{"id":43236,"date":"2021-12-15T14:51:20","date_gmt":"2021-12-15T21:51:20","guid":{"rendered":"https:\/\/dh.durangoherald.com\/tj\/colorado-wants-to-keep-investors-from-flipping-water-rights-let-the-speculation-begin\/"},"modified":"2021-12-15T21:51:20","modified_gmt":"2021-12-15T21:51:20","slug":"colorado-wants-to-keep-investors-from-flipping-water-rights-let-the-speculation-begin","status":"publish","type":"post","link":"https:\/\/dh.durangoherald.com\/tj\/colorado-wants-to-keep-investors-from-flipping-water-rights-let-the-speculation-begin\/","title":{"rendered":"Colorado wants to keep investors from flipping water rights. Let the speculation begin."},"content":{"rendered":"

\"Haze
Haze from wildfire smoke partially obscures the east side of the San Luis Valley and the San Juan mountains in the distance. Potato field nearly ready to harvest and irrigation apparatus for this crop circle, shown Sept. 3. (John McEvoy\/Special to The Colorado Sun)<\/span>John McEvoy\/Special to The Colorado Sun<\/span><\/figcaption><\/figure>\n<\/p>\n

Want to understand water speculation in Colorado?<\/p>\n

Let\u2019s say you\u2019re in line at a pizza shop.<\/p>\n

Hear us out.<\/p>\n

There\u2019s a big sign at the pizza counter saying, \u201cLimited quantities due to climate change. Buy only what you can eat.\u201d<\/p>\n

But the guy in front of you buys five pizzas for $20 each. He starts reselling them by the slice for $5 a piece. The store owner says, \u201cYou can\u2019t do that here.\u201d<\/p>\n

The pizza glutton walks away, saying, \u201cFine. I\u2019ll put them in the freezer and I\u2019ll eat it all later.\u201d<\/p>\n

Do you believe him?<\/p>\n

And if you don\u2019t believe him, what are you going to do about it?<\/p>\n

That kind of speculation on water purely for profit is supposed to be illegal already in Colorado. But under current law, there\u2019s no way of telling what\u2019s in the water buyer\u2019s heart. The buyer can say they\u2019ll keep using the water for farming or for city drinking water or for a gold medal fly fishing stream.<\/p>\n

The 2022 legislative session is shaping up to be a big battleground for this key question about the future of water rights in Colorado. Climate change is cutting into the amount of water available in Colorado\u2019s rivers. Front Range and resort communities continue their rapid, thirsty growth. And state officials may need to lock down reserve supplies across the region in case a seven-state compact demands we deliver big water downstream in the western lifeline that is the Colorado River. Who gets to broker the inevitable water sales is a moral, legal and economic question for our time.<\/p>\n

\u201cWe\u2019re water-short. And we\u2019re getting water-shorter,\u201d said John Cyran, a former counsel to the state water engineer\u2019s office and now a senior attorney on river issues for Western Resource Advocates<\/p>\n

Water users and lawmakers say they\u2019re especially worried about a new, potential threat: investors and out-of-state private equity buying up water rights to wait for an opportune time to sell, potentially taking away water from other users like farmers and ranchers and driving up values.<\/p>\n

\u201cEvery water right on the Western Slope, particularly those closer to the border, will have an increased value,\u201d said state Sen. Kerry Donovan, a Vail Democrat. \u201cAnd if those are being held by those in New York or Dallas investment firms, that\u2019s a very different scenario.\u201d<\/p>\n

Donovan, state Sen. Don Coram, a Montrose Republican, and Democratic state Rep. Karen McCormick, a Longmont Democrat, have drafted legislation that would attempt to prohibit speculation for pure financial gain. But almost nobody, including the sponsors, is wholeheartedly behind the bill as written.<\/p>\n

