9

Central Arizona: The Endless Search for New Supplies to Water the Desert

Central Arizona was settled initially as a mining and agricultural oasis in the desert, but the area is now part of the fastest-growing, most water-short, urbanized state in the West (Figure 9.1). A 1991 survey of growth in Arizona found that “even in the depths of a real estate crisis in parts of the region, jobs and people continued to increase. . . . It has become the new California, a place where palm trees and the desert still beckon dreamers” (Johnson, 1991). Its water allocation laws and policies are premised on the desirability of sustaining the high rate of growth that began after World War II. The Arizona case study illustrates the problems that a water-short state faces in pursing a water policy premised almost exclusively on supply augmentation in the postreclamation era. This chapter looks at the role water transfers are playing in supporting the region's growth. It also examines the problems that have arisen because of the state's approach to water management and looks briefly at new legislation related to ground water recharge and transfers between basins.

Before 1980, Arizona mined its ground water reserves, secure in the belief that the federal government would eventually pipe a share of the Colorado River into the state's interior. In 1980, Arizona implemented a major new water policy, the Ground Water Management Act, designed to achieve four objectives: (1) ground water conservation, (2) the gradual conversion of agricultural areas around Phoenix and Tucson (and their associated water supplies) to urban use, (3) completion of an aqueduct to import Colorado River water,



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Water Transfers in the West: Efficiency, Equity, and the Environment 9 Central Arizona: The Endless Search for New Supplies to Water the Desert Central Arizona was settled initially as a mining and agricultural oasis in the desert, but the area is now part of the fastest-growing, most water-short, urbanized state in the West (Figure 9.1). A 1991 survey of growth in Arizona found that “even in the depths of a real estate crisis in parts of the region, jobs and people continued to increase. . . . It has become the new California, a place where palm trees and the desert still beckon dreamers” (Johnson, 1991). Its water allocation laws and policies are premised on the desirability of sustaining the high rate of growth that began after World War II. The Arizona case study illustrates the problems that a water-short state faces in pursing a water policy premised almost exclusively on supply augmentation in the postreclamation era. This chapter looks at the role water transfers are playing in supporting the region's growth. It also examines the problems that have arisen because of the state's approach to water management and looks briefly at new legislation related to ground water recharge and transfers between basins. Before 1980, Arizona mined its ground water reserves, secure in the belief that the federal government would eventually pipe a share of the Colorado River into the state's interior. In 1980, Arizona implemented a major new water policy, the Ground Water Management Act, designed to achieve four objectives: (1) ground water conservation, (2) the gradual conversion of agricultural areas around Phoenix and Tucson (and their associated water supplies) to urban use, (3) completion of an aqueduct to import Colorado River water,

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Water Transfers in the West: Efficiency, Equity, and the Environment FIGURE 9.1 Main waterways and related features, Aeizona.

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Water Transfers in the West: Efficiency, Equity, and the Environment state court constraints on transfers of ground water. Arizona law requires no state approval of proposed ground water transfers, although surface water transfers must be reviewed. There are no statutory procedures or substantive protection for area-of-origin interests or other parties who may be affected by a transfer but do not own water rights. Moreover, Arizona law does not recognize any connection between ground water pumping and streamflows, so there is no protection against the adverse impacts of ground water transfers on riparian areas and surface water rights holders. The Ground Water Management Act's mandate to achieve safe yield in ground water use by the year 2025 and the requirement that new real estate developments demonstrate a 100-year water supply created strong incentives for water transfers. It encouraged cities to reach beyond the boundaries of the urban “active management areas” (AMAs) to acquire and transfer water from rural agricultural areas. In effect, the act encouraged cities to buy farmland solely for its appurtenant water—so-called water farms (Table 9.1). Water farming is extremely controversial. Many people see it as a solution to Arizona's water supply problems because it provides the means to transfer the state's limited water supplies to areas of greatest need. Others, however, are extremely concerned about the adverse effects of water farming, especially on the people and environments of areas of origin (Checchio, 1988). THE SETTING Arizona's population is concentrated in the interior desert low-lands, where there is a substantial imbalance between dependable water supplies and the amount of water consumed. The state's growth is a testimonial to the ability of the human species to circumvent the limitations of the natural environment. State water policy is premised on the assumption that supplies can and must be found to meet the demands of continued population growth, especially in the state's two metropolitan centers, Phoenix and Tucson. Because of the high level of urbanization and associated commerce and industry, agriculture's relative contribution to the state's economy has declined sharply. Agriculture now contributes only about 2 percent of the state's employment, while it uses more than 80 percent of the state's water. Arizona relies on both surface and ground water supplies. Surface flows originating in the highlands of the Mogollon Rim and the White Mountains were used by the Hohokam in prehistoric times along the lower Gila and Salt rivers. Mormon settlers revived the

