Arkansas - UNC - Inquiries into Buy and Dry_May2008

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January 20086, Notes to accompany presentations and posters 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 erosion etc., social impacts as directed, future conditions, and compliance with federal law and interstate compacts. Provides adequate information and institutions to allow successful markets and 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 transparent opportunity for trades of resources and arrangements for risk distribution and management. Opportunity for third-parties and governments 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 preferred to political processes because it allows negotiation flexibility for unique needs and desires, and certainty of property rights. Use the market when 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. Impacts 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 analysis 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 Thresholds 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 and 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 organizations, 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: Appropriate Collaborative Institutions Impacts are related to scale, and cumulative impacts are often regional. Identification of impacts and interests is somewhat new in relation to water transfers, partly because of the history of mitigation problems. New transfer mechanisms 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 regional recreational and environmental consideration, 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 preferences, as well as costs of management and organization.