\u201cThe bill as written probably does not get us there. But it does give us the opportunity to work through the session \u2014 we\u2019ve got through April to get to the right answer and bring everybody to the table,\u201d Coram said in October during a meeting of the Water Resources Review Committee. That panel of lawmakers has advanced the bill to the full legislature, which convenes Jan. 12. \u201cIf we can\u2019t make it work, we kill it.\u201d<\/p>\n

Still, many have concerns that, even if proponents can find a way to effectively ban profiteering, the proposal could jeopardize ordinary transactions between farmers and other water rights holders that are currently legal.<\/p>\n

\u201cThey may be casting the net to bring in tuna, but a law like this could bring in a lot of dolphins as well,\u201d said Joe Bernal, a fourth-generation farmer in Grand Valley and president of the board for the Grand Valley Water Users Association. \u201cWe have an anti-speculation law that is sufficient in Colorado.\u201d<\/p>\n

Pizza, fish nets \u2026 complex water rights battles tend to spawn multiple metaphors in search of simple explanations. Cyran offers another, when critiquing whether a new anti-speculation bill would give too much power and responsibility to the state water engineer in deciding what water buyers\u2019 true designs might be.<\/p>\n

New anti-speculation duties could transform the water engineer\u2019s office from a traffic cop into a prosecutor, Cyran said.<\/p>\n

\u201cIt puts him in a tough place of determining intent,\u201d Cyran said.<\/p>\n

A looming threat or the market at work?<\/div>\n

Pressure is building after two decades of Western Slope drought to clarify Colorado water law for inevitable battles. The Colorado River, serving 40 million people in seven Western states and Mexico, is delivering 20% less water downstream than just two decades ago. River volume could drop that much again in the next two decades.<\/p>\n

Through the Colorado River Compact, Upper Basin states \u2014 Colorado, New Mexico, Utah and Wyoming \u2014 must deliver 7.5 million acre-feet of water each year to the more populous Lower Basin states \u2014 Arizona, California and Nevada. Most of that comes from melting Colorado snowpack. Climate change and drought have already dropped water levels in Lake Mead to trigger points that mean 500,000 acre-foot cutbacks for Arizona\u2019s water use in 2022.<\/p>\n

If Colorado\u2019s compact water deliveries to Lower Basin states fall below the average over a decade, state officials would need to cut use by farmers, cities and others to allow more to flow down the Colorado River and across the Utah border.<\/p>\n

\"Little
Little Snake River seen on Thursday, July 1, 2021, near Maybell, Colorado. (Hugh Carey\/The Colorado Sun)<\/span>cca<\/span><\/figcaption><\/figure>\n<\/p>

Most state leaders don\u2019t want to wait until there\u2019s a \u201ccompact call\u201d that would force emergency cuts across the board. They have experimented with demand management, in effect renting farmers\u2019 water for three years out of 10, to find water without drying up agriculture permanently. But large-scale purchases of hundreds of thousands of acre-feet would cost hundreds of millions of dollars. Front Range cities shopping for future water supplies are being quoted up to $50,000 an acre-foot, according to water developers.<\/p>\n

Meanwhile, thirsty Front Range cities keep growing, with those like Parker and Castle Rock looking to replace depleted aquifer water with renewable river water.<\/p>\n

Expanding demand and shrinking supply is a recipe for worry.<\/p>\n

Farmers and ranchers worry investors will buy up their way of life \u2014 but they also worry the state could impede their ability to make money by selling their valuable water rights. Cities worry that prices are soaring, and that brokers will lock up dwindling supplies. State and nonprofit officials who support demand management worry that by the time they have to rent water in bulk, they\u2019ll have to negotiate with hedge funds.<\/p>\n

Two private water-buying efforts \u2014 whose owners are adamant they are not speculators \u2014 prompted much of the recent talk about toughening laws against water profiteering.<\/p>\n