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Water Transfers in the West: Efficiency, Equity, and the Environment TABLE 9.1 Arizona Water Farms   Owner Location (county) Acres Acre-feet per Year (ML per year)a Price ($ millions) Date Purchased McMullen Valley Phoenix La Paz 14,000 30,000 g.w. (37,000) $30.5 1986 Avra Valley Tucson Pima 22,518 60,000 g.w. (74,000) $24.73 1971-1986 Pinal County Farms Mesa Pinal 11,607 29,918 g.w. (36,900) $29.14 1985 Planet Ranch Scottsdale La Paz 8,400 13,500 s.w. (16,650) $11.6 1984 Crowder-Weiser Ranch American Continental La Paz 7,685 50,000-60,000 g.w. (61,600-74,000) b 1985 Lincoln Ranch Lincoln Ranch Ltd. Partnership La Paz 1,040 5,200 g.w. 6,300 s.w. (6,400, 7,770) $ 5.0 1984 APS Arizona Public Service Co. La Paz 12,550 b $ 9.0 (book value) 1980 aML = megaliters; g.w. = ground water; s.w. = surface water. bUnavailable. SOURCE: Woodard et al. (1988).

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Water Transfers in the West: Efficiency, Equity, and the Environment The Central Arizona Project has the potential to divert 1.2 million acre-feet (1.5 million ML) of Colorado River water to Phoenix and Tucson. Originally conceived of to bring water for irrigated agriculture, by the end of the 1970s its capability for supplying urban and industrial users was paramount. CREDIT: Todd Sargent, University of Arizona. irrigation economy in the Salt River valley after the Civil War. The Mormons colonized northern Arizona between 1873 and 1876, settled in the Salt River valley in 1877, and then began to farm along the Gila. The settlements were close to the state's major mining districts, which the Mormons helped provision (Piremen, 1982). As was the case with the Truckee-Carson Irrigation District in Nevada, the first projects taken on by the new Bureau of Reclamation

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Water Transfers in the West: Efficiency, Equity, and the Environment in the early 1900s in the Salt River Valley involved the rescue of ailing irrigation projects. The bureau's construction of Roosevelt and other dams on the Salt River stabilized the valley's agricultural economy (Fradkin, 1981). In 1917 the bureau transferred ownership of the distribution facilities to the Salt River Project, which delivers water and markets hydroelectric power to the Phoenix area. Other major surface uses are the Welton-Mohawk Irrigation Project lands along the Gila River above Yuma with water diverted from the Colorado, and the San Carlos Irrigation Project along the Gila on the San Carlos Indian Reservation above Phoenix. Even after the Salt River Project captured almost the entire flow of the Salt drainage, surface supplies were inadequate to support the continued high water consumption required for growth in the Phoenix metropolitan area. Colorado River water was unavailable for financial and legal reasons, except to users along the mainstream, largely near Yuma; only the federal government could have afforded to pay the immense construction and pumping costs of moving Colorado River water to the metropolitan areas. In addition, Arizona shares the lower Colorado River with California, Nevada, and Mexico. Under federal law, Arizona is entitled to an “equitable share” of this interstate stream, but the entitlement was not clearly defined until 1963, when the court limited Arizona to 2.8 million acre-feet (3.5 million megaliters (ML)) per year of the lower basin's allocation of 7.5 million acre-feet (9.3 million ML) per year. Existing diversions from the Colorado in the Yuma area are about 1.1 million acre-feet (1.4 million ML). Arizona 's unused Colorado entitlement has always been available to California and, to a lesser extent, to Mexican users. Completion of the Central Arizona Project (CAP), diverting Colorado River water, will give the state the capacity to transport 1.2 million acre-feet (1.5 million ML) of Colorado River water to Phoenix and ultimately to Tucson. Until the 1980s the CAP was viewed as the complete answer to Arizona 's water needs. While waiting for the project's completion, the state made up the difference between its 2.5 million acre-feet (3.1 million ML) of dependable surface supplies and water demand by mining ground water. By the end of the 1970s, the state was running an annual ground water overdraft of between 2.2 and 2.5 million acre-feet (2.7 and 3.1 million ML). The original strategy of CAP proponents was to guarantee the supplies necessary to continue the expansion of irrigated agriculture, but by the end of the 1970s the purpose of CAP had shifted to the bailout of urban and industrial users. Because of the full range of competing demands for CAP water — agriculture, municipal and industrial, and the satisfaction of Indian claims—the project is no longer the complete answer to the state's

