Averting Water Disputes: a Southeastern Case Study

PERC POLICY SERIES ISSUE NUMBER PS-30 FEBRUARY 2004

“Growing demands . . . will put pressure on limited water resources. But those pressures need not create water crises if individuals are allowed to respond through market processes.” — Terry L. Anderson and Pamela Snyder Water Markets (1997b, 204)

Averting Water Disputes: A Southeastern Case Study

JODY W. L IPFORD

INTRODUCTION

t midnight on August 31, 2003, time ran out on a pro- A posed agreement among the states of Alabama, Florida, and Georgia to allocate water in the Apalachicola-Chattahoochee- Flint (ACF) river basin. The deal had been thirteen years in the making, but it ended in failure. “It’s a true shame that we were as close as we were and couldn’t get an agreement,” said Alabama’s chief negotiator (Shelton 2003b, G1). It was, indeed, a shame. The collapse of these lengthy negotiations sends the matter to the courts, and the Supreme Court may ultimately decide how the disputed water will be divided. 2 More broadly, the failure of the state governments to reach agree-

ERIES ment reveals that water, long considered plentiful in the south- S eastern United States, is in danger of becoming a subject of

OLICY intractable conflict. The failure signals that a water crisis may well emerge in the region unless new approaches to allocating

PERC P PERC water are adopted. As the population of the Southeast increases, competing demands for water—for municipal use, for recreation, and for hydropower, to name just a few—are growing. Today the problem surfaces in the form of occasional interstate disputes such as this one, but the failure to resolve them casts an ever-longer shadow over the future of water resources in the region. When demands of competing users outstrip supply, there must be ways to ensure that water goes to the users who value it most and that the waterways of the Southeast are not roiled by unending conflict. This essay will explain the reasons behind the conflict in the Apalachicola-Chattahoochee-Flint river basin, why attempts at resolving it failed, and what alternatives should be considered. It will explain how to allocate water to its most productive uses, restore peace to the areas around these waterways, and avert other conflicts that are emerging, not only in these states but elsewhere in the South.

THE BACKGROUND

s shown on the map in figure 1, the ACF basin drains an A area of 19,800 square miles in the states of Georgia, Ala- bama, and Florida. The basin starts in the headwaters of the Chat- tahoochee River in northern Georgia, above Atlanta. The Chattahoochee flows through Georgia’s Piedmont before turning sharply south, forming the southern half of Georgia’s border with Alabama and a notch in Georgia’s border with Florida. At the border, it meets the Flint River to form the Apalachicola River, which A PALACHICOLA -C HATTAHOOCHEE F IGURE 1 -F LINT (ACF)R IVER B ASIN 3 AVERTING WATER DISPUTES | Jody W. Lipford 4 flows through the Florida panhandle into the Gulf of Mexico (U.S.

ERIES Geological Survey 2000). S Historically in the ACF basin, as in most of the southeastern

OLICY United States, water has been abundant and has met the many demands for it. The demands include water for domestic, commercial,

PERC P PERC industrial, hydroelectric, navigational, and recreational uses. Under riparian water rights—the system of water rights in the eastern part of the United States—landowners can use water that flows adjacent to their property as long as they do not ap- preciably diminish the quantity or quality of water available to downstream users. But riparian rights were effectively overrid- den in 1946, when Congress authorized the U.S. Army Corps of Engineers to construct dams for flood control, navigation, and hydroelectricity along the Chattahoochee River.1 Later, the Corps added water supply and recreation as purposes of the dams and the reservoirs they created (Carriker 2000, 2; Shelton 2003a). These projects transformed the waters of the basin from private property governed by the riparian doctrine to public property. Today, the waters of the ACF river basin continue to be owned and managed by the federal government through the Army Corps of Engineers. The Corps’ managers meet weekly to consider various water needs, such as hydroelectric production, recreation, navigation, and environmental quality (U.S. Army Corps of Engi- neers 2001). In addition, all requests to increase water withdrawals must be approved by the Corps (Beaverstock 1998, 993). With the exception of flood control, each of these purposes requires a minimal lake level or river flow rate. Electricity cannot be produced, nor can barges navigate, without sufficient water. Similarly, fish populations require stable lake levels during spawn- ing season. Sufficient flow also dilutes pollution, helping to ensure water quality (U.S. Army Corps of Engineers 2001). The Corps also commonly provides recreational facilities, such as parking areas, boat ramps, and public restrooms. Response to the recreational amenities of the lakes has been heavy, with millions of 1990, andthento606milliongallonsperdayin2000. million gallonsperdayin1980to459 dramatically. Metropolitan Atlanta’s wateruseincreased from 289 population growth ratesfrom 1990to2000. tion growth ratesfrom 1980to1990,andonlyeighthadhigher tical areas listedbytheCensusBureau, only17hadhigherpopula- in 1990,andthento4.1million2000.Of126metropolitan statis- creased pressure ontheACFriverbasin’s resources. metropolitan Atlanta,combinedwithrecurrent drought ledtoin- 1980s and1990s,however, rapidpopulation growth, in particularly agement through theArmy CorpsofEngineers worked well.Inthe C ofwit amount plies waterforpublicuse.Allthesecompetingdemandslimitthe talliedeachyear(Jeane2002,158).Thebasinalsosup- user-days that Atlantais already approaching, andattimesexceeding, water and 4.2percent, respectively. government, andindustrial userstake22.8percent, 5.6percent, water use—53.8percent—is for residential use,whilecommercial, the RegionalBusinessCoalition2003).Thelargest share ofAtlanta’s the majorityofitswater(Metro AtlantaChamberofCommerce and tosupplyametropolitan areaest watershedinthecountry with supplying Atlanta’s waterneeds.TheChattahoochee isthesmall- the Chattahoochee. ofAtlantabythedamatheadwaters the lakeformed north which comesfrom theChattahoocheeRiverandLakeSidneyLanier, lanta relies water, almostexclusivelyonsurface over 70percent of ONFLICTS Demand forwatertosatisfythisgrowing populationincreased Atlanta’s populationgrew from 2.2millionin1980to3.0 For alongtimethesystemofripariandoctrineandpublicman- A preliminary studybytheArmy CorpsofEngineersindicates A preliminary Yet theChattahoocheeRiverandLake Lanierare illsuitedto

