

James Eklund, the director of the CWCB, described to the committee members the conversations he’s had recently with state Rep. Don Coram, a Republican who represents District 58 in the southwestern part of Colorado, about a potential statewide tap fee.

Eklund said conceptually the tap fee could be set at, say, 25 cents for every thousand gallons of water used in a household or business.

“It wouldn’t take very much to yield several tens of millions of dollars pretty quickly,” Eklund said.

He added that because Rep. Coram, a fiscal conservative from a rural part of the state, was even willing to discuss the idea of a tap fee gave it credence.

“It’s probably more ripe than I probably would have given it credit for,” Eklund said, before inviting the assembled IBCC members to have a “candid conversation” about the concept.

The 27-member Interbasin Compact Committee includes 18 representatives from regional river-basin roundtables, two legislative appointees, and seven governor’s appointees. It functions as a statewide advisory board on water issues.

(See the slides from Eklund’s and Feehan’s presentation).

Jay Winner, the director of the Lower Arkansas Water Conservancy District and an IBCC member, was candid.

Winner said he once talked to Mark Waage, manager of water resources planning at Denver Water, about such a statewide tap fee concept. He said that Waage told him, “Jay, you are not going to tell my customers what they will be paying for water, thank you.”

Waage, who sits on the IBCC, then asked state officials where the money from a statewide tap fee would go.

“I’m just trying to understand,” Waage said, “if I am charging my customers a state tap fee, how much of that money is going to go to their water system and how much of that is going to go to somebody else’s water system, or a different water project altogether?”

Feehan of the CWCB responded by saying, “That’s a very good question. Some of it would. And some of it might not.”

Statewide funding sensitive

An effort by the CWCB to secure statewide funding for water projects and programs failed at the polls 13 years ago.

Referendum A, or the Colorado Water Projects Bond, was put on the November 2003 ballot by the state legislature after the drought of 2002. It would have allowed the CWCB to borrow $2 billion for private and project water projects, including environmental and recreational projects, at a borrowing cost of $4 billion.

The arguments against the proposal included that it was too much debt, it did not include specific projects, and that a new public source of funds for water projects was not necessary. Colorado voters rejected the proposal, with 67 percent voting no. The question failed to pass in a single Colorado county.

But the CWCB still sees a need for a statewide source of reliable funding for water projects.

The CWCB released its Colorado Water Plan in November 2015 and the plan cites a need for $20 billion worth of water projects and programs, including river restoration, to meet an estimated gap between supply and demand of 560,000 acre-feet of water by 2050.

Of the $20 billion needed, state officials believe local and regional water providers, such as Denver Water or Northern Water, will raise and spend about $14 billion on water projects.

And they say the CWCB’s existing source of about $100 million in revenue annually will provide $3 billion for projects and programs over the next 30 years.

That brings funding for projects to $17 billion.

But a new source of funds, at another $100 million a year, would produce another $3 billion, raising the statewide spending on water projects and programs to $20 billion, according to CWCB officials.

Feehan told the members of the IBCC that the revenue the state receives now for water projects comes mainly from severance taxes tied to oil and gas drilling, and those taxes are highly variable year-to-year and hard to predict.

For example, in fiscal year 2009, the state received $319 million in severance tax revenue. The next year, it got $36 million.

The severance tax revenue is first split between the state’s Dept. of Local Affairs and the Dept. of Natural Resources, or DNR. Then the CWCB gets half of the tax revenue given to DNR in order to provide loans and grants for water projects.

In fiscal years 2014 and 2015, the state received $259 million and $271 million in severance tax revenues. But 2016 revenues from severance taxes are forecast to be only $62 million.

“So that’s some extreme volatility that you’ve got to deal with when you are trying to actually plan and wrap money around the projects and programs that CWCB does,” Feehan said.

Feedback mixed

At the meeting last week in Broomfield, the IBCC members were asked to break into small groups and discuss the concept of a statewide source of funding, including a tap fee.

Also meeting with them were members of a funding committee put together by the CWCB. Serving on that committee, which met about seven times last year, are representatives from a number of water districts in the state, including Ute Water, Southeastern Water, Northern Water and South Metro Water.