In 2020, as the Colorado River Water Conservation District on the Western Slope was winning a mill levy election to fund local water projects, its leaders and supporters pointed fingers at a private equity firm called Water Asset Management. The New York-based firm, with the help of local advisors, had become the biggest single landowner in the Grand Valley Water Users Association, buying up farms and the accompanying water rights.<\/p>\n

\"A
A raft powers through the rapids in the Colorado River inside Glenwood Canyon on July 7, 2021, near Glenwood Springs. (Hugh Carey\/The Colorado Sun)<\/span>Hugh Carey\/The Colorado Sun<\/span><\/figcaption><\/figure>\n<\/p>

Though Donovan did not single out WAM, she does cite outside investors in general as a threat to Colorado interests.<\/p>\n

\u201cAn investment firm\u2019s charge is to make money, and so if they\u2019re buying water rights their intent is to not use that water for the overall health of the stream or grow sugar beets. Their intent is to use that water to make a profit,\u201d Donovan said. \u201cYour local rancher and hometown government is a much better partner in solving a critical shortage of water. I don\u2019t want the partner at the table to be someone who has never set foot in the state.\u201d<\/p>\n

James Eklund, former director of the Colorado Water Conservation Board and now an adviser to WAM, says the investors have owned much of the Grand Valley land for five years, and are not flipping the property or water rights to others. The buyers seek profits in improving farm management and upgrading water systems for efficiency, Eklund said.<\/p>\n

Bernal also served on a state-appointed working group that included water managers, lawyers and a former state Supreme Court justice and studied the speculation issue for nearly a year before deciding over the summer not to recommend any of the concepts they considered. With a lack of consensus on how to strengthen speculation laws \u2014 and a lack of agreement on how exactly to define the problem \u2014 Bernal thinks it\u2019s a mistake for lawmakers to pursue legislation to tackle a problem that he says has yet to arrive.<\/p>\n

\u201cThe working group came up with concepts of what we might do, but very expressly said that none of these were recommendations,\u201d Bernal said. \u201c(We) were asked a question, provided an answer and the legislators paid no attention to our report.\u201d<\/p>\n

One provision of the draft speculation bill is aimed squarely at recent Grand Valley history: It directs each ditch company to set a percentage cap on how much of their collective water rights any one member can control.<\/p>\n

Eklund, whose own family has deep farming roots on the Western Slope, finds the bill\u2019s vague language and layers of restrictions to be anti-capitalist, whether the drafters meant it to be or not.<\/p>\n

\u201cIs Colorado in 2021 saying that we\u2019re going to erode the bedrock of our market capitalist economy by substituting the business decisions of our government officials for those of farmers or ranchers?\u201d Eklund said. \u201cI doubt my great-great-grandparents would\u2019ve homesteaded in such a state, nor would a new business choose to move to one.\u201d<\/p>\n

Pumping SLV water to the Front Range stirs more fears<\/div>\n

The other project most frequently invoked in warnings is Renewable Water Resources, a private effort by former Gov. Bill Owens and partners to gather San Luis Valley water rights and pipe the water to municipal buyers on the Front Range. The investors say they are spending $68 million just for the water rights, and they will create a $50 million community fund for the valley.<\/p>\n

RWR has been talking with Douglas County about becoming the primary buyer of the water, and is now pitching the county to use millions of federal stimulus money to seal the deal. While they are buying up valley water to sell to the Front Range at a profit, project spokesman Sean Duffy said, RWR is most definitely not speculating.<\/p>\n

With Front Range communities like Douglas County lining up to buy the water to serve Colorado residents, Duffy said, \u201cthis is a very specific project for a very specific need.\u201d<\/p>\n

Yet the proposal, which could spend years in water court before any construction begins on the pipeline needed to move the water, has spurred near-universal public opposition in the San Luis Valley, with dozens of towns, water districts and civic leaders blasting any loss of water.<\/p>\n

\"The
The Uncompahgre River flows through Ridgway Colorado Nov. 12, 2021. (William Woody\/Special to The Colorado Sun)<\/span>cca<\/span><\/figcaption><\/figure>\n<\/p>

