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Water Supply and Distribution: The Next 50 Years ROYCE HANSON Taken as a whole, the United States has plenty of water, now and for the future. The problem is, of course, that no one lives in the United States as a whole: we live in specific communities, and not all communities have, or will have, enough water. If the world would just stand still, most places could get by with the water now available or with the water that is in the process of being made available through a combination of conservation measures and improved management of available resources. Although some distribution and treat- ment facilities should be improved or replaced, state and local governments can probably finance the solution of more than 90 percent of the problem themselves (Congressional Budget Office, 19831. The world will not stand still, however, and population migration con- tinues to areas that must import water. Other problems also exist. Exces- sive "mining" of water from some aquifers threatens both municipalities and agriculture. Coastal communities are experiencing salt intrusions into groundwater where withdrawals have exceeded the rate of recharge or where rapid development has lowered water tables. In older cities the deterioration of distribution systems due to age, poor initial construction, and inadequate maintenance causes enormous amounts of water to be wasted and results in the need for repair and replacement of facilities. For two generations, federal water programs in the arid states have provided water to communities at prices lower than the cost of producing it. We are now scraping the bottom of this federal pork barrel. In regions that have depended on interbasin transfers, there may be enough water to 258

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WATER SUPPLY AND DISTRIBUTION 259 meet current demands, but there is not enough water to meet projected growth based on current rates of consumption and reuse. An additional constraint on supply arises from growing environmental sensitivity. The protection of minimum levels of streamflow, concern for the quality of the drinking water supply, and increasing conflicts between the need to protect water supplies and dispose of toxic and hazardous materials add to the costs and complexity of maintaining adequate supplies of water for urban and rural settlements. Almost all of these problems can be solved through the usual incremental policy process. Most of the solutions are not costly, especially if we consider management alternatives to the historic pattern of building to meet, or even feed, demand. Household water use, for example, could be reduced by as much as 10 percent by requiring the installation of water- saving devices, some of them as inexpensive as putting bricks in flush tanks. The revision of plumbing codes to require conservation devices in new construction could cut water use in these buildings by about one- third, according to studies by the U.S. Environmental Protection Agency (19811. There are numerous other methods in addition; for instance, Tuc- son, Arizona, has been able to reduce per capita water use by 24 percent through public education in the use of water-saving devices and by price increases (Poster, 19841. Recycling water used for agriculture and industry is also highly cost- effective. Through recycling, other countries such as Sweden and Israel have achieved reductions in industrial demand of from 50 to 70 percent (Poster, 19844. Using figures on water use and potential reuse and recy- cling for U.S. industries produced by the Departments of Commerce and the Interior, Postel (1985) estimates that it would be possible for water withdrawals for manufacturing in the year 2000 to be 45 percent lower than they were in 1979. Other water supply and distribution problems may also be well within our capacity to solve. Estimates of the "need" for replacement and repair of existing public water systems and for the development of new systems based on traditional water demand studies are often overblown. Replace- ment costs based on the age of facilities are highly untrustworthy, in part because the age of a water main has little correlation with its failures (O'Day and Neumann, 19841. Moreover, a number of solutions to many of the problems of water mains are more cost-effective than replacement. For instance, it may be possible to "loop" parts of the system, producing the capacity for backup service to an area affected by a break. This procedure allows the replacement of the failed section of line without interrupting service and also avoids the greater cost of replacing large sections of line that may be good for many years. In addition, the adoption

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260 ROYCE HAINTSON of effective management and maintenance programs can extend the life of the existing facilities and reduce the cost of new or replacement con- struction. If the American water problem were simply defined as the urgent need to improve management and maintenance and to finance development of the marginal amount of new sources and distribution systems required to maintain adequate supplies for agricultural, industrial, and municipal users, it would not be a matter of serious national concern. In this context, the water problem is a minor aspect of the little debate going on in the country over what to do about our infrastructure. But the U.S. water problem is not that simple. Two long-term trends cause us to redefine it: (1) the impact of the "greenhouse effect" on geographic regions and the urban system, and (2) the continuing pollution of groundwater and surface water. In light of these trends, water becomes an organizing issue on which hinges a great strategic debate about the future settlement patterns of the country. Both require near-term choices with long-term consequences, and the choices made affect more than water. They involve all other infrastructure, and they require the rethinking of some of our most settled institutional arrangements. THE IMPACT OF CLIMATE CHANGE ON WATER SYSTEMS There is now widespread agreement among scientists that in the next 50 years the average temperature of the earth could increase by 2° C or more (Ciborowski, 1985a; National Research Council, 19831. This in- crease will be the consequence of the accumulation of heat-trapping gases, principally carbon dioxide, in the atmosphere. The rapid expansion of fossil fuel use and the depletion of forests are major causes of the buildup of these gases, which produces the greenhouse effect. As warming occurs, the melting of polar ice and thermal expansion of ocean water should produce a rise in sea level. The highly uncertain estimates of this rise, a phenomenon that would profoundly affect infrastructure worldwide, range between approximately 20 centimeters (cm) and 200 cm by the year 2100. Globally, a warmer climate will bring about an intensification of the hydrologic cycle. Evaporation will be more rapid, and in some areas streamflows and soil moisture will be reduced. Extreme drought could be more common. In areas where the climate is drying, water tables will fall while the demand for irrigation may increase. It will become necessary to irrigate areas that do not need irrigation today. In some areas, of course, rainfall and streamflows will increase. When that occurs, rising water tables and broader floodplains will produce a different set of infrastructure problems.