After the small group discussions, Mike Brod, executive director of the Colorado Water Resources and Power Development Authority, and a member of the funding committee, reported back to the IBCC. He said the discussion at his table included the observation that a statewide funding question might be more successful if it funded areas of state government other than just water.

And specifically in regard to the idea of a statewide tap fee, Brod said, “I don’t know that we had a lot of support for that particular item.”

Sean Cronin, the director of the St. Vrain and Left Hand Water Conservancy District, then shared a funding idea he’s had with the IBCC.

Cronin, who is also the former chair of the South Platte basin roundtable, lives in Loveland and said he voluntarily pays a $7 monthly fee to the city utility’s “GreenSwitch” program because it “feels good” to purchase renewable energy.

He said perhaps water utility customers in Colorado would volunteer to pay an additional fee as part of a “blue tap” program tied to water projects and programs.

“We could generate real millions of dollars on a purely voluntary basis if 20 percent of ratepayers paid into it at a buck a month,” Cronin said.

Cronin said the discussion at his table then went into exactly what the money would be used for, which would need to be worked out.

“But if it was voluntary, it gets away from some of the fears and concerns around mandatory statewide tap fees,” he said.

Jeris Danielson, an IBCC member from the Arkansas basin roundtable, said his group also discussed the idea of selling naming rights to reservoirs.

“We could have Fat Tire Reservoir up in Fort Collins, or New Belgium Lake,” he said. “Maybe that would generate some revenue.”

Eric Hecox, the executive director of the South Metro Water Supply Authority, reported back that his discussion group didn’t talk about specific fundraising mechanisms, but focused on the bigger picture.

“If we are going to look for additional funding sources, we need to be able to tell the story of why that is needed above and beyond our current funding,” he said.

And a concern raised in Hecox’s group was about the new money being spent on the buying and drying of ag lands, where water is moved off of farms to urban uses.

“The biggest concern was that it can’t just be used to fund additional buy-and-dry-type projects,” he said.

T. Wright Dickinson, a rancher whose family owns the Vermillion Ranch in Brown’s Park along the Green River, had earlier in the meeting warned his fellow IBCC members that a statewide funding source might not be popular if it wasn’t structured correctly.

“We have to maintain a balance of power in this funding deal between municipalities, environment and agriculture,” Dickinson said. “And if either one of these gets ahead of it, it’s just one buzzard feeding on the other one’s carcass. And I’m not going to be part of that. If we’re not very careful in that balance of power, you’re just buying ag water to solve the problem.”

Dickinson added, “I understand and respect the administration’s desire to move its agenda along as expeditiously as it can. But I well remember Referendum A and how easy any one of these things are killed by the rumor mill. And if I have to, I’ll start part of the rumor.”

Repayment guarantee fund

The CWCB is exploring other ways to help facilitate water projects and river programs in Colorado than just a statewide tap fee.

One area that Feehan said the state is working on is a guaranteed repayment fund that the state could use to help big regional water projects secure better interest rates.

Feehan said the idea is that for some regional projects, some of the participants, such as small water districts, don’t have top-notch credit ratings and bond rating companies will use the lowest credit rating of any participant to rate a whole bond offering.

But a state guaranteed repayment fund could bring up the collective bond rating given to a big project, saving significant financing costs.

The state would put up about ten percent of any project to offset the “weakest link” in a deal with a number of entities, Feehan said.

Don Carlson, the assistant general manager, operations division, at Northern Water, told the IBCC that a guaranteed repayment fund could make a big difference on two regional water storage projects working there way through state and federal approval process.

Carlson, who sits on the CWCB’s funding committee, said there were 13 different participants in the Windy Gap project, and 15 participating entities in the Northern Integrated Supply Project, or NISP. The entities ranged from small water district to larger cities, such as Loveland and Greeley.

“When we sign a construction contract for Windy Gap Firming, a $350 million project for construction, we have to have all that money in the bank at that time,” Carlson said, making it like “herding cats” to secure the financing for all the entities involved.