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Water Transfers in the West: Efficiency, Equity, and the Environment water needs. The CAP will reduce but not eliminate the need for ground water mining. Thus, in the long term, transfers will still be necessary to support the continued growth of the state's urban areas. Water transfers have a long but limited history in Arizona. Water transfers occurred as early as 1948, when the city of Prescott bought farmland in the nearby Chino Valley and developed a well field to pump water for domestic use. Controversy arose even then, with local farmers charging that the Prescott pumping exceeded the amount normally needed for agriculture and led to water declines in the basin (Woodard, 1988). Some additional water farming activity took place in the early 1970s, when Tucson began buying and retiring farmland in the Avra Valley, located about 15 mi (24 km) away. More than 21,000 acres was bought for a total purchase price of $22.7 million (at an average price of just over $1,000 per acre) (Woodard 1988). Although even these early water farm purchases caused concern in their areas of origin and led to numerous lawsuits, they did not create the intense statewide controversy that bloomed when it became clear that the Ground Water Management Act would limit pumping and the CAP would not be a complete substitute source of water to support unlimited growth. These early purchases differed from recent ones in several ways (Woodard 1988): the land was relatively nearby; the water was in the same hydrologic basin, although in different subbasins; the water transfers were limited in scope and driven by a relatively immediate need for water; the land was in the same county, so property tax impacts were internalized; and the cities incorporated the purchased land into their service area, ensuring an adequate future water supply for local residents. WATER INSTITUTIONS Arizona water law is the product of the historic assumption that water should not be a limiting factor in the state's economic development. This assumption is reflected in the appropriation doctrine under which surface rights were recognized, as well as in pre-1980 Arizona ground water law, which did not recognize hydrologic surface-ground water relationships and thus allowed virtually unrestrained ground water pumping. Ground water was not subject to even the mild conservation limitations inherent in the doctrine of prior appropriation (Leshy and Belanger, 1988).

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Water Transfers in the West: Efficiency, Equity, and the Environment Today, surface water is administered under the appropriation doctrine through the Department of Water Resources (DWR). The DWR also administers the Ground Water Management Act of 1980, the act that ultimately placed the state's immense ground water resource under management in the metropolitan areas of Tucson and Phoenix and in Pinal County. The Ground Water Management Act drove the state's transfer activities by allowing formerly prohibited transfers with few restrictions. Prior to 1980, Arizona followed the common law of ground water. Transfers are limited under common law doctrines, but in 1976 the Arizona Supreme Court went further (Farmers Investment Company v. Bettwy, 1976) and held that ground water could not be used off the land from which it was pumped if other users of the same aquifer were injured. The decision “created a storm of protest from the strong Arizona mining lobby” (Kyl, 1982). Industry, working together with cities, succeeded in reversing the decision in the 1980 act. Because the act did not establish any mechanism for evaluating, conditioning, approving, or disapproving such transfers, an unregulated market in rural water as a source of population and economic expansion for urban Arizona was created, and a controversy of historic proportions was generated. This approach is consistent with Arizona's tradition of water policy decisionmaking. Throughout Arizona's history, the state's water decisions have typically been made outside of formal policymaking institutions and, instead, by direct negotiation among the powerful water-using interests (Gregg, 1990). It is an approach that began early in the state's history, when settlers developed the Salt River valley, even before the 1902 Reclamation Act. This and other early projects set the model for federal reclamation policy: federal money and state control. And, in reality, control was provided by the state 's most influential water users. The Salt River Project (SRP) was created in 1917 to repay the nonreimbursable costs of the project, which had been built by the Bureau of Reclamation, and has become a major supplier of water and energy in the state. Another local institution, the Central Arizona Water Conservation District (CAWCD), was created to handle the contracting and repayment obligations for the CAP. The CAWCD may or may not accrue as much power as has been exercised by the SRP. The Bureau of Reclamation, with its large investment in the state, including the SRP, the Welton-Mohawk Project, the CAP, and the huge Colorado storage project, Lakes Mead and Powell, is a major presence in the state system, but it does not possess the power that one might expect given the scale of its projects. Crucial operat-

