Repost - Legacies of the Monterey Agreement Diablo Grande

Spillway News Spring and Summer 2001
Legacies of the Monterey Agreement
Diablo Grande

Diablo Grande:
A Signature Experience
By Steve Burke

“A signature experience is that defining moment or event
that tells you who you are. It is what you are known for,”
says Diablo Grande developer Donald Panoz.1 Diablo
Grande, a 29,500-acre new town and destination resort in the
hills west of Patterson in Stanislaus County, is a “signature
experience” in that County’s urban development and in
California water politics.

Held up for 11 years over its missing ingredient, water,
Diablo Grande’s water solution — pumping water uphill
from the California Aqueduct to money — may portend
conjunctive use schemes watering leapfrog sprawl in
California’s future.

Diablo Grande hopes to get its water supply through a
convoluted stratagem putting surplus agricultural water in the
ground near Bakersfield while Diablo Grande turns out water
200 miles to the north from the California Aqueduct, “It’s not
a sleight of hand,” says California Department of Water Resources director Tom Hannigan, himself a former commercial realtor from Solano County. “This probably wasn’t the first kind of arrangement like this,” he adds, “and it probably
won’t be the last.”2

If water ever makes it up the hill and Diablo Grande gets
built, it would comprise six golf courses, 5,000 new homes,
vineyards, a winery, commercial and industrial uses, and
other luxury amenities typically enjoyed by the well-heeled.3

This huge project’s water supply came under scrutiny by
the courts the past 8 years, but an upcoming appellate court
decision will help establish standards by which water
transfers are reviewed under the California Environmental
Quality Act (CEQA).4 As a result, this case draws attention
from environmental, water, and developer interests.

The Land

Formerly the historic Oak Flat Ranch, Diablo Grande
land is dry foothill country once used for cattle grazing on
the east side of the Diablo Range here in central California.
Spanning three watersheds — Del Puerto, Orestimba, and
Salado creeks west of Interstate 5 — the area is wildlife
habitat for several special status species, including the San
Joaquin kit fox, the California red-legged frog, golden eagle,
prairie falcon, western spadefoot toad, and the California
tiger salamander. The land has remained habitat and open
space owned by a single landowner for decades.

The Nature Conservancy owns and manages some 60,000
acres of preserved land adjacent to this project area, and
Henry Coe State Park is just a few miles to the west in Santa
Clara County. Currently, no roads traverse the Diablo Range
in this area from west to east. Placing Diablo Grande so
close to southern Santa Clara County heightens the pressure
to connect the two regions with a road inducing urban
growth, further fragmenting habitat, and straining central
California’s ecosystems still more.5

The Developer

Diablo Grande Partners (DGP), Diablo Grande’s developer,
includes many individuals and financial resources that
created a resort similar to Diablo Grande in Braselton,
Georgia: Don Panoz, chairman of Elan Pharmaceuticals, and
J. Morton Davis, a New York-based investment banker,
together with the previous landowner, Heber Perrot, among
others.6

Willing to sacrifice nature to indulge the taste for luxury
and spread it to northern San Joaquin Valley, DGP’s web site
says Diablo Grande “will feature championship golf on six
courses, an elegant destination resort with hotel and European-
style spa, an executive conference center, an equestrian
center, swim and tennis center, a variety of residential
neighborhoods, world-class recreational amenities, 40 acres of vineyards....

“When Morty Davis and I first saw this valley,” writes
Panoz in California’s grand booster tradition, “we saw an
opportunity to create something remarkable....They say
California is a place you can go to change your life and
achieve your dreams….Come find yours today.”7

In promoting, this “dream” (though it’s better likened to a
nightmare), DGP compiled a track record of disregard for
legal process and an arrogance towards state and federal
agencies that has continued to this day.

Fortunately the courts provided a leveling of the playing field where this battle is fought, with substantial international financial power pitted against locals concerned for their quality of life and the
integrity of land use law.

The Big Devil

This big devil is unsustainable.

A purely speculative project, Diablo Grande was officially
initiated in 1990 as an application for an amendment to
the Stanislaus County General Plan. DGP created the
Western Hills Water District (WHWD) in 1992 as the entity
to provide water to Diablo Grande. WHWD was formed
under false pretenses, one of many manipulations by DGP.

They contended unwaveringly that WHWD was “solely
for the benefit of agriculture,” an obvious fabrication, as
WHWD’s boundaries clearly circumscribed the Diablo
Grande project. Local officials turned a blind eye to the facts,
however. With DGP in control of WHWD, Diablo Grande
moved through the County’s land use process. Objections to
the project’s many problems were raised during the review
process by the public, including environmentalists and
farmers.

The project would add more air pollution to the San
Joaquin Valley air basin already designated as severe (the
worst possible) by the US Environmental Protection Agency
(EPA). The basin is under strict federal mandate to resolve
meet federal Clean Air Act requirements for criteria pollutants,
with draconian results if it fails (and it appears likely
to). Its energy consumption would only worsen an already
overwhelming crisis. And so on.

Water would have to be imported from somewhere else in
a state that seemingly has no extra. Amazingly, for a project
with a land area almost equal to that of nearby Modesto, the
EIR offered neither a specified water source, nor a review of
any associated impacts.

Long enamored of the project’s economic benefits, the
Stanislaus County Board of Supervisors voted unanimously
to move the project forward, neglecting their duties as
protectors of the public trust.

The supervisors have never made any bones about their
enthusiastic support for this project throughout the review
process. They view it as an economic boon to the county,
taking what is an all-too-common perspective of elected
officials that all growth (i.e. urban expansion) is good and
that environmental review requirements such as CEQA are
nothing more than temporary hurdles to be circumvented
and/or ignored.8

Tax dollars and one-time construction jobs are the major
issues for our local leaders. The big devil will pay handsome
fees to local governments that will serve it, and to the
Newman-Crow’s Landing School District where some
Diablo Grande students will go to school. Long term and
big picture considerations are left unaddressed. The complex
arenas of land use planning and environmental review
are only rarely and grudgingly acknowledged by our local
politicians, and Diablo Grande is no exception. They would
prefer to ignore such irritants as CEQA, the National
Environmental Policy Act, the Endangered Species Act, and
the like.

Future economic costs are glossed over, looming as
burdensome and uncompensated to the County, such as
infrastructure maintenance and repair, and the costs protecting
public health and safety. And there has been more than a
little grease provided through DGP’s campaign contributions
to incumbent County supervisors over the last ten
years.

Topping off this tragicomedy, the Supervisors certified
Diablo Grande’s first EIR in 1993.

The First Lawsuit

Since DGP and the County winked at CEQA’s intent for
fully disclosed, thorough, and comprehensive planning, the
only recourse to ensure insure compliance with regulatory
requirements was to sue. DGP ignores the fact that lawsuits
are the most costly and time-consuming way to process
development projects.

In November 1993, within 30 days of final environmental
impact report certification, the Stanislaus Natural
Heritage Project filed suit, later joined by Ecology Action,
the Sierra Club, and the National Audubon Society. Given
the local pro-development climate, it was no surprise the
case was denied in Stanislaus County Superior Court, but on
appeal to the 5th District Appellate Court the project was
halted in February 1997.9

But by then, two golf courses had
been constructed through manipulation of the land use
process, contrary to good environmental planning.

The Appellate Court’s 1997 decision voiding Diablo
Grande’s EIR directed DGP to identify sources of water
supply and address the impacts of providing it to Diablo
Grande. A “Supplemental EIR” (SEIR) focused on water
supply was prepared for public review.10

The SEIR identified eight potential sources of water, which in some combination
could theoretically provide all of the water needs of the
project at build-out. (The court did not say these sources had
to be secured, only “feasible,” and their impacts addressed
through the CEQA process.)

Diablo’s total water needs (at project buildout) are 12,800
acre feet per year (AFY). The eight possible sources include
464 AFY from an on-site groundwater alternative to 12,000
AFY via treatment of Modesto sewage effluent. Some supply
alternatives were clearly unrealistic and discarded during the
SEIR process, including the reclamation of Modesto sewage
effluent.

Of the remaining possible sources, two emerged as most
promising from the proponents’ perspective: Stanislaus
County groundwater from the Turlock Irrigation District
(TID) of 11,000 AFY; and a transfer from the Berrenda Mesa
Water District in Kern County (8,000 AFY). The TID option
proved infeasible when the city and county of San Francisco
invoked its first right of refusal over any “extra” water from
TID, as they stated emphatically in their comment letter on
the draft SEIR.

Suing the Big Devil Again

This SEIR was finalized in July 1998 and like its predecessor
received approval of the Board of Supervisors. But like
its predecessor the SEIR was also substantively flawed and
Modesto activists sued Diablo Grande again on August 26,
1998, this time by the group Protect Our Water (POW) and
the author. The two main complaints were an inadequate
cumulative impacts analysis, and failure to recirculate the EIR
when new evidence was admitted into the record late in the
process.

