State looking to increase funding for water projects

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Brent Gardner-Smith/Aspen Journalism

PUEBLO – To counter a sudden and sharp reduction in severance tax revenue from the oil and gas sector, the Colorado Water Conservation Board (CWCB) has proposed a five-year, $175 million funding plan for water-supply and river-restoration projects.

If approved by the state Legislature next year, the agency’s plan would bolster the amount of money that regional basin roundtables, and the CWCB board, have on hand to give out as grants in support of water projects and proposals.

Such funding has helped complete a number of projects within or near the Roaring Fork River watershed since 2006, including $40,000 for a feasibility study of a potential 18,000-acre-foot Kendig Reservoir south of Silt, $60,000 for repairs to the East Mesa Ditch irrigation system in the Crystal River watershed, and $100,000 to help the Snowmass Water and Sanitation District improve its water-metering program.

The Colorado basin roundtable, which meets every other month in Glenwood Springs, has approved an average of $820,000 a year in water-project grants through the state’s Water Supply Reserve Account (WSRA), which has been funded with severance tax revenues. In all, the roundtable has approved $8.2 million worth of grants since 2006.

The WSRA program as a whole has approved about $75 million in grants over the past 10 years, and has been funded at about $8 million annually with severance tax revenue. That stream of revenue has come from oil and gas companies in Colorado, but is subject to large year-to-year swings from both the cyclical nature of the industry and how companies choose to take advantage of tax deductions.

One factor in the severance tax equation — tax deductions — changed this spring when the Colorado Supreme Court ruled that oil and gas companies can, in fact, deduct certain expenses that the Department of Revenue had previously ruled against. The ruling means the state has to rebate $125 million, or more, to the industry.

The court ruling came when severance tax revenues were already expected to drop.

The CWCB had been ratcheting down the amount of severance tax revenue it expects to see flow into the WSRA accounts this year, which are divided between the nine basin roundtables and a statewide account administered by the CWCB board.

In January, the roundtables were advised to expect a 25 to 50 percent drop in severance revenues this year. And as of this month, they’ve been told to expect zero money from severance tax dollars next year.

“For this year, ’16-’17, we’re not looking at any money coming into the WSRA accounts, statewide or basin,” said Brent Newman, a program manager at CWCB who works in a support role with several roundtables.

With the drying up of severance tax revenue, the amounts available to the roundtables for grants are restricted to the money they now have on hand.

The Colorado basin roundtable has $473,327 to spend between now and July 1, 2017, which is when CWCB is hoping its new funding plan will come to fruition.

At its meeting in May, the Colorado basin roundtable members tightened their belts and denied one application for funding and approved three other projects, but only granted half of the requested amounts in each case.

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Four buckets of money

The funding plan put forth by the CWCB includes four types, or buckets, of funding.

One $50 million bucket consists of $10 million a year over five years to fund the WSRA program at the level it generally has been funded since 2006.

“We’re trying to make up the deficit in severance tax revenue,” Newman said.

But if severance tax revenues do return to prior levels, the money would still go into the WSRA accounts, along with the newly designated funds. This means funding for the WSRA program as a whole could rise as high as $20 million a year, which would be a dramatic reversal of fortune for the regional roundtables and the CWCB.

A second $50 million bucket — filled at the rate of $10 million a year for five years — would allow the CWCB board to directly make grants to support programs and initiatives described in the 2015 Colorado Water Plan, such as water-efficiency programs and education and outreach efforts.

A third $50 million bucket would consist of a one-time cash infusion into a loan repayment guarantee fund. This money would be used to fund future water-supply projects that have a number of municipal and governmental entities behind them.

The credit ratings of many smaller cities and districts are lower than those of large water providers and cities, and that can increase risk to lenders and make it harder to get big loans for projects. But if the state guarantees that the loans will be repaid, it should make it easier to get new projects built.

Newman said funds from this proposed bucket could help proposals such as the Windy Gap Firming Project, which would allow additional diversions from the West Slope to be stored in a new East Slope reservoir.

There are 13 different entities on the northern Front Range that are supporting the Windy Gap project.

“Some have an awful credit rating, some have a great credit rating,” Newman said, speaking in general terms about water projects with various entities involved. “By guaranteeing these bonds from a state fund, it brings everyone up to the same credit rating, and makes it a lot easier for multiple partners to work together on a project. And it actually cuts out millions of dollars in costs.”

Alan Hamel, a CWCB board member representing the Arkansas River basin, supports the proposed funding plan, including the loan repayment guarantee fund.

“It will really help smaller communities with their projects,” he said.

Newman and Hamel made their remarks on June 8 in Pueblo at a meeting of the Arkansas roundtable’s executive committee. That roundtable is especially interested in CWCB’s funding proposal because it only has $185,000 in its account for the next 12 months, and it has approved an average of $1.2 million a year in water projects and plans over the past decade.

The fourth bucket in the CWCB’s funding plan includes $25 million, at $5 million a year for five years, to fund projects and plans designed to improve the environment, and recreational values, of the state’s rivers and streams.

This funding, up from about $1.5 million a year over the past two years, will go to help fund river management and restoration efforts, such as the recently completed Crystal River management plan and the forthcoming Roaring Fork River management plan.

In all, it adds up to $175 million being put forth over five years to move forward on the projects and ideas described in the Colorado Water Plan.

“All of this is very conceptual,” Newman said. “The [CWCB] is going to be beating this up for the next couple of months before we have a final funding plan in place.”

Gears on the top of the dam that forms Lost Man Reservoir, part of the diversion system on the upper Roaring Fork River headwaters.

Brent Gardner-Smith / Aspen Journalism

Gears on the top of the dam that forms Lost Man Reservoir, part of the diversion system on the upper Roaring Fork River headwaters.

Money in hand

The money for the project is coming from the CWCB itself, which has been loaning money to various entities to build water projects for years. As those loans have been repaid over the years, the CWCB has kept the money in a fund. Now it plans to tap that pool of money to fill the four buckets described above.

Newman said the CWCB was in a unique position of having funds to work with “because of the good stewardship of our loan funds over the past several decades.”

“We’re in this position of having, and it’s weird to say this in public, too much money to loan out,” Newman said in Pueblo. “We have a really healthy loan program, and it’s not just dependent on severance tax. We’ve given out some really big loans that are starting to be paid back in installments every year now. So we have these perpetual funds that are cycling back.”

Since it has the funds on hand, and is watching severance tax revenue dry up, CWCB board members in May asked staff to put a plan together that would help implement the ideas in the Colorado Water Plan and in the various regional basin plans developed over the past two years.

The authorization to spend the money in CWCB’s proposed funding plan has to come from the state Legislature as part of its annual review and approval of the CWCB’s “projects bill.”

If the Legislature approves the funding plan, the funds would not be available until July 2017, at the start of the state’s next fiscal year, which means many of the nine basin roundtables are looking at a lean 12 months ahead.

Between now and the end of the year, the CWCB staff and board will continue to discuss and fine-tune the conceptual $175 million plan. The CWCB will next discuss the plan at its July meeting in Steamboat.

Editor’s note: Aspen Journalism and the Aspen Daily News are collaborating on coverage of rivers and water in Colorado. The Daily News published this story on Wednesday, June 15, 2016.

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