Notes by Barbara Hall, Klamath Bucket Brigade

Mark Twain said, "Whiskey is for drinkin', water is for fightin'," and the latter has certainly been true in the Klamath basin. Like nearly all disputes, those in the Klamath result from unclear property rights. If property rights could be clarified, market approaches could help resolve some of the fighting. Increasingly, markets are helping allocate water for agricultural, municipal, and environmental uses.

Water marketing can release the creative power of individuals..., enabling water users to deal with allocation problems specific to their demands and their local environmental constraints.
--Terry Anderson and Donald Leal
Free Market Environmentalism

"It is possible, of course, to do nothing and let things rumble along as they have in the Klamath basin. The costs, however, will be high. Maintaining the status quo means declining land values, loss of agricultural productivity, broken contracts, more political interference, reduced property tax revenues and local government services, and reduced income for the region. Instead, the Klamath basin could be a beacon for water policy in the West. By clarifying water claims and encouraging voluntary exchanges, policy makers have an opportunity to avoid future crises in the Klamath even in times of drought. With the demand for water use between competing interest groups only growing, the improved paradigm of secure property rights and voluntary water transfers offers the best hope for replacing confrontation with cooperation.

—Roger Meiners and Lea-Rachel Kosnik
"Restoring Harmony in the Klamath Basin"
PERC Policy Series, PS-27

SPEAKERS

Terry Anderson, PERC
Leslie Bach, The Nature Conservancy
Mark Campbell, Jeld-Wen Timber & Ranches
Ron Cole, Klamath Basin National Wildlife Refuges
Allen Foreman, Klamath Tribes
Jim Huffman, Lewis & Clark Law School
Steve Kandra, Klamath Water Users Association
Dan Keppen, Klamath Water Users Association
Jeff Mitchell, Klamath River Inter-Tribal Fish & Water
Fritz Paulus, Oregon Water Trust
Mark Stern, The Nature Conservancy
Douglas Whitsett, Water for Life
Joe Whitworth, Oregon Trout

AGENDA

8:30 a.m.REGISTRATION

9:00 a.m.WELCOME AND INTRODUCTIONS
Terry Anderson, Executive Director, PERC

Terry Anderson – PERC Executive Director

Mr. Anderson spoke about a market approach to water rights and using cooperation to resolve conflicts.

His view of the Klamath Basin problems – how we got here:

"Historically, the tribes didn’t use much water but when they did, they asserted the Winters Doctrine"

As cities grew, irrigation, recreation, environmental – all needed water – then the fights started over water rights. Do farmers and ranchers have to pay all the costs of environmental problems? "The Federal government isn’t going to do it, the people here on the ground are going to fix it."

"(Just) who has what rights? Figuring it out is not going to be easy. It’s important to go through the adjudication process even though it’s not a simple process and takes time."

"What’s the value of water? For recreation, endangered fish, urban use, and farming? Forming markets is difficult when we don’t know the values. And who sets the price?"

"How do you deal with 3^rd party interests? Do they have a say? (Environmental groups have 3^rd party interest.) "We’re not here to get married, we just want one dance." "The game has changed since 1990 and property right solutions have changed."

(Environmental groups) "Using force and persuasion on the other groups to do what we want using political cards which leads to win-lose for sure. This road is filled with potholes." "There are cooperative ways to solve conflicting uses."

9:30 a.m.WHO HAS WHAT RIGHTS?

Kandra – Klamath Water Users Association, Foreman – Chairman, Klamath Tribes, Whitsett – Water for Life, Bach – The Nature Conservancy

Kandra: "The guy with the biggest hammer takes the water." "Farmers are the true stewards of the land." "It’s the lands water!"

The Klamath Project farmers either use "direct diversion or recovery and reuse." Before the Project was built, "600,000 acre-feet of water would flow into Tule Lake and Lower Klamath Lake and never come out." "400,000 acre-feet or less is used by the Klamath Project but I’m a bastard because I use any water. I want credit for the water we contribute to the river that historically never made it to the river."

