Imposing hefty taxes on speculative water sales, requiring that water rights purchased by investors be held for several years before they can be resold, and requiring special state approval of such sales are three ideas that might help Colorado protect its water resources from speculators.
The ideas were discussed Wednesday at a meeting of a special work group looking at whether Colorado needs to strengthen laws preventing Wall Street investment firms and others from selling water for profit in ways that don’t benefit the state’s farms, cities and streams.
The anti-speculation group was created last year by lawmakers and is charged with reporting back to them this August.
As prices for Colorado’s water have soared and Wall Street firms and others have begun buying up agricultural lands and their associated water rights, concern is rising that the state could lose control of its vast, though heavily used, streams and rivers.
“It’s a tough nut to crack,” said Joe Bernal, a rancher and work group member from the Grand Valley on the West Slope, where hedge funds are actively buying land and water.
Water has always been a scarce resource in Colorado. In the late 1800s, as miners and farmers were moving in, the state developed a system so that no one could hoard water, drive up its price, and profit from its sale. To combat the problem, it was required that water rights be granted only to those who could put them to beneficial use, whether in farm fields or mines, or in people’s homes and businesses.
Under state law, water is considered a public resource. But once obtained, water rights are considered a private property right and can be bought and sold in transactions that, depending on circumstance, may require review and approval from the water courts.
Colorado already has some of the strictest anti-speculation laws in the West.
But the rise in water prices and the purchase of water-rich farms and ranches on the West Slope by deep-pocketed, out-of-state investment firms, as well as in-state efforts to export water from the San Luis Valley, prompted lawmakers in late 2019 to call for more work on the issue.
The work group has yet to make any formal recommendations, but Alex Davis, deputy director of water resources for Aurora Water and work group member, said new ideas have to be considered because Colorado’s existing laws were written more than 100 years ago, long before hedge funds existed.
“This idea of appropriating water rights and not using them, we have that covered,” Davis said. “It’s well prevented by the laws that exist. It’s the financial speculation that we’re focused on here. How do you prevent it? It’s a very difficult question.”
Imposing a hefty tax on any profits made in a speculative sale, similar to a capital gains tax, could serve as a disincentive to investors, Davis said.
Still another work group member, Adam Reeves, an attorney with the Denver- and Durango-based firm Maynes, Bradford, Shipps and Sheftel, said forcing certain investors to hold onto water rights for several years before being allowed to sell them again could provide another powerful disincentive.
Still others suggested some kind of state approval by existing water courts or other state authorities could be required, effectively limiting any sales deemed speculative.
But key to any of these tools is defining what is and isn’t speculation.
“What are the criteria by which you determine that ‘x’ investment is speculative and ‘y’ investment is not?” Davis asked. “Any time anyone purchases an asset it’s an investment…when does it become an investment that is problematic or predatory? Is a Colorado billionaire different than a New York billionaire?”
Bernal said any definition of speculation should consider whether transactions in which cities are buying agricultural water with an intent to permanently remove it at some future date to serve a growing population could also be considered speculative and therefore subject to some limitation.
“The concern we all have here is where it might go and who will end up with it. Is it right, is it proper that it go to large municipalities?” Bernal asked. “Why are some of these transactions bad because of who they involve, and what limitations do we put on these transactions, and how does that affect people who’ve owned the water traditionally? Is there something we need to do that doesn’t interfere with private property transactions?”
Work group member Peter Fleming, a water attorney for the Glenwood Springs-based Colorado River District, said the state should be careful not to limit investment in ways that are harmful.
“There is no risk to Coloradans from a non-speculative investment in water,” Fleming said. “We need that to increase productivity and maximum utilization of the state’s water resources.”
The work group has six months to finish its research and craft recommendations for lawmakers to consider later this summer.
The group plans to meet next in March, though a date has not yet been set.
Correction: An earlier version of this article stated that water rights can be bought and sold only after approval by the water courts. In fact, that approval is not always necessary depending on the nature of the transaction.
Jerd Smith is editor of Fresh Water News. She can be reached at 720-398-6474, via email at firstname.lastname@example.org or @jerd_smith.
Sara Kuta contributed to this article.
Fresh Water News is an independent, nonpartisan news initiative of Water Education Colorado. WEco is funded by multiple donors. Our editorial policy and donor list can be viewed at wateredco.org.