Dam Fools

Why federal water management is all wet--and why environmentalists are right to question it.

David Brower has been the soul of the Sierra Club for almost half a century. Now in his 80s, he senses the rush of time and is anxious to correct an old error.

In the late 1950s, Brower acquiesced in the construction of Glen Canyon Dam, located 50 miles up the Colorado River from the Grand Canyon. The dam is huge: 710 feet high, 1,560 feet wide and storing 27 million acre-feet of water in Lake Powell, which extends back up the river for 186 miles. Completed in 1963, at the height of a period when America was damming everything that flowed, the dam destroyed beautiful, red-rock Glen Canyon and altered the ecology of the Grand Canyon area permanently. The trade-off Brower and the Sierra Club got in exchange was to stop dams that would have flooded nearby Dinosaur Canyon, and it is not clear that their choice was a bad one. Nonetheless, Brower rues his decision.

His basic position is simple: The dam was a mistake. At the time, its effects were assumed to be necessary costs for the benefits of controlling the Colorado. But Glen Canyon Dam performs no functions that cannot be handled by Hoover Dam, built in the 1930s and 250 miles downstream. We need not blow it up: Just open the gates, drain Lake Powell, let the ecology of the canyon recover, and leave the dam standing as a monument to hubris and folly.

This is not a one-man or one-dam crusade. The Sierra Club board of directors has voted to back Brower's view on Glen Canyon, and the environmental movement as a whole is challenging many other dams. The Federal Energy Regulatory Commission recently denied a license renewal to Edwards, a privately owned hydropower dam on the Kennebec River in Maine, and it may reach the same decision on others. The dams on the Columbia and Snake rivers in the Pacific Northwest are under fierce assault because of their effect on the salmon. Millions of dollars are already being spent to undo some of what these dams have wrought, and the enviros are suggesting that some of them should be torn down.

Some observers regard anti-dam activism as yet more environmental craziness and assume that Brower's position–and by extension the other dam-busting efforts–is so outlandish as to require no serious answer. The fourth highest dam in the nation, a mistake? Surely you jest.

But the dam busters have a point. Many dams probably should not have been built, not necessarily because of any environmental harm–you do not even have to get to that–but because they made no sense economically.

The big dam era was a significant experiment in delegating economic decision making to government bureaucracies working closely with private interests, all under the firm hand of Congress. The result was a disaster. "Water socialism," as it has been called, was and is as big a mess in the United States as were its counterparts in Eastern Europe.

Understanding the excesses of the era is important. The future of the West remains inextricably tied to water, and many people doubtless still think this means more dams, aqueducts, and other big construction projects. The real need in the West, however, is not for more brute-force water projects but for institutional change. The West needs to establish property rights in water and to foster free markets that will let water flow freely among users. It also needs to adopt the golden rule that he who gets the benefits pays the costs. People need to understand how far water policy departed from these principles, and how high a price they've paid as a result.

The Century of Dams

It is impossible to stand on top of one of the great dams, such as Hoover in Nevada, Dworshak in Idaho, or any of a dozen others, without feeling awe at the power of the natural forces held in check and profound respect for those who accomplished it. Dams are an intrinsic part of the epic of engineering achieved by Americans since the beginning of their national history: Between the first European settlement and 1900, they built 2,661 dams with a total storage capacity of 10 million acre-feet.

Before 1900, the technology and economics of damming were checked by the necessity of moving massive quantities of earth or stone, largely by hand. But in this century, the rise of machinery for moving earth and pouring concrete, together with improved scientific understanding of materials, opened up new possibilities. By 1996, the inventory maintained by the U.S. Army Corps of Engineers listed 75,187 dams with a combined storage capacity of almost 1 billion acre-feet, which is enough to cover the entire state of Texas with six feet of water. About 5,500 of these are over 50 feet high.

The overwhelming majority of dams are privately built and owned, with the federal government owning only about 5 percent of them. But the federal government owns the biggest and most important dams, and its share of total storage capacity is much higher. The Bureau of Reclamation of the Department of the Interior has only 340 dams in the 17 states west of the Mississippi, but these include Hoover and Glen Canyon on the Colorado River and Grand Coulee on the Columbia.