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Water Transfers in the West: Efficiency, Equity, and the Environment ing and contracting power was lost to the two local agencies, and the bureau's power to allocate the Colorado—except in times of severe, sustained shortage—is constrained by the law of the river and newly emerging environmental-energy conflicts. Likewise, the Gila River above the confluence with the Salt River near Phoenix is regulated by the San Carlos Irrigation Project, a federal Bureau of Indian Affairs (BIA) project. The BIA is not, however, a major participant in state water politics; off-reservation agricultural water users are major beneficiaries of the project. When agriculture was the state's most powerful interest, Arizona refused to restrict the use of ground water by owners of overlying lands. Agriculture was strong enough to resist pro rata pumping cutbacks suggested during the negotiations that led to the Ground Water Management Act. Collectively, irrigators have powerful property interests in federally developed surface water to complement the state-created grandfathered ground water rights recognized by the state legislature in 1980. Municipalities, as agents for the state's growing urban population, are now the dominant force in Arizona water politics, but they have carried forward the style of brokered deals to support the dominant use of water. The concentration of the state's population in two metropolitan areas confers unusual power on those who supply water to these areas. Water service in Phoenix is bifurcated between the Salt River Project, which has access to both surface and ground water, and non-SRP areas. The city of Phoenix holds substantial surface water rights, but most non-SRP metropolitan areas are dependent on ground water rights and CAP water. Concentrating economic and political power in Phoenix has not led to centralized, comprehensive management. Instead, it led to an unstable combination of ad hoc joint actions and frequent competition among independent municipalities, especially such major suburbs as Scottsdale, Tempe, and Mesa. Because water providers have a responsibility to provide long-term assured water supplies, they tend to perceive the highest value of water to lie in its role as a critical component in economic growth. This view distresses other water interests concerned with water as a community value in areas of origin or as an ecological, recreational, and scenic amenity. Supply augmentation has been the gospel of the state, and transfers are simply a modern means of augmenting supply since the federal government will no longer build big water supply projects. Historically, the entire political apparatus has tended to support supply augmentation as the basic water policy even when doing so may not have been in the rational self-interest of some participants. The sustained and disciplined support for the CAP for

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Water Transfers in the West: Efficiency, Equity, and the Environment more than 20 years, even as its purpose shifted from supplemental irrigation to municipal and industrial supply, is in the tradition of unified support for supply development in the Salt River Valley that has dominated water policymaking there in the last century. Circumstances forced the major players to supplement this policy with conservation in 1980. Arizona was forced to conserve its ground water when Secretary of the Interior Cecil Andrus, on behalf of the Carter administration, refused to support funding for completion of the CAP until the state took steps to reduce its ground water pumping. Governor Bruce Babbitt used the funding denial to force the three major water user interests—urban, agricultural, and mining — to agree to the most stringent ground water conservation regime in the nation, the Ground Water Management Act of 1980. Basically, mining and urban interests struck a deal with agricultural interests about the rate and price of the transition from agricultural to urban use. In brief, agriculture was forced to yield its long-held claim to ownership of all underlying ground water and to accept a stringent short- and long-term conservation regime. Water was shifted from agriculture to urban development, but agriculture was able to capture much of the value of ground water by authority to sell its rights for transfer to urban areas. The 1980 management plans for the Phoenix and Tucson AMAs included support for intensive watershed management (brush removal) and cloud seeding as augmentation measures, despite hostility from mountain communities, outdoor recreationists, and summer-home owners, and uncertain scientific and legal research. In short, the state still relies on distributive politics, which depends on consensus among the large user interests about how the resource will be used to the exclusion of other, more diffuse or less politically powerful interests (Martin et al., 1988). State political leaders have accepted the need for the CAP as an article of bedrock faith in face of the decline of its original beneficiary, agriculture, and serious criticisms of the efficiency of the project (Martin et al., 1988). Radical as the Ground Water Management Act was, it did not break the general pattern of policymaking by brokered agreements among traditional elites. The act was brokered by a small group of representatives of agriculture, mining, and urban users; the cities' spokespersons were not representative of a diverse range of environmental, social, and economic concerns, but of supply augmentation to ensure unconstrained growth. Farmers were protected by clearing title to water and authorizing transfers; rural community interests were not broadly represented. The resulting agreement was presented to the state legislature on a “take it or leave it” basis, and the

