PROJ02008

• Contract/PO #: FS0073FX
• Contractor Name: Lamar, City of
• Contract Type: Grant
• Water District: 0
• Loan Projects - Doc Type: Feasibility Study

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made without representing a direct subsidy to agriculture in the area. This income
transfer of residential monthly payments for secondary service would be made in return
for the canal company stockholder's firm commitment to use a portion of the revenue
from secondary service to upgrade its canal infrastructure.

As the canal company acquired water stock from farmers who placed their stock on the
market, competitively bidding for this stock based on its compounded value as a source
of secondary water service revenue from town residents, and then as this acquired stock
was transferred into the portfolio of the canal company as "treasury stock," thereby
ensuring its permanency in the canal company. the canal company would have
developed a "revenue generating center" for itself. It would still operate as a nonprofit
entity, but it would now have sufficient revenue to make significant upgrades in its own
infrastructure, perhaps even buying down over time a percentage of the assessments
paid by agricultural water users under the canal system, once these agreed upon canal
improvements were made.

Such a strategy is being conducted elsewhere in the West and represents a true
partnership between rural communities and the surrounding agricultural production
system. Agreements can be entered into that spell out responsibilities and obligations of
both the municipality and the canal company operating the secondary system, as well as
the rate structure of the secondary system. As Lamar grows, so would improvements in
the agricultural water delivery system, leading to opportunities for yet more areas of
cooperation between the municipality and agriculture.

An important question must be answered. Why should the municipality forego the
revenue from water service represented by outdoor water use? What consequences
would this have for municipal budgets? Again, to answer this question, one must weigh
the potential costs of reduced agricultural production in the area.

If it turns out that irrigators under the canal company did not make use of the benefits
derived from secondary water service revenue to upgrade their canal company's
infrastructure, and thereby open up the potential for improving on-farm irrigation
practices, the municipality would have lost nothing in its attempt to aid agricultural
production by allowing the canal company to operate the secondary system. The water
would still be there for the municipality's secondary system, since it owns the stock that
is used to provision the secondary system.

The major loss incurring to the community at large is any economic benefits that might
be foregone if irrigators indeed responded positively to this opportunity by using revenue
from the secondary system to affect the daisy-chain of economic incentives discussed
here.

Aqua Engineering, Inc.
and Colorado State University
May 19, 2004

Secondary Supply Feasibility Study
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