In the 19th century, they were called “robber barons,” industrial and financial magnates such as Cornelius Vanderbilt who transported passengers from New York City to San Francisco during the Gold Rush. Today they are called speculators quietly buying real estate in the West for a new gold rush of water rights and moving water along a new railroad through canals to cities.
One such speculator is Water Asset Management, a New York-based hedge fund that has purchased over 2,000 acres of irrigated agricultural land in Fruita, Loma and Mack, west of Grand Junction, CO, since 2017. According to its website, the firm “seeks to be a leader in managing global water investments that solve water quality and availability issues.” The company has holdings of over $43 million, according to its latest quarterly 13F report, investing in other water utilities and companies that manufacture pumps and pipes.
In March, Colorado Gov. Jared Polis (D) signed into law Senate Bill 20-048, which stipulates the director of the Department of Natural Resources (DNR) to form a workgroup to strengthen the current anti-speculation law.
“Water speculators aren’t in the business of using the water; they’re in the business of owning the water for future times when they can sell it,” said state Sen. Kerry Donovan (D-5), cosponsor of the bill. “And that’s why you see hedge funds coming into the state and buying water in a portfolio. That is what is concerning me.”
DNR released this past September the names of an 18-member Anti-Speculation Law Work Group cochaired by Kevin Rein, state engineer of the Division of Water Resources, and Scott Steinbrecher, assistant deputy attorney general. The group is intended to be “law heavy,” as Donovan states. It includes current and former DNR employees, other water conservation board members, attorneys, conservation members, and those in the agriculture community.
“I’m encouraged by the participation in the work group, which represents diverse stakeholders from all across the state,” said Dan Gibbs, executive director of Colorado DNR, who appointed the work group members. “Our goal is to have a transparent and thoughtful process over the next year.”
The committee must produce a report of their recommendations by Aug. 15, 2021.
“We need to send a message that if a hedge fund is looking towards Colorado, that we’re working on water speculation preventative measures, and hopefully that gives them pause before they just waltz into Colorado thinking that they’re going to make a buck off of buying our limited resource,” Donovan told Colorado Newsline.
Current Colorado law states the appropriation of water cannot be based on speculation. According to the bill text, speculation may be evidenced by either of the following:
“The applicant for an appropriation of water does not have either a legally vested interest or a reasonable expectation of procuring such an interest in the lands or facilities to be served by the appropriation, unless the appropriator is a governmental agency or an agent in fact for the persons proposed to be benefitted by the appropriation; or the applicant does not have a specific plan and intent to divert, store, or otherwise capture, possess, and control a specific quantity of water for specific beneficial uses.”
In the case of Water Asset Management, the company buys the land, makes improvements to the water infrastructure, then leases the land back to farmers and ranchers, keeping it in agriculture until it exercises part of the land’s water rights. While it may not be illegal, the agriculture community fears speculators will push up prices and drive out their way of life.
“They are the same concerns that have existed since the 1930s,” Anne Castle, a senior fellow at the University of Colorado’s Getches-Wilkinson Center, said to KUNC radio. “The east slope municipal diverters or an investment firm—it doesn’t matter who it is—are going to be able to offer more money for water than you could derive from farming or ranching. The concern is that if that becomes a trend, then the whole economy of the Western Slope changes, and the agriculture economy will be very different and smaller than it is now.”
Alternative to selling
According to Water for Colorado, Colorado’s population is expected to grow with a projected water deficit of 500,000 acre-feet annually by 2050. Cities in the state have purchased agricultural land using a “buy and dry” system to secure water rights. As a result, Colorado has lost 850,000 acres or about 25 percent of the state’s irrigated farmland as the land cannot be used again for agricultural purposes.
An alternative approach is ag water leasing or sometimes called alternative transfer mechanism (ATM). This allows the landholder to keep their water rights while providing water to municipalities. With ATMs, only the “consumptive use” water can be leased. Consumptive use water is the portion of diverted water used by the crop and/or forage via evapotranspiration. The Colorado Cattlemen’s Association has a “lease screening decision support tool,” which helps agriculture water rights holders assess the potential of leasing their water rights for other uses. The tool is based on the characteristics of successful ag water leases that are operating in Colorado.
While a study by the Environmental Defense Fund found ATM “water supplies can represent similar costs when compared against more traditional permanent water acquisition supplies,” financial incentives by municipalities could be a long-term economic benefit. For the short term, less than 30 years, “most ATMs were cost-competitive for cities over ‘buy and dry’ and other traditional water acquisition methods.”
Although the concept was studied on the Front Range—the eastern part of the state—a state program called demand management is in the feasibility stage. The concept is paying irrigators to use less water by keeping some fields fallow and would provide income in drier years and help preserve agricultural land that might be subject to “buy and dry.”
By doing so, the state could divert more water into the Colorado River to meet its water obligations as part of the Colorado River Compact and averting a compact call. A compact call would result in involuntary cutbacks for Upper Basin states; Colorado, Utah, Wyoming and New Mexico. The demand management feasibility study is uncertain due to budget cuts from the COVID-19 financial crisis.
The lesson from Crowley County in the southeastern part of Colorado should be indicative of what could potentially happen in the future. In the 1970s, both Foxley Cattle Company and Crowley County Land and Development Company bought water rights from producers and sold their water rights to the cities.
First, it was Foxley Cattle to Colorado Springs and Crowley County Land and Development Company to Pueblo and Aurora. The result was Crowley County, which once had close to 60,000 irrigated acres now has 4,684—less than 1 percent of its cropland—according to the USDA National Agricultural Statistics Service. A county that once had a tomato cannery and was home to National Sugar now has hit the point of no return where the landscape has turned to cattle grazing empty landscapes. — Charles Wallace, WLJ editor