Perhaps surprisingly, the most common primary purpose for which dams are built, according to the corps's inventory, is recreation: 35 percent of existing dams fall into this category. Nor is this a new phenomenon: 48 percent of the dams built before 1900 had recreation as their primary purpose. Other primary purposes are farm ponds (18 percent), flood control (15 percent), water supply (12 percent), irrigation (11 percent), hydroelectric (2 percent), and navigation (less than 0.5 percent).

To understand the dam building binge of the 20th century requires an appreciation of how America's history merges with its geography. When the line of western migration reached the 100th meridian which bisects the nation at about the middle of Nebraska, it ran into a wall. Except for a belt along the Northwest coast, the rainfall beyond that line averages less than 20 inches a year, not enough for farming. The answer seemed obvious: irrigation. Private groups started watering the West as soon as the Mormons reached Utah in 1846, and by 1900 almost 7.5 million acres were under irrigation nationwide, primarily in the West. For the most part, these works consisted of rudimentary diversions of water from streams into nearby fields.

Irrigation is always up against the iron reality that water is heavy, so moving it takes lots of energy. Try to move it very far or very high, and the cost of the energy used outstrips the value of whatever you can produce with the water. Private citizens with their own money on the line do not pump water over mountain ranges to grow hay.

Federal Physics

The idea that the federal government is exempt from the laws of both physics and economics is not a recent innovation, and by the end of the 19th century both political parties enthusiastically adopted the idea of a big reclamation program for the West. The Newlands Act passed in 1902, establishing the Bureau of Reclamation. In a fateful portent, the law contained the first subsidy for users of irrigation water. They were to repay construction cost over 10 years without interest, and, when even this schedule could not be met, Congress soon extended the payment period to 20 years with a five-year grace period.

Relatively few dams are seriously controversial. Most were built in the well-watered East or far Northwest by private interests or as part of local construction of water works. Many were indeed subsidized by the federal government as part of the New Deal public-works efforts or as farm ponds and are subject to all the usual concerns inherent in federally subsidizing projects of local benefit. But they do not seem to have aroused serious environmental concerns, wasted undue amounts of money, or seriously distorted other social decisions.

The big controversies involve the federal dam-building efforts conducted under four major public-agency umbrellas: The Bureau of Reclamation in the Department of the Interior; the U.S. Army Corps of Engineers; the great electric power administrations, such as the Tennessee Valley Authority; and the Federal Power Act of 1920.

These agencies divided up the country according to geography and function. The Bureau of Reclamation got most of the 17 states west of the Mississippi. Its basic function was to provide water for irrigation, with power generation and municipal water supply tacked on because any dam can be used for multiple purposes. The Corps of Engineers had been charged by Congress in 1917 with flood control and navigation, which meant it got the Mississippi and the East.

A few areas were left open. Both the bureau and the corps operated in the water-rich Northwest, damming the Columbia and the Snake rivers. They struggled over the Missouri River, with the bureau pushing the Sloan Plan, which would have put a series of high dams in the upper basin to generate electric power that could be sold to pay for irrigation projects. The corps wanted the Pick Plan, which called for low dams downriver for flood control and navigation. They compromised on the Pick-Sloan Plan, which built all the dams wanted by either agency–112 of them.

TVA was set up in the 1930s as an economic development agency, designed to provide cheap power to the Tennessee Valley and, incidentally, to control floods. The fourth program, the Federal Power Act of 1920, provided for the licensing of privately built dams to provide electric power. At the time, it was thought that hydropower would become the biggest source of electricity, and as of 1935 it supplied one-third of the electricity in the United States. Thereafter, declining fossil fuel prices shifted the balance, and today hydropower accounts for less than 9 percent of electricity generation, but the United States has 2,300 hydroelectric power plants.

Red Ink Reservoirs

The federal dam-building program depended not only on a revolution in the technology of building dams but on a revolution in man's ability to fudge a cost-benefit analysis: A key component of the boom was the dam builders' ability to cut themselves loose from economic constraints.

The initial Reclamation Act of 1902 was the template. By relieving beneficiaries of any need to pay interest on heavy capital investments, Congress ensured that uneconomic projects would become common. It also ensured that they would become political footballs. One of the early projects approved was in the Strawberry Valley of Utah in 1905. It drove a 600-foot tunnel through a mountain to benefit a local group that was unwilling or unable to finance the project itself. Setting a pattern that has continued for a century, the final cost was triple the estimate, the portion of the cost to be paid back by the beneficiaries was set far too low, and even this amount was not repaid for 75 years.

