Pop Quiz: What can water speculation cause?
A) Higher water prices. B) Agricultural land dry-up C) uncertainty for Colorado water users D) All of the above
Answer: D. All of the above
Water speculation refers to securing a water right without the plan or intent to put that water right to beneficial use (Traditional Water Speculation) or securing a water right with the primary motivation of profiting from future sale of that right (Investment Water Speculation). There are many identified risks to existing Colorado water users from water speculation, mostly related to water scarcity and water pricing that impacts non-speculative water users.
Some recent purchases of water rights in Colorado have fallen under the suspicion of constituting Investment Water Speculation, and this was one of the drivers motivating Colorado Senate Bill 20-048, signed in March 2021, to create a working group to explore ways to strengthen water anti-speculation law in Colorado.
In August, the working group’s final report was released.
The report flushed out the definition for the two types of speculation:
Traditional Water Speculation, which is already prohibited within Colorado Water Law, refers to the behavior of securing a water right without a specific plan and intent to put that water right to beneficial use, or without a vested interest in the facilities or place to be served by the water.
Investment Water Speculation refers to the behavior of securing a water right with the primary motivation of profiting from future sale of that right because of changes in supply and demand. An investment water speculator might have a plan to put the purchased water right to beneficial use but use of the water right is not the speculator’s main motivation for purchase.
The working group’s focus was on Investment Water Speculation, the form considered to be less easy to define and identify and also not already limited by existing law. However, the group considered concepts for reducing both forms of speculation.
The working group evaluated 19 concepts for reducing water speculation and brainstormed potential drawbacks for each concept. No concept was supported by all working group members, but eight concepts were highlighted for further evaluation.
Prohibit or penalize compensated non-diversion (this would primarily attempt to address speculation near the state line)
Fund and/or create a right of first refusal for the purchase of water rights for long-term irrigation use for public benefit
Eliminate or reduce the agricultural tax benefit for lands from which water is removed
Unless irrigated land is going to be changed to a new land use, require water to be tied to the land
Create a statewide process to identify and prohibit Investment Water Speculation
Encourage local governments to police Investment Water Speculation through their 1041 powers
Tax the profit derived from sale or lease of water rights previously purchased for Investment Water Speculation purposes.
Establish maximum rate of water right price increase and impose higher taxes when the rate is exceeded.
While all components of the Senate Bill 20-048 work is now complete, the working group’s closing recommendation was for the Colorado General Assembly to gather additional feedback from multiple and diverse stakeholders before any change in law is considered.