State Sen. Cleave Simpson, an Alamosa Republican who also works as the general manager for the Rio Grande Water Conservation District, said various investors and entrepreneurs have proposed exporting water from the San Luis Valley for decades.<\/p>\n

\u201cIt\u2019s not happening right now, but the threat is there,\u201d Simpson said.<\/p>\n

\u201cI certainly don\u2019t want to see the San Luis Valley sell out all of its water to speculative interests and watch my community dry up,\u201d he said.<\/p>\n

Still, any new legislation to make speculation even less likely than under existing law must protect the interests of farmers and ranchers whose rights to water are the most consistently valuable thing they control, he added.<\/p>\n

Any legislation will have to \u201cwalk a fine line\u201d to avoid infringing the personal property rights of water right holders, Simpson said.<\/p>\n

\u201cI bought a share (of a mutual ditch company) a couple of years ago. I wasn\u2019t under intent of value speculation \u2014 I bought it out of need,\u201d said Simpson, a fourth-generation farmer and rancher in the San Luis Valley who grows alfalfa and grain. \u201cBut also, if circumstances on my farm change, and I needed to generate some cash, and wanted to sell the right for a profit, I think I have to have that capacity.\u201d<\/p>\n

House Minority Leader Hugh McKean, a Loveland Republican, questioned how the bill can walk that line at a meeting of the Water Resources Review Committee in late October.<\/p>\n

\u201cIf I buy water from my neighbor, and I pay him $5,000 more than he paid for it, am I now speculating in water?\u201d McKean said. \u201cWhat\u2019s that definitional difference?\u201d<\/p>\n

It\u2019s a delicate conversation for Bernal, who sits on the board of the Grand Valley Water Users Association and like others is now also renting land from Water Asset Management. The association, which hasn\u2019t taken a position on the draft legislation, largely supplies irrigation water to commercial farming operations.<\/p>\n

He and other local farmers are always worried about new threats to local water or efforts to develop land currently used for agricultural production, Bernal said.<\/p>\n

\"People
People cool off in the water at the confluence of the South Platte River and Cherry Creek in Denver, Monday, June 14, 2021. By mid-afternoon, the temperature hit 96 degrees as part of the heat wave sweeping across the western U.S. (AP Photo\/Brittany Peterson)<\/span>The Associated Press<\/span><\/figcaption><\/figure>\n<\/p>

Grand Valley\u2019s location \u201cmakes us a target for both Front Range communities and down-river municipalities. It puts us in a tough spot and we don\u2019t know exactly what demand, or from which direction, pressure for our water rights will come.\u201d<\/p>\n

But if he had worries about the intentions of the New York investors who bought up Grand Valley property, it\u2019s been so far, so good.<\/p>\n

Bernal started renting land from Water Asset Management after a local investor found it too expensive to develop, he said. The company has put money into irrigation and other improvements.<\/p>\n

\u201cOur eyes are wide open,\u201d Bernal said about the potential that circumstances could change. \u201cAnd so far, things are working out OK for us.\u201d<\/p>\n

Would the bill actually block speculation?<\/div>\n

Colorado already has anti-speculation laws that require people to put their water rights to \u201cbeneficial use,\u201d such as irrigating a farm, providing tap water for a city, making ski area snow, or providing stream flow for recreation.<\/p>\n

Water courts will require those filing for a new use of a water right to show they have a customer for the new beneficial use. Colorado statutes and case law require that, too. But the answer to the question of whether legal brokering also appears to be a \u201cspeculative\u201d flip is not clear. How long does a water buyer have to use the right before selling it to another party? What\u2019s the consequence if they later change the use of the water that they expressed when buying the water right?<\/p>\n

The draft bill backed by Donovan and Coram aims to target situations where a water right is purchased specifically with the intent to make a profit in a later sale or transaction.<\/p>\n

