ASPEN, Colo. — Melting snow and flowing irrigation ditches mean spring has finally arrived at the base of Grand Mesa in western Colorado.
Harts Basin Ranch, a 3,400-acre expanse of hayfields and pasture just south of Cedaredge, in Delta County, is coming back to life with the return of water.
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Twelve hundred of the ranch’s acres are irrigated with water from Alfalfa Ditch, diverted from Surface Creek, which flows down the south slopes of the Grand Mesa. The ranch has the No. 1 priority water right — meaning the oldest, which comes with the ability to use the creek’s water first — dating to 1881.
What makes the ranch unique among its Grand Mesa-area neighbors is its owner. Conscience Bay Company, a Boulder-based private real estate investment firm, bought the property in 2017.
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That fact alone has brought its owners scrutiny from neighbors and Western Slope water managers. Conscience Bay and its president, Eli Feldman, have been accused of water speculation — which means buying up the ranch just for its senior water rights and hoarding them for a future profit.
That is an accusation Feldman denies.
“Any time you come into a place that you’re not from, people are curious at best and skeptical and concerned at worst,” he said.
The ranch raises organic beef using regenerative techniques that operators say are better for soil health. Conscience Bay holds grazing permits on tracts of public land in western Colorado and Utah where the cattle feast on grass before being sent to California to be finished, slaughtered and sold under the brand name SunFed Ranch.
To the charges that he’s doing something untoward by investing in the ranch’s land and abundant water rights, Feldman said he’s just like any other major water user in the state putting it to beneficial use. The ranch is using the water to irrigate, he said.
“We’re growing grass and feeding it to cows and trying to improve the ground, improve the soil health and make a business out of it,” Feldman said.
Speculation work group
The conversation around water speculation has been heating up in Colorado in recent months. At the direction of state lawmakers, a work group has been meeting regularly to explore ways to strengthen the state’s anti-speculation law. The topic frequently comes up at meetings of Western Slope water managers: the Colorado River Water Conservation District, basin roundtables and boards of county commissioners.
Investments such as Feldman’s have been of interest to the work group, which consists of water managers and users from around the state and is chaired by Kevin Rein, state engineer and head of the Division of Water Resources.
“I think it’s a valid concern because they do see unusual parties, large parties that, again, aren’t the typical parties, purchasing those water rights, and so that’s the concern,” Rein said. “Are they speculating or are they purchasing just so they can flip it, as people say, in a few years for more money?”
Under Colorado law, a water-rights holder must put their water to “beneficial use,” meaning continuing to use the water for what it was decreed in order to hang onto it. But Colorado also treats the right to use water as a private-property right. People can buy and sell water rights, change what the water is allowed to be used for and, if given a court’s blessing, move the water from agricultural use to growing cities.
This system, used widely in the western United States, creates an opening for investors who see water as an increasingly valuable commodity in a water-short future, driven by climate change. A private-equity fund, Water Asset Management, is now the largest landowner in the Grand Valley Water Users Association, which provides water for farmers in the intensely irrigated valley, a short drive from Harts Basin Ranch. The purchases of the New York City-based company have raised suspicions among water managers and prompted the formation of the speculation work group.
Similar concerns have cropped up in agricultural communities throughout the West. A water transfer in Arizona from agricultural lands on the Colorado River to a rapidly expanding Phoenix exurb recently stirred up controversy. In Nevada, Water Asset Management is trying to market water held in an underground aquifer.
Colorado’s current anti-speculation doctrine is based on case law that says those seeking a water right must have a vested interest in the lands to be served by the water and must have a specific plan to put the water to beneficial use.
The work group has identified the following risks from speculators: investors’ obtaining a monopoly over a local water market; large-scale, permanent dry-up of agricultural lands; less water availability for other water users; and violation of Colorado’s values to see a vital public resource traded as a commodity.
