Taking from the Taxpayers

How the Bush Administration Gave Subsidy-Rich California Farmers a $17 Million Christmas Bonus

February 10, 2005

Taking from the Taxpayers: Who Owns The Water

First authorized in 1960, California's State Water Project (SWP) is now the largest state-built agricultural water delivery project in the country, with 660 miles of aqueducts and pipelines carrying water to 23 million residents and 750,000 acres of farmland annually. [1] On average, the Project carries about 2.2 million acre-feet of water each year to 29 long-term contractors, mostly located in Southern California. But as rainfall varies widely from year to year, so do SWP water supplies. Some years the SWP may carry almost twice as much water, while in other years only half as much will flow down the Project's canals. [2]

Municipal water agencies and farmers have long been forced to adjust to these whims of nature. But as California's population continues to grow while its water supplies remain finite, the battles over this increasingly scarce resource have intensified. At the center of this conflict lies the issue of how the state can balance the needs of agriculture, municipalities, and California's fish and wildlife — all of which depend on a steady flow of water for survival. Now, an opinion by the Court of Federal Claims in Washington, D.C., and the acceptance of that opinion by the Bush Administration threatens to take away the state's power to distribute water as it sees fit. Even more ominously, the settlement undermines a basic tenet of California water law: Water is a public good that belongs to the people.

The case, Tulare Lake Basin Water Storage District v. United States, involves a set of powerful water districts in California's San Joaquin Valley that sued the federal government after the State Water Project cut their contracted water deliveries during the severe drought of the early 1990s. [3] The two primary plaintiffs in the case, Tulare Lake Basin Water Storage District and Kern County Water Agency, claim that their water supplies were reduced by a total of 58,820 and 319,420 acre-feet, respectively, during the period 1992 through 1994. (An acre-foot is the amount of water needed to cover one acre to a depth of one foot.) The issue was not simply that the water districts were given less water than promised in their contract — the contracts do not guarantee delivery of any specific amount of water. The issue was why the state Department of Water Resources (DWR), the agency that manages the SWP, made the cutbacks: to protect two endangered fish species.

Under the federal Endangered Species Act (ESA), government agencies must ensure that their actions are "not likely to jeopardize the continued existence" of any endangered or threatened species listed under the Act. [4] Beginning in 1992, the National Marine Fisheries Service and the U.S. Fish and Wildlife Service issued several opinions concluding that the operations of the SWP were threatening the survival of two endangered fish species, Delta smelt and Chinook salmon. [5, 50, 51] The agencies identified a number of major stressors to the fish, including altered water temperature, impaired passage, and decreased spawning and rearing habitat. Since all of these problems stemmed primarily from inadequate stream flows, it was clear that DWR needed to leave more water in the Delta to meet its statutory requirements and protect the endangered fish populations. This meant less water available to irrigate crops.

Several SWP water contractors, representing about 240 farmers in the San Joaquin Valley, cried foul. †1 The farmers claimed that they had a property right to the water, that the federal government had "taken" this property, and they were therefore owed compensation. Their arguments were made under the Fifth Amendment of the U.S. Constitution, which prohibits the government from taking private property without "just compensation". In April 2001, U.S. Court of Federal Claims Judge John P. Wiese ruled in the farmers' favor, marking the first time that a court has said that restrictions imposed under the Endangered Species Act amounted to a Fifth Amendment taking of private property. [6]

The Tulare case involved a challenge to a regulatory action, but the Court broke from federal and state precedent, treating the claim as a physical taking. The Fifth Amendment takings doctrine says that the government must pay for certain limitations or impositions on private property. Takings cases are generally categorized in one of two ways: a physical taking of private property, or a regulatory taking. A physical taking involves a permanent physical occupation or acquisition of real property, and must be compensated in all circumstances. [7] A regulatory taking involves a government action that restricts an owner's use of private property, and is only compensable in certain circumstances. [8] The Tulare court's finding that the Endangered Species Act regulation constituted a physical taking contradicts the Supreme Court's holding that a physical taking does not occur when the government regulates the use of property:

The longstanding distinction between acquisitions of property for the public use, on the one hand, and regulations prohibiting private uses, on the other, makes it inappropriate to treat cases involving physical takings as controlling precedents for the evaluation of a claim that there has been a 'regulatory taking,' and vice versa.[8]

Other federal courts have applied this concept specifically in the context of wildlife regulations. [49] California has followed this precedent, finding that wildlife regulations that curtail use are not constitutional takings: "The federal and state governments may regulate and protect rare species on private lands without, ipso facto, triggering a constitutional taking of private property." [9] Overall, says Georgetown University water law expert John Echeverria, "[t]akings claims based on protecting endangered species have failed with a striking consistency." [48]

The Tulare ruling was troubling for a number of reasons. First, all state and federal water contracts contain language protecting the state and federal governments from liability for "any damage, direct or indirect, arising from shortages in the amount of water to be made available for delivery . . . caused by drought . . . or any other cause beyond its control." [10] Clearly, this includes the need to protect a highly threatened fishery from devastation during a severe drought. This was exactly the reasoning a federal appeals court used in 1995 when it denied a similar claim involving the same two endangered fish species. †2 [11] Judge Wiese decided that although the state was immune from liability because it was party to the contracts, the federal government was not immune because it did not have a contractual relationship.