The Berrenda Mesa supply was only cursorily reviewed in
the SEIR. DGP claimed that the review it received in the 1995
Monterey Agreement EIR was adequate.11 The Monterey
Agreement had made substantial changes in the allocation of
SWP water and while it was implemented with amendments
to all state water service contracts in 1996, its EIR was
challenged under CEQA. At the time of our second Superior
Court case, there had been no ruling on Monterey by the 3rd
District Court of Appeals.

A separate suit was filed by the local and state Farm
Bureau organizations, based primarily on concerns over potential impacts to local agricultural water supply from the
transfer of water from the Stanislaus County groundwater
basin to urban development in the foothills. Such a transfer,
from the Turlock Irrigation District to the Diablo Grande
project, was one of the options approved in the EIR. The
Farm Bureau also took issue with violations of CEQA
similar to those of POW.

The Farm Bureau and POW suits were soon consolidated,
meaning that, while maintaining distinct and separate
legal status, they were processed at the same time by the
court system. The Farm Bureau’s suit is especially notable
for two reasons:

First, they had never sued Stanislaus County and a
developer in this area.

Second, in 1993 (“Round One”) of the Diablo Grande
project, the Farm Bureau obtained written assurances from
the County and DGP that local groundwater would not be the
water source for the project.

But in “Round 2,” beginning in 1997, those agreements
were simply deleted, despite numerous written concerns and
protests expressed by Farm Bureau, an egregious violation of
trust on the part of the County. It is remarkable that local
supervisors in this fashion chose building interests over
farming interests, given that agriculture is the economic base
of Stanislaus County; without adequate imported water
supplies, agriculture here is not viable.

For the first time ever in a local CEQA case, the Superior
Court ruled in October 1999 for both POW and Farm Bureau
on the majority of points. The judge ruled all proposed water
sources were infeasible with the sole exception of Berrenda
Mesa, the water transfer from Kern County. DGP was
directed to redo the SEIR, this time also with adequate
cumulative impacts analysis.

Once the court’s initial ruling was made, proponents
applied unrelenting pressure to persuade the court to allow
for processing of “mini-projects” as part of the overall
29,500-acre master project, provided they were reviewed to
CEQA standards.

DGP immediately made use of this exception to the
courts denial of the EIR for the entire project (though it is in
essence piecemealing, and contrary to CEQA). They
presented the county with a “mini-project” of 236 lots known
as Unit One of Phase One. Most of the lots are for residential
units, but one is for a 7-story hotel.

Berrenda Mesa’s Water

The County approved Unit One in December 1999,
stipulating that before building permits were granted,
proponents first had to receive all required state approvals
for the supply of Berrenda Mesa water.

DGP soon appealed the Superior Court judge’s ruling that
the non-Berrenda Mesa sources were infeasible, as well as
the requirement to recirculate the EIR and provide a thorough
cumulative impact analysis. We (POW and I) crossappealed,
contesting the judge’s finding of feasibility of
Berrenda Mesa.

We did not realize at the time of the Superior Court’s
proceedings, and therefore did not present to the court, that
the Berrenda Mesa water transfer needed approval from the
California Department of Water Resources (DWR), a
daunting process which had not even begun at the time of the
Superior Court decision.

Berrenda Mesa is a water service contractor of the State
Water Project (SWP), the state’s water utility owned and
operated by DWR under a permit from the State Water
Resources Control Board (SWRCB). There are 31 contractors
of SWP water and a precisely defined service area
within which the water is delivered.12

To approve the Berrenda Mesa transfer, the SWRCB
would require of WHWD and Berrenda Mesa’s permit two
specific amendments to DWR’s permit:

First, add an additional contractor to the SWP list,
essentially cutting the SWP water “pie” into one more slice,
and second, expand the SWP’s service area to include
Western Hills Water District (WHWD). For DWR’s permit
amendments to be approved the SWRCB would need to
review the proposals, including a new and separate CEQA
review for amending DWR’s permit.

But more importantly, if any existing contractors (29 of
whom had were the original contractors back in the ‘60s)
objected to the amendment, the Berrenda Mesa transfer
could not occur.

We believed that the Berrenda Mesa transfer would not
survive this process. “There isn’t enough water to go around
now” in the State Water Project, Hannigan was quoted as
saying recently.13

Had the Superior Court judge known the facts of the
Berrenda Mesa water transfer permit process, it is likely he
would not have found this proposed water source to be
“feasible.”

Because of these procedural hurdles, Berrenda Mesa’s
amendment to the SWP permit (which would have provided
for the transfer to Diablo Grande and expanded the State
Water Project’s service area to do so) was withdrawn after
protest from existing SWP contractors (whom we surmised
did not want to share SWP water).

Then the Monterey Agreement EIR legal challenge was
upheld in September 2000, voiding that EIR as inadequate.
The 3rd District Appeals Court decision voided the review for
Berrenda Mesa on which the SEIR depended. We have filed
for judicial notice to include this information in our appeal
on Diablo Grande.

The Big Devil’s Details

Tom Clark, general manager of the Kern County Water Agency, came up with a new water scheme for DGP.

Clark proposed that the Kern County Water Agency
(KCWA) buy Berrenda Mesa’s water that was to be transferred
to Diablo Grande. As the Bakersfield Californian
reports, “but instead of selling the water directly to Diablo
Grande, the agency would store an equivalent amount of
water from other sources other than the state project in one
of its underground water banking areas in the Kern River Fan
area west of Bakersfield.” That water bank is called the
Pioneer Water Bank project.

Diablo Grande would pay KCWA for that “banked” water
what it would have originally paid to Berrenda Mesa. The
big devil would then be allowed to divert from the California
Aqueduct the 8,000 acre-feet it “bought” from Berrenda
Mesa, water essentially “laundered” through the KCWA
courtesy of the Pioneer Water Bank.14

“It is not a subterfuge,” Clark told the Californian. “In
terms of the actual molecules of water, it’s not much different
from the previous deal, but in terms of the legal precedent
and the legal obligations, it’s very different. There’s no
expansion of the [state project] service area.”15

We claim the obvious: Tom Clark and the KCWA expose
the utility of conjunctive use water schemes for keeping the
spigot on for wasteful, destructive, and unneeded urban
development in California. This legal and technical loophole
in California water transfer law needs plugging, pronto. This
would increase Californians’ chances of more democratic
control of the state’s destiny.

Beating the Big Devil Yet?

So where do things stand?

The short answer is that the end of the story is a long way
off. The oral hearing in DGP’s appeal on the second decision
before the 5th Appellate court in Fresno took place March
13th. The court is expected to decide within 90 days.

A ruling in POW’s favor would mean that the 1998
Supplemental EIR on water supply would have to be redone,
with a thorough treatment and analysis of cumulative
impacts and additional sources of water identified. With the
now infeasible Berrenda Mesa water transfer, none of the
proposed sources listed in the previous SEIR would be valid.

This new environmental review on water supply issues
would probably take up to a year. In the meantime, Diablo
Grande’s use of temporary well water from the Marshall-
Davis properties east of Interstate 5 is scheduled to end at the
end of May 2001. They would then be faced with supplies of
less than 500 AFY and total needs of well over 1,000 AFY.

Even with approval of the Pioneer Water Bank transfer
scheme by DWR and Kern County Water Agency, the
Pioneer “water” was not part of the SEIR which the appellate
court now has under submission. This water deal must be
reviewed under CEQA in Stanislaus County before it can be
legally valid, and before imported water could then run
uphill to DGP’s money.

In addition, Diablo has not received a 404 permit from
the Corps of Engineers and faces obstacles with the Endangered
Species Act and cultural resources review. While the
Corps’ Sacramento office announced in early March that the
Corps “expects no problems with issuing a permit to let
construction resume in June,” this may be one of many DGP
“done deal” assurances that have not come to fruition.16

Finally, a lawsuit recently filed against Diablo Grande in
federal court by the California Sportfishing Protection
Alliance over, among other things, 404 violations, has only
begun its lengthy journey through the judicial process.

While Diablo Grande’s many issues remain unresolved,
the project’s implications and precedents may be as large as
its footprint on the landscape. It is assuredly a signature
experience, a protracted battle to protect ecological resources,
the regulatory process, and the public trust.

Tim Stroshane provided research assistance.

NOTES

1. Donald Panoz, Managing Partner, Diablo Grande, quoted
on the home page of Diablo Grande’s web site,
www.diablogrande.com.

2. Tom Hannigan quoted in Vic Pollard, “‘Creative’ water
swap makes waves,” Bakersfield Californian 18 March 2001.

3. Project description contained in Diablo Grande Partners,
Draft Environmental Impact Report for the Diablo Grande
Specific Plan, SCH#91032066, prepared by LSA Associates,
Inc., Pt. Richmond, CA, 31 August 1992, FEIR produced 15
June 1993

4. Protect Our Water and Steve Burke v. County of Stanislaus
(respondents); and Diablo Grande Limited Partnership (Real
Parties in Interest), Case No. 181472, decided 30 September
1999, Stanislaus County Superior Court. The case is now
under submission at the 5th District Appellate Court. This case
has been referred to as “Round 2,” or Diablo Grande II.

