Water In The West: Bankrupt? : Planet Money : The Indicator from Planet Money Water is one of the West's most precious resources, but it's drying up. We begin a week of the economics of water. Today: Who has the rights? When there isn't enough, could the answer be bankruptcy?

Water In The West: Bankrupt?

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

DARIAN WOODS, HOST:

The climate crisis is making wild weather much more common. Since Sunday evening, we've seen all kinds of destruction in New Orleans as Hurricane Ida hit - winds, flooding, way too much water. And meanwhile, in America's West, they're dealing with fires and a historic drought - not enough water. And as the West gets drier and drier, how water is used attracts a lot of controversy.

CHRISTINE KLEIN: I liken it to, you know, religious fervor.

WOODS: Christine Klein is a water rights lawyer. She started her career as a water rights litigator for the attorney general's office in Colorado. She says that forever shaped how she sees water and water rights.

KLEIN: If you've ever been in Denver underneath the golden dome of the Capitol, there's what I think of as a cathedral to water. And it has a poem. And it starts with, here is a land where life is written in water. So it's - you just cannot overstate the importance of water in the West.

STACEY VANEK SMITH, HOST:

Or the legal tangle that is Western water law. And this is especially important now. Most of the West is essentially a desert. On top of that, the West is in the middle of a 20-year megadrought. Water shortage has been declared on the Colorado River for the first time ever.

WOODS: And a recent climate report from the United Nations warned that water shortages and droughts are just going to be the norm going forward. Meanwhile, the demands on Western water are growing every year.

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VANEK SMITH: This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

WOODS: And I'm Darian Woods. Today on the show, water in the West. Economics is the study of the allocation of scarce resources, and few of those resources are more important than water. As Christine was thinking through the complexities and stresses of water and water rights, her mind kept coming back to economics and finance. And that gave her an idea - maybe we should start to think about water more like we think about money.

For the rest of this week, we will be looking at water in the West and how it's changing the face of cities, industry, agriculture and the landscape itself. But today, we're going to be talking about water rights in the West.

VANEK SMITH: They are complicated, and they have deep roots - very old, deep roots.

KLEIN: The lore is that Western water law began in the mining camps. So if you think about the gold rush in California, it was about, you know, in the 1850s. And so it was trying to decide who gets to use water for various purposes.

WOODS: A lot of the rules and guiding principles that were locked into place in the 1850s still hold. One big one is something called the prior appropriations doctrine.

KLEIN: The basic doctrine is first in time, first in right. So the first party to take a certain amount of water, put it to beneficial use without waste - and they would be entitled to every last drop of their water right until the next most junior person was entitled to a single drop. So that's the pure...

VANEK SMITH: Wow.

KLEIN: ...Prior appropriation doctrine. Yeah, wow. Yeah. Yeah.

WOODS: About 70 years after that, Western states came together to divvy up the Colorado River, which is kind of the lifeblood of the West. Forty million people in seven states rely on it.

KLEIN: The Colorado River Compact from 1922 allocated 15 million acre-feet of water, thinking that was what we had, and that was an exceptionally wet year. And so they divided a pie that's bigger than we've really had.

VANEK SMITH: So a lot of the most fundamental laws around water in the West were locked down in the 1850s and the 1920s. And since then, of course, the West has undergone a profound transformation. Populations have exploded. And cities like Las Vegas, Los Angeles, Phoenix and Denver are some of the biggest and fastest-growing cities in the country.

WOODS: Industry has grown almost unimaginably. We've got Silicon Valley, Hollywood, aerospace.

VANEK SMITH: Agriculture has boomed. Farmland in the west is some of the most productive and lucrative in the world.

WOODS: And recently, environmental concerns have come to the fore.

VANEK SMITH: And every year, all of these parties, they all come to the state asking for their share of the water.

WOODS: Christine says a lot of years, the states owe more water than they have to give.

KLEIN: So if you added up all the water rights people have on paper, a paper water right, nature in some years can only provide just a fraction of that amount. And in extreme cases, I've read about parts of California being over-appropriated 800%.

WOODS: Christine says it's a lot like a person who owes a lot of money to a lot of people but does not have the cash to pay. And this water debt situation has been causing some pretty terrible situations.

VANEK SMITH: Right. Like, during the extreme drought that hit California five years ago, there were towns that literally ran out of water. Like, nothing came out of the taps. Farmers watched their crops die in the fields. Some lost their farms. Rivers ran dry. In parts of California, the ground actually sank as aquifers were sucked dry. And people started getting desperate.

KLEIN: We're having, you know, instances where farmers and ranchers are almost to the point of armed conflict with water managers that are holding back water for fish. It's not working if we're to that point where we're so water-stressed that we just can't work together. We just need a reset.

WOODS: A reset. Christine started thinking about this, and she thought if this were a financial situation where a person owed more money than they could pay, there would be a really obvious solution here.

VANEK SMITH: And you came up with this concept of...

KLEIN: Water bankruptcy.

VANEK SMITH: Water bankruptcy - what does that mean?

KLEIN: Well, if you think about real bankruptcy, it's when someone can't pay their debts. And if you think in the water law context, most of the Western states, perhaps all, are in a situation of too many promises, too little water.

WOODS: Christine thought that bankruptcy could provide a useful framework for the increasingly chaotic situation that Western states are in.

VANEK SMITH: Of course, this is not an easy solution. In a financial bankruptcy, most of the creditors usually do not get everything they're owed. They have to settle for just a portion of it. And Christine says that is a very hard sell to people who may have 100-plus-year-old water rights.

KLEIN: Everyone has to be to the point where they're frustrated enough, they're willing to give a little to get a little. And so in water law, what would that mean? It might mean a little bit different allocation that's a little more sustainable.

WOODS: Christine admits the downsides are substantial. Bankruptcies, after all, are devastating. It's like major surgery.

VANEK SMITH: Right. And they would essentially be ignoring people's legal rights to the water - at least resetting them. But Christine says something has to give because there are just too many people with too many legal rights to too little water.

WOODS: And she says water bankruptcy or something like it could provide a framework that could help bring order and fairness to a desperate situation.

KLEIN: No matter what we do, we have a lot of stress ahead of us, a lot of climate and water stress. But I'm just trying to think of a way to make it as - I can't say painless - to make it less painful, the least painful that we can make it.

VANEK SMITH: Because, says Christine, the pain is here and more is coming. She says we need to start thinking about water differently and acknowledging the value of it - a little bit like the way we acknowledge the value of money and other assets.

KLEIN: Well, in one sense, water is the most valuable thing there is. It's life-sustaining, and without it, we'd die in a matter of days. So in that sense, it's really the state's most valuable, most fundamental, most life-sustaining asset.

VANEK SMITH: And Christine says economics and finance could provide some ideas and options to move forward. She points out this is happening already. Water markets have cropped up in the West, where people can sell their unused water rights to the buyers who need it.

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WOODS: And some places are going even further. In Australia, for example, they have what basically amounts to a stock market for water. Tomorrow, we're going to be looking at the unique financial solution Australia is trying out on its own water shortage.

Today's episode was produced by Brittany Cronin, with help from Julia Ritchey and Isaac Rodrigues (ph). It was fact-checked by Michael He and Kaitlyn Nicholas (ph). THE INDICATOR is edited by Kate Concannon and is a production of NPR.

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