California’s Water Rights Controversy: Should Farmers Be Allowed to Transfer Water to Developers?

by | 11.30.2010 at 2:34pm | 13 Comments
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Farm owners in San Joaquin Valley are having to make the decision of whether to use the water they have been allotted to grow crops or to sell it to developers at huge profits.

Two farmers in San Joaquin Valley, California have recently come under scrutiny for proposing to sell their water rights to developers.  As a part of the Dudley Ridge Water District they have the right to draw up to 57,343 acre-feet of water per year from the California State Water Project.  (An acre-foot is the amount it takes to cover an acre of land in a foot of water – about twice as much as an average household uses in a year.) The California Department of Water Resources defines its State Water Project as “a water storage and delivery system of reservoirs, aqueducts, powerplants and pumping plants,” 30% of which is set aside for agriculture and from which farmers are allotted their yearly supply.

Under this potential sale, the farmers would be paid a total of $11.7 million dollars, as they sell the water at a price of $5,850 per acre-foot to the Tejon Ranch who will have access to 2,000 acre-feet per year.  This kind of arrangement is not limited to these two farmers, and is an increasingly common occurrence as the water a farm has access to becomes more valuable than the returns from actually growing crops.  Last year, the Dudley Ridge Water District sold 14,000 acre feet of water to the Mojave Water District for a total gain of $73 million.  While the idea of transferring water is not new, the main difference is that while up until this point the majority of water transfers have been temporary agreements between districts, this is a permanent transfer of water.

Juan Arambula, California State Assemblyman and outspoken opponent of the practice of selling water rights.

Agreements such as these have been met with mixed responses including a grand jury investigation over the Dudley Ridge Water District’s sale last year.  Outspoken opponents of this practice include Independent California State Assemblyman Juan Arambula who says that while this practice may be legal, he still believes it is wrong, and Republican Washington Senator Bob Morton who says that “[these areas] will literally dry up” since these practices would hurt his state’s “economy [and] agricultural production”.  Arambula echoes Morton’s critique asking “What am I going to tell folks when farmers sell their water and put farm workers out of a job…?  They make millions at the public’s expense.”

However, his bill mandating a study to examine the potential economic effects prior to a sale failed in the state legislature, predominately due to resistance from agriculture and the cities that would be receiving the water transfers.

Another commonly echoed argument against permanent and long-term water transfers is that it gives farmers an unfair advantage since they pay a mere $500 per acre-foot compared with the district’s selling price of $5,850 per acre-foot.  Opponents argue that it is both unfair and hypocritical since farmers push for increased water supplies, saying that it is necessary to grow crops, and then sell water at huge profits after buying it at subsidized prices.

Proponents of water transfers argue that the farmers are in fact acting within their rights and that the transfers are an effective way of dealing with the water problems farmers encounter.  Diane Peck, the executive director of the King’s County Farm Bureau, says that arguably, “as landowners, it is their right to sell that water,” and Dale Melville, Dudley Ridge’s Water District Manager, believes that the issue is nothing more than “an economic decision the landowners need to make.”  They also name the numerous problems farmers face including coping with droughts and being required to pay for maintaining the local water infrastructure.  Both of these encourage farmers to sell their water rights since it guarantees a profit aside from their crops and reduces their annual expenses.  Finally, advocates also cite situations, such as in Palo Verde, where putting water rights on the market resulted in a more even distribution of water and provided incentives for conservation amongst those who had originally held the water.

The selling of water rights remains a controversial issue, especially as industry and home development compete with farmers for limited water supplies.  Although opponents point out the numerous problems with the current method, it is nevertheless an issue that will have to be contended with as farmers attempt to gain a profit and developers endeavor to garner the water they require.

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13 Responses to “California’s Water Rights Controversy: Should Farmers Be Allowed to Transfer Water to Developers?”

