** FOR RELEASE WEEKEND EDITIONS, MARCH 28-29 **FILE**In this Jan. 5, 2008 file photo, Reno rescue team members search a neighborhood in Fernley, Nev., after a canal levee ruptured from heavy rainfall. The failure of a century-old earthen canal in northern Nevada that sent flood waters into hundreds of homes on a frigid night in January 2008 was only the beginning of a nightmare for a rural irrigation district. (AP Photo/Nevada Appeal, Brad Horn)
FERNLEY " The failure of a century old earthen canal in northern Nevada that sent flood waters into hundreds of homes on a frigid night in January 2008 was only the beginning of a nightmare for a rural irrigation district.
The flood triggered dozens of lawsuits from more than 100 displaced homeowners, concerns about the levee's safety and questions about the amount of water flowing through 370 miles of canals that transform the arid high desert plains into lush acres of alfalfa and cantaloupe.
Now the officials who run the Truckee Carson Irrigation District stand accused of cooking the books and defrauding the federal government for years so they could deliver more water from Lake Tahoe and the Truckee River to area ranchers and farmers than was rightfully theirs.
Legal documents, court testimony and a series of interviews reveal a complex investigation into allegations that district officials trained workers how to disable some water meters and manipulate others " some of which undercover agents apparently learned about with the help of wiretaps and other secret recordings.
Federal prosecutors charge it was part of a conspiracy to falsify records to obtain additional water from the U.S. government "through deceit, craft, trickery and dishonest means," according to a grand jury indictment unsealed in December.
They say the prime motive was to help reduce a back debt of water that a judge ruled in 2003 the district owed to the Pyramid Lake Paiute Tribe farther downstream because the district had for years taken more than its share specified in historic water rights agreements.
Named in the 10-count indictment were the Fallon-based irrigation district, project manager David Overvold, district lawyer Lyman McConnell and two employees " John Baker and Shelby Cecil. Cecil since has died.
If convicted, they face up to 20 years in prison for each of three counts of falsification of records and five years in prison for each of seven counts of false claims, false statements, and for conspiracy to defraud the United States.
It's all new territory for an irrigation district that has been delivering water to ranchers and farmers since before the Great Depression. Part of the Newlands Project built in 1902 to help "make the desert bloom," the system serves about 3,000 customers.
Historically, their biggest concern has been a lack of snow in the mountains that translates into a shortage of water when the hot summer sets in on fields that see only about 5 inches of precipitation each year.
But it was a wealth of water from winter runoff and an unusually heavy rain " along with years of help from burrowing rodents " that caused the irrigation canal to burst a year ago, sending a 2-foot wave through a 50-foot hole in the earthen berm and into the streets of rural Fernley.
Water collected 8 feet deep in some places. More than a dozen residents were rescued by helicopter from rooftops, while others escaped to safety by boats.
Nearly 600 homes reported damage. Total damage estimates reached $4 million across the town, which was declared a federal and state disaster area.
The U.S. Bureau of Reclamation, which owns the canal system and contracts with the irrigation district to operate it, shut down the canal for safety inspections and broadened the review to include similar irrigation systems it owns throughout the West.
Shortly after the canal reopened last spring, a federal judge capped water flows well below capacity as a precaution until he can hear arguments from the homeowners. The homeowners, who have mostly combined their lawsuits against the bureau, the irrigation district and other parties, are concerned about the canal's integrity.
Ironically, the flood damage lawsuits that also target a federal agency may have bolstered the U.S. government's criminal case as the two sides combed historical records to document and argue about the amount of water that can safely travel through the canals.
"It is interesting the indictment occurred after the litigation we brought against the Bureau of Reclamation and TCID," said Bob Hager, a Reno lawyer representing more than 100 of the homeowners who claim the bureau and the district failed to properly maintain the aging canal.
"It is very likely that in the course of looking at the relationship of those two entities " the connection between the flows and water totals and the dummying up of data " that facts came to light that ultimately in some fashion resulted in the subsequent indictments," he said.
In December a federal grand jury in Reno handed up the indictment accusing district officials of carrying out the alleged scheme from 2000-05 to alter the water delivery data to earn special "efficiency credits" that would entitle the district to more water and, accordingly, reduce the court-ordered water debt owed to the tribe.
Prosecutors allege the district received 45,000 acre feet of water more than it should have. One acre foot is equal to about 326,700 gallons of water " the amount a typical household of four uses in a year. During a normal year, the district delivers about 270,000 acre feet of water to its users.
In a recent court filing, a lawyer for one of the defendants claims it was the government's own confidential informants who carried out the plot without the knowledge of the irrigation district employees accused.
Overvold's lawyer Craig Denney said the veteran district official cooperated with Justice Department investigators for 18 months before he was charged in December.
Denney said the real criminals were several disgruntled "ditchriders" " irrigation district employees who ride the canals to ensure the safety of the earthen berms and record water meter readings. He said they "had apparently been colluding with certain water users to 'write off' water deliveries ... (i.e. committed fraud)."
"It appears the government elected not to prosecute these informants despite their criminal conduct," Denney wrote in court documents.
U.S. District Court Judge James Mahan recently postponed the criminal trial until February 2010 at the request of defense lawyers who said they need more time to prepare for such an "unusual and complex case."
Among other things, Mahan said it will involve "technical issues related to the historic water rights, water delivery systems and water delivery efficiency computations."
"The multi-layers of the alleged conspiracy and the number of overlapping overt acts alleged require extensive investigation and further complicate the prosecution and defense of this case," the judge wrote.
The publicity of the case has drawn the attention of environmentalists and others who question whether taxpayers should subsidize a century-old irrigation system that uses precious water resources to grow cheap crops in the desert.
"It's a good question to ask why we assign 98 percent of our western water to grow alfalfa and other low-value crops," said Jon Marvel, director of the Idaho-based Western Watershed Project that has challenged federal policies on livestock grazing and other subsidized commercial activity on public lands.
"When a canal breaks and floods houses, that is just a symptom of the age of the system and tells you that breakdowns will be occurring," he said.
Meanwhile, water is scheduled to begin its normal seasonal flows through the canal sometime after April 1 on its way to the newly planted alfalfa fields and cantaloupe crops.
Safety experts estimate it would cost $3.1 million to build an 11.7-mile long concrete barrier on the Truckee irrigation canal to protect against another breach. The Bureau of Reclamation estimates more permanent systemwide upgrades could cost hundreds of millions of dollars.
While the legal battles rage on, Hager said the homeowners he represents have a "great deal of concern" about the irrigation district's continued control of the canal.
Kenneth Parr, director of the bureau's Lahontan Basin Area Office in Carson City, said there are no plans to sever the operating contract with the district and seize control of the irrigation system but it could if any wrongdoing is proven.
Hager said it wouldn't necessarily do any good for the bureau to take over.
"With all due respect to the bureau, they haven't exactly had an exemplary record in regard to managing the canal," Hager said. "Had they done their jobs, the flood would never have happened and the allegations in the indictment probably would not have been an issue today."