Rep. William Hepburn of Iowa deserves canonization as a patron saint of the public choice school of political analysis for his 1902 comment on the Reclamation Act: "[T]his bill is the most insolent and impudent attempt at larceny that I have ever seen embodied in a legislative proposition. These gentlemen…ask us…to give away an empire in order that their private property may be made valuable….[T]his is a thinly disguised attempt to make the Government…pay for this great work–great in extent, great in expenditure, but not great in results."

The devices for avoiding economic rationality were many, but they relied heavily on the public's lack of interest in cost accounting. Congressmen could say, with a straight face, that the beneficiaries of irrigation would pay the costs of a project when, in fact they: 1) paid only the marginal costs of the irrigation facilities that were added onto a dam built for power generation or flood control, not the basic costs of the dam itself; 2) were relieved of any interest charges during construction; 3) got repeated forgiveness of the debt. The result, as calculated in 1989 in The Market for Federal Water by Robert Wahl, a former analyst with the Department of the Interior, is that the average subsidy to users of agricultural water is over 80 percent of the costs of construction.

The Bureau of Reclamation also invented such devices as River Basin Accounting, under which all projects on a river system are brought under one cost-benefit umbrella. That means that a "cash register" dam can be built to generate power, and the revenue from it then can be used to support irrigation projects that could not stand on their own. The bureau also chronically overstated the value of crops to be grown with the water supplied and counted as "benefits" huge sums that represented transfers of money from other parts of the country into the favored locality rather than true increases in national wealth. And once a project passed the cost-benefit tests, augmentations could be adopted without triggering any new analysis.

The Corps Problem

The Army Corps of Engineers, the other great dam builder, did not get into the business in a big way until the Flood Control Acts of 1936 and 1944. At the time, dam building was seen as a depression-fighting jobs program. Some deference might be given the concept that benefits should exceed costs, but the real idea was to put men, and hard-pressed engineering firms, to work. From 1936 right up to the present time, the corps and its congressional patrons have understood that none of them were in the business of finding reasons not to build projects.

When I asked a Corps of Engineers representative whether anyone had ever done a cost-benefit analysis on all the corps's activities, I was told that analysis was performed in advance on each individual project and that all of these could be found in the Library of Congress. Economists who have studied the matter say that the corps's estimates greatly overstate benefits and understate costs. Since the primary corps mission concerns flood control, there is a circular quality to the benefit calculations. If no one builds on a flood plain, floods cause no damage. Put up a dam to prevent the flooding, and people will build. Thereafter, every time the river rises, the total value of all this construction can be counted as "flood damage prevented."

Thus the corps can claim that its works prevented $17 billion in flood damages during 1994. But it is also no accident that the national bill for flood damage has increased as expenditures on flood control have grown. People get lured in, then wiped out when there is a large 100-year flood. (Not to worry, though–they can get federally subsidized flood insurance.) This provides justification for further flood control expenditures.

The corps now manages 383 major lakes and reservoirs, 18,281 square miles of land and water, and 4,329 recreation sites. A key factor in the growth of this empire was that national taxpayers provided local benefits. While the locals pay something, it was usually less than a quarter of the costs, and even this was often forgiven. In the 1980s, Ronald Reagan's budget office tightened the rules, which caused local political support for many projects to evaporate faster than water in a desert reservoir.

Water Futures

The federal dam circus has continued in all three of its rings–irrigation, flood control, and power generation–with ever more astounding performances. An irony of the continuing federal irrigation effort is that the irrigation water generated may not even be crucially important to agriculture. The 10 million western acres getting all or part of their crop water from the Bureau of Reclamation represent less than 3 percent of the nation's 340 million acres of cropland. They also represent only one-third of the total western acres under irrigation; the rest is irrigated by deep ground water, made possible by the invention of the turbine pump in the 1940s. California's Central Valley, site of one of the most important Bureau of Reclamation projects, is more dependent on ground water than on the federal dams. The necessity of the irrigation water can be questioned on another ground as well: Between 1929 and 1978, 60 percent of the increase in irrigated acreage was devoted to growing subsidized crops, most of which were in surplus.

