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SUGGESTED PRINCIPLES FOR WATER TRANSFER INSTITUTION DESIGN – Avoiding unintended consequences and creating participation to provide certainty 1. Role of the State "Referee" for technical and administrative management, to protect property rights including but not limited to water rights. Defends interests in water quality, soil eros ion etc., social impacts as directed, future conditions, and compliance with federal law and interstate compacts. Provides adequate information and institutions to allow successful markets an d reduce transactions costs. Provides assurance of certainty of priority. Fosters capacity of local governments to identify and secure needs and interests, usually within markets. 2. Role of the Market Fair and reasonably transpar ent opportunity for trades of resources and arrangements for Opportunity for third-parties and governments risk distribution and management. to seek or preserve conditions they desire, for amenity, tax-related, recreational, environmental or other interests, by purchase, lease, easement or otherwise. Market allocation is pref erred to political processes because it allows negotiation flexibility for unique needs and desires, and certainty of property rights. Use the market when it is possible and adequately supported. 3. Certainty is an Essential Purpose Creation of successful alternatives to sale of water rights requires correct specification of property interests, and provisions for adjustment of deals, and adequate efforts to foresee and manage impacts and surprises. Impact s on transferor areas include regional and cumulative impacts, such as total changes in employment, habitats, species, salinity and flow impacts. Failure to anticipate thresholds and limits will threaten certainty. Therefore, the scales of impact anal ysis and the quality of assessment must be sufficient to anticipate adverse surprises which would remove incentives to avoid water rights sales. If the new program is launched without adequate efforts to provide certainty, surprises will favor some interests over others, and may deny achievement of the policy goals. 4. Allocation Within Th resholds is Important Failure to anticipate thresholds has been illustrated in the South Platte and Arkansas Basins where well users were abruptly brought into compliance with prior appropriation and in some cases taken out of business. (Abrupt adjustment is also underway in the Republican River area). However a limit or threshold arises, from water law, endangered species, a TMDL, or intent to retain some level of agricultural activity, there will be need to allocate within the limit. Parties hoping to join a market who discover that all permits or all capacities are taken may threaten the legitimacy a nd certainty of arrangements privately made which suddenly prevent other participation. And, reallocation may be important in the future. 5. Transferor "Internal" Allocation by Market Within transferor organiza tions, there are two sets of adjustments should be possible using market processes. First, resource re-allocation for public purposes, such as salinity reduction, or purchase of environmental conditions may be important. Second, individual situations may call for flexibility within transferor organizations such as mutual ditch companies. Farms and families may want different outcomes and things change. Certainty in the long term requires internal adjustability on the small scale, and proper scale to accommodate individual property rights and preferences while avoiding organizational crisis. 6. Scale Matters: Appropri ate Collaborative Institutions Impacts are related to scale, and cumulative impacts are often regional. Identification of im pacts and interests is somewhat new in relation to water transfers, partly because of the history of mitigatio n problems. New transfer mechanis ms may need formal collaborative organization (co-ops? districts? ditch companies?) to manage impact assessment and allocate within self-organized areas. There may also be need for re gional recreational and environmental cons ideration, to represent interests new to the market and identify opportunities for coordination and efficiency. Enabling wider participation using markets should more fairly match costs and benefits. Scale issues include areal extent of transferor organization, regional impacts and participant prefer ences, as well as costs of ma nagement and organization. 7. Permanence, Practicality, and Partnerships Buyers of water under long-term deals (e.g. 75 years) will not want to risk insecurity of supply if prices and supplies have changed – as they doubtless will. But, ownership and "buy-and-dry", or occasional lease-ba cks onto limping farm operations th at won't support new technology and partnership expense are not the only answers. Legally, this is leasing, but economically and practically, it is . Deals can be designed to assure a fair chance for everyone at th e end, or to postpone the en d, and the value for everyone can be increased. The same people who pay water rates also voted 110 times in Colorado to spend $3.4 Billion dollars in taxes on conservation, open space, and farm and land preservation (Trust for Public Land "conservation vote" on website). Simplicity is not the only virtue! The government job is not only to "get water now as fast and The cities are where most of "the public" in "public interest" lives. cheap as possible" and forget the impacts. Real partnerships are possible. Cities may not be the best choice for managing farms, revegetation, and agricultural enterprise, but they can ma ke wonderful exchanges with rural areas in education and other common purposes. Reasons for ending a long-term lease are the same as reasons for selling a fee simple titled water right; parties may both share in the benefits of a re-a llocation or may share in the benefits of maintaining an arrangement. Infrastructure will always exert a stabilizing influence.