"Conservation on my farm is a big experiment and some programs don’t work for me." Concerning soil: "If you just apply enough water to make things grow, bad things happen to the soil. (If you use) deficient irrigation . . . my farm has sunk 12 inches in places and I started with level fields."

"Rural communities and their culture are worth preserving."

"Get the most use you can out of a bucket of water."

Foreman: The tribes have shared resources from the middle 1800’s to the middle of the 1900’s but our resources have been disappearing. "Our wocus, birds, salmon are either gone or almost gone."

"We ask that you recognize our rights – that our commodities are as important as yours."

"Our people are starving because we can’t harvest the suckers."

"Our people have been environmentally conscience since the beginning and the spiritual meaning of fishing is very important to us."

"We want the basic ability to feed our families – no different then the farmers."

(Mr. Foreman promised that he would send his speech to me for inclusion in these notes. BH)

According to assessor records in Klamath County, the water right appurtenant to irrigated agricultural land represents more than 95% of the value of that land. The right is purchased with the land, sold with the land, mortgaged with the land, and taxed with the land. It is a very valuable property right. Any reduction of irrigation water delivery negatively impacts the value of that land.

From a lay perspective, a water right is somewhat analogous to both an easement and to a mineral right.

Like an easement, it confers the right to use a certain amount of water, for a specified beneficial purpose, from a specific source, at a specific site, at a specified maximum rate of use, at a specified time, without waste, and without injury to other priority water right holders.

Like a mineral right, it allows for the partial or total consumptive use of the water up to the duty of the water right. Further, if the water right is separated from the land, the water, like oil or like gold, may be exported from the land for a profit. However, like the consumptive use of a mineral right, the land is devalued for that purpose forever.

The first people to put water to beneficial use developed ownership in a right to use the water for that purpose. A priority date of that ownership of use was established by the first such beneficial use.

The priority date was dependent upon continuous use of the water for the same purpose.

A change in beneficial use required either a change in date of priority, or a legal certification of the change in use.

Oregon statutes declare that all of the surface and ground water in Oregon is owned by the State. This applies to water on or under federal, state, tribal, or private land.

When an irrigation water right is transferred to beneficial in-stream use, the State owns that increased flow of water in the stream. In essence, the water is returned to the commons.

In the past, lack of water distribution infrastructure often prevented the most efficient use of the water for irrigation.

Both the State and landowners ceded water rights to be held in trust by the Bureau of Reclamation for more efficient irrigation use, but significantly, not to a different use. In purpose, the water rights were pooled to promote more efficient distribution and application of irrigation water.

The Federal government then built irrigation projects to efficiently distribute available water for irrigation purposes. In the case of the Klamath Project, this efficiency is near 95%.

Water rights were redistributed to be appurtenant to the expanded acreages made possible to irrigate by the federal project. The federal government neither owned the water or the water right. The state owned the water and the owner of the land owned the water right.

This concept was affirmed by the U.S. Supreme Court in Nevada v. U.S. where the court stated that the water right is owned by the owner of the land to which that water right is appurtenant, and further, that the federal ownership of the water is nominal at best (meaning in name only).

This Congressional Act did not change the beneficial use nor the concept of water right ownership being appurtenant to the irrigated land: rather, it only facilitated the more beneficial distribution of the water for irrigation.

These landowners were then responsible to pay the Federal government back for the construction costs of the project. This repayment was completed by the Klamath project irrigators.

When the Tribes of the Klamath Basin and the federal government established a treaty in 1864 the Tribes reserved certain lands as well as certain rights to hunt, fish, and gather. The federal government holds those rights in trust and is obligated by the treaty to maintain the resources that allow the Tribes to exercise those reserved rights.

The federal courts have determined that those reserved rights include an in-stream water right with a priority date of "time immemorial" sufficient to support the retained rights to hunt, fish, and gather as they were being exercised at the time of final termination.

The federal courts have further ruled that when the federal government purchased the Tribal lands, the Tribes retained ownership of the water rights that support their reserved rights to hunt, fish and gather.

