MIddle finger of free market in water no longer invisible
The animal spirits of capitalism are bathing in the arid West. -- blj
ON A BRISK, CLOUDLESS DAY last January, Disque Deane Jr. stepped out of his SUV, kicked his cowboy boots in the dirt, and looked around. He had driven two hours from Reno on one of the loneliest stretches of interstate in the United States to visit the Diamond S Ranch, just outside the town of Winnemucca, Nevada. Before him, open fields stretched all the way to the Santa Rosa mountains, 30 miles away. But the land was barren. The fields had been chewed down to the roots by cattle, and the ranch’s equipment had been stripped for parts. A steel trestle bridge lay pitched into the Humboldt River.
Surveying the dilapidated structures and the gopher-riddled soil, Deane saw something few others might: potential. The ranch and an adjoining property, totaling about 11,400 acres—14 times the size of Central Park—were for sale for $10.5 million, and he was thinking about buying them.
Deane is not a rancher or a farmer; he’s a hedge-fund manager who had flown in from New York City the previous night. And as he appraised the property, he was less interested in its crop or cattle potential than in a different source of wealth: the water running through its streams and coursing beneath its surface. This tract would come with the rights to large amounts of water from the region’s only major river, the Humboldt. Some of those rights were issued more than 150 years ago, which means they outrank almost all others in the state. Even if drought continues to force ranches and farms elsewhere in Nevada to cut back, the Diamond S will almost certainly get its fill.
Deane looks at the drought, the perennial mismanagement of water in the American West, and the region’s growing population, and believes a reckoning is coming. Rising demand and shrinking supply virtually guarantee that water’s value will increase. Anticipating that day, he’s racing to buy up as much of it as he can.
That the West had a limited supply of water was understood from the start. In 1869, John Wesley Powell ran a pioneering expedition down the region’s largest river, the Colorado. He eventually reported back to Congress that the West was an inhospitable desert split by that great gushing river, which was so difficult to access—cut off by cliffs and canyons and mountains—that its bounty was out of reach. Growing food in much of the West would be almost impossible. “Many droughts will occur,” he warned. “Many seasons in a long series will be fruitless.”
But the allure of all that land was irresistible. “The western half of the United States would sustain a population greater than that of our whole country today if the waters that now run to waste were saved and used for irrigation,” President Theodore Roosevelt declared in 1901. The next year, he signed the Reclamation Act, paving the way for the creation of the federal bureau charged with reshaping the western landscape.
Within a year, four federal dams and a major river-diversion project had been planned. In the ensuing decades, concrete barriers were erected across rivers from Montana to Mexico, magnificent canyons were flooded, and tunnels and canals were built to reroute water under the Continental Divide and across the Mojave and Sonoran Deserts. By the 1980s, the Colorado River had been turned into one of the world’s largest plumbing systems—a web of infrastructure designed to distribute the region’s water as widely as possible and encourage settlers to move west and take advantage of it.
It worked. Since 1960, tens of millions of people have migrated toward the Pacific, settling in Las Vegas and Tempe and Boulder. Denver has tripled in size. Phoenix, having added some 3.6 million people, has more than quintupled. Today, one in eight Americans depends on water from the Colorado River system, and about 15 percent of the nation’s crops are grown with it.
But the demands on the river were never sustainable. In 1922, the seven states in the Colorado River watershed signed a compact dividing its water. With little historical data, they calculated the river’s capacity after a decade of unusually wet conditions. In an average year, the river flows with less water than the states and Mexico—which was later promised its own share—count on taking out of it. Since the current drought began, in 2000, that shortfall has averaged 25 percent. Instead of adjusting their allotments, states have drawn down the nation’s largest reservoirs, which are quickly draining. Even this winter’s El Niño weather pattern won’t bring enough rain to restore the region’s supply, and federal officials are bracing for the possibility that Lake Mead, the largest reservoir in the U.S., could reach a record low as early as next year, which would trigger emergency rationing.
To determine who gets water and who doesn’t, states rely on a system that originated more than 150 years ago—when water was plentiful and people were scarce. During the Gold Rush, prospectors staked claims along western streams, only to find themselves robbed of the water they needed in order to mine as competitors upriver laid new claims and diverted the stream’s flow. The courts, hearing the miners’ grievances, settled on a system called “prior appropriation,” which promised rights to use a share of water based on who got there first.
Prior appropriation became the foundation of western water law, and it established order in the West. Today, though, state water laws are largely to blame for the crippling shortages. Because water rights were divvied up at a time when few cities existed west of the Mississippi, some 80 percent of the region’s water goes to farmers, leaving insufficient supplies for growing cities and industries. And farmers must put all their water to “beneficial use” or risk losing their allotment—a rule that was originally intended to prevent hoarding but that today can encourage waste. Many farmers have not adopted modern technology that can cut water use by up to 50 percent, in part because they need to protect their water rights.