Another troubling aspect of Judge Wiese's decision was his conclusion that the contracts conferred to the districts "a right to the exclusive use of prescribed quantities of water." The fact is that the SWP and the water districts it serves have signed contracts for more water than is available. Collectively, the existing SWP water supply contracts allocate "entitlements" of more than 4 million acre-feet (maf) of water each year. But almost half of this is "paper water," as a state appeals court said in a 2000 ruling:

The SWP cannot deliver 4.23 maf of water annually. The entitlements represent nothing more than hopes, expectations, water futures or . . . 'paper water.' Actual, reliable water supply from the SWP is more in the vicinity of 2 to 2.5 maf of water annually. . . . Paper water always was an illusion. "Entitlements" is a misnomer, for contractors surely cannot be entitled to water nature refuses to provide . . . Paper water represents the unfulfilled dreams of those who . . . created the expectation that 4.23 maf of water could be delivered by a SWP built to capacity. [12]

The bottom line is that much of the SWP water that districts are "entitled" to by contract is only wishful thinking. Streams and rivers across California would have to go totally dry, and then some, before this much water could be delivered to SWP farmers in all but the wettest of years. Even if all of the contracted water actually existed, the most confounding part of Judge Wiese's ruling is his failure or refusal to realize that under the state Constitution, the water districts and their members could not own it.

Water is a communal resource with an overriding public value. The state claims ownership of all water within its borders on behalf of the people of California. †3 If you own a piece of land you can legally prevent people from entering it. But if the land borders a river, you can't stop people from swimming or traveling down the river. If you have oceanfront property, your property rights stop at the high water line. Below that line, anyone can walk on "your" beach or swim in "your" ocean.

In California, therefore, the water in a river or stream cannot be privately owned. It is held in trust for the common good under the centuries-old "public trust doctrine." In 1983, the California Supreme Court said "the core of the public trust doctrine is the state's authority as sovereign to exercise a continuous supervision and control over the navigable waters of the state and the lands underlying these waters." [13] The Court said the public trust doctrine obligated state agencies and courts to "consider the effect of . . . [water] diversions upon interests protected by the public trust." [14]

"Water rights" do not confer ownership, but the legal right to use a quantity of water. As a California appeals court said in 1986: "Unlike real property rights . . . water rights are limited and uncertain." [15] Under the state Constitution it is illegal to "waste" water, to put it to an "unreasonable use," or employ an "unreasonable method of diversion of water." [16] What is considered reasonable depends on the circumstances. In 1935, the state Supreme Court said:

What is a beneficial use, of course, depends upon the facts and circumstances of each case. What may be a reasonable beneficial use, where water is present in excess of all needs, would not be a reasonable beneficial use in an area of great scarcity and great need. What is a beneficial use at one time may, because of changed conditions, becomes a waste of water at a later time. [17]

When the State Water Project was approved in 1960, the rights to all water it would carry were explicitly given to the Department of Water Resources. [18] Although the Tulare and Kern water districts asserted that they had a property right to the water specified in their contracts, the fact is that they only had a contractual arrangement for the delivery of some amount of this publicly held, public resource. In the Tulare Lake case, Judge Wiese ignored this fact and ruled that any limitations imposed on the districts' use of the resource must be compensated. He awarded the farmers $23 million in compensation. [19]

With that much money at stake plus the dangerous precedent the ruling sets, you'd think the federal government would appeal the decision to a higher court. But in late 2004, word spread that the Bush Administration planned to settle the case. California officials from both parties urged the White House not to make that mistake.

