Understanding the Real Fight Over Water in Arizona

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1:27Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, Arizona water. I'm like, I'm really fascinated by this topic and I also have a really hard time wrapping my head around it. We sort of hear different things. So just to lay the groundwork here or the groundwater, we have interviewed a land broker in Arizona and we have also interviewed an alfalfa farmer. Yes. And water has come up every time. Yes. And we sort of hear different things from those two stakeholders. So I remember the farmer was sort of blaming the property developers for water shortages.

2:09And then the property developers are like, actually, agriculture uses the majority of water in the state. And at the same time, you have concerns over water availability. And we saw some news on that front recently. Yeah, so at the beginning of the month, I believe the governor of Arizona announced this plan to sort of constrain the amount of new development that will be allowed around the Phoenix area, which is, of course, one of the fastest growing areas. And as you mentioned, like the developers will say, oh, we have plenty of room to add more homes because the farmers are taking up 80 percent of the water that we have in the desert.

2:44And the farmers say, well, there wasn't really a problem with water until everyone started moving to our state. I'm imagining that Spider-Man meme of everyone pointing fingers at each other. But I think the big difference and what's happening now is that we are starting to see water shortages or constraints affect development decisions. Right. So then the big question is like, OK, so Arizona and some of these other southwestern states that in part get their water from the Colorado River all have to conserve water to somewhat to some extent. There's been this mega drought in the southwest for, I think, like 25 years now.

3:20Some of the underground aquifers, they're depleting at some pace. The water from the rivers is lower than it used to be. So, and then, and we hadn't even, you know, we were talking about housing versus agriculture. There's also a lot of industry and the semiconductors. Semiconductors, yeah. So, we sort of have to get a sense, I think, of the big picture of, like, frankly, who's going to lose out? Who has water today that won't have access to it in the future? Right. And how do you make those decisions? How do you decide what to prioritize? Right. Because with all utilities, it's never like a pure market.

3:52There's not just like a, I don't, or at least I don't think, you know, it's like when you like try to wrap your head around like how the Texas grid works, you know, it's not like there's like some price of electricity and who pays the most. It's like there's auction mechanisms, there's subsidies, et cetera, all kinds of complexity. I think Texas grid is a bit of a special case, but point taken. I think, I think Arizona water might also be in that case of many special cases. So we really do have the perfect guest, someone who is steeped in water and water policy and made a whole career of it. We're going to be speaking to Catherine Sorensen.

4:23She's the director of research at the Kyle Center for Water at the Morrison Institute for Public Policy at Arizona State. Previously, she was the head of Phoenix Water Services. So someone who really knows water and going to break it down. So Catherine Sorensen, thank you so much for coming on Odd Lots. Really appreciate you joining us. Thank you. I'm really excited for our conversation. Why don't you start just in the very sort of just go back a little bit a few weeks ago. And the governor of Arizona did announce these constraints to some extent on new construction capacity around Phoenix. What was announced and why?

5:03Yeah, that's that's a great question. And there is a complicated answer to that. I told you it's not going to be an easy one. No, it's not an easy one. So what that related to was actual, it was actually sustainable groundwater management in the Phoenix metropolitan area. So the in Arizona, we have some of the most progressive groundwater management laws that you will find not only in this country, but literally in the world. Back in 1980, we passed groundwater management that effectively ties water availability to the ability to grow. And so what that means is that if you're going to subdivide land, which is typically how growth occurs, particularly for, you know, what we call subdivisions, right?

5:56Like residential subdivisions. Right. In the Phoenix metropolitan area, if you are going to subdivide land and grow, you have to prove that you have 100 years of water available for that development. It is a really high bar to me, necessarily so, because you can imagine that people will only invest in our economy. enterprises will only come to the phoenix area if they understand that we have secure water supplies because we're out here in the middle of the desert right so what the governor announced is actually that uh all the groundwater in the phoenix metropolitan area is essentially spoken for it is allocated and expected to be used by those who have a right to it over the next 100 years.