Farmers might prefer to sell their extra water rather than letting it soak into the ground, but there, too, the laws get in the way. Not only is it difficult to prove that water sales satisfy standards for beneficial use, but they are generally forbidden across state lines. Where intrastate trades are allowed, they are conditioned on not causing harm to other rights holders in the surrounding area. That’s a laudable intention, but it forces farmers who want to sell their water to spend thousands of dollars on engineers and lawyers.
The West’s cities, meanwhile, are forecast to add at least another 10 million residents over the next three decades. Where the water to serve those people will come from is anyone’s guess. City and state leaders have seriously discussed building a pipeline from the Missouri River, seeding clouds with silver iodide to create rain, and towing icebergs from the Arctic. Their most pragmatic hopes lie in desalinating ocean water, an expensive and energy-intensive process.
Something has got to give.
In theory, states could step in and reallocate water according to modern economic priorities. After all, the West’s millions of acres of farmland account for less than 2 percent of the region’s economic output, and moving just 10 percent of the water off farms would likely resolve current shortfalls. Few things are more controversial in the West, though, than even minor meddling with water laws. Canceling or redistributing rights that are more than a century old would be political suicide in a part of the country where personal property is sacrosanct and farmers wield a lot of influence. As water shortages have slowly worsened over the past two decades, politicians have done little to avert the crisis.
Where government has failed, Deane believes capitalism offers an elegant solution. Allowing people to buy and sell water rights is a more expedient way to redistribute the West’s water, he argues. Waste would be discouraged, water would shift to where it’s needed most, and farmers would be compensated. He’s convinced that this is our best hope for ending the West’s water shortage—and that it could make him and his investors very, very rich.
When Disque Deane Jr. first said he wanted to get into the water business, his father was skeptical. Disque Sr. was a legendary New York real-estate investor who financed Brooklyn’s Starrett City. He raised Disque Jr. with the boy’s mother—a fashion consultant and the second of his three wives—in an Upper East Side townhouse and sent him to the tony Trinity prep school and then to Duke University. (He would later pledge $20 million to fund an institute at Duke to study the future of the human race.) A famous hardass, he had no patience for stupidity or mistakes.
Disque Jr. saw himself working in foreign affairs. While still at Duke, he applied on a whim to join the CIA but was roundly rejected. “The minute I walked into the interview room he said, ‘You don’t have a chance,’ ” Deane told me. “ ‘We need people who blend into the wall. We don’t need people who stand out.’ ” Rather than become a spy, he got an internship analyzing arms control at a London-based think tank. About a year later, looking to make more money, he decided to go to business school. After graduating, he took a job as a trader at Lazard, the global investment bank where his father had been a senior partner. In 1991, he tried to start an online real-estate company, an idea before its time.
Two years later, Deane found what would become his life’s work when he read an article in Forbes about an investor who specialized in water. He ran models calculating the past performance of companies whose business was tied to water—pipe manufacturers, treatment facilities, utilities—and found that they beat regular Wall Street indices. He read every book he could get his hands on about hydrology and geography and western politics, and grew in his conviction that he’d tripped onto a prime investment strategy. “For me, this was perfect information,” he told me, “raw knowledge” no one else seemed to have.
“There were very few people who thought I was rational,” Deane said. He had an enviable life in Greenwich, Connecticut. When he packed up for Fort Collins, Colorado, to work with the water investor he’d read about in Forbes, a man named Al Parker, his mother cried and his wife, an Argentinian he’d met in Spain, returned to South America, leaving Deane to fly down for visits.
But Deane saw opportunity: a resource everyone needed but almost no one valued. His first big investment, in 1995, was an old mining tunnel in central Colorado that came with the rights to a large volume of water. Deane and Parker named their new company Vidler Water, after the tunnel, and set out to sell water to Colorado’s eastern cities.
With the Vidler purchase, Deane and Parker had bought the rights to water that flowed down a creek from high in the mountains in Summit County, Colorado—water that residents had been using for years to maintain their lawns and wash their cars. One evening, Deane and Parker held a meeting and explained that locals could continue to take their fill, for a fee. Deane says he thought he and Parker were fixing a problem by making water legally available to people who needed it. But the more Parker tried to explain, the angrier the crowd got. In the back of the room, Deane opened a window, swung his legs over the sill, and dropped into the parking lot, where he pulled Parker’s Volkswagen Beetle around to scoop him up.
Parker told me Deane is honest and highly intelligent, but also intense and opinionated—not always the easiest person to work with. Deane left Vidler in 1999 and struck out on his own. In 2005, he returned to New York and teamed up with an old friend he’d met when he was in college, Matt Diserio. A former lacrosse player from Connecticut, Diserio, a self-described “information junkie,” had thought about becoming a journalist but decided to work on Wall Street instead. They called their company Water Asset Management and brought on a third partner to manage the operations, a former colleague of Diserio’s named Marc Robert. The three had skied together long ago in Courchevel, France.
