As published in the Oregonian 03/16/03

When the Bush administration was scouring Southern Oregon last year for water, James Root stepped forward to lend a hand.

A Medford fruit processor with a second home north of Klamath Falls, Root offered a deal that appeared to have benefits for all. In exchange for payments from the federal government, he and some of his neighbors would stop irrigating their pastures, leaving water in the rivers for both fish and farmers.

The deal was arranged with the help of Sen. Gordon Smith, R-Ore., and touted by Interior Secretary Gale Norton, who said it would help solve the water problems "this year and in future years." During the next several months, federal officials paid nearly $1 million to a nonprofit corporation set up by Root.

Now some officials and observers question whether the money was well spent.

Documents show that Root and his fellow ranchers were paid many times the market rate for water -- and far more than the U.S. government paid Klamath farmers in compensation for water that was cut off in 2001. And a federal analysis concluded that the deal restored to rivers less water than the government had negotiated and paid for.

"We got desperate for water," said Dave Sabo, manager of the Klamath Project for the U.S. Bureau of Reclamation. "We were going out to buy it; we were looking under every rock without thinking what the precedent will be."

Root said the government got better-quality water than it could have anywhere else. It's still early to assess how much water has filtered into the complex Klamath system, he said. He said the payments were part of an experiment and that costs will naturally run high until it is fine-tuned.

"We're not embarrassed that there are some improvements to be made," Root said. "I think we did a good job under the circumstances."

But as the Klamath Basin enters another dry summer, and as Root negotiates to extend his water contract, federal officials say they will pay just one-third of what they did last year. This month they offered hundreds of other Klamath Project farmers who agree to idle their land a far lower rate than they paid Root last year.

"We're only going to pay for the benefits we actually see this time around," Sabo said.

The government's water purchases have their roots in late 2001, an anxious time in the fight over water in the Klamath. More than 1,000 local farms had been cut off from water the previous year, and federal officials did not want to do it again.

Root said he asked Sen. Smith for help in approaching the Bush administration. According to Root, Smith arranged for him to meet in Washington, D.C., in the fall of 2001 with John Keys, the administration's commissioner of reclamation and water czar. There they outlined a deal.

Smith spokesman Chris Matthews said the meeting was a routine case of helping a constituent navigate the Washington bureaucracy. Root has given to Republican and Democratic candidates during the years and donated $10,000 to Smith's 2002 re-election bid.

"It had nothing to do with politics or campaigns," Matthews said. "We set up meetings for constituents all the time. This was something where everyone was looking for solutions. It was purely a federal deal -- (Smith) had nothing to do with it."

More businessman than rancher Root is more of a businessman than a rancher. Sabroso Co., his family's Medford fruit-processing giant, projects annual revenues of $40 million and operates in 26 countries. He's an avid trout fisherman, and his second home in the north end of the Klamath Basin sits on 700 acres along the Wood River.

The Wood River, like all waterways throughout the Klamath, is a part of the basin's overall water supply that supports endangered fish and nourishes farms and ranches.

Root locked up his deal with U.S. officials in the spring of 2002, just as Norton and Agriculture Secretary Ann Veneman released water to the Klamath farmers on March 29.

Within days, Root and Keys signed their letter of intent. That document said Root's nonprofit, the Klamath Basin Rangeland Trust, would sell the government an estimated 8,000 acre-feet of water. It was a small amount -- a few percent of what Klamath Project farms use in a year -- but the administration saw it as a start.

"We wanted to show that if people were interested in coming up with good ideas that support the president's goals out there, we stood ready to give it a try," said Sue Ellen Wooldridge, deputy chief of staff for Norton.

The government wanted to pay $50 an acre-foot, a price reasonable for the region, said Jack Garner, the Reclamation Bureau's deputy director for operations. It's what the bureau paid for water from wells near Tulelake, Calif., last year. The letter of intent set the same price, promising Root a total of $400,000.

Root, Keys and James Connaughton, the top White House environmental official, announced the terms at the head gates in Klamath Falls on April 2.

Pressing for more in deal But Root soon pressed for more.

He and Kurt Thomas, a California rancher and neighbor of Root's who also signed up for the deal, needed other ranches to join in if they were going to come up with the 8,000 acre-feet they had promised the government.

On Root's behalf, attorney David Van't Hof of the Portland law firm Stoel Rives negotiated a new deal with the Bureau of Reclamation. It pledged to pay Root and his partner landowners twice: first for not diverting water from rivers and streams, and again for water their fields did not soak up.

Typically, a landowner is compensated for one or the other, not both, said Clay Landry, a Wyoming-based consultant who previously worked for Oregon's Water Resources Department and served as an economic consultant to Oregon Water Trust.

On May 28, with no public notice, Root and the U.S. government signed the new contract, which meant the government would be paying $948,000.

Van't Hof is now Gov. Ted Kulongoski's water policy adviser, having left Stoel Rives. He declined The Oregonian's requests for an interview.

Root and some federal officials said the agreed price was a fair exchange for the twin benefits of the deal, which helped Klamath farmers and put clean, cool water in the river. "It's simply innovative; it's nothing nefarious," Root said.