  1. Bill Carson says:

    The numbers in this article are the same as the NYT’s, and they are wrong… quote:

    Tejon Ranch is proposing to buy the water-right; it would pay approximately $6k for every acre-foot in the water right and all their future yields. This is not a profit of ten times what the farmers would pay for any one year’s water.

    http://onthepublicrecord.wordpress.com/2010/11/13/have-we-learned-nothing/

  2. Lakis Polycarpou Lakis Polycarpou says:

    Thanks Kavita for an interesting and informative piece.

    If I understand the issue correctly, it sounds like farmers are buying water at a subsidized price and selling it for ten times as much. How can that be legal? It seems that if they are selling their water instead of using it for agriculture they should have their water rights revoked.

  3. Chris Gulick says:

    Bill,the numbers are not wrong. The interpretation of the numbers is. By selling the “future yield” water the “farmer” is rendering the land attached to the water useless. I don’t agree with the concept. If you don’t have “area of origin” or “riparian” water rights you don’t own the water, you are the recipient of a benefit provided by the taxpayers of the state of California.
    The water diverted from the Delta is owned by the people of the state not by the property owner.This is where my disagreement with the concept starts and ends.
    Having said that, I don’t think “area of origin” or “riparian ” water rights holders should be able to sell water rights either. Use it or loose it.
    I’ll say it again, I don’t agree with the concept.

  4. dfb says:

    A few misconceptions need to be cleared:

    1) Water rights were not sold. Rather, the farmers sold contractual rights to water. There is a major difference between water rights, which are property rights, and contract rights, which are controlled by the contract itself.

    2) Water rights, the kind that are property, can and are sold regularly just as you would sell any piece of property such as a house or car. Those transfers are generally not controversial.

    3) Contractual rights are just that, the right to receive the performance of the other party. The transfer of contractual rights may also transfer duties and obligations of the seller to the buyer.

    4) Dudley Ridge and its farmers sold/transfered a contract to Tejon Ranch. Among other things, the contract says that Department of Water Resources (DWR) will deliver and sell water at a given price. In return, Tejon Ranch will need to pay the purchase price of the water, costs related to transporting that water, and some infrastructure costs. In that regard, assertions that farmers are buying subsidized water and selling it for much higher prices is only partly true.

    5) DWR only contracts with the water districts, not individual farmers. The farmers have a secondary contract with the water district for a particular allocation of water. DWR contracts are online at: http://www.water.ca.gov/swpao/wsc.cfm

    6) Contracts can forbid or provide for transfers of contractual rights. They can also require consent of the other party. In this case, the farmers likely needed approval from the district to sell their allocation and perhaps even approval of DWR (I have not read their contracts,yet).

    7) It is not clear yet how much the farmers and the water district actually received, that they received a profit, or what the money went toward. It is quite likely that the bulk of the money went to the water district to pay infrastructure costs. Water districts sell bonds to pay for water delivery systems within a water district. It then sets fees based on expected water sales to its farmers. Farmers dropping out of the district will upset the water district’s revenue forecasts because those farmers will no longer pay those water delivery fees. This is especially true when large farms drop out. It is also possible that the farmers contractually would still be on the hook to the water district despite taking no water deliveries.

    Bottom line: Please use the correct terms and differentiate between contract rights and water (property) rights. They are very different creatures of the law.

    As a public entity, Dudley Ridge is subject to California open records laws. Feel free to contact it for a copy of the contracts it has with these farmers and those contracts related to the transfers. There is a lot of drama still left in this story and it will be retold many times over in the next decade. :-)

  5. Lakis Polycarpou Lakis Polycarpou says:

    Okay, now I’m really confused, which makes me suspicious. I can’t help but think that all this complexity serves some special interest rather than the good of everyone.

    Here’s what I understand at this point: water that was “intended” for use in agriculture has been diverted to development and someone is making a profit on the differential (otherwise why do it?). Is that correct?

  6. Dfb, that’s an awesome summary. I’m part of the reason that people are being sloppy about the distinction between water rights and contract rights. I’ll be more conscientious about that in the future.

    Lakis, the complexity is real. No one needs to complexify California water; the real lesson here is that nearly any simplistic take is wrong.

