It is amazing that Colorado continues to pursue a growth strategy throughout the state with the knowledge that we are basically out of water.  The issue of water is coming to a head in one part of the state.  Colorado is legally required to stop irrigating 25,000 acres in one river basin. If the mandate is not met, state water officials say they will turn off thousands of wells.  What river basin is most affected?  Can the state of Colorado legally turn off water?  What happens to the property owners in the area?  Is the state of Colorado creating a moral Hazard issue?

 

What is Happening in the Northeast part of Colorado?

For decades, farmers in the Republican River basin have pumped water from the underground Ogallala Aquifer to grow wheat, beans, corn, potatoes, and feed for cattle and hogs. But the water is running out. Flows in the Republican River system are shrinking as the aquifer depletes, making it harder for Colorado to send enough water downstream to the east to fulfill its agreements with Kansas and Nebraska.

To meet its obligations, Colorado is legally required to stop irrigating 25,000 acres in the southern part of the basin by the end of 2029 — more than a quarter of all irrigated acreage in that area. If the mandate is not met, state water officials say they will turn off wells for all 540,000 irrigated acres in the broader swath of the state that’s in the river basin, a move that would devastate the region’s economy and way of life.

Colorado officials in 1942 signed the Republican River Compact with Kansas and Nebraska and gave each state a share of the river’s water. But in ignoring the aquifer, the compact didn’t consider how depleting groundwater would affect the amount of water flowing past Colorado’s borders.

For decades, the three states debated how to account for groundwater use — including in a legal case that made its way to the U.S. Supreme Court. A series of agreements between the states aimed to fix the problem.

In 2016, Colorado officials agreed to retire 25,000 of the approximately 90,000 acres of irrigated land along the South Fork of the Republican River to come into compliance with the compact. The South Fork area runs along Interstate 70 between Arriba and Burlington and extends northeast to the state line, east of Idalia.

Note, these same officials made no commitments on residential growth which is using an increased amount of water

 

How do water rights work in Colorado?

It is important to understand how water rights work in Colorado before getting into the details of what wells will be shut off and who will have priority.

Water rights in Colorado are unique when compared to other parts of the United States. The use of water is governed by what is known as the “Prior Appropriation System”. This system of water allocation controls who uses how much water, the types of uses allowed, and when those waters can be used.

A simplified way to explain this system is often referred to as “first in time, first in right.” An appropriation is made when an individual physically takes water from a stream (or underground aquifer) and places that water to some type of beneficial use. The first person to appropriate water and apply that water to use has the first right to use that water within a particular stream system. This person (after receiving a court decree verifying their priority status) then becomes the senior water right holder on the stream, and that water right must be satisfied before any other water rights can be fulfilled.

What happens if the state does not meet its water obligations to neighbors:

If the 2029 deadline isn’t met, the state would be out of compliance with the compact. In a worst-case scenario, the state Division of Water Resources would shut off all the wells in the basin until a new agreement could be reached, said Kosloff, the state engineer.

Scientists estimate it would take 6,000 years to replenish the Ogallala Aquifer.

There is no such thing as “solving” a water issue like the Republican River supplies, said Tracy, the Colorado Water Center’s director. Water can only be continuously managed.

“My guess is that at some point, in 2035 or 2040, Kansas will realize there’s not enough water coming down the river and they’ll be back at it,” Tracy said. “We’re going to continuously be in this conversation forever. Get used to it.”

Can the state of Colorado actually turn off wells?

No, the state cannot just turn off all the wells in the basin as that would be considered government taking.  They must follow the process of water priority like how it is done in other basins.  There would be a call on the water based on the seniority of the water right.

 

Who decides what 25,000 acres are no longer irrigated?

Who has water will be determined by the seniority of their water rights.  The oldest water rights get priority over junior right holders.  Now the interesting part is how is this impacted by all the new development of housing in the area.  Many of these water rights are junior to the original farmers senior rights in the area but not subject to the appropriation system for other users.

Water priority system has a problem

Residential house usage of water is considered exempt under Colorado law so they would not be impacted by a call on water.  It is interesting as there are over 200,000 permits for ground water wells currently issued in our state and approximately 4,000 new permits are requested annually. Most of these wells are used for households and are considered “exempt” from the administration within the water rights priority system.