5. Marla Cone, “Construction is a leading threat to California
wildlife,” Los Angeles Times 21 February 2001.

6. A search of Google.com revealed that Panoz also owns
and operates Panoz Company, a firm specializing in the
design, engineering, production, and importing of “fine cars.”

7. Diablo Grande web site home page, op. cit., note 1.

8. A good example of one Supervisors’ attitude toward
environmental review of development projects is Nick Blom,
“Diablo Grande under attack by feds,” Modesto Bee 24
October 2000.

9. Stanislaus Natural Heritage Project, et al v. County of
Stanislaus (Defendants), and Diablo Grande Limited Partnership
(Real Parties in Interest), Case no. 301417, Stanislaus
County Superior Court, Appellate Court decision 8 August
1996.

10. Diablo Grande Partners, Diablo Grande Water Resources
Plan, SCH# 97032022, prepared by EMC Planning Group,
Inc., Monterey, CA, 27 January 1998, FEIR produced 12 June
1998.

11. For more on the Monterey Agreement, see Tim
Stroshane, “Monterey Agreement: A Bloodless Coup,” and
“Glimpsing California’s Future: A History of the Monterey
Agreement,” SPILLWAY v1n2, Winter 2000.

12. Berrenda Mesa Water District was dominated by Blackwell Land Company (controlled by the family of the New
York investment banking firm of Lazard Freres) and Berrenda
Mesa Farming Company, which in the late 1980s farmed
almonds and pistachios. These two companies controlled 73
percent of the total cultivated acreage and 90 percent of the
total crop value within the district. When the farm crisis of the
late 1980s hit California agriculture, and the 1987-92 drought
struck, farms in Berrenda Mesa and other districts within Kern
County went bankrupt. One asset Berrenda Mesa had was
water and, with other districts in similar straits, sought to
market their water. See Robert Gottlieb and Margaret FitzSimmons, Thirst for Growth: Water Agencies as Hidden
Government in California, Tucson, AZ: University of Arizona
Press, 1991, Chapter 5, “The Search for Cheap Water,”
especially pp.100-104.

13. Quoted in Pollard, op. cit., note 2 above.

14. Ibid.

15. Ibid.

16. Editorial, “Diablo Grande off the ground,” Modesto Bee 9
March 2001.

Repost - Reliability and Conflict in California Water by Tom Stroshane

Spillway News Winter 2002

Reliability and Conflict in California Water, Part 1Water Under the Bridge?

Reliability and Conflict in
California Water, Part 1
By Tim Stroshane

Water observers of yesteryear—like Henry Holsinger of
the California Water Project Authority and water lawyer
Walter M. Gleason—worried that the Central Valley Project
(CVP), and later the State Water Project (SWP), would cause
legal havoc, even though these big projects were to expand
California’s reliable water supply. They saw, even before
construction of the CVP and SWP, the potential for constitutional,
ecological, and economic controversies, and that
resolving them would be highly political. 

“Water rights are social policy in times of shortage,” says
water lawyer Scott Slater.1 

To understand where California water politics is going, it
helps to step back to explain California water through the
trend of its human institutions. Some might consider this to
be “water under the bridge,” yesterday’s news becoming
today’s fish wrap. So be it. 

Institutions Californians create to govern water allocation,
management, and stewardship define and structure the
state’s water future.2 Two such institutions are the legal
doctrines of riparian and appropriative rights. They historically
shape two central concerns of California water policy:
reliability and conflict. 

Water supply reliability receded as developed supplies
expanded, from the standpoint of water and environmental
law. As supplies expanded and overreached the carrying
capacity of California’s rivers and streams, legal conflict
flourished. Only institutional changes wrought by modern
environmentalism, like the federal Clean Water Act, made
possible the reality that Californians could control their water
institutions and in the process dream of living within their
hydraulic and hydrological means. 

Violent Changes, Utopian Hopes 

Decades before the remarkable spate of environmental
legislation of the 1960s and 1970s, government officials still
needed to know what impacts, consequences, or “critical
paths” of actions would follow from choosing to build
gargantuan water projects. Then, as now, they hired scientists,
economists, engineers, and lawyers to do studies. 

The U.S. Bureau of Reclamation undertook its “Central
Valley Project Studies,” a series of nearly 30 studies dealing
with various technical, legal, economic, financial, and
ecological issues that were posed by the prospect of actually
constructing and operating the Central Valley Project. The
CVP studies were directed by a University of Chicago
geographer named Harlan Barrows. 

In the fall of 1942, A.D. Edmonston, then acting director
of the California Water Project Authority (CWPA), wrote to
Dr. Barrows to recommend two questions that were in all
likelihood crafted by Henry Holsinger, an associate lawyer
with the CWPA: 

“Problem No. 25: Is there necessity for a comprehensive
adjudication of rights to the use of water on streams the
natural regimen of which will be altered by operation of the
[Central Valley Project]? 

“Problem No. 26: If there is need for such comprehensive
adjudication, can the same be accomplished under
existing law, and if not, what enabling legislation is necessary?” 

Through Thanksgiving and early December 1942,
Holsinger fashioned a memorandum arguing the Bureau
should include these two problems in the CVP studies. Even
today, it is a lucid statement of how property rights in water
dictate operations and, indeed, the fundamental design of the
Central Valley Project (CVP).3 

The memo apparently persuaded Barrows in Chicago,
who in turn recommended including the legal problems to
Bureau Commissioner John C. Page in Washington, DC, in
early 1943. 

“Never in the history of the State has there been an
instance where a water conservation project was put in
operation which involved such violent and extensive
changes in the regimen of any stream,” a somber Holsingerwrote. These changes, he suggested, were to be inserted into
a property regime whose “history is one of continuous
conflict and the resolution thereof,” a history that was hardly
finished.4 

“The enormous expense of litigation over water rights,”
continued Holsinger, “has often been deplored, involving time consuming, expensive and all too frequently fruitless [lawsuits]; fruitless because decrees rendered were piecemeal
and for that reason unenforcible [sic] and because other
interests on the stream, although intimately involved[,] were
not made parties or because of technical defects” in the cases
themselves. 

Holsinger sought to shatter any naive optimism in the
Bureau’s leadership about the CVP’s legal status in California.
“It would be pleasant to anticipate that all such difficulties
are now at an end and that this vast project, notwithstanding
its radical alteration of stream regimen, will be
peaceably accepted by those affected thereby without
controversy, without objection, and without resorting to
litigation. However, attention to realities should convince
any reasonable mind that any such anticipation is utopian
and not reasonably possible of fulfillment.”5 

Riparian Rights 

Such hopes were utopian not only because of human
frailties such as greed. Utopian hopes for the Central Valley
Project to provide ample water supplies to CVP contractors
were likely to founder on conflicts between riparian and
appropriative doctrines coexisting in an arid region, feared
Holsinger. 

In California, tensions between riparian and appropriative
right holders often erupted into litigation, going back to
the early days of statehood. Riparian rights entail the right to
use water as a result of owning property adjacent to a natural
stream or lake. They give the owner a right to reasonable,
beneficial use of water on that property.6 Riparian doctrine
was brought to California when the new state in 1850
adopted English common law for its own legal system. 

Riparian rights establish a clear connection of waters
flowing in a stream to the land adjacent where the riparian
owner may use the water. In effect, they respect and codify
an ecological—as well as economic—relationship between
human use of both water and land. 

Of course riparian rights may also benefit capitalist
production and reproduction (e.g., home life, domestic use).
But these rights are still correlative among all riparian
owners along a stream; each owner has a share of stream.  

The more appropriators on a stream,
the more competition in dry years, and
the less reliable are the more junior rights
to water supply obtained through the
state’s appropriative permit process—
including those of the CVP and SWP.
flows, and each must ensure flows of adequate quantity and
quality to avoid injury to downstream riparians. Riparian
right holders participate in a hydraulic commons 

.
Historically, riparian rights were also associated with land
monopoly.7 The largest whipping boy of early California land
monopoly was Miller and Lux, the great cattle baronage of
central California and the San Joaquin Valley.8 Miller and
Lux was a major cattle and beef marketing corporation
whose empire reached from southern Oregon and northern
Nevada to San Francisco and the northern San Joaquin
Valley.9 Miller and Lux did much to shape California’s water
law and jurisprudence. Its hydro-legacy was achieved largely
through court case precedents—including establishment of
riparian priorities over those of appropriators—but the
corporation also thoroughly remade much of central
California’s land and waterscapes to benefit its beef production
and water sales.10 

“Riparianism pressed to the limits of its logic,” the U.S.
Supreme Court wrote in Gerlach v. United States case in
June 1950, “enabled one to play dog-in-the-manger...[in
which one] could enforce by injunction his bare technical
right to have the natural flow of the stream, even if he was
getting no substantial benefit from it.”11 

In 1928 California voters amended their state constitution
to ensure the criterion of reasonable beneficial use would
govern all water uses (including riparians) in perpetuity,
making “dog-in-the-manger” games with water impossible
today.12 Yet reasonable use also makes water supplies less
reliable and more subject to litigation and political conflict.
After all, what’s reasonable? 