6:47And so her announcement really was that you can continue to grow, but if you are going to continue to grow, it needs to either be in a place that already has demonstrated this 100-year assured water supply, or if you're going to grow out on the fringes of the Valley of the Sun, outside of the boundaries of places that have this 100-year assured water supply designation, you can't grow on groundwater. You can grow on other water supplies, but not groundwater. So it was essentially a way of protecting the groundwater so that it is available for those who already have a claim to it and for those who come after.

7:33So let me ask, let me back up even further all the way, I guess, to like the Paleolithic era. But when we talk about water availability in Arizona and in Phoenix specifically, setting aside constraints currently, how much water is there and where is it coming from? Because of course you make the, you distinguish between groundwater versus other sources. So what exactly is available in that area? You know, I love this question because it's super important. uh central arizona in particular is blessed with very large and very productive groundwater aquifers that means in layman's terms there's a lot of groundwater unfortunately it's fossil groundwater meaning that it is not annually renewed by mother nature at any significant rate it's like an oil field right right okay and probably more valuable to us I will say.

8:35But Arizona also, of course, has its own rivers. Those rivers are depending on snowmelt from our mountains. And Phoenix in particular is located where three of the state's main rivers come together. so although people you know criticize Phoenix for being a big city out in the middle of the desert what they don't really understand is that Phoenix was actually very carefully chosen by ancient Native Americans who first settled there and who have lived there since time immemorial because Phoenix is where three big rivers come together so there's a large amount surface water. There's also this native groundwater, fossil groundwater.

9:20And then we import Colorado River water from Western Arizona into Central Arizona as well. So there is a lot of water. There's enough water for what we most value. I think the question is that there is probably not enough water for everything. So we really have to dial in on what are these things? What are these enterprises? What are these uses of water that we know? I guess we'll just keep jumping back and forth between the current time in history, the ancient era. But you mentioned that per the governor's new order, that if you want to build or grow in certain areas, you can still do it. you just have to find another source of water that's not the groundwater, that the ground, that the hundred years of groundwater availability is essentially spoken for already.

10:19Can you talk through, I guess, some of the, maybe it's the economics or the considerations that would go, you know, into thinking like, okay, some entity wants to grow. What is the second best source of water for them that if they no longer have access to the sort of underground fossil water? so it is all about economics there are alternatives the the question is how expensive are those alternatives and would you not just be better off economically by developing more in the center of the valley of the sun in the phoenix metropolitan area where there is already a 100 year assured water supply designation right so this in some way balances the economics between continued sprawl which was cheaper on groundwater versus infill development where water supplies are more assured but yeah there are alternatives there are farmers that are willing to basically sell their higher priority water rates and an entity could theoretically purchase those water rights off of the main stem in western Arizona, the main stem up of the Colorado River, and import them through the Central Arizona Project Canal into Central Arizona.

11:46That is hugely controversial, not to mention extremely expensive, but for example, the town of Queen Creek, which does not have a designation of a 100-year water supply, the town of Queen Creek is in the process of doing just that because they want to continue to grow. So for them, the economics work. For individual developers, though, I think that's a much steeper proposition, right? It's one thing for an entire town to decide to import those types of supplies. If you're just an independent developer, that might be substantially more difficult, I'd say. But that is a possibility. There are also Indian tribes in central Arizona that at least historically have been willing to lease some of their water for these purposes.

12:39It's really expensive, but it's possible. There are also groundwater basins outside of the Phoenix metropolitan area that are specifically designated for the purpose of being pumped and transporting that groundwater into the Phoenix metropolitan area. Sort of like an Owens Valley in California, if you know that story. You pump someone else's groundwater basin dry and import it into an urban center. Not saying that's sustainable, but it is legally feasible in Arizona. And then, of course, there's reclaimed water. There's the potential to use desalinated brackish groundwater or ocean water. There are alternatives.

13:27These are all just really, really expensive. So if you're a developer, you've got to be thinking, OK, would I rather try to pursue this continued sprawl type subdivision development? or might I be better off purchasing more expensive land that comes with an assured water supply?