They pooled about $3 million of their own money and launched a hedge fund devoted to buying and selling just about anything having to do with water. Diserio focused on investing in stocks of companies that stood to profit as water became increasingly scarce; Deane set out to get as close as possible to buying the water itself, scouring parts of the country where water rights could be traded. They shared office space in Midtown Manhattan with a group of lawyers who handled Hasidic divorces, and for two years none of them took a salary.
Today Water Asset Management runs funds worth more than $500 million. It trades stocks of companies that manufacture pipes, pumps, and water meters. It bought and later sold a municipal water supplier, and has invested in treated wastewater. Not all of the projects it has a stake in have succeeded: A controversial plan to develop a vast aquifer in the Mojave Desert and pipe the water to cities in Southern California failed to get an important federal approval, and some shareholders have filed a lawsuit against the company behind the plan. (The company, Cadiz, has contested the suit and moved for its dismissal.) But Deane and Diserio told me their two long-standing funds have shown annualized returns of 6.5 percent and 9.6 percent over the past decade, and California’s drought has brought new investors through their doors—including not just wealthy individuals with a tolerance for risk, but pension-fund managers as well. To Deane, the growing interest is a sign that the rest of the world is finally coming to see what he did long ago. “Maybe,” Deane told me, “I have the ability to look around corners a little bit.”
AMERICA CONSUMES MORE WATER per capita than just about any other country—more than three times as much as China, and 12 times as much as Denmark. People in the driest states use the most: Residents of Arizona each use 147 gallons a day (not counting agricultural water or water used to generate power), compared with just 51 gallons in Wisconsin, largely by filling swimming pools and watering lawns year-round in the desert. This extravagant use continues despite scarcity because water is kept artificially cheap. The water bills that Americans pay cover a mere sliver of the cost of the infrastructure that delivers water to them. Some city users pay $1 for 1,000 gallons. On farms, water is even cheaper. One thousand gallons of agricultural water in western states can cost as little as a few pennies.
The West would have plenty of water if people used it more wisely: Most of the region’s supply goes to growing low-value, water-intensive crops such as hay and alfalfa—in many cases in the desert. “It seems crazy,” Douglas Kenney, the director of the Western Water Policy Program at the University of Colorado Law School, told me. “But there is just no tradition of thinking about what is and is not an appropriate use of water based on economic criteria.”
Water markets promise to correct this: When you allow water to be bought and sold more freely, its value begins to match its importance, waste becomes expensive, and the West’s water problems begin to solve themselves.
Water has been bought and sold in parts of the United States for decades. But arcane aspects of state laws have kept trading from becoming routine enough to make much difference in the overall supply. If Deane gets his way, barriers to trading will be removed and a market will form that can shift water to meet changing needs almost as quickly as the stock exchange moves shares.
Australia has already instituted a water market similar to what Deane has in mind. By mid-2006, Southern Australia’s Murray-Darling River Basin had seen a decade of drought. Then, unexpectedly, the flows of the Murray dropped farther, falling to 40 percent below the previous record low. As in the U.S., water trading had for decades been limited and cumbersome. But as the drought worsened, the government backed a cap-and-trade system. “We have a very simple rule, which is that if somebody wants more water, you have to figure out who gets less,” Mike Young, a professor of water and environmental policy at the University of Adelaide and an expert in water trading, told me. As trading became more common, the market began to arbitrate that decision.
As a result, people have found ways to reduce waste. Farmers in an irrigation district that had porous dirt ditches, for instance, began to line them with concrete, saving millions of dollars’ worth of water that would have otherwise seeped into the earth. The farmers started asking: “If we spend $3 million here and get water we can sell for $5 million elsewhere, is that a good deal?,” Young said. “And the answer is yes.”
In dry years, the price of water on Australia’s market rose, but so did the number of trades, showing that people used the market to move water to where it was needed—and valued—most. Water-intensive crops such as cotton and rice were temporarily phased out as the water needed to grow them became more valuable than the crops themselves.
In the western U.S., a consensus has begun to emerge that following Australia’s example is a good idea. In 2012, the Western Governors’ Association issued a report supporting states’ efforts to promote new ways of transferring water. Cities, too, are putting their weight behind trading. Even the nonprofit Environmental Defense Fund cautiously supports the idea: The organization joined other groups in purchasing Colorado River water in 2014 for the sole purpose of letting it flow. The river reached Mexico’s Sea of Cortez for the first time in 16 years.
But one problem with developing a market for trading water is that many farmers—the people who control most of the water—are against the idea.