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WATER SUPPLY AND DISTRIBUTION TABLE 12-1 Comparison of Water Requirements and Suppliesa 261 Warmer Dner Climate Present ' Climate- Ratio Percentage Ratio of of Requirement Change in Requirement to Water Region to Supply Supply Supply Missouri 0.43 - 63.9 1.18 Arkansas/White/Red 0. 18 - 53.8 0.39 Texas Gulf 0.35 -49.8 0.70 Rio Grande 0.91 - 75.7 3.72 Upper Colorado 0.99 - 39.6 1.65 Lower Colorado 1.19 - 56.5 2.68 California 0.41 - 43.9 0.74 For seven regions 0.43 - 53.0 0.90 together aAssumes a 2° C increase in temperature and a 10 percent reduction in precipitation. SOURCE: Revelle and Waggoner (1983), p. 423. Municipalities that currently have adequate supplies may find that they are facing both periodic and chronic shortages in the future. Reduced streamflows will affect both the quantity and the quality of water. Cities such as Washington, D.C., which draw most of their water from flowing rivers, will be especially hard hit. Those with storage reservoirs will find that faster evaporation and slower refilling after drawdowns will change their planning and management practices. Coastal cities that have been drawing water from the ground faster than it can be recharged will face increased threats from seawater intrusion. Table 12-1 shows one estimate of the effect of a drier climate on a number of river basins in the United States. In the example, if Western rivers experienced a flow reduction of as much as 40 to 70 percent, the supply in a number of basins consequently would be insufficient for ag- ricultural and municipal needs. This situation could also be expected to produce political pressure for transfers of water from basins with surpluses. Alternatively, agricultural cultivation dependent on irrigation would have to be restricted to zones in which water was available. Urban development would also have to be limited to areas in which local surface water and groundwater supplies were adequate. If the transfer option were chosen, the cost would be substantial. Estimates for the Missouri basin alone, for the period from 2000 to 2025, range from $1.6 billion to $2.8 billion a year. Costs at this level could lead to the advancement of saltwater con- version technologies, particularly for urban use. In some regions, changes in the water supplied by the atmosphere may

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262 ROYCE lIANSON be accompanied by irreversible reductions in water that can be "mined" from underground. With the depletion of the Ogallala aquifer under the High Plains of the Midwest likely by 2030, a major agricultural region of the country will face a severe change in its water supply. The nearest available sources are the Great Lakes. This raises questions of cost and interregional conflict within the United States, and would also involve negotiation of an inter- national water budget with Canada. POLLUTION AND SUPPLY The contamination of water supplies has been and still is one of the most serious environmental problems in this country. Since the enactment of the Federal Water Pollution Control Act in 1972 (Public Law 92-500; 33 U.S.C. 1251 et seq.), limited progress has been made in improving the quality of some surface waters. Yet the net condition of the nation's surface waters has not improved or worsened much since the early 1970s (Conservation Foundation, 19841. The quality of U.S. groundwater, on the other hand, appears to be deteriorating. The Office of Technology Assessment estimated in 1983 that 29 percent of the groundwater drinking supplies of 954 cities with more than 10,000 people were contaminated (Office of Technology Assessment, 19831. Little is known about groundwater movement and the intrusion of pol- lutants into groundwater. Land disposal of wastes was long regarded as safe, but the discovery of contaminants in groundwater many years after disposal sites had been closed and the appearance of toxic materials in groundwater located far from suspect disposal sites have raised new issues about the steps that should be taken to protect groundwater. A major source of concern is the increased use of nondegradable toxic and radioactive materials, which is generating a disposal problem of enor- mous magnitude. Federal legislation has addressed the control of toxic substances and their applications in agriculture and industry, the disposal of hazardous wastes, the siting of disposal sites for nuclear waste, and the cleanup of hazardous waste sites. Many states have enacted supple- mentary legislation. Yet there is still great concern about the contaminants already in the hydrologic system from old disposal sites that remain un- discovered or have not yet been cleaned up, from years of application of herbicides and pesticides to agricultural and urban lands, and from the dumping of such materials into sanitary and storm sewers. Thus far, toxic materials are the most dramatic source of contamination, but they are by no means the most frequent (Pye et al., 19831. Saltwater contamination has also become a serious problem, whether it is caused