Appropriation’s Elusive Surplus 

In California, the appropriative doctrine is laid atop the
riparian doctrine’s allocations in the state’s watersheds. Land
owners along streams typically have riparian rights. To the extent their rights do not require all the flows of a river or stream, then, California’s hydro-legal minds reason, there is therefore a surplus. 

“All waters in excess of the reasonable and beneficial
needs of lawful users, including riparians, are considered
unappropriated waters and are available for beneficial use,”
write water lawyers Arthur Littleworth and Eric Garner.
Exercise of this logic was pivotal to building California’s
numerous water projects, including the CVP and SWP.13 

Appropriative rights were invented by Gold Rush miners
staking claims for mines on public lands where they could
claim no riparian rights (since the U.S. Government owned
the land they mined). Appropriative rights involve the right
to divert and use a specific quantity of water for reasonable,
beneficial use in a specific location. Littleworth and Garner
note that these rights involve a “first-in-time, first-in-right”
principle. The first individual on a stream to divert and use
water beneficially and reasonably has an appropriative right
superior to all those who come after to that stream.14 Only
appropriators have their rights quantified. Since 1914,
appropriators apply to the State for permits to appropriate
water.15 

Appropriative rights sunder ecological relationships of
water to land. They make it possible to mobilize water
beyond mere watershed or place, to liberate water from
constraints of native gravity by economic and technological
means, and to incorporate it into circuits of modern capitalist
production and urban life. The actual place of use of the
water may in California be hundreds of miles from their
origin in the stream as with the CVP and SWP. 

As water becomes property treated as a set of investment backed
expectations for future income and profit, big public
water projects face the collision of property rights with
ecological reality in times of drought. 

“When the amount of water available is insufficient to
meet the needs of all appropriators, traditional case law holds
that junior appropriators can be prevented from exercising
their rights until the water rights of senior appropriators are
satisfied,” write Littleworth and Garner. “However, this rule
seems impractical today, since the cities and water districts
providing urban water supplies generally hold appropriative
rights. Because it is generally unrealistic to terminate such
uses completely, courts can be seen to be moving way from a
strict application of the first-in-time doctrine in order to
protect established uses.”16 

The pecking order of appropriative priorities seems
arbitrary to some when droughts occur—especially when any
of today’s water users get pecked. Littleworth, for one, looks
forward to a time in California when a doctrine of “equitable
apportionment” would supplant water right priorities,
replacing them with a commons of appropriative rights
holders. 

Yet appropriative rights have also been able instruments
of land monopolists like James Ben Ali Haggin, Miller and
Lux’s cattle rival of the 19th Century in Kern County. The
contemporary Kern County Land Company descends from
Haggin’s empire. Clearly, routes to land baronage in California
run through either type of water right. Strategies to
address unequal political and economic power in living
watersheds through equitable apportionment, however, are
not the strong suit of this as-yet emerging doctrine.17 

Through wet years, riparian and appropriative doctrines
co-exist, though uneasily. Right holders know that next year
could bring dry conditions and conflict. The more appropriators
on a stream, the more competition for water in dry years,
and the less reliable are the more junior rights to water
supply obtained through the state’s appropriative permit
process—including those of the CVP and SWP.18 

When the state and federal governments planned the big
water projects, they knew they would have to appropriate
waters then believed to be surplus in the state’s major
watersheds. Henry Holsinger, in his lawyerly way, doubted a
surplus in the Sacramento Valley could be truly known: “If
assumptions are made [about the definition of water rights on
the Sacramento], someone must take the risk of the accuracy
thereof...but in the final analysis, they consist wholely [sic]
and entirely in assumptions 

“Any and all investigations [into quantifying water
rights] are evidentiary merely,” and without any legal force,
he wrote in 1942.19 

Could we ask Henry Holsinger today, he might offer numbers pulled from the air as of similar legal heft in the CVP’s position on the Sacramento, and of the
SWP on the Feather River. 

Miller and Lux and Monopoly 

In early 1939, the Bureau of Reclamation acquired from
notorious land monopolist Miller and Lux all the nonriparian
water rights—and agreed to store and replace (but
not own) riparian water rights—to the San Joaquin River. 

Miller and Lux’s rights on the San Joaquin River comprised
nearly the entire flow of that river and were jealously
held by several company subsidiaries.20 

Water covered by the Bureau’s acquisition would be impounded by a new dam
constructed by the Bureau at Friant where the river arrives at
the edge of the San Joaquin Valley floor. 

Water at Friant Dam would then be diverted via canals north to Madera and south
to Kern and Tulare county farmers on the east side of the
Valley. River channel flows would all but cease below Friant.21 

This action would cut off water to the subsidiaries’ San
Joaquin riparian swamp and grasslands. The solution was for
the Bureau to provide Miller and Lux’s riparian lands with
replacement water stored at Shasta Dam north of Redding,
released into the Sacramento River for eventual diversion in
amounts of water will be available at the point of diversion
on the Sacramento River, is largely dependent upon the will
of the existing users on the approximately 300 mile intervening
course between the point of diversion and the point of
storage” who could challenge CVP operations for failing in
any way to provide Sacramento River users with flows
sufficient to fulfill their water rights.25 

Only a “comprehensive definition” of all water rights up
and down the Sacramento Valley would make CVP deliveries
truly reliable and protect existing water rights holders at
the same time, wrote Holsinger. If the CVP went ahead, he
observed, San Joaquin Valley agricultural development
would expand on the promise of replacement Sacramento
River irrigation water. Without legal certainties in place, “to
withdraw that water would cause harm in the San Joaquin
Valley and place the United States in a disastrous predicament.” 

Constitutional issues are at stake in promises made by
the Delta via the Delta Cross Channel and exported from the
Delta by pumps installed at Tracy for lift into the Delta-
Mendota Canal (DMC). 

The DMC would snake its way
through the San Joaquin Valley
to irrigate lands of the “Exchange
Contractors” (as Miller & Lux’s descendant companies
are known today). these big projects to deliver
water for agricultural and urban development. They
involve both reasonable water use and just compensation for
property taken by the government. 

To export water from one watershed to another
creates future expectations based on today’s investments.
To withdraw or reallocate water breaks promises, most
solemnly made. Yet to justify the appropriations—continuously and perpetually—the uses to which water is put must always and forever be reasonable.
And what is considered “reasonable” can change, a stance in
water policy that is also reasonable to assume. 

While Holsinger focused his memorandum to Barrows on
riparian right holders along the Sacramento, he likely had in
mind “area of origins” reservations set aside in state law in
the early 1930s as well.26 

These laws reserve water in source
areas (for example, rural counties with ample water resources)
for their future needs to prevent “Owens Valley”
scenarios from recurring. They place a theoretical limit on
how much and for how long the CVP and SWP—and even
other major water projects—will be able to take water and
move it far from its origins. 

The point of this is not that comprehensive definition or quantification of water rights should have occurred or should now occur. Rather, Holsinger foresaw that huge capital
investments made for the CVP could be derailed or undermined
by a water right holder insisting on a quantity that
would legally impair the CVP’s contractual delivery commitments,
and usher in perhaps a balkanizing spiral of litigation,
undermining the very investment California and the U.S.
government made to increase the state’s water supply
reliability. His analysis highlights the potential for compensable
property takings by the government should water be
withdrawn. 

In March 1943, Bureau Commissioner John Page
declined to include proposed Problems 25 and 26 in the CVP
studies in a terse message to the new WPA director Edward
Hyatt, despite Barrows’ and Edmonston’s earlier recommendations.
27 

Water Rights and Predatory Government 

In the 1950s, water lawyer Walter Gleason, whose career
in California water law began in the early 1920s and would
last nearly seven decades, saw dangers of unchecked
appropriative rights for the Central Valley and the areas of
origins. 

Gleason saw unquantified riparian rights as exceptionally
vulnerable to ostensibly junior appropriative right holders
moving in for what news media colorfully refer to as a
“water grab.” Appropriators moving into a watershed
challenge riparians on the grounds that their water usage may
take on or interfere with any water or water rights in Northern
California [is] concerned,” Gleason wrote. But passage
of the 1960 water bond would place the state of California in
position to challenge water users for reasonableness on
behalf of State water contractors (of which the Metropolitan
Water District is the largest). 

