Kerner v. Johnson

• Decision Date: 20 July 1978
• Docket Number: E,Nos. 12356,D,No. 2,12656,2,s. 12356
• Citation: 99 Idaho 433,583 P.2d 360
• Parties: William KERNER and Charles Barnes, Individually, and as Directors of and on behalf of the American Falls Reservoir District, a Quasi Municipal Corporation, and Corwin Silva and Floyd Silva, Individually on behalf of themselves and all other holders of title to lands located and subject to assessment within the boundaries of the American Falls Reservoir District, who are similarly situated, Plaintiff-Appellants, v. R. Wendell JOHNSON, Cecil Trosper, Joe Pavkov, Robert Johansen, Charles Johnston, Individually and as Directors of American Falls Reservoir District, Defendants-Respondents. Petition of the BOARDS OF DIRECTORS OF the AMERICAN FALLS RESERVOIR DISTRICT, A& B Irrigation District, American Falls Reservoir District, Enterprise Irrigation District, Hillsdale Irrigation District, Milner Low Lift Irrigation District, New Sweden Irrigation District, Poplar Irrigation District, Progressive Irrigation District, and Snake River Valley Irrigation District, Irrigation Districts Existing Under the Laws of the State of Idaho, Petitioners-Respondents, and Idaho Irrigation District, Supplemental Petitioner-Respondent, v. Don WIXOM, Robert Rucker and Vernon Kinnear, on behalf of themselves and on behalf of all other Owners or Holders of Evidence of Title to Lands located and subject to assessments within the Boundaries of A & B Irrigation District who are similarly situated; and William Kerner, Charles Barnes, Corwin Silva and Floyd Silva, on behalf of themselves and on behalf of all other Owners or Holders of Evidence of Title to Lands located and subject to assessment within the Boundaries of American Falls Reservoir District, who are similarly situated; and Del Hiatt, on behalf of himself and on behalf of all other persons who are Owners of Stock in the Northside Canal Company, and/or who are Owners of Title or Holders of Evidence of Title to Lands located and subject to assessments within the Boundaries of the American Falls Reservoir District who are similarly situated,
• Court: Idaho Supreme Court

Page 360

583 P.2d 360

99 Idaho 433

William KERNER and Charles Barnes, Individually, and as Directors of and on behalf of the American Falls Reservoir District No. 2, a Quasi Municipal Corporation, and Corwin Silva and Floyd Silva, Individually on behalf of themselves and all other holders of title to lands located and subject to assessment within the boundaries of the American Falls Reservoir District No. 2, who are similarly situated, Plaintiff-Appellants, v. R. Wendell JOHNSON, Cecil Trosper, Joe Pavkov, Robert Johansen, Charles Johnston, Individually and as Directors of American Falls Reservoir District No. 2, Defendants-Respondents Petition of the BOARDS OF DIRECTORS OF the AMERICAN FALLS RESERVOIR DISTRICT, A& B Irrigation District, American Falls Reservoir District No. 2, Enterprise Irrigation District, Hillsdale Irrigation District, Milner Low Lift Irrigation District, New Sweden Irrigation District, Poplar Irrigation District, Progressive Irrigation District, and Snake River Valley Irrigation District, Irrigation Districts Existing Under the Laws of the State of Idaho, Petitioners-Respondents and Idaho Irrigation District, Supplemental Petitioner-Respondent, v. Don WIXOM, Robert Rucker and Vernon Kinnear, on behalf of themselves and on behalf of all other Owners or Holders of Evidence of Title to Lands located and subject to assessments within the Boundaries of A & B Irrigation District who are similarly situated; and William Kerner, Charles Barnes, Corwin Silva and Floyd Silva, on behalf of themselves and on behalf of all other Owners or Holders of Evidence of Title to Lands located and subject to assessment within the Boundaries of American Falls Reservoir District No. 2, who are similarly situated; and Del Hiatt, on behalf of himself and on behalf of all other persons who are Owners of Stock in the Northside Canal Company, and/or who are Owners of Title or Holders of Evidence of Title to Lands located and subject to assessments within the Boundaries of the American Falls Reservoir District who are similarly situated, Respondents-Appellants.

Nos. 12356, 12656.

Supreme Court of Idaho.

July 20, 1978.

Rehearing Denied Sept. 29, 1978.

James Annest of Annest & Anderson, Burley, for plaintiffs-appellants.

Thomas G. Nelson of Parry, Robertson, Daly & Larson, Twin Falls, for defendants-respondents.

BAKES, Justice.

These two cases, which have been consolidated on appeal, raise common issues relating to a proposed $44 million bond issue to finance the replacement of the American Falls Storage Reservoir on the Snake River in southern Idaho. This Court has previously considered the financing of this project in Barker v. Wagner, 96 Idaho 214, 526 P.2d 174 (1974), which held that the limitations on indebtedness of Art. 8, § 3, of the Idaho Constitution do not apply to irrigation districts.

I

Before examining in detail the issues raised by these two consolidated appeals, it is necessary to explain briefly the circumstances from which both actions arose. The original American Falls dam was built in 1928 by the Bureau of Reclamation as part of the Minidoka Reclamation Project. The United States entered into contracts with 35 different entities, including irrigation districts, canal companies, private corporations, individuals and an Indian reservation. ¹ The contracts granted these entities water storage space in the reservoir in return for the repayment of a proportional share of the construction costs. These entities with contract rights for water storage space in the reservoir are generally referred to as "spaceholders" or "water users."

