14 March 2011

Westlands -- Worse than I thought

I had two impressions about Westlands Water District (the largest irrigation district in the US):
  1. WWD farmers have done a fine job in stretching their limited water supplies (via high efficiency irrigation, etc.) to grow profitable crops.
  2. WWD only exists by the grace of subsidies that brought infrastructure and water to a place that would have neither without political prioritization that's given WWD farmers implicit (water) and explicit (cheap funding) subsidies.
I've covered WWD on a number of issues over the years, but my recent reading of King of California reminded me that WWD was perhaps an even more egregious abuser of public policies meant to serve small, sustainable farms. (At least the farmers in the Tulare region had water for irrigation!)

Boswell owned the 26,000 acre Boston Ranch in WWD, which was irrigated with Bureau of Reclamation water in total violation of the stipulation that subsidized water only go to farms of less than 960 acres.

I asked Lloyd Carter for some materials on these issue; he kindly helped me and referred me to others who gave me some useful background.

Let's start with Mary Louise Frampton's 1980 law review article [PDF]. Frampton worked for plaintiffs seeking small (<960 acre) parcels of land for farming in WWD, so she had a particular view. She argues:
  • Enforcement of reclamation law would result in 87,000 farm residents on roughly 6,000 small farms; actual numbers [then] were 2,348 residents on 216 large farms. Southern Pacific Railroad was the largest landowner in 1980, at 106,000 acres.
  • Federal subsidies (in 1980) to WWD amount to $1,500+ per acre because farmers are paying 3.3% of CVP costs -- the rest is covered by electricity sales and general tax revenues.
  • The Congress has consistently tried to limit subsidies to small farms, and consistently been outwitted by large farm operators, with the repeated assistance of the Bureau of Reclamation and Secretary of Interior. Other members of Congress have proposed reforms that do nothing to limit large landholdings.
  • The shell games that WWD farmers played to get around limitations are astounding. Here's one chart of changes in ownership structure:
  • According to the USDA, 320-acre farms would be more profitable per acre (i.e., limited returns to scale). This result matches the Arvin-Dinuba study of 1946 but used a larger study area of 130 communities in the San Joaquin Valley. The problem with such results (greater profits for more farmers) is that they would spread profits that are high, for a limited number of WWD farmers, to among many more farmers. They have fought to protect their profits, and succeeded.
  • Frampton provides other details of the numerous ways in which Reclamation law on subsidized water was ignored, circumvented or violated.
Hamilton Candee's 1989 law review article [pdf] addresses the "broken promise of reclamation reform." Candee worked for NRDC and was suing Reclamation for failing to correctly implement laws that limited subsidies to small farms (less than 960 acres) while requiring larger farms to pay the full cost (capital and operations) for their water:
  • He goes through the many ways that Reclamation failed to uphold restrictions on subsidies.
  • The Bureau treated farmers -- and big farmers especially -- as clients, not the taxpayers who paid for their schemes or were supposedly represented by their political representatives.
  • Subsidies to water users often exceeded 75% of costs. Projects often delivered water at prices below the cost of delivery, let alone the cost of repaying debt on infrastructure.
  • On one Westlands farm of 6,279 acres, only 63 acres paid the full cost for for water.
  • Page 680 recounts Southern Pacific's shenanigans to sell land at price that reflected the value of subsidized water. Reclamation laws prohibits these gains to large landholders. What's interesting is not just that SP and others got around these regulations (frequently with the help of BurRec), but that the resulting higher prices have been used as an excuse to maintain subsidies. In other words, those who paid higher land prices that represented the value of the subsidy would claim that they will lose money if subsidies are removed. The language of the law states that large farmers should be offered no such compensation, which means that the large farmers in Westlands would not be able to claim a "taking" if their water and/or subsidies ended. It seems that's still true today.
  • The USDA allows access to subsidies only to small farms. BurRec has not -- due to a lack of will, not a lack of tools or information.
  • BurRec's "Acreage Limitation Branch" was dissolved in 1988, because it was getting too picky about the size of property eligible for subsidies (one party's "budget efficiency" is another party's "hatchet job" to proper oversight and regulation). Sounds familiar today.
  • The Bureau's decision to support large farmers (totally contradicting their founding documents) was mainly for the benefit of 456 operations in 2 of the 17 Reclamation states.* Half full? (only 2 states are badly run) or half empty? (BurRec threw taxpayers and small farmers under the bus).
  • Targeted subsidies are silly (who's to say if a farm should be large or small). Even worse, they often go  off-target.
But these articles are over 20 years old. Those huge farmers in Westlands can't still be getting all these subsidies and handouts, can they?