The state of Oregon retains the authority to quantify those in-stream water rights. In the Oregon adjudication proceedings the Tribes have claimed in-stream flows at or near flood stage in most Upper Klamath Lake tributaries as well as the water in Upper Klamath Lake at near full reservoir. A significant disparity appears to exist between these Tribal claims and the suggested quantity of the right affirmed by the Ninth Circuit court of Appeals.

These Congressional Acts have been interpreted by the courts to allow the Federal government authority to change the beneficial use of water for the greater good of the public, or to support Tribal trust obligations.

This interpretation allows the federal government to reallocate the use of water stored for irrigation to a different beneficial purpose by regulatory fiat.

Biological Opinions that require maintaining elevated Upper Klamath Lake levels prevent water stored for irrigation from being delivered to irrigators.

Additional biological opinions that require elevated down stream Klamath River flows also prevent water stored for irrigation from being delivered to irrigators.

These changes of beneficial use are denying owners of irrigated land delivery of the water that is legally appurtenant to that irrigated land, thereby abrogating their water rights.

Creating uncertainty about future water deliveries for irrigation also negatively impacts the value of the land. Both potential buyers and potential lenders are concerned about unstable land values.

Potential operation-loan lenders are also concerned about water delivery certainty from season to season.

This uncertainty tends to limit potential buyers to government and Non Government Organizations that do not intend to use the lands for agricultural production.

This set of government created circumstances effectively produces a pool of willing sellers to a restricted pool of buyers effectively destroying the free market value of that land by artificially limiting the value of the land.

The federal government undoubtedly possesses the authority to reallocate the water for the greater public benefit. However, with that authority comes the obligation to pay the rightful owners of the water rights fair compensation for the water use that was confiscated.

This obligation for compensation is currently being tested in the U.S. Federal Court of Claims.

Water will be the limiting factor in population growth in the arid Western U.S.

Economic factors will force incremental change in the beneficial use of this scarce commodity. Those who own the use of the water will be positioned to make substantial profits in water marketing.

The unfairness in this process is that the current owners of the use of the water are being manipulated to give up that ownership preventing them from participating in these future profits.

Our preferred solution is to devise the processes necessary to allow for the marketing of water, but not for the sale of the water right. Any change in beneficial use must be carefully crafted to avoid injury to all other holders of water rights.

As long as the water right remains appurtenant to the land, the value of that land will increase incrementally with the value of the water, regardless of where the water is actually put to beneficial use.

The current requirement for the water to be put to beneficial use on the land each five years will prevent long term leasing, thus allowing for an adjustment to market value each five years. The beneficial use clause only requires that the infrastructure for water delivery be maintained, and that a portion of the water be used at least once each five years.

Income derived from marketing a portion of the water right duty may be sufficient to finance the more efficient application of the remaining water to the land, thereby preserving our farming communities.

In our mind, separating a water right from the land and selling it is somewhat analogous to clear cutting a forest without replanting---only much worse. Once the water right is sold, both the productivity and the value of the land are effectively diminished for all future generations.

How dare we assume that right!

Actions initiated with good intentions too often result in unintended consequences. For example:

The removal of stream meanders was used extensively as a means to make streams flow faster thereby preventing them from heating, and it worked. Unfortunately, it also caused increased rates of streambed erosion that led to down-cutting of the stream bed with a concurrent lowering of the soil water profile adjacent to the stream which in turn caused the riparian vegetation to die for lack of water.

Suppression of "normal" decadal fire cycles has led to juniper encroachment, which has resulted in virtually fireproof juniper forests. This unchecked juniper growth is a major cause of the measurable reduction in surface water flows in the basin.

Setting aside wilderness areas specifically to be left unmanaged has resulted in unmanageable wildfires that have incinerated the forests set aside for our progeny.

Re-establishing wetlands for wildlife and fishery habitat has caused a huge increase in basin wide evapo-transpiration that has resulted in measurable reductions in in-stream flow.

Replacing flood irrigation in river valleys with more efficient sprinkler irrigation has resulted in measurable decreases in river flow. The increased production from more efficient irrigation results in significant increases in evapo-transpiration. The "more efficient" application of irrigation water also significantly decreases recharge of soil water profiles.