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WATER SUPPLY AND DISTRIBUTION 263 by pumping out fresh water faster than it can be recharged, by the use of chemicals to de-ice roads, or by the percolation of irrigation water into the ground, carrying dissolved salts. Other contaminants include bacterial and viral materials from septic tanks, feedlots, or improper sewage disposal and nitrates from fertilizers and sewage. The consensus is that groundwater pollution is getting worse in spite of considerable efforts to address the problem (Conservation Foundation, 19841. The implications for the nation's water infrastructure are that such pollution endangers some existing supplies or restricts the rate at which they can be used, or both. In addition, to the extent that groundwater pollution is not arrested, it limits the use of groundwater as a future supply for many cities. Even if further contamination can be halted and the effects of previous pollution reversed, the process will be costly. In developing new sources of water, special care will have to be given to ensuring its safety. As we learn more about various contaminants and their health effects, it may be necessary to retrofit many of the nation's older water systems with technologies that cleanse the water of these substances. We can probably look forward to more stringent standards for drinking water, increased monitoring and regulation by federal and state governments, and the development of new technologies designed to protect drinking water quality (Senate Committee on Environment and Public Works, 19841. Here again, it may be desirable to advance the development of cost- effective seawater conversion technologies and apply them to other con- taminated supplies. CLIMATE CHANGE, GROUNDWATER POLLUTION, AND WATER POLICY Climate change and pollution are related phenomena because changes in climate may make some water supplies more vulnerable to pollution or to higher concentrations of contaminants. Although these factors frame the nature of the water problem for the nation, they do not suggest their own solutions. What is known is that it is extraordinarily difficult to reverse the effects of actions (i.e., pollution) that have already taken place, as demonstrated by the difficulty of implementing the superfund law. It is easier to ameliorate or reverse pollution from some sources than from others. Because pollution is a widely acknowledged problem, there is a good chance that policy changes can be made now to retard future contamination. It will be much harder to muster the resolve-a course of action that must be taken soon-to adopt policies that can have a material effect on the rate of climate change. Such policies would involve sub

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264 ROYCE HANSON stantial reductions in fossil fuel consumption by the economically ad- vanced nations (Ciborowski, 1985b), a course of action that would be resisted. One of the causes of such resistance is that most of the world has a heavy investment in fossil fuel as a source of energy. Climatic change occurs too slowly to generate politically salient support for policies designed to prevent or materially retard the change. In addition, effective change would require concerted international action. Lacking a compelling "silent spring" rationale for anticipatory action, policymakers are more likely to consign themselves to reacting to shortages after they have oc- curred and to an inertial system of accommodation to the new conditions as they develop. In fact, this passive/reactive scenario best describes current policy. Worldwide, forests are being depleted, and fossil energy use is still grow- ing. With the recent reductions in oil prices, the consumption of fossil fuels may actually accelerate in the short run. No attempts are being made to guide settlement patterns in the United States to slow the long-term growth of regions most prone to water shortages. On the contrary: such areas are among the fastest growing parts of the country. Contributing to the process, water supply policy continues to be driven by the utility concept-the duty to provide water to meet the demand for it. Cities appear to be adjusting to the depletion of their existing water supplies less by adopting conservation measures than by promoting the development of new sources of supply. We can expect continuing migrations to regions that will be vulnerable to water shortages as climate changes occur, particularly in the south- western and mountain states and some of the coastal states of the Southeast and New England. The water infrastructure for many of these areas is relatively new, and much of it is currently operating below its ultimate capacity. Thus, it is unlikely that water infrastructure constraints will limit settlement in the next decade. In addition, although no new federal water infrastructure projects have been added to the federal budget in many years, several major projects still to be completed are designed to provide additional water to arid municipalities and agricultural areas during the next 25 years. Nevertheless, if this business-as-usual scenario should unfold, the areas now experiencing the greatest rates of growth will have severe water crises on their hands soon after the turn of the century. Then the major policy issue will be whether to try to keep urban populations and economic activities in place by building interbasin water transfer systems far greater than anything now in use, to develop (and probably subsidize) technologies such as desalinization, or to let the ravages of "nature" depopulate these areas and redirect industry and agriculture to the areas with enough water

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WATER SUPPLY AND DISTRIBUTION cities; 265 to sustain them. In the latter case a more modest increment of infrastructure for urban and agricultural water distribution might suffice. One approach would be to let the "market" decide: if people living in arid regions want to stay there, they must pay the full cost of water transfers or the full cost of advanced technologies for purification and recycling of polluted water. In this light, water infrastructure policy for the next 25 to 50 years is likely to focus on four major issues: 1. repair, replacement, and rehabilitation of systems serving older 2. conservation of existing supplies; 3. interbasin transfers of water to meet municipal, agricultural, and industrial demands; and 4. restructuring of the water market and redesigning of the institutions that allocate water to regions and to users. THE IMPROVEMENT OF EXISTING SYSTEMS Whatever the long-term aspect of the water problem, there is little doubt that much of the existing plant has been allowed to deteriorate. From dams and aqueducts to mains and laterals, much of the public water system built during the last 100 years needs repair. Some of it should be replaced. Age alone is not the culprit, however. Invisible until it breaks, the water distribution system in many cities is the victim of systematic neglect in operations and maintenance management. This suggests that a purely capital-intensive response is unnecessary and insufficient. It is unnecessary because many of the problems can be overcome by improved management. Such management may take the form of improved identification and mon- itoring of conditions for which replacement is necessary and of cases in which improved maintenance, repair, or other measures are more appro- priate and cost-effective. A purely capital-intensive response is insufficient because, unless changes occur in the management of water systems, a new injection of capital is unlikely to have a lasting effect. Management changes need to encompass more than improvement of the maintenance programs of water agencies and companies. Such changes must go to the heart of the system of pricing water and controlling quality and performance throughout the system. In many if not most cities, the price consumers pay for water is less than the water costs, particularly if capital depreciation, preventive maintenance, and upgrading to meet evolving water quality standards are included. This situation may be changing, however; in a few instances, such as the rehabilitation of the Baltimore water system, bond buyers are beginning to require cities to covenant to