With southern California’s insertion into the Central
Valley watersheds of the Sacramento-San Joaquin River
Delta, Gleason maintained that no vested rights in northern
California (which he defined as waters north of the
Tehachapis) are safe from predation by the state running
interference for southern California.29 

“In the absence of comprehensive adjudication,” wrote
Gleason, “there will be no effective and readily ascertainable
demarcation (i.e., ‘boundary line’) between ‘surplus’ (on the
one side) and ‘non-surplus’ on the other. In the absence of
such an obligatory definition of these two correlatives, there
be unreasonable, or that an unreasonable amount may be
diverted. Protracted litigation then ensued in which an existing
user’s “water duty” had to be established and his or her water
right effectively quantified. 

Gleason believed that the new State Water Project (SWP) would
create opportunities for litigious water grabs on an unprecedented
scale aimed at the north.. Southern California’s cities would seek
northern California’s “surplus waters” (which Gleason considered
everything above the Tehachapis) in litigious invasion
for water, with assistance from the state of California. 

“Water right-wise [sic],” Gleason wrote on the eve of the
November 1960 election that saw John Kennedy elected
President and the State Water Project bonds narrowly
approved by California voters, “the end result of this new
Water Plan will be exactly the same as if all of Southern
California were to be physically uprooted and set down at
Tracy (i.e., next to Delta). In short, the length of the aqueduct
between the Tracy Pumping Plant [at the north end of the
California Aqueduct] is immaterial since the South will...be
sitting next to the Delta with a right to receive water out of
the Delta (through its ‘water contract’ with the State). 

“A direct consequence of this new ‘hydrology’,” he
continued, “is that for the first time in history the South will
become directly and legally interested in the water resources
of the Central Valley and the water rights (existing and
prospective) in connection therewith.”28 California’s regions
would be bound together as never before, and Gleason
worried that technological prowess would outrun legal
insight into the new system. 

Prior to the State Water Project, Southern California
“might as well be in Mexico insofar as any present ability to
Governor Edmund G. “Pat” Brown on the stump for
the State Water Project in Santa Clara County.
can be no effective (i.e., automatic) controls to delimit this
‘export’ of water [from the North to the South]. When this ‘hard
reality’ is coupled with the indisputable fact that it will be
directly to the mutual interest of both the State and the South to
maintain this ‘export flow to the South’ as continuously and on as
large a scale as possible, the inevitability of direct and serious
conflict between these vested water rights of the North and these
‘export allocations’ is, I believe, patent.”30 

With the State Water Project (SWP), the state of California
became a water developer as well as a water regulator. The state and federal projects appropriated the two largest blocs of allegedly surplus waters in
California.31 

In its quest to bring reliability to California’s future water
supply, the state’s conflict of interest would limit its capacity
to protect Californians and their watersheds from what
Manteca-area farmer and south Delta water official Alex
Hildebrand refers to as “the predatory nature of government.”
32

The Quality of Delta Water 

Water lawyers, like most of us, do not make good
soothsayers. Not only do events conspire to drive history
from its ruts, but human institutions also undergo radical
shifts in social, economic, and even ecological priorities. The
rise of environmentalism in the 1960s punctuated the
prerogatives of appropriative water rights as a property
institution. 

Once the big projects were completed, neither a bareknuckled
southern California appropriative water grab of the kind envisioned by Walter Gleason, nor a paralyzing avalanche of Sacramento Valley riparian “dog-in-the-manger”
litigation feared by Henry Holsinger occurred. 

But by the 1970s, salinization of Delta freshwater
channels—a common pool from which Delta riparian land
owners draw their irrigation water—made clear that storage
and diversions of the big projects exceeded the waters
available from Central Valley watersheds. Flows left in Delta
streams were too low to push back the tidal salt waters of
San Francisco Bay, harming Delta farmers holding riparian
water rights. 

The struggle over Delta water quality began in the 1920s
when rice growers began diverting irrigation water from the
Sacramento River during dry years. But as historians W.
Turrentine Jackson and Alan Paterson correctly observed in
necessary only to protect water rights in the Delta against
impairment by the big projects. But Racanelli corrected the
Board, saying that the Clean Water Act requires that “beneficial
uses” are what need protection from water quality
regulations, not water rights. 

The Board’s second error lay in assuming that only the
state and federal projects were accountable for rectifying
water quality problems in the Delta. As a result, “the Board
erroneously based its water quality objectives upon the
unjustified premise that upstream users retained unlimited
access to upstream waters while the projects and Delta
parties were entitled only to share the remaining water
flows.”35 

Judge Racanelli echoed Holsinger and Gleason’s observations
that a comprehensive adjudication of Sacramento
Valley water rights, however desirable, was not practical.36 

But the genius of Racanelli’s opinion lay in his insistence
that “the trial court’s basic premise—that water quality
protection hinges on ownership of water rights—is
faulty....[T]he Board’s authority in setting water quality
standards is not limited to the protection of water rights, but
extends to the protection of all beneficial uses from degradation
of water quality, even if the resulting water quality
exceeds that provided by water rights,” he wrote.37 

In other words, the goal of water quality standards is to
protect the use value of water, not water’s exchange value as
a property right, commodity, and income source. 

State Board Horror 

State and federal water contractors (those entities
contracting for water service from the CVP and SWP in the
San Joaquin Valley and in Southern California) argued also
that the Board failed to protect the contractors’ rights to use
Delta water for a dependable water supply, claiming to do
otherwise was a compensable property taking under Article 5
of the U.S. Constitution and an impairment of their contract
rights. 

Racanelli affirmed the trial court’s opinion that no
property taking had occurred because “the federal contractors
have no water rights of their own but are subject to the
limitations of the permits held by the CVP,” which are
appropriative water rights, subject to the Board’s reserved
jurisdiction, permit terms, and the state constitution’s
prohibitions on unreasonable water use.38 

Moreover, the contracts themselves limit both state and federal projects’
liability for deliveries during droughts. “Logically,” wrote
Racanelli, “neither the project nor the contractors could have
any reasonable expectation of certainty that the agreed
quantity of water will be delivered.”39 

Judge Racanelli tacitly acknowledged what only environmentalists
knew to be true at the time, that Central Valley
rivers were over-appropriated by the CVP and SWP; water
exports dreamed of in the 1957 California Water Plan could
never be realized. The big projects starved important
fisheries and Delta agriculture of fresh water to which both
were entitled. 

The Racanelli decision (sometimes called the Delta Water Cases) ultimately became the intellectual prism through which appropriative, riparian, and instream water uses are now viewed, as well as the legal foundation on which the
CalFED Bay-Delta Program edifice has been erected so,
well, unreliably. 

Part 2 to come: Bay-Delta Hearings, the 1995 WQCP,
and the river agreements. 

NOTES 

1. Scott Slater, attorney with Hatch & Parent, Santa Barbara,
from public comments at “Water Rights, Water Wrongs:
Learning from the Past, Looking to the Future,” conference
sponsored by the San Francisco Estuary Institute, Oakland,
CA, 2 November 1999. 

2. My guiding light for this approach is economic historian
Karl Polanyi, author of The Great Transformation: The
Political and Economic Origins of Our Time, Boston, MA:
Beacon Press, 1944, 1957, p. 4. 

3. Holsinger would go on to become chief legal counsel of
the California Division of Water Rights in the late 1940s and
1950s, a predecessor agency of the State Water Resources
Control Board. 

4. Henry Holsinger, “Necessity for Comprehensive Adjudication
of Water Rights on the Sacramento and San Joaquin
Rivers in Aid of the Central Valley Project,” memorandum
manuscript dated 10 December 1942, p. 2. Hereafter,
Holsinger, “Necessity.” 

5. “Necessity,” ibid. 

6. Arthur Littleworth and Eric Garner, California Water, Point
Arena, CA: Solano Press Books, 1995, p. 29. Of riparian
water rights they add, “A riparian right is not gained by use,
nor generally lost by disuse, but is part and parcel of the
land.” Ibid. 

7. See M. Catherine Miller, Flooding the Courtroom: Law and
Water in the Far West, Lincoln, NE: University of Nebraska
Press, 1993; and David Igler, Industrial Cowboys: Miller and
Lux and the Transformation of the Far West, 1850 to 1920,
Berkeley, CA: University of California Press, 2001. 

8. According to Igler, ibid., Miller and Lux ranches encompassed
over half a million acres of land in four major areas of
California: the Kern River delta northwest of Bakersfield (near
rival Haggin’s cattle ranches), lands along the San Joaquin
River from Mendota almost to the Stanislaus County line,
major holdings around Gilroy, and Lux’s Buri Buri ranch at the
north end of the San Francisco Peninsula. 

9. California Department of Public Works, Feasibility of
Acquiring the Central Valley Project, March 1952, pp. 57-60. 

10. For that history, see M. Catherine Miller, Flooding the
Courtrooms, op. cit., note 8 above. Miller and Lux achieved
this status through its vast ranches’ fencing enclosures
(contributing greatly to populist sentiment in early California),
industrialization of cattle raising, racial segmentation of
industrial labor markets, marshaling of capital to finance and
construct a complex latticework of canals diverting the waters
of the San Joaquin and Kern rivers onto its swamp and
grasslands. See Igler, op. cit., note 9 above. 

