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I I I I I I I I I j I I I I I I I , I were 20,000 shares outstanding among members, each share would have a bill of$20 per year ($400,000/20,000 shares/ = $20). These expenses continue as long as a person owns shares and does not depend on whether or not he actual pumps water in a given year or how much a person is allowed to pump per share (a share can be temporarily leased to another user along with the fmancial obligation, this is described in the section on secondary markets). Because LA WMA revenues are based on the number of shares, water conditions do not matter and total revenues always remain constant. Initial Allocation of Shares The shares organization starts with an initial allocation of shares among members. This allocation is a decision by the LA WMA board. The allocation methods have different effect on users depending on climate conditions. All share methods have one thing in common: the initial allocation of shares across users cannot vary from dry year to a normal year except through voluntary exchange in secondary markets. Once LAWNL4 engages in an initial allocation of shares its share allocationjob isfinished. In other words, LA WMA cannot have a certain "initial allocation" of shares for illy years that is different from the "initial allocation" of shares in a normal year. Therefore, any change in the allocation of shares must occur in secondary markets. This initial allocation of shares will determine the relative fmancial demand shortfall, fairness and the actual use of water among members llllder different climatic conditions. Types of members will fare better or worse depending on the allocation method and whether or not it is a normal or dry year. Thus, the relative position of members involves a tradeoff: e.g. supplemental users might be better off in a illy year if sole-source users cut back somewhat in a normal year. There is no single completely fair or correct allocation: There are only tradeoffs between different allocation schemes. We describe three different allocation methods in the following paragraphs. LA WMA can modify these allocations in any manner they deem necessaI)', but the initial allocation decision must be the responsibility of the LA WMA board. Initial Allocation S I: N onnal- Year Allocation Method (S I ): Initial allocation S I is based on the amount of replacement water irrigators required to offset the effects of pumping in a normal year. Average historical pumping levels would require 18,049 af of annual replacement water and thus 18,049 shares would be initially allocated to LA WMA members. Of the total shares, supplemental water users would account for 9,019 shares (49.96%), sole-source flood water users for 3,068 (17%) and sole-source sprinkler water users for 5,912 (32.75%). This allocation favors sole-source users in a dry year. Initial Allocation S2: Drv- Year Allocation Method (S2): Initial allocation S2 is based on historical pumping during a dry year and is estimated to require 24,435 af of replacement water. Under this method, 24,435 shares would be issued to LA WMA members. Supplemental users are issued 14,090 shares (57.66%), sole- source flood users are issued 3,515 shares (14.38%) and sole-source sprinkler EnWater Resource Consultants September 5, 1997 Final Report 30