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266 ROYCE HAI!iSON maintain a price structure that is adequate to finance the upkeep of the system (Humphrey, 19831. The price of water has a demonstrable effect on the conservation of supplies. Cities that have imposed price structures that reward conservation and punish waste and peripheral uses have experienced substantial drops in the per capita rate of consumption, forestalling the need to expand supply sources. Most cities base charges to both new and old customers on the average price per gallon of all water delivered in the system. This means that old customers usually subsidize new customers and that incremental additions to the size of the system cost the new consumer little more than connecting to the existing system, assuming it has the necessary service capacity. Charging the marginal cost for new water services would, alone, probably not have much effect on urban development patterns. If charging the marginal cost for water services were combined with the use of marginal cost pricing for all new infrastructure, however, such a policy could be expected, at a minimum, to substantially reduce the level of public sub- sidies now provided to private development and to redirect some of the development pressure from raw land to areas with underused facilities, thus increasing capital productivity. Improved management and planning techniques can appreciably reduce estimates of the need for repairs or replacements based on such rules of thumb as age of facilities or projections of demand. Frequent inspection and computerized monitoring of water mains can locate leaks, which falsely magnify demand. Simply by developing policies for water rationing during emergencies, Washington, D.C., metropolitan area water planners were able to reduce the cost of emergency water supply facilities by two- thirds. Further savings in projected costs were achieved by intergovern- mental agreements to interconnect independently operated systems to pro- vide improved distribution of water during periods of spot shortages for particular suppliers. The repair, replacement, and revitalization of urban water systems should not be presumed to be principally a capital problem, even though it may be possible to document a substantial number of physical defects and deficiencies. Rather, the physical requirements should be seen as part of the overall capital management system of a city. Noncapital approaches should be favored where possible. When a capital improvement is required to solve a problem, it should be shown to be cost-effective and the re- sponsible authority should demonstrate its fiscal and managerial capacity to maintain and manage the facility once it has been improved. From an investment point of view, federal and state governments, as well as the raters and buyers of municipal and state bonds, would be making more

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WATER SUPPLYAND DISTRIBUTION 267 secure decisions if they were to insist that continuous, effective manage- ment be an integral part of any capital improvement package. Institutional reform is, at this point, probably more important than money to the quality of infrastructure (Peterson, 19841. CONSERVATION Conservation should be one of the highest priorities of any compre- hensive management program, whether at the city, regional, or national level. In the urban context, conservation measures not only save and stretch existing supplies but may actually enhance them. A particular pricing policy can induce users to conserve by increasing unit costs as consumption increases. For such a pricing policy to be effective, however, service must be metered; thus, a conservation tool produces a management benefit for the system by helping it keep track of users and uses. Development regulations that protect floodplains and aquifers and re- quire the retention of storm water can assist in recharging aquifers and in improving streamflow and water quality (Urban Land, 19831. In addition, plumbing codes can require the use of equipment that cuts consumption without decreasing the quality of service. Some cities have also established "water budgets"; under this plan, major water users must stay within a fixed usage budget or pay high surcharges. These measures encourage industrial recycling of water and force irrigators to pay more attention to the weather and soil conditions instead of following a fixed schedule of water releases (Wrenn, 19831. At the regional level, agricultural irrigation offers enormous potential for conservation. As long as water for agricultural use is priced at only 19 percent of the cost of producing it, however, inefficient use is almost guaranteed. New investment in more efficient irrigation technologies will be required for the full potential of conservation measures in this area to be realized. A number of the new irrigation techniques have proved to be quite cost- effective. The surge technique, introduced in Texas, is a good example of these technologies. Surging involves the use of valves that release water at specific intervals; in field tests, it reduced water and energy consumption by 10 to 40 percent. Another new technique, which applies water close to the crop through drop tubes rather than spraying from a center pivot, could pay for itself in 5 to 7 years merely through the savings it provides in water and energy. Upgrading all the center pivots in the high plains to this new system could save more than 2 billion cubic meters of water a year in withdrawals from the Ogallala aquifer (Poster, 19851. As long as water is priced below its value, however, it is unlikely that farmers will