All the economic legerdemain would be bad enough if it represented a simple raid on the public fisc, if there were a straight transfer of money from taxpayers to farmers. But that is not the case; many projects combine large subsidies with even more pure waste. The Central Utah Project sells water to farmers for $3.00 per acre-foot. The farmers use each acre-foot to produce crops worth $30. But the cost to the government of delivering each acre-foot is $350, so the dead-weight loss to the national economy is $320.

A fitting climax to this history is now being contested in Colorado, where the proposed $700 million Animas-LaPlata Dam would pump irrigation water up 900 feet over a ridge and would cost over $7,500 per acre irrigated. This is a stunning figure because, as Marc Reisner points out in Cadillac Desert, his classic 1986 book on the big dam era, the most fertile farmland in the world sells for only about $700 per acre. Projects such as Animas, Central Utah, Central Arizona, and others spend thousands of dollars per acre to bring water to land which will thereafter sell for only a few hundred dollars an acre. According to Interior's own analyses, Animas would produce benefits equal to only 40 percent of its cost. But the project just keeps rolling along.

In California, the battle is over the Auburn Dam, a $948 million flood-control project that would be 75 percent funded by federal taxpayers. Proponents say it would simply protect Sacramento to the same degree that the Corps of Engineers has protected other communities. Opponents claim that the dam would destroy 40 miles of river canyon visited by half a million people a year, that the existing city can be protected through cheaper alternatives, and that the purpose of the dam is to let real estate developers build fearlessly on a large flood plain.

The moral and intellectual bankruptcy of cost-benefit analyses of water projects is summed up in the story of the Tellico Dam in Tennessee. In the 1970s, the TVA proposed a dam that would destroy a beautiful valley and a splendid trout and canoeing stream to gain a trivial increase in power generation at a nearby dam. The project passed all the applicable cost-benefit filters and got under way. Construction was stopped by the discovery of the endangered snail darter, a tiny and hitherto obscure fish, and the Supreme Court ruled that the Endangered Species Act required that the dam be left unfinished to protect the fish.

Congress responded by passing a law giving a special cabinet level committee, nicknamed the God Squad, power to exempt any specific project from the Endangered Species Act when the benefits of doing so clearly outweigh the costs. Tellico was 95 percent completed, and it was a foregone conclusion that an exemption would be given. The committee, chaired by Charles Schultze, a distinguished economist, said no. Under honest cost-benefit analysis, all the benefits from the completed dam would not equal the 5 percent of the costs that remained to be paid. Leaving aside any environmental concerns, economic rationality dictated that the dam should be left unfinished and the sunk costs written off. Congress reacted by passing a special law exempting Tellico from the Endangered Species Act and ordering completion of the dam. To round out the comedy, a few years later the snail darter was found to flourish in several other nearby streams, so allowing Tellico did not finish it off after all.

Fluid Costs

From 1902 to 1994 the Bureau of Reclamation spent $22 billion on construction, of which $7 billion was specifically allocated to irrigation. The Corps of Engineers spent $34.7 billion on flood control from 1928 to 1994. The monetary expense may have been acceptable, but the nation paid a high price in other coin.

The dam building era ignored environmental values. It did not count as a cost the submersion of beautiful canyons or the destruction of the salmon runs of the Northwest that resulted from turning the Columbia into a series of lakes. It was not concerned with saltwater intrusions, or the residues of irrigation, or a host of other effects.

People can debate endlessly over assessment of the costs and benefits of these actions. Flooding Glen Canyon produced Lake Powell, which has 1,960 miles of shoreline, covers 266 square miles, and was recently described by one newspaper as "one of the West's premier watersports playgrounds." Is sacrificing a canyon to produce a water playground in a desert good or bad? It is not a question that produces unanimity of response. But at least the environmental impact should be thought about somewhere in the decision process, and it wasn't.

Another cost of the dam building era was distortion of the nation's economic and political decision making. Sometimes it makes sense to irrigate cropland, such as low-lying California valleys with long growing seasons that can supply high-value winter fruits and vegetables. Sometimes it does not, as when the land is on the high plains where the growing season is four months and the only viable crops are hay and alfalfa.