OVER hdraw I NCREASINGLY als thatcanbemade. 4 S CARCE W 2 ATER 3 Metro At- 5 AVERTING WATER DISPUTES | Jody W. Lipford 6 use levels that were not expected until 2030. Whether these find-

ERIES ings are accurate or not—the Georgia Environmental Protection S Division says the Chattahoochee River and Lake Lanier are suffi-

OLICY cient to supply Atlanta through 2030—there is no doubt that future demands on the Chattahoochee River and Lake Lanier will be

PERC P PERC heavy and growing (Seabrook 2002). Drought has worsened this pressure on the river basin’s waters. During the 1980s and 1990s, the Southeast experienced recur- rent and severe droughts. In the most severe drought, rainfall in Atlanta fell by as much as 25 percent, and annual average streamflows along the Apalachicola River fell to less than half their historical norms.5

THE CRISIS BEGINS

In 1989, recognizing that Atlanta’s “finite supply of clean water is looming as a barrier to growth” (Walker 2001, 68), Atlanta and the Army Corps of Engineers proposed to approximately double the water Atlanta drew from Lake Lanier, bringing it to 529 million gallons per day. Without sufficient water, Georgia officials feared the loss of 680,000 jobs and $127 billion in wages through 2010 (Economist 1991, 26). The proposal by Georgia and the Army Corps alarmed the citizens of Alabama. Increased withdrawals from Lake Lanier would reduce flows along the segment of the Chattahoochee River that forms the southern half of Alabama’s border with Georgia and would stunt economic development there. So, in 1990 Alabama sued the Army Corps to keep it from allocating more of the ACF river basin’s waters to Atlanta. The state of Florida quickly joined the lawsuit on the side of Alabama, fearing that reduced water flows would harm the oyster- rich Apalachicola Bay farther downstream. The state of Georgia then joined the lawsuit on the side of the Army Corps of Engineers to defend its withdrawal. The stage was set for thirteen years of failed, the matter will now likely be settled by the Supremefailed, thematter willnowlikelybesettled on howtoallocatethebasin’s waters.Becausethesenegotiations (Carriker 2000,2;Hull 3). nature’s seasonal cycleandmayconflictwithotherdemands requiressystem preservation a pattern offlowsthatmimics when riverlevelsbecometoolowforbarge Finally, traffic. eco- navigation requires minimalflowsthatreduce thewaterinlakes to bedrawndown,typicallyduringsummerandwinter. Similarly, peting objectivesofhydropower and floodcontrol require lakes ational userswantlakeskeptfullornearlyfull;however, thecom- ers 2002,34;ApalachicolaBayChamberofCommerce 2003). been recognized asanOutstandingFloridaWater (AmericanRiv- andtheonlycommercial sourcefishery ofTupelo honey. Ithas sport blue crab,andfinfish,aswellthehomeofanimportant over 1,000people.Theriverisalsoacommercial source ofshrimp, approximately 10percent oystersandemploys ofthecountry’s threaten theApalachicolaBay’s oysterindustry, whichsupplies duced flows,especiallyatcriticaltimes,andheavierpollutioncould economic development(Hull2000,3). and wouldputAlabamaatacompetitivedisadvantageinattracting standards forindustrialandmunicipalusers,whichwouldbecostly water camefrom Atlanta,Alabamamighthavetoraisewatercleanup tahoochee (Beaverstock1998,996;Walker 2001,68–69). water, butalsodischarges heavilypollutedwaterbackinto theChat- polluted upstream water. Atlantanotonlyusesalarge amountof cause reduced downstream flowswouldmeanlessdilutionof dustrial, andcommercial use.Water qualitywouldalsosuffer, be- economic developmentbylimitingwaterneededfordomestic,in- officials worried thatAtlanta’s withdrawals wouldstifleAlabama’s studies, proposals, counterproposals, andextendeddeadlines. Despite yearsofnegotiation,thestatesneverreached agreementDespite Other factorsexacerbatedtheconflict.Forexample, recre- From Florida’s perspective,theproblem wasoysterbeds.Re- These actionsreflected uniqueconcerns ineachstate.Alabama 6 Ifdirtier Court. 7 AVERTING WATER DISPUTES | Jody W. Lipford 8

CONSTITUTIONAL PATHS TO SOLUTION ERIES S Once Alabama took the Corps to court in 1989, the states had

OLICY several constitutional options to choose from to settle the conflict over water allocation. They could go to Congress for a decision;

PERC P PERC their suits could reach the Supreme Court; or they could negotiate their own agreement or compact. Neither Congress nor the Supreme Court likes to get involved in interstate water disputes. Moreover, suits reaching the Supreme Court are costly, usually require lengthy negotiations, and yield uncertain outcomes. For these reasons, the states opted for an interstate water compact. Alabama agreed to deactivate its lawsuit during the negotiation period; the Army Corps of Engineers agreed not to allocate additional water from Lake Lanier to Atlanta; and all parties agreed to a comprehensive study of the water resources in the basin (Carriker 2000, 3–4).7 In early 1997, all three state legislatures rati- fied legislation authorizing the negotiation of an ACF River Basin Compact to allocate the basin’s waters. These acts were subse- quently signed by the three state governors. The U.S. Constitution requires congressional approval of interstate compacts, so in No- vember 1997 Congress approved and President Clinton signed federal authorizing legislation. The goal of the compact was to assign property rights to water in such a way as to be fair and avoid future conflicts. This goal proved elusive, however.