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268 ROYCE HANSON make the capital investments required to irrigate using one of these new techniques (Caswell and Zilberman, 19851. Greater conservation of agricultural water would make it possible to use the saved supply for urban areas. The Metropolitan Water District, which serves most of southern California's urban areas, has been nego- tiating with agricultural users for rights to water that is now wasted. There is enough such water to meet the projected needs of the district for many years, even at current rates of use, and the district sees this water as a means of avoiding further ill-fated interbasin transfer schemes. Arizona, in looking at projections of its water needs and expected supplies, is encouraging the conversion of agricultural lands to urban and industrial uses as a means of conserving water and ensuring the availability of supplies for its cities. (One of the major trade-offs to be considered in planning for future water needs is whether to retire large areas of irrigated land from agricultural use to allow for urbanization of the region.) Changing methods of irrigation and farming and changing crops are the likely results of a passive/reactive approach to climate change, regardless of the short-term conservation measures that may be employed. These measures would, however, have a useful conservation effect if introduced earlier rather than later. Switching from corn to sorghum as a feed grain in the high plains, for example, would reduce water demand by about one-fifth, with little loss in the nutritional value of the crop as a feedstock. In the high plains, there is increasing interest in more dryland farming, and with farm prices temporarily low, some marginal lands are being retired from active cultivation. Sharp increases in the price of irrigation water and changes in agricul- tural practices are necessary in certain areas of the country. Without such changes, both agriculture and the cities will face shortages far sooner than necessary. With the changes, more may be wrung out of existing regional sources than is now possible. INTERBASIN TRANSFER The interbasin transfer of water is a technological answer to the problem of not having enough water where the people are. Historically, interbasin transfer has provided a workable solution for many cities. The Colorado River, for example, provides water to southern California and to Denver. New York City draws much of its water from the Delaware River basin. Oklahoma City transports water from southeastern Oklahoma. Interbasin aqueducts are an engineer's or bond attorney's dream. In recent years, however, these large-scale public works projects have run into difficulty, both for political and environmental reasons.

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WATER SUPPLYAND DISTRIBUTION 269 Politically, such projects are classic cases of turf protection. Those who have the water are reluctant to part with it because water increasingly has come to symbolize a capacity for growth. Consequently, within states, citizen opposition has resulted in the disapproval of transfers. The Okla- homa Water Resources Board recently denied the application of Tulsa to extract up to one-seventh of the water in Tenkiller Ferry Reservoir in eastern Oklahoma (Shelley and Wijeyawickrema, 19841. In 1982 voters in northern California successfully petitioned for a referendum and de- feated the construction of the peripheral canal, which would have trans- ported water from the Sacramento River to southern California. Recent murmuring about the transportation of water from the Great Lakes to other parts of the United States has produced snarls from the governors of the Great Lakes states and the premiers of the adjacent Canadian provinces. Those who have water now seem to have begun to understand the basic creed of the have-nots: "~1) get it first; (2) get someone else to pay; and (3) if you have to pay, shift as much of the burden as possible away from water users" (Miller and Underwood, 1983, p. 6381. Since the adoption of the National Environmental Policy Act (NEPA) and its many state "little NEPAs," large-scale transfer projects have come under sharp attack for their environmental impacts. Impoundments in particular have been the subjects of protracted administrative hearings and litigation brought by environmental groups concerned with the protection of free-flowing rivers, natural scenery, and wildlife. In many respects the environmental challenges to water projects have brought a new national force to a negotiating table that historically had been dominated by those locally benefiting and the federal and state water management agencies. Environmental concerns have grown particularly acute in interbasin transfer controversies. The government of Canada, for example, took strong exception to a feature of the Garrison diversion project in North Dakota, which would have transferred water from the Missouri River basin into the Red River watershed. Manitoba and Canada were concerned that this would affect water quality in the Red River basin. Canadian opposition, combined with that of American environmentalists, resulted in a considerable scaling down of the Garrison project. For the immediate future, turf and environmental politics will almost certainly limit sharply the number and size of public interbasin transfers approved by state and federal water management authorities. Small-scale transfers are likely to continue, however. In fact, the private market fo interstate water will probably grow, with prospective users purchasing water from those who have rights to its use. Several states have enacted legislation aimed at preventing the transfer of water out of the state. Yet such laws have serious constitutional defects

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270 ROYCE HANSON because the U.S. Supreme Court has held that water is an article of commerce and as such may be sold and transported across state lines (Sporhase v. Nebraska ex ref. Douglas, 458 U.S. 941 [198211. States may regulate commerce in water to the extent that their regulations do not conflict with federal laws or unduly interfere with, burden, or affect interstate commerce. What this means precisely is anybody's guess. Clearly, it does not mean that states may establish priorities that conflict with federal priorities for the use of water (Arizona v. California, 373 U.S. 546 t196311. States may control water in federal reservoirs to the extent that their control is not inconsistent with specific congressional directives (Califor- nia v. U.S., 426 U.S. 645 t19781; Consolo v. FederalMaritime Com- mission, 383 U.S. 607 [19661~. Thus, a state as the owner of part of the water behind a federal impoundment might sell it for use in another state or region, as long as the sale did not interfere with a larger federal purpose such as maintaining water levels sufficient for navigation or supply to irrigators. South Dakota recently tried to sell some of its water in the Oahe reservoir to a private company for use in a pipeline that would convey coal slurry from Wyoming to Arkansas. Downstream states successfully opposed the sale on the navigation issue. Based on this case, it would appear that a state might be unable to prevent a similar transfer among private parties unless it could demonstrate that there was a compelling state interest in preventing the sale. Conceivably, a state could prevent transfers when their cumulative impact on the state's own water needs reached a critical point (Kleppe v. Sierra Club, 427 U.S. 390 t197611. RESTRUCTURING MARKETS AND REDESIGNING INSTITUTIONS The next generation of infrastructure managers will have to reinvent the system of markets and public institutions that provide and produce public water. Neither appears capable of working as they will have to work in a time of physical scarcity and fiscal constraint. Water systems function in a managed market that is created by public policy and heavily influenced by it. Public agencies produce water directly or license private companies to produce it for municipal use. State law establishes the rights and priorities of users of natural and man-made bodies of water. Prices are set by the operating agencies or approved by regulatory agencies. From the consumer's viewpoint, there generally is only one supplier of municipal water, whether it is the government itself or a regulated private utility. At a given location there is no competition for either service or price.

