Mesquite, NV. “Substantial debt” incurred, in part, from the acquisition of highly polluted Virgin River water shares contributed to an increase of 35 % in 2010 and a 94 %[i],[ii] in 2015 for the approximately 10,000 culinary (underground) water customers served by the Virgin Valley Water Board (VVWB).
Wesley Smith, the Chief Financial Officer (CFO), revealed the relationship between debt and payments during a December 5, 2019 deposition taken by Jeffrey Sylvester, the lead attorney for Paradise Canyon (DBA as the Wolf Creek Golf Club) in their case against the Virgin Valley Water District (VVWD).
Smith put the debt at $20 million, adding that in addition to Virgin River water shares, it included the purchase of underground water shares. Sylvester asked if the water shares exceeded $9 million. Smith was unsure.
A review of VVWD accounting records shows that between 1993 and April 2010, Virgin River shareholders sitting as first members of the VVWB “gifted” [iii] $5,546,518.29 of VVWD customer monies to Bunkerville Irrigation Company (BIC) shareholders and again “gifted” $6,613,152.57 of those public dollars to Mesquite Irrigation Company (MIC) shareholders for a total of $12,159,670.86.[iv] It is this questionable use of public funds that primarily drove the Water Districts debt.
The state of Nevada established the VVWD in 1993 to develop culinary water for the growing communities of Mesquite and Bunkerville. Nonetheless, the shareholding board saw fit to “gift the $12 + million and create a substantial debt to acquire about 4,000 Acre Feet Annually (AFA)[v] of highly polluted Virgin River surface water. The board argued then, and they argue now that this river water would be necessary for culinary use when underground water becomes unavailable.
When asked about the future use of river water, Smith said it would cost multi-millions of dollars to clean it for culinary use. A hydrologist familiar with the issue said that the cleaning process would reduce the amount in half. Spending $12 + million, plus the millions to clean and deliver approximately 2,000 AFA of polluted river water, makes no economic sense, the hydrologist said.
When asked by Sylvester if the VVWB would continue to raise culinary rates over the next 10 years, Smith said: “I’m sure we will.”
When pressed for an amount, Smith said between 1 and 2 percent. [vi] He said that rates are based upon rate structures set by the board in 4-year blocks adding “We haven’t finalized all the capital projects and so there’s still discussion going on with the engineer and so forth.” “And coming up this spring, they [the VVWB] will be reviewing and deciding rates for the next four years,” he said.
Sylvester argues in case filings that rate setting activities by the VVWD board violate the good faith and dealing provisions required by Nevada contract law. He also argues that setting a market rate requires the water board to act reasonably. And, in earlier hearings, Judge Timothy Williams pointed out that the water district is a political subdivision of the State of Nevada and had to act both in good faith and without being arbitrary and capricious. They do not have a right to do whatever they want, the Judge said.
Under questioning by Sylvester, Smith said he could not correlate the increase or decrease in payments directly tied to one income source or another, adding that he had never attempted to make such a relationship.
When asked how much Wolf Creek pays in culinary water and therefor contributes to the debt reduction, Smith said: “I don’t know?”
Water District attorney Jedediah (Bo) Bingham, argues in the court and through press reports by Battle Born Media reporter Barbara Ellestad that [culinary] ratepayers “are essentially subsidizing Wolf Creek” because every dollar that is not collected under the lease to Wolf Creek is a dollar that’s going to have to be made up for by the culinary ratepayers?
Bingham’s argument that Wolf Creek is not paying its fair share of the debt is spurious at best. Last year as an example, the owners of Wolf Creek paid about $130,000 in culinary payments. That is more than their fair share.
The whole question of “market value” for public water as urged on by the VVWB is misleading. The VVWB assumes that public water[vii] pricing is based on private sector market forces. That is economic nonsense. Water is essential to life and the economic wellbeing of a community. Public water, is not an economic good that follows supply and demand market forces.
Imagine if all publicly owned goods and services built in a profit margin for certain people. The price of any public good or service, including public water, is simply the costs to deliver, inflation, plus an interest rate tied to certificates of deposits (CD).[viii] The CD rate is applied as a means of quantifying the public’s agreement to spend public funds.
The actual cost to deliver publicly owned river water by the VVWD is essentially zero. Whereas the cost to use that water (pumps, pipes, etc.) is born by the Golf Course owners.
The VVWD does not maintain or develop any infrastructure for the delivery of irrigation water. It comes from existing ditches. If there are costs to deliver irrigation water, it is the marginal bookkeeping costs for recording the economic gains and losses associated with river water transactions pushed by the VVWB and a fee, not a profit, to the irrigation district for maintaining ditches.
VVWD culinary customers, including the owners of Wolf Creek are paying for a debt by board members using public funds to enrich shareholders of public water.
[i] [i] Deposition of Wesley Smith, Paradise Canyon LLC vs. State of Nevada, Virgin Valley Water District, Case no. A-18-774539-B, December 5, 2019 pgs. 82-83.
[ii] The 94 % includes the debt reduction fee.
[iii] Article 8 section 9 of Nevada’s constitution prohibits the gifting or loaning of public money to certain corporations. And Section 10 of the Constitution prohibits the loaning of public money to or ownership of stock in certain corporations by county or municipal corporations. Water shares are stocks.
[iv] Amounts from Virgin Valley Water District accounting records.
[v] Calculated at 7.16 Acre Feet Annually of water per share.
[vi] Deposition of Wesley Smith, Paradise Canyon LLC vs. State of Nevada, Virgin Valley Water District, Case no. A-18-774539-B, December 5, 2019 pg. 29.
[vii] In Nevada “all sources of water within the boundaries of the state, above and below ground, belong to the public (Nevada Revised Statute (NRS) 533.025 and 534.020).
[viii]Ayoo, Collins A. and Theodore M. Horbulyk. “The potential and promise of water pricing.” Journal of International Affairs. Vol. 61, No. 2. Spring 2008 at 93.