“They all have different sources of money,” he said. “The best thing would be if we could pool all them together in a single bond issue.”

Carlson said the NISP project would cost about $600 million.

“So in round numbers, there’s a billion dollars out there that has to be raised for those two projects alone,” he said.

The credit ratings for the participants in the Windy Gap project vary from BBB to AA, Carlson said, and the lower BBB rating would cost $1 million more than an AA rating on the Windy Gap project.

“That’s real money that can saved,” he said. “I think this guarantee repayment fund would be a tremendous benefit. At least in our case, in northern Colorado for these two projects, I think it would be very beneficial for them.”

Feehan told the IBCC the repayment fund was a high priority for the CWCB.

“That’s something that we’re definitely going to move forward on, specifically for some of these projects and future projects that may come online,” he said.

Green bonds and foundations

Another idea supported by the funding committee set by the CWCB is the idea of “green bonds,” or “mission-driven money” that is loaned at lower interest rates if it is tied to, say, environmental restoration.

Carlson told the IBCC how such funding could be put to use.

“When we go through these permitting processes, of course there’s lots of mitigation that needs to be taken of,” he said. “And the participants are more than willing to pay for that. That’s just part of the deal.

“However, once we get through all the federal and state mitigation requirements, we also have to satisfy some local agreements and concerns, just to get local acceptance. So we end up providing some environmental enhancements for these projects.

“A good example would be up at Fort Collins. The Poudre River is very important to the city up there. Our studies show that NISP really isn’t going to cause much of a problem, but we still need to get their buy-in, their approval, and their acceptance of the projects.

“So we are going to have to spend a lot of money to enhance the river in many different ways. So the green bonds would be a help to those participants.

“Like I said, they don’t mind paying for the project and to mitigate their impacts, but for these enhancements that benefit the whole community, or even statewide, they would like that to be paid for by the people.”

Feehan said the state is looking at developing about $10 million in green bonds.

Meanwhile, Eklund said he recently met with a number of foundations to discuss ways they could more involved with funding water projects in the state. He said today only three percent of all national philanthropic resources are devoted to funding natural resource projects.

“We’re far outstripped, outpaced, as an issue area to fund by philanthropic giving or foundational giving by education and health care and things like that,” Eklund said.

While not naming any names, he said the leaders of foundations he met with were open to the idea of funding water projects in Colorado, at least after an initial educational meeting.

“Hopefully down the road here, you will start to see more investment in Colorado water in a variety of different areas,” he said. “The hope is we can capitalize on our status as a headwaters state and our ability to be innovative. And hopefully they will grab hold of that in the foundation community and support it a little bit more than the relatively paltry amount that is devoted to natural resources spending from their camp.”

Below is audio from the meeting, recorded by Aspen Journalism, which includes Feehan introducting Eklund on the topic of potential foundation support for water projects in Colorado. The clip includes the entirety of the public discussion at the IBCC meeting regarding foundations.

Expanding CWCB authority

Another effort underway is to change state law to allow the CWCB to loan money for projects that include a water treatment component. Today, the agency is restricted to loaning or granting money to raw water projects.

And increasingly, projects like the WISE project on the Front Range include a mix of treated and raw water components.

Hecox, of the South Metro Water Authority, said restrictions on the CWCB’s financing capability added another layer of complexity to the WISE project, which was centered on expanding an existing pipeline used for treated water and using it to also supply raw water to cooperating water districts and cities.

Eric Kuhn, the general manager of the Colorado River District, said the restrictions on the CWCB to only work on raw water supplies stems from fear in the 1980s by rural state legislators that water treatment projects would take up all of the CWCB’s time and money.

But he said, things have changed, noting “It’s really not that simple anymore, especially with re-use and things like the WISE project.”

Kuhn also said the West Slope supports re-use projects on the Front Range, as such projects allow the Front Range water providers to wring more use out of water diverted under the Continental Divide.

Editor’s note: Aspen Journalism is collaborating with the Aspen Daily News and Coyote Gulch on coverage of rivers and water in Colorado. The Daily News published a version of this story on Monday, Feb. 29, 2016.

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