Water Transfers and the Future of the West: Consequences

This is the second post in a series relaying my findings from a year of research into agricultural-to-municipal (AMI) water transfers, one of many strategies to deal with population growth in the American West. The first, introductory post in this series is here. This post deals with the empirical questions regarding AMI transfers – that is, what do they actually do to rural and urban areas and the people and creatures that live there?

The Impacts of Agricultural Water Transfers

AMI transfers are an entirely voluntary market transaction (albeit one with many legal restrictions and nontrivial transaction costs). Municipalities buy water from farms because their use value is higher than the market price; that is, the growth that water supports is worth more to them than the purchase price, and acquiring existing water supplies is far cheaper than developing new (junior) supply.[1] Likewise, farmers and irrigation districts sell water because the value in exchange is higher than the value of crops produced on their land.[2] Many farmers with senior water rights, “pinched by low commodity prices, large debts, and an unpromising future …see water as their ultimate marketable commodity.”[3] From an economist’s perspective, transferring water from low-value to high-value use represents an increase in efficiency, and “the buyer and seller of water in a market transaction presumably gain from the transfer.”[4] However, it is unlikely that the price of water accurately reflects its true value for purposes of comparing costs and benefits,[5] and there are reasons to be skeptical that these benefits extend to all parties involved.

The first complication is that transfer payments generally do not create positive secondary economic effects in rural areas of origin. Rural economies in the arid West depend on irrigated agriculture for purchases of farm equipment, seed, soil amendments, legal services, business services, and the use of intermediate marketing resources like grain elevators and transportation- not to mention household staples.[6] Farmers undertaking a permanent sale of water receive what they consider to be fair value for themselves, but they rarely reinvest these payments into their communities. Instead, most farmers use the proceeds of their sale to pay off farm debts and to start their retirements.[7] Third parties- the employees and neighbors of those who choose to sell water, and who receive no cut of the sale price- therefore bear most of the economic burdens of AMI transfers. Removing the primary economic driver from these communities has little to no effect on productivity from a state or national accounting standpoint, but it can have a cascading effect on local capacity.[8] Unsurprisingly, the effects are smaller when the receiving area and the origin are in the same economic region.[9] This case is not uncommon as suburbs expand into and even “leapfrog” over agricultural operations.[10] But the opposite case, where water is transferred many miles away along a stream, or even through a tunnel into entirely different watersheds, represents a significant fission of costs and benefits.

Land that looks like this tends not to prop up the tax rolls. Image courtesy Hyoung Chang/ The Denver Post.

Land that looks like this tends not to prop up the tax rolls. Image courtesy Hyoung Chang/ The Denver Post.

It is not only private parties in areas of origin that suffer burdens of out-for-region water transfers. The decrease in land values between irrigated and dry land reduces rural governments’ tax receipts as well. In 1987, the cost to local governments in La Paz County, Arizona was estimated at $29,150 per 1,000 acres of farmland retired. This cost includes foregone property taxes, sales taxes and assorted fees. It is important to note that not all public impacts occur at once. The purchase of a water right by a distant municipality, the acceptance of a change in place and type of use by a water court (or similar agency), and the actual shutdown of farming operations and delivery of water to the city all occur at different times, often years apart. The foregone revenues, both public and private, are spread out temporally, which may permit a period of adjustment. Nonetheless, the evidence indicates that local fiscal impacts on areas of origin from unmitigated, distant AMI transfers- those referred to as “buy-and-dry”- are “substantial but not catastrophic.”[11] La Paz County expected to lose 13.6% of its employment, 9% of its private income, and 6.4% of its tax revenues from water sales to Phoenix and Tucson, while the lower Arkansas River basin in Colorado lost (in 1982 dollars) over $5 million in private income and over $500,000 in government revenues from water sales to the City of Pueblo and other Front Range water providers.[12]

Farmers in Weld County maintain their operations even as cities grow amon them, encroaching on long-agrarian land and waters. Farmers that choose not to sell are left with the economic, social and ecological consequences left behind by those who do. Image courtesy Weld County.