Colorado is examining water speculation, and finding it’s 'all the problems' in one
Potential risks and solutions
The potential solutions to these risks are many, according to a draft document. The work group is exploring several of these, including creating a process to determine the intent of the purchaser; taxing profits from the sale of water rights at varying rates to encourage beneficial use and to discourage profiteering; imposing time limits on turnover of ownership to discourage short-term “flipping”; encouraging local governments to police investments through their 1041 powers; and creating a public-review process for water transfers that exceed some threshold.
The group has not coalesced around any of these potential solutions, but state officials said they are zeroing in on using the water court process to evaluate transfers as a way of spotting speculation.
The work group is supposed to submit a report, along with any recommendations from members, to state officials by August. But so far, the group has had a difficult time making sense of the thorny questions raised by these issues. Even trying to define what speculation is (and isn’t) and who is considered a speculator has been a struggle.
“It’s one thing to point at something and say, ‘Oh, that’s probably speculative.’ Another to actually put the legal definition on it,” said Alex Funk, agricultural water-resources specialist with the Colorado Water Conservation Board. Funk is also a member of the work group.
Discussions so far about reining in speculation have focused on the intent of the buyer. Can the state determine whether someone who is purchasing water rights intends to grow hay or build a residential subdivision? Or are they solely focused on the water rights’ future value? And how do you tell the difference?
“Do we want to protect against certain types of intent?” Rein said. “And then how do we determine that?”
Predetermining a water-right purchaser’s intent could prove to be a difficult task, akin to stopping a crime before it’s actually committed. Funk invoked the 2002 film “Minority Report,” in which a police detective (played by Tom Cruise), with the help of three psychics, tracks down would-be murderers and arrests them before any gun goes off.
“There aren’t speculation police running the state and breaking up these investments, right?” Funk said.
Financial water speculation
A draft report by the work group attempts to define two different types of speculation.
The first is traditional water speculation, which involves obtaining a water right without any plan or intent to put that water to beneficial use. The intent is to obtain a desirable priority date and then sell the water right to others who have a beneficial use.
This type of speculation has been addressed before in Colorado water law in what is known as the High Plains case. In 2005, the Colorado Supreme Court determined that a water-investment company was speculating because its plan for using the water was too expansive and nebulous, and the plan did not identify either the structures through which the water would be diverted or the specific locations where the water would be used.
The second type of speculation — and, because of WAM’s dealings in the Grand Valley, the one on which the work group is more focused — is financial water speculation. The work group defines this as the purchase and use of water rights with the primary purpose of profiting from increased value of the water in a short period of time. Financial water speculation may run counter to Colorado’s prior-appropriation doctrine because the primary intent is profit rather than beneficial use.
The concerns over speculation tap into a deep-seated anxiety that is prevalent in Western farm towns: the transfer of water from agriculture to cities. There are real examples of agricultural water being sold to cities, sometimes derisively described as “buy and dry,” and some rural communities have suffered economically as a result.
In some ways, the work group’s discussion of how to prevent speculation is really a broader discussion of how to prevent water transfers away from agriculture. The group has identified the large-scale, permanent dry-up of agricultural lands as the No. 1 risk from speculators. Part of Funk’s job is to head up a program of “alternative transfer methods,” which allow cities to temporarily buy or lease water from agriculture, but without the severe economic impacts.
“I think the issue with speculation is that what on paper might seem a very sort of small, isolated issue, as soon as you start sort of unpacking it a little bit, it’s essentially all the problems that Western water and rural communities are facing in, like, one issue,” Funk said. “So, as soon as you start unraveling it, you start running into other forces at play that are really beyond the state’s control or any one individual producer’s control.”
Impacts to ag
The work group is walking a fine line to come up with ways to deter speculation while not harming traditional agriculture producers in the process. In a big-picture sense, irrigators may worry about the impact to their community and way of life if all their neighbors sell to hedge funds. But when it’s their turn to receive a check for their water rights, they don’t want regulators doing anything that would make the process harder or devalue the ranch they have put their lives into, including restricting whom they can sell to.
