In the 1920s a tremendous real estate boom convinced investors all over the country to buy development land in Florida, much of which turned out to be undevelopable swampland. It resulted in anti-fraud legislation, and is forever known by the common expression, “If you buy that, I have some land in Florida for you.”
“Caveat emptor” is the Latin legal term, meaning “let the buyer beware,” a contract law principle in the sale of real property, in which the buyer is assumed to have the ability to find out what he is buying in advance. He cannot blame the seller later if the property turned out to have issues he could have known about, had he checked. The principle certainly applies to speculators buying farmland in the Grand Valley, hoping to make money by sending the water downstream to California.
In the arid West, water is often worth more than land. So buying land in order to obtain the water rights is not uncommon, especially on the Eastern Plains, where entire counties of once-productive farmland has been dried up by thirsty cities like Aurora and Colorado Springs. But there is a problem with that in Western Colorado, because the thirsty cities are downstream, especially in California. And transferring Colorado agricultural water to California, though it could be highly profitable, is illegal. So is speculating in water.
Colorado law requires anyone seeking a water right to have a vested interest in the land where the water is to be used, including a specific plan to put the water to beneficial use. This year the legislature moved to further strengthen that law, making clear that Coloradans still care about it. Water in Colorado must be put to beneficial use, which is clearly defined in law. It includes irrigation, domestic water, industrial uses, and certain recreational uses in the stream. It explicitly excludes investing in water to sell for profit in the future to some unspecified user. That is illegal, as it deprives the current generation of the use of that water.
In spite of the plain language of the law, a New York hedge fund called “Water Asset Management” has spent $16.6 million buying farmland in the Grand Valley, according to a detailed report in May by Aspen Journalism and KUNC, and apparently now owns 1,659 acres of farmland irrigated by the Highline Canal, and another 541 acres irrigated by the Grand Valley Canal. Most of that is temporarily leased back to the original owners and is still being farmed. But the company makes no bones of its intent, saying it has “invested in the future potential value” of the water. That admission makes the company’s speculation legally questionable, at best, but perhaps it is the investor’s judgment and wisdom that is most in doubt. They assume a willingness on Colorado’s part to allow that water to be separated from the land and sent downstream to California.
The Highline Canal system does not allow water to be separated from the land. Landowners within its service area are entitled to irrigation water, but cannot sell it for use elsewhere. The Grand Valley Canal Company, by contrast, owns the water in its canal, and individual users own shares of company stock, which can be bought and sold. However, only the company itself could put its water to use in some other way, and only with approval of its shareholders, and of the state water courts, through a “change case,” meaning an application to change the location, amount, or specified use of an existing water right. In such a case, all other water users in the state could file objections and have a right to be heard in court – and many would. In other words, there is virtually no chance that water from either system can be moved to a different use – especially in another state, which would also violate the Interstate Compact that controls the Colorado River.
So the New York speculators, whose only possible profit is in California, have only one other possibility for making money. They hope the State of Colorado itself will pay to leave that water in the River, to fully stock Lake Powell and avoid a “call” for that water by Lower Basin states. That assumes the same State Legislature that just decided to strengthen the anti-speculation law will do an about-face, and appropriate money to make water speculation profitable.
If the investors think that is about to happen, I have some land in Florida to talk to them about.
This column originally appeared in the Grand Junction Daily Sentinel July 3, 2020.
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