THE FAILURE OF THE COMPACT

The federal legislation set an initial deadline for compact negotiations of December 31, 1998, unless the states agreed unanimously to extend that deadline.8 This deadline proved much too optimis- tic, as each state presented proposals reflecting its parochial interests. To begin with, Alabama and Florida wanted consumptive uses of water defined and limited.9 Georgia resisted this approach in favor of one that focused on reservoir levels. Specifically, Geor- (Alabama, Florida,andGeorgia 2003). line forfinalagreement onthememorandumwas August31,2003 ond ontheApalachicolaRiver atChattahoochee,Florida.Thedead- ofwhichwasaflow5000cubicfeetpersec- the mostimportant established minimumflowrequirements downstream from Atlanta, open thepossibilityofgreater future withdrawals.Thememoalso for Atlantafrom LakeLanier at705milliongallonsperdayandleft in theACFriverbasin.Thememorandumauthorized watersupply randum ofUnderstandingthatsetablueprintforwater allocation seemed tohavebeenmade.Thethree signedaMemo- governors sions thatcontinueduntilJuly22,2003.Atpoint, progress set aone-yeardeadline,establishingpatternofdeadline exten- did notappreciably advancethenegotiations. Onceagainthestates 1,2000.Yetthe deadlinetillJanuary thepassageofanotheryear and lakelevels(Moore 1999,9–10). to thechoiceofcomputermodelforforecasting riverflows from definitionalquestions(e.g.,howtodefine“severe drought”) natural flowcycles.Additionalproblems plaguedthenegotiations, flows, butalsowanteddownstream flowstobeadjustedmimic Moore 1999,9).Floridaagreed withAlabamainopposingminimum not watersupplytomunicipalitiesorrecreation (Carriker 2000,2; barge traffic),floodprevention, andhydroelectric production—but Theseincludednavigation(i.e., nal objectivesofdamconstruction. the ACFriverbasin’s watershouldbeallocatedtomeettheorigi- downstream. inessencereducingmight becomethenorm, thewaterflowing Florida rejected Georgia’s proposal, fearingthattheminimumflows bama andFloridaminimumflowguarantees.ButAlabama 2000,14).Inreturn,supply Atlanta(Carriker Georgia offered Ala- full (Moore 1999,8),sothatGeorgia wouldhaveenoughwaterto gia wantedtheACFriverbasin’s tobekeptfullornearly reservoirs Although FloridagovernorJeb Bushsignedthememorandum, Although With noagreement thestatesagreed forthcoming, toextend To ensure adequateflowsalongitsborder, Alabamaargued that 9 AVERTING WATER DISPUTES | Jody W. Lipford 10 he and other Florida officials had reservations, which they ex-

ERIES pressed in an accompanying statement (Struhs 2003). They insisted S that minimum flows must not become targets, that Lake Lanier must

OLICY be managed to deal effectively with drought, and that the govern- ing ACF Commission must have authority to approve any withdraw-

PERC P PERC als from Lake Lanier that exceeded the amount specified in the memorandum.10 Ultimately, the states could not reach agreement. Florida feared that minimum flows, which had been less than 5,000 cubic feet per second only twice during the recent droughts (on a mean monthly basis), might become the norm. Thus, Florida officials again raised the issue of Georgia’s withdrawals from Lake Lanier. Georgia officials responded by agreeing either to limit Atlanta’s withdrawals or to promise minimum flows through the basin, but not both, and accused Florida of trying to micro-manage its waters (Ritchie 2003a, 2003b). As a result, Florida officials refused to accept the Memo- randum of Understanding, and the deal collapsed. The states have now reactivated their original lawsuits (Shelton 2003a, C3; 2003b, G1; Ritchie 2003b, A1).11

THE ALLOCATION OF WATER

conomists recognize the scarcity of valuable resources. E Without prices on these resources, there is not enough to satisfy all who want to use them. In most settings, however, market prices allocate resources, allowing them to move to those users who value them the most. This market process allocates resources to their most productive uses and maximizes society’s wealth. In the case of the ACF river basin water, however, market prices do not currently allocate water; it is allocated politically. Economists also recognize that resources have multiple uses. Water, for example, may be used to generate electricity, aid oyster production, provide wildlife habitat, produce industrial products, of asmall,well-organized interest group withstrong influence, since mands ofotherusers(Shelton 2003b,G1). uncompromising interest groups whorefused to yieldtothede- ronmentalists, andFlorida’s shellfish andfishingindustriesas tified politicalandbusinessleadersofmetropolitan Atlanta,envi- voices heard (Moore 1999,8).The environmental, municipal,andpoliticalinterests allmadetheir ing aworkableagreement toachieve.Industrial, difficult tive uses.Theinfluenceofthesegroups introduced conflict,mak- water allocatedinitsfavor, irrespective ofwater’s mostproduc- influenced theACFriverbasinnegotiations.Eachtried togetmore I basin’s waters. lems, andsuchwasthecasewithnegotiationsoverACF pacts are highlypoliticalandconfront intractableinformation prob- in waysthatmaximizewater’s productive valuetosociety. Com- theyare poorlysuitedtoallocatewater or judicialapportionment, prospect oflesswaterbutnotcompletedeprivation. be allocatedtoAtlanta,presenting AlabamaandFloridawiththe other. Simplyput,theACFbasinissueiswhethermore watershould it isovershiftingsomewater, not allwater, from oneusetoan- such asdrinkingwater. Where conflictsoccur, asintheACFbasin, States generally),there isamplewatertosupplybasichuman needs, methods, itisrarely all-or-nothing.IntheSoutheast(andUnited basin, somewaterisusedineachoftheseways. for drinking,wateringlawns,orfillingswimmingpools.IntheACF ties forboaters,skiers,andfishers,orsupplyhouseholdswithwater provide channeldepthforbarges, provide recreational opportuni- NTEREST The Apalachicola Bay’s oyster industry serves asanexample The ApalachicolaBay’s serves oysterindustry Groups withavestedinterest intheoutcomeofcompact Although compactshavesomeadvantagesovercongressional Whether allocationoccursthrough marketpricesorother G ROUPS Atlanta Journal-Constitution iden- 11 AVERTING WATER DISPUTES | Jody W. Lipford 12 its employment of approximately 1000 people is minimal in a state

ERIES with total employment of approximately 7.2 million.12 It should be S noted, however, that the industry had support throughout the state

OLICY of Florida from citizens who wanted the environmental amenities of their state’s river to be preserved.