11. Gerlach et al v. United States, June 1950, manuscript
from Harry Barnes’ files at the Water Resources Center
Archive, University of California, Berkeley, Barnes file number
179-2, p. 17. Also cited as 76 F.Supp. 87. 

12. California Constitution, Article X, Section 2. 

13. Littleworth and Garner, op. cit., note 6, p. 39. “Water that
is diverted pursuant to an appropriative right may be used on
or in connection with lands away from streams or outside a
watershed, as well as on lands contiguous to streams.
However, this use may be governed by other provisions such
as area-of-origin limitations and the needs of fish and wildlife,
which are now beneficial uses.” Most hydro-legal thinkers in
the 1940s and 1950s, however, had a blind spot for the
needs of fish and wildlife, their implicit grasp of reasonable
and beneficial uses not extending to all of God’s creations,
but only those most useful in capitalist production and urban
development. 

14. Ibid. Under prior appropriation, water in a stream is not
treated like a commons, as it is under riparian doctrine. 

15. CVP and SWP water contractors, however, possess
neither riparian nor appropriative rights; they possess
contracts for water service from the big projects, both of
which are the state’s largest water appropriators. 

16. Littleworth and Garner, op. cit., note 6, p. 39. 

17. Arthur Littleworth, “The Common Law of the Future,”
public remarks at “Water Rights, Water Wrongs,” Oakland,
CA, 2 November 1999. Equitable apportionment was dealt a
severe blow by the California Supreme Court in City of
Barstow v. Mojave Water Agency, California Supreme Court,
S071728. See also “Don’t Tread on Mojave,” SPILLWAY
v1n1, Fall 2000, pp. 2-3. 

18. The permit system has been in effect since 1914.
Holders of rights that predate the permit system are referred
to as “pre-1914” rights and have priority over rights holders
with post-1914 appropriative permits. 

19. Holsinger, “Necessity,” op. cit., note 4, p. 16. 

20. Their modern-day descendants include the Columbia
Canal Company, the Firebaugh Canal Company, San Luis
Water District, and Gravelly Ford Canal Company. 

21. Completion and operation of Friant Dam would ultimately
kill off the spring run chinook salmon of the San Joaquin
River by the mid-1950s, despite meager efforts by committed
fish and game biologists to save this variety of salmon. See
George Warner, “Remember the San Joaquin,” in Alan Lufkin,
ed., California’s Salmon and Steelhead: The Struggle to
Restore an Imperiled Resource, Berkeley, CA: University of
California Press, 1991, pp. 61-69. 

22. Holsinger, “Necessity,” op. cit., note 4, p. 5. 

23. Ibid., p. 5, 15. 24. 

24. California Department of Public Works, op. cit., note 9,
Appendix G, pp. 221-239. See Article 12(a) of the Purchase
Agreement and Article 7 of the Exchange Agreement between
Miller and Lux, Inc., and the United States Bureau of
Reclamation, July 1939. If replacement water the Bureau
provided the Exchange Contractors via the Delta-Mendota
Canal fell to less than 72 percent of what their entitlement,
then the Exchange Agreement requires the Bureau to make
up the deficiency (back up to 72 percent of the Purchase
Agreement delivery schedule) by releasing water from Friant
Dam for use by the Exchange Contractors. The Contractors
protect this exchange right by having retained their riparian
rights as allowed under the Purchase Agreement. 

25. Holsinger, “Necessity,” op. cit., note 4, p. 8. 

26. California Water Code Section 10505 and Sections
11460-11463. 

27. Letter of John C. Page, Commissioner of U.S. Bureau of
Reclamation, to Edward S. Hyatt, Directory of the California
Water Project Authority, 10 March 1943. 

28. California Senate Interim Committee on Water Projects,
Senator Stephen P. Teale, Chairman, Opinion of Attorney
Walter M. Gleason Regarding Various Legal Aspects of
Burns-Porter Act (SB 1106) (Proposition One), October 28,
1960, p. 15. 

29. From this perspective, the CalFED “Framework for
Decision” proposal for a “water quality exchange” by the
Metropolitan Water District of Southern California and the
Friant Water Users Authority (on the San Joaquin River) both
is hardly surprising, and takes on new meaning. More than
merely pragmatic and practical, proposed CalFED water
quality exchanges effectively reverse water right priorities
without acts by the state Legislature or decisions by state
courts or the State Water Resources Control Board. In that
sense, CalFED’s plans are beyond politics, beyond law. See
CalFED Bay-Delta Program, “Framework for Action,” June 9,
2000; and Tim Stroshane, “Reframing CalFED,” SPILLWAY

30. Gleason, op. cit., note 28, p. 21. 

31. State Water Resources Control Board, Final Environmental
Impact Report for Implementation of the 1995 Bay/
Delta Water Quality Control Plan, Volume 1, November 1999,
p. III-5, and Table III-5, p. III-24. 

32. Alex Hildebrand, personal communication, Manteca,
California, 10 December 1999. 

33. W. Turrentine Jackson and Alan Paterson, The Sacramento-
San Joaquin River Delta: The Evolution and Implementation
of Water Policy, An Historical Perspective, California
Water Resources Center, University of California, Davis,
Contribution No. 163, June 1977, p. 102. 

34. The Racanelli decision, United States of America et al v.
State Water Resources Control Board, 182 Cal. App. 3d 82;
227 Cal.Rptr.161 (Cal.App.1 Dist. 1986), was appealed to the
California Supreme Court, which refused to review the case
on September 18, 1986, thereby letting the appellate court
decision stand. The eight plaintiffs were: the Central Valley
East Side Project Irrigation Association (a precursor to the
Friant Water Users Authority), Kern County Water Agency,
South Delta Water Agency, San Joaquin County Flood
Control and Water Conservation District, the Contra Costa
County Water Agency, the United States Bureau of Reclamation,
and two Antioch-area private corporations, Fibreboard
and Crown Zellerbach. All page citations are to 182
Cal.App.3d 82 and following pagination. 

35. Ibid., p. 118. 

36. Racanelli merely noted it would be “too cumbersome and
impractical to accomplish the mandated periodic revisions of
water quality control plans” since reallocating water rights is
the only enforcement mechanism available to the Board for
administering its water quality standards and protecting
beneficial uses under the Clean Water Act. Ibid., 119. 

37. Ibid., p. 140, 141. 

38. See also Tim Stroshane, “A History of the Monterey
Agreement: Glimpsing the Future,” SPILLWAY v1n2, Winter
2000, p. 4. 

39. Racanelli decision, op. cit., note 34, p. 147.

Repost - Glimpsing California's Future by Tom Stroshane

Spillway News, Winter 2000.

California glimpsed an apocalyptic water future in the
long drought of 1987-92.

To understand what that horror show meant in 1994 when
the Monterey Agreement was negotiated surreptitiously by
DWR and a small group of State Water Project (SWP)
contractors, we must look to the past, to why things played
out as they did in events leading to 1994.

But first, a digression on economics.

SWP contractors do not pay for water. Instead, they repay
costs of building and operating facilities for collecting,
storing, and distributing water, and those facilities by law
must be paid for regardless of whether contractors receive
water in any given year.

An economic analogy for what was set up with SWP
beneficiaries goes like this: Suppose you take out a mortgage
to buy a home with three bedrooms and two bathrooms.
Then it turns out you don’t have enough people in your
family to keep the second bathroom and the third bedroom in
regular use. You have to pay the mortgage back monthly
regardless of whether you use the whole house or not.

Do you think your mortgage lender would sympathize or
offer to adjust your mortgage based on your actual use of the
house? No lender would, rest assured.

The contractors struck the same kind of deal with the
state of California in 1959 when the Burns-Porter Act was
passed, and which the voters approved in 1960: contractors
agreed to pay for the project knowing there could be years
when they might not get the water they wanted.

SWP contractors use a convenient fiction of “entitlements”
to water as though they were a legal claim on the
state to provide them with water. That fiction enables them
(and indeed, some environmentalists) to speak of “buying”
or “selling” water. But this conceptual sleight-of-hand hides
the fact that “entitlements” are not legal rights to SWP water
but merely an accounting device by which the facilities cost
of water is allocated to different contractors based on the
proportion of the facilities used to deliver water to each
contractor.

Overdrafting Groundwater

In the 1950s, San Joaquin Valley agricultural and
southern California urban interests pumped out far more
groundwater than they recharged into their aquifers.
“Continued reliance upon the ground water overdraft
would eventually exhaust the water supply and kill the
economy of the area, thus establishing the need for supplemental
water,” writes southern California water lawyer
Arthur G. Kidman. “Without ground water overdraft,
California’s development and prosperity probably would not
exist as we know it today.”1

Indeed, groundwater overdraft was used to justify
planning and building the State Water Project (SWP) in the
1950s. SWP water was intended by state leaders like
Governor Pat Brown to secure the state’s water future and
take pressure off overdrafted aquifers in the San Joaquin
Valley and south of the Tehachapis in urban southern
California.

