Water is the New Gold

by Greg Walcher on July 29, 2016

A Denver newspaper this summer highlighted the apparently-shocking new discovery by some investors that in Colorado, “water is the new gold.” As the article explained, water rights may be as valuable to modern developers and town builders as the mother lode was during the gold rush that settled Colorado.

This particular story involved the pending sale of an old family farm in northern Colorado, which was expected to fetch millions at auction because it included not only 400 acres of land, but also 276 shares of Colorado-Big Thompson water. In fact, the land’s top appraised value in 2016 was about $6.2 million, but the water was thought to be worth at least $6.9 million, and possible much more.

Center Pivot IrrigationSuch value places much Colorado farmland out of reach for farmers. It goes without saying at this kind of sale in northern Colorado, the bidders are not likely to include any real farmers. With Colorado’s population expected to double in the next three decades, that water is simply too valuable to be used on farms. Instead, as is all-too-familiar, the land will be bought by a developer or a city, and dried out so the water can be diverted to municipal use. That’s why the auctioneer for this farm sale was quoted saying, “Water is the new gold.”

That is not new, of course, but it is sad. I once served on a “Governor’s Commission on Saving Open Spaces, Farms and Ranches,” trying to head off exactly this future – one where cities boom but farming disappears. We successfully pushed legislation that allowed farmers to sell a portion of their water rights to finance conservation measures like drip water systems. That meant better use of water and continued growth for cities, while maintaining agriculture. I remain proud of that effort, as thousands of farms across the West have been able to modernize their water systems and free up vast amounts of water for growing cities – without the worse alternative of cities simply buying out the farms and eliminating agriculture. Some states still have old laws that prohibit such sales, so there is still work to be done.

Another tool we developed in Colorado is conservation easements on water rights. Conservation easements are now common for saving land from future development. Landowners sell their “development rights” to a non-profit land trust and their deed is then restricted against the ability to subdivide, build houses, or change the essential character of farms and ranches. For the public, the advantage is in preservation of valued open space. For the landowner, this tool can infuse the operation with the one thing it needs most – cash – without having to sell out to developers. So why couldn’t the same tool preserve water rights on farms and ranches?

As shown by the northern Colorado sale, water rights are often worth at least as much as land, sometimes much more. It is hard to second-guess the wisdom of a farmer who sells his water rights to a thirsty and growing city for more money than he could ever hope to earn farming. It is a difficult choice for farmers whose children have careers in the cities and no desire to take over the family farm. Yet despite the desperate need for water in many cities, most residents understand that drying up farmland to gain the water is a long-term mistake. So we reasoned, if society wants the farmers to hold out and refuse to sell their water rights to the cities, why shouldn’t we pay them for that decision, just as we often pay them to decide against selling the land itself? Especially where water is worth more than land, it might help farmers stay in business longer than anything else. In the case of land, a farmer can either sell a conservation easement for cash, or for tax credits. And because so many farms do not have a tax liability, Colorado (and a number of other States) now allow such tax credits to be sold for cash.

All the same advantages should apply to water, if we really want to preserve agriculture and open space in the arid West. So we persuaded the Colorado legislature in 2003 to authorize explicitly the use of conservation easements on agricultural water rights. Yet even 13 years later it is still considered experimental, and very few people have actually tried to buy or sell easements on water. Still, it is an idea whose time is surely coming wherever growing cities are drying up agriculture.

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