Farmers in Weld County maintain their operations even as cities grow amon them, encroaching on long-agrarian land and waters. Farmers that choose not to sell are left with the economic, social and ecological consequences left behind by those who do. Image courtesy Weld County.

To many rural communities, water is more than just money. Irrigation is the lifeblood of rural communities’ economies, to be sure, but it is also a key strand in the fabric of community identities and the self-determination of rural places. If distant water agencies own a significant portion of the agricultural land in an area, in preparation for transferring the water (and their purchases of land and water do tend to be spatially clustered), this represents a significant transfer of decision-making power to entities with no interest in maintaining the rural community. Outmigration and lost employment, leadership, resources and skills decrease local capacity to undertake projects meaningful to the community,[13] and drive a wedge down the middle of close-knit towns and counties whose families have often been irrigating side-by-side for generations. Crowley County in southeastern Colorado is a particularly well-studied example. Farmers here sold, from 1970 to 1986, the water irrigating 92.5% of their farmland.[14] “Controversy,” writes one scholar, “inadequately describes the frustration, anxiety and tension felt by those who chose not to sell as they saw their position eroded by the increasing number who chose to sell. Controversy is inadequate for describing the resulting polarization of communities which previously took pride in their neighborliness, their cooperation, and their kinship ties.” (More on Crowley County’s social upheaval can be found here). In Crowley County, as in many others, concepts of purpose, success, and individual identity found their meaning in the struggle of irrigated agriculture.[15] When the water disappeared, so did this place’s culture and character. These impacts may not be so quantifiable as lost income and foregone tax revenues, but they too are a reality of permanent AMI transfers.

It is not just the social and economic life of a community that can suffer the consequences of an AMI transfer. The socioeconomic and ecological aspects of the West are inexorably linked in rural places. Removing the irrigation water from a piece of land whose biological community has come to depend on it means that assemblage will die of thirst. The native precipitation on most dewatered lands is insufficient to maintain ground cover. These lands see increased wind erosion and population by non-native species.[16] This further degrades the economic utility of such land, and requires significant investment to be maintained as productive agriculture. While dryland crop production is unlikely in areas with less than fourteen inches of rain per year, it is possible to convert dewatered lands to livestock production by re-establishing native grass species. Revegetation programs following cropland retirement have been successful less often than they have failed.[17] Dewatered fields that are not successfully revegetated with native species can act as a “seed bank” that allows invasive species to continually infringe upon neighboring still-irrigated fields.[18] In comparatively wetter areas, farmers may use retired lands for livestock and dryland crop production without intensive re-seeding,[19] but these seem to be the exception rather than the rule.

Both the natural environment and third-party irrigators may be short of water following an AMI transfer - despite the non-injury doctrine of Western water law. Image courtesy Bureau of Land Management.

Both the natural environment and third-party irrigators may be short of water following an AMI transfer – despite the non-injury doctrine of Western water law. Image courtesy Bureau of Land Management.

Degradation of retired lands in the absence of vigorous revegetation mirrors the impacts to dewatered hydrologic systems. Water laws in the West are organized to prevent injury to third-party water right holders in the amount, timing or quality of the water they receive after a change of right such as an AMI transfer. This means, for instance, that municipalities in most Western states are not allowed to purchase and the entire diversion amount an irrigator was using. Instead, the city may transfer the consumptive use– that portion of the diversion that did not return to the stream or ditch but was instead consumed by crops, evaporation and groundwater losses- for its own benefit.[20] In theory, the non-injury and consumptive use doctrines protect instream flows after AMI transfers. However, transfers may upset the complicated balance of water entering and exiting a stream throughout the year in ways difficult to model and predict, and the stream may lose water from a change in location and/or type of use.[21] If this presents a material injury to another water user, and if that impact is clear before the transfer is approved, it may come up in water court or before a state permitting agency. If there is no material injury, it likely won’t, but there still may be adverse impacts to aquatic ecosystems and stream morphology. Moreover, as inefficient agriculture is replaced with domestic uses, the long-run instream flow will decrease, and both aquatic life and irrigators will be short. This is because some of the water diverted for irrigation is not counted as “return flows” if it percolates into groundwater supplies and then returns to the stream over the course of years, where it is treated as “gains from groundwater” or other similar terms. Following an AMI transfer these gains may be lost despite the transfer consisting only of “consumptive use.”[22]

