Abundant and affordable water is a prerequisite to economic growth and upward mobility.
Abundant and affordable water is a prerequisite to economic growth and upward mobility.
C alifornians have achieved impressive feats of water conservation over the past few decades. But that won’t be enough. While we’re drinking, washing, flushing, and irrigating less, demand for water still outpaces supply. Aging dams and canals need seismic retrofits, and new systems for harvesting and storing runoff water —and reusing wastewater — need to be built.
What’s the hold-up? With care, environmentalist concerns over new water projects can be balanced with the need to provide Californians with an adequate water supply. But behind environmentalists, a diverse assortment of financial special interests is betting that Californians are going to live with chronic water scarcity forever.
In the Central Valley, this is playing out as smaller farmers, lacking the financial resilience to outlast the drought, are being forced to sell their holdings. The buyers are huge agribusiness corporations or hedge funds. Often the motive for the buyers isn’t even to grow food but merely to acquire the water rights. In a drought, water becomes more expensive — and the more water costs, the more valuable their investment.
This is why Harvard’s endowment is buying land for the water rights in Central California and why Saudi investors are buying land for the water rights in the Imperial Valley. It explains why Trinitas Partners, LGS Holdings Group, Greenstone, and other out-of-state investment firms and hedge funds are buying out California’s financially stressed farmers and ranchers. Their profit model relies on water scarcity.
It’s reasonable to ask why we shouldn’t just let the market take its natural course. Let the price of water rise until there is an equilibrium between supply and demand. The problem with that logic is that, thanks to scarcity, the ultimate price water will be very high, with negative consequences that will roll through the economy from major farms to apartments in the inner city.
The price of irrigation water, for example, affects what crops farmers can grow. At $500 per acre-foot, farmers in the Central Valley can afford to grow and sell tomatoes at a profit. At $1,000 per acre-foot, farmers can still afford to grow and export pistachio nuts, but tomatoes, lettuce, and other more water-intensive crops would have to be imported. High water prices also affect the cost of hay and silage, which in turn raises the cost of dairy products.
Higher water bills affect not only households but every business that uses water in its operations.
The economic cost of water scarcity is also felt in the housing market. As part of the approval process, developers are required to guarantee that there will be a reliable supply of water to the new homes. This proves impossible in many areas of California where there is available land and demand for new housing. Indeed, water scarcity is contributing to the state’s housing crisis.
All these examples point to an economic fact that was recognized in the 1950s and 1960s when California’s water infrastructure was first built by the state and federal government: Abundant and affordable water is a prerequisite for economic growth and upward mobility. When the state subsidizes the construction cost of water projects, urban and agricultural ratepayers can afford to buy homes, pay their bills, and run their businesses. Without such help, the cost will inevitably rise to the point at which subsidies will be required, because private investment cannot yield affordable water. That means there is a choice: Either the government helps subsidize capital costs, or it subsidizes low-income users. And, as a last resort, there is always rationing.
There are environmentally friendly ways to generate more water. Off-stream reservoirs capture surplus flood runoff and don’t disrupt fish migrations. Wastewater recycling reuses water that is otherwise dumped in the ocean.
The environmental concern, then, is almost always founded on a lack of familiarity with new technologies or an act of simple deception. The next time you read that environmentalists are suing to block a water project, understand that by doing so, even if unintentionally, they are furthering the financial objectives of private special interests as they buy up our most fundamental resource.