PERC P PERC After the agreement failed, some interests, such as the Atlanta Regional Commission and homeowners and businesses on Lakes Lanier and West Point, seemed just as happy. They feared Georgia had compromised too much already.

INFORMATION PROBLEMS

Even if negotiators could be insulated from interest group influence, they would still face important informational questions. If their goal is to allocate the water to its most productive uses, negotiators must first know how much total water can be allocated and how that will vary over years of normal rainfall and drought. Perhaps most important, they need to determine whether society will benefit more from allocating water to Atlanta’s developers, say, or to Florida’s oyster producers. And, if they can decide objec- tively to allocate more water to Florida’s oyster producers, they would still have to decide whether the extra water should come from Lake Lanier (thereby maintaining levels at downstream reservoirs) or from downstream reservoirs (thereby maintaining levels at Lake Lanier). By making these decisions, policy makers are implicitly choos- ing who will benefit and who will be harmed. A decision to allocate more water to Atlanta lessens development in eastern Alabama and reduces Florida’s seafood production. A decision to allocate more water to Alabama and Florida benefits the econo- mies of these states, but curbs Atlanta’s economic development. Similarly, a decision to supply downstream users from Lake Lanier diminishes recreational opportunities for users of the lake, while maintaining those opportunities for users of downstream reser- and wouldlikely cometoanend,reducing pressures on theACF over, negotiatorsknewthe1998-2002drought was unprecedented which authorizedtheHoover Damandcreated LakeMead.More- ticipation ofmore waterfrom theBoulderCanyonProject Act, River Compactof1922,was negotiated ample, thecountry’s firstinterstatewatercompact,theColorado force redistribution ofexistingallocations.Incontrast,forex- cated madebargaining more contentious,becausechangeswill That thewaterwealthofACFriverbasinisalready fullyallo- fully allocated,and(2)thedrought was expectedtoendsoon. ment lesslikely:(1)TheACFriverbasin’s waterswere already P states haveuseddifferent modelingprograms (Moore 1999,10). grams givedifferent estimatesand,perhaps notsurprisingly, the experts. surate waterusehavebeendramaticallyunder-predicted bythe easily forecast. Atlanta’s rapidpopulationgrowth andcommen- not guaranteedtoberepeated. Norare anticipatedwateruses 2030 or2050"(Moore 1999,8).Buthistorical rainfallpatternsare ticipated wateruseswithinthebasininafuture year, typically “historic rainfallpatternsoverthelastfifty-fiveyears”and“an- future levelsbasedonconsiderationof riverflowsandreservoir cal questionsthrough theuseofcomputersoftware thatforecast mize thetotalproductive valueofthebasin’s waterresources. for water, tomaxi- andmarginal changesinallocationnecessary changes inthetotalsupplyofwater, changesinthetotaldemand tive uses,theirdecisionswouldsoonberendered obsoleteby water’sAnd evenifpolicymakerscoulddetermine mostproduc- ational usersbutharmthosewhousedownstream reservoirs. voirs; theoppositedecisionwouldbenefitLakeLanier’s recre- RACTICAL Negotiators confronted twootherfactors thatmadeagree- toobtainanswerssomeofthetechni- Negotiators didtry 13 To compoundmattersfurther, different software pro- P ROBLEMS in the arid West, with an- 13 AVERTING WATER DISPUTES | Jody W. Lipford 14 river basin’s waters. These expectations were borne out, as abun-

ERIES dant rain fell during the latter half of 2002 and during 2003.14 S OLICY

PROPOSALS FOR MARKETING WATER PERC P PERC ith compact negotiations now in disarray, policy makers Wmust look to other alternatives. An obvious proposal is for Atlanta (and other municipalities in the basin) to charge a price for its water that at least approximates its market value. Ample evidence shows that higher water prices reduce consumption (Anderson and Snyder 1997a, 12–13). At present, water is under- priced in Atlanta, leading to overuse. Even in the most recent drought, the city of Atlanta raised its price to residential users by only 3 percent. For the average residential user, the monthly water bill rose from $16.55 to $17.05. The city plans additional rate hikes through 2004, but these will raise average residential bills by a mere $1.00 per month (Atlanta Bureau of Water 2003). During the drought, rather than raising the price of water further, officials imposed restrictions on outdoor water use that continue to be in effect (At- lanta Regional Commission 2003a; Judd 2000). Raising water prices to market levels is apparently not politically feasible. This means that the states of Alabama, Florida, and Georgia and the federal government should consider basin-wide proposals to create water markets. Experience with markets in water has shown that they can overcome some of the most difficult challenges of water allocation. They can ensure that water is allocated to its most productive uses and can prevent conflicts among users. To some, marketing water is still a strange idea. Long accus- tomed to the notion that water is a commonly owned resource, many readers may doubt that it is feasible to “trade” water and thereby satisfy various interests more readily than through political negotiations. Yet there is a strong precedent for marketing of part inthenegotiations.Outside influencesfrompart politicians, bu- consideringbuyingorselling a resourcekets, onlytheparties take total valuefrom alluses. groups canwork outslightormarginal changesthatmaximizethe ties tosellthewatermore productive users.Through markets, prices motivatethosewithrelatively lessproductive opportuni- ter, betheyresidential developersoroyster producers. Market and demonstratethisbywillingnesstopay, willpurchase the wa- nism. Thosewhocanputthewatertomostproductive use, asarationingmecha- for waterconsumed,andthatpriceserves (Yoskowitz 2001). described belowallocateswateralongtheRio Grande River are recognized, asystemofmarketablepermitssimilartotheone In Texas, where bothriparianandpriorappropriation doctrines terstate tradesare common(AndersonandSnyder1997a,14–21). agricultural usersandenvironmentalists. Eveninterbasinandin- cultural users,betweenagriculturalusersandcities, use today.do notnecessarilyencourageefficient quated, andrestrictions ontransfersthatmadesenseinthepast though lawsthatguidethetransfersofwaterare somewhatanti- (Anderson andSnyder1997b,31–45),continuestodoso,al- their rightstoothers.Theprivateprovision ofwaterflourished ued tousethewater(“useitorloseit”).Water userscouldtransfer right”), withtherightremaining aslongtheindividualcontin- a riverorstream onthebasisofseniority(or“firstintime,first waterfromculture. Insimplestterms,itallowedapersontodivert trine, resulted from waterforminingandagri- theneedtodivert water markets.Thissystem,knownasthepriorappropriation doc- evolved asystemofprivateproperty rightstowater, andwithit, inches ofprecipitation ayear. With wateralwaysprecious, theWest water. MuchoftheAmericanWest isarid,receiving lessthan17 Markets also yield peace among transacting parties. Inmar- Markets alsoyieldpeace amongtransactingparties. In afullyfunctioningwatermarket,userspaymarket price In spiteoftheserestrictions, watertradesoccuramongagri- 15 AVERTING WATER DISPUTES | Jody W. Lipford 16 reaucrats, or interest groups do not guide the negotiations, as they