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WATER SUPPLY AND DISTRIBUTION 271 Historically, this government-created market has been more interested in equity than in efficiency. There has been a strong consensus behind water policy that all kinds of users should have as much water as they want, wherever they want it, and that it is government's job to make this happen. At the local level, water is perceived as an unlimited birthright (Ingram and McCain, 19771. Until recently, there has been little concern with efficiency, either in the allocation of water to different users or in the consumption of water by classes of users. On the contrary, there has been an effort to increase water use by pricing it below cost. To the extent that low-cost water has been an intentional subsidy for urban and agricultural development for much of the country, it is a subsidy that has worked. There is considerable doubt, however, that the subsidy has produced a net benefit, especially in urban development. It is probable that the facilitation of urban growth in arid zones of the southwestern and mountain states has occurred at the expense of other urban areas. The areas and groups that have benefited from cheap water now have a considerable stake in their water "rights." In fact, as water becomes scarcer, the value of their equity interest increases. Thus, the equity issue takes on its second meaning. Depriving people of this interest, which they attained in good faith and in reliance on public policy at the time, raises questions of legal and political fairness. Nevertheless, there is an obvious need to improve the efficiency of the water system as an increasing number of people will be willing to pay far more than the current prices for water and as the rest of the country realizes the magnitude of the subsidy it has provided. There is a third dimension to the equity and efficiency issues. Some water supplies, such as major aquifers, are not renewable, at least not on a politically realistic time scale. Their pollution or depletion leaves the next generation without that source of water and imposes the need to pay premium prices to obtain water elsewhere. Although some water policy analysts favor the replacement of the existing managed market with a free market, such an approach does not deal well with the intergenerational . . equity Issues. This third dimension suggests that a major task for water policy is to restructure the water market in ways that make use of free market principles to increase efficiency in the system but that stop short of promoting or allowing the unrestricted consumption of reserves needed for the future. As noted above, this restructuring should have the result of inducing higher levels of conservation and improving allocations among users. To the extent that it induces conservation, it partially addresses the issue of intergenerational equity. The nature of the system, however, tends to

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272 ROYCE HANSON obviate competitive pricing and service. "Market" mechanisms tend to be limited to cost-based pricing and bidding by prospective users. Market approaches therefore will have to be complemented by a revision of the regulatory regimes that govern the water market. In some cases, for example, reallocations by regulation may be required to prevent waste. Both the regulation and taxation of excess use or pollution may prove to be more effective means of promoting the kind of development that pro- tects supplies and the quality of groundwater reserves. Where subsidies are continued, they will have to be more narrowly aimed than they are at present and also better justified, from both an economic and an environ- mental perspective. A major factor in restructuring the market for water will be the size and character of the federal role. A sharp reduction in the level of federal participation (traditionally, 70 percent of the costs of projects) will mean that states and localities will pay more. This change in itself should en- courage the elimination of all but the most efficient projects (Congressional Budget Office, 19831. Combined with rate reform, conservation measures such as taxes on waste, and marginal pricing for service to new devel- opment, a reduced federal role should reduce effective demand for water and thereby materially affect estimates of need. Law also plays a major role in the market for water and governs other behavior in water policy. It is important institutionally in its effect on the politics and economics of water supply and in its determination of the "rules of the game" for extending water service to new development. Eastern and western states are governed by different doctrines of water law: eastern states follow the riparian doctrine, and western states apply the doctrine of prior appropriation. A few states use parts of each system. Under the riparian system, a landowner adjacent to a body of water is entitled to "reasonable use" of the water as long as the rights to use of the water by downstream users is not unduly impaired. Under the prior- appropriation doctrine, the first person to make "beneficial" use of the water is entitled to continued diversion and use of that much of the water. That person's right has priority over the rights of all users who come later. Neither doctrine is well suited as a legal basis for the allocation of a scarce resource. Indeed, a few states have begun to recognize that the legal regimes under which they operate impair the rational management of water as a public resource. Both doctrines give certain users vested property rights in the water, and these rights may be condemned and purchased under the power of eminent domain for a public purpose or benefit. They may also be reg- ulated, but any such regulation must meet tests of reasonableness. Un- reasonable regulations will be voided by the courts, and there is doctrine,