These examples of unintended consequences of good intentioned action underscores the need to adopt change incrementally and to carefully monitor the results of that change both for efficacy and for unwanted responses.

Bach: "A water market can’t solve all the problems." "Water markets will be used to reallocate water." "Because of the adjudication, it’s unclear if the water marketing techniques will work – and property rights are not clear."

"The public has the right to water; instream for habitat for wildlife, recreation, and water quality." "There is a right to water that goes beyond private water rights, beyond moral rights." "It’s the land and the streams water."

"New water rights will include instream flows, view shed, and ESA."

"Some of our problems are conflicting values. How to allocate the water, deciding where it goes – how much and when." "(The debate continues over) how much water is available now and how much was there historically. There is a lack of clear knowledge."

"Limited information on groundwater; how does groundwater affect surface water? Groundwater is not regulated in California like it is in Oregon."

"Solving the conflicts? We need consideration of all needs, just and fair compensation, and new market based tools.

Question about downstream flows and fish die-off – Kandra answered: "Stored water has created steady late summer flows that historically wasn’t available. And now that water is demanded by downstream users at our expense."

Question: "50,000 acre-feet of water has been lost from the Williamson River due to USF&WS taking water to turn Agency Lake Ranch into a wetland. Isn’t this an illegal expansion of water rights?" Bach answered: "Change of use from farmland to wetlands is legal and the new wetlands are using the water up to the duty of the water right."

10:30 a.m.BREAK

11:00 a.m.POTENTIAL FOR MARKET TOOLS

Campbell –Jeld-Wen Timber & Ranches, Cole – Klamath Basin National Wildlife Refuges, Paulus – Oregon Water Trust

Paulus: Mr. Paulus used a PowerPoint presentation to help explain the Oregon Water Trust (OWT), which is not working in the Klamath Basin because of the water adjudication. He showed the tools OWT uses, i.e. gifts, lease, or purchase of instream flows. These tools may work in the Klamath Basin with the right landowner.

Why they do what they do? Passage and nurseries for salmon in small streams.

OWT’s cooperative solutions:

• Modified land management
• Point of diversion change – from tributaries to main stem rivers
• Change the source of water – from diversion to a well or stored water
• Split season leasing – lease for part of the growing season and pay the farmer what he would have made
• Allocation of conserved water – from flood irrigation to sprinklers
• Rotation pooling agreements – having farmers rotate years of farming

"The right tool at the right location and the right landowners.

Campbell: Biggest complaint: No credit for what the landowners have already done to restore and help the local environment. 24,000 acres has gone to farmland to wetlands, 14 miles of riparian zones have been repaired on upper basin streams.

The Running Y Ranch hasn’t found any water conservation programs that are profitable to the ranch. Hunting leases, water bank – the dollars just aren’t there to make conservation profitable.

The Running Y is in favor of more storage and backs the Long Lake plan.

Cole: "The refuge wants to help find solutions in the basin." "There are 200,00 acres in the 6 Federal Refuges in the basin and we are part of the community and the neighborhood."

Cole explained a bit about the "Partners Program" that is new to the basin. He worked with them at other refuges before coming back to Klamath.

"We need incentives to do things different."

"Tule is joined with farming by the 1964 Kuchel Act and it has been a good relationship over the years."

A new program introduced about 4 years ago uses rotating wetlands with farmlands on the lease lands. Even some farmers off the refuges are joining the program. Example: A farmer has 1,000 acres. Each year he floods 200 of those acres for wetlands; the next year he floods a different 200 acres. What this does is allows him to farm organic crops off those previously flooded acres. They use less fertilizer and pesticides.

Looking for solutions? "Less toxic chemicals are going into the refuges – no problems – no smoking gun on the refuges caused by the lease farming." "On the Tulelake Refuge last year, more birds were counted than have been counted in a century."

"Can’t fix this whole thing at one time; it’s going to take small steps."