To understand farmers’ opposition, one has only to look at the example of Crowley County, in southeastern Colorado, once one of the nation’s most fertile agricultural areas. A cannery preserved tomatoes before shipping them on the Missouri Pacific Railroad to markets across the country. Sugar City, a town of 1,500 people so manicured that everyone’s lawns had to be trimmed in the same direction, was home to National Sugar, which employed hundreds of people. Ordway, the county seat, had two car dealerships, three grocery stores, a bustling JCPenney department store, and a movie theater that played family films on Sunday nights.
Crowley County relied on water diverted from a tributary of the Colorado River near Aspen, 200 miles away, in order to supplement the Arkansas River. Farmers owned shares in ditch systems and reservoirs that distributed the water, and some 60,000 acres of farmland were cultivated with it. But in the 1960s, the growing cities of Pueblo, Colorado Springs, and Aurora purchased a large portion of water rights from Crowley farmers, and all of that began to slowly slip away. When Foxley Cattle, which had enormous land holdings, made a deal to sell its water rights to Colorado Springs in 1976, the area’s decline went into high gear. The sale had two immediate effects: It dried up thousands of acres of pasture by permanently diverting a huge portion of the region’s water, and it opened farmers’ eyes to the incredible cash value of the water they had left.
For a while, farmers pledged to keep their water in the county. But in the late 1980s, the city of Aurora made an irresistible offer: It would pay about $1,000 for each share of a ditch system, and the water that came with it—quadruple the price of some of the earliest deals. Farmers in Crowley, like those in so many agricultural communities across rural America, had long been struggling against low crop prices, an exodus of youth, and an aging population. The money offered an exit. “It was a way for them to get out, pay their debt off, and have a way to retire,” says Darla Wyeno, who runs the Crowley County Heritage Center out of a stately brick building that was once her schoolhouse. Her husband learned to drive the tractor on his family’s farm when he was 9 years old. “After we sold the water,” Wyeno says, “we played a lot of golf, did a lot of traveling.”
The offer was like a breach in a dam. Aurora also bought up almost all the water in another ditch system near the town of Rocky Ford, just across the county line. Pueblo West, 60 miles away, bought water to serve houses on just-constructed cul-de-sacs stretching all the way into the foothills of the Rocky Mountains. As more houses were built, the value of the remaining water in Crowley climbed even higher, reaching $10,000 a share.
Orville Tomky, a 10th Mountain Division soldier who had farmed in the area since shortly after World War II, tried to resist as the pressure mounted. “My wife every night at supper would say, ‘When are we going to sell the rest of that Twin Lakes water so we can have a lot more money?’ ” he told me. One night he divided up the water rights, giving 20 shares to each of his four children, five shares to each of his five grandchildren, and 30 shares to his wife. Selling the shares put some of the kids through graduate school, gave them down payments for their own homes, and paid for a family ski lodge in the mountains.
Eventually, though, Crowley County passed a point of no return. With so much water gone, the empty irrigation ditches didn’t work; one lonely farmer at the end of the run would see all his water soaked up by the soil long before it ever reached his farm. And with fewer and fewer farmers around to share the expense of maintaining the ditch systems, the cost kept rising. Farmers had little choice but to sell, and all but 11 in the county did. The place literally dried up.
Kneeling in his driveway changing a truck tire last summer, Tomky’s son-in-law Matt Heimerich recalled what the town had lost. Though tens of millions of dollars in water rights were sold, few of the proceeds were reinvested in the community, he said. One by one, families moved away. The tomato and sugar factories shut down, and without goods to ship, the railroad stopped sending trains through town. Ordway’s car dealerships closed, and the tractor store went bankrupt. As though someone had pulled a bottom block out from a Jenga tower, Crowley County fell into an inexorable collapse.
“I couldn’t have eaten enough Prozac,” Heimerich said.
One could view Crowley’s loss as an inevitable part of the larger downturn in American farming—and a justifiable reallocation of resources. Crowley County was itself diverting water from the Colorado River system, after all, under a legal system that encouraged waste. But the people still living in Crowley point to the green fields in adjacent counties, and say the water sales killed their towns. Of the 60,000 acres once farmed there, about 4,000 produce crops today. Ordway’s Main Street is a procession of boarded-up buildings.
The dead land has led to a sort of environmental catastrophe. The wildlife is all but gone. Few birds chirp. With nothing to pollinate, bees have abandoned their colonies. Crowley was once a paradise for hunters, Tobe Allumbaugh, a county commissioner, told me. Today “you could wear out a pickup truck and never see a pheasant.” Decades of farming have left the soil brittle and sapped of its natural nutrients; now that it’s been abandoned, the land won’t simply heal and return to its natural prairie state. In every direction, empty fields and pastures extend for miles.