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WATER SUPPLY AND DISTRIBUTION 273 but no actual cases, suggesting that if a regulation "goes too far" in depriving owners of the economic use of their property rights, the regu- lation will be considered to be a taking, and compensation must be paid (Pennsylvania Coal v. Mahon, 260 U.S. 393 t19221; Penn Central v. City of New York, 438 U.S. 104 L19781~. Whether or how these same doctrines apply to groundwater is uncertain. Some western states have recognized that the long-range implications of the prior-appropriation doctrine for management of their water resources could be devastating. For example, they could be faced with the need to compensate owners of water rights for water needed by the public even though the owners had never used the water and had no present plans to use it. In 1973 Montana enacted a law that allows government agencies to acquire prospective water rights. Thus, a river such as the Yellowstone, from which relatively little capacity has been appropriated by prior users, can be protected for future public needs. In 1980 Arizona enacted the Groundwater Management Act, which requires users of groundwater to accept conservation measures and taxes to achieve, by 2025, safe yields, in which withdrawals will not exceed the rate of recharge. New devel- opment can be approved only if it shows proof of an assured water supply. After 2006 the state is authorized to purchase agricultural land and retire it from that use if conservation measures alone appear to be inadequate. These states are nibbling at the edge of a powerful legal doctrine that is as old as the Roman empire but that has not yet been broadly applied to water law, especially for groundwater. The doctrine of public trust asserts that the government holds certain rights in trust for the public and has the authority to exercise continuous supervision to protect the people's common heritage. The doctrine has been invoked to protect shorelines and wetlands and to allow states to reclaim rights that had been previously granted to private interests for the use of marine lands. In 1983 the Cal- ifornia Supreme Court invoked public trust doctrine to declare that the state could reconsider and revise the "rights" of the Los Angeles De- partment of Water and Power to divert water from the Mono Lake basin (National Audubon Society v. Superior Court of Alpine County, 33 Cal. 3d 419; 658 P2d 709 F198311. The court held that no one could claim a vested right to divert waters once it becomes clear that the diversion harms interests protected by the public trust. Thus, the state is not confined to stand by its past decisions if they look incorrect in the light of current knowledge (658 P2d at 7121. Given the magnitude and complexity of the problems the nation will face in the next 50 years concerning the adequacy of water supplies, their allocation to uses, and their geographic distribution, it is already past time to rethink the foundations of water law in the United States. Public trust

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274 ROYCE HANSON doctrine may be a useful place to start in reconciling eastern and western law and in rationalizing the basis for both the market and public decisions that will have to be made (Casey, 1984; Dunning, 1983; Huffman, 19831. In addition, it will be necessary to decipher just what it means for water to be an article of commerce, subject to regulation both by Congress and, to some extent, by the states. Ultimately, federal legislation will probably be necessary to establish the limits of interbasin and interstate transfers. Public trust doctrine may provide useful tools in dealing with issues such as intergenerational equity and the limits of state regulation of privately held water rights. Both the federal government and the states need to redesign the decision- making processes used at federal and regional levels for setting and car- rying out water supply and distribution policies. Coordinated planning for the development, conservation, and use of water supplies will be needed at the national level as it becomes clear that climate changes and pollution threaten to change the value of water and place some parts of the country in serious economic jeopardy. It will also be necessary to think seriously about how planning for this basic resource and for the infrastructure nec- essary to use it efficiently and equitably relates to the development of a system of cities in the United States that will advance our capacity to compete with the rest of the world in an information-based economy (Hanson, 19831. Coordinated policy planning does not necessarily imply that the result will be a nationally managed water market. Even a decision to encourage a free market in water will take concerted action to free such a market from the institutional barriers that current law and bureaucracies have erected. The eventual solution is likely to be a mixture of market man- agement, and much of the management is likely to be decentralized to the states and regional agencies. It is important, however, to take a hard look at the existing morass of treaties, compacts, and agencies governing water decisions at various levels of the federal system. All the flows of some rivers have already been allocated to uses that do not fit current, let alone future, realities (U.S. General Accounting Office, 19791. Agencies that deal with water quality are often separate from those that deal with water supplies. It is not essential that they be consolidated; it is critical that they participate in the decisions that determine the future of the supply system. Changing the rules of the game for water politics would be helpful, however difficult it might be. At the national level, Congress concerns itself with specific water projects while the President tries to develop a national water policy. The system is a classic case of distributional politics in which the decisions benefit a small segment of the population but do

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WATER SUPPLY AND DISTRIB UTION 275 riot visibly harm the rest, who nevertheless end up paying for them (Lord, 19801. The process needs to be changed so that the distribution of costs and benefits and the questions about how these decisions will affect set- tlement patterns and economic activities can be better understood. Yet in some respects, initiating such a change would generate more rather than less conflict. This assumption suggests that the modest steps taken in setting up the Water Resources Council, which has been abolished by the Reagan administration, should be retraced, but this time the council should be given more clout in the development of a national water policy. It is also important that the Congress consider and act on a unified national water policy rather than on individual projects. If Congress can be per- suaded of the need for a comprehensive policy to deal with the impending changes in climate and world economies, such a deliberative process may actually be possible. At the state and regional levels, similar action would be desirable. Informal and quasi-governmental organizations on a regional scale already have some potential for developing into more than marching and chowder societies dedicated to the protection of their own turf. One promising model is the International Coalition for Land and Water Stewardship in the Red River Valley. This grass-roots association of citizens and gov- ernments in Minnesota, North Dakota, and Manitoba was organized in response to local frustration from trying to get the public agencies to coordinate their efforts in flood control, irrigation, and water supply. The coalition is organized according to watershed and aims to build a consensus in the region for a comprehensive conservation and use program. Cur- rently, it is funded by donations from members and foundations. Watershed and basinwide organizations can deal adequately with issues that are internal to their regions. There will be a need, however, for ways to mediate and determine interbasin disputes and arrangements. One of the central issues of national and interregional policy by the turn of the century will be the extent to which large-scale transfer projects should be provided. If these decisions are not made by that time, aqueducts cannot be in place by 2025 when significant effects of climate change could begin to be felt. By that time, decisions made for transfers of water will be too late to sustain urban settlements that have already occurred, and the nation might face the need to depopulate certain large cities. CONCLUSION What oil has been to the twentieth century, water may be to the twenty- first century. Its inefficient use, maldistribution, and absolute scarcity will be a basis for political conflict in the United States and possibly for military

