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established the better so that management for that entity can become fully familiar with the project during the latter stages of construction. Both tribal and non-tribal project beneficiaries are participating in the development of an operations agreement to cover the O,M&R costs and the costs associated with pumping water to the reservoir. Colorado has been participating on a very limited basis simply to try and assure that should the State elect to purchase water, such can be done within the terms of the existing agreement at a cost that would be fair to the State. Attached hereto are copies of the proposed, "INTERGOVERNMENTAL AGREEMENT ESTABLISHING THE ANIMAS-LA PLATA OPERATIONS AND MAINTENANCE ASSOCIATION," and Exhibit A thereto, "CONCEPTS AND PRINCIPLES FOR THE OPERATION AND ALLOCATION OF THE OM&R COSTS OF THE ANIMAS-LA PLATA PROJECT." Please note that above agreements are only being presented to the Boards and Councils of the ALP beneficiaries at this time, none of the project beneficiaries have formally approved them. The question before the State is whether or not to become part of the operating entity now or wait until it decides whether or not to purchase all or a share of its water allocation. If the State elects to sign-on now, there will be some start-up costs but no O,M&R costs will be assessed until Project completion. If the State does not purchase any of its allocations, it would opt out of the Association. The States O,M&R costs would be assigned to the Tribes pursuant to the Settlement. In the alternative, the State has 2 years after Proj ect completion in 2012 to decide if it wants to purchase all or a portion of its allocation and would presumably opt into the Association at the time of purchase. The Agreement establishing the Association has been reviewed by the Attorney General's Office and appears to be acceptable. However, the operating principles leave a number of water administration questions unanswered by design that will need to be addressed in the future. Thus, the operating principles will be revised from time to time. Financing Options and Markets Financing options have not been explored in detail at this time. The financing options will also depend on the end user. For example, if the water was used for compact compliance purposes funding would likely be in the form of a grant from Severance Tax, State appropriations, or possibly the Water Supply Reserve Account. If the water is allocated to a rural water system, financing could be through a CWCB Construction Fund Loan or the Water Supply Reserve Account. Of significant concern to staff from the financial aspect are the potential ballot initiatives that will reduce or cap the amount of severance tax coming to the Board. Passage of one or more of those initiatives may reduce or prevent the Board from participating in the purchase of ALP water. Staff is aware of the water supply needs identified by SWSI in the San Juan Basin, the Water Supply Reserve Account request by La Plata West for a rural water system and the potential for a water conservancy covering parts of the Florida Mesa. However, the willingness and ability of any of the entities to contract for a portion of the States allocation is unknown. Staff believes a water market analysis study would be useful in helping to arrive at a decision on how much of the States allocation of ALP water to purchase. Recommendation Staff believes that the State continue to seriously consider whether or not to purchase all or a portion of the States ALP water allocation and to reach a decision as soon as reasonably possible. However, at this time there are a number of uncertainties, as outlined above, that should be addressed prior to the State making that decision. Staff recommends that a market analysis of the amounts, viability and interests on the part of water users and providers in southwestern Colorado be performed and that potential financing arrangements be evaluated.