The Oregon Water Trust

The Oregon Water Trust

October 31, 1998

Rocky Webb was born and raised on his family’s cattle ranch in central Oregon. First homesteaded by his grandfather nearly a century ago, the ranch depends on water from the nearby Buck Hollow Creek to irrigate 50 acres of pasture for cattle grazing. During the past 30 years, however, ranchers such as Webb have left too little water in the creek, and the vast runs of steelhead trout that used to fill it no longer flourish. While not willing to let his cattle go hungry in order to save the fish, the disappearing steelhead concerned Webb. This concern prompted some investigation and led him to the Oregon Water Trust.

The Oregon Water Trust (OWT), a nonprofit organization dedicated to improving fish habitat through market transactions, eagerly signed a deal with Webb. As part of the deal, Webb transferred his irrigation rights to instream water flows, meaning he left them in the creek to prevent it from running dry. In exchange, OWT provided Webb with 78 tons of hay to feed his cows. At the time of the deal, the Oregon Department of Fish and Wildlife estimated that 30 pairs of steelhead used the creek to spawn. They now estimate that through a combination of improved flow and other restoration efforts, the number of pairs could increase to 500.

More than any other private organization, OWT demonstrates the applicability of markets to water policy. Particularly in the West, water is a scarce and valuable resource. In most cases, markets develop for such resources to balance supply and demand. In times of scarcity, prices go up to provide an incentive to use less of that resource. Trade among resource users allows the resource to move from a lower to higher valued use, and thus benefits both parties who practice in an exchange.

In the case of water, a fully developed market does not exist because states treat water as a public good. People consider water a free resource and therefore have little reason to conserve it. Yet population expansion, growth of industry, and newly raised environmental concerns have increased demand while supplies have remained constant. Water markets have thus begun to crop up in many western states, including Oregon, where the OWT works to keep an instream water market flowing.

Since its founding in 1993, the Trust not only has had great success at converting a number of extractive rights to instream flows, but its cooperative approach emphasizing market incentives and private property rights is helping bridge the heated tension between landowners and environmentalists that has escalated in Oregon over recent decades. Such events as the spotted owl debate in the 1980s, controversies over the clearcutting of Oregon’s Douglas Fir trees, and debates about livestock grazing and mining on public lands have caused the two sides to clash continually. Because the Trust relies on market exchanges that require voluntary cooperation from both parties involved, its success depends not only on overcoming this polarization, but on demonstrating that it need not exist – private property rights and environmental protection do not have to be at odds.

OWT began when Oregon altered its water laws to create instream water rights. According to Oregon’s water code, the state only allocates rights if they are put to a "beneficial use." Prior to 1987, the state did not consider leaving water instream beneficial, as they did irrigation or domestic use. But because water users were not leaving enough water instream for habitat, fish populations plummeted. Oregon’s legislature responded by altering the definition of beneficial use to include leaving water instream.

The legal change brought about endless debates and hearings between agencies and activists across the state. In the midst of all the commotion, a small group of individuals began talking amongst themselves about how to make the most of this new law. Brought together by a common desire to get more water instream, yet representing interests as diverse as real estate, agriculture, and conservationists, the founders did not create the Trust because of an ideological devotion to either free markets or environmental protection. Rather, they saw an opportunity for water markets to benefit both fish and property owners and thus decided to provide the momentum necessary to get that market flowing.

Over the past five years, the Trust has expanded in both size and scope. In 1998 alone, OWT has completed 26 leases and concluded five permanent deals. Their efforts have enhanced habitat for coho and chinook salmon; redband, brown, steelhead, and cutthroat trout; as well as other endangered fish species in river basins throughout the state. They have gained national attention in natural resource journals, magazines, and newspapers such as Land Economics, Northwest Energy News, USA Today, and Investors’ Business Daily for their innovative and cooperative approach, and younger groups in other western states have begun springing up in an attempt to mimic the Trust’s success. For example, the Washington Water Trust began in 1997, the Texas legislature recently approved a publicly funded Texas Water Trust, in Nevada Great Basin Land and Water converts water rights instream, and efforts are underway to begin a trust in Montana as well.