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Water Transfers in the West: Efficiency, Equity, and the Environment legislature took it. The relative power among the traditional interests has shifted some over time, but the number of players at the table has not greatly expanded. THIRD PARTY IMPACTS There are five separate major transfer regimes in Arizona: (1) Colorado River water, (2) non-Colorado River surface water, (3) ground water, (4) sewage effluent, and (5) Indian reserved water rights. Transfers in these first three areas, as driven by the Ground Water Management Act, are discussed first, followed by discussion of impacts in the fourth and fifth regimes. Surface and Ground Water Transfers and Their Social and Environmental Effects The Ground Water Management Act of 1980 reflects a series of conscious water allocation choices to a much greater degree than is the case with most state water allocation legislation. The act mandates the goal of elimination of the ground water overdraft by the year 2025. Overdraft will be reduced by a series of 5- and 10-year plans promulgated by the state's Department of Water Resources that apply to the state 's most populous areas and to the center of its remaining irrigated agriculture. The act divides the state into three areas: (1) Phoenix, Prescott, Tucson, and Pinal County are designated active management areas, and the first three of these are subject to the no overdraft goal; (2) nonagricultural uses are only about 2 percent of Pinal County's consumption, so the goal in this cotton-and citrus-growing area is to preserve the agricultural base as long as possible; and (3) three other agricultural areas are frozen in size by being designated as irrigation nonexpansion areas (INAs). Outside of AMAs and INAs, there is little management or regulation of ground water development. Ground water use is controlled by the pre-1980 common law reasonable use doctrine, but general stream adjudication on the Gila River— which was begun to quantify Indian reserved water rights—may become a vehicle to subject non-AMA ground water to the appropriation doctrine and to integrate ground and surface rights (Leshy and Belanger, 1988). For example, in 1988 the presiding judge issued an order defining appropriable water as including subsurface flows that support surface ones. Colorado River water is available to Arizona as a result of congressional legislation and a U.S. Supreme Court decision (Arizona v. California, 1963) that confirm the state's equitable share of this inter-

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Water Transfers in the West: Efficiency, Equity, and the Environment state resource. The linchpin of Arizona's ground water use policy has been reliance on the CAP, a tax-subsidized vehicle for pumping water 2,000 ft (667 m) uphill from the Colorado to central Arizona. Outside of the Colorado and Salt rivers, surface use and thus surface transfers make up a minor portion of the state 's total water consumption. Arizona is entitled to 2.8 million acre-feet (3.5 million ML) of Colorado River water, of which 1.2 million acre-feet (1.5 million ML) are to be delivered by the CAP. In 1968, however, Arizona had to subordinate the CAP to the claims of California and the upper basin to get the federal government to pump the water over the mountains to Phoenix and Tucson. Paradoxically, the availability of CAP has spurred interest in ground water transfers because it provides the physical means to convey the water. Rural communities consider themselves especially at risk from the lack of review of transfers from nonregulated areas to AMAs because the 1980 law encourages transfers. When water farming first began in 1948, the water farms were adjacent to the place of intended use and the original understanding was that the cities would confine themselves to adjacent agricultural areas. Hence, no effort was made to address the consequences in remote rural areas. Water farm purchases in the late 1980s triggered intense controversy because of the large scale of the land purchases and the potential economic, social, and environmental costs. Water farming in western Arizona is possible because the CAP canal is a means of transporting water to Phoenix during dry years if space is available. Use of the canal for ground water transport has not been completely resolved. In the three urban AMAs the basic purpose of the act is to manage the conversion of agricultural land to urban uses through land transfers. The act places the major burden on agriculture to conserve water and creates economic incentives for the conversion from agricultural to urban use. Transfers are permitted under restricted conditions. The underlying assumption is that there would be a close correlation between the source of the water and the urban use. Existing wells may continue to pump if they qualify for one of four vested rights. The right must be a grandfathered irrigation right, a service area right, a state withdrawal permit, or a storage and recovery permit. In brief, agricultural land that was retired from production in anticipation of urban use can obtain an “irrigation grandfathered right.” The right is based on historic pumping patterns, but historic water duties will shrink over time as progressively more stringent conservation measures kick in. To use the water for urban purposes, grandfathered rights must be converted to Type I rights. To qualify for a Type I right, land