    Was the water “intended” for use in agriculture? Depends on the scale you look at. It was an agricultural water district in the State Water Project. The district itself was ag; the State Water Project serves both ag and urban. If you think of it as Dudley Ridge water, it was “intended” to be ag. If you think of it as SWP water, it could be ag or urban. If you think of it as California’s water, it could have environmental, ag or urban benefits. Is someone making a profit? Presumably yes. But it is not an extravagant profit of ten times the yearly cost of water. It is probably a small profit on the total value of all their future water, with the caveats that dfb mentions in his item 7).

  7. Lakis Polycarpou Lakis Polycarpou says:

    Okay, but according to the post, the State Water Project sets aside 30 percent for agriculture. If some of that water is then used for development, isn’t that contradicting the “30 percent” policy or legal allocation?

    If you “set aside” something for one use and then the user uses it for something else, the distinction between the two uses either becomes meaningless or someone is doing an end-run around the system. Right? What am I missing?

  8. Oh. Huh. I believe that there is a 30% policy (presumably the author got that notion from somewhere), but I live and work in the field, and never hear it discussed at any level. This was the first I’ve heard of it, for example. I don’t think people are very attached to the notion that 30% of SWP water must go to ag.

  9. Chris Gulick says:

    Hold on,someone needs to school me here.
    If a property owner sells the “contractual” rights to the water supplying the property does the owner of the property have the ability to secure another contract from the Water District ? Really ?
    Anyone who thinks a “farmer/person” would sell “contractual” water rights for the hell of it, versus making a profit, would have to be brain dead unless of course they have the opportunity to replace that supply.
    By all means somebody help me understand how this works.

  10. Maybe the district could replace the water, but it would come out of the contract amount that they always had. The other farmers would have to agree to cover the sold-away amount. I bet that doesn’t happen often. More likely, the farmer who sold away water switched to groundwater. That’s legal (unless the gw is the underground part of a river), although Kern County is getting pretty worried about it.

    My impression is that the farmers in Dudley Ridge are retiring ag land, and making a profit, but not a scandalous profit. (Except that their ability to sell the state’s water is a scandal in itself.)

  11. If you are interested in water management and agriculture, I suggest looking into the G’Day USA Water Tour (http://www.australia-week.com/events/usa-water-tour.html). One of the activities, which takes place in Sacramento in late January, is a half-day conference focusing on water reform, drought, and water capture and re-use particularly in regard to the environment and agriculture. This event and other Water Tour activities are free and open to academia and other water specialists, innovators, and researchers.

    To register for any of the water events, please visit http://www.austrade.gov.au/USAWaterSeries .

  12. dfb says:

    Lakis: As the California Supreme Court has confirmed on a number of occasions “[t]he scope and technical complexity of issues concerning water resource management are unequalled by virtually any other type of activity presented to the courts.” Environmental Defense Fund, Inc. v. East Bay Mun. Utility Dist. 20 Cal.3d 327, 343-344 (1977) (EDF I); National Audubon Society v. Superior Court of Alpine County, 33 Cal.3d 419 (1983)

    But if you want to get complex, consider that a number of different water rights apply with varying force in Western states. California recognizes pueblo
    water rights granted to pueblos under the Spanish and Mexican governments, City of Los Angeles v. Pomeroy, 124 Cal. 597, 640-41 (1899), Hooker v. City of Los Angeles, 188 U.S. 314, 319-320 (1903), legacy riparian water rights, In re Waters of Long Valley Creek Stream System, 25 Cal.3d 339 (1979), appropriative (first in time, first in right) water rights, and water reserved by the United States government.

    Every interest becomes a special interest at some point or another. In the case of water in California, urban areas like L.A. or the San Francisco Bay area are wealthier than ag interests, when aggregated together.

    OTPR: :-) Reading your blog is what sent me on a mission to figure out what actually happened with Dudley Ridge. I figured there was something missing from the conversation/post. I’ve been meaning to go back to comment but forgot until now. :-)

  13. fw says:

    This water is set aside for strictly farming!! not developers for whatever reason they want the rights for. the water rights are for agricultural purpose and use by farmers not a developer so the selling to someone other than another farmer and for higher cost is illegal.

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