COVID-19 Economic Recovery and the Colorado River Basin: Part 3: Rethinking the Over-Appropriated Colorado River

The historical narrative of the Colorado River focuses on how to address the rapid economic development in the Lower Basin relative to the pace of economic development in the Upper Basin.  The economic recovery of Colorado River Basin states from the COVID-19 disruption will turn the historical narrative on its head.

The 1922 Colorado River Compact, of course, equally divided 15.0 million acre-feet per year of Colorado River water.  The Upper and Lower Basins share reductions required to meet the United States obligations to deliver 1.5 million acre-feet per year of Colorado River water to the Republic of Mexico under a 1944 Treaty.  With more than two decades of natural flow of the Colorado River below the long-term average of tree ring studies, it was inevitable that the Bureau of Reclamation declared the need for the basin states to reduce their reliance on the Colorado River (https://hydrowonk.com/blog/2022/08/19/the-colorado-river-in-disarray/).

There is an inevitable potential impasse between the Upper Basin and the Lower Basin.  With historical use less than their apportionment under the 1922 Compact, the Upper Basin states look towards the Lower Basin states, “the cause of the problem,” to reduce their use of Colorado River water.  With the Upper Basin “7.5 million acre-feet per year guarantee” over running ten-year periods under the 1922 Colorado River Compact, Lower Basin states look at Upper Basin states to reduce their water use in the face of dwindling availability of Colorado River water and still receive 7.5 million acre-feet (presumably, less its share of deliveries of Colorado River water to Mexico, 0.75 million acre-feet, for an adjusted total of 6.75 million acre-feet).  Meanwhile, the seniority of Indian Water Rights on the Colorado River and the “shortage sharing provision” of the 1944 Mexico-United States Treaty stand awaiting.  Resolving disputes over the above legal framework will ultimately reflect the economic facts on the ground.

A New Narrative for the Colorado River Basin

COVID-19 shattered the historical narrative that the Lower Basin is growing faster than the Upper Basin.  Going forward, California is not the economic juggernaut of the Lower Basin.  Looking forward, Lower Basin growth will be concentrated in Arizona, the Lower Basin state with the most junior priority to Colorado River water.  Southern Nevada’s economy is driven by the tourism industry.  The Nevada State Engineer has a policy that new casino development and related entertainment ventures use permitted groundwater, not Colorado River water.  Nevertheless, casinos hire employees and local vendors who will place new water demands on Southern Nevada water agencies.  Nevada’s underuse of its Colorado River entitlement since 2008 may diminish over time.

With among the most resilient Colorado River Basin economies in the Upper Basin (Colorado and Utah), should the historical narrative be relegated to the dustbin of history?  Probably.  How?

Hydrowonk sees two pathways getting to a general destination.  A common tool will be negotiation.  One road seeks mutually acceptable legislative revisions of the 1922 Compact.  The other road finds mutually acceptable transactions given the legal structure of the 1922 Compact.

Either path requires acknowledging that a new “big three states” is emerging (Arizona, Colorado, and Utah) for reallocating water within their own state boundaries as well as securing Colorado River water from other basin states (most notably California?).  The role of Nevada will depend on whether Mark Wahlberg’s efforts with the Las Vegas Chamber, supported by Governor Lombardo, for recruiting Hollywood to move to Las Vegas (joining the NFL, MLB, WNBA, NHL, and soon the NBA) will prove successful.  New Mexico and Wyoming, of course, face their own challenges, but their relatively small size suggests that they will not lead the charge for solving the challenges for the entire Colorado River Basin.

California, alone, cannot solve the basin’s challenges.  It will be incapable of offsetting shortages in Arizona of up to X00,000 acre-feet per year (pick a number) and accommodating expanded long-term water demands in Colorado and Utah.

Key Role of Tribes

As an advocate of the priority system, Hydrowonk envisions a critical role for Colorado River tribes in addressing Colorado River challenges.  Tribes with rights to the Colorado River have the most seniority.  Generally, tribes have only partially exercised their rights.  Full development of their rights has lingered for decades due to federal inaction and neglect, although the new initiatives by the Biden Administration and Arizona are promising.  New investments in on-reservation water conservation/resource development can generate new water supplies allocated between (i) additional on-reservation development and (ii) providing new water resources for non-Indian right holders.

Binational Cooperation

The 1944 Treaty has a shortage sharing provision where the United States delivery of 1.5 million acre-feet per year of Colorado River water to Mexico would be reduced pro rata with the reduction in deliveries of Colorado River water to US water users.  The major user of Mexico’s Colorado River entitlement is the State of Baja, which faces significant water shortages today that are anticipated to become increasingly more severe over time.  New investments in water conservation/resource development in Baja can generate new water supplies.  As with Indian Country, new water supplies would be allocated between (i) meeting Baja’s current and future water demands and (ii) meeting US water demands.

A New Economic Narrative: Joint Ventures for Water Resource Development

Municipalities seeking Colorado River water must abandon a “cost-based” assessment of transactional opportunities and embrace a “joint economic gain” perspective.  That is, they should devise water resource development/conservation programs where they pay the costs and share the generated water with Indian tribes and Mexico.  Moving from “it won’t cost you a dime” to a joint venture perspective will enable economic development on the reservation and in Mexico as non-Indian economies to flourish by mitigating the economic cost of water shortages.

As discussed in Part 4, rethinking the Colorado River requires further evolution of the Bureau of Reclamation’s role as watermaster of the Colorado River.

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About Rodney T. Smith

Rodney T. Smith, Ph.D., President of Stratecon Inc.—an economics and strategic planning consulting firm—advises public and private sector water users on the acquisition, sale and leasing of water rights and water supplies in the western U.S. He is routinely involved in economic valuation of water rights, water investments, and negotiation of water acquisition and transportation agreements and has served as an expert witness in the economic valuation of groundwater resources, disputes over the economic interpretation of water contracts, economics of water conservation and water use practices, and the socio-economic impacts of land fallowing. For more information, see www.stratwater.com.

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