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Water Transfers in the West: Efficiency, Equity, and the Environment must be permanently withdrawn from farming. The maximum amount of ground water that can be pumped is 3 acre-feet (3.7 ML) per acre per year. Type I rights must be withdrawn from the land originally associated with the right, but they can be transferred. Type I rights may be transferred within AMA subbasins, but rights acquired after 1986 cannot be transferred out of an AMA. Type I rights can be transferred from outside an AMA to land within an AMA in the same basin or subbasin even if other pumpers suffer damage. Inter-subbasin transfers require the payment of damages. Intra-AMA transfers were made more complicated in an effort to confine water providers to their service areas. Rights may be acquired and transferred between subbasins subject to the limitation that transportation in excess of 3 acre-feet (3.7 ML) per year requires the payment of damages. The major incentive in the Ground Water Management Act to transfers is the requirement that no new land development may occur unless the developer can guarantee adequate supply to meet anticipated needs for at least 100 years. To calculate this supply, only the amount of water that could be pumped when the AMA reaches safe yield can be counted as a guaranteed supply. Although CAP contracts may be added to this base, CAP water counts only until the year 2001. As a result, the Ground Water Management Act created strong incentives for cities to purchase water farms and to transfer water from non-AMAs to AMAs because it linked new development to imported water. The Ground Water Management Act removes many barriers to transfers and exchanges, but it leaves many third parties vulnerable to the costs of transfers, especially environmental and area-of-origin values. Transfers of both surface and ground water, which are generally hydrologically related, can have serious environmental consequences. Transfers and exchanges can stress or eliminate riparian ecosystems, which exist in limited numbers in the state and many times contain rare and threatened species. For example, some cities, such as Prescott, cannot receive CAP water because they are too far from the CAP aqueduct. However, they are seeking to exchange their CAP rights for other surface rights held by other interests. Such exchanges may affect the minimum flows of streams. The riparian system may adjust to the reduction in minimum flows by migrating toward the stream channel with recruitment of young riparian trees, while the width of the riparian band is reduced through loss of trees on the edges of the floodplain. If these adjustments reach an equilibrium, the availability of riparian habitat will not drastically change. But adjustments do not take into

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Water Transfers in the West: Efficiency, Equity, and the Environment account periodic spring floods, which may destroy the inwardly migrating riparian community. The ultimate consequence may be a narrowing or perhaps loss of the riparian band, with little or no recruitment to compensate for these losses. The reduction or loss of the riparian band reduces wildlife habitat, threatens stream bank stability, and degrades downstream water quality. Transfers can be designed to offset this loss if they provide instream flow protection. Arizona is one of the few states that allow private instream appropriations. In 1983 the state approved an instream flow appropriation by an environmental organization and has since approved three more, but the application process appears to be on hold, with more than 70 applications pending as of early 1991. Instream flow appropriations are, at best, a minor means of protecting riverine ecosystems because these rights are always junior to all existing consumptive rights. However, given the scarcity of surface flows, instream rights may also be acquired by the purchase of existing senior consumptive rights. The Public Trust Doctrine, although not yet in use in Arizona, may be considered in the future to protect riverine ecosystems on public lands. The land surface also can be damaged by transfers. When water is transferred away, wetlands in the area of origin may be drained and farmland retired. When farmland is retired, as in the Avra Valley west of Tucson, the vegetative cover changes. Fallow fields attract weeds such as Russian thistle (tumbleweed) that then blow onto neighboring lands. Dust and erosion also can increase unless a proper substitute vegetative cover is established. Water farms have been identified as possible causes of economic and social disruption. There is a large gap between the law and the expectations of both urban and rural residents. A survey of community leaders in rural areas found most of them believing that waters originating in their watershed belong to their area, although the bedrock principle of prior appropriation is that the right to use water is not tied to the watershed of origin. Further, they believe that communities will suffer substantial losses if water is removed and that these losses cannot be compensated by fiscal transfers (Oggins and Ingram, 1990). One of the most controversial examples of environmental damage by water farming is the city of Scottsdale's purchase of the Planet Ranch in La Paz County. The ranch pumps water from a large shallow aquifer supplied by the Bill Williams River and raises thousands of acres of crops. Scottsdale has had plans to increase the water reserves originally held by the Planet Ranch by acquiring an additional 75,000 acre-feet (92,510 ML) of excess flood flows from Alamo