I've got bad news.

Environmental Working Group's 2010 report updates us on the surreal saga of WWD, quoting a 2007 report by BurRec [pdf] that concludes that 250,000 acres of Westlands contaminated by salts should be bought and retired, but BurRec decided -- against its own recommendation -- to spend more money on draining those lands, forgive WWD nearly $500 million of debt (remember that WWD has not paid back the CVP costs incurred in the 1960s and 70s), and so on.** What a crock.

Westlands should be bought out, if only to reduce the material for economists, lawyers and bloggers to argue about. Given sales of $1 billion and a price/sales ratio of 1.5 (WalMart's is 0.44 IBM's is 1.98), the US government should buy ALL of Westlands for $1.5 billion, end all subsidies and services, and sell the dry land at auction. Why would WWD accept? Because the other option is to end irrigation services altogether (per violation of the Reclamation Act), leaving WWD farmers with ranches and no compensation.

Bottom Line: Large farms are just as good as small farms, but no farms should receive subsidies or a free pass on natural resources or environmental goods. Businesses should be run for profit, not for extracting welfare from citizens and taxpayers.

* I'd love to find out which two. I suspect it's California and Arizona, but I can't find an online copy of: Bureau of Reclamation, U.S. Department of the Interior, Acreage Limitation Environmental Assessment, 17-26 (Apr. 8, 1987). Anyone?

** EWG claims that crop subsidies are also a "net loser" at WWD, but they are merely a transfer between taxpayers and WWD, so not strictly a loser in a cost-benefit analysis. OTOH, they ARE a gift to special interests that distort behavior.

H/Ts to LC, RC and TS

5 comments:

  1. If you like this, wait until the history is written on the handouts we have given for the past decade to all the "alternative energy" scams. Westlands was the dream of Bernie Sisk, one of the great believers in New Deal style selective largess; Tony Coelho was his understudy. I'm not saying Republicans would not have devised a similar scheme, but these things happened under the reign of mainstream Democrats, from the Golden Age of activist government. This is what happens when we let smart, decent (and at least those those two were), People Who Know Better pick winners and losers.
    Ironically, *some* (not all) of Westlands is some of the finest farmland in the world. The early irrigators had used up most of the ground water by the 60's. Instead of devising their own means to purchase water from others, they went to good ol' Uncle Sam.
    But having 6,000 farmers out there would have been a really rotten idea. They would have created a potent lobby of unstable, poorly capitalized businesses, whining for endless subsidies. Only a tiny handful would have had the skills and luck to make a 960 acre unit even marginally profitable.

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  2. Is there still a libertarian here?

    "the US government should buy ALL of Westlands for $1.5 billion, end all subsidies and services, and sell the dry land at auction."

    I kid. Seriously, I wish you'd posted this last Wednesday. I had a meeting on Thursday where this would have come in extremely, very, handy.

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  3. This comment has been removed by the author.

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  4. David, your blog makes reference to claims by various litigants from 20 and 30 years ago that have no bearing or relevance to the federal reclamation program today. Westlands Water District is, in fact, in full compliance with all of the requirements of reclamation and environmental law as well as federal agricultural programs. Congress has directed and the federal courts have affirmed that the Bureau of Reclamation has a duty to provide drainage service to Westlands, which it has not fulfilled. In response, the Bureau in March 2007 adopted a Record of Decision for a drainage program that it estimated would cost $2.7 billion. The Bureau concluded in its report to Congress, however, that such an effort was infeasible under existing law because, among other things, the costs far exceeded the national economic benefits it would produce.

    Mike Wade
    California Farm Water Coalition

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  5. @Mr Kurtz -- agree, all round. Subsidies are a bipartisan bad...

    @Josh -- I would have preferred NO involvement, but now that they are there, it's time to wrap up and move on, instead of wasting more money on stupid.

    @Mike -- As I mentioned, there's a recent update from EWR. The WHOLE POINT of my post is that they laws were distorted to favor WWD, not that the laws were good and just (those laws tend to be one sentence long and apply to everyone, not just a bunch of rich farmers with lobbyists). As for the cost/benefit, you need to READ the report I linked to -- you are echoing their own denial of taking the low cost idea. In short, your comment merely represents what I was commenting on, not new information.

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