Therefore, it seems clear that both the natural environment and third-party irrigators may be short of water following an AMI transfer. Retiring lands and altering return flow regimes may also degrade water quality. Losing agricultural return flows reduces the survivability of both riparian and upland species. Plant species are the key bulwark against soil erosion, as mentioned above, and soil becomes more likely to migrate to water courses in their absence.[23] In the case of transbasin AMI transfers, the overall amount of water in the hydrologic system permanently decreases, and there is less water available to dilute pollutants entering the stream in remaining return flows. The alteration of flow regimes carries significant implications for both water quantity and quality. There is likely to be more water in the stream during non-irrigation season and less during times of irrigation need. This tends to alter water temperature to the benefit of certain species and the detriment of others. Changes in water chemistry occur both in rural and urban stream reaches, but are rarely considered in water transfer court cases or permitting processes because water quantity and quality are subject to different bodies of law and administrators.[24]

The impacts of AMI transfers are certainly myriad, and to rural areas, especially third parties there, they score negatively on balance. Indeed, it is the people and institutions that retiring farmers leave behind that are stuck with the effects- environmental, social and economic. But it is not only rural areas that see changes in their environment, economy and society from water reallocation. Urban areas grow into the supplies provided to them by purchases of water. Assessing this practice fairly requires an examination of the impacts on urban areas as well. Unfortunately, perhaps due to the lack of controversy in urban and suburban areas over both growth more generally and water right acquisitions more specifically, there has been little detailed study of what AMI transfers enable municipalities to do.

What fraction of Los Angeles' explosive growth should we attribute to the acquisition of water? How could we ever really arrive at that number? Image courtesy Wikimedia Commons.

What fraction of Los Angeles’ explosive growth should we attribute to the acquisition of water? How could we ever really arrive at that number? Image courtesy Wikimedia Commons.

All over the West, however, these areas grow at a rapid pace, in both population and production. That growth drives the search for water, and the acquired water enables that growth.[25] That being said, there has been no consistent, reliable attribution of the marginal effect of additional water on urban growth. In other words, while it is very clear that retiring a farm and selling the water rights without passing on any proceeds to a rural community has a serious negative impact on that community’s economic outlook, the same conclusion is not clear in the urban case. On the one hand, it is obvious that acquiring water is imperative to supply new growth. Few developers would choose to construct a new tract without knowing that it could be connected to a reliable water supply. In that sense, one could credit AMI transfers with a causal connection to urban well-being and economic development. Indeed, urban water providers frequently make this argument when trying to build new supply or acquire agricultural water rights.[26] On the other hand, it is far from clear that having no water is a real impediment to growth. There are a multitude of factors, even in arid regions, that influence population growth and patterns of land development. One historian writes that “no American city has ever ceased to grow because of a lack of water.”[27] In this sense, crediting AMI transfers with the gains made by urban areas seems to overstate their importance. If water shortage is not a real impediment to growth, then water supply cannot be considered a cause of growth.

The truth is that there is no single metric of water’s influence on the urban landscape as there is with agriculture. This arises from the very nature of life in each place. But there are still a few fair conclusions; first among them is that through water markets, cities are able to acquire cheap water to fuel the continued growth of their economies. Even a conservative accounting of the use value of that water shows it to be far greater than the market price, and the price for water acquisitions continues to be cheaper than developing new supply through development of junior water rights.[28] New arrivals to urban areas do not suffer environmental and economic externalities the way that holdouts in agricultural communities do. While expanding suburbs swallow agricultural land and open space with amenity values, the people that move into new housing tracts enjoy the benefits of the entire urban economic and social life, not just what is around them, and the increase in property tax revenues from developing land funds more, not less, government services. The second fair conclusion is that AMI transfers have either a negligibly negative or a positive effect on income and employment from a wide accounting standpoint.[29] The lost jobs and revenues in agricultural counties tend to be replaced, and then some, by new arrivals to growing metropolises. While it may be difficult to attribute an exact contribution to urban livelihoods from AMI transfers, there is no doubt that it is positive. If we are to object to the impacts of AMI transfers, then, it is not on efficiency grounds but on concerns over trading benefits in one place for costs somewhere else.

