BOARD00835

• Board Meeting Date: 1/27/1999
• Description: CF Section - New Loans - Leroux Creek Water User Association - Carl Smith Dam Rehabilitation
• Board Meetings - Doc Type: Memo

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The Association is requesting a 30-year loan for $1,250,000 which represents 90 percent A
of the project cost less a $5,000 feasibility study grant which the Board provided to the _
Association in 1998. The Association will finance the remaining 10 percent of project
costs, about $138,900, by the use of cash reserves (as described above) and through a
commercial bank loan for about $70,000 for five years at an estimated rate of eight
percent. The recommended lending rate for the Construction Fund loan will be the
municipal low income and agricultural rate for 1999 of3.75 percent.

Thirty-year financial projections included in the feasibility study indicate that
assessments will increase significantly on two of the three classes of shares issued by the
Association, The assessments on those two classes of shares that allow storage water will
increase from $5.00 and $7.35 in 1998 to $15.00 per share for both over the next few
years. Cash reserves are expected to remain at about 25 percent of annual operating costs
through the period of debt retirement.

The only alternative source of funding for this project would likely be a commercial bank
loan involving a lending rate of about eight percent and a loan term of much less than 30
years.

As security for the loan, the Company will offer a pledge of revenues from assessments
and the Carl Smith Reservoir and water rights. Staff believes that the collateral would be
at least equivatent in value to the principal amount ofthe loan.

Economic Analysis

e

The economic analysis in the feasibility report indicates that the annual cost ofthe project
amounts to about $95 per acre-foot, assuming an average annual yield of 800 acre-feet.
This is relatively expensive for agricultural water.

This should be compared, however, with the value in use of the reservoir, which not only
adds to system yield but also functions as an equalizer for the entire system making
system operation more efficient. In addition, ifthe incremental value of irrigated versus
non-irrigated crop production for this area is taken into consideration; the project
demonstrates a benefit/cost ratio of 8.3.

Conclusion

Staff finds the proposed project to be economically and technically feasible, Financial
feasibility rests primarily on the willingness of shareholders to pay the substantially
higher assessments associated with the project. In December 1998, the shareholders voted
to accept the higher assessment levels,

Recommendation

Staff recommends that the Board recommend to the General Assembly a Construction A
Fund loan of $1,250,000 to the Leroux Creek Water Users Association of Hotchkiss for _

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