ERIES do in the political process. The terms of exchange, such as the S price, must be voluntarily agreed upon for exchange to occur. Any

OLICY would-be buyer or seller who does not like the price does not have to buy or sell.

PERC P PERC In contrast, in the political sphere, resource users often do not pay a price for a resource they consume, or they pay less than the resource’s market value. This tends to encourage them to always want more and leads to conflicts among users and a state of per- petual unhappiness for all. As economists often point out, the foundation for markets is private property rights that are defined—that is, rights with a clearly specified ownership claim; enforced—that is, rights with a claim that is secure; and transferable—that is, rights that may be sold to others. Clearly defined, enforced, and transferable property rights are necessary for exchange. Buyers will not purchase resources if the rights to those resources are uncertain or insecure, but when rights to property are certain, secure, and transferable, markets flourish. Market-based allocation of the ACF river basin’s waters would encourage allocation of the basin’s waters to their most productive uses and foster peace among users.

THE ARMY CORPS’ ROLE

To understand how markets might work, it is appropriate to begin with the Army Corps of Engineers, which is the effective owner of the water in the ACF basin. At present, the Corps is al- most entirely dependent upon congressional appropriations. In the Mobile District in which the ACF river basin is located, the Corps receives some fees for its services, but they represent a small part of the Corps’ budget. The fees it receives are either insufficient to cover the costs of its services (as in recreation fees), or the Corps does not retain the revenues (as in the case of revenues from hydropower), or it simply does not charge for the services it pro- of some of the country’s most-valuednatural andrecreationalof somethe country’s re- by allocatingmore fundstobadlyneededrepair andmaintenance to visitorsofpubliclands these agencieshaveimproved services vidual sites,theresults from changedincentivesare evident,as agenciesorindi- fortheparticipating not intendself-sufficiency of therevenues. AlthoughtheFeeDemonstrationProgram does sites thatcouldraiseorimplementnewfeesandretain 80percent to eachchoose100 Management, andtheFishWildlife Service theBureau theForest ofLand Service, the NationalParkService, of apublicagency. In1996,theFeeDemonstrationProgram allowed likely, there issomeprecedent forthiskindofinstitutionalreform and therefore suchachangeinthefinancing oftheCorpsisun- the Corpsalsoprovides floodcontrol thatbenefits allusers. isjustifiedsince the authoritytoraisefees.Sometaxpayersupport demand raisedtherelative scarcity ofwater, theCorpswouldhave water supply, Ifdrought andrecreational orincreased services. implement orchangefeesitcharges forhydropower, dredging, it provided andtoretain therevenues. Forexample,theCorpscould ity tocharge whateverfeesitdeemedappropriate fortheservices were reduced. Inexchange,theCorpswouldbegivenauthor- basin’s oftheCorpsanditsprojects waters,buttaxpayersupport were toretain property rightsandmanagementauthorityoverthe erated from thebasin’s waters.ThiswouldhappeniftheCorps to theirmostproductive uses,thereby raisingthetotalwealthgen- be changedtogiveitanincentiveallocatescarce waterresources the basin.Inanidealworld,Corps’financingandfunctionwould and thustoadoptmarketexchangeasthewayallocatewaterin whichcompetingusesareincentive todetermine mostproductive receive itprovides, financialbenefitfrom ithas no theservices projects). vessels dopayafueltaxthatisusedtofundinlandwaterway althoughcommercial vides (asinthecaseofnavigationalservices, Although theCorps’powerinCongress isextremely powerful bytaxpayer dollarsandcannot Since theCorpsissupported 17 AVERTING WATER DISPUTES | Jody W. Lipford 18 sources (Fretwell 1999). Like the Fee Demonstration program, re-

ERIES form of the Army Corps of Engineers could begin on a short-term, S experimental basis.

OLICY With a mandate to balance its budget and the authority to set fees and retain revenues, the Corps would have an incentive to

PERC P PERC allocate water resources to their most productive uses. If Atlanta developers wanted more water, they would have to pay a price that reflected the value of the water to other users. If it did not, those other users would outbid it. The Corps would also have to take into account the costs of its services. If barge traffic was insufficient to generate revenues to cover the costs of dredging, the Corps would cease to dredge the basin. Through this system, those with the most productive opportunities for the water would be the ones to obtain it. Such allocation would also maximize the Corps’ net revenues. Unfortunately, this outcome is not very likely to occur in a political setting.

