The only issue with buying water from Luke Brugnara's reservoir on Little Arthur Creek northwest of Gilroy is his alleged water rights. The millionaire San Francisco real estate mogul claims the dam on his pristine property dates back to 1880 - 34 years before the state passed legislation making it much harder for private landowners to assert water rights. He has also consulted with Sacramento-based law firm Kronick Moskovitz Tiedemann & Girard, which has secured lucrative water rights for a variety of private and public clients.

Brugnara faces federal charges for poaching endangered fish on his property - which he vehemently denies and characterizes as political retribution - but going to court over his water rights could also happen. That is, if the Santa Clara County Water District objects to Brugnara taking away about 60 percent of its business with Gilroy, worth about $1.4 million.

"Likely, (Brugnara) would only have to prove beneficial use if his rights are challenged by someone else wanting use of the water, or questioning his right to sell it," wrote Dave Clegern, the public information officer for the State Water Resources Control Board, which oversees water rights. Rights-holders must regularly prove "beneficial use" of their water to retain their rights. Brugnara said he has documented agricultural and recreational uses, but declined to reveal any documents. "It's a non-issue," he said.

The state board has a 1911 construction notice for a dam on Brugnara's property, so "he may well have appropriative rights to that water," meaning he can sell and transport it. But the district has limited information about the dam or volume of water because "we haven't really been asked to get involved at this point," Clegern wrote.

The city council may soon ask the board to get involved if it seriously considers the idea.

"If Brugnara has got the rights to all of this, and this is something we can benefit from, then I think staff should look into this," Mayor Al Pinheiro said.

"We have an obligation to investigate this," Councilman Perry Woodward said.

Last year the city consumed nearly three billion gallons of water, or about 9,020 acre-feet. This year the district will charge the city $2.4 million to fill its eight wells. While Brugnara claims he has enough water to supply Gilroy, he did not respond to multiple requests to visit his 112-acre property on Redwood Retreat Road.

Just downstream from his dam, though, right before Little Arthur Creek meets Uvas Creek, sits a district monitoring station. Since 2000, the stream flow has averaged 5,353 acre-feet a year, according to data obtained from a public records request. By also releasing his dam that he said can hold 1,000 acre-feet, Brugnara could potentially add to this flow depending on the weather.

That 5,353 acre-feet already flows down Little Arthur Creek, into the Uvas Creek (which is also fed by Bodfish Creek) and then into the aquifer below the city via percolation ponds. To get the water to residents' faucets, Brugnara would not change a thing, he said; instead, the city would just pay him $200,000, or less, a year for the water coming from his property. The district currently charges more than $1 million for the same volume.

"The water district is just another private company that's a wholesaler for water, and Gilroy can buy water from any wholesaler," said Brugnara. "I'm offering the exact same product for 90 percent savings."

This could require coordination with the district, which releases water from Uvas Reservoir to attempt to fill the aquifer at the maximum rate at which Uvas Creek percolates: 10,000 acre feet per year, according to Scott Akin, a senior project manager at the district. In general, the water district relies on the 2001 Santa Clara Valley Water District Act to manage watershed sources, percolation ponds and aquifers and to charge the city a fee to extract water from the aquifer. That revenue pays for further maintenance and conservation.

For these reasons, "I can't think of any way Brugnara can charge the city of Gilroy money," said Keith Whitman, deputy operating officer for water supply at the district. "What he's describing is the way the system works right now, and he's trying to generate money from that."

Gilroy declined to buy water from Brugnara last summer because his offer mentioned a piping system that would require a treatment plant. The city also declined because the district told Gilroy he was under investigation by federal and state authorities, according to Operations Services Manager Carla Ruigh.

This concerned Councilman Craig Gartman, who said he was tired of the water district "sticking it" to the city.

"I'd like to know exactly what analysis took place by city staff (last summer)," Gartman said. "It sounds like the competition (the district) told us to stay away from the competition (Brugnara)."

Last summer county officials also began forcing Brugnara to move an illegally placed container on his Gilroy property that hung onto the public right-of-way by one foot, according to county documents. He moved them last month, according to County Supervisor Don Gage, who said Brugnara broached his water offer soon after the county warned him about the container.

To contain the deficit and curb spending, the council has to do something within the next month or so, and an extra million dollars every year could help.

Chris Bone Chris Bone covers City Hall for The Dispatch. Reach him at 847-7109 or e-mail him at cbone@gilroydispatch.com.