Revisiting Water Bankruptcy

REVISITING WATER BANKRUPTCY IN CALIFORNIA’S FOURTH YEAR OF DROUGHT

By Olivia Moe, Volume 100Managing Editor

This spring, as “extreme” to “exceptional” drought stretched across most of California—indicating that a four-year streak of drought was not about to resolve itself[1]—Governor Jerry Brown issued an unprecedented order to reduce potable urban water usage by twenty-five percent.[2] In June, the State Water Resources Control Board began to notify California’s most senior water rights holders, some with rights predating the twentieth century, that they must curtail their water usage for the first time in nearly forty years.[3] Rights holders dispute the state’s authority to order such reductions, and some have filed lawsuits.[4]

In Water Bankruptcy,[5] published by the Minnesota Law Review in 2012, Professor Christine A. Klein described California’s situation as a “[p]erfect [s]torm” of a watershed “on the verge of collapse” and a system “in crisis.”[6] The crisis is partly due to the drought and natural conditions of California’s climate and geography, and partly due to the way California allocates and uses water.

California’s water law is mostly based on prior appropriation, a doctrine designed to encourage resource development during the Gold Rush by awarding water use rights to the first person to divert water from a stream and apply it to a beneficial use.[7] Prior appropriation is founded on a ‘first in time, first in right’ principle, under which an appropriator has a right to continue to use water at the rate he has appropriated, subject to the “senior appropriators” whose rights were created earlier.[8] In a dry year under traditional prior appropriation law, junior appropriators bear the loss of insufficient flow first while senior appropriations are honored in full, regardless of the relative necessity or value of the uses.[9]

In California and throughout the West, major streams are “overappropriated,” which means they contain less water than is legally claimed through appropriative rights.[10] The Bay-Delta region in California, for example, is overappropriated by up to 800%.[11] During prolonged drought, this means many junior appropriators may not be entitled to exercise their water rights for years at a time. The recent issuance of curtailment notices to the most senior appropriators in California indicates that all junior appropriators in those watersheds have suffered curtailments already.

Out of concerns that the law leaves no room for the government to repair California’s potentially dire water problem, debates have surfaced over whether the water rights doctrine so central to the American West since the nineteenth century is still prudent in light of dramatic changes in population densities, land use values, and understandings of hydrology and water conservation.[12]

This discussion merits revisiting a promising solution proposed three years ago, when most of California faced only “moderate” or “severe” rather than extreme or exceptional drought.[13] In Water Bankruptcy,[14] Professor Klein analogized overappropriated water resources to financial debts and crafted a novel solution modeled after bankruptcy.[15] “Water bankruptcy” would offer states “a fresh start under dire circumstances,” allowing them to reorganize water rights and move forward with more sustainable, sensible plans.[16]

To invoke water bankruptcy, an agency would have to demonstrate “insolvency,” i.e., that a particular watershed or aquifer is unacceptably overappropriated.[17] Other requirements would mirror those of bankruptcy proceedings, culminating in a plan for reorganization.[18] The plan for reorganization is where an agency might factor new public interest considerations into the water allocation system.[19] For example, an agency could prioritize municipal drinking water uses over agricultural uses, or provide for the protection of minimum stream flows for environmental and conservation purposes. This process would allow agencies a second chance to afford weight to important values that were absent from the discussion when judges were developing prior appropriation doctrine.

Professor Klein recommended water bankruptcy as a framework for “willing collaborators who have voluntarily turned to negotiation” rather than a judicial remedy.[20] This approach has the benefit of avoiding legal challenges, and according to Klein, it is a feasible solution, as many appropriators are already seeking out compromises to improve “sustainability, peace, and certainty.”[21]

In 2012, Professor Klein argued that the principle of priority in water rights was “at the breaking point, no longer able to allocate water reliably.”[22] This is as true as ever in today’s California, where extreme overappropriation paired with periods of diminished precipitation and snowmelt have necessitated changes in urban water use and imposed significant losses on the agriculture industry.[23] Excluding this spring’s bold curtailment orders that some argue are outside the state’s jurisdiction, California has relied on small domestic adjustments such as increasing faucet and toilet efficiency standards and paying people to convert their lawns into drought-resistant gardens.[24] But the fact that agriculture accounts for eighty percent of the state’s water consumption makes it clear that more comprehensive change will be necessary to draw California out of its water crisis.[25] Water bankruptcy thus offers an apt framework for starting that conversation and introducing sustainability considerations into California’s water rights system.