17 Mar 2009

Vegas Hits the Wall

...not because of water shortages but because of the real estate crash that has resulted in a 37 percent drop in home prices in the past year.

Why does this matter for water? Because the water district gets a LOT of money from the $6,310 fee it charges to connect new homes to the system. Once they are connected they pay VERY VERY little (an average of $21/month) for water, which may be why Pat Mulroy wants to spend another $3.5 billion to build an aqueduct to import more water (and "save" Vegas) from the dust.

Here (via ML) is a good excerpt:
“People view water as a human right and expect it to be virtually free,” says Michael LoCascio at Boston-based Lux Research Inc., which analyzes water issues. “Governments respond to that, and you end up with inefficiency.”

Without price-setting markets, water that cost 33 cents a cubic meter for the first 15 cubic meters delivered to homes in Memphis, Tennessee, in June 2007 was $3.01 in Atlanta and 57 cents in Las Vegas.

That’s cheap compared with Copenhagen, where the same amount that month was $7.71 per cubic meter, Gleick says.

Robert Glennon, a University of Arizona law professor, says governments must provide enough water for human survival. Beyond that, only freely functioning markets can allot it to people who need it most, he says.

Fast-growing cities should buy from farmers who use water on marginal land, says Glennon, author of “Unquenchable” (Island Press, 2009).


The Southern Nevada Water Authority is about halfway through a 30-year, $8.3 billion construction campaign. Last year, 57 percent of the money for it came from a $6,310 fee to hook up new homes. The Las Vegas real estate slump is so severe that total hookup collections dropped to $61.5 million last year from $188.4 million in 2006. Mulroy says the authority actually lost money on hookups in January because of refunds to developers who abandoned construction projects.

As a result, reserves in the construction fund dropped 6 percent in the first six weeks of 2009, to $480 million. Without those reserves, Mulroy says, she couldn’t assure investors the authority would be able to repay the $500 million in bonds she plans to start selling by early fall to complete the Lake Mead project. The authority had $3.9 billion in liabilities on June 30.

The authority also gets money from water deliveries, property taxes and fees from federal land sales. If she has to protect the reserves, Mulroy says, she’ll raise water rates, which total about $21 a month for a single-family home.

She’s asked fellow Nevadan Harry Reid, the U.S. Senate majority leader, for a federal guarantee on the bonds. Reid is exploring how to help big municipal water systems, including Mulroy’s, get easier access to credit,
Why, in the names of all the gods, does Mulroy "need" a federal guarantee when it charges SO LITTLE to water customers.

I think that Mulroy has to get her own house in order before she goes asking for water or credit guarantees elsewhere. Damn, it looks like a little too much time inside the Mirage has distorted her notions of "normal."

Bottom Line: Las Vegas (and other water-deficit cities) need to raise their prices and improve their operating efficiency before they can ask for help from those of us with sensible financial and aguanomical policies.


SpecialWater said...

Maybe Nevada / Vegas should start a new bank ... a Special water bank .

The Special water bank could make loans of Special water to CA and others. Deposits from private citizens could be backed up with Special water in the Special water bank.

Special water would be new water that Nevada does not now have. In times of plenty, arrangements could be made to store the excess special water in the available air space in existing reservoirs in NV & CA that are usually half full.

Deposits of money in the special water bank could be used to pay to develop the Special water.

The special water could be developed in a way that no power would be required to deliver the Special water in the future. In addition development would include a unique design to keep quagga mussel from clogging up the system and requiring a future stimulus package.

Development of the Special water would create thousands of jobs and a stable economy for NV & CA.

SpecialWater waterrdw@yahoo.com

Brian W said...

A major problem with the current water scheme in Las Vegas is the ability for the SNWA to receive return flow credits to the Colorado River. With return flow credits, SNWA essentially extends the life of each gallon by recycling it back through the system. This creates a perverse incentive for the SNWA- high water use (granted only water that can be reclaimed i.e. indoor use)increases the revenue of the SNWA. This is while you will see a long list of measures taken by the SNWA in response to outdoor water use (which is lost revenue) and few urging people to conserve indoors. This scenario not only creates a need for more water and therefore more money (see: pipeline), requires far more energy (pumping, treating, etc.), but also hamstrings Las Vegas in the future should the SNWA's huge portfolio of water sources shrink for unforeseeable reasons. The SNWA, an agency representing public municipalities, is being run like a corporation with a CEO hell-bent on expansion.

AccessVegas.com said...

Unfortunately (like everything else in Las Vegas the past few years), the water district funded themselves through the "growth" ponzi scheme. People moving here caused construction. As long as the heavy growth kept happening, everything growth-related flourished. Easy lending nationwide especially helped fuel the growth here and set the economy on fire for a few years.

Nationwide economy goes bad and people spend less money here. Las Vegas residents who are upside down in homes quit spending locally and commercial businesses go under. (Empty commercial real estate is all over the place here). Tight money and low incomes grind new homes sales to a halt. Gaming companies quit building casinos as a reaction to soft visitation.

Just about everyone in construction related fields is out of work.

And... water district sees huge dip in growth-related revenue.

I'm all for raising local water rates (which I myself pay for my home). As long as the money is used to either build the pipeline to Northern Nevada to bring water our way, or build desalinization plants in Southern California to reduce their reliance on the Colorado River.