Officials question payment Kirk Rodgers, the Bureau of Reclamation's mid-Pacific regional director, said he knows of no other cases where the government agreed to such a payment formula.

Del Sparks, who oversees and enforces water rights throughout the Klamath Basin for the Oregon Water Resources Department, sees it in harsher light: "The government got taken," he said.

The U.S. government's figures show each acre-foot of water saved in Root's Rangeland Trust deal cost taxpayers $189. That's six times the average regional value of water, according to studies of Western water markets, and nearly 20 times what conservation groups have paid for water from pastures elsewhere in Oregon.

It also means the U.S. government paid Root's Rangeland Trust $300 for each of the 3,161 acres Root and his partners did not irrigate. By contrast, it costs little more than $100 an acre to rent irrigated pasture like theirs, said Rodney Todd, natural resources extension agent for Oregon State University in Klamath Falls.

Reed Benson, former director of WaterWatch of Oregon and now professor of water law at the University of Wyoming, sees it starkly: "That's an astonishing price. It's a good example of what happens when you're desperate to do anything for a photo op, and you end up breaking the bank for a project that has an undetermined payoff."

Issue of water received Questions persist about whether the U.S. government actually received all the water it paid for.

When a team of researchers from the Bureau of Reclamation measured the water saved by not irrigating the 3,161 acres controlled by the Rangeland Trust, it could identify only about two-thirds of the water the government had contracted for, federal documents show.

Root disputes the government numbers. His Rangeland Trust spent $150,000 of its federal funding on its own research. Part of it went to a Seattle consulting company employing Root's daughter, hydrologist Chrysten Lambert.

Lambert concluded the deal produced almost as much water as it was supposed to and found that area streams carried slightly more water than they had in earlier years.

Her calculations assume Root and others gave up more water than they had a legal right to take, however, documents show.

The U.S.-Rangeland Trust deal showed several other features and outcomes:

It paid more than $100,000 for water that Thomas, the California rancher, in 1991 had told the state he would never use.

It paid for water that occurs naturally and immediately below the ground surface, nourishing surface vegetation. The sale of such water is barred by Oregon law.

It spent $50,000 on travel for its board of directors, including Root and Thomas. It dedicated another $100,000 for legal fees to Stoel Rives and attorney Van't Hof.

Much of the land contracted by the Rangeland Trust remained so lush that the landowners kept grazing cattle in reduced numbers. Root and Thomas created a for-profit company called the K.C. Land and Cattle Co., also based at Root's Medford offices, to manage grazing for what may turn out to be a "modest profit," Root said.

Federal officials said they paid the high rate for water in part to fund ecological restoration. They and state officials had previously given Root more than $250,000 to restore and construct trout streams near his Wood River home, records show.

Norton pledged in a speech that the Rangeland Trust would complete "conservation and wetlands restoration measures on lands no longer irrigated." But Root said there wasn't the time or money to undertake costly stream repair or other rehabilitation in the course of the trial project.

Water rights figure in In coming years, the deal could help Root and his partners cement their water rights, which in the Klamath Basin can be more valuable than land itself. By paying Root and Thomas for rights that remain undecided, the federal government might give more weight to those rights.

Peter Mostow, a Portland attorney representing the Rangeland Trust, said that was never a purpose of the deal.

Rancher John Owens, however, said he joined the Rangeland Trust in part for that reason.

"If someone comes along and pays you for it, doesn't that mean you have a right?" he asked.

Other landowners complain the deal with Root slammed the door on their chances to sell water at lower prices. That might keep water rates inflated, they said, so taxpayer dollars will not go as far.

"It's terribly unfair to us, and it's terribly unfair to the U.S. taxpayer to ignore the fact that there are other people out here who have water, too," said rancher Roger Nicholson, who has drafted his own water sale proposal. He said Interior Department officials "will not give us the time of day."

U.S. expects to pay less U.S. officials say they learned enough from their trial run with the Rangeland Trust that they will not strike the same terms again.

They are now near an agreement that will pay the trust to expand its project over twice as many acres this year. But they expect to pay only $100 an acre this time, leaving it to wildlife agencies to fund environmental benefits and restoration.

The Bureau of Reclamation has offered farmers in the Klamath Project $187.50 an acre to go this summer without irrigation, freeing added water for other farmers and fish. Reclamation officials have $4 million to spend -- enough to idle 12,000 acres and save 25,000 acre-feet or more. Farmers have offered twice that many, in part because some fear another dry summer could leave them parched anyway.

For their part, Root and his group hope to eventually get owners of all the Wood River Valley's 31,000 acres to forgo water for cash. They want to remove as many as 50,000 cattle and the pollution that follows them, while reviving streams and wetlands that filter water. They say such measures, over time, will bring Klamath's overtapped water supply back into balance.

But it will take at least another year to prove its promise, Root said.

"Nobody's going to walk in with a gift-wrapped solution that's going to solve the whole problem," said Klamath County Commissioner Steve West. "I'm willing to give them a chance to see if this works."