The wind in this part of Colorado can be merciless, and when it rakes across unfarmed fields, it scours loose soil and moves it. Another Crowley commissioner, Frank Grant, told me about the haboobs, huge black clouds of sand, that blow in, piling tumbleweeds against buildings and making it difficult to see across the street. The dirt piles up in drifts, blocking roads, filling gutters, and burying windshields. “We’ve essentially just turned into a desert,” Grant said.
Crowley County may be a worst-case scenario, but it is hardly unique. Even in neighboring counties, new water deals are being proposed all the time. To be sure, some of these sales have given farmers new income that helped keep them afloat—or allowed others who wanted to leave farming to cash out. But Crowley reveals a broader risk. Could water sales that today appear logical and efficient one day come to seem shortsighted?
Western states have already retired hundreds of thousands of acres of farmland as cities have built on them or taken their water. Once water is moved off a farm, that land is unlikely to ever produce crops again. Water rights are difficult to buy back—Crowley’s farmers told me they can’t afford to do so—and in many places the land is developed, filled with houses and parking lots and strip malls. “We are actually dismantling our agriculture and the food infrastructure,” says Pat O’Toole, the president of the Family Farm Alliance, a grassroots organization that advocates for western agricultural interests.
The United States can probably afford to lose some of its farmland. But if left unchecked, these deals could begin to threaten the food supply. The United Nations’ Food and Agriculture Organization projects that food production globally will have to increase by 70 percent by 2050 to support an expanding and increasingly affluent population, and it warns that urban expansion into rural land is putting food production at risk.
And, of course, growing more food requires more water. In theory, Americans could simply eat less meat: A vast majority of the West’s water is used to produce feed for cattle, and data from Water Footprint Network, a Dutch NGO, show that if Americans gave up meat one day a week, they would save an amount of water equivalent to the entire flow of the Colorado River each year. But that cultural shift might prove even more difficult than reallocating water rights.
Some opponents of water markets worry that when water is sold to the highest bidder, the poor could be priced out of an essential resource. “It’s a slippery slope,” says Mitch Jones, a senior policy advocate at Food and Water Watch, which has studied the effects of water privatization and commercialization. “You are setting up a system where ability to pay—wealth—is the determining factor in your ability to access water.” Jones points to places like Bolivia, where privatization has left some of the poorest people without access to water.
Disque Deane thinks such concerns are overblown. He supports the idea of setting aside what policy makers call “lifeline supplies” to guarantee households some minimal amount of water. But he says if markets jack up prices on higher levels of consumption, that may not be a bad thing. Anyone who wants to fill a swimming pool, water a golf course, or use billions of gallons of Colorado River water to grow cotton in the Sonoran Desert, he says, should have to pay for that privilege.
LAST WINTER IN WINNEMUCCA, Deane parked outside a historic tavern called the Martin Hotel. He walked through its wood-paneled bar, beneath the attic speakeasy that kept the town lush through Prohibition, and into a private dining room in the back, where a local water official from the state engineer’s office was waiting.
Deane peppered the engineer with questions. Who are the big water users? Could the water from the Diamond S Ranch be used on the adjacent property he was also looking to buy? How about up the road on another farm he owns? “There is some latitude there,” the engineer told him.
Deane already knew the answers to many of these questions; his lawyers and staff had done their due diligence. He was more interested in how his questions were addressed, in feeling out someone who had the authority to stand in the way of his plans.
Water Asset Management’s strategy is to find ways to use its land to generate revenue—or at least cover costs—while maintaining its core investment in the water itself. At the Diamond S, Deane talked about building a data center, because fiber-optic cables run along the railway near the property, or a small-scale power station that would take advantage of a natural-gas pipeline nearby. “If KB Home wanted to come in,” Deane told me, referring to one of the largest home builders in the U.S., “we’d talk about it.”
With the firm’s latest purchases, Deane is building out a new fund, and his aim is to secure investors annualized returns of about 20 percent over 10 years. That leaves little time for government policies to change and water markets to mature. He’s looking for places where the laws already allow trading and other investors have yet to notice. The ideal opportunity, Deane said, involves high-priority water rights on a run-down farm with major cities in every direction. The ranch near Winnemucca looked like a match, but Deane later told me that he’d decided to pass because he had questions about whether the groundwater might be contaminated. (The Nevada Division of Environmental Protection has since confirmed that pollutants were found at the site.)
Ideal opportunities can be tough to find. “Debt, death, and divorce” has become a sort of motto, Deane said, because those circumstances drive people to sell. Not that he’s out to swindle anyone. “There are no stupid sellers,” he told me. “Rural communities are much smarter than most of the people that walk into them. They know what they need and they know who people are. It’s one of the reasons our card says ‘Water Asset Management,’ not ‘Sam’s Farm Co-Op,’ because you can’t pull the wool over people’s eyes.”
