Editor's Note: This is part 2 and the final part of a two-part report on the Tuesday, Dec. 16, 2014 GSFWC meeting.

By Mary Alice Murphy

Members of the Gila/San Francisco Water Commission, under old business, discussed whether to approve submitting the George K. Baum finance plan to the ISC.

GSFWC Chairman Anthony Gutierrez said he had already presented it to the ISC.

Mark Valenzuela, first vice president to George K. Baum and Company, an investment bank in Albuquerque, noted that he was born and raised in Deming.

"We recognize the information in this original presentation has changed," Valenzuela said. "We need to update the numbers based on what the Interstate Stream Commission has done. We presented this as a concept. There are assets to the Arizona Water Settlements Act. Putting them to work can benefit you. We need to update the numbers and the process.

"Time is an asset," Valenzuela said. "A diversion will not be built tomorrow. We can invest those funds to earn more."

He said the firm knew the amount in the New Mexico Unit Fund had already risen to $27 million, because the original $6.6 million a year in 2004 dollars had grown to $9 million a year for 10 years. (Three payments have been received to date.) "We knew if the letter were sent to the U.S. Secretary of the Interior stating New Mexico's intent to use the full water amount and funding, it would trigger the $62 million. Over a 20-year timeframe, you would earn on average 5 percent. So the $90 million would earn up to $43 million additional in 20 years. The same with the CAP fund of $62 million, with an average 5 percent it would turn into $89 million."

"With all of this, you are restricted by state statute what you can invest in," Valenzuela said. "Investments are earning little today, but what we can invest in are AA and AAA government securities. The ISC doesn't have a plan to invest the money. The risk to losing original principal is very minimal due to state statute. We can quantify the funds over the next 20 years. You can sell short-term bonds and do the 30 percent engineering and begin the diversion planning."

He said interest rates are at historic lows. "If you sell 10-year bonds on the senior lien bonds, over 10 years it would repay their bills for the project. Subordinate-lien bonds are paid less if the project doesn't happen."

The second concept G.K. Baum explored was the asset of the ability to lease the water.

"We assumed 4,000 acre-feet out of the San Francisco River, and 10,000 acre-feet out of the Gila," Valenzuela said. "You can lease the water and later can bring it back to the four counties. You control the leases. Lease revenues can provide $189.8 million over the 20-year period. We, too, support conservation. How can we support all of these projects with $464.3 million?

"The only thing we haven't talked about are other funding sources," Valenzuela continued. "Part of my expertise is finding other sources. You have federal and state funding and the capacity of the four counties. A conservative estimate is you can use the funding to generate an extra $80 million in funding. You also have to pay for the 30 percent engineering and the environmental impact studies. The annual financing cash flows include construction."

Vance Lee of Hidalgo Soil and Water Conservation District said he was curious to know what G.K.Baum gets out of the financing concept.

"We are a for-profit, and we have a regulated fee," Valenzuela said. "We also have to meet New Mexico procurement laws. Our fee is generally no greater than 2 percent."

"In presenting the plan to the ISC, I'm not sure whether they will approve it or what is their involvement?" Lee asked.

"Our request to be the CAP entity would bring it to a head," Gutierrez said. "The ISC staff recommended a finance plan. In my letter to be CAP entity, I forgot to mention this plan, which allows for continuous revenue streams. "We originally had 71 projects, which we whittled down to 16," he continued. "There were a lot more projects that need revenue. None of these entities have the capacity to get extra money. There are, however, a lot of funding sources for conservation projects. They come across my desk all the time."

"Even though we do support other projects," Lee said, "we have always known there was not enough money to fund everything."

Jim Massengill of the city of Deming asked to clarify that the issue was before the commission, because "it was not approved by this board?"

Gutierrez said it was approved at a meeting where there as an alleged violation of the Open Meetings Act. "We have not received notice from the attorney general of a violation of the Open Meetings Act."

Valenzuela said the discussion and approval was scheduled but there was not meeting because of a lack of quorum.

"This is a concept, not a plan," Treasurer Alex Thal said. "It is a concept we need to take to another level. I don't think we want to present it as a solid plan, but rather as a prospectus of one idea to fund the project. "

Gutierrez said the ISC was being bombarded by the $1 billion price tag. "I spoke with Jeff Riley from Reclamation. He said if you add up all the alternatives listed in the project report, it would add up to more than $1 billion."

There are a lot of engineering reports to be done, Gutierrez said, and other reports will remove some of the alternatives. "As chairman, I felt I had to take the idea to the ISC. I never said it was a plan approved by the Gila/San Francisco Water Commission."

"I said it was a George K. Baum concept," Valenzuela said.

Massengill suggested looking at an updated concept, with all the money that had already been spent.

"I discussed that with Mr. Valenzuela," Gutierrez said, "but there is not other plan to meet costs. If we present to the ISC, I hope it will open up levels of discussion."

Thal said: "Now it is a prospectus. If we have buy-in from the ISC, it can become a plan."

Allyson Siwik of the Gila Conservation Coalition asked if she could throw out some questions. She asked what was the interest rate for the senior-lien bonds and subordinate-lien bonds. She also asked what value per acre-foot was used for leasing the water, and to whom the water would be leased.

