W A T E R Billionaire Farmers Scheming to Privatize California’s Water Are Under Attack Two devastating lawsuits have been filed this summer in an attempt to claw back hundreds of millions (and possibly billions) of dollars in ill-gotten profits.

By Yasha Levine taxpayers’ expense, without anyone in the water supply. California spent September 14, 2010 getting wise. The litigants’ objectives nearly $100 million developing the are simple enough: to re-nationalize underground reservoir and connect- Good news from the trenches of a vital asset and shut down an illegal ing it to the state’s public canals and California’s water war: The cabal water racket that has sucked rivers aqueducts. But in 1995, the state of billionaire farmers and real es- dry, fueled unsustainable real estate suddenly, and without any public tate developers that has been engi- growth, and violated California’s debate, transferred it to a handful of neering a stealth privatization of the constitution. But to fully appreciate corporate interests. state’s water supply is under attack. the importance of these lawsuits, Two devastating lawsuits have been you have to understand the propor- By signing over control of a mas- filed this summer in an attempt to tions of the scam that was perpetrat- sive water holding facility, and the claw back hundreds of millions ed. And to do that, you have to learn billions of gallons of government- (and possibly billions) of dollars a little history about the privatiza- subsidized water it could store, in ill-gotten profits from a group of tion of the Kern Water Bank. California’s water officials created wealthy farmers and to bring one a loophole that allowed them to of the world’s largest water banks The Kern Water Bank is an under- privatize water without actually do- back under public control. The fall- ground reservoir located about 300 ing so explicitly. Once the water en- out could be monumental, but what- miles south of San Francisco, in the tered the Kern County Water Bank, ever the outcome, these suits will no hottest, driest, southernmost edge it stopped being a public resource doubt expose plenty of juicy, dark of California’s Central Valley. In and became a private commodity details that could lead to even more the late 1980s, California’s Depart- that could be sold to the highest bid- trouble for California’s water priva- ment of Water Resources began de- der. Simply put, the transfer turned teers. It’s taxpayer payback time. veloping the water bank, which can a small number of wealthy corpo- now hold enough water to hydrate rate farmers and agribusinesses into Filed by a coalition of farmers and the entire population of the city of private water merchants. environmental groups in the Sacra- Los Angeles for nearly two years, mento Superior Court, the twin law- as a safeguard against prolonged The Monterey Agreements, as the suits cut to the heart of the ongoing drought. During wet years, it would closed-door meetings that privatized backdoor privatization of Califor- serve as a repository for excess wa- the Kern bank came to be called, radi- nia’s water supply, which has al- ter coming in from Northern Cali- cally changed the longstanding water lowed a handful of rich and power- fornia, and would be pumped out in regulations that govern the State Wa- ful people to enrich themselves at dry years to make up any shortfalls ter Project (SWP), a series of reser- voirs and over 400 miles of aqueducts way it operates with dollars, that’s of “paper water,” which could be that deliver water up and down the the way we operate with water,” said traded, transferred, divvied up, and entire state. By putting a handful of Jonathan Parker, general manager of put on the books as easily as money for-profit corporations at the controls the Kern Water Bank Authority. in the bank or collateral on a loan of publicly owned water infrastruc- without anyone having to transfer a ture, the state heralded in a shadowy, According to a 2009 investigation drop. Paper water would prove to be semi-privatized water policy seem- by the Contra Costa Times, the own- a blessing for real estate developers ingly geared toward one thing: mak- ers of the Kern water bank raked in during the recent housing boom. ing wealthy people even wealthier. hundreds of millions of dollars selling back water to the state over the years. By law, every large real estate devel- In November 2009, I wrote about opment project in California must how this water bank transfer arrange- Stewart Resnick, a Beverly Hills bil- secure a reliable, long-term source ment brought in massive profits to lionaire “farmer” credited with be- of water. Until paper water came the new owners of the Kern bank, ing the brains behind the Kern Water along, this requirement posed a seri- whose money-making schemes fre- Bank water privatization scheme, ous hurdle to developers building a quently involved nothing more than pocketed $40 million in taxpayer low-income suburban paradise in the buying water at subsidized rates from funds from 2000 to 2007 via a single Southern California desert, where the state of California, then turning water buyback program adminis- water sources are either non-existent around and selling the water right tered by California’s water officials. or already strained to the maximum. back to the state at jacked-up rates: Stewart, whose private holding com- Even if there were an abundance of pany Roll International owns Fiji virgin rivers to dam and redirect, the Just as the Federal Reserve allows Water, Pom Wonderful, pesticide hundreds of millions of dollars such banks to borrow money from taxpay- manufacturer Suterra and Paramount projects would cost would eat into ers so they can reap huge profits by Agribusiness, the largest farming the fat profit margins of real estate lending it right back to the masses at company in America and the largest developers and would bring subur- a higher rate, the Kern bank allows a pistachio and almond producer in the ban sprawl expansion to a crawl. Pa- handful of corporate farmers to sell world, has also been using the Kern per water provided a neat solution: a public resource back to the public water bank to grow even bigger, developers could satisfy regulations at markup. According to Public