Deane told me he’d abandoned an effort to buy a distressed New Mexico property in 2014 after hearing about a local gas-station attendant who—opposed to the idea of investors buying up water—refused to fill the cars of workers who were drilling wells on the property. He said he wants to work with communities, to facilitate mutually beneficial solutions, as someone who has the network, capital, and know-how to make a deal. He pointed to Water Asset Management’s investment in Prescott Valley, Arizona: The town wanted to upgrade its water-treatment plant and was looking for capital. Deane and his partners bought the rights to the cleaned-up water. The town got the money it needed for the upgrade, and Water Asset Management got water it could sell to local developers for a profit. “We go where we can be helpful,” he said. “That’s all I’ve said, since day one.”
Deane likes to see himself as a friend of farmers, someone who can get them the compensation they deserve for 100 years of homesteading. He said he shares their values. But when I described to him the water sales in Crowley County, he had trouble explaining exactly how some of his deals have differed—except to say that the farmers he worked with went into those transactions with their eyes wide open. Either way, there’s no denying that farms—and by extension farmers—are the target of his investments. Without them, water markets couldn’t exist.
One evening at a cocktail reception in Las Vegas, Deane told a conservationist how to deal with farmers who might say no to fallowing their fields. How about for $100 an acre-foot?, he would press, referring to a common measurement of water. “Maybe.” Two thousand dollars an acre-foot? “Sure.” “How do you get a farmer’s attention?” he said. “Humbly, and with a thick wad of money.”
The idea of letting money alone steer decisions about water use can make even the most open-minded public officials uneasy. At a drought forum held by the Western Governors’ Association in late 2014, where Deane took part in a panel discussion, officials voiced a barrage of concerns: How would states maintain their authority over water if people sold it across state lines? How could markets balance the decisions of individual farmers with the collective impact on the broader community? Was water the property of rights holders to sell in the first place—or were water rights simply a license to use a resource that ultimately belongs to the public?
Deane emphasized the need for reform. The status quo has failed, he told the audience. “What should we be doing to solve this problem? Because the alternative is unbearable, right?”
The discussion then turned to a potential compromise: Perhaps the risks could be mitigated, someone suggested, by structuring temporary deals that allowed farmers to retain ultimate control of the water.
Thirteen years ago, farmers in California’s Palo Verde Valley—one of the state’s oldest farming areas—entered into an agreement with the Metropolitan Water District, the agency that serves Los Angeles, San Diego, and much of the rest of urban Southern California, to essentially lease a portion of their water. The model seeks to protect farmers even from their own financial temptation. In addition to an upfront payment of $3,160 an acre, the agency pays them $800 an acre for fallowing portions of their farms each year. It has also invested $6 million in the community, to counter whatever economic harm might come from the fields’ temporarily drying up.
The arrangement is anything but a free market: To ensure that most of the water stays in the valley, the agreement limits the amount of land any one farmer can fallow in a year to 35 percent of his or her holdings. Still, farmers get added income without losing their rights to the water, and the Metropolitan Water District says Los Angeles and its other cities get reliable access to water, which helps them make it through drought years.
Deane told me that if the political consensus leads to leasing water, it’s a solution he can get behind. His hope, after all, is that more-frequent trades, for lower transaction costs and smaller margins, will one day replace the blockbuster deals his company relies on today. Leasing is a perfectly good way to achieve that aim.
Farmers near Crowley County recently visited the Palo Verde Valley and are setting up a pilot program to test out that model. “To me it was an answer to a prayer,” John Schweizer, one of the leaders of the project, told me. He described it as “the only thing I found where you can keep your water, keep your farming, and still get the cities their water if they need it.”
But there was resignation in his enthusiasm, a tacit acknowledgment that much of what Deane and others have to say is correct: There is enough water in farming to move some of it without leaving the country to starve, and like it or not, the transfer of agricultural water to cities is going to happen. They can sell it, lease it—or have it taken from them.
California farmers reap record sales in record drought Ellen Knickmeyer and Scott Smith
This Feb. 5, 2016, photograph shows citrus groves east of Fresno, California. A newly released... Read more
FRESNO, Calif. (AP) — A new state report shows California farmers reaping record sales despite the epic drought, thriving even as city-dwellers have been forced to conserve water, household wells have run dry and fish have died.
California's 76,400 farms recorded $53.5 billion in sales in 2014, the year Gov. Jerry Brown declared the state in a drought emergency and launched what in 2015 became mandatory conservation for cities and towns. The sales figures are the most recent annual ones released by the state agriculture department.
With the punishing drought entering its fifth year, the figures are sure to stoke tensions between farmers on one side and, on the other, city-dwellers and environmentalists, who complain they are being forced to make greater sacrifices than growers.
Experts cite two key reasons for California farms' strong showing even in dry times: a California almond boom fed by surging demand from China and elsewhere, and farmers' ability to dig deeper, bigger wells to pump up more groundwater when other sources run out.