A SYSTEM OF MARKETABLE PERMITS

Under current political arrangements, marketable permits seem to be the most promising approach to creating a water market. Marketable permits depend on the assignment of property rights to water. To implement them in the ACF river basin, the Army Corps of Engineers could first establish a daily “water budget,” consist- ing of the total net withdrawals allowed from the basin, based on average daily withdrawals from some past period of consumption. After this global budget is established, the Army Corps of Engi- neers could grant water allocations to each user based upon average daily use, again from some period of past consumption. Even though hydropower producers, barges, and oyster producers do not strictly divert water, the water they use is “diverted” from the basin into the Gulf of Mexico and therefore should be measured for the allocation. By making the allocations daily, the Corps would allow for seasonal variations in demand and flood control. Permit Florida’s oyster producers. able toAtlanta’s developersand reducing thedownstream flow for release lesswaterfrom LakeLanier, increasing theamount avail- producers. agree, Ifthecontracting parties theArmyCorpswill topurchaseoffer anadditional80gallonsfrom Florida’s oyster in. IfAtlanta’s developers want torestore theirallocation,theymust gallons forFloridaoysterproducers. Thisiswhere tradingcomes mitted allotmentsto720gallonsforAtlantadevelopers and180 might reduce netwithdrawalsto900gallons,forcing cutsinper- each user’s allotmentcanriseby10percent. Adrought, however, day.) tual quantitieswould,ofcourse,beinthemillions ofgallonsper lanta developersand200gallonsforFloridaoysterproducers. (Ac- river basinis1,000gallons,allocatedbetween800gallonsforAt- hoochee. Supposethatforagivenday, thewaterbudgetforthis producers, thelakenamedLakeLanier, andtheriverChatta- Suppose thetwousersare AtlantadevelopersandFloridaoyster downstreamtwo users,alake,andriverrunning from thelake. have topurchase thatwaterfrom otherusers. exceeds theglobaldailybudget,userswantingmore waterwould costs. Similarly, ifthedemandforwaterrisestopointthatit ofexchange,whilechargingterms afeetocoveradministrative users, bymatchingbuyersandsellershelpingtonegotiate asawaterbroker,could thenserve facilitatingtransactionsamong mit allowancesbyanequalpercentage forallusers.TheCorps case ofdrought, CorpsofEngineerscouldcutdailyper- theArmy without theneedtotransferwateramongusers.However, inthe basin exceededtheglobaldailybudget,alluserscouldbesatisfied federal wateruselaws. under noconditioncouldwaterbeallocatedinawaythatviolates allocations wouldbedivisibleandtransferable.And,ofcourse, If rainfallallowsgreater netwithdrawals,sayto1,100gallons, To seehowthismightwork,consider asimplifiedexamplewith When thesupplyofrainfallwasabundant,sothatwaterin 19 AVERTING WATER DISPUTES | Jody W. Lipford 20 If, in contrast, Florida’s oyster producers want to retain a flow

ERIES of 200 gallons, they will offer to purchase an additional 20 gallons S from Atlanta developers. If the parties agree, this time the Army

OLICY Corps of Engineers will release more water from Lake Lanier, reducing the amount available for Atlanta’s developers but increas-

PERC P PERC ing the flow for Florida’s oyster producers. One can envision associations of users with similar wants, such as an upstream association of developers and recreational users, and a downstream association of hydroelectric utilities, barges, environmentalists, and oyster producers. At times, association members would benefit by combining funds and sharing costs. Purchasing water allotments to retire (that is, not use) them should also be allowed. For example, if electric utilities want to increase downstream flows to generate electricity at the same time that recreational users want lake levels held high, as on a summer holiday weekend, the recreational users could purchase water rights from the electric utilities, if the utilities agreed, and retire those rights. Instead of producing revenues through hydropower, the electric utilities would receive payments from recreational users. Similarly, environmentalists might want to purchase and use or retire rights during seasons when fish spawn.15 In each of the exchanges described, the amount of water traded would be a small portion, not all of the total allowances. For example, recreational users would likely purchase some, but not all, of the electric utilities’ water. Lake levels would fall enough to generate some electricity, but not as much as they would fall if recreational users didn’t purchase some of the water rights.16 To be effective, these marketable permits must have the key characteristics of property rights: They must be clearly defined, so that each user knows its allocation for each day; enforced, with the Army Corps of Engineers serving as enforcer of the permit allowances through its monitoring of lakes and dams; and transferable, with transfer facilitated by the Army Corps of Engi- ACF riverbasin’s userswouldbecomemore harmonious. waters wouldbeallocatedmore efficientlyand relations amongthe transactions,the basin’splaying anallocativerole andwithvoluntary leave waterinthebasin,andbuyerscouldwithdraw it.With price ready tobuyandsellwateratspecifiedprices.Depositors could asawaterbanker, andthenserve historic usepatterns, standing could assign Snyder 1997b,11–12,102–103). water, mostlytomunicipalandagriculturalusers(Anderson per acre-foot. Thestatepurchased andsold400,000acre-feet of at apriceof$125peracre-foot andtosell wateratapriceof$175 to copewithdrought. offered In1991California topurchase water water bankswere usedsuccessfullyin1977and1991California bank. Suchbankshavebeenusedintimesofdrought. Forexample, tween thesepricesusedtocoverthecostsofadministering that buysandsellswateratspecifiedprices,withthespread be- asanunderwriter establishing awaterbank.TheCorpscouldserve agreed uponprices,theCorpscouldadvancemarketallocationby contracting parties. an allocationofwatertoitsmostproductive usesandpeaceamong rights,awatermarketcoulddevelopthatwouldensureproperty asbroker.neers serving With defined,enforced, andtransferable stop theArmy CorpsofEngineersfrom grantingtherequest, which state legislature tointroduce resolutions callingonCongress to day from theSavannahRiverBasin provoked theSouth Carolina Habersham County, Georgia, towithdraw12.5million gallonsper Along Georgia’s border withSouthCarolina, arequest by because waterconflictsare brewing throughout the Southeast. I MPLICATIONS In thecaseofACFriverbasin,ArmyCorpsEngineers As analternativetowatertransfersamongusersatmutually Making thesekindsofchangesintheACFriverbasin iscritical users d

FOR

aily property rightstoflowsofwater, based on THE S OUTHEAST 21 AVERTING WATER DISPUTES | Jody W. Lipford 22 would have transferred water from the Savannah river basin to the

ERIES ACF basin.17 In addition, Georgia is involved in a dispute with Ala- S bama over water in the Alabama-Coosa-Tallapoosa river basin. And

OLICY North Carolina and South Carolina have disputed the flow of water in the Yadkin-Great Pee Dee river basin (Henderson 2002; Libaw

PERC P PERC 2000; Pompe and Franck 2003). By establishing water markets in the ACF river basin, the states of Alabama, Florida, and Georgia could serve as an example to other southeastern states to help them avoid the conflicts that have for so long plagued the attempts to allocate that basin’s waters.

