Corporations are consolidating water and land rights in the West

‘A world of scarcity’

The summer 2021 drought that strangled parts of the Pacific Northwest has inserted the issue of water rights into nearly every environmental discussion in the region and has raised concerns about speculation and price gouging.

If climate change forecasts prove accurate, the summer of 2021 was a dress rehearsal for the future. 

This summer in Oregon the federal government shut off access to water in the Klamath River due to a historic drought, prompting some farmers and activists to threaten to take the water by force. 

In Washington, wheat production hit all-time lows reflecting drought-depressed yields.

“You look back to this drought, that was the worst drought we had in 100 years, and it put a fine point on who got water first,” says Jamie Short, a water resources program manager for the Washington State Department of Ecology.

Concerns about water speculation and scarcity aren’t new. And while climate change and drought reinvigorate those worries, experts such as Short caution against oversimplification.

Because if water law is anything, it’s complex.

“Consolidation and water rights, (it) isn’t one plus two equals three. It’s really case dependent,” she says. “I don’t think climate change is going to make anything any easier for us. But in a way, it’s a world we already know. A world of scarcity.”

Following the opportunity

According to water laws in most western states, water can’t be owned, although the right to use that water can be sold, bought and transferred.

In Washington — and elsewhere — there are rules governing the sale of water. For example, water rights must be used, or they are relinquished. Water must be used for a “beneficial” purpose and a water transaction can’t harm senior water right holders. 

The regulation requiring that water be used would seem to discourage speculative behavior. 

However, Washington and other states have programs that allow users to bank their rights with the state and not relinquish ownership. This has allowed water right holders the ability to effectively sell, trade and buy water.

This is known as water banking. 

Banking serves several purposes. Farmers use water banks to sell water rights they no longer need to other farmers. Conservation groups use them to increase in-stream flows to help native fish. Developers use them to secure water for housing and commercial projects. 

But this system also gives speculators a place to park their assets and wait until the price has risen, says Osborne. 

Osborne, who is semi-retired, teaches water law at the University of Washington. The water-banking program has been particularly helpful for stream and river conservation projects, she says. But as developers and investors shell out more money for water, conservation groups are struggling to compete “because everybody wants to get their hands on water.” 

Shrinking farms

The desire to acquire water has helped fuel the ongoing consolidation of western lands.

Consider, in 1987, more than half of all U.S. cropland was operated by midsize farms that had between 100 and 999 acres of cropland, while 15% was operated by large farms with at least 2,000 acres, according to a U.S. Department of Agriculture 2018 report. 

Over the next 25 years, those numbers shifted dramatically. By 2012, farms with 100-999 acres held 36% of cropland, the same share as that held by large farms. 

It’s a similar story in the Columbia River Basin. 

The number of farms in Washington decreased by 7% between 2010 and 2019, according to a 2020 USDA report. At the same time the average size of farms increased from 382 to 410 acres. 

Many of those properties come with valuable water rights, rights that are increasingly controlled by fewer and fewer people. 

Some experts affiliated both with the state and private water-consulting firms, caution that the ways land consolidation will impact water or rights isn’t yet clear.

“To a pretty large extent land consolidation means water consolidation,” says Jonathan Yoder, director of the State of Washington Water Research Center and a professor of economics at Washington State University. “But it’s not at all clear if that is good or bad, or the ways in which that is good or bad.”

Is paranoia justified?

One indication that it may be a bad thing, or at least an issue of concern, came on Nov. 17 when Washington’s Ecology department announced a pilot grant program aimed at funding local water banks, helping upstream communities compete with wealthier downstream agricultural interests. 

“The pilot grants are intended to furnish rural communities in headwater basins throughout the state with funds to compete with deep-pocketed water investors,” states a news release announcing the grant.

The grant program is the latest in a series of efforts Ecology has taken to try and understand how, and if, speculation is impacting Washington water. 

In 2019, following concern about out-of-state investors, the state Legislature asked the department to examine whether water banking is leading to speculative or monopolistic behavior, says Dave Christensen, the policy and program manager for the Department of Ecology Water Resources Program. 

“The Legislature has been concerned and Ecology has been concerned because we’ve been hearing it from our stakeholders,” he says. 

On Nov. 19, Christensen updated the Legislature with the department’s findings. 

In short? So far there’s little evidence of water speculation in Washington, he says. Between 1997 and 2019, there were 54 out-of-basin transfers in Washington State, representing less than 0.3% of the total volume of water used, according to a University of Washington study commissioned by the Department of Ecology and published in 2021. 

“The 54 transfers represent 1.5% of the total records that indicate a change of place of use in the Ecology database, implying that the majority of water right transfers in Washington State occur within-basin,” states the study.

The Department of Ecology will continue to examine the issue and present the Legislature with a final report, and policy recommendations, in 2022. 

Other experts interviewed for this story also downplayed the risk of consolidation and speculation, noting that water is a difficult substance to transport and pointing to regulations in the West and Washington State in particular. 

Daniel Haller, a water resource engineer with Aspect Consulting, which has offices around the Pacific Northwest, says that roughly 90% of all water rights in Washington are held by public entities — whether that’s municipalities, the state or the federal government.

“I think the window for concern is small,” Haller says. “Just because the number of rights is small. There is a subset of water rights that someone could try to speculate on. I just haven’t seen it yet. I think the risk in the future is pretty small.” 

Political drivers

However, that optimism isn’t universally held and Osborn, the longtime water lawyer, is skeptical of Ecology’s review process.

“Ecology convened this group to assess water banking and make recommendations to the Legislature and their recommendations to the Legislature has nothing to do with controlling price or making sure the benefit comes back to the public,” she says. “Remember these people got these water rights for nothing. Maybe a $10 application fee.”

Osborn believes the state should take 10% or more of the water bought or sold as a sort of “transaction fee.” 

While private speculation and out-of-basin transfers are a concern, there are also worries about cities and towns holding onto water rights, says John DeVoe the executive director of the Oregon-based WaterWatch. 

In Oregon, some cities and towns hold onto water rights, not because they need the water but because they hope to sell it to other municipalities. 

“A lot of these cities are not using this water for municipal purposes. They are selling it,” he says. “That’s kind of the hallmark of speculation.”

As for state oversight, DeVoe isn’t confident in Western state’s regulatory muscle.

 “I think state oversight is politically driven,” he says. “And those with the money get to determine how the rules are drawn up and whether they are enforced or not.”

This piece is part of a collaboration that includes the Institute for Nonprofit News (INN), California Health Report, Center for Collaborative Investigative Journalism, Circle of Blue, Colorado Public Radio, Columbia Insight, The Counter, High Country News, New Mexico In Depth and SJV Water. The project was made possible by a grant from the Water Foundation with additional support from INN and the Fund for Investigative Journalism (FIJ).