Since 2014 the Virgin Valley Water District has sparred with two local golf courses over 105 unused water shares that are under lease contract to the courses until 2020. The issue dominated VVWD’s Feb. 6 meeting with the board agreeing to sidestep some contractual points of disagreement it has stated in past dealings with the courses.
At stake is the financial benefit VVWD can realize in leasing or subleasing unused water shares, and the future rate to be charged to local irrigation water lessees at the end of their current contract.
The district has sought to maximize its revenues to close the district’s financial shortfall caused by past mismanagement, underpricing of assets, and fraud during prior administrations. In 2014 Wolf Creek and Conestoga Golf Courses were approached with a request to return about 105 excess water shares they held under contract.
The water could be leased to Southern Nevada Water Authority in Las Vegas for $1,246 per share, about five times the $250 share price paid by the local lessees.
The golf courses balked at returning those shares to the district for several reasons. Their contracts, as written, gave them water for their golf courses “in perpetuity” and they had each paid a right of first refusal fee over re-lease of the water shares. In addition, the golf courses maintained they could not bear the financial burden if they were hit with a huge increase in their own lease price when it appeared that VVWD intended to charge them the Las Vegas market rate in 2020 when their contracts expired.
After “righting the financial ship” through other sizable rate increase measures, in 2017, VVWD’s attention returned to the issue of unused water shares that could be earning five times more for the district if leased to SNWA.
SNWA has a standing agreement to lease any available water shares VVWD could supply. Mid-year, the State of Nevada required Mesquite Irrigation Company to “prove up” its beneficial use of water in its control. VVWD owns about 25 percent of that water, in the form of about 400 water shares. In turn, VVWD again asked Wolf Creek and Conestoga to return the 105 water shares they were not using for their operations.
Maintaining that lack of proof of beneficial use could endanger water shareholdings in the valley, and asserting that, by contract, no VVWD water should be used if City of Mesquite effluent water was available, the district pressed the two golf courses to return the 105 water shares by December 2017. The district’s intent was to sublease those shares to SNWA.
Late in 2017, Wolf Creek and Conestoga hired the law firm Sylvester & Polednak of Las Vegas to represent their position that VVWD was attempting to unlawfully require them to relinquish water shares. Quincy Edwards of Conestoga appeared at the Dec. 19 VVWD meeting. In that meeting VVWD and Edwards roughed out conditions for contract renegotiations that included a guaranteed of adequate water for golf course operations and the ability for Conestoga to assign its contract to a third party. No future pricing was discussed in that meeting and no agreement was finalized from those terms.
Attorney Jeffrey Sylvester spoke to the VVWD board on Jan. 16 stating Paradise Canyon (dba Wolf Creek) was willing to agree to allow VVWD to sublease their 55 shares in question on the condition that VVWD would guarantee the course adequate water for their operations in perpetuity.
He stated that Wolf Creek would agree to immediately pay $450 per water share if that rate would stand without increase for 20 years. The board suspended any further discussion of future rates at that meeting.
Concurrent with Sylvester’s verbal proposal, Wolf Creek and the law firm presented a letter to the board outlining the proposal on Jan. 12. Attached to the letter was a draft legal complaint document against VVWD that Wolf Creek intended to file in Clark County District Court if a resolution could not be reached. Conestoga Golf Course was not named as a plaintiff in that document.
VVWD’s legal counsel, Bo Bingham, replied to Sylvester that the board would hold a public discussion of water share rates at the Feb. 6 meeting. Corresponding by emails, Bingham asked that a Wolf Creek decision maker be present at that meeting so a memorandum of understanding could be executed and moved forward to contract, and stated that a lease rate of no less than $650 per share would be discussed.
Sylvester reiterated his $450/share proposal in a Jan. 29 email and countered that the term of the lease, inclusive of options, would remain in perpetuity, and VVWD would guarantee sufficient water to cover the courses’ historic water needs, covering any shortfall that might occur from the reduced golf course water shares.
The Feb. 6 meeting proved to be a discussion between Sylvester and the board. Sylvester again laid out the condition of perpetuity sought by Wolf Creek. (Conestoga golf course was not included in the discussion.)
Bingham stated that the board would negotiate future rates without seeking to change the terms of the current contract. He stated that if, or when, perpetuity might come into question beyond the term of a future contract or tenure of the current board, the courts would determine the validity of any such claim.
Bingham laid out some ground rules on the evening’s discussion that would look forward, avoid past disagreements, and hopefully move toward resolution while avoiding litigation. Board member Travis Anderson recused himself from discussion or vote due to his employment as an engineer for City of Mesquite.
Board president Nephi Julien started the discussion by laying out his philosophy on pricing of VVWD water assets. His personal view is that the current (golf course) rate is “under market and VVWD must maximize its assets.” He takes a broad view of the relative value of equal amounts of water provided for about 350 homes, potential new businesses, or for golf course use when considering future irrigation share rates.
His initial proposal for future water share pricing is a stepped approach, keeping the current rate of $250/share through 2019; raise share rates to $650 in 2020; raise to $900 in 2021, and bump to near-SNWA rate by 2022. The SNWA 10-year lease rate of $1,246 is considered fair market rate by the board.
Bingham cautioned Julien and the other board members to avoid getting hung up on details of rate increases while making tentative proposals. He then asked Sylvester to withhold questions that might be characterized as deposition materials in case of future litigation.
Other board members proposed their views of possible rate levels, with board member Barb Ellestad seeking a rate ladder similar to Julien’s figures, to eventually bring lease rates to fair market value after 2023.
Board member Ben Davis offered an alternative approach of using a percentage escalator increase. He proposed looking at 10 percent yearly increases and capping the local water share price at a “local discount” of 90 percent of fair market rate. Board member Richard Bowler voiced interest in using a stepped rate concept with possible local discount. He stated his preference in leasing water to the local golf courses.
Sylvester was charged with carrying talking points back to Wolf Creek, with technical items to be settled later. Those points would include: extension or reiteration of the first right of refusal of the water shares now under contract, along with a “perpetuity” clause remaining in effect.
VVWD would take steps to guarantee that the courses’ historic water needs would be met in case of shortfall due to the reduction of shares freed up for sublease. VVWD would gain the financial benefit from those shares. Only the share rate to be paid by Wolf Creek and Conestoga after 2020 would be negotiated. An alternate source of golf course water is also being explored but was not named.
In other business, the board moved forward to prepare documents to accept return of 80 water shares from Mesquite Gaming that will be relinquished in August 2018. The board voted to reimburse Mesquite Gaming a prorated first right of refusal fee that had been paid even though the contract did not call for it, saying it was the “right thing to do.”
VVWD staff received word that County Commissioner Marilyn Kirkpatrick had assisted in removing restrictive covenants that caused delays in the right of way for well 1A infrastructure, and that work has now begun.
Hydrologist Aaron Bunker also announced that the BLM right of way for work at Nickel Creek is now in process. General Manager Kevin Brown reported that steel tank materials for the Flat Top water tank replacement are ready, and work on the tank will begin this week.