But it didn’t happen that way. New water facilities were
relatively cheap at first, and the water they deliver is easy to
bring to new lands for cultivating crops or subdivisions.2
Once the SWP began delivering water in the late 1960s and
early 1970s, the groundwater overdraft continued (as it does
to this day), combined with land speculation in new crops
and sprawling housing developments.

 In the planning stage, SWP water was still expected to
cost more than water provided through the federal CentralValley Project (CVP). Agricultural San Joaquin Valley contractors, led by the Kern County Water Agency (KCWA), openly worried about this high cost, insisting on and gettinglocal tax-base subsidies for water and no acreage limitations on farmers receiving SWP deliveries.

In addition, the long-term contracts make available
“surplus water” not requested by other contractors at just the
cost of transportation charges. San Joaquin Valley contractors,
especially KCWA, were historically the largest users of
this subsidized “surplus water.”3

Surplus water, however, was last available in the SWP
system in 1987, the first year of the last drought. Resulting
from the 1987-92 drought and a changed political culture,
environmental decisions have further limited water exports
from the Delta systems (both CVP and SWP). Coupled with
changes brought about by the federal Reclamation Reform
(1982) and Central Valley Project Improvement acts (1992),
the era of cheap facilities for delivering seemingly unlimited
quantities of water in California ended.4

The 1987-92 drought — the longest in California since
the Great Depression — brought the economics of costly
SWP water to a crisis point for its two largest contractors,
KCWA and the Metropolitan Water District of Southern
California (MWD).

In the SWP’s early years, the average facilities cost of
delivered SWP water was low, around $25 per delivered
acre-foot to San Joaquin Valley contractors like KCWA. (In
comparison, the contract cost of delivered water from CVP
facilities was $8.) Then the facilities cost of delivered SWP water nearly doubled in the early 1980s when DWR signed
new electricity contracts.

But in 1991, the worst year of the last drought, San
Joaquin Valley contractors received just 45,556 acre-feet at
an average facilities cost of $1,041 per acre-foot that year.5
MWD faced a similar but less extreme financial visegrip.
Where MWD’s cost per delivered acre-foot had been
$170 in 1982, it more than tripled to $548 in 1991 when
MWD received just 19.5 percent of its 2 million acre-feet
entitlement.6

Permanent Shortage Scenarios

Though SWP contractors were never promised any
specific amount of water, permanent water shortages in
California seemed both plausible and horrifying to water
watchers (though water officials later denied this to the PCL
v. DWR courts7).

In late 1993, DWR received requests from SWP contractors
for water deliveries totaling 3.8 million acre-feet, far
more water than the SWP had ever delivered before. The
department “felt the requests were unrealistic,” reported
public policy analyst Dennis O’Connor of the California
Research Bureau at the time. “In response, they claimed
authority under the contract to modify the initial requests.”
DWR then reduced the requests to the largest amount from
each contractor delivered in the previous 10 years, establishing
a modified initial request for 1994 deliveries of 1.56
million acre-feet, less than half of the contractors’ original
request.

At its December 1993 meeting, MWD’s board of
directors deferred approving their annual payment of $413.8
million to DWR, delaying its $67 million January payment,
in hopes that its water bill strike would get DWR’s attention.8

The California Research Bureau also reported that
delinquencies in Kern County’s SWP payments were a
significant problem during and after the drought. Worse,
since SWP deliveries were near zero in 1991, “the banks
have been reluctant to lend money [to fund farmers’ annual
credit needs there]. Their reasoning is that the farmers no
longer have a reliable water supply, and so the land has
virtually no value.”9

The worst case scenario for Kern County was that SWP
contracts require KCWA to guarantee payment to DWR by
levying a district-wide property tax sufficient to cover the
bill. “Since farm land that doesn’t have a dependable water
supply is essentially worthless, the tax burden would
ultimately be carried by the City of Bakersfield,” observed
O’Connor at the time.10

The California Research Bureau also pointed out an
Armageddon scenario: “If environmental protection in the
delta requires additional SWP delivery cutbacks in the 1/2
million to 1 million acre-foot range, a distinct possibility,
there is a potential for widespread default among agricultural
users.”11

While probably exaggerated, let’s return to our mortgage
metaphor: They had trouble making the mortgage on SWP
facilities. San Joaquin Valley interests clearly overextended
themselves when they expanded cropped acreage in reliance
on an at-best uncertain imported water supply rather than
using the water to stem groundwater overdraft.

The SWP, which many of its critics also regarded as “a
tremendous asset to the state,” must have increasingly
resembled a hydraulic Ponzi scheme verging on collapse as
the events of 1994 crashed down.12

On one hand, the industry faced extended drought in
which seven of the previous eight years (counting 1994)
were considered critically dry (1993 being a wet year
exception).13 (In retrospect, maybe not such a bad idea...would have kicked the Feds out of the state.)

On the other hand, in the midst of drought DWR planned
the SWP to expand. Voters in Santa Barbara and San Luis
Obispo County approved hooking their counties up to the
SWP. Other areas, such as Butte County in the northern
Sacramento Valley, were considering taking delivery of SWP
water as well. San Joaquin Valley contractors were also
urging then-governor Pete Wilson to have the State of
California buy the giant Central Valley Project from the
federal government.

Before such a thing as the CalFED record of decision
(adopted this past September), not only was there little
prospect of adding new reservoirs to the State Water Project
or the Central Valley Project, but new water quality regulations
and key biological opinions under state and federal
endangered species acts promised to release more stored
water for ecological uses, which would reduce yields of both
the CVP and SWP from the Sacramento-San Joaquin River
Delta.

Dry weather, low runoff, and depleted reservoir storage
in 1994 only added to the pressure to restructure the SWP
and somehow resolve the crisis. No wonder California’s febrile water wars were white hot in 1994.

That year was also marked by an overheated — and
bipartisan — ideological drumbeat for privatization of
government facilities (including water delivery facilities)
blared widely in public discourse to herald a new age of
economic “efficiency” through private sector “discipline”
and unleashing an enrichez-vous ethic. Then-governor
Wilson was its staunchest apostle at the time.

In such a climate, DWR officials were placed on the
defensive by the financial vise-grip of SWP payments on
contractors. They offered little resistance under Wilson to
contractors’ claims to “entitlements,” and refused to view
litigation as a serious option in such a situation.

O’Connor reported that defaults could force the SWP into
financial crisis and jeopardize its AA bond ratings with Wall
Street, forcing taxpayers to bail out the system with infusions
from the state budget so that the water system’s bond
payments were honored.14

To SWP contractors, cloudy SWP water supplies raised
the specter of obscenely high water costs and meager
deliveries, since their SWP contract payments would stay the
same whether DWR delivered water or not.

As urban development creeps northward from Los
Angeles to Tejon Ranch in the Tehachapis, it is also plausible
that twin prospects of permanent water shortages and
substantial public debt in the SWP clouded the dreams of
San Joaquin Valley land owners and water agencies for
converting their lands to urban uses and to be the water
source for Valley cities of the future.

Article 18

As 1994’s crises wore on, DWR’s handling of short-term
drought water allocations and the specter of DWR declaring
a permanent water shortage in California led to furious
disputes between SWP contractors and DWR.

DWR was empowered to act during drought conditions
under the SWP contracts’ Article 18. Two of Article 18’s
provisions address the short and long-term effects of
drought, and how DWR is to allocate water to contractors in
such situations.

Under Article 18(a), in years when water is temporarily
short, DWR was to cut agricultural contractors’ deliveries
first by up to 50 percent, before cuts were required of urban
contractors. Contractors disputed DWR’s implementation of
Article 18(a) during the 1987-92, according to O’Connor,
when DWR based reductions on contractor requests rather
than on entitlements as Article 18(a) specifies. Requests are
typically lower than entitlements, so contractors got less
water than allowed under Article 18(a) than in these dry
years.15

Article 18(b) enables DWR to recognize a long-term
shortage of water and, according to O’Connor, with five
years’ notice to all contractors, recalculate a reduced delivery
capacity (the project yield) for the SWP, and reduce each
contractor’s pro rata share of entitlements under the new
yield. (Keep in mind: legally speaking, entitlements are
really an accounting device.)

In this charged setting, “we did do the Monterey Agreement
behind closed doors,” Tim Quinn, deputy general
manager of MWD, admits. But, he claims, the agreement’s
principles “only affected who paid and who got water among
the SWP contractors.”16 If it was only that simple (see
“Bloodless Coup,” this issue).