Janice Kiehne, representing the 1894 Luna Irrigation Ditch Association, said she too had questions. "I have a concern about how much will be given to the Catron County ditches. On what timeline would we realistically have the money on the non-diversion projects? Will the diversion project take priority over the non-diversion projects? The ditches are equal to counties, under state law. Does the funding go to the counties, to the CAP entity or to the ditches?"

"As the CAP entity, we want to have the ability to prioritize as money becomes available," Gutierrez said.

Valenzuela answered Kiehne's question on timing. "Once this group becomes the CAP entity, you prioritize, you tell me when you need the money. Local governments cannot sell these bonds. The projects have to be ready to go."

"Regarding the other questions, bond markets change daily," Valenzuela said. "Yesterday 10-year bonds were at 2 percent. We're looking at bonding, but no one can tell you at what rate. We are conservative. As interest rates go up for municipal debt, we will borrow short-term and invest long-term.

"It all depends on the credit rating," he continued. "Let's say you got the CAP entity, from a credit standpoint, you're in good shape, because you have cash in the bank."

As for the second issue, lease agreements, "water markets are like bond markets. They are dynamic. And especially in the Southwest. I don't know to whom you would lease, and I don't have a recent value in front of me."

Thal asked if the water-lease value were for in-state or out-of state.

"We are not brokers," Valenzuela said. "We would do whatever brings you the highest value and brings you the most flexibility."

Thal said the question had come up about whether leasing out-of-state was in conflict with the AWSA. "Yesterday, at out Grant Soil and Water Conservation District meeting, we had a discussion on the issue. Bill Woodward asked if it were legal to lease to Arizona, to Tucson or Phoenix, why would they want to lease when the water runs right by them and would be cheaper in-state."

"We have asked the same questions," Valenzuela said. "They need to be answered by water law experts."

"We would want to pursue those answers before we consider the possibility," Thal said. "Maybe we have markets in New Mexico, since some are trying to take 54,000 acre-feet out of the Augustin Plains."

"For me personally," Valenzuela said, "that's why it makes sense for you to be the CAP entity, so you can begin to research the answers."

Darrel Allred of Catron County said the finance proposal is more correctly a concept. "If you look at it from the perspective of water users, of which I am one, we would also like input into this concept. I have developed lease agreements. You have to be careful about concept versus plan. Take more time before you say you want to adopt a concept or plan. Be cautious when you talk about leases. Wait until you're the CAP entity."

"We know the value in the water," Gutierrez said. "I think Catron County would benefit the most once we have the revenue stream and can go toward projects. We have to be creative, and once we have the revenue streams, then the grants become reality."

Charles"Tink" Jackson, Luna County manager, asked why Arizona would want to lease the water if New Mexico isn't using it, as it is going there anyway. "It's water that maybe Los Angeles or San Diego would want to lease. It's downstream users you want to look at. Phoenix is paying $1,000 an acre-foot to the Gila River Indian Community, because the water comes right by there."

"You can't work out details until you are the CAP entity," he said. "We need something in place to show the governor and the Legislature what we've done. We are not going to get into detail, but we need to have something to show our interest."

Archie Payne of the village of Virden asked how many acre-feet would have been available in the past five years.

Jackson said, when the act was being negotiated in 2004, they took a 77-year look at flows. The original allocation was 18,000 acre-feet, but part of the reason it was lowered was because 14,000 was the most that could be taken in most years. "I don't think this recent drought came close to the one in the 1950s. In recent years, with fewer gauging stations, the lowest amount was 14,000."

Thal said the Acequias Association has competent attorneys that might be able to answer some of the questions being raised.

Kiehne agreed they might be willing to get involved, "although I think sometimes they forget the southern part of the state. The Luna Ditch does affiliate with the association. The more we can get affiliated and associated with them the better." She said the association is probably not as familiar with the AWSA as it should be.

Gutierrez pointed out: "This is an exchange and is unique in how it is structured."

Thal said he would entertain to the commission that it explore protecting ditches in the area.

"There is a lot of work to do, and a lot of good discussion today," Gutierrez said.

Massengill said the concept was previously presented to the ISC and it needs to be updated. "Will it go any farther than this meeting?"

Javier Diaz of Luna County said he wished for the commission to take action.

Darr Shannon of Hidalgo County suggested in the letter, that it be said it was previously presented as a plan, "but we want to show it as a concept."

Lee made the motion and Diaz seconded it, and it was unanimously approved.

Thal said the treasury had $2,373.16 in its fund, "We need to see the final product from Domenici before we pay the last installment."

Gerald Schultz Of New Mexico Resource Conservation and Development announced the annual meeting of The Water Dialogue would take place Jan. 8. M.H. "Dutch" Salmon said the theme was to be "How to Get Along on Less Water."

The next meeting is set for 10 a.m. Tuesday, Jan. 13, so as not to conflict with the New Mexico Association of Counties meeting on Jan. 20.

Lee suggested agenda items should include the election of officers and the Open Meetings Act resolution.