Currently, if a person or company wants to buy a water right, they need to show they \u201ccan and will\u201d put the right to beneficial use, said Kevin Rein, state engineer for the Colorado Division of Water Resources.<\/p>\n

But it\u2019s going to be \u201cvery difficult\u201d to prove this more nebulous type of financial speculation, Rein said \u2014 that at the time of the sale, the buyer intended to use the water right primarily to make a buck. Current water law doesn\u2019t provide a structure to consider those questions, let alone what the answers should be, he said.<\/p>\n

The draft bill doesn\u2019t say how investment speculation would be identified. It does require the buyer, if the sale is challenged, to offer up evidence that they aren\u2019t engaging in financial speculation. The legislation would also task Rein\u2019s office, which is responsible for administering water law, with the authority to investigate suspect sales. The agency already looks at transactions to determine whether they violate current anti-speculation laws, but that\u2019s a simpler analysis that\u2019s more administrative than legal.<\/p>\n

\"The
The Historic Arkansas Riverwalk of Pueblo is seen on Oct. 24, 2021. (Mike Sweeney\/Special to The Colorado Sun)<\/span>Mike Sweeney\/Special to The Colorado Sun<\/span><\/figcaption><\/figure>\n<\/p>

How the state water engineer would implement the bill could also be resolved through a rulemaking process rather than decided by lawmakers.<\/p>\n

Simpson, the senator from Alamosa, also questions whether it\u2019s appropriate for Rein\u2019s office to be given that authority.<\/p>\n

\u201cHe\u2019s there to administer water law, not to judge intent, particularly financial intent,\u201d Simpson said.<\/p>\n

Either way, trying to ban investment speculation would be new territory for Colorado water law, said Rein, who also served on the working group that studied the issue over the summer. And he believes Colorado water courts have yet to examine the type of financial speculation the legislation wants to target.<\/p>\n

\u201cI don\u2019t think we collectively have identified actual detrimental outcomes that have occurred. And it has not been tested legally,\u201d Rein said.<\/p>\n

There\u2019s also the question of how the state could actually enforce the law against speculators with deep pockets to fund lawyers and pay penalties, which the draft bill caps at $10,000. Under the proposal, if someone is fined for a speculative transaction, the state engineer could also impose a waiting period of up to two years on the sale or transfer of shares to the buyer.<\/p>\n

Supporters of the draft, including Donovan, acknowledge the details of the bill will be complex, and contested.<\/p>\n

Donovan said the proposal will need a lot of work to balance personal property rights and preventing profiteering off a dwindling public resource.<\/p>\n

\u201cA water right for a rancher is their livelihood. I don\u2019t want to minimize how important it is to do it right,\u201d Donovan said. \u201cBut I don\u2019t think we can let the fear of a tough conversation stop us.\u201d<\/p>\n

Still, Eklund said, the tone of that \u201ctough conversation\u201d already bothers some of the interested parties.<\/p>\n

\u201cWe have enough real water challenges to unite against and solve,\u201d he said, \u201cwithout inventing issues that needlessly divide us.\u201d<\/p>\n

Read more at The Colorado Sun<\/div>\n

The Colorado Sun is a reader-supported, nonpartisan news organization dedicated to covering Colorado issues. To learn more, go to coloradosun.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Legislators want to tackle water speculation after two companies buying up water rights in Grand Valley and the San Luis Valley sparked fears<\/p>\n","protected":false},"author":1,"featured_media":43237,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"tags":[21,28],"naviga_topic":[],"class_list":["post-43236","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","tag-cortez","tag-headlines"],"acf":[],"author_name":"dh_admin","_links":{"self":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/43236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/comments?post=43236"}],"version-history":[{"count":0,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/43236\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media\/43237"}],"wp:attachment":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media?parent=43236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/categories?post=43236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/tags?post=43236"},{"taxonomy":"naviga_topic","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/naviga_topic?post=43236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}