 

Oregon and its Water: A Brief History

In order to understand the Oregon Water Trust, one first must know a little about Oregon. Most people envision Oregon and picture dense forests separated by rugged mountains and wild rivers. This actually only describes the western portion of the state. Not only does Oregon’s geography change drastically from region to region, but precipitation varies significantly throughout the state. These two factors offer considerable explanation and insight into Oregon’s existing water policy.

Western Oregon is characterized by two mountain ranges, the Coast mountains and the Cascades, separated by the fertile Willamette Valley. This wet region of the state receives anywhere from 50 to 150 days of rain or snow each year. East of the Cascades, however, Oregon is considerably arid. The Western mountains trap most of the moisture from the Pacific, and the high desert and lava plateaus that cover a major portion of the state receive relatively low amounts of precipitation.

Thousands of settlers began migrating west on the Oregon Trail in the 1830s. In order to survive, however, the settlers needed to divert the water from Oregon’s rivers and basins. Because the eastern two-thirds of the state is essentially dry for most of the year, by the turn of the century settlers had already claimed most of the water in these regions.

Increasing demand for the state’s limited water supply led to the passage of Oregon’s first unified water code in 1909 – fifty years after Oregon became a state. According to this law, the state owns all of Oregon’s water: "All water within the state from all sources of water supply belongs to the public." Individuals can apply and obtain rights to use this water, but it remains the property of the state.

Like most western states, two concepts define and guide Oregon’s water law: the doctrine of prior appropriation and the concept of beneficial use. The prior appropriation doctrine, also known as the "first in time, first in right" principle, simply states that in times of drought or low stream flows, the oldest water right trumps all other rights. For example, if five farmers are extracting water from a stream, and a drought diminishes the available amount of water, all five farmers do not have to conserve. The farmer with the most senior right may take his full amount, the farmer with the second most senior right may do the same, and so on down the line. The farmer with the most junior right is probably out of luck, as he may only divert water from what the first four farmers leave.

This doctrine differs from water law in most Eastern states, which rely on the riparian doctrine. The riparian doctrine states that landowners have a right to the water that flows through their property. When property changes hands, so does the right to use the water that accompanies the land. Because water is more plentiful in the East, droughts and low stream flows occur less often, creating little need for more careful allocation of water rights. The arid west, however, demands appropriative rights.

Beneficial use means a water user must put a right to beneficial use, or lose that right. Traditionally, domestic use, mining, and irrigation constituted beneficial uses. The beneficial use requirement was intended to ensure that users did not hold rights to water they did not need. It also aimed to discourage individuals from speculation – acquiring but not using a water right in order to profit from future sale or use. While well-intentioned and possibly applicable to Oregon’s water demands at the beginning of the century, much has changed over the past 90 years to render this principle problematic.

Beneficial use causes problems because it encourages waste. Uses that the state considered beneficial in 1908 may still produce benefits today, but in many cases, there is a more highly valued use for that water. The beneficial use requirement does not allow water to flow to that use. For example, when fish populations flourished, leaving water instream for habitat was hardly "beneficial." Yet today’s declining salmon and trout populations demonstrate that such use is not only beneficial, but necessary for fish to survive.

Furthermore, Oregonians place a high value on healthy fish populations, and the beneficial use requirement does not reflect this value. In particular, the struggling salmon, which has become the state’s signature fish, has caused great concern. Because salmon represents the Northwest’s heritage and serves as a gauge of water quality and environmental health in the region, Oregonians have a particular affinity for the fish. In fact, a 1997 Oregonian newspaper poll showed that the decline of salmon constitutes the number one environmental concern in the state. Sixty percent also said that thus far, salmon restoration spending in the state has been ineffective.

 

Getting the Incentives Right

These misguided incentives eventually took their toll and many rivers began drying up. Too little water instream, combined with poor ocean conditions that depressed food supplies, the damming of the Columbia and other major rivers, and a stretch of unusually dry water years between 1986 and 1993 caused fish populations to fall.

