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• Board Meeting Date: 5/21/2008
• Description: CF Section - Changes to Existing Loans - Tom Hill - McElroy Dam Rehabilitation Project
• Board Meetings - Doc Type: Memo

Background
The McElroy Reservoir (Reservoir) has been ow ned and operated by Tom and Linda Hill for the
last 30 years. The Reservoir is located on State Land Board land and is authorized by a 10-year
renewable lease terminating June 2016. The Hills use the water stored in the Reservoir to irrigate
approximately 400 acres of the 800 acres of hay production on the 2,588 acre Gore Pass Ranch.
The Ranch is located upstream of Wolford Mountain Reservoir and receives ir rigation water
from storage rights. The Ranch produces approx imately 1,200 tons of hay annually and the Hills
have a 140-head cow/calf operation.
On June 17, 2006, the outlet works failed and the embankment of the dam began piping through
the outlet works. The dam material filled the ou tlet conduit and the outlet became unusable. With
no way to release stored water, the Hills received a verbal breach order from the State Engineer’s
Office (SEO). The Hills hired UR S Consultants to file a breach application with the SEO and
hired Pryor Excavating to breach the dam. Duri ng the breach, it was discovered that a large
sinkhole had formed on the upstream dam embankment.
The CWCB loan was approved in November 2006. Staff identified in the original board memo
that the Hills were operating the Ranch at a loss, that the Ranch was for sale, and that the Hills
needed 100% funding for the project due to their hardship status. One of the loan contract
provisions states, “ CWCB may, at its option, declare imme diately due and payable all sums owed
under this Loan Contract upon the sale or transfer, without the CWCB’s prior written consent, of
all or any part of the Collateral.” During construction of the project, the Hills sold two small
parcels of the Ranch with the CWCB’s consent, but did not pay off any portion of the CWCB
loan.
Rehabilitation of the dam began in the spring of 2007 and was completed May 1, 2008.
Conservation Easement
In a letter dated April 11, 2008, the Hills notified the CWCB th at they intend to sell a
conservation easement on the Ranch to the DOW th at will preserve all of the land and water
rights associated with the Ranch for agricultura l use. DOW informed the CWCB that the Ranch
was chosen for a conservation easement because it is a valuable wildlife habitat and is also a
source of water for a downstream fishery.
The May 30, 2008 closing date for the sale is contingent upon the CWCB subordinating its
interest in the Ranch to the DOW’s easement . The value of the easement is $3,750,000, leaving
the Ranch with an appraised value after th e easement of $2,625,000 without improvements.
Discussion
The original purpose of the CWCB loan to the Hills was to rehabilitate the dam for the Reservoir
after the SEO emergency breach, thereby regaini ng water storage rights on the Ranch that are
necessary for irrigation of hay. The CWCB loan to the Hills hinged upon the fact that the sale of
the Ranch was in the near future, and that rehabi litating the dam was necessary to attract a buyer.
The sale of the Ranch would have allowed the Hills to repay the loan with the proceeds.
Unfortunately, no acceptable offer has been made fo r the Ranch during the two years it has been
on the market.
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