1 Dec 2008

Fixing SoCal

Here's a simple (?) idea that's been in the back of my head.
  1. SoCal has water "shortages" in the city and environmental problems in the Salton Sea.
  2. Mexico has 1.5 MAF of Colorado River water, but the Colorado River still doesn't reach the Sea of Cortez. (There are many water problems in Mexico.)
  3. SoCal agricultural areas (IID, PVID and CVID*) have 3.85 MAF is water, but it's generally acknowledged that that water goes to many low value uses (grasses, etc.)
So here's a solution to the local and Mexican environmental problems and shortage in the cities. (Shortage will not be solved in the long run if prices are not raised.)
  1. The Federal Government condemns 2.85 MAF of ag water and pays the "market" price for it. (Let's say $250/AF for the annual delivery capitalizes to $2,500/AF for rights) That's $7.125 billion to farmers.
  2. The government sells 1 MAF of water rights at $7,125/AF to SoCal cities. If the annual flow costs $712.50. it's cheaper than the cost of desalination or recycling water...
  3. The Federal government gives the 1.85 MAF remaining to the Mexican government -- contingent on 1 MAF reaching the Sea of Cortez.
More water flowing through the Colorado River will be good for the environment. Less runoff from ag areas into the Salton Sea will reduce the toxic levels in there. 0.85 MAF extra for Mexican water consumers will be welcomed.

The ag areas cannot complain of taking because they get fat money. (If we wanted to be cruel, we should buy the water for $170/AF, i.e., the capitalized value of water given the $17/AF price that farmers pay.) Since they get over $7 billion, they can than afford to pay the $5 9 billion [they say] it will cost to clean up the toxic waste they dumped in the Salton Sea. (IID farmers want other people to pay; that's just wrong.)

Bottom Line: Water allocation is so bad in Southern California that we can move it around and solve big problems pretty easily (says the academic...)

* Addendum: To catch up on Imperial Irrigation District's continued follies, read how they are making an inefficient internal water bank (trading prices set by bureaucrats) and reducing oversight on how "fallowing mitigation" funds are being spent -- hattip to DW.

20 comments:

Georgie said...

David, Imperial is a major producer of vegetables in the winter. Where will be get our food from that has the same standards as CA?

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Michelle said...

Ah, now we get into the messed up food issue too :) I don't know where California will get their veggies in the winter from, but us local food nuts in Alaska try to buy or grow our veggies locally in the summer, and then store, can, or freeze them all for the winter. It is quite possible, though takes attention, like all things. Also, I'm not an expert, but different crops require different water amounts, so some room to maneuver there? I've always thought it was ludicrous that they grew rice in California - I'm picturing paddies in SE Asia and hoping it is a different variety of rice!
So short answer - I will get my produce, with higher standards than CA, from my own backyard, thanks! (Overly simplistic, maybe, but part of the complex answer to the food side of all these arguments)
One of my favorite books is Food not Lawns. I recommend.

Anonymous said...

I believe there was a recent permanent Colorado water transfer for $30,000-40,000/af. What would that do to David's numbers?

jason said...

I know of a semi-permanent transfer in the Sacramento area between Natomas and Folsom for a 30 year deal valued between $4-5k/ac/ft. I think your numbers are low David.
Also, if you hate the lake (I agree with you) why should we seek to clean it up? By transfering the water out of the area, it will go hyper-saline quicker and dry out that much faster.
As for Alaska can food lady, some of us prefer to eat our veggies fresh, and the population of CA is much, much larger than AK.

Anonymous said...

Maybe I don't know what "'market' price" means, but if the plan calls for selling the water for $7,125/af, wouldn't that be the market price?

David Zetland said...

Thanks for all the comments!

@Georgie -- I'm sure that veggies grow other places.

For those of you interested in the political economy of WHY so many veggies come from CA, check this post out.

@Anon and Jason -- the price doesn't matter (!) because farmers would be paid by cities at the market price ($4,000 or $40,000/AF), i.e., the system is self-funded. Price does matter relative to the cost of desal/recycling, but I am guessing that water from farms will be cheaper.

@Jason -- A dry Salton Sea can be cleaned up (big WalMart parking lot?) whereas a wet one needs to be watered forever.

@Anon2 -- I was using a "target" price, but I would agree that the price would be set through a market mechanism.

J said...

You are proposing to kill the Imperial Valley and donate most of its water rights to Mexico on the condition that it is unused for irrigation.

What can I say ?

The Pasadena Pundit said...

There appears to be a big math or assumption error in the above $7,125/AF re-sale price of water.