Sometimes it makes sense to pump water over mountain ranges at high cost, as when it is going to urban users who will pay well for it; sometimes it does not, as when the market is farmers who will take it only if they can pay just a fraction of its cost, or who devote it to purposes such as growing subsidized crops.

Sometimes environmental values can legitimately be sacrificed to produce hydropower, and sometimes the sacrifice is pointless. Sometimes improving a river for barge traffic has an economic payoff, and sometimes it is plain pork. Sometimes protecting a flood plain against a 250-year flood makes sense, and sometimes it does not.

These decisions can be made in two ways. The best is the market. Make users pay the full costs of the enterprise, and good and bad projects get sorted out very quickly. Second best, but still a lot better than nothing, is cost-benefit analysis, which, when honestly done, at least avoids the worst outcomes.

In their thirst to escape accountability, the dam builders wrecked both these mechanisms, and the consequences of this are with us yet. On average, water costs residents of the parched West about half of what is costs denizens of the well-watered East. Furthermore, Western rights to water are allocated by political rather than market processes. The result is that water costing the federal government upwards of $300 per acre-foot is pumped through open, unlined irrigation ditches, where much of it evaporates or seeps out because it is too cheap–to the farmer–to be worth the cost of protection. The Central Arizona project, partly the proud product of the efforts of Bruce Babbitt, then Arizona's governor and now the secretary of the interior, furnishes water to grow cotton, a crop requiring the equivalent of 30 inches of rain per year, in the desert. Cotton has also been in chronic surplus, so the growers have collected federal price support payments.

This distortion of incentives applies across the board. Navigation improvements are free to the users, for example, so demand is unconstrained. Environmentalist Robert S. Devine wrote in The Atlantic Monthly of standing beside the Columbia watching as 43 million gallons of water and $700 worth of electricity were used to lift a single 14-foot pleasure boat through one lock of the river.

A recent decision to de-license Edwards Dam in Maine is based on a 1986 law requiring that environmental factors be taken into account in the licensing process. Economic rationality, were it allowed to operate, would produce the same result. Edwards's electric power sells for three times the going rate on the spot market, and it has been profitable only because federal regulations force utilities to buy it.

Most water rights are not transferable, and urban and industrial users are not allowed to bid water away from low-value agricultural users. Instead, even more expensive projects are advocated. At the present time, there is plenty of water in the West to meet all economically feasible needs, including in-stream uses and environmental protection. Ninety percent of the water goes for agriculture, and minor shifts in pricing would be adequate to induce diversion to higher-value uses. Almost all current problems are due to defects in the institutional structure, not to the scarcities imposed by nature, and these defects are primarily the progeny of the great dam-building era.

Another serious price was exacted by the excesses of the dam-building era. As a by-product of the erosion of the decision-making processes and the indiscriminate adoption of all projects, whether good, bad, or indifferent, the institutions involved, ranging from the Congress to the agencies to the private players, destroyed their own credibility and legitimacy. (Marc Reisner describes a Bureau of Reclamation party where an engineer was given a rubber slide rule by his colleagues in ironic tribute to his skill at cooking the numbers.)

Institutionalized irrationality spread to the environmental movement as well. As Tellico illustrates so well, those who opposed the dams found that rational analysis was not a winning strategy. Logically enough, environmental advocacy stopped using it, and moved steadily away from conservationist tradition, which stresses that using nature and respecting it are perfectly compatible, and toward a generalized pantheism. In particular, environmental argument has come to rely on the Endangered Species Act as an all-purpose weapon. The ESA starts from dubious scientific and philosophical premises and progresses to muddy definitions that can be twisted to support any results, with the result that the ESA analysis has turned into the environmentalist equivalent of a rubber slide rule.

A Canyon Filled With Water

Which brings us back to Glen Canyon. The Colorado River wends for 1,450 miles from the high Rockies of Colorado to the Pacific Coast in Mexico, second in length only to the Mississippi among the rivers of North America. It carries the snowmelt of the Rocky Mountains through a vast, dry land, and the Colorado and its tributaries are the principal source of surface water for seven states, including Wyoming, Colorado, Utah, and New Mexico (the Upper Basin states), and Arizona, Nevada, and California (the Lower Basin states).

