Lawmakers want to protect water rights in Washington from Wall Street speculation

The legislation comes in response to a multimillion-dollar buying spree by a New York investment firm.

farmer on tractor

Daniel Barron sprays fertilizer on an apple orchard at Carpenter Ranches in Granger, Yakima County, March 30, 2005. Farmers often have water rights that allow them to draw more water than their neighbors based on need, with unused water being made available to others lower on the list or funneled to water banks, which allow farmers higher on the list to draw water and sell unused water to others. (E.B. McGovern/AP)

Worries that moneyed interests could control Washington’s water have sparked a push in Olympia to cut Wall Street bankers and international investors out of the state’s convoluted water rights system.

Competing bills introduced during this legislative session take aim at the state’s water banks, which collect untapped water rights and sell water to users in need. Although the proposed legislation has received only tepid support, a consensus is emerging that action is needed to keep speculators from using water banking, as one state senator puts it, to “strangle” Washingtonians.

Water banks collect water rights from rural landowners who have permission to take more water than they need. The banks then sell access to water to customers whose water rights are either too new or too small to meet their needs.

The banks, which now number 25, have proliferated in the state since the first opened 2004. While many have proved invaluable tools to manage water resources — driving economic growth and environmental improvements — they are also a key vehicle for water speculators looking to buy water rights and then sell water at a significant markup.

As a Kittitas County commissioner, Paul Jewell saw the pain for-profit water banking can cause. Water drawn on rights collected by developers in the county for $2,500 or $3,000 netted $135,000 in revenue when the water was sold to property owners. One year’s worth of water, Jewell said, was costing homeowners $15,000.

“In areas where that occurs, you’ve got profiteering that’s taking place at the expense of folks who really just want to be able to build a home on their land,” said Jewell, who now serves as policy director of the Washington State Association of Counties.

The current flurry of legislation stems from an October 2019 Seattle Times article that expanded on earlier coverage in the Methow Valley News detailing a multimillion-dollar spree that saw a water bank owned by a New York investment firm buy up water rights east of the Cascades. The firm’s stated aim is to profitably resell the water in the Methow Valley and elsewhere to farmers and others in need of water.

But, although the state Department of Ecology and water watchers expect speculation to increase as the state’s population grows and droughts worsen because of climate change, the amount of current speculation in Washington is unclear. And even those who generally support stronger regulation say the proposed legislative fixes need significant refinement.

At least three bills under consideration — led by Department of Ecology-backed Senate Bill 6494 — are intended to regulate sales of water rights to water banks, particularly those that exist to turn a profit. While each takes a slightly different path to that end, all have elicited complaints that new regulation could impede community water banks on which farmers, builders and environmental stewardship organizations have come to rely.

“This issue is really complex,” state Sen. Christine Rolfes, D-Bainbridge Island, said during a recent hearing on the legislation. “But because it’s so complex, we haven’t sorted it out.”

As regulations stand today “the rest of the world … can buy our water rights and strangle us,” said Rolfes, lead sponsor of the Department of Ecology-crafted bill. “It seems to me that this external threat should be something that unifies us so that we can figure out how to protect the public’s water.”

Washington’s water rights system attempts to balance two conflicting positions — that water is a public resource stewarded by the state, and that water rights are private property. The state regulates water use and, through the Endangered Species Act and other environmental laws, is required to keep water in streams and rivers. At the same time, water rights are usually treated like any other property under the law, and if too many water rights are exercised, it can leave streams slowing to a trickle.

A water right entitles its owner to draw a specified amount of water from a well or stream in a particular river basin so long as that water is available. The oldest claim is honored first. So in a drought, newer holders may be left dry.

While the system assigns water rights to the natural world, those rights are junior to many older agricultural water rights, said Bruce Wishart, a lobbyist on environmental issues representing the Sierra Club and the Center for Environmental Law & Policy. Farms often win out over fish when water runs short, Wishart said.

“The real issue is water is becoming more scarce, and with climate change we expect those problems [to grow] even greater over time,” Wishart said in a recent interview. “So we have to be very careful with our water and ensure it’s put to the best possible use.”

“It’s possible under some climate change scenarios that we’ll see prolonged droughts lasting three, four, five years,” he continued. “That’s where it gets scary.”

Low stream flows already are killing fish, scientists say, including endangered salmon. Lack of water flowing into streams is a major factor allowing some waterways to grow warm enough to kill salmon and other fish in the late summer, or run dry all together. The fear is that as the climate warms, the late-summer fish-killing period could expand, further impairing salmon recovery efforts. 

In 1967, Washington lawmakers looking to free up water rights decided that rights that go unexercised for five years are invalidated. But that encouraged rights holders to waste water because any unused amount could be taken away. So in 1991, the Legislature created a statewide water trust account allowing rights holders to “park” unused water rights with the state.

By the mid-2000s, however, access to water had become scarce in rapidly growing areas east of the Cascade crest. Water banks, which allowed users to pull water from portions of the state trust account and other sources, were seen as a way to ensure those in need could access water. Developers, homeowners and farmers buy water from those banks, some of which also ensure sufficient water flows for spawning salmon and other wildlife.

Flaws in that system were first exposed in Kittitas County, where developers behind the 500-home Suncadia Resort outside of Cle Elum bought up water rights ahead of construction in 2004, and opened the state’s first water bank.