If you buy water rights at $2,500/AF/capitalized in perpetuity @10%(reflecting $250/AF/Year)for a total of $7.125 billion; but then re-sell it at $7,125/AF you are mixing apples (capitalized value) with oranges (annual value). Nice trick.

What a windfall too (590% increase or 6.9 times purchase price). This calculation appears embarassing for an "economist."

For example: I buy a 10-unit apartment building for $1,000,000reflecting $100,000 per unit at a 10% cap rate based on net rent of $10,000/year/per unit ($833/net rent/month). Then I conjure up that I can mark up the monthly rents to $10,000 per month and re-sell each unit for $1,200,000; or $12 million for the whole building. Say what???

David Zetland must have been working on sub-prime loans the last few years. Unless Mr. Zetland can better explain his calcuations and the assumptions they are based on his entire "opinion" is discredited.

David Zetland said...

@J -- Yes, I am proposing that 2.85 MAF of IID water be seized (Eminent Domain) in the public interest. That leaves $$ with them (@$7,125/AF) as well as 1MAF. Sending the water to MX (and urban SoCal) has greater environmental and urban benefits, respectively. (The Salton Sea is a mess.)

@Pasadena -- My math is right. I am saying buy 2.85MAF @$2,500/AF and sell 1MAF @ $7,125/AF. The other 1.85 MAF goes to MX "for free"

BTW -- I used to do residential and commercial finance AND I called the subprime disaster in Aug 2007: http://www.marginalrevolution.com/marginalrevolution/2007/08/subprime-fact-o.html

Work with that.

Anonymous said...

"@Pasadena -- My math is right. I am saying buy 2.85MAF @$2,500/AF and sell 1MAF @ $7,125/AF. The other 1.85 MAF goes to MX "for free""

I think that you are not really saying buy at $2,500, but rather seize, which would require paying just compensation. If the water is worth $7,125, I don't see how $2,500 is just compensation.

I wonder if there are any instances where a water right has been condemned.

David Zetland said...

Anon -- that's a good point, and I have no good answer except that $2,500/AF is far more than those farmers now pay for water, i.e., more than "fair" value within IID and about the same that SD is paying IID for water now...

(Good story: A Latin American country wanted to seize land from colonial barons, but they had to pay for it. They did pay -- the value that the barons had declared for tax reasons :)

Examples? BurRec just lost 2.5MAF of water rights -- after 40 years of being unable to "use" the water behind an Auburn Dam that was never constructed.

I can't think of others, but search this blog for "taking"

Anonymous said...

@Michelle

"I've always thought it was ludicrous that they grew rice in California "

Why do you think it is ludicrous to grow rice in California?

We grow rice in California because we produce a premium product for which we receive a premium price. Rice is grown on heavy clay soils in the Sacramento Valley. The heavy clay soils prevent most of the irrigation water from deep percolation.

It takes about 3.3 acre feet per acre to grow rice. Consumptive use of most crops is about 2-3 AF per acre.

More important is soil type and climate.

The Sacramento Valley is VERY well suited for rice production. We have long hot summers. The rice lands mimic the original wetlands in the area and support the birds of the Pacific Flyway as well as many endangered species including the giant garter snake.

"I don't know where California will get their veggies in the winter from"

We get them from the Salinas Valley, the Santa Maria/Santa Barbara area and the Imperial Valley/Yuma Valley....like most of the rest of the U.S. Of course we also get a large amount of summer fruits from the Southern Hemisphere and Mexico.

Anonymous said...

"Anon -- that's a good point, and I have no good answer except that $2,500/AF is far more than those farmers now pay for water, i.e., more than "fair" value within IID and about the same that SD is paying IID for water now..."

David,

There is a difference between the delivery charge (what IID charges) and what the landowners paid for water. The landowners purchased land with a bundle of rights, including the right to recieve water at the delivery charge.

The value of the water is capitalized into the land price. Recall, not everyone can recieve water from any irrigation district. Land that is in the district can recieve the water. That is one reason why otherwise identical lands will sell for different prices depending on which irrigation district the land is in.

Saying the value of the water is the capitalized value of the delivery charge is like saying the value of a car is the capitlized value of the price of gas.


Also, if water rights are traded at the market price, why would there ever be need for eminent domain?

CRG said...

Wow! How did I miss this the first time around?

There is so much to respond to, but for now I'll just stick with the Salton Sea issues (Anonymous directly above me did a nice job of addressing the rights value issue)...