These states, plus Mexico, have fought over the river for many years, and the Colorado is subject to a body of regulation called the Law of the River–a thick layer of court decisions, interstate compacts, and federal law–that determines who gets to use how much of it. The fundamental document is the Colorado River Compact of 1922, dictating that the Upper and Lower Basins each get to use 7.5 million acre-feet per year, with Mexico getting 1.5 million acre-feet.

Hoover Dam is the cornerstone of the effort to harness the Colorado. Its basic purpose was and is to provide water to Southern California, including half the water used by Los Angeles and San Diego. The flow of the Colorado varies greatly, and only a huge dam with huge storage capacity can smooth out the variations and make the supply reliable. As with every other water source in the West, though, upwards of 80 percent of the Colorado's water goes for agriculture, not for the cities or for industry.

But while the purpose of Hoover was well-defined, Glen Canyon's purpose is considerably more difficult to discern. It is defended as necessary to deliver water to the Lower Basin states at the formal transfer point of Lee Ferry, Arizona, as required by the Colorado River Compact. But this is not how it is actually operated. A National Academy of Sciences panel that studied the dam in 1986 found that water delivery requirements might be relevant in theory but had no practical effect on operations. It called Glen Canyon a "cash register dam," which means it was designed to produce revenue from hydropower to defray the costs of uneconomical upstream irrigation projects in the high plains and thus enable the whole package to pass the cost-benefit tests used under the tenets of River Basin Accounting.

Another defense is that Glen Canyon supplies water to irrigate cropland in the Upper Basin. Unfortunately, this is high plains cropland that no owner would have irrigated if forced to pay his own dollars. Information on how much land is involved, how much crop value the water produces, and how much it would cost to buy up the land and resell it without water rights is hard to come by. It is not clear that the recipients of the water pay even enough to support the operations and maintenance costs of supplying it. Some of this water also is used for the infamous desert cotton. So let us say, charitably, that this defense remains undemonstrated.

Thus, from the standpoint of cold costs and benefits, leaving aside environmental impact, David Brower's contention that the construction of Glen Canyon was a mistake is not at all outlandish. It looks true. At the least, given the history of the era, it seems fair to demand that the dam's proponents justify the original decision more convincingly than they have done so far.

A third defense of Glen Canyon is that it generates power that would have to be replaced. This is a valid point, and one of the costs of Brower's proposal would be the cost of replacing Glen Canyon's 1 million kilowatts of electricity.

But the principal defense of the dam may be the most important: recreation. People love Lake Powell. The lake has 2.5 million visitors a year, pumps $400 million into the local economy, serves as permanent home to 2,000 private boats, and draws 400,000 visiting boaters. The desert state of Arizona has more registered boats per capita than any other state in the union. The federal government could always buy out those who have invested in facilities on Lake Powell, but there is no way it could compensate a couple of million angry recreationists.

Other arguments can get complicated. In an interesting inversion, defenders of the dam say that the destruction of the canyon is irrevocable. Even if the lake were drained, water has leached out the colorful oxides in the rock, and it would take millennia for them to come back.

Defenders also make several environmental arguments: The existence of Lake Powell has changed the ecological balance and created homes for animal species that would become endangered if the lake disappeared. They also argue that the dam enhances appreciation of nature by enabling people to boat to natural wonders that would otherwise remain inaccessible to all but the most hardened hikers.

People quarrel over other such issues as evaporation and seepage. Big uncertainties surround silt. The Colorado is a silty river, and the dam traps it. What effect would releasing it have on the Grand Canyon, and on Hoover Dam down the river? How long will it be before Lake Powell silts up? What is the expected life of the reservoir, the dam, and the power plant, and should we invest in keeping them going?

No clear answer on Glen Canyon emerges from the current conflict. No answer emerges even on how to approach making the decision. But if you think like a lawyer, you have to say that the enviros have made enough of an initial showing so that the inquiry should go further, and, given the history of obfuscation of the big dam era, that is all they should have to do at this point.

So take the proposal seriously, and let the debate begin.

James V. DeLong ([e-mail]) is the author of Property Matters: How Property Rights Are Under Assault-And Why You Should Care (The Free Press, 1997). His Web site is http://regpolicy.com.