Laws: January, 2003 - Number #05

About 80 percent of California's "developed water" stored in dams, 20 million acre-feet a year, is used to irrigate 9.6 million acres of farm land. Half of the water used in agriculture is used to irrigate relatively low-value field crops such as cotton, hay and rice. The cost of water to California farmers averages $14 an acre-foot (43,560 cubic feet or 325,851 gallons), but the variance is enormous, from essentially free to over $600 an acre foot. The three key elements of water supply are rights (generally prior appropriation--first in time, first in use, or the first person to put water to beneficial use "owns" the water), storage and transfer. California stopped building water storage and transfer facilities in the 1970s. As the demand for water for agriculture and urban uses rose in the 1980s and 1990s, economists, environmentalists, and policymakers began to embrace water marketing, allowing farmers (water districts) to sell water to other farmers or urban users. With less water, crop production in water export areas can fall, while farm and nonfarm jobs can be created in water import areas. It is difficult to develop rules-of-thumb to estimate the job impacts of water transfers because: (1) there have been relatively few so far; and (2) there are several steps between exporting water and calculating net job losses. For example, farmers using water to produce alfalfa hay, one of the most water-intensive crops in California, may sell some of their water and plant pinto beans, which require a tenth as much water. In such cases, the number of farm jobs may be about the same, even if less water is available. Most labor-intensive crops are also water intensive, for instance, lettuce requires 80 percent as much water as alfalfa, so exporting water can reduce the number of farm jobs, leading to negative second-round effects in farm worker communities. To mitigate these effects, regulators who must approve water transfers have discussed imposing "impact assessments" or taxes of five to 10 percent of the price received by water sellers to cushion the effects on farm workers and their communities. In the case of Imperial Valley farmers, who discussed selling 200,000 acre-feet of water to San Diego in 2002, farmers pay $16 an acre-foot for water, and the sales price was expected to be about $300 an acre-foot. A five percent impact assessment would raise $15 an acre foot or a total of $3 million; a 10 percent assessment would raise $30 an acre foot or $6 million. There are precedents for impact assessments in other industries to offset the effects of a government-approved action that increases global welfare, but may harm some individuals. Perhaps the best-known example is Trade Adjustment Assistance. The economic theory of comparative advantage teaches that free trade increases the economic well-being of many, but can hurt particular firms and their workers, and TAA offers compensation to firms and workers hurt by freer trade. Similarly, the expansion of national parks, or deregulation of particular industries, can increase overall economic well-being but hurt particular individuals, and the US government has approved special adjustment assistance programs for individuals who were adversely affected, generally extended unemployment insurance and job-training services. When firms extract a non-renewable resource from an area, oil, gas, or minerals, they may be required to pay a severance fee or assessment to provide for the well being of residents after the resources run out. Even when resources are renewable, as with timber, there is precedent for requiring a severance fee, since there may not be significant economic activities for decades afterward. For example, California consumes nine to 10 million board feet of timber a year, 80 percent imported from other states or Canada, and the state's timber industry employs 110,000 workers. California is taking too much water from the Colorado river, an extra 800,000 acre-feet a year. The federal government required California to reduce its take from the Colorado river, the source of the Imperial Valley's water, by December 31, 2002, or lose its "surplus" Colorado river water. One proposed solution was the sale of water from Imperial to San Diego, but that was rejected by Imperial in December 2002. Imperial gets 75 percent of the 4.4 million acre-feet a year of Colorado river water allocated to California, and grows water-hungry crops such as alfalfa. The federal Bureau of Reclamation declared that this was not a "reasonable and beneficial use" of Colorado river water, alleging that the "tail water" from flood irrigating 500,000 acres of farm land showed that Imperial farmers did not adopt water-saving irrigation methods despite the drought in the west. The 935-square-mile Westlands Water District, the nation's largest irrigation agency, is also considering land retirement in order to avoid soil salination that occurs because there is no outlet for excess irrigation water. Westlands farmers were promised federal irrigation drainage in 1960, but it has never been built. Instead, the Bureau of Reclamation recommended that 5,063 acres of ponds be constructed into which treated drain water could be sent to evaporate, but that raises fears of a repeat of the Kesterson National Wildlife Refuge problem, which received excess irrigation water and had deformed wildlife. The U.S. Fish and Wildlife Service in July 2003 proposed instead that up to a third of Westlands farm land be retired, so it would not have to be irrigated. If land is retired, jobs in west Fresno county cities such as Mendota are likely to disappear. School enrollment and the number of businesses have already begun to decline, and there are projections that, if land is retired, the area will stagnate economically.