How the West Is Watered

Where seldom is heard a discouraging word, 'cause the handouts are flowing all day.

It's not easy being a conservative in the American West these days. Suddenly all that harping against government spending is in danger of serious local consequence. Why, westerners' own favorite subsidies—for water, grazing, logging, and synthetic-fuels development, among other things—appear in jeopardy or at least have caught the eyes of those jousting with the federal deficit.

The unease was heightened recently at news that the president's 1987 budget recommends the sale of five federal electric power marketing administrations, three of which are in the West. Sure, the sale to private industry could raise billions for the Treasury—estimates range from $12.7 billion all the way up to $62 billion—and eliminate the government's need to borrow high-interest money to carry long-term, low-interest loans to the power systems. But many westerners, like the favored anywhere, have become accustomed to subsidized power.

Beleaguered Republicans like Rep. Mike Strang of Colorado have even taken to blaming "eastern liberals" for the new-found interest in at least capping (if far from emptying) the western pork barrel. When in trouble, apparently, always resort to a time-honored epithet.

Nowhere is change more evident than in the area of water policy. Painful though it is to many westerners, the era of free-wheeling, federally funded dam and canal construction is over, with dubious monuments like the Central Arizona Project having obtained approval just a few years under the wire. From now on, the states themselves—or some other entities, public or private—will have to ante up a far greater share of the capital for anything they want built. In many cases, they have to go it alone.

No too long ago, Utahans took the unprecedented step of supporting, in a landslide vote of over 70 percent, a plan to put up $500 million to help pay for a complex system of canals and dams known as the Central Utah Project. Given an eventual federal outlay of perhaps several times that amount, Utahans admittedly can argue they got a good deal. Still, the vote would never have taken place a decade ago. And even with it, the project is hardly out of the funding thicket.

Water is emblematic of more than the West's evolving relationship with Washington, though. In its use and control, water also underlines like nothing else a persisting double standard: This region, which so honors self-reliance, not only is often perfectly content to let others pay its bills—it also finds nothing inconsistent in denouncing government regulations and market interference while erecting local obstacles to a free market for water that would embarrass the most fervent kibbitzer at the Environmental Protection Agency. Or, as Prof. Stephen Williams of the University of Colorado School of Law puts it: "There is a great Western tradition of proclaiming water essential and then adopting institutions that guarantee its waste."

Turn Off the Subsidies Tap

The truth is, neither Congress nor state legislatures have come nearly far enough in introducing westerners to the bracing economy and discipline of a marketplace for water. Congress has several avenues open to it. It could require, for example, that electricity produced by dams funded with federal revenues be sold at the market price—in short, to the highest bidder. As things stand now, irrigation districts use artificially low-priced electricity produced by the dams to pump groundwater for irrigation. In his recent book How to Create a Water Crisis, Phoenix engineer Frank Welsh argues that if the districts had to pay market-level prices for electricity, it would force some "to either conserve water, grow more valuable crops, or go out of business."

Perhaps that sounds like a harsh goal, but only if this predominant fact about western life is unappreciated: the vast bulk of water both diverted (by dams, canals, and the like) and consumed—90 percent, more or less, depending on the state—goes to nourish crops, often with absurd economic consequences. As Colorado's Gov. Richard Lamm, a Democrat, has complained, 27 percent of his state's water irrigates alfalfa, a crop worth just $156 million annually to the economy there. Meanwhile, tourism, more than a $4-billion business in Colorado, depends in part on preserving rather than diverting the flow of streams.

"Why should we encumber taxpayers with the staggering expense of water projects that may actually impinge on lucrative recreational uses?" Lamm has asked. "Why should we commit any public money to put more land under cultivation, so long as farmers cannot profitably market what they now produce?"

According to one federal study, modern irrigation techniques alone could salvage 24 million acre feet of water, with each acre foot—enough to cover one acre with a foot of water—sustaining a family of four for a year. Put another way, only a minor decline of water consumption by agriculture—Welsh says 7 percent—would double that available for the West's growing cities.