Reducing flow into the sea would actually concentrate the salts and nutrients that cause problems in the Salton Sea, so it would make the water quality worse, not better. Not only that, but as the sea recedes (less inflow means lower sea levels), the micro-fine silt on the lakebed that is exposed creates even greater health problems when the ever-present winds kick up and blow that silt into populated areas.

One of the problems with the area's water issues is that the government demands that the sea be maintained. Because of that requirement, any efficiency measures that reduce tailwater are counteracted by mitigation water that has to be dumped directly into the sea (without being used for any kind of beneficial purpose first).

The IID and farmers are not demanding that the state (or other entities) clean up the sea. They are demanding the that state (or other entities) pay for the mitigation that will be required to maintain the sea at an acceptable level.

They are selling water under duress. They will be implementing conservation measures to "create" that water and will _theoretically_ be paid to implement those measures. By selling that conserved water, the amount of water going into the sea will be reduced. Who benefits from the water that no longer goes into the sea? The farmers or the cities who get that water? The IID's and farmers' position is that the people who are demanding the transfer, and who are ultimately benefitting from the water should be responsible for paying to maintain the level of the sea.

"A dry Salton Sea can be cleaned up (big WalMart parking lot?) whereas a wet one needs to be watered forever."
Tell that to the judges. Please.



P.S. Please give me about a month's notice before your plan is enacted so I can stock up on ammo and barricade my house, because there WOULD be a civil war here if this ever came to pass.


P.P.S. There aren't too many places in the U.S. that can grow vegetables in the quantities that come out of I.V. DURING THE WINTER.

JR said...

In Fixing SoCal you write: "Less runoff from ag areas into the Salton Sea will reduce the toxic levels in there."

I wish the situation were so simple. Without ag runoff, the Salton Sea will shrivel and die. In fact, the current reductions in ag runoff are already causing the water level in the sea to drop dramatically, and the salinity level is rising accordingly. Once the Colorado River was completely dammed and controlled, it could no longer flood into the Salton Sink naturally as it had done for eons; at that point, agricultural runoff (plus the input of tiny seasonal streams and a few small rivers) became the Salton Sea's means of sustenance.

JR said...

I just read the comments under your Fixing SoCal blog entry (which I should have done before I sent my last message). Apparently you think that causing the Salton Sea to shrivel and die is a good idea. Is that really your view? Have you thought through all the complex ramifications -- and costs -- of that approach?

David Zetland said...

@JR -- The salton sea was dry when it was flooded in 1905 (+/-)

Dry is natural.

Yes, it's fine to dry it out. Most of the toxic dust is from ag runoff and ag should pay for it...

JR said...

"The salton sea was dry when it was flooded in 1905 (+/-) Dry is natural."

During the past several million years since the Salton Trough was created, the Salton Sink has probably been filled with water at least as often as it has been dry. In fact, if the CO River hadn't been dammed and controlled, it would have flooded the Salton Sink -- naturally -- at least a few times during the past century.

yes, it's fine to dry it out.

With all due respect, "fine" from what perspective? For example, what do you propose to do about habitat for the millions of birds that currently rely on the Salton Sea? And what do you propose to do about dust mitigation when we create a vast source of airborne PM10 that is located in one of the windiest places in the west and that is far larger than the dry lakebed of Owens Lake (which was the largest source of particulate pollution in North America until Los Angeles was obliged to pony up the money (and the water) to mitigate the dust problem)?

Also, while it's true that ag is responsible for things like pesticide residues in Salton Sea sediments, simple airborne soil particles and salt dust are hazardous to human health. If the government imposes a water transfer/allocation scheme on the region that takes water away from the farmers and thereby causes the Salton Sea to dry up (because it is deprived of ag runoff water), why should ag pay for the consequences?

I'm asking these questions not because I want to be contrarian, but because I really want to know whether you've thought all this through and, if you have, what your analysis is.

David Zetland said...

@JR -- so we agree that dry is ok, and that dry is natural. That means that "wet always" is NOT natural. Yes, I agree.

And birds will come and go if the Salton Sea is dried out. Better yet, they can go to the CR Delta.

Now, if it's going to dry out, then there will be consequences (dust) and those are "natural" except for the toxic stuff from ag. Ag should pay mitigation on that the same way that the military pays mitigation at old bases, or companies on SuperFund sites.

I'd be happy for Ag to BUY BACK "its" water from the places the gov't decides to redirect it (in the public interest), but ag should still clean up its mess.

Or, alternatively, the gov't can let the river flood the Salton Sea *directly,* instead of via ag runoff.

Bottom Line: Ag water use there is NOT sustainable or environmental, and it has to changed to improve the environment. You can 't eat your cake -- ag irrigation -- and have it -- a healthy environment.

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