In response, WaterWatch, a water advocacy group that works to protect fish, wildlife, and biological diversity, began to look into the cause of the problem. Usually known for its regulatory approach to such issues, WaterWatch pragmatically concluded that markets provided the best solution. It began pressuring the Oregon legislature to change the state’s beneficial use requirements, and with the help of other concerned individuals and organizations, its lobbying efforts paid off.

In 1987 the Oregon legislature changed the state’s water law in two ways. First, it passed the Instream Water Rights Act, which declared that leaving water instream to enhance water quality and fish habitat constituted a beneficial use. Second, it passed the Conserved Water Statute, which created the Conserved Water Program.

The first part of the new law defines an instream water right as any water right that maintains and enhances fish, wildlife, habitat, recreation, water quality, and navigation. The right is defined for a specific point or reach of a stream, and is held in the same regard as irrigation or other beneficial uses. Like other uses, it is subject to the prior appropriation doctrine, and thus the state regulates instream rights based on their priority dates.

The Conserved Water Program, which the legislature again revised in 1993, aims to correct the misguided incentives of the beneficial use requirement by giving water right holders an incentive to conserve water. The program helps landowners finance conservation projects that make efficiency improvements to their irrigation systems. In exchange, the landowner leaves part of the conserved water instream for fish habitat. The percentage of conserved water left instream depends on the amount of public funds the landowner receives. Landowners can always keep at least 25 percent of the conserved water for their own use, but they must also convert at least 25 percent for instream use. While OWT primarily deals with the Instream Water Rights Act, it has partaken in the Conserved Water Program as well.

 

The Beginning of the Oregon Water Trust

While the 1987 laws improved incentives, some additional momentum was necessary to get the instream market going. In response, a small group of individuals representing agriculture, environmental, legal, and tribal interests got together in the winter of 1992 to discuss possible alternatives. Encouraged by the success of other private conservation organizations that used market transactions and property rights, they coordinated their efforts and, in June 1993, formed the Oregon Water Trust.

 

OWT’s mission is to acquire water rights "through gift, lease, or purchase and commit these water rights under Oregon law to instream flows in order to conserve fisheries and aquatic habitat and to enhance the recreational values and ecological health of watercourses." The idea of using market incentives to benefit fish habitat made the Trust appealing to a wide spectrum of interested groups and individuals. This appeal, combined with a three-year start-up grant from the Northwest Area Foundation, a private group that funds nonprofit organizations promoting innovative approaches to critical issues in the Northwest, enabled the founders to assemble a diverse board of directors and a small staff to get OWT on its feet.

The Trust immediately established four short-term goals. First, it sought to acquire a few significant rights immediately and commit them instream to establish some early success. Second, because of the controversial nature of the relationship between environmentalists and landowners in Oregon, OWT needed to identify itself as a "problem solving, non-ideological group." Third, it needed to develop a long-term strategy. Finally, it needed a fundraising plan to acquire more rights and continue operation.

By 1994, its first full year of operation, the Trust had already started attaining these goals. OWT staff began meeting with farmers, environmentalists, ranchers, and agricultural representatives around the state to discuss the best way to develop the Trust, to determine how to promote cooperation among these diverse interests, and to negotiate agreements. These efforts paid off: The Trust signed four deals that first year.

 

The Trust in Action

Since then, OWT has expanded in both size and scope. Executive Director Andrew Purkey heads the Trust’s five-person staff out of their main office in Portland. The Trust’s Board of Directors and Advisory Board consists of ten individuals representing varied interests from around the state. The Trust’s 1998 operational budget totals $264,000, and its funding for acquisition of water rights between 1994 and 1998 totals $284,000. Additionally, the Trust has acquired $370,000 worth of donated water rights. Private foundations provide 90 percent of its operational budget, and corporations and individuals provide the remaining 10 percent. Roughly two-thirds of its acquisition budget comes from the private sector, and public funds provide the rest. Public agencies that contribute to the Trust’s efforts include Deschutes County, the Governor’s Watershed Enhancement Board, the Bureau of Reclamation, and the U.S. Forest Service.