It’s an oft-repeated adage that a rancher’s land and water rights are their 401(k) or their child’s college fund, and some say any new rules aimed at speculators should not make it more difficult for traditional ag producers to cash out if and when they want.
So far, the investment firms active in western Colorado have continued to lease their land back to farmers, or farm it themselves.
Carlyle Currier, a rancher in Molina and president of the Colorado Farm Bureau, has a seat on the Colorado River Basin Roundtable and his family has ranched in the Grand Mesa area for more than a century. Currier said until the investors attempt to sell it off, they’re not doing anything illegal.
“If the government can tell (someone) they can’t buy a farm and farm it, well, then they could tell me that, too. And I don’t want them telling me that,” Currier said.
The speculation discussion is also set against the backdrop of a potential demand-management program, the feasibility of which the state is currently studying. A demand-management program would pay irrigators on a temporary, voluntary basis to fallow fields and leave more water in the river. This water would be sent to Lake Powell to fill a 500,000-acre-foot pool that could be used to help the upper-basin states avoid a protracted legal battle with states downstream on the Colorado River.
Some say the exploration of demand management — including pay-to-fallow pilot projects in the Grand Valley — could have opened the door for investors who want to take advantage of the program to make easy money. Where there are opportunities, there are opportunists.
“Here in Mesa County, we’ve been watching a Wall Street investment firm buying up agricultural properties all with pre-compact water rights,” Steve Aquafresca, Mesa County’s Colorado River District representative, said at a board meeting last month. “I think it could be safely said that these actions probably would not have occurred if the state were not discussing the possibility of a demand-management program and if one particular major irrigation-water provider was not showing some willingness to entertain a demand-management program.”
Suspicion of outsiders
For all the concern about water speculation, there’s scant proof that it’s happening on a large scale on the Western Slope. Even WAM is not speculating, according to the current definition, as long as they keep the land in agricultural production.
“It does seem like there’s a lot of speculation about speculation,” Feldman of investment firm Conscience Bay said.
Instead, he said, old-fashioned suspicion of outsiders is at the heart of the issue.
“There’s people that view us as outsiders and we are not from here,” he said. “We know that. We know that damn well. And that’s not news to us.”
And there’s some evidence that he’s right. The Colorado River District, which protects Western Slope water interests, is developing a policy statement about water speculation. A draft of the policy says the district “recognizes the importance of locally owned agricultural lands and waters” and will work “to protect our state’s water resources from out-of-state special interests.”
And although these ideas didn’t get much traction, the work group has also floated two more potential solutions targeting outsiders: restricting the ability of out-of-state entities to participate in Colorado water court proceedings and prohibiting out-of-state entities from holding water rights.
“Is speculation just another word for investment (but it has) a negative connotation to it because it’s somebody that’s not from here?” Feldman said. “OK, well, do you not want to have investment in rural Colorado? Is that what we’re after? That’s where it would go if you put up enough barriers and hoops.”
Feldman says he is not the enemy. His operation isn’t the mom-and-pop homestead ranch of the Old West. It’s the investor-owned, employee-operated, risk-taking ranch of the New West. Harts Basin Ranch is looking for innovative ways to adapt to water scarcity and is participating in a program with environmental group Trout Unlimited to study consumptive use and how agriculture can stay productive while using less water. The group receives funding from the Walton Family Foundation, which also funds KUNC’s Colorado River reporting.
Feldman sees the heated discussion about speculation as a symptom of how Western communities are choosing to grapple with increasing water scarcity under climate change. There are those who explore new ways of running an old business and there are those who want to protect the status quo.
“At its core you see a real friction or conflict between a group of people that’s trying to make water policy more flexible to adapt to a changing climate,” Feldman said, “and those that are trying to impose more rigidity and prevent any change from occurring.”
This story was part of a collaboration between KUNC in Colorado and Aspen Journalism. Aspen Journalism is a local, nonprofit and investigative news organization that covers water and river issues. KUNC’s Colorado River reporting project is supported by a grant from the Walton Family Foundation. KUNC is solely responsible for its editorial content.
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