BR project manager responds

 By Kay Braddock

        A struggle exists at Buffalo Rapids. 

That may be the one point where BR Project Manager Dave Schwarz and all seven commissioners of the BR Board of Control can find common ground. But beyond that – including details regarding BR’s budget, loan history, and annual meetings – little accord exists.
“I think things are at a real low point here,” Schwarz said. “And I don’t see them getting any better until there’s some changes in district 1, in the way of their thinking.”
Schwarz, who has managed BR for nearly 19 years, points to a lack of trust he says exists in district 1 commissioners’ dealings with employees, district 2 commissioners and himself. He points to district 1 commissioners’ refusal to use the project’s current attorney or auditors as recent examples. 
“I don’t understand why you would need to bring an outside accountant in to look at the books to see where you’re at financially. We have the auditors who would have done that for nothing. We have a bookkeeper who has very good books who can tell you exactly where they sit,” Schwarz said, pointing out any double accounting performed was minimal and strictly done on the budget, not the actual BR accounts.  
Monthly financial statements are prepared and presented by BR bookkeeper Pat Davis.
After reading comments recently published by member-at-large Ric Holden, Schwarz agreed to sit down for an interview detailing his opinion on BR’s financial state. He also provided a line-by-line critique of information stated by Holden.
Schwarz: Stagnate water rates cause of financial issues
Budget woes are present, Schwarz said during the nearly three-hour interview, but they’re afflicting district 1 not district 2.
The project, divided into two districts includes district 1 extending from Fallon to Glendive and district 2, which extends between Miles City, Terry and Fallon.
“District 2 is not struggling with the budget. District 1 is struggling with the budget because they have not struggled with it in the past when they should’ve been struggling with it,” Schwarz said.  
District 1’s decision to not raise water assessments to meet annual operation and maintenance expenditures, Schwarz says has left the district with an accumulation of yearly budget shortfalls. 
“They think they have a balanced budget and they have a balanced budget as far as income verses expenditures go for the year, however they’re not taking into consideration the accrued deficits over the past probably five or six years,” Schwarz said. “And that’s what’s causing their problems.” 
Schwarz points to a history of district 1 borrowing from district 2 to meet annual operation and maintenance expenses.  Although this borrowing alleviated budget concerns momentarily, according to Schwarz, district 1’s problems only compounded because rather than raising water rates to make-up for anticipated expenses, district 1 continued the annual habit of borrowing from district 2. 
District 1 saw no water rate increases for a decade, between 1998 and 2008, according to information gathered by Davis. It was not immediately made clear to the Tribune whether district 2 had raised rates during that same period of time. Rates were raised in 2008 for the 2009 operating year, but not enough, Schwarz said, noting he repeatedly advised commissioners to raise water rates.
“All I can do is to recommend it. They’re the ones who have the power to raise it or not to raise it,” he said.
Currently water rates for the upcoming year have been set to $37.50 per acre for district 1 and $31.00 per acre for district 2. It’s the first time district 1’s rates have been higher than district 2’s, according to Schwarz. The rate of increase was $4.50 for district 1 and $1.50 for district 2.
That water rate increase only occurred after district 1 received a letter of default in August from Stockman Bank on a $190,000 loan borrowed in 2008. Stipulations in the loan require commissioners to raise rates enough to cover operation and maintenance expenses along with meeting loan payments.
Buffalo Rapids Irrigation district 1 is listed as the borrower of the loan, which Schwarz said was used by the district to cover operation and maintenance expenses that accumulated over the years. 
Budget concerns: Not a new item
Schwarz takes exception to the notion that budget concerns have only recently come to the attention of commissioners.
“We’ve been telling them that they have budget problems for at least five years,” Schwarz said referring to himself along with former and current BR bookkeepers. 
BR’s operation and maintenance is funded primarily through the taxes assessed from water use of those within the project, while pipeline projects are funded through grants.
“Every time they don’t raise (rates), then it becomes my responsibility to try and figure out how we’re going to get through the year without enough money.”
One way BR has recently generated revenue is through machine shop income, collected from repairing pumps from other irrigation projects. 
BR’s machine shop was first established during Schwarz’ term as manager, when he and self-taught and retired machinist Bob Bennett begin collecting lathes and mills. 
“We’ve been told we have the biggest machine shop in eastern Montana,” Schwarz said. 
The shop has also cut annual expenses by $50,000, according to Schwarz, noting the irrigation project no longer has to send its pumps out for repair but repairs them all in-house.
Another revenue generating activity included BR renting out heavy equipment. That activity was recently discontinued by the BR Board of Control.
“There’s a number of producers that don’t feel Buffalo Rapids should be doing outside work, which is fine,” Schwarz said, adding “But they have to understand that they were using part of that money for operation and maintenance expenses as well.”
Schwarz agrees that cuts could be made to the budget but says one recommended cut he suggested has yet to be implemented. With standard operation procedures suggesting that each ditch rider can maintain 10,000 acres, he said district 1’s 18,000 acres doesn’t require the three ditch riders it currently employs.
“I’ve been recommending for years that they go to two ditch riders in district 1,” Schwarz said. “They want that extra service but they don’t want to raise the assessments to pay for them. You can’t have it both ways.”
Deficit  vs. incoming revenue
Schwarz questions the reality of the $170,000 deficit presented by Holden. 
He points to a minimum $200,000 of anticipated revenue BR will soon be receiving from producer payments and NRCS EQIP grants.  Part of that $200,000 is from the completion of three pipeline projects BR is now waiting for payments on.
The anticipated revenue was brought up during the meeting with the outside accountant, where the $170,000 deficit was discussed.
BR’s loans: accumulated over a long period
Currently district 1 is listed as the borrower of three loans. A $40,000 balance remains on an original $150,000 pipeline loan; a $190,000 loan exists for operating costs accumulated over recent years; a $900,000 Montana Department of Natural Resources and Conservation rehabilitation loan exists for repairs made to the Glendive 1 pumping plant.
District 2, which has borrowed in the past, currently has no loans.
Payments for the original construction of the irrigation project are still being made for both districts and are sent to the Bureau of Reclamation. This federal loan, which includes minimal interest, is expected to be paid in full within the next 10 years for district 1, according to Schwarz, with district 2 following shortly after.
Addressing critics
In an irrigation project that 19 years ago struggled with water rationing and pumping plant break downs, Schwarz said his term as BR manager has been focused on working on ways to improve the project by getting needed irrigated water in an efficient and suppliable manner to producers.
“We’re not sitting still,” Schwarz said, pointing out on a state and federal level BR has been a project that others look to as to how improvements can be achieved.
He has heard the criticisms regarding his managerial approach and that BR’s too focused on pipeline projects. 
“I think that’s ridiculous myself,” Schwarz said. “For the simple reason that every time you put a pipeline in, you’re eliminating the maintenance of that particular lateral. You don’t have to burn it in the spring. You don’t have the seepage loss from it that you have from an open ditch. And you also retain head so that it’s easier for the producer to operate.” 
Addressing critics who question Schwarz’s managerial integrity and why BR Board of Control opted to hire an outside accountant to review its books Schwarz replied, “I don’t have the time nor inclination to steal from Buffalo Rapids,” adding, “Nor would I put anybody else in that position.”
Operations and maintenance shortfalls can be directed in one direction, Schwarz said.
“Rather than just sucking it up and saying, ‘hey, look we’re in a bind here, we need to raise our assessments we need to get this caught up,’ they’re looking for a scapegoat,” he said.

Published Oct. 14, 2009

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