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I. The Current Drought and the Future of Water Management in <br />Colorado <br />A. Background and Brief Overview <br />For at least the last three years, Colorado has been in the grip of a serious drought. This <br />year, as conditions became extreme, the state's residents have felt its full effect and <br />demanded that public officials and water managers respond. Notwithstanding demand <br />management measures, the most common response has been a call for more dams. <br />Though this reaction may hold some appeal, its efficiency, effectiveness and fairness <br />deserve close examination. In this report, after describing the state of the Colorado water <br />economy and the value of water in various uses, we: 1) identify the principles for <br />assessing future management strategies and projects; 2) review the hydrologic and <br />economic impacts of the drought; 3) appraise the drought response of water managers; <br />and 4) outline the structural and non - structural options for meeting future demands. <br />B. Water in Colorado <br />Colorado has a surprising abundance of water for a great variety of purposes, despite <br />relatively low and unevenly distributed rainfall and a perception of water scarcity. This <br />abundance is often obscured, however, by the inefficient way in which water is used. <br />Many, if not most, water management utilities are making significant strides toward <br />improving both their efficiency and system reliability. Nonetheless, while individual <br />users, whether in cities or in rural areas, may be efficient from their point of view, at <br />higher levels, like watersheds, the potential for improved efficiencies still exists. <br />Viewing water as scarce often propels people to embrace strong opinions on what they <br />see as a clear relationship between water availability and regional economic growth. <br />Most accept the paradigm of the garden — more water means more growth. Government <br />institutions, political leaders, agricultural and business interests, and ordinary citizens all <br />seem to believe deeply in this concept. Investments in water supply systems, whether for <br />irrigation or municipal and industrial purposes, are justified on the basis of their assumed <br />positive impact on economic growth. Even those who challenge the benefits of growth <br />usually do so while conceding that the water - growth relationship is immutable. <br />To be sure, in an urban setting water serves a utilitarian purpose and in agriculture it is <br />essential. In cities it goes hand -in -hand with other services and amenities citizens expect; <br />in rural areas it is used in abundance for irrigation. Few would contest the assertion that <br />the availability of natural resources has a role in facilitating regional economic growth. <br />Time and again, empirical economic studies reach a surprising, but irrefutable <br />conclusion: investments in water supply systems, particularly if locally financed, do not <br />have a noticeable impact on a region's growth. These counter - intuitive results suggest <br />that the process of planning and financing water resources development, particularly in <br />cases where a major share of the project funding will be generated locally, must be <br />rethought. If water is of limited or insignificant value in stimulating growth, public <br />