Paulus was asked how many acre-feet of water did OWT save last year? Answer: 125 cfs was saved instream, leased all but 12 cfs that they bought.

Question for Paulus: What was the average cost per cfs? Answer: $74.00/acre for 4 acre-feet or approximately $20/acre-feet averaged over 10 years, (Audience: An awful low price.) depending on the stream and how important the fish habitat is surrounded by marginal land. OWT paid the farmers not to divert but to leave water instream.

Question for Paulus: Where do you get your money? Answer: Start up funds of $1 million came from 3-Mile Farm in Hermiston. They get mitigation funds from BPA ratepayers, federal funds, and donations. Their budget has $500,000 overhead, $440,000 worth of donated water, and $317,000 in purchased water rights.

NoonLUNCH
Private Property and the Public Interest
in the Klamath Basin
Jim Huffman, Dean and Professor of Law
Lewis and Clark Law School

Jim Huffman – Lewis and Clark Law School

(Overview talk on private property rights) Strong public interest in the Klamath Basin over private property rights. Real property is land and water; personal property is personal items like cars, machinery, etc. In defining property – "Relationships between the people in respect to things."

"What water use is most critical? Who gets to vote? Just the people in the Klamath Basin? Just in Oregon? Just in the Northwest? Or everybody?"

"Votes and public surveys are useless in resource issues."

Four general solutions to water allocation:

1. Water is available for all to use – the common approach – to use when or where needed. This approach only works when there is never a scarcity of water
2. Private ownership of resource. Central object was to pass government land into private hands by homestead, mining, etc with the state owning only small portions
3. Treat as a public resource (have the government own the resource) and government decides who gets what
4. Resource mixed public/private ownership

"Some believe that private property ownership leads to elitism"

"Politics is the point of public ownership."

"Bureaucrats and scientists controlling public lands adds distance and layers between the land and the resource users." "Administrative rules and regulations are slow to make adjustments for the public interest."

"Having private property rights is being able to enjoy the fruits of your labors." Quote from Supreme Court Judge Stewart: "Property doesn’t have rights, people do." "Per our Constitution, private interest trumps public interest. This is an important aspect that the US courts have ignored lately."

"Simple solutions are top down – somebody gets hurt. Market solutions are from the bottom up – local solutions."

"Water is migratory, it crosses state and county lines. Western Water Allocations with mandated instream flows, limit transfers of water rights and leads to market and legal system failure."

"Bring all the stakeholders together to start working on local solutions and have difficult water allocation discussions." "No one will be comfortable with market solutions but there will always be someone who won’t be happy with any solution."

"Using a water market, water is allocated to the highest value use. Rights have to be transferable, rights have to be universal instream and groundwater."

Question: Never mentioned the Trinity, Central Valley Project, or the diversions to the Rogue River. Answer: "Those diversions should be paid for by the diverters as part of a water market. This can put constraints on water movement."

1:45 p.m.GETTING SPECIFIC
Panel Discussion:
Dan Keppen
Jeff Mitchell,
Mark Stern
Joe Whitworth

Mitchell – Klamath River Inter-Tribal Fish & Water, Keppen – Klamath Water Users Association

Whitworth – Oregon Trout, Stern – The Nature Conservancy

Mitchell: "The tribes have been dealing with declining resources in the Klamath Basin for decades. Dealing with the water issues in the Basin have been enormous."

"For the Klamath people, we deal with these issues day in and day out. We need a stipulated water solution." "But we haven’t gotten to where we need to be yet to come to that kind of a solution."

"There’s a fear that surrounds the final settlement, a settlement that can meet the needs of the community as a whole." "This impacts all the stakeholders in the Basin and the fears that we’re not all going to get what we want." "Not one party in this Basin is going to get everything they want. Should that stop us from moving forward towards a solution? No. The solution needs to come from this Basin. It has to start with Keppen, John Crawford, Mark Stern, Gary Wright, Bill Kennedy and the other farmers and businessmen, Rangeland Trust, and the Tribes." "It’s going to take the assistance of the people in Salem, Sacramento, and the Federal government."