Each of the Trust’s deals varies depending on the circumstances. Most deals are temporary, such as a recently signed contract in Eastern Oregon. In May 1998, rancher Mark Birkmaier, former head of the Oregon Cattlemen’s Association, signed a four-year lease with the Trust and converted his irrigation right for 69.5 acres to an instream right. The conversion meant that an additional 1.65 cubic feet per second (cfs) of water stayed in stream. A cfs means that one cubic foot of water passes a certain point per second.

Low stream flows during the later part of the irrigation season made it difficult for Birkmaier to get sufficient water from the creek for growing hay. As part of their deal OWT reimburses him for the hay lost by not irrigating. The Bureau of Reclamation paid for a large portion of the lease price because the transferred rights ultimately increase flows in the Snake River, which contribute to salmon and steelhead trout recovery efforts. The local soil and water conservation district and the local watershed board approved the deal as well.

While leases such as Birkmaier’s improve stream flows temporarily, the Trust prefers permanent deals such as that with rancher Ted Eady in Central Oregon. Irrigation usually causes Squaw Creek to dry up each year. In order to keep water flowing year-round, Eady sold his 53-acre irrigation right to OWT. Eady had previously used the right to irrigate his portion of the Barclay Ranch. He now plans to build an inn on the property, however, and therefore does not need to irrigate. "If there’s going to be water removed from the land to improve fish habitat, I feel that it should come from land that is not productive," says Eady. "I see a better use for it in the creek than being sold to hobby farmers."

As in most of the Trust’s deals, numerous groups, including the local watershed council, the Squaw Creek Working Group, Deschutes County, and the Oregon Water Resources Department, participated in securing Eady’s transaction. Deschutes County even paid Eady the purchase price for the water rights now held by OWT.

The Trust also works with landowners interested in the Conserved Water Program, although considerably less frequently. Carl Smith and Larry Zellen used to divert water from a leaky drainage ditch near the Rogue River. The Oregon Watershed Health Program and OWT helped them improve their shared irrigation system, however, and they now use sprinkler rather than flood irrigation and can divert the water directly from the river. The improvements cut their water consumption by half, and they transferred the conserved water to an instream right.

 

Working with the Agricultural Sector

OWT focuses its efforts on small scale transactions and primarily negotiates with individual farmers, ranchers, and landowners who irrigate water from small streams and tributaries. Yet despite this limited approach, some farmers and ranchers show skepticism towards the Trust, for two primary reasons.

First, because some perceive the Trust to be an environmental organization, some members of the agricultural community resist working with it. Even more difficult to overcome is the resistance held by many members of the agricultural sector to selling water rights. In many parts of the state, agriculture constitutes not only people’s livelihood, but the heart of their community, for it is the water that makes growing crops and feeding livestock possible. Many individuals, therefore, do not look kindly on the idea of separating the water from the land, especially to a group working to save fish. While they are not averse to the idea of water rights as private property rights, they view a complete separation of the two as a direct threat to their way of life.

This sentiment runs so strong in parts of Oregon that twice legislators have proposed bills prohibiting water allocated for agriculture to go to any other purposes. Republican State Representative Denny Jones introduced just such legislation that would have effectively put OWT out of business. Jones claims that individuals should not sell their water rights because "Once they’re gone, they’re gone forever. Then what will we raise food with? It’s that simple."

Fortunately, Jones’ bill failed. Yet it nonetheless demonstrates that the agricultural sector fears losing its water. This fear, however, as expressed above by Jones, does not take into account that all of the Trust’s deals are completely voluntary. The Trust has no interest in "taking" water away from farmers or ranchers. Rather, OWT aims to create a cooperative environment in which it facilitates deals that benefit individual landowners and improves fish habitat.

It’s also important to emphasize that in each of the Trust’s deals, both parties come out ahead. The Trust benefits because more water instream helps fish. Farmers and ranchers benefit in different ways, depending on the specific deal.

In the case of a temporary deal, the individual benefits because he presently does not need his water, and the lease protects his right from forfeiture due to nonuse. In other cases, such as the deal with Rocky Webb, the individual may want to help fish, but needs the water for irrigation. Because OWT supplanted Webb’s need for irrigation by providing hay for his cattle, the deal allowed Webb to help the fish and run his ranch. And, finally in cases of permanent deals such as Ted Eady’s, individuals who no longer need the water have the option of, and receive compensation for, putting that water to a beneficial environmental use rather than simply relinquishing it back to the state.