Water prices skyrocketed in the area, panicking residents and stymieing other construction, said Jewell, who was a county commissioner at the time. As Jewell tells it, Suncadia and other developers that had secured water rights refused to sell water to competitors looking to build there.

After attempts to change state law failed in the Legislature, Kittitas County created a competing water bank to ensure water was available to residents and other builders.

“We created a publicly owned and operated water bank, and essentially broke the market and the monopolistic hold that several of these private water bankers had,” Jewell said.  “We reduced the price, we limited what we would sell, and we essentially took the market share away from them.

“But we had to do it the old-fashioned way, with millions of dollars and a lot of effort.”

Washington’s water banking system is lightly regulated and opaque, said Bill Clarke, a lobbyist representing Kittitas County. While water banks operate like utilities, setting rates and securing monopolies, they provide little information to regulators or the public.

“When somebody sets up a water bank, there’s no specific application for a water bank, there’s no requirement that the purpose of the water bank be described,” Clarke testified during a recent Senate hearing. “It’s really difficult to understand what the water bank is doing and where.”

In the worst case, Jewell said, a speculator could conceivably buy the rights to enough water to dominate the market in a watershed. The speculator could then control the price of water and set the pace of development.

“Do you think that they’ll just benevolently sell it to you at a reasonable price? Probably not, because why did they do this in the beginning? To maximize profit,” Jewell said.

But water banks are also crucial to irrigators. They are written into the Yakima Basin Integrated Plan, a landmark effort to manage water use in a 6,150-square-mile watershed covering much of Central Washington.

While a detailed review has not been carried out, Department of Ecology records show 85 transactions since 2003 moved water rights in a way indicating speculation may be occurring, said Dave Christensen of Ecology’s water resources program, speaking at a recent Senate hearing. About 90% of water rights transfers occur within a single basin and, in the department’s view, are unlikely to involve speculation because speculators usually look to sell water downstream from the basin where the rights were acquired.

Ecology, which manages water rights transactions, has been studying speculation issues related to water banking intensely for about a year, Mary Verner, water resources program manager, said during a recent Senate hearing. The department has been working with an ad hoc “brain trust,” she said, to determine how water banking can be best managed.

SB 6494, the legislation put forward by the Department of Ecology, would formalize that brain trust, a move supported by nearly all those tracking this issue. That measure, and an accompanying bill in the House, would for the first time clearly define the department’s authority in regulating water banks, and adjust loose terminology in the law to describe which kinds of water rights can be sold.

Other legislation affecting water rights that is under consideration includes:

Senate Bill 6260, which creates a process for the state to recognize tribal communities’ water rights. Washington tribes’ rights to water are not recognized under state water law and are instead adjudicated in federal court.

Senate Bill 6036, which allows some water rights holders who have placed their water in the state trust account to lease out that water during droughts.

Senate Bill 6301, which regulates water rights transfers within a basin, enabling the Department of Ecology to weigh the public interest served in the transfer.

Senate Bill 6292, which is tightly aimed at curbing out-of-state interests' water purchases by blocking certain water rights transfers often associated with speculation.

The Legislature also has taken up a bill that would limit construction of water bottling plants, another path used by those seeking to profit from Washington’s water. A proposed plant on the Cowlitz River at Randle, which has drawn wide opposition in the community and from the Cowlitz Tribe, prompted the legislation.

Kittitas County lobbyist Clarke, speaking Jan. 21 during an initial hearing on the bills related to water banking, argued that the proposed fixes are premature and could impede water management initiatives local governments have already undertaken.

“We’re not convinced that the issue is so systemic yet that we need legislation immediately,” said Clarke, addressing the Senate Agriculture, Water, Natural Resources & Parks Committee. "We’re concerned that the good work people are doing in Kittitas County and around the state would be unnecessarily complicated.”

Clarke noted that the investment firm whose purchases of Methow Valley water rights focused attention on the issue appeared to have acquired only enough water to irrigate “about 2,000 acres of farmland in the Columbia basin.”

“That’s like a big farm,” he said. “It’s not lots and lots of farms.”

Jan Himebaugh, government affairs director of the Building Industry Association of Washington, offered a similar caution, suggesting that legislators should not “hit something that might be a mosquito with a sledgehammer.”

Environmentalists, local government representatives and others agree that action is necessary, although full-throated support has yet to be heard for any of the bills introduced so far.

While Wishart and his clients support the Department of Ecology-backed bill, he said the search continues for a “magic bullet” that will address the problems of water speculation.

Wishart neither supported nor opposed the other water speculation bills offered, a position generally adopted by the disparate interest groups concerned with the issue. Most pointed to a lack of clarity on how state regulators would weigh competing public interests, and what might qualify as a public interest, under the Ecology proposal and others.

Wishart thinks it's likely discussions around the legislation, which have proved productive and unusually amicable so far, will continue over the summer, with an eye toward crafting a comprehensive bill.

Jewell, his excitement for the topic evident, expressed enthusiasm about the prospect of a water banking task force. He said he hopes that piece of the Department of Ecology proposal goes forward, and that the resulting laws will enable water banking that encourages economic growth and environmental stewardship while limiting the impact of speculators.

Water banking, he said, “should be really easy in some instances, and it should be hard, risky and expensive in others. Where there is potential for basic, end-user consumers to be exploited, it should be real hard.”


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About the Authors & Contributors

Levi Pulkkinen

Levi Pulkkinen is a Seattle-based journalist specializing in law and justice issues in the Pacific Northwest.