The state report tracked sales, not profits. Higher costs for water and other expenses of the drought outstripped sales for some farmers, but experts said it is clear many others made strong profits, as evidenced by the rush by growers and corporate investors to get into the almond business and take advantage of a run-up in prices.
Jay Lund, a water-resources researcher at the University of California at Davis and an influential voice in water policy in the state that is America's agricultural powerhouse, said the sales figures show that California farmers are doing what they should be doing in a dry spell.
"To me it illustrates that you can actually have a fairly good job in managing water," Lund said.
Some of those who consider themselves the losers in California's water wars see it differently.
"The water they're taking, they're also taking from communities around them — like us," said Guillermo Lopez, a resident of Fresno County, the state's third-most productive farming county, who was forced to haul water when his family taps ran dry. "We're the ones left with no water."
Lopez's family well was one of 2,520 household wells around the state to run out of water because of the drought and overpumping of the state's underground water reserves, according to state figures.
Wells in Lopez's neighborhood outside the city of Fresno began running dry a year ago, and his family was forced to buy bottled water until a state relief fund paid to have a large water tank installed next to the home. Lopez said that was about the same time he also noticed farmers nearby pumping heavily from deep wells to irrigate their crops.
Wildlife has also suffered, including endangered fish. Federal and state water managers, trying to balance competing demands from farms, cities and the environment, were unable to keep enough water in rivers for California's endangered winter-run Chinook salmon, which have gone through record die-offs.
California farmers' record sales come "at the expense of our rivers and fisheries," said Kate Poole, a senior attorney at the Natural Resources Defense Council.
"There've been vast amounts of water taken away from the environment" by water managers in the drought, Poole said. "It's caused many of our native fish to crash to the lowest levels ever."
California just went through its driest four-year period on record. Brown asked California cities and towns to cut water use 20 percent in 2014, then made a 25 percent cutback for urban users mandatory the next year. Californians learned to take shorter showers and let their lawns turn brown.
Farmers say that they have suffered in the drought, too, and that the rising cost of irrigating their crops is eating into their profits. Not only are their water costs higher but their power bills have shot up because they're running their well pumps more.
"You can't assume all farmers have a new pickup and their wives all have a new Cadillac," said Pete Belluomini, who grows potatoes, onions, almonds and other crops in Kern County, the state's No. 2 agriculture county.
The University of California at Davis estimates that more expensive water and other drought-related expenses cost farmers $2 billion in 2014.
The state ordered thousands of farmers to stop taking water from rivers last year in rare move that hit even some of those with seemingly ironclad water rights dating back a century. In the fertile San Joaquin Valley, some farms in 2015 received no surface water for a second year in a row and were forced to rely on their wells to irrigate crops. Experts warn that Californians are pumping up groundwater at unsustainable rates, causing the ground during the drought to sink more than a foot in parts of the Central Valley farm country.
Heavy demand for almonds in Asia and Europe has spurred a boom in the planting of almonds in California and drawn hedge funds and big corporations into the business. California almond production has doubled since the start of this century, surpassing even grapes in 2011.
Environmentalists and others complain that almonds are thirsty crops, requiring about a gallon of water per nut, or more than wine grapes use. Some agriculture experts counter that almonds are exactly the kind of high-dollar crop California farmers should be planting to make the most of scarce water.
California farmers have passed the higher costs of water on to consumers, with almond prices soaring from $2.40 a pound in 2012 to $5 last year.
The recent state agriculture report, released late last month, shows almonds were the state's second-biggest cash crop in 2014 after dairy. Exports accounted for $4.5 billion of California almond farmers' total $5.9 billion in sales, agriculture officials say.
However, the outlook for almond sales has dimmed since 2014, with overplanting by eager farmers and an economic slowdown in China threatening to end the boom.
"It's a curious case where the effects of the economic growth thousands of miles away might have more effect than a drought in California," said Lund, the UC-Davis expert.
Dianne Feinstein tries yet again with California water bill
Senator hopes third time is the charm for long-stalled legislation
House Republicans and Delta-area Democrats pose tricky balancing act
While California drought continues, healthy snowpack promises some relief
WASHINGTON -- Democratic Sen. Dianne Feinstein on Wednesday relaunched a big California water bill, in what might be cast as the triumph of hope over experience.
Unveiling her third proposal in the past two years for ways to divide California’s water supply among many competing interests, Feinstein packaged her latest 184-page measure as a reasonable compromise that draws the best from past Capitol Hill efforts.
The bill introduced Wednesday largely tracks draft language Feinstein made public in January. It eases limits on water transfers south of the Delta, but does not mandate specific pumping levels. It authorizes $1.3 billion for desalination, water recycling, storage and grants. It compels completion of feasibility studies for storage projects like Temperance Flat on the San Joaquin River.
