Colorado River Basin states gird for court battle over water

Bloomberg News

Colorado River Basin states are setting aside millions of dollars for potential court fights over dwindling water supplies amid an impasse that highlights increased credit uncertainty.

Upper Basin States — Colorado, New Mexico, Utah, and Wyoming – and Lower Basin States – Arizona, California, and Nevada — have not reached a full consensus on post-2026 operating guidelines for Colorado River reservoirs. 

Multiple agreements that govern usage of the river expire at the end of the year, amid long-term drought conditions that have lowered the river's major reservoirs to critical levels. Water levels in Lake Powell, for example, are now expected to drop so low that the Glen Canyon Dam's ability to release water will be reduced and no longer able to produce hydropower by the end of the year, the Bureau of Reclamation reported in February.

The river supplies water for 40 million people, supports generation of hydroelectricity, and sustains millions of acres of farmland. 

After no agreement emerged by a Feb. 14 deadline, U.S. Interior Department announced it was moving forward to finalize guidelines by Oct.1, while Secretary Doug Burgum said "a fair compromise with shared responsibility remains within reach."

A draft environmental impact study released by the Bureau of Reclamation in January said it offers guidelines "that would be sufficiently robust and provide improved predictability to all water users and managers in the basin." It also pointed to "critically low storage in Lake Powell and Lake Mead, significant hydrologic variability, and the anticipation of drier future conditions." 

The document drew objections from upper and lower basin states during a comment period that ended March 2.

Colorado called the document flawed.

"It inappropriately includes federal actions that are outside the Secretary of the Interior's authorities, it fails to impose adequate shortages in the Lower Basin to protect the system, and it relies on water that doesn't exist to make certain alternatives work," a statement from Gov. Jared Polis' office said.

None of the alternatives in the draft EIS comply with the 1922 Colorado River Compact "in direct violation of law," Arizona Department of Water Resources Director Thomas Buschatzke said.

"Each of the five proposed alternatives wrongly assumes that the upper basin states have no duty to comply with their delivery obligations and would make no meaningful reductions in usage and therefore requires the lower basin states to accept disproportionate and inequitable reductions that contravene the Lower Basin's rights under the compact and the Law of the River," his comment letter said.

The Central Arizona Project, a 336-mile system that supplies Colorado River water to 80% of the state's population, contended the state would bear the brunt of mandatory supply cuts under a "no deal" alternative.

The lower basin states had offered allocation reductions of 27% for Arizona, 10% for California, and nearly 17% by Nevada to secure an agreement, according to a Feb. 13 statement from their governors.

The Nature Conservancy warned last month that "failure to reach consensus could lead to litigation that would likely take decades to resolve and delay progress toward the solutions needed at this crucial moment for the basin and its communities."

Colorado Basin states are building litigation war chests. 

An Arizona bill passed by the House and pending in the Senate seeks to appropriate $1 million for the state's Colorado River Litigation Fund.

Republican State Rep. Gail Griffin, the bill's sponsor, said the money would be added to $1 million the state appropriated last year to cover litigation costs should a deal not materialize. 

"The Upper Basin states don't agree with losing one drop and (want) the Lower Basin states to absorb any cuts," she told a Senate appropriations committee last week. "We hope we don't have to litigate."

Utah lawmakers passed a bill last week that sponsor Republican State Rep. Rex Shipp said gives the state's natural resources department $5 million to mainly fund litigation over Colorado River issues that are critical to the state. Another $1 million was appropriated for the Colorado River Authority of Utah to prepare for litigation and expand technical modeling and analysis supporting the state's negotiating position.

Wyoming's annual appropriations bill signed by the governor on March 6 earmarks $5 million for "the purpose of resolving legal issues pertaining to protecting Wyoming interstate water rights and obligations, Wyoming water rights associated with the Colorado River Compact of 1922 and the Upper Colorado River Compact of 1948."

In Colorado, Polis signed a supplemental appropriations bill for the law department last week that allocates $1.061 million for the defense of the Colorado River Basin Compact. 

The challenges facing the river basin have been clear for years.

The continuing lack of a negotiated solution for the Colorado River is leading to less certainty in credit outcomes for municipal utilities and local governments that depend on the water, according to Matt Fabian, president and partner at Municipal Market Analytics. 

"Similar to how climate change and federal retrenchment are forcing state and local costs higher, the lack of states' ability to coordinate among themselves is also like an incremental cost because you wind up with less efficient decision making and overallocation to infrastructure," Fabian said. 

A MMA report this month focusing on the Colorado River crisis suggested the most serious risk would be "a fragmented, structurally more expensive approach to infrastructure that, in an affordability context, may lead to political interference with utility rate setting, revenue management, etc."

Affordability is the aim of Arizona legislation seeking to impose a four-year moratorium on cities and counties imposing higher utility, fee, or transaction tax rates unless approved by 60% of voters.

Republican State Rep. Justin Olson, the sponsor of the bill and a resolution to put the moratorium on the statewide ballot should the bill be vetoed by Democratic Gov. Katie Hobbs, cited an "affordability crisis" ahead of the measures' passage last week by the House Committee of the Whole.

Amendments to the bill and resolution specify that property taxes and special assessments backing bonds would not be subject to the moratorium, but did not address utility and local government revenue bonds. Other changes include allowing higher rate or fee revenue that results from increased service demand or tax base growth and  new or higher rates and fees imposed to fund the acquisition and delivery of water supply.

The measures remain particularly troubling for revenue bonds, according to Timothy Stratton, managing partner at The Stratton Law Firm in Scottsdale.

"This legislation, in addition to being crippling for a community struggling with water issues, also limits access to the capital markets and impairs prior contracts," he said in an email. "If the legislature wanted to soften the blow of this bad legislation, it would need to exempt existing financings from this moratorium on rate increases."