"Our door is open for people to come in and talk. Sit down with us at the table and open discussions to find a solution that will work for all of us. A solution that’s community based; that’s part of all of us. If we wait for adjudication to conclude, no one is going to be happy with the results."

Keppen: Started with a short update on the lawsuit concerning the fish die-off in September, 2002: Has met with the lower river Indian Tribes and it looks like we will be going to trial this September.

"Klamath Water Users Association (KWUA) has spent approximately $2 million over the past ten years in legal costs." Don’t want the courts deciding our destiny because the results come out "gray."

Seven ingredients for a recipe for success:

1. Science - How science is used, peer review, brainstorming between scientists, new biological opinions
2. Water – Make the water supply go around, pre-project hydrology, stored water for ag/environmental/tribal trust (Long Lake could take care of all environmental/tribal trust issues)
3. Coordinated restoration – Credit for what we’ve done over the past 10 years. (What did we get? Our water curtailed in 2001.) More coordination between NMFS and USF&WS on BiOps. Coordination between Klamath and Trinity River management (This spring, 200,000 acre-feet of water was sent down the Trinity to scour the river; sent at the wrong time for the health of the fish.)
4. Equity and Patience – Equity: Can’t focus totally on the Upper Klamath Basin for problems in the whole watershed. Patience: It will take decades to recover the fish.
5. Money – 500 million to one billion to set up a CALFED program for the Klamath Basin. No money near that amount has been spent in the Basin.
6. Leadership – The Federal Working Group in Washington is still working, State and other Federal groups are still working. We can expect a statement from Oregon, California, and DC before the election that they are committed to a solution in the Klamath Basin.

Whitworth: "In the Western states, efficiency is penalized to get you to use less water." "We’re either going to have to do things ourselves or they’re going to it for us."

"The ‘Get out of Jail’ card is ‘functional habitat’."

"Conservation has to add money to a farmer’s wallet."

"USF&WS fees from hunting and fishing should be returned to farmers like Kandra who manages his land so that it helps the Service with wildlife."

Stern: (A wildlife biologist at Sycan Marsh since 1981)

Talked about the 2004 Water Bank: "Can’t mine groundwater indefinitely." Doesn’t think $60/acre-feet and a water bank market is a viable solution to the water shortage. Thinks that water marketing is just like the water bank.

Says there are 33,000 acres owned by willing sellers in the Klamath Project. The community was not in favor of selling ag land and taking it out of production. There are also some upper basin willing sellers for water storage and some even around the California refuges.

Restoration and financial incentives to restore wetlands up around Upper Klamath Lake are needed to get farmers to convert back to wetlands.

On the Williamson River Delta, 5,000 acres have been restored to wetlands since 1996. "Larva and juvenile suckers are now using this new habitat but we’re not getting credit for what we’ve done."

Question was asked of Keppen about the Trinity River flows. Answer: The Trinity is running on a court ordered "wet year" type. 6,000 cfs flows to move the gravel around to improve the river channel. The 200,000 acre-feet of wasted water just blows Keppen away.

Question asked of Jeff Mitchell: How do you get rid of the "fear" that you mentioned? Answer: "Sitting down at the table, start using common science and it will prevail. Never really answered the question but admitted that he didn’t know the answer.

"Don’t try to max out your production, max out your profit."

"Hard to waste water in our system."

"Organic crops are being grown here now; strawberries, onions, horseradish, etc.

"Our water should not be sold to the highest bidder. All will go to California and there will be no water left in the Klamath Basin for fish, people or ag."

"Those 50,000 acres in the upper Basin that were lost to wetlands? 4 pounds of beef per day per unit used to be grown on that irrigated pasture." "In exchange for 4 pounds of mosquitoes per acre!"

2:45 p.m.BREAK

3:00 p.m.DISCUSSION SUMMARY AND
FUTURE VISION
Terry Anderson

Anderson just did a quick wrap up of the most important points brought out by the panel members, which are covered above.

Barbara Hall

The Klamath Bucket Brigade

June 9, 2004