Restorationof the Salton Sea was studied for years prior to the approval of the QSA andrelated agreements. Studies addressed the increasing salinity and loweringelevation in an effort to stabilize a habitat for fish and wildlife.

Congresspassed the Salton Sea Reclamation Act of 1998, which instructed the Secretaryto perform certain “feasibility studies and cost analyses” for stabilizing theelevation and salinity of the Salton Sea. The Secretary was to establish“options he deems economically feasible and cost effective,” based on a set ofoperating assumptions. Among those assumptions was to “account for transfers ofwater out of the Salton Sea Basin . . . which could be 800,000 acre-feet orless per year.”

In2003, the California Legislature established the Salton Sea Restoration Fund(the “Restoration Fund”) to be used for restoration purposes. The primarytransfer beneficiaries Imperial Irrigation District, San Diego County WaterAuthority and Coachella Valley Water District provided an initial $30 millionfor the Restoration Fund. TheState legislation insulated those agencies from any responsibility, obligationor liability for restoration, regardless of what the State ultimately decidedto do.

           The impacts of the water transfers are clearly a subject of the QSA, the StateWater Resources Control Board orders, and extensive environmentally relatedmaterial and claims in these coordinated cases). The Court notes that“restoration” may differ from “mitigation”, and that there are pending disputesregarding the QSA and QSA transfer impacts, and sufficiency of mitigation. TheCourt does not reach, nor make any finding, regarding these issues in thisStatement of Decision.

Negotiationsfor an Imperial Irrigation District—San Diego County Water AuthorityConserved Water Transfer Agreement. Initially, SDCWA and IMPERIAL IRRIGATION DISTRICT entered into aMemorandum of Understanding for a conserved water transfer in 1995. The purposewas to see if a negotiated agreement could be reached. The conditional agreement was approvedin 1998. The IMPERIAL IRRIGATION DISTRICT Board approved that agreement on a4-1 vote.

StateWater Control Board Water Rights Change Petition Process. In July 1998, ImperialIrrigation District and the San Diego County Water Authority and jointlypetitioned the State Water Control Board to approve the IMPERIAL IRRIGATIONDISTRICT transfer to SDCWA. The Petition was later amended to seek approval ofwater transfers from Imperial Irrigation District to Metropolitan WaterDistrict of Southern California and the Coachella Valley Water District.

TheState Water Control Board provided public notices of the hearings on thepetition. On October 15, 1998, itissued a Notice of Hearing. On April 22, 2002, the State Water Control Boardheld a public hearing in the Imperial Valley. In 2002, it held 15 days ofevidentiary hearings over a period of months, with witnesses and exhibitspresented by many parties. Once the evidentiary proceeding was concluded, theboard prepared a draft order and circulated it for review. Subsequent topost-evidentiary hearings, the board issued the order that approved theImperial conserved water transfer to San Diego County Water Authority, theMetropolitan Water District of Southern California and Coachella Valley Water,subject to certain environmental mitigation conditions.

TheImperial Irrigation District Contract Approval Process.

Whilethe State Water Control Board proceedings were underway, attempts to reach afinal agreement on the QSA and related agreements by the end of 2002continued. The “Key Terms” of apossible QSA had been agreed upon in 1999; and Imperial Irrigation District,Coachella Valley Water District and Metropolitan Water District of SouthernCalifornia had jointly issued proposed QSA documents for public review in 2000.

Variousdraft agreements and public meetings and workshops occurred in 2000 and 2001,but the majority of intense QSA activity took place in late 2002, from Novemberthrough December. In December2002, Metropolitan and Coachella Valley water districts approved one version ofthe QSA and related agreements, while the Imperial Irrigation District and SanDiego County Water Authority approved a different version.

Metropolitanand Coachella rejected the Imperial / San Diego version of the QSA and relatedagreements. At the end of 2002, there was no mutual agreement upon the proposedQSA contracts. Different views oncost issues, environmental mitigation funding, and termination events continuedto separate the parties.

