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Comments to SWSI, November 3, 2003, by John Wiener 21 associated with inherent inefficiencies in current use and that minimal efforls toward conservation could yield the water requ;red for alternative uses." (Smith et ai, 1996.) January 2003, news reports indicated unprecedented levels of leasing from agriculture to municipalities, on a short-term basis, at very high rates paid for the water (Rockv Mtn News, Jan 11,2003; and see appended stories). Among the many bills in the legislature, HB03~1318 extended water banking statewide; other bills allowed easier (though still seriously limited) agriculture-to-municipalleasing, and increased administrative authority for temporary substitute water supply plans. These changes could dramatically increase the transfers of this type for the coming years. What's wanted? The social goals include minimizing disruption of agriculture and the local economies that depend on it, while meeting the needs of municipalities. Increased flexibility in water transfers is desired to reduce local impacts on areas of origin, and increase ability of agricultural users to retain title to water rights while making occasional transfers of water (Governor's Commission on Saving Open Spaces, Farms and Ranches, 2000). Agriculture, however, IS an important source of state income overall, and often locally critical. Also, agricultural landscapes and land uses are a very important amenity and source of environmental qualities highly valued in Colorado and elsewhere (e.g. Walsh et al. 1994; Feather et al. 1999; McGranahan, 1999; Fix et al. 2001; Heimlich and Anderson 2001). While there has been serious impact on agricultural areas from transfers, water availability and cost have not affected urban growth (Nichols et al. 2001), and are not expected to constrain or channel growth. Ideally, changes would be promoted by economic incentives to achieve more yield from water use, through increased efficiency. What's in the way of transfers? There are two kinds of problems which normally slow the flow of changes of water from one use to another, at present. First, in terms of the legal institutions, ".. .Colorado law generally does not provide an incentive for conservation." (Nichols et al. 2001: 140). Water not used is not the property of the conserver. In fact, the farm's water rights may be the most valuable asset, so there are strong incentives to avoid risking it by reducing water use. Under prior appropriation law, the extent of a water right is the extent of beneficial use, which excludes waste and means that excess is legally taken out of the right. There is no incentive for "saving" water, except where the water in question is "foreign" water imported from another basin, with the legal condition that no water rights in return flows from that water may be established. This allows trans~basin water, such as Colorado-Big Thompson Project water, and Frying Pan-Arkansas Project water, to be freely moved and traded. This water is considerably more valuable in the market (see Nichols et al. 2001 for recent review; the 2000 prices they report were likely considerably exceeded in 2002). But in the case of "native" water, water "saved" is legally lost, hurting the irrigator as well as failing to finance increased efficiency of application. Eventually, efforts to change this will probably be made law; Colorado bills failed for reasons likely to be fixed, in 1992, 1993, and 2001,2002 and 2003 (see Nichols et al. 2001: 140-141). Senator Dyer seems to suggest the change may be soon. Meanwhile, the trans-basin water held by to cities now IS insufficient to comfortably meet municipal demands, especially in drought years, so there is still strong pressure to move water from irrigation to urban uses; this will almost surely increase with the growth rates forecast to continue (Luecke et aI2003). Second, in terms of the engineering and evidence needed for legal proceedings, there are enormous transactions costs in making changes (Nichols et al. 2001 provide recent review; 143- 149), including both the costs of legally securing changes, through the Water Court in Colorado, and the costs of hydrologic evidence and argument supporting a claim of fact about the water which is legally transferable. These claims will include argument about the historic consumptive use, which is the transferable fraction of the water right, and the remainder of the water which is diverted but returns to the stream. The return flow is not legally owned by the diverter and is not transferable.