Cit- nearly doubling his cultivated land by buying paper water from Cali- izen, in 2001, the Kern County Wa- holdings just in the three years after fornia’s agribusinesses. They didn’t ter Bank bought subsidized water the Monterey Agreements. have to secure a real water supply, from the State Water Project at $161 nor did they have to transfer a single an acre-foot and flipped it back to The Monterey Agreements did more ounce--all they needed was to show the state’s Environmental Water Ac- than transform public infrastructure that the water would be available for count for $250 an acre-foot, making into a personal ATM machine for a use in the future. a cool $6.3 million for its owners -- small group of wealthy people--they just for having the right friends in also implemented a generous debt Paper water was great for farmers, the right places. forgiveness scheme that released too. With the price of water constant- farmers like Resnick from having ly on the rise, they could make more Shocking as this textbook example to repay the state bonds that had fi- money by ditching the dirt and going of transfer of wealth is, it is neither nanced the aqueduct system used to into the water business full time. an isolated incident nor a freak loop- pipe in their subsidized water--and hole. It was the intended effect of instead put California’s residents on That’s what John Vidovich, a the deregulation and privatization of the hook for the cash. wealthy “farmer” whose family water hashed in Monterey almost 15 controls a small real estate empire years ago, which transformed water The agreements also established a in the Silicon Valley, did. As a mi- into a truly liquid asset that could be legal framework that, for the first nority stakeholder in the Kern water traded with ease on the market. time in California’s history, made bank, his firm Sandridge Partners, unregulated water commerce in Cal- pocketed $73 million selling state- “Think of the Bank of America, the ifornia possible through the concept subsidized water back to taxpayers living in a McTractHome exurb in amount, regardless of whether there ideology of “nationalizing losses, the Mojave Desert, 100 miles east was water or not. privatizing profits” is no longer of Los Angeles. limited to Wall Street. It’s alive and Where would the state get this non- well among California’s corporate Paper water was particularly lucra- existent water? Well, it could take farmers, too. tive to the Tejon Ranch Company, it away from small farmers, rural a real estate developer and second- communities and anyone else who is This is what the legal fight is all about. largest stakeholder in the water bank, poor and politically unconnected. Or which needed paper water in order it could start pumping the rivers dry- The two lawsuits seek to overturn to hydrate its planned 26,000-acre -which is exactly what California’s the Monterey Agreements, argu- development (3,500 homes, a resort Department of Water Resources end- ing that they violate the California and a massive shopping mall) in the ed up doing, all but wiping out the Constitution in two general ways: Tehachapi Mountains just north of state’s salmon population for good. 1) The privatization of the Kern Los Angeles--a project that would water bank amounted to a gift from never have been possible without “Beginning 10 years ago, the proj- the State of California to a group of the Monterey Agreements. ects dramatically increased pump- private interests, which is explicitly ing, reaching a record 6.5 million prohibited by the constitution; and Paper water was able to produce im- acre-feet in exports in 2006,” the 2) modifications made to contracts mense profits out of thin air for both San Francisco Chronicle reported in that govern SWP water deliveries developers and farmers, but it has February 2010. The unprecedented violated Article 16 of the California proved to be disastrous for every- population decline that followed led Constitution, as well as longstand- one--and everything -- else in Cali- to the closure of the salmon fishing ing case law, which prohibit the fornia. Like the exotic debt instru- industry for a historic two years run- modification of contracts that were ments dreamed up by Wall Street ning. The closure has already cost ratified by the voters. to finance, paper water is built on the California economy 2,700 fish- deception, and trades in pure fan- ing industry jobs, according to the If successful, the lawsuits would tasy. On the books, California’s wa- state Department of Fish and Game, be a huge coup against California’s ter authorities are under contract to and many thousands more accord- entrenched water and land oligar- deliver 4 million acre feet of water ing to other estimates, and more chy, and a big step toward returning a year (enough to hydrate an ur- than half a billion dollars. California’s water supply to public ban population eight times the size control. A win would also wreak of Los Angeles) to water districts As another safeguard designed to further havoc on California’s real across California. In reality, the keep the water flowing, the Monterey estate market by rendering half of state has only been able to deliver Agreements flipped a longstand- the paper water being traded on the half that amount. Which means that ing provision that gave preference market completely worthless. May- half of the paper water being traded to urban water supplies in times of be it would finally force the state on the open market simply does not drought, which meant that agricul- government to acknowledge the exist, and it never has. tural users were no longer the first unsustainability of its ever-growing to suffer cuts in their way supply-- developments in the desert. To make sure wealthy farmers in the cities and towns were. The change Central Valley would get as much has caused water shortages and Regardless of what happens, the water funneled to them as possible, higher water rates for roughly 23 two lawsuits are definitely worth the the Monterey Agreements made million Californians. fight, if only for the titillating details a legal alteration that forced the that are sure to come out during the state to deliver the full contracted As it turns out, the money-making discovery process.