           Tremendous pressure existed to get this QSA deal done by October 12, 2003. This is reflected above and in thestate legislative history of which the Court has taken judicial notice asrequested by the San Diego County Water Authority documenting that: “Thehistory of the QSA has been that periodically, the affected parties announcethat they had reached agreement on terms, the Legislature takes action to makethe necessary changes in law, and then for one reason or another, the agreementfalls apart at the last minute. While by all appearances, the outcome will be different this time, thereare no guarantees. Consequently,the three QSA bills are contingent upon enactment of each of the others, sothat none of the bills will become operative unless both the other bills becomeoperative by January 1, 2004. Moreimportant, the principle benefits to the QSA parties of these three bills arecontingent on execution of the QSA by October 12, 2003.  October 12, 2003 is also the constitutionaldeadline for the Governor to sign or veto bills passed this year.”

Thelegislation itself contains this October 12, 2003 deadline.

           The wording of the QSA Joint Powers Authority Agreement (Contract I) was notsettled on at the time of the Imperial Irrigation District Board’s formalapproval on October 2, 2003. Theaddition of the language found in the second and third sentences of clause 9.2,the last sentence of clause 10.1, and clause 14.2 of the QSA JPA Agreement,show that the QSA JPA Agreement -- and because of their interrelationship andthe critical nature of the QSA JPA Agreement, the entire QSA -- still hadsubstantive terms remaining to be negotiated as of October 6, 2003.

TheCourt additionally finds that the lack of any draft QSA JPA Agreement in theadministrative record at the time of the Imperial Irrigation District Boardmeeting and the timing of the Department of Fish and Game Director E-Mail(Exhibit 1) show that material portions of the QSA JPA Agreement were stillbeing negotiated days after the October 2, 2003, approval by the ImperialIrrigation District Board.

           The Department of Fish and Game Director E-Mail shows that the State wasconcerned on October 6, 2003, about entering into an agreement that wouldamount to writing a “blank check” on behalf of the State.

           The Economic Cost Sharing Agreement, Contract J, has an attached exhibit thatshows that the parties were aware of, and included in their contract, anestimate of the environmental mitigation costs in 2003 of $178,000,000. No one reasonably would have taken thisas other than an estimate, but given the magnitude of the potential cost andthe explicit ceilings on the non-State agency funding parties’ contributions,the parties would have reasonably understood the importance of what funding theState would contribute for mitigation obligations of the QSA agreements andprojects. The normal rules, asobserved by the State’s counsel in this litigation, is that the State cannotsign a blank check. Given theadditional language described below, those negotiating the QSA understood thatsince the State was not required to sign the Economic Cost Sharing Agreement,inclusion of any modification of the legislative language regarding the State’sfunding commitment had to be in an agreement executed by the State, such as theQSA Joint Powers Authority Agreement.

           In the days between October 2, 2003, and before the October 12, 2003 deadline,in an apparent attempt to make the State’s commitment to pick up anyenvironmental mitigation cost shortfall more certain than had been provided bythe California legislature in Senate Bill 654, the QSA JPA Agreement languagewas successfully negotiated by the non-State parties to expressly provide thatthe “State obligation is an unconditional contractual obligation of the Stateof California, and such obligation is not conditioned upon an appropriation bythe Legislature, nor shall the event of non-appropriation be a defense”. Everyonenegotiating the QSA Joint Powers Authority Agreement would have reasonablyunderstood that now the State itself was purporting to unconditionally committo pick up the entire tab for mitigation costs exceeding the cappedcontribution of the other QSA parties, notwithstanding the amount of thosecosts -- even if they ultimately amounted to millions or billions of dollars– and notwithstanding the State’s budget, appropriations, or othercontrols over expenditures.

           Similar language appears in the Economic Cost Sharing Agreement stating thatthe parties (Imperial, Coachella, San Diego) “understand the State Obligationto be an unconditional contractual obligation of the State of California notdependent on any further State action, and are relying on the State Obligationin order to comply with the extensive state and federal requirements thatmandate Environmental Mitigation Requirements. In addition, the Parties are relying on the State Obligationin making contracts with third parties, including without limitation,landowners and farmers in the Imperial Valley who will be entering contracts toproduce conserved water.”

Eventhough the State is not a party to Contact J and is therefore not boundthereby, Contract J reiterates the importance of this element of thecontractual scheme to the contracting parties.