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Water Transfers in the West: Efficiency, Equity, and the Environment Lake upstream, which currently recharge the aquifer. To avoid abandoning its water rights during the interim period while it is arranging transport of the water by the CAP canal or another conduit, Scottsdale must continue to use the water. Irrigated acreage has expanded in order to perfect more water rights. As pumping has increased, the riparian forests adjacent to the ranch have died; forests downstream in a U.S. Fish and Wildlife Service refuge are stressed except where beavers have created ponds. The manner by which the water is transported to Scottsdale is critical. If the water is piped out of the Bill Williams River, streamflows will continue to decrease. However, if the city uses the Bill Williams River to transport water back to the Colorado River and then into the CAP aqueduct, streamflows in the Bill Williams River and associated riparian values could be preserved. In 1988 and 1989 the state tried to resolve some of the rural-versus-urban conflicts by designating some rural ground water basins as urban reserves (or “sacrifice areas,” as seen by rural residents) and withdrawing others by designating them as environmentally sensitive areas. This effort failed in the legislature. It is clear that a balance between equity and efficiency has yet to be struck in Arizona. These water transfer issues remain a part of the legislative agenda in Arizona. Area-of-origin communities have strong reasons for attempting to revisit water transfer policy. They would like compensation for tax losses and economic losses, and a share of the profits made in the sale of water to higher-valued urban uses. The most urgent desire, however, is for assurance that sufficient water will be left to sustain reasonable levels of economic and population growth in rural areas (Gregg, 1990). Rural people are questioning why the AMAs, in order to reach “safe yield” use rates of their own ground water aquifers, are permitted to exhaust aquifers elsewhere in the state. Although these equity arguments seem strong, there is no real incentive for urban interests to yield the advantages they have from the present law. In 1989 the Arizona legislature killed legislation that would have prevented or limited transfers from most rural areas but would have allowed them from nine specifically designated basins, six of which were in La Paz County. In 1990 the legislature ignored area-of-origin concerns again and proposed a “ground water replenishment district ” for the Phoenix AMA. Finally, in 1991 the legislature joined supply augmentation and area-of-origin protection. A regional management authority was created for the Phoenix area, which can levy taxes to replenish ground water. The authority must use the taxes to replenish CAP water before it searches for additional supplies. To protect areas of origin,

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Water Transfers in the West: Efficiency, Equity, and the Environment the legislation imposes a ground water transportation fee schedule ranging from $3 to $30 per acre-foot and permits “voluntary” payments to the area of origin in lieu of property taxes. The state still has not confronted the issue of whether safe yield can be achieved under the current policies or whether more stringent measures such as land retirement will be needed (Glennon, 1991). Effects of Transfers of Sewage Effluent The Arizona Supreme Court has made effluent a major source of transferable water. In 1989 the court held that treated effluent is a separate source of water from surface and ground water and that it may be sold by municipalities, over the objections of downstream water rights holders, subject only to the beneficial use requirement. Thus, although cities have no duty to continue to discharge effluent, this court decision may preclude the use of a stream for carriage to contract purchasers because the court suggested that existing appropriators may use the water among themselves (Arizona Public Service Co. v. Long, 1989). Still, effluent will become the major source of golf course irrigation and Indian water rights, especially as the U.S. Environmental Protection Agency and the Arizona Department of Environmental Quality set higher water quality standards for effluents released into surface streams subject to the Clean Water Act. This may cause municipalities to seek other outlets for effluent use. Unfortunately, if effluent has been the sole perennial source of instream flow, as in the Salt River below the Phoenix wastewater treatment plants, riparian values are likely to suffer if the effluent is put to other uses. The loss of this water source may be extremely detrimental to certain riverine systems. Studies are needed to evaluate this on a case-by-case basis. Effects of Transfers of Indian Water Rights Arizona has many Indian reservations, both on the Colorado River and in central Arizona, close to Phoenix and Tucson. Collectively these Indian tribes assert the largest block of Winters claims. Arizona, along with other western states, shares a tendency to envision apocalyptic consequences of the fulfillment of Indian claims. In practice, Indians must either seek federal or state assistance to turn paper water claims into wet water or must sell or lease the water to non-Indian users. Thus tribes have some incentive to accept far less than their maximum entitlement in return for capital to initiate development projects. Indian water rights are in various stages of quantifi-