A cooperative approach has thus proven key to the Trust’s success. In order to promote this approach, OWT carries out an extensive outreach program. The Trust hosts workshops, makes phone calls, and schedules meetings not only to seek water right acquisition and conversion opportunities, but to cultivate a relationship with any parties that such deals may affect. Such parties include local soil and water conservation districts, local and regional watermasters, Oregon Fish and Wildlife field biologists, tribal biologists, and other state, tribal, regional, and federal sources.

 

The Basic Strategy

In order to make the most of its limited staff and budget, OWT focuses its attention and efforts on a few specific river basins in the state. It chooses these "basins of interest" according to a number of criteria. First, there must exist a high likelihood of ecological benefit. Low flows due to water withdrawls must constitute a problem in the basin and must affect a significant aquatic resource. Second, there must be a high chance of success. In some basins, increasing streamflows and temperatures will bring ecological benefits. Yet in others, loss of riparian vegetation, upstream management issues, or other factors may offset the benefits of increased flows. Third, OWT must be able to measure, monitor, and enforce its rights. Numerous other factors, such as a favorable political climate or possible cost-sharing opportunities for acquiring rights, influence decisions as well.

By 1995, OWT had targeted four basins of interest: the Deschutes, Umatilla, John Day, and Rogue River. In 1997, it added the Umpqua. Within these basins, the strategy is to look for deals that produce the greatest increase in cubic feet per second (cfs). This measurement is critical because it includes not only the amount of water an instream right provides, but how that right affects the overall body to which it is added. Buck Hollow Creek again provides a good example: Rocky Webb’s two rights of 1.2 cfs would have made little to no difference had the Trust added them to a major waterway such as the Columbia or Willamette Rivers. But because Buck Hollow Creek is a small stream, they had enough impact to create a significant benefit.

Also in 1995, OWT developed a science program. It hired staff scientist Leslie Bach to provide specific knowledge of Oregon’s ecology and hydrology and run the program. The program aims to "target specific streams and individual water rights that will provide the greatest ecological benefits to fish, monitor and protect OWT’s instream water rights, and evaluate the ecological benefits derived from our acquisitions."

OWT enacts the first part of this goal by selecting streams according to the presence of important fish runs, ecological value of spawning and rearing habitat, lowflow conditions, and the potential for improvement based on increased flows. The second part, monitoring and evaluation, presents a bigger challenge. As explained by Dr. Bach, "The relationships among increased flows, improved habitat conditions and increased fish production are difficult to measure and assess." Continual research therefore plays a key role as well.

A final strategy is to target senior water rights with the earliest possible priority date. The Trust prefers senior rights because, like other water rights, instream rights are subject to the prior appropriation doctrine. In times of lowflows and drought, a junior right will most likely not be left instream. For example, the Trust’s first permanent deal was on Sucker Creek in the Rogue River Basin. While the right only provided 0.16 cfs, a relatively low amount, it had a priority date of 1857, thereby ensuring it will remain instream.

 

Challenges for the Future

As OWT continues into its sixth year of operation, it faces a number of challenges. First and foremost is the forced public holding of the Trust’s instream water rights. Although the 1987 statute laid the groundwork for an instream flow market by declaring that "[a]ny person may purchase or lease an existing water right or portion thereof for conversion to an instream water right," it also defines an instream right as "a water right held in trust by the Water Resources Department for the benefit of the people of the State of Oregon to maintain water instream for public use."

Technically, therefore, all water rights remain the property of the state. Even once the state has approved a water right application and the involved parties have transferred the rights instream, the name on the transfer is not OWT, but the Oregon Water Resources Department. State ownership presents a challenge because as long as rights are held publicly, they are subject to political fiat and therefore are less secure than if the Trust owned them. Only a true private property right ensures complete security.

