BOARD01860

• Board Meeting Date: 11/25/2002
• Description: CF Section - New Loans - Town of Paonia - Ark Land Property Water Rights Purchase
• Board Meetings - Doc Type: Memo

Town of Paonla - Water Rights Purchase
November 25.26. 2002

Agenda Item 201

conservation, distribution system improvements. and ditch lining to further reduce demand and
. increase supply, while providing for projected growth and prolonging the need for the Lone Cabin
(Stage 1) construction project.

Ark Land ProDertv

.

The Ark Land Property is currently owned by Mountain Coal Company (MCC), which is owned by
Arch Coal. Inc., the nation's second largest producer of domestic coal. The Ark Land Company, a
wholly-owned subsidiary of Arch Coal, Inc., is selling the property on behalf of MCC. The property
consists of three non-contiguous parcels south arid east of Paonia. The land is primarily used for
grazing. The purchase price of $1,800.000 Includes the land, 3 uninhabited structures, including
the ranch homestead. There are extensive water: rights associated with the property, which are
being reserved by MCC to enable It to comply with terms and conditions of MCC's coal mining
permits and plans for augmentation. These wat$r rights are very likely to continue to be available
for use on the property by the new owner. The property would be acquired by The Conservation
Fund and then conveyed to the Town. An appraisal of land and the associated water taps is being
undertaken by The Conservation Fund, and will be completed within 60 days of the purchase
contract.

Discussions with Delta County Planning Department Indicate that the land can be developed in
Delta County through a subdivision process (lots under 35 acres.) The minimum lot size would be
one acre (assuming septic system) but couid be smailer if a municipal-type wastewater system was
available. The process (Sketch Plan, PreliminarY Plan, and Final Plat) typically takes about 12
months. A project would also be reviewed at the! conceptual level by the Paonia and Northfork .
Area Planning Committee prior to going to the Planning Commission and County Commissioners
for approval. It was indicated that Delta County generally favors agricultural preservation, and
therefore the proposed purchase of the Ark Land Property would likely be viewed with support.

Water Riahts/ProDosed Purchase

Costs for land and water rights acquisition are eligible for CWCB funding under Policy #8, which
states:
The costs of land and water rights acquisi~ion are eligible for CWCB funding
as part of an authorized project. When no project is proposed, the costs of
water right acquisition is eligible for a CWCB loan if the purchase satisfies an
existing water need or shortage. Acquisition of water rights that promote
growth will not be eligible for a CWCB loan.

In considering the loan for the water tap buy-back, staff has used the rationale of "substitute
consideration" for water rights acquisition. Basi~lIy. in 1976 the Town exchanged water taps in
return for water rights. With the proposed CWCB loan, the Town would be "redeeming" those
unused water taps for cash. In essence. the Town would be providing cash for water rights.

Valuation - As part of the loan consideration, staff requested a valuation of the German Creek
Springs water rights in present day dollars. This was addressed in a letter from Mr. Gary
Thompson, P.E., WW. Wheeler and Associates. Inc., dated August 30. 2002. The German Creek
water rights have an 1863 priority to divert up to 4.0 cfs. with an average yield of 376 acre-feet.
Three methods were used to develop an opinion'of value of the water rights: a comparable sales ,.
method, a replacement water source method an<;i a tap valuation method. Based on the analysis,
as well as the unique value of the water rights to,the Town because of their excellent water quality,
seniority, and year-round lisefulness, it is the opinion of Mr. Thompson that the German Creek
water rights are worth at least $4000 per acre-foot to the Town, or about $1,500,000.

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