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Water Transfers in the West: Efficiency, Equity, and the Environment cation. Many remain unadjudicated, but some tribes have obtained congressionally negotiated settlements. As more water is dedicated to the reservations, economic incentives are created for the Indians to trade this water for cash. Whether or not Indian water rights can be transferred off the reservation is unclear. It appears that such transfers will require congressional consent. The Tohono O' odham and Ak-Chin settlements have sanctioned the transfer of Indian CAP water to municipalities, and these will undoubtedly influence future legislation. CONCLUSIONS Arizona illustrates an aspect of the water transfer issue that is not present in many of the other studies. In the Truckee-Carson basins, the Imperial Valley, the Central Valley, the Yakima basin, and Colorado cases, increased transfers would be an efficient response to the water demands of urban areas or environmental values. Further, in some of these areas, existing laws and allocation institutions may unduly impede transfers. The situation in Arizona is the opposite. It is not clear that large-scale rural-to-urban transfers represent the most efficient and fair allocation option open to the state. Existing laws and institutions unduly favor this option to the exclusion of other means of meeting the state's water demands and at the expense of unrepresented third party interests. The state's long history of preferring supply augmentation at any cost to any form of conservation has shaped the use of water transfers. Instead of a break with past allocation practices in the name of fairness and efficiency, water transfers represent the continuation of past allocation practices. Arguments on both sides of the water transfer debate in Arizona can be compelling. Indeed, the current free market approach does promote the most economically efficient use of water resources by allowing water to move into urban areas willing to pay high prices for it. But this leaves the state's rural populations and other less powerful, diffuse values at risk and without a strong voice in the decisionmaking process. And the question remains: Is the market approach the best way to allocate the state's scarce natural resources, particularly one as critical as water? Clearly, there is a public interest or community value in water that must be protected. Arizona lacks the policies and mechanisms needed to facilitate a full discussion of the merits and problems of water transfers among all affected parties. The state's historical style of water resource decisionmaking—which relies on private negotiations among major interests —acts as a disadvantage in addressing this issue equitably and with long-term vision.

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Water Transfers in the West: Efficiency, Equity, and the Environment As this report was being drafted, changes occurred in Arizona's approach to water management. Having recognized some of the problems arising from the Ground Water Management Act of 1980, the Arizona legislature in 1991 passed two pieces of legislation that attempt to improve the state's water transfer process. The Ground Water Transportation Act (S.B. 1055) represents a compromise between rural and urban interests. For rural areas the measure protects water supplies for economic growth, whereas for urban areas it protects the ability to obtain supplemental water to assist in demonstrating an assured water supply. In general, the bill restricts transfers of ground water from rural ground water basins to AMAs, with some exceptions. The bill determines the quantities of ground water available to AMAs that can be used to demonstrate an assured water supply and sets fees or voluntary in lieu payments to be made by AMAs for water transfer. The Ground Water Replenishment Act (H.B. 2499) was passed in conjunction with the Ground Water Transportation Act. It authorizes the establishment of a ground water replenishment district for the Phoenix AMA. The ground water replenishment district may lease wells from irrigation districts for transfer; however, limits are set on the depth of ground water withdrawal and the rate of decline. It is anticipated that surface water within the AMA will be used for ground water replenishment when ground water transfers take place. REFERENCES Arizona v. California, 373 U.S. 546 ( 1963). Arizona Public Service Co. v. Long, 160 Ariz. 429, 773 P.2d 988 ( 1989). Checchio, E. 1988. Water Farming: The Promise and Problems of Water Transfers in Arizona . Issue Paper No. 4. Tucson: Arizona Resources Research Center. Farmers Investment Company v. Bettwy, 113 Ariz. 520, 558 P.2d 14 ( 1976). Fradkin, P. L. 1981. A River No More: The Colorado River and the West. New York: Alfred A. Knopf. Glennon, R. J. 1991. Because that's where the water is: Retiring current water uses to achieve safe-yield objectives of the Arizona Groundwater Management Act. Arizona Law Review 33:89-114. Gregg, F. 1990. The widening circle: The Groundwater Management Act in the context of Arizona water policy evolution. In Taking the Arizona Groundwater Act into the Nineties, the Proceeding of a Conference. Tucson: University of Arizona, Udall Center for Studies in Public Policy and Water Resources Research Center. Johnson, D. 1991. Arid economy, desert states thrive. New York Times ( May 13):A1, C3. Kyl, J. L. 1982. The 1980 Arizona Ground Water Management Act: From inception to current constitutional challenge. University of Colorado Law Review 53(3):471-476. Leshy, L., and J. Belanger. 1988. Arizona law where ground and surface water meet. Arizona State Law Journal 20(3):657-748.

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Water Transfers in the West: Efficiency, Equity, and the Environment Martin, W. E., H. M. Ingram, D. C. Cory, and M. G. Wallace. 1988. Toward sustaining a desert metropolis. In Water and Arid Lands of the Western United States. New York: Cambridge University Press. Oggins, C., and H. Ingram. 1990. Does Anybody Win? The Community Consequences of Rural-to-Urban Water Transfer: An Arizona Perspective. Issue Paper No. 2. Tucson: University of Arizona, Udall Center for Studies in Pubic Policy. Piremen, B. 1982. Pp. 179-180 in Arizona Historic Land. New York: Alfred A. Knopf. Woodard, G. C. 1988. The Water Transfer Process in Arizona: Analysis of Impacts and Legislative Options. Tucson: University of Arizona, College of Business and Public Administration .