Water Transfers and Their Impacts: Lessons from Three Colorado Water Markets
Charles W. Howe
Christopher Goemans
July, 2003
Originally Published in The Journal of the American Water Resources Association
The paper analyses water transfers in three areas in Colorado. Of particular interest to residents of the Estancia Basin is the data from the economically marginal Arkansas River Basin, an area were water transfers were to out-of-basin users and transfers were dominated by a few very large transfers. Economic losses from reductions in irrigated acreage resulting from water transfer are estimated and compared to losses in the more prosperous South Platte.
The lower paragraph on Page 5 describes the economy of the Arkansas Valley. Any Estancia Basin resident reading it will see the similarities.
The report goes on to describe the nature of the water transfers from the Arkansas Valley. "In the early post WWII period, water sales in the (Arkansas) Valley were from agriculture to the local cities of Pueblo and Pueblo West and to thermal electric generating plants. By the 1980's, transfers increased in size and were to the larger cities in the Denver metropolitan area.
Section VI, beginning on page 10, discusses "The Comparative Regional Economic Impacts of Water Rights Transfers in the South Platte and Arkansas Basins of Colorado". These economic impacts are only concerned with the direct economic impact of removing acreage from cultivation and the reduced agricultural output.
"When agricultural production falls, activities linked to agriculture are negatively affected: suppliers of agricultural inputs lose business; processors of agricultural outputs lose supply sources; financial institutions lose the demand for loans, etc. While the selling farmer is presumably better off, the surrounding community suffers losses of income and social displacements as people must move and change jobs while the community loses some of its ability to support community services."
"...the majority of transfers in the (more prosperous) South Platte Basin are from agricultural to urban and industrial uses and all were to uses in the same basin (emphasis ed.). Thus while agricultural and linked activities are diminished over time, other activities are stimulated by the efficient acquisition of water and unemployed resources are likely quickly to find alternative opportunities."
"In the Arkansas Valley, the economy has historically been depressed and new local demands for water supply have been limited. 88% of the water transferred in the 1979-1995 study period was to out-of-basin buyers. The water use benefits were, therefore, outside of the region, while limited opportunity existed for the proceeds from the sale of the water to be invested in the local economy. Most of the water sale proceeds have been used to reduce farm debt (Weber,1988, 1989b). In such cases, the regional impacts of a permanent transfer of water rights can be quite severe."
"It can be argued that the farms would eventually have failed anyway so that the water market simply allowed the farmers to choose the optimal time to leave the business. What the public sees, however, is the sale of water followed by sharp declines in the agriculture-related sectors. What economic analysis usually omits are the real human and resource costs that occur during this transition."
The report then analyses the economic loss per acre foot of water transfer using the IMPLAN method. "The losses in the Arkansas are likely to persist over a longer period than in the prosperous South Platte, perhaps dissipating over 10 years rather than the 5 we assumed for the South Platte. If it is assumed that the annual loss per acre-foot (direct and indirect personal income losses that include wages, salaries, income from business and investments ed.) drops linearly to zero over ten years, then the initial loss of personal income plus tax losses of $41 per acre foot has a present value of $187 per acre-foot (using a 5 % discount rate)."
The report also places the job loss per 1000 acre feet for the Arkansas Valley at 2.6 jobs. The proposed transfer of water from the Estancia Basin to Santa Fe was reported as involving 7200 acre feet, and this is almost certainly just the beginning. Using the same economic impact figures as the Arkanses Valley, this would translate to an economic loss to the Estancia Basin of about 19 full time jobs and $1.3 million dollars. This is larger than, for instance, the entire annual budget of the Town of Estancia. And this is only the calculated impact of taking that acreage out of cultivation. It neglects the far more profound potential effects of depletion of the water table, the failure of domestic wells, and diminshing property values.
It goes on to say, "a significant fraction of the losses is imposed on parties other than the seller. We know... that most farmers in the Arkansas who earlier sold their water used the money to pay off long-standing debts. While the reduction in indebtedness is a financial gain to the farmer, it creates no new jobs in the absence of local investment opportunities. ...Because of the much lower population density in the Arkansas Valley, the per capita losses are about eight times greater that those of the South Platte. We argue that the per capita losses are more relevant measures of the welfare impacts."
The paper also contains a very useful bibliography for further study.