“Drafting this bill has been difficult, probably the hardest bill I’ve worked on in my 23 years in the Senate,” Feinstein said. “But it’s important, and that’s why we’ve been working so hard, holding dozens and dozens of meetings and revising the bill over and over again.”
As part of the bill’s unveiling, Feinstein disclosed words of encouragement from parties who usually are on opposite sides of the water battle, including Rep. John Garamendi, D-Walnut Grove, and the South Valley Water Association. (Correction: The original version of this story stated that the Westlands Water District and the Kern County Water Agency are members of the South Valley Water Association. They are separate organizations. Westlands and KCWA also back the Feinstein bill.)
The South Valley Water Association said parts of the bill “have merit” and represent a “positive step in the effort to find reasonable solutions.”
But with California’s House Republicans often demanding more certain deliveries of water for agriculture while Democrats representing the environmentally sensitive Sacramento-San Joaquin Delta seek more water for those interests, the new billfaces some familiar obstacles.
“How do you thread that needle?” Rep. Jared Huffman, D-San Rafael, said in an interview, when asked whether Congress will reach a viable compromise. “I think it’s highly unlikely.”
The money provided includes $600 million for projects that could include constructing Temperance Flat Dam on the San Joaquin River above Millerton Lake or Sites Reservoir in the Sacramento Valley, and raising the height of Shasta Dam. The bill also cites “additional storage” at New Melones Reservoir on the Stanislaus River and creates a program to remove non-native predator fish from the Stanislaus River.
“This bill won’t be everything for everyone; candidly, that’s not possible with California water policy,” Feinstein said, “but I believe the bill strikes the right balance.”
Underscoring the challenges ahead, Feinstein’s Democratic colleague, Sen. Barbara Boxer, remained agnostic on the bill Wednesday, saying simply that she thanked Feinstein for her work and will now “look forward to getting feedback from all the major stakeholders.”
Feinstein’s latest bill also confronts, both in California and on Capitol Hill, changing climates that could further complicate lawmakers’ efforts.
The Republican-controlled House passed an extremely ambitious water bill in February 2012, when the statewide snowpack was 33 percent of normal. Written with little Democratic involvement, and passed along nearly strict party lines, the package eventually died.
When Feinstein introduced her first California Emergency Drought Act in February 2014, following the earlier House action, the statewide snowpack was 20 percent of normal. Now, though, propelled by El Niño, the statewide snowpack is 105 percent of normal.
While drought conditions persist, the infectious sense of political urgency may be lessened.
In Congress, moreover, the repeated legislative failures have chilled the negotiating atmosphere. California’s House Republicans gathered last December to explicitly blame California’s senators for the failure to reach a deal, and the office of House Majority Leader Kevin McCarthy has subsequently taunted Feinstein for not introducing a bill as quickly as she promised.
“While Senator Feinstein’s legislation fails to provide real water to my constituents, I hope she is able to secure passage of the legislation in the Senate so that the two chambers may … reconcile the differences between both bills,” said Rep. David Valadao, R-Hanford.
House members are skeptical about any targeted spending that might be classified as an earmark, making those provisions of the Feinstein bill vulnerable. In another conflict, Valadao expressed the views of many House Republicans when he stressed that “mandated pumping levels are absolutely necessary.”
“I recognize that any bill in the Republican-led House will be far more aggressive on the short-term operational provisions and downplay the long-term provisions,” Feinstein said, “but such a bill would never pass the Senate.”
Feinstein’s bill introduced Wednesday does not address aproposed irrigation drainage settlement between the federal government and the Westlands Water District, which is the subject of a bill introduced last month by Valadao.
Michael Doyle: 202-383-0006, @MichaelDoyle10
DAVID VALADAO’S STATEMENT WEDNESDAY ON THE FEINSTEIN WATER BILL
“It has been more than two months since Senator Feinstein promised to release water legislation. Today, she finally introduced her drought relief proposal.
“The senator’s legislation focuses on desalination, recycling, and protecting the Endangered Species Act. While these are admirable goals in areas such as San Francisco, this legislation will not provide those suffering from the drought with the water supply they so desperately need.
“Within her nine-page press release, Senator Feinstein states, ‘These provisions will help make the water delivery system more efficient during the drought, and do so without any mandated pumping levels.’
“Californians can no longer depend on federal and state bureaucrats to make decisions regarding water delivery. Mandated pumping levels are absolutely necessary to ensure a secure, reliable water supply to the areas most in need.
“With millions of gallons of water flowing out into the ocean every day, failing to increase water flows to the Central Valley is simply unacceptable. While Senator Feinstein’s legislation fails to provide real water to my constituents, I hope she is able to secure passage of the legislation in the Senate so that the two Chambers may go to Conference and reconcile the differences between both bills.”
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