WHAT CHANCE FOR CHANGE?

arket reforms offer great potential, but when government is in M control, change typically comes about only with crisis. Higher rainfall since the summer of 2002 has diminished the sense of crisis. Does this mean that all hope is lost for market allocation of water in the ACF river basin or elsewhere in the Southeast? Not at all. By failing to achieve compact resolution, the states of Alabama, Florida, and Georgia, have embarked down the risky path of judi- cial apportionment. The risk is that the Supreme Court could allocate the ACF river basin’s waters in a way that is unsatisfactory to each or all of the states (Erhardt 1992, 226). Because these allocations are not transferable, states with an unsatisfactory allocation would have no way, short of further litigation, to change the allocation. As the states contemplate this possibility, they may find it prudent to drop their lawsuits and pursue a means of allocating water that relies on markets, such as one of the proposals offered in this essay. Once demand permanently outstrips supply under current arrangements, water in the Southeast will be rationed. The ques- tion will be how. Will water be rationed by markets, which promote productive use and harmony among users? Or will it be rationed 202). For further details,see 202). Forfurther the statesagreed tonotifyotherstatesinadvance (Erhardt 1992, water atcurrent uselevels.Shouldincreased withdrawalsbeneeded, billion torenovate itsantiquatedsewagetreatment system. the CleanWater toraiseover$3 Act,Atlantaiscurrently trying treated wastewaterinto theChattahoocheeandtocomplywith ?site_no=02358000. hoochee, FL,seewaterdata.usgs.gov/fl/nwis/annual/calendar_year/ lanta, e-mailcorrespondence, November 7,2003. were alloperational(Jeane2002,151,155). dams beganinthe1940s,1950s,and1960s,by1970sthey ofthese which formsLakeSeminole.Authorizationandconstruction George; theGeorge W. Andrews dam;andtheJimWoodruff dam, West Point;theWalter F. George dam,whichformsLakeWalter F. LakeSidneyLanier;theWestforms Lake Pointdam,whichforms CorpsdamsdottheACFriverbasin:BufordArmy dam,which dredging theChattahoocheeRiverin1880s.Atpresent, five ACF riverbasin.To facilitatecommercial theCorpsbegan traffic, tention ofpolitics. ofmarketsoverthemisallocationandcon- efficiency andharmony plagued bydrought, thecitizensofSoutheastmaychoose and conflict?Aseconomicdevelopmentcontinues,perhaps by politicalprocesses thatare likelytoresult inmisallocation 7. Until thecompactwascompleted, statesagreed to“freeze” 7. In response tofederalconsentdecrees6. tostopspillsofun- For dataonstreamflow5. oftheApalachicola RiveratChatta- See Atlanta RegionalCommission(2003b). 4. 3. DatasuppliedbyJuliaFanning,U.S.GeologicalSurvey, At- See table30ofU.S.CensusBureau2. (2002,32–34). ArmyCorpsofEngineers haslongplayedarole1. The inthe Public Law105-104, N N N N N O O O O O TES TES TES TES TES Article VII(c). Article 23 AVERTING WATER DISPUTES | Jody W. Lipford 24 8. Public Law 105-104, Article VIII (3).

ERIES 9. Consumptive use, also known as water consumed or water S depleted, may be defined as the “part of water withdrawn that is

OLICY evaporated, transpired, incorporated into products or crops, consumed by humans or livestock, or otherwise removed from the

PERC P PERC immediate water environment.” The definition also includes “any water withdrawn in the basin and transferred out of the basin for use” (Marella, Fanning, and Mooty 1993, v). 10. Sixty-four percent of the ACF river basin’s reservoir capac- ity is held in Lake Lanier (Ritchie 2003c, A1). 11. Complicating the legal proceedings is a deal struck by Geor- gia and the Army Corps of Engineers in January 2003 in which metropolitan Atlanta governments agreed to pay the Corps $2.5 million per year towards the operation of Lake Lanier’s Buford Dam in exchange for greater withdrawals from the lake. With this deal, metropolitan Atlanta sought not only to obtain additional water, but also to mollify hydropower customers who pay for the dam and who had filed suit against the Corps in 2000 because the Corps had already allocated water from hydropower to supply metropolitan Atlanta. Georgia and the Corps negotiated this deal without inform- ing Alabama or Florida, and set it aside only when Alabama and Florida found out about it and threatened to withdraw from the compact negotiations. This deal, like the initial lawsuits between the states and the Corps, has been reactivated and will have to be settled by the courts (Shelton 2003a; Seabrook 2003). 12. The employment figure is taken from table 602 of U.S. Cen- sus Bureau (2002, 393). 13. The State and Metropolitan Area Data Book, 1997-98 predicted metropolitan Atlanta’s 2000 population to be 3.682 million (U.S. Cen- sus Bureau 1998). The actual figure was 4.112 million, an error of 430,000 for a prediction published only two years in advance. 14. From July 2002 to August 2003, rainfall exceeded normal levels in Atlanta, Columbus, and Albany, GA by 9.64 inches, 12.21 inches, and 6.57 inches, respectively. Data supplied by Pam Knox, Atlanta Bureau ofWater. 2003. Rates,Fees&MeterPrice.Online: Apalachicola BayChamber ofCommerce. 2003.Apalachicola. ———. 1997b. Anderson, Terry L.,andPamelaS.Snyder. 1997a.PrimingtheInvis- American Rivers.2002.America’s MostEndangered Riversof2002. Alabama, Florida,andGeorgia. 2003.MemorandumofUnderstand- drew itspermitrequest. have toraisepricestheircustomers. located totheirmostproductive uses. lowtransactionscostswillleadtoresourcessufficiently beingal- levels. Coase(1960)argues thatclearlydefinedproperty rightsand power userswouldhavetopurchase rightsfrom themtodrop lake other hand,ifrecreational usershadthehigherranking,hydro- have topurchase rightsfrom themtokeeplakelevelsup.Onthe dropower usershavethehigherranking,recreational userswould versity ofGeorgia, Athens,e-mailcorrespondence, October15,2003. assistant stateclimatologist,Georgia State ClimatologyOffice,Uni- 17. Before thisconflictcouldescalate,Habersham Countywith- 17. With less waterforhydroelectric production,16. utilitiesmight 15. Retiring rightsrequires somerankingamongusers.Ifhy- 2003). www.atlantaga.gov/citydir/water/index.htm (citedOct.28, Online: www.apalachicolabay.org (citedSept.25,2003). ton, DC:CatoInstitute. ible Pump. (cited December10,2003). Online: www.amrivers.org/mostendangered/2002report.htm 2003/july/0722_acf.htm (citedSept.29,2003). sin (July22).Online:www.dep.state.fl.us/secretary/comm/ ing Regarding fortheACFRiverBa- InitialAllocationFormula Water Markets:PrimingtheInvisiblePump PERC PolicySeries R R R R R EFERENCES EFERENCES EFERENCES EFERENCES EFERENCES , PS-9.Bozeman,MT: PERC. . Washing- 25 AVERTING WATER DISPUTES | Jody W. Lipford 26 Atlanta Regional Commission. 2003a. Current Water Restrictions

