The prospect of Wall Street buying water rights in Colorado has seemingly brought the water community on the Front Range and Western Slope together – a rare occurrence between two sides of the state often at odds over water use.
In recent weeks, much attention has been focused on an issue not new to officials in the water world: private interests or hedge funds purchasing water rights from agricultural communities and diverting that water to cities.
An open letter from almost 10 water officials from across the state, including the local Southwestern Water Conservation District, lashes out against the practice, saying, “waters that originate in our great state are the property of the public.”
“The people of Colorado have the right to appropriate and use that water for beneficial uses, such as municipal, irrigation, industrial and recreation,” the letter, sent Thursday, says.
The open letter is largely in response to a Jan. 3 article in The New York Times called “Wall Street Eyes Billions in the Colorado’s Water,” which says private investors may become more of a force in the political water world.
The article cites several examples of private investors purchasing water rights from ranches, and then diverting it to cities to feed new developments or subdivisions in drought-strapped places.
Several private equity owners argue the practice could be one of the solutions to curb the impacts of climate change that has resulted in drought and less available water throughout the West.
In one stance, Greenstone, a private investment firm, bought most of the water rights in Cibola, Arizona, and then sold the rights to a suburb of Phoenix known as Queen Creek, 175 miles away.
“One of the things I think we’ve learned over time is that a resource like water is best allocated through kind of a combination of market forces and regulatory oversight,” Grady Gammage, a spokesman for Greenstone, said in the article.
“The market would say,” Gammage went on, “water is far more valuable serving urban populations.”
The Colorado water officials’ letter says this is not the first time venture capital firms have eyed the state’s water resources.
“This time around, however, the investors and their representatives are posturing to portray themselves as the only solution to a climate-change driven reduction in the flows of our rivers,” the letter says.
Indeed, demand for water is growing on the Colorado River, which supports about 40 million people and 5.5 million acres of agricultural land in seven states. And increasingly, prolonged drought is resulting in less of it being available to users.
Colorado water managers in the letter argue efforts are already concentrated on responding to the issue, and should be led by the state and local officials, not private for-profit businesses.
Namely, the letter cites the “Demand Management” program to temporarily compensate water users in Colorado and other Upper Basin states to reduce their use of water to be able to meet obligations under the Colorado River Compact.
“The introduction of private investors in our statewide water planning efforts will only serve to further exacerbate the water divisions that exist between our urban areas and our irrigated agricultural communities,” the letter says.
The practice has been more common in urban areas along the Front Range or near Phoenix, and the issue hasn’t reared its head quite yet in Southwest Colorado, according to several water officials interviewed for this story.
Robert Genualdi, Colorado Division of Water Resources Division 7 engineer, which covers Durango, said there are several key distinctions why the hedge funds of Wall Street haven’t set their sights on local waterways.
For one, in most places along the Front Range where it is happening, the waterways are over-appropriated and there is not enough water to go around to serve new developments or subdivisions.
As a result, entities looking for water for urban areas seek out farm and ranch owners who may be interested in selling their rights. Then, the developers use that water for their projects and let the farms go fallow, known as “buy and dry.”
On the other hand, most waterways in the region, like the Animas River, are not over-allocated, meaning water rights can still be bought, Genualdi said.
“In our corner of the state, it’s probably not as prevalent as it might be in other parts of the state because of the water availability down here,” he said.
Also, Genualdi pointed out that much of the water is stored in Bureau of Reclamation projects – like Vallecito, Lake Nighthorse and McPhee reservoirs – which bring some level of federal protections against the practice.
“Those projects were built for specific things, so it’s more of a task to get water use changed,” he said. “You’d have to go to Congress for a change.”
While not currently an issue in Southwest Colorado, efforts should be made to prepare for private interests in water, said Amy Huff, a water attorney recently appointed to the Southwestern Water Conservation Board.
“I think it’s a possibility it could happen in the next few years,” she said. “But I don’t think right away. We’re not a low hanging fruit for someone.”
Where water officials see the biggest issue of hedge funds buying up rights is within ditch companies where individual water-right holders have the ability to sell off their rights to private interests, Huff said.
That structure, Huff said, is not the case for most of water distribution in Southwest Colorado, though she did mention one Mancos ditch company that is seeking better protections against the practice.
A call to Dan James with the Animas Consolidated Ditch Company was not returned.
Mike Preston, former manager for the Dolores Water Conservancy District, said several water districts in the region have set up restrictions for people to sell off to private companies.
“They’ve done what they can to protect themselves,” he said. “That water is all tied up to the land.”
Ed Tolen, general manager of the La Plata Archuleta Water District, said his water right holders shouldn’t have to worry because it’s all domestic water use, not for irrigation.
But still, he said there is concern among the agricultural community that some ranchers and farmers may have to send their water to lower basin states to meet water compacts.
“People are thinking if they buy land with water rights, they could sell that water to help meet that compact requirement,” Tolen said. “I think it’s something we need to prepare for.”
Indeed, the Colorado state Legislature formed a study group to take on the issue and provide a report and recommendations by August.
“One thing is clear. There is no place for private for-profit interests in this process,” the open letter said. “Colorado state government has a long history of opposing interstate marketing and transfers of water by private interests, and that opposition should continue.”