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276 ROYCE HANSON conflict in other parts of the world. The presence of an adequate supply will be the sine qua non of urban development and a healthy agricultural economy. Its presence will give some regions of the country comparative advantages they do not currently realize. Water infrastructure for the twenty-first century will still require dams and treatment facilities and pipes. But more than at any time in national history, it will also require the development of new institutions of markets, law, and governance. REFERENCES Casey, E. S. 1984. Water law Public trust doctrine. Natural Resources Journal 24(3): 809-825. Caswell, M., and D. Zilberman. 1985. The choice of irrigation technologies in California. American Journal of Agricultural Economics 67(2):224. Ciborowski, P. 1985a. The greenhouse problem: Physical dimensions and consideration of risks. Paper prepared for the World Resources Institute, Washington, D.C. Ciborowski, P. 1985b. Societal response to a greenhouse warming. Paper presented at the University of Washington Quaternary Research Center Seminar, April 30, 1985. Congressional Budget Office. 1983. Public Works Infrastructure: Policy Considerations for the 1980s. Washington, D.C.: U.S. Government Printing Office. Conservation Foundation. 1984. America's Water: Current Trends and Emerging Issues. Washington, D.C.: The Conservation Foundation. Dunning, H. C. 1983. A new front in the water wars: Introducing the public trust doctrine. California Journal (May). Hanson, R. 1983. Rethinking Urban Policy: Urban Development In an Advanced Economy. Washington, D.C.: National Academy Press. Humphrey, N. 1983. Strategies for Financing Maintenance. Report No. 2 for the Urban Infrastructure Networlc. Washington, D.C.: The Urban Institute. Huffman, J. 1983. Instream water use: Public and private alternatives. In Water Rights: Scarce Resource Allocation, Bureaucracy and the Environment, T. Anderson, ed. Cam- bridge, Mass.: Ballinger Publishing Company. Ingram, H., and J. R. McCain. 1977. Federal water resources management; The admin- istrative setting. Public Administration Review 37(5): 448-455. Lord, W. B. 1980. Water resources planning: Conflict management. Water Spectrum 12(Summer):3. Miller, J. R., and D. A. Underwood. 1983. Distributional issues in western municipal and industrial water supply. Water Resources Bulletin 18(August):4. National Research Council. 1983. Changing Climate: Report of the Carbon Dioxide As- sessment Committee. Washington, D.C.: National Academy Press. O'Day, D. K., and L. A. Neumann. 1983. Assessing infrastructure needs: The state of the art. Pp. 67-109 in Perspectives on Urban Infrastructure, R. Hanson, ed. Washington, D.C.: National Academy Press. Office of Technology Assessment. 1983. Technologies and Management Strategies for Hazardous Waste Control. Washington, D.C.: Office of Technology Assessment. Peterson, G. E. 1984. Financing the nation's infrastructure requirements. Pp.110-142 in Perspectives on Urban Infrastructure, R. Hanson, ed. Washington, D.C.: National Acad- emy Press.

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WATER SUPPLY AND DISTRIBUTION 277 Postel, S. 1984. Water: Rethinking management in an age of scarcity. Worldwatch Paper 62. Washington, D.C.: Worldwatch Institute. Postel, S. 1985. Conserving water: The untapped alternative. Worldwatch Paper 67. Wash- ington, D.C.: Worldwatch Institute. Pye, V. I., R. Patrick, and J. Quarles. 1983. Groundwater Contamination in the United States. Philadelphia: University of Pennsylvania Press; Revelle, R. R., and P. E. Waggoner. 1983. Effects of a carbon dioxide-induced climatic change on water supplies in the western United States. Pp. 419-432 in Changing Climate: Report of the Carbon Dioxide Assessment Committee.Washington, D.C.: National Acad- emy Press. Senate Committee on Environment and Public Works. 1984. Safe Drinking Water Act Amendments of 1984. Hearings before the Subcommittee on Toxic Substances and Environmental Oversights on S. 2469. Washington, D.C.: U.S. Government Printing Office. Shelley, F. M., and C. Wijeyawickrema. 1984. Local opposition to the transfer of water supplies: An Oklahoma case. Water Resources Bulletin 20(0ctober):5. Urban Land. 1983. Stormwater retention protects water supply. July. U.S. Environmental Protection Agency, Office of Water Program Operations. 1981. Flow Reduction: Methods, Analysis, Procedures, Examples. Washington, D.C.: U.S. EPA. U.S. General Accounting Office. 1979. Water Supply in Urban Areas: Problems in Meeting Future Demand. Washington, D.C.: U.S. General Accounting Office. Wrenn, D. M. 1983. Water availability: A factor of cost. Urban Land (July).