Aurora buys Ag water in Arkansas valley

It is not just residential wells that are a problem, municipalities are also buying up water left and right.  The most recent case is the city of Aurora.  The City of Aurora is poised to sign a deal that would allow it to periodically divert more than 7 billion gallons of water from the Arkansas River to the city every decade with the purchase of farmland in rural southeast Colorado.  Although the farmer who sold the rights made out great, this could further devastate these communities with the loss of jobs, tax revenue, etc…

Billions in real estate value will be lost

Without water for agricultural purposes the value of properties in the area are basically worthless.  The land could go from lets say 5k and acre to only a couple hundred dollars an acre as there is basically no use for the property without water.  Individual property owners will be holding the bag as values plummet.  Furthermore, without agriculture the area will essentially become a ghost town as there will be no tax revenue to fund any services (schools, police, fire, etc…).  What is happening in NE Colorado will be an absolute disaster for anyone that owns property in the area as the tax base will be eliminated and the area will essentially become unsustainable.

State of Colorado has created a moral hazard issue.

Various counties and states continue to pursue a growth at any cost strategy.  Look at all the growth in the front range from Pueblo to Ft Collins and now east of Denver.  All these new residents require water.  As more water is used for residential use, there is less water for agricultural purposes.  This is one of the issues we are seeing in the Northeast part of the state.  Take the South Platte River, most of this water is used for residential use along the front range including Aurora, Denver, etc… even though it passes right through the areas that will now be told that they can no longer irrigate their crops or livestock as they have for hundreds of years.

The moral hazard issue is that Colorado is choosing increased residential development over agricultural use.  In essence by our water policy, we as a state are subsidizing new developments and creating a moral hazard issue.

Let’s take for example the new bill in the state legislature mandating that every front range community allow accessory dwelling units (ADU’s).  On the surface this sounds good, but where does the water come from for the increase in people as a result of the ADU’s?  Is each homeowner going to pay a fee to secure more water rights for their increased usage?  Absolutely not, the growth is “basically” free by taking the water from other users.

Summary

The state of Colorado has created a moral hazard issue by continuing to not only allow, but also subsidize growth of residential development over agricultural uses. The Colorado strategy of growth without paying for the necessary water continues today with the requirement of the allowance of ADU’s throughout the front range. Unfortunately, someone will ultimately pay the piper and the farmers of NE Colorado are now seeing the direct consequences.

Whenever the government picks winners and losers in the economy we create huge issues that do not work out well in the long run.  If we eliminate the farms in NE Colorado billions of dollars in property value will be lost and most towns in the area will be lost.  Furthermore, without the production of crops, food prices will no doubt increase substantially.

What is happening in NE Colorado needs to serve as a warning for the state of Colorado and their land use plans.  Unfortunately, as we can see in this year’s legislature, the state is taking the opposite stance by continuing to promote more growth on the backs of agricultural users.  The unfettered growth of the last 50 years is not sustainable without considerable changes in water usage and development priorities. 

Fortunately, the policy fix is easy, make residential wells subject to the same appropriations of every other water user where first in time is first in line to level the playing field and ensure senior water users are adequately protected.  I’m surprised we have not yet seen a lawsuit trying to enforce “fairness” in the water wars that are just beginning.

I actually think that whomever brings this lawsuit would have a very good case and likely win based on past case law on water rights (like the right to wade) Unfortunately we are just at the beginning of the water battle so we will all need to stay tuned to see how this shakes out but one thing is for certain, the legislature has zero interest in solving this problem fairly.

 

Additional resources/Reading

 

1. https://www.denverpost.com/2024/03/03/colorado-republican-river-groundwater-shortage-wells-farming/
2. https://extension.colostate.edu/topic-areas/natural-resources/private-wells-for-home-use-6-700/
3. https://dwr.colorado.gov/services/water-administration/water-rights
4. https://coloradohardmoney.com/freedom-to-wade-huge-changes-to-co-private-propertyrights/
5. https://sentinelcolorado.com/metro/aurora-80-million-farm-water-purchase-from-arkansas-valley-no-buy-and-dry/

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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