ERIES (May 9). Online: atlreg.com/water/waterrestrictions.html S (cited November 6, 2003).

OLICY ———. 2003b. Regional Water Supply Plan. Online: atlreg.com/water/supplyplan.html (cited October 28, 2003).

PERC P PERC Beaverstock, Jeffrey Uhlman. 1998. Learning to Get Along: Alabama, Georgia, Florida and the Chattahoochee River Compact. Ala- bama Law Review 49(Spring): 993–1007. Carriker, Roy R. 2000. Water Wars: Water Allocation Law and the Apalachicola-Chattahoochee-Flint River Basin. University of Florida, Cooperative Extension Service, Institute of Food and Agricultural Services. Online: edis.ifas.ufl.edu/BODY_FE208 (cited Sept. 24, 2003). Coase, Ronald. 1960. The Problem of Social Cost. Journal of Law and Economics 3(October): 1–44. Economist. 1991. River Rivalry. March 30. Erhardt, Carl. 1992. The Battle over “The Hooch”: The Federal-In- terstate Water Compact and the Resolution of Rights in the Chattahoochee River. Stanford Environmental Law Journal 11: 200–228. Fretwell, Holly Lippke. 1999. Paying to Play: The Fee Demonstra- tion Program. PERC Policy Series, PS-17. Bozeman, MT: PERC. Henderson, Bruce. 2002. Who Gets the Water? Charlotte Observer, Dec. 29. Hull, Jonathan Watts. 2000. The War over Water. Regional Resource. Atlanta: Council of State Governments. Jeane, D. Gregory. 2002. A History of the Mobile District Corps of Engineers, 1815–1985. Online: www.sam.usace.army.mil/ MobileDistrictHistory (cited December 10, 2003). Judd, Alan. 2000. State Slaps Water Limits on 15 Metro Counties: Outdoor Water Use Banned from 10 a.m. to 10 p.m. Atlanta Journal-Constitution, June 2. Libaw, Oliver Yates. 2000. Water Wars: Drought-Ridden Southeast Battles over Use of Rivers (August 14). ABC News. Online: more. Struhs, David B.2003.StatementofIntenttoAccompanythe Memo- Struhs, ———. 2003b.Water Talks aWashout—States PointFingers. Shelton, Stacy. 2003a.Water DealMayBuyAtlantaSomeTime. ———. 2003.Water CostsLikelytoRise. Seabrook, Charles.2002.AtlantaGuzzlingWater; Metro ThirstEx- ———. 2003c.RiverPactMovesCloser. MayHear Water———. 2003b.HighCourt Fight. 2003a.FloridaWillingRitchie, Bruce. toTake BattletoCourt. Pompe, Jeffrey J.,andDavidP. Franck.2003.TheEconomicImpact Moore, C.Grady. 1999.Water Wars: Interstate Water Allocationin Metro AtlantaChamberofCommerce andtheRegionalBusiness Marella, Richard L,JuliaL.Fanning,andWill S.Mooty. 1993.Esti- randum ofUnderstanding Regarding InitialAllocation Formula Journal-Constitution lanta Journal-Constitution tion, ceeds Projections. 23, A1. crat hassee Democrat rence, SC. ofEconomics,FrancisMarionUniversity,Department Flo- of Water Transfer: OptionsforPolicyReform. Working paper, 5–10, 66–67. the Southeast. ground/primer.htm (citedOctober28,2003). Atlanta Region.Online:www.cleanwaterinitiative.com/back- Coalition. 2003.APrimeronWater Resources intheMetro see, FL:U.S.GeologicalSurvey. 1990. River Basinduring1990withStateSummariesfrom 1970to mated UseofWater intheApalachicola-Chattahoochee-Flint (cited Sept.16,2003). abcnews.go.com/sections/us/dailynews/water000811.html , September2,A1. Sept. 8,F1. Water-Resources InvestigationReport Natural ResourcesandEnvironment , August27,B3. Atlanta Journal-Constitution , September6,G1. , September12,C3. Tallahassee Democrat Atlanta Journal-Constitu- , 93-4084.Tallahas- Tallahassee Demo- , May15. 14(Summer): Atlanta Talla- , July At- 27 AVERTING WATER DISPUTES | Jody W. Lipford 28 for the ACF River Basin, July 22. Online: www.dep.state.fl.us/

ERIES secretary/comm/2003/july/0722_acf.htm (cited Sept. 29, 2003). S U.S. Army Corps of Engineers, Mobile District. 2001. How the River

OLICY Systems Are Managed (Dec. 2, 2001). Online: water.sam. usace.army.mil/narrativ.htm (cited Sept. 30, 2003).

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