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longer. Third, evaporation losses compound the diminishing yield problem, becoming a major limiting factor in reservoirs' ability to provide relief both over extended drought conditions and for severe droughts that occur every few decades or less often. Finally, given the diminishing returns for new storage projects that would be fully integrated into existing systems, storage -yield ratios for projects designed to store wet -year water for drought protection are approaching, if not exceeding, 5 -to -1. This means that for 100,000 acre -feet of additional firm annual supply, the reservoir would have to store over 500,000 acre -feet and would cost well over one billion dollars. If reservoirs are built solely for drought protection, providing a full measure of protection requires keeping these reservoirs almost full until severe droughts are obviously underway. They cannot be used to provide water to existing demands during non - drought periods or to meet the demands of new growth. To do so compromises their drought protection capacity. Another consideration is that building reservoirs for drought protection does not eliminate the need for municipal water restrictions. Virtually all water providers that enacted watering restrictions in 2002 had sufficient storage supplies to meet their normal demands throughout the year. They enacted watering restrictions as a precautionary measure, recognizing that there is no way of knowing how long the current drought may last. With these limitations in mind, we find that water providers are increasingly developing "smart storage" — smaller reservoirs designed to optimize already- developed supplies rather than capture unappropriated peak season runoff. Smart storage is now commonly developed as a means for capturing and re- regulating reusable return flows, increasing the yields of exchange rights and augmentation plans, re- regulating the yields of changed irrigation rights to meet municipal demand patterns, and increasing yields from existing water rights and transbasin diversions. In some cases, existing traditional storage capacity has been rededicated to smart storage purposes with resulting increases in yields. While recognizing the progress water providers are making in developing smaller, off - channel projects, enlargements of existing projects and underground aquifer storage, we think that three basic elements constitute Colorado's water future: 1) conservation and demand management; 2) municipal - agricultural cooperation; and 3) supply integration, management, and development. In the three major basins we have looked at carefully — the South Platte, the Arkansas, and the Colorado -- we believe that this combination of measures can meet growing long -term urban demands. vi