Next in this series: justifying the ethical tradeoff between urban growth and rural preservation. What is acceptable? What is not?

References…

[1] Charles W. Howe, Jeffrey K. Lazo and Kenneth R. Weber, “The Economic Impacts of Agriculture-to-Urban Water Transfers on the Area of Origin: A Case Study of the Arkansas River Valley in Colorado,” American Journal of Agricultural Economics 72 (1990): 1200; Metzger, 58-59.

[2] R. G. Taylor and Robert A. Young, “Rural-to-Urban Water Transfers: Measuring Direct Foregone Benefits of Irrigation Water under Uncertain Water Supplies,” Journal of Agricultural and Resource Economics 20 (1995): 247-262.

[3] Metzger, 60.

[4] Howe, Lazo and Weber, 1200.

[5] Saliba et al, 648-50.

[6] Albert H. Charney and Gary C. Woodard, “Socioeconomic Impacts of Water Farming on Rural Areas of Origin in Arizona,” American Journal of Agricultural Economics 72 (1990): 1194-95.

[7] Ibid, 1203.

[8] Metzger, 60.

[9] Howe, Lazo and Weber, 1204.

[10] Expanding municipalities’ purchase of water rights as a part of annexation of new territory is known as “urban absorption” and, because it does not cause the same economic effects as an out-of-region transfer, it tends to be considered separately or not at all in the water transfer debate. Nichols, Murphy and Kenney, 114.

[11] Charney and Woodard, 1196-98.

[12] Ibid, 1196-97; Howe, Lazo and Weber, 1203.

[13] Metzger, 60; Albert Schaffer and Ruth C. Shaffer, “Social Impacts on Rural Communities,” in Ernest A. Engelbert, ed., Water Scarcity: Impacts on Western Agriculture (Berkeley: University of California Press, 1984), 314-21.

[14] Sutherland and Knapp, 296-97.

[15] Kenneth R. Weber, “Effects of Water Transfers on Rural Areas: A Response to Shupe, Weatherford, and Checchio,” Natural Resources Journal 30 (1990): 14-15.

[16] Sutherland and Knapp, 297.

[17] Ibid, 297-98.

[18] Western Governors’ Association, 26.

[19] Sutherland and Knapp, 298.

[20] Western Governors’ Association, 13.

[21] Gareth P. Green and Joel R. Hamilton, “Water Allocation, Transfers and Conservation: Links between Policy and Hydrology,” International Journal of Water Resources Development 16 (2000): 201-02.

[22] Green and Hamilton, 208.

[23] Nichols, Murphy and Kenney, xi.

[24] Ibid, 122.

[25] Western Governors’ Association, 10.

[26] Limerick, 256.

[27] Hal Rothman, “Water and the Future of Las Vegas,” quoted in Limerick, 259.

[28] Howe, Lazo and Weber, 1202.

[29] Ibid, 1203.

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2 thoughts on “Water Transfers and the Future of the West: Consequences

  1. Thanks for the long post, but I missed three things (in skimming it): (1) the potential benefits of short term transfers (e.g., PVID-Met in California), (2) the potential for DECENT accounting to ensure that consumptive uses are traded to avoid harming the neighbors and environment, and (3) the fact that some communities are dependent in water flows that do more good (socially) in another location, meaning that those communities may need to dry up and die (i.e., property values are based on water, not land).

    Can you describe a good AMI?

    • Thanks for reading, and for your comments. This series of posts on AMI transfers is taken from a longer paper I wrote for another venue, so I think you may get some answers as I upload more to the blog. In general, though, I would say the primary benefit of some transfers is that they enable us to avoid further (over-)appropriating rivers with new water withdrawals. If they are short-term or temporary transfers they can provide a revenue stream to farming communities and in many cases still keep lands in production. They could be made better by compensating affected third-parties in the area of origin and requiring revegetation of fully dewatered lands. I think these would go a long way toward fairly treating rural areas as there is more and more demand for their water, given the relative (economic) values at stake.

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