Redefining SWP Supplies

Though the Monterey Agreement was negotiated in
secret, as the Third Appeals Court decision in PCL v. DWR
bluntly states, the issues leading to the Agreement were
aired.17 In January 1994, 11 months before the Agreement
was concluded, the California Senate Committee on Agriculture
and Water Resources held a hearing on SWP financing.

At the hearings, SWP contractors and other interest groups
vented to legislators about the SWP’s repayment system.
“The source of this dissatisfaction varied,” wrote CRB’s
Dennis O’Connor at the time. “For some, it was how the
Department of Water Resources allocated water during
periods of water shortages. For others, it was the ‘take-orpay’
aspects of the contracts. Still others expressed concern
about the perceived misallocation of one of the State’s most
valuable resources.”18

SWP critics felt the project “may never reliably deliver
the official project yield” of 4.2 million acre-feet. SWP
average costs were far higher than promised in the 1960s and
varied wildly from year to year. Critics considered the “takeor-
pay” financing arrangements economically inefficient and
unfair.19

O’Connor laid out 20 “options for change” to the State
Legislature addressing at least one of the issues SWP critics
posed: changing short-term shortage provisions, permanently
reducing the official project yield, setting a fixed price for
water, promoting economic efficiency, reallocating environmental
costs, changing SWP administration (including
contracting out or privatizing SWP operations, proposals
then in vogue for “reinventing” government functions
leading up to the Republican Party’s “Contract With
America”), and changing technical features of the long-term
water supply contracts.

O’Connor’s report could have been a starting point for an
Article 18(b) alternative analysis in the now-defective
Monterey Agreement EIR. Published in August 1994, months before completion of the Agreement itself, O’Connor
says there were short-term equity problems with reduced
entitlement deliveries implementing Article 18(b), but he
saw that executing 18(b) would reduce the occurrence of
long-term shortages, increase the availability of surplus
water, and stabilize the cost per acre-foot of water.20

By invoking a permanent water shortage, the state could
redefine the SWP supplies so they could be operated more
reliably. But contractors would have to reduce their exposure
to drought by diversifying their water sources. In 1994, they
weren’t so ready to do that.

The Agreement’s framers and their EIR consultants
ignored O’Connor’s 18(b) explorations.

In the end, options that appealed to Monterey Agreement
framers included buying and selling entitlements, using
capital reserve funds to restructure SWP financing, and
eliminating the agriculture-first contract provisions concerning
drought.

The framers retained the SWP’s project yield of 4.2
million acre-feet (an acre-foot is about 326,000 gallons of
water). Now Monterey Agreement “paper water” entitlements
are marketed to new sprawling developments like
Newhall Ranch in Los Angeles County and Dougherty
Valley in Contra Costa County. The Monterey Agreement
thus propels construction of CalFED reservoirs and peripheral
canals closer to reality as California’s population
grows.21

The framers not only avoided choosing to invoke
Article 18(b), Principle 2b of the Agreement deletes it.

“Some contractors claim that if Article 18(b) is reinserted
and the Kern Fan Element transfer is invalidated, the signers
of the Monterey Agreement will not sign a revised Agreement.
But no one knows for sure,” says Plumas County
Counsel attorney Rob Shulman.22 Plumas County is a
plaintiff in the Appeals Court case that has stalled Monterey
Agreement implementation.

“It’s nuts to return the Kern Water Bank to the state,”
says MWD’s Quinn, himself a Monterey Agreement negotiator.
“If we lose, we’ll go back to the Legislature to fix the
problem.”23

“I think the Legislature is actually where this matter
belongs,” counters Antonio Rossmann, attorney for the
plaintiffs.24

NOTES

1. Arthur G. Kidman, “‘Connections’ Between Ground Water
and Surface Water," in Making the Connections: Proceedings
of the Twentieth Biennial Conference on Ground Water,
edited by Johannes J. DeVries and Jeff Woled, September
11-15, 1995, California Water Resources Center Report No.
88, p. 10. Overdraft in the Los Angeles region (where
groundwater was overdrafted for municipal and industrial
uses) was the justification for importing water supplies from
the north in the 1950s. See William Blomstedt, Dividing the
Waters: Governing Groundwater in Southern California, San
Francisco, CA: Institute for Contemporary Studies Press,
1992, p. 104.

2. Robert Gottlieb and Margaret FitzSimmons, Thirst for
Growth: Water Agencies as Hidden Government in California,
Tucson, AZ: University of Arizona Press, 1991, Chapters 3
through 5.

3. Michael Storper and Richard Walker, The Price of Water:
Surplus and Subsidy in the California State Water Project,
Berkeley, CA: Institute of Governmental Studies, University of
California, 1984.

4. Gottlieb and FitzSimmons, op. cit., note 2, discuss “the end
of cheap water.” But this confuses the issue, since it is really
water facilities that contractors pay for. Water is not for sale in
this system.

5. This average price of water is spread across six separate
SWP contractors in the San Joaquin Valley: Dudley Ridge
Water District, Empire West Side Irrigation District, Kern
County Water Agency, Kings County, Oak Flat Water District,
and Tulare Lake Basin Water Storage District. The bulk of
water received by these contractors was for municipal and
industrial customers served by KCWA. Kings County was the
only contractor to receive no agricultural water that year. Cost
per delivered acre-foot data calculated from California
Department of Water Resources, Bulletin 132-95: Management
of the California State Water Project, November 1996,
Table 5B (Annual Water Quantities Delivered to Each
Contractor) and Table 23 (Total Transportation and Delta
Water Charge for Each Contractor).
See also Dennis O'Connor, Financing the State Water
Project, Sacramento, CA: California Research Bureau, June
1994, pp. 63-65. See especially Figure 5.H, which bears out
O'Connor's remark about average SWP water prices heading
skyward.

6. Bulletin 132-95, ibid.

7. "There is then no question that the SWP cannot deliver all
the water to which contractors are entitled under the original
[long-term SWP water supply] contracts. It does not appear
that SWP has ever had that ability. Nor do defendants
suggest that full delivery of entitlement water is likely within
the life of the contracts. Nevertheless, defendants [DWR and
Central Coast Water Authority] dispute that a long-term
shortage exists. Defendants argue that requests [for water
deliveries] are the proper measure of shortage. They emphasize
that the SWP had been able to meet contractors' actual
requests for water every year except 1994, suggesting there
is no water shortage, let alone a permanent shortage." See
PCL v. DWR, pp. 28-29.

8. O'Connor, op.cit., note 5, June 1994, p. 53; California
Research Bureau, CRB Note, v2,n3, 15 June 1994, p. 3.

9. CRB Note, ibid., p. 4.

10. Ibid.

11. Ibid.

12. "...a tremendous asset to the state" quote from O'Connor,
Financing the State Water Project: Options for Change,
Sacramento, CA: California Research Bureau, August 1994,
p. 58. Hereafter cited as Options for Change. O'Connor's
reports are available free of charge by calling the California
Research Bureau at 916/653-7843.

13. This five-year streak, incidentally, is previously unknown
in DWR's records of unimpaired runoff in the Sacramento
River basin. Prior to the four-year streak of wet years ending
in 1998 in the San Joaquin River Basin's runoff record, the
last four-year streak of wet years was from 1914 through
1917. See California Department of Water Resources,
Preparing for California's Next Drought: Changes Since 1987-
92, Sacramento, CA, July 2000, Figures 4 and 5, p. 5. Glimpsing the Future

14. Three law review articles were published simultaneously
in Fall 1994 through the Hastings College of the Law Public
Law Research Institute addressing legal aspects of nightmare
scenarios: Peter Lee, "Modifying State Water Contracts:
Constitutional Takings Issues"; Michael Kometani, "The
California Water Resources Bond Act: Bondholder Security
and the Contract Clause"; and David M. Call, "Legislative
Impairment of Contracts Between the State Water Project
and Its Contractors" Public Law Research Report, Fall 1994.
These articles can be found at the Hastings College of the
Law web site at http://www.uchastings.edu/plri/fall94/.

15. According to DWR data, the average annual deliveries of
the State Water Project between 1967 and 1994 was 2.6
million acre-feet of water. Bulletin 132-95, op. cit., p. 133,
calculated from Table 10-5.

16. Tim Quinn, deputy general manager, Metropolitan Water
District of Southern California, personal communication, 17
November 2000.

17. PCL v. DWR, p. 8.

18. As Dennis O'Connor described the brouhaha over the
SWP in 1994 from interviews he conducted with water
industry participants at the time, "Each person defines the
problem(s) with the SWP's repayment system differently,
depending on their own personal perspective." Dennis
O'Connor, Options for Change, op. cit., note 12, p. 2.

19. Ibid., p. 3.

20. Ibid., pp. 17-21.

21. See PCL v. DWR, p. 32-33.

22. Rob Shulman, Plumas County Counsel's Office, Quincy,
California, personal communication, 22 November 2000.

23. Quinn, op. cit.

24. Antonio Rossmann, attorney at law, personal communication,
1 December 2000.