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15:50It's all good. I think we're on like two separate timelines. No, but I find it helpful for like thinking about like the different types of water, etc. You're totally right. Well, okay, so just on this note, but the current water constraints, what are they being caused by? Is it simply economic development and population growth? Is it climate change? I imagine it's a combination of a bunch of different factors. But can you maybe explain the constraints to us and then how those constraints inform the current thinking around water availability? So the constraints relating to groundwater that I described have to do both with farming and with continued urban development.

16:36You can imagine there are a lot of demands on our aquifers, right? There's continued farming in the Valley of the Sun. Farming in the desert southwest is a very water intensive enterprise. enterprise. Farmers continue to draw from the aquifer and they have the ability to do so in perpetuity. They were essentially grandfathered in to the groundwater pumping restraints under the 1980 Groundwater Management Act. So they have a perpetual right to pump and they continue to do so. And then, of course, the cities have grown in population as well, particularly since World War too. And, and, you know, they draw on the aquifer for potable water needs as well.

17:20And then there's various industries that also draw from the aquifer. And so I think it's a combination of all of those demands that are creating the constraints on groundwater. Essentially what the state is coming out and saying is that, look, all that groundwater is spoken for, you know, And not just spoken for today, the state looks out 100 years. We're very proactive about our water management out here in the desert because we have to be. But what the state is saying is that that groundwater over this 100 year chunk of time is spoken for. So those constraints are kind of caused by a combination of all those demands, but also the intentional regulatory decision to protect and guard those resources for the future.

18:08Right. The state is essentially signaling, no, we're not just going to let you deplete this aquifer until there's nothing left. Regarding surface water, that's a really different constraint. So I mentioned that Phoenix is located where three major rivers come together. The Valley of the Sun is lucky to enjoy the flows of the salt and Verde rivers. That river system is actually managed by the Salt River Project, it's called. It is one of the Bureau of Reclamation's oldest projects. and dates back, I believe, to, oh my goodness, 1910. I don't know. I'll probably have that wrong. It's very old. It predates statehood for us.

18:55The flows of that system actually are relatively resilient and sustainable, even in the phase of climate change. There's a couple of reasons for that. Scientists have studied the hydrology of those watersheds And certainly climate change will affect those watersheds. We can expect some diminishment of snowpack and precipitation in our mountains. But the way I understand it, not being a hydrologist, is that they're saying that, look, you know, Arizona is already baked, right? It's already hot and dry here. And yeah, it might get a little hotter and drier, but they don't expect that the flows of the Salton Verde River system will be affected as much as, for example, the flows of Colorado itself might be affected.

19:51And then if you add to that, the fact that the entire Valley of the Sun, the whole Phoenix metropolitan area, used to be agricultural. And that, again, dates back all the way to time immemorial with the Native Americans who first farmed this valley. And in fact, our modern day canal system follows in many ways the same ancient canal systems that Native Americans first did. So we were always an agricultural valley, particularly during World War II. A lot of that agriculture increased because of the need to grow cotton for war material. And at the time, the bull weevil was decimating cotton in the southeast.

20:37And so Arizona was a natural place to grow it. And our cotton yields are very high because it turns out all cotton needs is water and sun. We got a lot of sun. so we've been in agricultural valley now what's interesting about that is that it takes on the order of three to six acre feet per acre to grow cotton or alfalfa in our hot desert sun whereas it only takes about an acre and i'm sorry an acre foot per acre to grow a subdivision Hmm. Urban water uses are much less intensive per acre than farming. And so interestingly, as the Valley of the Sun converted from what was largely an agricultural valley into an urban one, there was a natural water savings built in.

21:31So whereas we used to use about one and a half million acre feet of water off the Salt and Birdie River system, today that system delivers about half that amount so there's just this very natural water savings that's built into the way we grew and then i'm sorry i'm being really i'm no this is great this is really interesting yeah okay good stop me at any time uh but then if you take a look at the colorado river system that's where we have just some real problems um the the colorado river system is over allocated probably at least by 1.2 million acre per year, maybe more. And then if you add on top of that, the fact that we've been experiencing, you know, as you said, 20 years of what has been one of the worst droughts on the paleo record.

