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PAWSD ponders Dry Gulch loan

Members of the Pagosa Area Water and Sanitation District Board of Directors traveled recently to meet with the Colorado Water Conservation Board to discuss PAWSD’s current loan for the controversial Dry Gulch Reservoir.

PAWSD Board President Steve Hartvigsen and Vice President Allan Bunch traveled to Denver Feb. 14 and met with the CWCB finance office. The meeting included former Colorado Sen. Bruce Whitehead (Southwestern Water Conservation District), Tim Feehab (finance section chief), Vaughn McWilliams (contracts/attorney) and Kirk Russell (design and construction).

The meeting was requested by the PAWSD board in order to discuss the loan by CWCB for the Dry Gulch property, to seek alternatives for sharing the loan burden and to determine what flexibility exists in the terms of the loan contracts.

Hartvigsen and Bunch summarized the meeting for their fellow board directors Tuesday night at the PAWSD regular meeting, hitting on some of the key points voiced at the meeting and handing out notes concerning the meeting to fellow directors.

Hartvigsen said Whitehead began the meeting by providing background information on the project and the changing political climate, including the change in PAWSD board members. Bunch added information on the varying levels of support for the project within the community.

According to Hartvigsen, Russell said he believes the Dry Gulch property purchase, by way of the loan contract, was a “good state investment” and that, based on information received, CWCB would not support PAWSD walking away from the property and selling it at a reduced price.

Russell also said that CWCB had initially supported the loan because limited favorable storage sites would mean higher costs in the future for land, Hartvigsen noted.

Several key terms of the lease were also shared during the meeting, including:

• PAWSD has a four-year window (September 2008-September 2012) to purchase the land.

• Interest payments are expected on the loan during that four-year period.

• At September 2012, or earlier, substantial completion of the acquisition of the remaining land needed for the reservoir site signals the start of the requirement that any spent funds would require repayment of the principal and interest at 3.5 percent over 30 years.

Later in the meeting, the amount of extra land needed at the reservoir site was deemed to be about 18 acres, but Hartvigsen noted that negotiations on the property acquisition were halted due to the lawsuit with Trout Unlimited, a process that is in settlement phases.

McWilliams and Russell also said later in the meeting that any proceeds of the sale of the current land would have to be used to reduce the loan principle.

• That the loan was secured based on the district’s existing rate payers, not future rate payers.

Hartvigsen said he received news from Feehan that flexibility leading up to the district’s deadlines was possible, but that flexibility would disappear after the deadlines had passed.

Hartvigsen also noted the news that any changes in dates concerning the loan should be accompanied by an updated plan.

Hartvigsen said Feehan reported later in the meeting that the CWCB would take into consideration a potential restructuring of the Dry Gulch loan.

In discussing the Dry Gulch loan, the San Juan Water Conservation District’s $1 million grant that helped secure the land was also noted.

Hartvigsen said McWilliams spoke of terms that require the reservoir to be built by 2025 (a statement that seemed to take the directors by surprise) or the SJWCD would be expected to repay the grant at an interest rate of 3.5 percent accrued since the grant was awarded.

Hartvigsen informed McWilliams that the likelihood of having a reservoir built by that time was small, and he said McWilliams replied, saying the districts should reach a decision as to whether or not to pursue the reservoir and, if not pursued, SJWCD should begin repaying the loan at that time to avoid accruing interest until 2025.

Toward the end of the meeting, Whitehead recapped his efforts on gauging the willingness of potential partners in the loan — reporting that sharing of the debt would be a tough sell at the current time.

“The key thing was that there could be some flexibility in the substantial completion date,” Hartvigsen said in discussion Tuesday following the report, which Bunch qualified by noting this was only the case if there was movement to store raw water.

Bruce Dryburgh, chair of the district’s citizen water work group, said there was no justification for the 2025 date, expressing his shock that the SJWCD would sign off on a grant that stipulated such a date.

From there, the board discussed ideas to relieve the district of the debt to the CWCB.

Director Roy Vega asked if there was a penalty to prepay the loan (there is not), voicing the idea that, perhaps, the district could refinance the loan using a general obligation bond voted on by the rate payers (due to TABOR restrictions, no such bond could be brought before the voters before May 2012).

Vega also noted his opinion that, the sooner the district is able to take CWCB out of the picture, the better.

“This is an idea that requires a great deal of research,” Dryburgh said, warning that rate payers could take the idea as a decision.

Another suggestion voiced at the meeting was the raising of district water rates.

“It would be much easier to move forward if we weren’t tied to those constraints,” Bunch said of the loan and project.

Vega also noted the SJWCD’s remaining burden in the project, stating that, although most of the burden has officially been shifted to the district, he believes the burden is still equal between the two entities because the project began in the hands of the SJWCD.

In the end, it was decided that the information collected at the CWCB meeting would be taken to the SJWCD at its next meeting on March 7.

The next PAWSD regular meeting is scheduled for March 8 at 6:30 p.m. in the PAWSD district office, located at 100 Lyn Avenue.

randi@pagosasun.com

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