Additionally, Oregon does not have an established water market and has not developed plans to create one. Rights holders cannot trade water with each other because they do not own those rights, but instead the state grants them a right to use water for a specified purpose. As long as the public owns the water, both instream and out, rights remain insecure.

 

Conclusion

OWT began for pragmatic reasons: to improve instream flows and help endangered fish. Philosophical arguments, however, constitute their biggest hurdle today. As explained by OWT Board Member Chapin Clark, former dean of the University of Oregon Law School and ex-chair of the Oregon Water Resources Commission, OWT must get people to think of their water rights in new terms. They must see them as valuable commodities that they can use at their discretion, both on and off land. "The Water Trust is based on the notion of water rights as private property rights – that water holders are autonomous and can make their own decisions about how to use their water," he explains. "And that should be the appeal of OWT – that we stand on private property rights and not regulation."

Despite some resistance, the Trust has come a long way since its inception six years ago. At its start, the founders had no certainty that the groups with whom they needed to work would accept them, or if they could produce tangible results. Oregon’s polarized demographics produced a widespread atmosphere of skepticism among the groups with whom the trust needs to work. The Trust had to dive head–first into this debate and get the two sides to work together if they were to have any success at all.

Not only has the Trust negotiated deals with over 50 water rights holders in Oregon, both temporary and permanent, purchased and donated, but it has acquired 69.70 – 77.86 cfs and protected flow in over 450 river miles throughout the state. Equally important, however, is that its work is helping transform western attitudes about water and people’s acceptance of water markets in general. Markets can only operate if each party involved voluntarily and willingly participates in transactions. They cannot thrive in an atmosphere of distrust. By bringing agricultural interests and individual landowners together with environmentalists, the Trust helps pave the way to a more constructive and sensible approach not only to water policy, but to natural resource management in general, both in and outside Oregon.

 

Erin Schiller is a Public Policy Fellow at the Pacific Research Institute in San Francisco. A native of Oregon, she received her B.A. in government and literature at Claremont McKenna College, and continues to research and write on free–market environmental reforms in both California and the Pacific Northwest.

The author wishes to thank Andrew Purkey, Cheyanne Chapman, and Emile Hall at the Oregon Water Trust, as well as Clay Landry and Terry Anderson at the Political Economy Research Center.

Anyone interested in contacting the Oregon Water Trust may do so by calling 503-226-9055, or by e-mailing info@owt.org.

Created in 1995, the Center for Private Conservation researches, documents and promotes the public benefits of private conservation and private stewardship. The Center for Private Conservation is supported by the William H. Donner Foundation.

 

ENDNOTES

 

1Jim Middaugh, "Water Marketing: Promise or Peril?" Northwest Energy News, Summer 1995, p. 19. 2Oregon Water Trust, Water Rights Acquisition Strategy 1995-1997, (1995), p. 8. 3OWT, Water Rights Acquisition, p. 10. 4Oregon Revised Statute 537.110. 5Terry L. Anderson and Pamela Snyder, Water Markets (Washington, D.C.: The Cato Institute, 1997), p. 80. 6The Oregonian, December 7, 1997. 7Oregon Revised Statute 537.120. 8Oregon Water Trust, "Q and A: How Does the Conserved Water Program Work?" 1996. 9OWT, Water Rights Acquisition, p. 2. 10Oregon Water Trust, Statement of Purpose, 1993. 11OWT, Water Rights Acquisition, p. 3. See also http://www.nwaf.org/index.html for more information about the Northwest Area         Foundation. 12OWT, Water Rights Acquisition, p. 3. 13Bend Bulletin (Bend, OR), May 1997. 14Jim Middaugh, "Water Marketing: Promise or Peril?" Northwest Energy News, Summer 1995, p. 21. 15OWT, Water Rights Acquisition, p. 37. 16OWT, Water Rights Acquisition, p. 27. 17Leslie Bach, PhD., "OWT’s Science Program Takes Off," Fish Flow News, Spring 1996, p. 2. 18Ibid. 19Oregon Revised Statue 537.348(1); Oregon Revised Statute 537.332(2). 20Chapin Clark, "OWT Board Member Profile," Fish Flow News, Summer 1998, p. 3.