What’s the Value of Water?

The answer to the question, “what’s the value of water?” is it depends. No surprise there, but to be clear, I’m not talking about the value of the water that runs out of your tap. I speaking of the value of water that is appurtenant to your farm or ranch land. What’s it worth in an of itself?

Well, Deborah Stephenson of DMS Natural Resources LLC, writing at Hall and Hall makes clear that the answer is in no way clear and depends on a number of things, including:

  1. Quantity – The quantity of water that a water right yields.

  2. Marketable Region – The feasible region in which the asset can be transferred to a new user.

  3. Alternative Water Supply Options – Availability of existing water supplies and future water development opportunities within the region.

  4. Water Quality – The quality of a water source can influence the suitability of a water right for a potential new use.

  5. Reliability – The amount of water that is regularly available to the water right holder compared to the claimed or stated volume on the water right. The amount of water available is determined based on a combination of water source yields, hydrological conditions, and the water right’s legal attributes –  mainly priority date.

  6. Seasonality – The period during which the water right holder can divert or withdraw water from the source.

  7. Highest and Best Use – The highest value use to which the water right can physically and legally be put to use.

Using those seven criterion, you can arrive at an appraised value of the water in question. But that only gets you so far, Stephenson says. No, you also have to look at water in the operational context, and that assessment is based on three considerations:

  1. Utilizing the water in the current agricultural operation.

  2. Utilizing the water on-site, but changing the use to a non-agricultural purpose.

  3. Decoupling the water and transferring it off the property.

You should be able to readily see that each of those factors will influence the value the water. I’m going to leave it at that. Stephenson covers the topic quite well, so click on the link above and continue–if you’re interested.

Value Water? Listen to The Water Values Podcast!

In an effort to keep abreast of water, water law, and water rights, I listen regularly to David T. McGimpsey, host of the Water Values Podcast. An attorney with Bigham Greenebaum Doll, David does water law, among other things. In his podcast, he interviews water experts and professionals from all walks of life–engineers, lawyers, hydrologists, water administrators, entrepreneurs, anybody and virtually everybody who does anything with water. I almost always come away from his podcast thinking that was time well spent.

My interest in water law stems from my estate planning and business practice. Water is property and proper estate and business planning ensures that property stays in the right hands over time.

Of course, I’m also interested in water because, as McGimpsey says at the end of every podcast, “Water is our most valuable resource, so please join me by going out into the word and acting like it.” Words to live by.

Water, Water, Clean Water Act, Everywhere

The key paragraph from an article discussing recent oral arguments at the Supreme Court on the Clean Water Act, a case called U.S. Army Corps of Eng’rs v. Hawkes Co., Inc:

“The oral argument focused on whether the Corps jurisdictional determination meets the second condition of the Supreme Court’s test for identifying final agency action in Bennett v. Spear, 520 U.S. 154 (1997) – namely, whether the agency action determines rights or obligations or gives rise to legal consequences. Malcolm Stewart of the Department of Justice argued that the Corp’s opinion regarding whether certain land contains jurisdictional waters does not constitute final agency action because “it does not order any person to do or refrain from doing anything and does not alter anyone’s legal rights and obligations.” Several members of the Court appeared unconvinced, questioning whether the Corps treats the jurisdictional determination as binding. Mr. Stewart argued the determination is not binding on the landowner, who is free to disregard the Corps’ view and conduct the dredging activities. Chief Justice Roberts noted such course of action would be “a great practical risk.” Mr. Stewart responded that the other alternative is for the landowner to seek a permit. Justice Ginsburg replied that the permit process is “very arduous and very expensive.” Justice Breyer later summed up the alternatives:

One, spend $150,000 to try to get an exception and fail, or two, do nothing, violate it, and possibly go to prison. Those sound like important legal consequences that flow from an order that, in respect to the Agency, is final, for it has nothing left to do about that interpretation. And [] is perfectly suited for review in the courts.”

This case bears watching, given its implications for any and every farm and ranch with a puddle within its fences.

By the way, if you’re interested in listening to the oral argument in this case, go to Oyez.org, the place for watching, er, listening to the Supreme Court in action. I count it as one of life’s little pleasures.

Quote for the Day

The bottom line today is that water continues to be an under appreciated and under-valued asset. But water prices will eventually start to rise more quickly – as a result of on-going population and demand growth, drought and increasing scarcity. More and more major urban areas are beginning to bump up against the challenges of true scarcity. And as water prices increase, we will gradually pay more attention and modify our behavior – toward improved conservation and more efficient use. As prices inexorably rise, we will eventually be forced to confront and solve these problems, and truly recognize water’s fundamental value. But we aren’t there yet.