The water problem can be solved here. It just need piles of cash.

Ted Newkirk
Managing Editor
:Las Vegas Insider Vibe

David Zetland said...

@Ted -- good comment, but I disagree with the pipeline (see other posts on Vegas). I'd prefer to see some demand-side responses...

AccessVegas.com said...

@David - Me too. I'd LOVE to see Southern California use a LOT less of that Colorado River water that has to be piped hundreds of miles using massive amounts of electricity.

Here in Las Vegas we are supposed to rip out our lawns and conserve, conserve, conserve even though we are only 20 miles from the Colorado River. All over the world, it is perfectly acceptable for a city 20 miles from a river to enjoy that resource (which would be more than Las Vegas could ever dream of using if the vast majority of the water didn't end up in L.A. and Phoenix). But for some reason, everybody is L.A. is allowed to have a nice, green lawn while here in Las Vegas, we are supposed to conserve our brains out.

If you doubt the amount of power it takes, have some fun with this one:

Look the power substation at the base of this pumping plant (that pushes water over/through the mountains toward Southern California):

Follow the high-tension power lines that run to it. Follow them north. Keep going... and going... and going. They end at... Hoover Dam. Few people know that much of the juice generated by Hoover actually goes toward pumping Colorado River water toward Southern California.

Side Note: When I run into a Southern Californian who is a staunch environmentalist, I enjoy pointing out that if all the dams on the Colorado River were taken down to let the fish run, Southern California would dry up. And how environmentally unfriendly it is every time they turn on their tap because of the massive resources used to move that water. That if electricity from Hoover Dam wasn't going toward pumping that water, we wouldn't have to be looking at building dirty coal plants here in Nevada.

As noted, I'm not against pricing water (an amazingly precious commodity) at a standard that makes people think a little more about the use and misuse of it. I'll pay my part.

But the constant focus (in general) on the 1.8 million people in Las Vegas who have actually reduced water use as a whole over the past few years through conservation rings hollow as long as Southern California is full of green lawns. From the very water running right by our back door!

We can't turn back the clock and redistribute the Colorado, but it would be nice if the biggest users of the Colorado did their part. Then Las Vegas wouldn't have to be looking at turning Northeastern Nevada (possibly) into another Owens Valley.

Price Los Angeles water at the actual cost (IE, without all that free juice from Hoover Dam to move it) plus at the environmental cost to move that much water that far, and you'd get way more of a demand-side response than tinkering with little ol' Las Vegas. 40 million people using less water has a significant impact.

Just my thoughts. You guys are the pros. In fact, if I'm out to lunch on any of this, I'd appreciate knowing where I'm missing the mark or my facts are out of line. I'm always learning!

David Zetland said...

@Ted -- hahhaa -- VERY good point for those SoCal enviros :)

Read section 3.2 in my diss on Met (http://ssrn.com/abstract=1129046).

It's worse than you thought as far as special access to Hoover power is concerned.
I, like you perhaps, would prefer that Hoover power AND CR water were allocated in a market. You'd be sure to see less CR water going to ag (IID and PVID) and more to LA and Vegas. The power would rise to a price that's close to zero.

(In fact, I am trying to get someone to tell me how much BuRec charges for Hoover power. Got a number?)

Oh, and I don't perhaps mind a pipeline to the north, as long as Vegas pays for it, and as long as Vegas pays the OWNERS of the water -- not bribe some politicians to "make it available" to them.

AccessVegas.com said...

@Dave - Thanks for the info, I'll add it to my reading for the coming week and respond later. I appreciate that you are looking into some of this. Much of it flies under the radar.

Once I've done more homework, I'll direct a couple of friends in the local press to this post and the info so don't be surprised if you hear from a reporter down the road.

Per the pipeline to Northern Nevada: The Southern Nevada Water District has already purchased rights to the water fair-and-square from the ranchers who owned them. No arms were twisted. The ranchers walked away rich. Funding for the pipeline (if built) will be on the backs of district water users.

Environmentalists are doing everything they can to stop it, claiming it will create another Owens Valley. Plus, a closer look at water rights throughout the state of Nevada showed some paperwork issues dating back many decades and the courts will have to sort some of it out.

Oh... One more BIG question: If the power used to pump Colorado River water to Southern California residents was instead used for desalinization, how much Pacific Ocean water could be made potable? If the electricity was used to desalinate the water at their back door, the Colorado river water rights issue would become a moot point.

Thanks for the info.

David Zetland said...

@Ted -- "brought the rights" does not always equate to "fair and square" -- esp. if g/w of others are adversely impacted...

RE: power and desal -- it takes about 5x more power to move water from the Colorado (and treat it) than it does to do desal. That makes the CRA cheaper. I am sure that SNWA would be willing to pay that price, but the only way they've been able to do a swap like that is with Drop 2, which is "new" water (avoided overage to MX). Note that SD/MWD are giving water (af for af) but NOT funding capital costs on Drop 2. Also note that MWD -- as far as I know -- is NOT interested in running CRA at less than full capacity. THey are filling it to PVID water and Yuba desal.

In short, they are NOT interested in taking LESS water from the CR :)

Markets, yes we need 'em.

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