22:27And the fact that the climate is changing and scientists are telling us that the flows of the Colorado River might diminish by as much as 30 percent. You know, So that's a really big problem, right? And I think that's why the commissioner of the Bureau of Reclamation came out and said, hey, look, guys, you're going to have to cut millions of acre feet in water consumption to stabilize this river system. So, I mean, that was a great answer. And you sort of hit on things that both of the other guests that we've talked to about this topic brought up and see it from their angle. And so, you know, we talked to Chase Emerson, a real estate broker, And he made the exact point that you made that actually, as Arizona's water consumption shifts from agriculture to residential use, it actually results in a net savings and actually improves the sustainability.

23:19On the other hand, you know, we talked to an alfalfa farmer and he's like, you know, our family's been doing this on this land for eight generations or something like that. And so, you know, as you noted, you know, you mentioned that farmers are sort of grandfathered in. So can you sort of quantify or talk about the sort of implicit subsidy to agriculture that comes from having been grandfathered in? And like what is the gap between how much, say, farmers are willing to pay for an acre foot of water versus a housing developer either inside the Valley of the Sun or nearby? You know, the subsidy doesn't really come in the form of water.

24:02OK. Let me explain that in a couple of ways. Yes, under the 1980 Groundwater Management Act, farmers were basically grandfathered in. And they have a perpetual right to pump groundwater. I guess you can view that as a subsidy, though the cities and private water companies that also lay claim to groundwater don't really pay much for that groundwater either. Okay. Right. And I don't know that I would say that farmers are subsidized so much. I think that the difference in the cost that a developer pays for water versus what a farmer pays for water really has more to do with the fact that development is not allowed to rely on mining this fossil groundwater.

24:55And instead, they have to invest in renewable service water supplies and particularly in the infrastructure necessary to deliver it to customers' tasks. So I think that really the cost difference has more to do with the acquisition of renewable water supplies and the need to develop infrastructure, if that makes sense. Yep. And on the Colorado River, it's different. So the Groundwater Management Act applies to central Arizona. It does not apply to western Arizona. And in western Arizona, on the mainstim of the Colorado River, the farmers and Indian communities have the highest priority water rights.

25:41Because, of course, western water lives based on first in time, first in right. Turns out Native Americans were here first. Turns out, you know, farmers kind of came along next. And so they just they have the highest priority water rights. Any subsidy that they receive really relates more to the infrastructure that often but not always has been built by the federal government, typically with repayment provisions, though at times those repayment provisions are lax, I guess. Does that make sense? It does. Yeah, absolutely. It leads into something I wanted to ask you, which is you mentioned infrastructure there.

26:26And I guess one question I have, you know, maybe even before we get to tougher decisions about constraining development or maybe pricing water in a different way, but to what degree can these water constraints be solved with better water management and newer infrastructure? Reinvestment in aging infrastructure will certainly help, but it will not be the answer. It's difficult to deploy that at scale. So, for example, when I was director of Phoenix Water Services, I asked the engineers to calculate how much water the city of Phoenix was losing to leaky pipes. Now, to put this in context, here in central Arizona, the cities are regulated such that their water losses in their distribution systems cannot exceed 10%, which is very low.

27:26If you look nationwide, water losses are probably at least something more like 30%. But because water is scarce here, we're regulated to a higher standard. But the amount of water that is lost in Phoenix water distribution system pipelines is about 25 ,000 acre feet of water per year. That's a lot of water. But when you're talking about a problem on the Colorado River that is on the order of 2 million acre feet, you're not going to get there. So it's probably a part of the pollution space. I think an important one. I can get on my pipeline soapbox if you want me to, but I think that investing in pipelines is probably one of the best things we can do for water quality and for water resiliency, but it's unlikely to be deployed at scale to fix the problems on the Colorado.

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30:19Learn more at chase.com forward slash business card. Chase for business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. Can I ask you a question about perspective? Because, you know, I don't have any impulse. I mean, I really like the Southwest. But it's very unlikely that I'm going to be moving to Arizona anytime soon. That being said, I regularly do consume food, including beef that may have come from cows that may have eaten alfalfa that was grown, you know, in Arizona. So I have a fancy racehorse.