Steve Maxwell, “Talk is Cheap, Water is Cheaper,” 2014 Water Market Review

Quote for the Day

“Creative solutions to common problems will be found. The potential is limitless, needing only–as has always been the case in the West–the people to match the challenges: ‘a society to match the scenery,’ as Wallace Stegner expressed it.”

Teno Roncalio, Special Master of the Bighorn Adjudication of water rights, quoted in Wyoming’s Big Horn General Stream Adjudication, Wyoming Law Review (Vol. 15, No. 5, 2015).

What’s on Your Family’s Wish List?

I listened to an interesting seminar yesterday titled “Estate Planning in Agriculture: Protecting a Way of Life” sponsored by WealthCounsel.com. Stan Miller and Robert Serio were the presenters. Serio covered the Farm Service Agency (FSA) Subsidy Programs and the Natural Resource Conservation Service (NRCS) Programs. He cautioned attorneys to be careful to not to do anything in an estate plan that would cause their farmer and rancher clients to lose benefits under those programs. Quite interesting. I briefly reported on the take-a-way yesterday. 

Then Miller took over beginning with what he called “The Farm Family Wish List”:

  • Don’t disqualify for USDA subsidy payments and other government benefits,
  • Keep the court system of of the family business,
  • Keep the farm in the family forever,
  • Treat non-farming family members fairly,
  • Avoid the need to liquidate the farm in order to pay for the cost of long-term care, and
  • Avoid estate tax.

To that list, I would add “Avoid capital gains tax on appreciated property.”

Does Stan’s list mirror yours? What would you add to it or subtract from it?

More importantly, what have you done to make sure your wish list becomes a reality?

Water Rights and Water Wrongs

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A very interesting article about water at ProPublica.org
. Essentially, the pieces asks whether Wall Street–the good guys on Wall Street, of course–will help us achieve this:

 

[Hedge Fund manager] Disque Deane . . . supports the idea of setting aside what policy makers call “lifeline supplies” to guarantee households some minimal amount of water. But he says if markets jack up prices on higher levels of consumption, that may not be a bad thing. Anyone who wants to fill a swimming pool, water a golf course, or use billions of gallons of Colorado River water to grow cotton in the Sonoran Desert, he says, should have to pay for that privilege.

without our farmers and ranchers and small town America ending up like this:

Eventually, though, Crowley County passed a point of no return. With so much water gone [because farmers had sold their rights for the high prices offered], the empty irrigation ditches didn’t work; one lonely farmer at the end of the run would see all his water soaked up by the soil long before it ever reached his farm. And with fewer and fewer farmers around to share the expense of maintaining the ditch systems, the cost kept rising. Farmers had little choice but to sell, and all but 11 in the county did. The place literally dried up.

Kneeling in his driveway changing a truck tire last summer, Tomky’s son-in-law Matt Heimerich recalled what the town had lost. Though tens of millions of dollars in water rights were sold, few of the proceeds were reinvested in the community, he said. One by one, families moved away. The tomato and sugar factories shut down, and without goods to ship, the railroad stopped sending trains through town. Ordway’s car dealerships closed, and the tractor store went bankrupt. As though someone had pulled a bottom block out from a Jenga tower, Crowley County fell into an inexorable collapse.

“I couldn’t have eaten enough Prozac,” Heimerich said.

We don’t take water as seriously as we should. I think that’s self-evident. And pricing water differently and more sanely is, in theory, a good idea, so that we begin allocating it better than we do. But. There is always a but. And right now, I don’t know what comes after the but.

SAMSUNG

I know I don’t want farmers, ranchers, and small town America to disappear. Oh, and water rights are assets, assets that, as this story makes clear, are becoming more and more valuable as I write this. Assets that warrant good estate planning to preserve them for future generations. So there’s that.

On a related note, if you’re interested in water and water issues, may I recommend the always interesting podcast, Water Values hosted by attorney Dave McGimpsey? I discovered about a year and a half ago and listened to it regularly as I ran. As I ramped up my estate and business planning practice, I stopped listening, intending to return after I had things moving along in estate planning. I’m thinking it’s time to begin listening again, especially since farmers and ranchers make up such an important part of the two, dry, Western states that I serve.

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