Bly was confident of the project, and Gallatin gave him her blessing, in addition she provided him with the necessary funds to launch the enterprise. Bly’s approach was different from the previous attempts. It was a two-prong approach. One was the technical aspect to design the system, obtain permits, etc. The other had to deal with financing. Bly went directly to those who would benefit the most, farmers and ranchers of the Honey Lake Valley. He persuaded one group to form the Tule Irrigation District. Adjoining Tule was a pre-existing district Baxter Creek that was at a standstill as it did not have a sufficient water supply. In a co-operative effort Bly convinced the two districts to pass a 1.25 million dollar bond measure to finance the project. His top selling point was, once the bonds were redeemed, they would own the system.
As soon as Bly had everything assembled and approved, no time was wasted to begin the actual implementation. In 1921, Bly contracted with the Grant Smith Company of Seattle to construct the entire system for $950,000. That fall work began on the 7,300 foot long tunnel. In the spring of 1923, the tunnel was completed, a few months behind schedule. It was a daunting task, to say the least, as 180,000 cubic feet of soil and rock was excavated to construct the tunnel.
On May 19, 1923, a grand celebration was held. The joyful times of Bly Tunnel were short lived. In a nutshell, there were two factors that caused the Bly Tunnel project to implode. Grant Smith Company’s contract stipulated the inlet would be eight feet below the lake’s surface, but they only did three feet due to volcanic rock encountered. Litigation ensued. To compound matters, a drought that began in 1917 and one that would last for twenty years, drastically lowered the level of the lake.
In 1935, after a decade to deepen the intake channel, the tunnel was abandoned. Many farmers in the irrigation districts went bankrupt, unable to make their bond payments. In 1961, the State revoked Bly’s original water right permit, thus a final blow. The tunnel has since been sealed and no water flows through it. The odd thing, many still cast the blame on the lake’s fluctuating levels on a sealed tunnel.