The state Water Resources Control Board, representing Gov. Arnold Schwarzenegger's administration, sent a letter to Bush Administration officials stating that if allowed to stand, the Tulare Lake decision "could fundamentally change the way that water resources are managed in California, to the serious detriment of California taxpayers and resources users." [20] Senator Diane Feinstein sent a letter to Attorney General John Ashcroft and Interior Secretary Gale Norton, stating that the ruling was a "mistake that will establish a precedent that could require the public to pay tens of millions of dollars to water users in many cases where even a small portion of their anticipated deliveries are needed to protect endangered salmon or other fish." [21] California Attorney General Bill Lockyer also urged the government not to settle, and several officials urged Bush to transfer the case to the California Supreme Court. [22]

Earlier, the Bush Administration's own water-law experts at the National Oceanic and Atmospheric Agency (NOAA), which is responsible for protecting endangered salmon runs, also objected. A March 2004 letter from NOAA's general counsel to the Justice Department, obtained by EWG, said Wiese's ruling was already making it more difficult to enforce the Endangered Species Act. The letter said the lawyers for the water districts, who were also handling other water "takings" cases, were already arguing that the Tulare ruling "now require[s] the United States to compensate federal permit applicants up front for any claimed interests in water or land" affected by enforcement of the Act. They said the failure to appeal Wiese's ruling "immeasurably increased" the likelihood that the other lawsuits would succeed. [23]

Nevertheless, five days before Christmas, the Bush Administration settled with the farmers for $16.7 million. Although the Administration said explicitly that the settlement was not meant to set a precedent, if the reasoning behind Judge Wiese's ruling is accepted by future courts, California's ability to protect its streams, rivers and fisheries will be seriously undermined. That is the clear intent of the real driving force behind the lawsuit: the Washington, D.C. law firm of Marzulla and Marzulla, who represented the water districts.

Roger and Nancie Marzulla are husband and wife, long-time "Wise Use" advocates who have made careers fighting environmental protections. Both worked in the Reagan Justice Department: Roger as assistant attorney general in charge of the Environment and Natural Resources Division, Nancie as a special assistant and litigator in the Civil Rights Division. Roger Marzulla was the chief architect of an executive order signed by President Reagan in 1988 that sought to expand the definition of "takings" by federal agencies. [24, 25] Both were also attorneys with the Mountain States Legal Foundation, a far-right wing group founded by beer baron Joseph Coors and the group's first president, James Watt, Reagan's notoriously anti-environmental Interior secretary. Roger Marzulla succeeded Watt as the second president of Mountain States, while Nancie worked as one of the group's attorneys on takings and other cases.

In 1991, the Marzullas founded Defenders of Property Rights, for which Nancie still serves as president and chief counsel, and Roger as board chairman. Defenders promotes takings laws as a strategy to make laws and regulations protecting the environment prohibitively expensive by requiring payments to private landowners whose property is affected by them [26]. Interior Secretary Gale Norton was legal advisor to Defenders of Property Rights until she was picked to join President Bush's cabinet. (Norton also started out at Mountain States, and her career has frequently been intertwined with the Marzullas.)

In 1998, the Marzullas opened their Washington practice, specializing in property rights and takings cases. In 2001, Marzulla & Marzulla filed a $1 billion takings lawsuit — since reduced to $100 million — against the government in the Court of Federal Claims on behalf of farmers and irrigation districts in the Klamath River Basin in Oregon and Northern California. The suit challenges the Bureau of Reclamation's 2001 restrictions on the release of irrigation water from Klamath Lake — referred to as water banking — to maintain lake levels for the protection of endangered sucker fish and threatened Coho salmon. [25, 27, 28]

In November 2003, while representing the Klamath Basin irrigation districts and irrigators at a public meeting, Roger Marzulla compared the Bureau of Reclamation's tactics to those of Adolf Hitler in persuading the Allies to allow him to invade Czechoslovakia. Asked if it was legal for the Bureau to tell farmers they must give up some of their allotted water, or face getting none at all, Marzulla replied: "I think [the] water bank is a desperate effort by [the Bureau] compared [sic] to Hitler. . . . If you take Czechoslovakia, and say if we give you this, will you go along with it?" [29]

The next hearing in the Klamath case before the Federal Claims Court is scheduled for Feb. 14, 2005. [30] In March, a hearing is scheduled in a $500 million takings lawsuit filed by the Marzullas on behalf of the City of Stockton, San Joaquin County and the Stockton East Water District over the federal government's alleged failure to deliver water from New Melones Reservoir. [31] And the Marzullas are preparing another takings lawsuit, seeking millions in compensation for farmers whose water deliveries were reduced to protect steelhead salmon. [32, 33] In these cases, the Marzullas stand to earn millions of dollars in attorneys' fees from their takings suits. For the Tulare Lake case, the couple took about $2 million from the settlement for their efforts.


†1 — Press reports indicated the water districts represented about 240 farmers. From examining the state pesticide use database, it is clear that many of these farmers operate more than one farm. EWG's figure for the total number of farms served by the Tulare Lake Basin Water Storage District and the Kern County Water Agency is 339 farms. We excluded those farms that had less than 50 acres in either water district.

†2 — The federal water service contract in question in the O'Neil case provides that the government shall not be held liable for "any damage, direct or indirect, arising from a shortage on account of errors in operation, drought, or any other causes."

†3 — See Civil Code 1410, which dates back to 1911.