As early as 1929 the cement in the dam began to deteriorate, weakening the structure, and the Bureau of Reclamation therefore later placed restrictions on the maximum water level. A 1966 Bureau of Reclamation report concluded that the dam no longer met the agency's safety standards and included a proposal for the dam's replacement. The 1966 replacement proposal estimated that the replacement project would cost approximately $15 million, of which the water users would pay about $6 million. The report noted that replacement of the dam was urgent because the present water level restrictions could result in a water shortage for irrigators in extremely dry years. The report gave the project "highest priority." Studies by a private board of consultants in 1968 confirmed the bureau's findings concerning the safety of the dam and the need for the dam's replacement or rehabilitation.

In 1972 the maximum level was further restricted. That same year the Bureau of Reclamation's regional director completed a preliminary report which contained a plan for replacing the dam. The cost was estimated at about $29 million, of which water users would pay approximately $19 million. The report and the replacement proposal were never fully reviewed by the Department of Interior.

Following the maximum level restrictions imposed in 1972, several individuals, who purported to represent the interests of some of the entities having storage rights in the reservoir, formed a committee known as the "Committee of Eight." The committee's principal objective was to pursue a private financing plan for the replacement of the dam. The committee believed that private financing would be a faster and surer method for replacing the dam than federal financing through the Bureau of Reclamation. In a resolution adopted in January of 1973, the American Falls Reservoir District (AFRD), an irrigation district with storage rights in the reservoir, resolved to pursue a private financing plan as an alternative to the Bureau of Reclamation proposal. A few days later the "Committee of Eight" adopted a similar resolution. The private financing plan being considered was a proposal by Idaho Power Company to finance the construction of a replacement dam by purchasing the "falling water" rights of the new dam for power generation. In the initial discussions Idaho Power estimated that the cost of the replacement dam would be about $201/2 million, of which it would absorb about $19 million as consideration for the falling water rights. This would leave about $11/2 million to be paid by the water users.

Implementation of the Idaho Power proposal required both state and federal legislation. In 1973 Idaho Code Title 43, chapter 4, was amended by adding § 43-401A, which authorized an irrigation district to contract for the replacement of dams and other structures and, following approval by a special election, to issue bonds to finance the construction. Chapter 4 was also amended by the addition of § 43-404A, which authorized a district (referred to as the constructing district) proposing the replacement of a structure that benefitted several districts or water users to contract with those other districts or users for payment of their proportionate share of the cost. The section provides that if a water user contracting to pay its proportionate share is an irrigation district (referred to as a contracting district) the proposed contract must be approved in an election by at least two thirds of the electors. In addition, § 43-404A requires confirmation proceedings in the district court following approval by the electorate but before execution of the contract.

In 1973 the United States Congress enacted Public Law 93-206 which authorized the Secretary of Interior to enter into agreements with the AFRD or other agency representing the spaceholders (referred to as the constructing agency) to finance the construction of the replacement dam. ² The statute provided that upon completion the United States would take title to the dam and operate and maintain the dam as part of the Minidoka Project. Public Law 93-206 further provided that the replacement of the existing dam was not to alter the storage rights of the present spaceholders except as provided in that act. The act authorized the "constructing agency" to enter into contract with the present spaceholders for repayment of the project cost and provided that the "delivery of water to the spaceholders shall be contingent upon the execution of such contracts and the fulfillment of the obligations thereunder . . . ." Pub.L.No. 93-206, § 3, 87 Stat. 904, 905 (1973).

In 1974 Chapter 22 was added to Title 43 of the Idaho Code. I.C. §§ 43-2201 through [99 Idaho 440] -2207. The provisions of this chapter authorize irrigation districts to replace or improve dams and related structures, I.C. § 43-2201(A), to enter into contracts for that purpose, I.C. § 43-2201(B), and to issue bonds to finance the improvements, I.C. § 43-2201(C). The chapter also specifies the manner in which the bonds and the construction costs are to be paid. I.C. § 43-2201(D) to (E). Section 43-2204 requires a confirmation proceeding in the district court either before or after the execution of the contracts but before the sale and issuance of any bonds.

Idaho Power subsequently determined that the construction of the replacement dam would cost substantially more than $20 million. It was ultimately decided that authority for a bond issue of $44,750,000 would be necessary. Idaho Power agreed to increase its share by the cost of water quality facilities which had to be constructed in order for the project to satisfy environmental standards. Of the $44,750,000, $22,965,734.00 was ultimately allocated to Idaho Power and $21,784,266.00 was apportioned among the 35 entities having storage rights in the present reservoir. Construction of the replacement dam was to be financed by bonds issued by the AFRD. In accordance with the provisions of I.C. § 43-2201(D) the AFRD would also make the bond payments but only from a special fund into which it would deposit (1) assessments collected on lands in its district, (2) payments it would receive pursuant to repayment contracts with other spaceholders, and (3) payments from Idaho Power for the falling water rights.

In order to implement this proposed arrangement several...