Congress could also promote water-market efficiency by allowing the full economic benefit to accrue to any irrigator who wants to sell the water made available by a Bureau of Reclamation project. Currently, the sale won't be approved unless the government "recaptures" a substantial portion of the original subsidy (the government's cost of building and maintaining, for instance, a dam or canal to provide irrigation water). Professor Williams argues that this rule imposes a "surtax on the capital gains derived from the transfer of such a right." That surtax, he insists, "should be abolished."

Finally, Congress could decongest water markets simply by refusing to fund any dam, canal, or reservoir in states that don't get their own legal houses in order. To appreciate what this would entail, understand first that water rights are distributed in the West according to the doctrine of prior appropriation—"first in time, first in right." This doctrine requires that in order to claim and maintain a right to water from a specific source, you've got to divert the water and put it to "beneficial use" (or at least demonstrate an intention to eventually do so).

But "beneficial use" doesn't always translate into a use that a free market would assign. Terry Anderson of the Political Economy Research Center in Bozeman, Montana, has described one absurd result of the "beneficial use" criterion: "When a Montana rancher offered an environmental group a conservation easement for Madison River water rights on the condition that the water be left in the river for fish habitat, the legal counsel for the group advised that such rights would be lost under the 'use it or lose it' rule. That water is still being diverted for irrigation."

Let the Profits Flow

But a far bigger obstacle to a free market for water, as Steven J. Shupe of the Natural Resources Law Center at the University of Colorado points out, is that "impediments to selling or using salvaged water…remain in most jurisdictions." Why should farmers conserve water—why, especially, should they invest to conserve—if they don't stand to gain from their efforts by being allowed to sell the conserved water or their rights to water sources? The result of these restrictions can be nothing short of bizarre. In some cases, for instance, a farmer can't even sell the water he saves by reducing evaporation of irrigation water.

Private property rights are trammeled in other ways, too. As economist Timothy Tregarthen has mockingly observed, "Unless they are made by farmers, profits [from water] appear unseemly to the judicial mind." Opportunity for profit, of course, is exactly the motive that produces efficient allocation of resources in other areas. But when it comes to divining the true nature of water's "beneficial use," courts become exceedingly prim.

A striking example of this occurred in the late 1970s, when a business group headed by John Huston, a Denver lawyer and geologist, filed applications to claim more than a million acre feet of previously untouched underground water throughout Colorado. The gambit rocked the water establishment, which immediately raised the specter of monopoly control of subterranean supplies and insisted that the water belonged to the owners of the property above.

In fact, there is merit to linking rights to underground water sources to the owners of the land on or underneath which the water is located. The point here merely is that a bias against the idea of profiting from water infected the entire debate surrounding Huston's imaginative bid, which was eventually defeated in the courts.

Consider the following language of a judge assigned at one point to hear the complex case: "The application itself, without other evidence, can indicate by the size of the quantity claimed and the uses listed and the general purposes only being stated, that it is pure speculation for monetary or pecuniary benefit and that the decree is sought for profit, rather than actual beneficial use by the applicant." Now imagine if a similar distinction between profit and "beneficial use" were imposed in other areas—on developers, say, seeking to assemble a large tract of land in a major downtown area. Yet, economic notions that are discredited elsewhere are routinely applied to water.

Admittedly, water law has been evolving, both through legislation and judicial ruling. Attitudes have shifted, too. When the Galloway Group Ltd. unveiled a plan in 1984 to build a series of dams on the Yampa and White rivers in western Colorado and sell the water to user groups in California and Arizona, the reaction revealed a great deal about the present state of mind. Despite the usual warnings from chauvinists outraged that someone else might benefit from a state's official allotment of Colorado River Basin water, most objections were grounded in more sober legal and ecological concerns. Moreover, even many opponents of the plan conceded the need for a freer interstate market in water.

Of course, growing concern over wasteful water consumption needn't lead to freer markets. In Arizona, recent law simply mandates agricultural conservation. The irony of providing farmers with subsidized water and then ordering them not to use much of it seems not to have dawned on some people.

But before the job of conservation is everywhere turned over to the regulators, western states—which, after all, give conservatives some of their most lopsided political victories—might try pricing water at its true cost and uprooting obstacles to its free exchange. Who knows? The free market that westerners love to invoke might actually work as advertised.

Vincent Carroll is assistant editorial page editor of the Rocky Mountain News in Denver.