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Section 3 Alternative Agricultural Water Transfer Methods to Traditional Purchase and Transfer ~ Like other alternatives, soil, weed, labor, and ~ Underlying agreements can be structured to take equipment management issues must be effect at a pace better matching urban considered for the fallowed lands. development and revenues from tap fees while Many of the issues related to a purchase and achieving the security of acquisition in the near- leasebackarrangement are similar to those faced term. with an agricultural transfer involving permanent Financial risks to M~eI and other users include: dry-up of irrigated lands or of a rotational fallowing program. 3.6 Underlying Financial Considerations For some water users needing additional water supplies (i.e., M~eI, environmental, recreational) the initial water costs associated with traditional agricultural water transfers may be overwhelming. Many of the alternatives outlined above may allow cash flows (between water recipient and water contributor) to better align temporally with the benefit received. As an example, rather than a municipality budgeting and spending significant capital or incurring debt to purchase "firming" water that may be necessary in a future drought, the municipality could participate in an ISA and expect to have only increased operational costs in those years when additional water yield is needed and the interruption occurs. As a result, water costs and water benefits occur nearly simultaneously. It is important to note, however, that if extensive supplemental infrastructure is necessary to transport and treat new supplies from their historical place of use to a new demand point, the upfront cash outlay for actually purchasing or leasing water supplies may be less significant in comparison to a total "project" cost. Additional financial benefits to M~eI users may include: ~ If the water is needed for permanent uses and the ISA or rotational fallowing arrangement bas a term, the end user must find replacement sources of water, once a contract expires, without an option to renew or a right of first refusal (ROFR) if the owner sells. Replacement sources may then no longer be available or the costs may have increased beyond the financial capabilities of the end user. Even a ROFR, which allows the end user to match any selling price, may present significant additional financial risk to the end user who cannot predict appreciation. Financial benefits to farmer/transferor may include: ~ Achieve security oflong-term income stream soon, thus obtaining predictable revenue not easily gained in normal agriculture. Consistent revenue may allow for long-term planning to optimize investments, farm management opportunities, and opportunities for cooperative agricultural ventures. ~ In many instances, equipment and machinery uses and needs associated with canal operations are comparable to those of a municipality. Costs of canal improvements needed to operate a rotational fallowing or ISA could be shared costs. Likewise, personnel expenses experienced by the ditch company could be offset by the municipality in compensation for additional accounting and management activities that will likely be integrated into most agreements. ~ Outright purchase of large quantities of water may require bonding. If implementing some of the ~ alternatives above, municipalities could preserve bonding capacity to finance other, more pressing needs. ~ Avoidance of interest costs oflong-term indebtedness. Arrangements can provide a planning horizon for both farmers and canal companies as they evaluate (or possibly develop) new technologies to manage agronomic systems with less, or limited water supplies. 3-20 FINAL DRAFT