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Water Bankin An increasingly important aspect of both water mar- keting and water transfers is water banking. A water bank operates in a similar way to a monetary bank but instead of placing money into fhe bank, parties pay for water to be reserved for use at a later date. Tangible water banks can take the form of under- ground aquifers or surface reservoirs in which the water is stored. Oftentimes, banks will devise conjunctive use arrangements with area users DROUGHT WATER BANK The state government's first foray into water bank- ing was through the state Drought Water Bank established in 1991 under emergency conditions. At the beginning of the fifth year of the 1987.1992 drought DWR bought more than 800,000 acre-teet of water tor approximately $100 million (at $125 an acre-foot) from willing sellers in response to requests by water-short agencies. Half the banked water came from growers with water rights (both riparian and appropriative) who tallowed approximately 170,000 acres. One-third of the water came from groundwater substitution and the remaining amount was purchased storage water, bought primarily from Yuba County Water Agency. The banked water was sold for $175 an acre- foot (plus fransportation costs) to agricultural and urban suppliers with critical needs. About 80 percent of the sales were to southern California and the San Francisco Bay Area. However, DWR ended up selling slightly less than half the water purchased, partly because heavy rains in March reduced demand. DWR's water bank was considered a very effective regulated water market. According to a study by RAN D, A Retrospective on California's 1991 Emergency Drought Water Bank, by Howitt, Moore and Smith of the economic consequences of the 1991 water bank, urban areas supplied with banked water received a 891 million benefit. The financial gains in agricultural regions that bought banked water were estimated to exceed losses in areas that sold water and fallowed land. Additionally, the RAND report found that growers who participated in the bank reduced their operating costs by more than 10 percent and increased their farm investment, which included purchases of irrigation efficiency equipment. The study also found that crop sales dropped 20 percent and that the overall loss at employment and income of third parties in local communities was minimal. However, according to the study, the third-party impacts were "excessively whereby users are paid by the bank to purchase and use more expensive surface supplies instead of pumping groundwater - sometimes referred to as in-lieu recharge. Though water banking is gaining momentum throughout the rest of the Southwest, California is no newcomer to the concept. concentrated" in certain locations, in particular, Solano and Yolo counties. Another drawback of the bank was that all purchases at bank water were funded by beneticiaries at the water allocation. The riparian environment, which was in serious decline, was short changed, accord- ing to some environmentalists, because there were no direct water bank purchases made for its protec- tion. Also, the fallowing at land used to grow cereal and grain crops reduced toad and habitat tor water- fowl and wildlite. Legislation was passed in the latter halt of 1991 to fund the purchase at 28,000 acre- feet of water for the Calitornia Department of Fish and Game for instream flow releases and wildlife refuges in the San Joaquin Valley. DWR operated a similar drought water bank in 1992. It purchased 193,000 acre-teet at water at $50 an acre.toot, primarily through groundwater exchange, and sold it tor $72 an acre-toot plus transportation costs. Transferred water from fallowed land was not included. Unlike the 1991 bank, DWR bought water only after a willing buyer agreed in writing to purchase it. DWR's water bank likely will be implemented in the event at future droughts and with this in mind, DWR prepared an EIR assessing potential environmental impacts. Several recommendations were made to avoid potential negative impacts of future water banks. These include factoring the effects on local communities and natural resources into marketing decisions; spreading water purchases over a larger geographical area to avoid concentrating fallowing in certain regions; having a reliable mechanism in place to ensure that sufficient water is lett instream tor the protection of tish and wildlife - either through a direct purchase or tax on transferred water; and holding water that will be transferred through the Delta in upstream reservoirs and releasing it at designated times to maximize benefits to fisheries. 17