Tensions rise over company's plan to sell Colorado River water in Arizona

Mayors and county supervisors in towns along the Colorado River were already upset five months ago when the state water agency endorsed an investment company’s plan to take water from farmland near the river and sell it to a growing Phoenix suburb.

Now, they're incensed that the agency, which initially suggested holding back a large portion of the water, changed its stance and will let the company sell most of the water to the town of Queen Creek.

Elected leaders in communities along the river say they intend to continue trying to stop the proposed deal, which would need to be approved by the federal Bureau of Reclamation. They argue that sending water away from rural communities to support growth in Arizona’s suburbs would threaten the agricultural economy and clear the way for a flurry of more "buy-and-dry" deals by investors seeking to profit from water.

Mayors of towns near the river warn the same company owns other farmland and that other investors are waiting to capitalize on water sales in Arizona if they get a green light.

Some Arizona legislators are trying to pass a bill that would block this sort of water-selling. A group of county and city officials in Mohave, La Paz and Yuma counties have vehemently opposed the plan and are calling for the Biden administration to carry out a thorough review.

"It's going to be a huge transfer of wealth if they succeed," said Mohave County Supervisor Travis Lingenfelter. "It's a horrible precedent to set and it opens the floodgates to similar water deals."

The impassioned debate in Arizona parallels similar tensions in other Western states over recent land purchases by Wall Street investors who are seeking to profit from water — a trend that has stirred significant opposition in Colorado and some other parts of the Colorado River Basin. The dispute is also unfolding against a backdrop of worsening water scarcity along the Colorado River, which is chronically overused, beset by years of drought and shrinking under the pressures of global warming.

The proposal in Arizona involves about 500 acres of farmland in the small community of Cibola in La Paz County, which the company GSC Farm LLC bought in 2013 and 2014. That company is owned by a Phoenix-based investment company called Greenstone, which says on its website that it "has an interest in acquiring and developing water assets located throughout the western United States."

In 2019, GSC Farm asked for state approval to permanently leave 485 acres of farmland dry and sell its annual entitlement of 2,083 acre-feet of Colorado River water (about 678 million gallons) to Queen Creek for a one-time payment of $21 million.

The Arizona Department of Water Resources endorsed the proposal in September, recommending the federal government's approval.

But at the time, ADWR Director Tom Buschatzke recommended allowing the transfer of only a portion of the water — 1,078 acre-feet, a little more than half the proposed amount. Buschatzke said the idea was to keep enough water on the property to meet future needs as it's developed for housing. He said allowing a portion of the water to be transferred would help Queen Creek while "avoiding negative impacts" for communities in western Arizona.

In a letter to the Trump administration in September, Buschatzke laid out his recommendation, including the quantity of water, but he also wrote that amount "may be subject to change based on additional detail concerning future uses" of water on the company's land.

In late January, opponents of the plan learned Buschatzke had, after receiving more information from the company, reassessed how much water should remain on the land for planned housing development. This reassessment dramatically increased the amount of water the company would be able to transfer to Queen Creek, nearly matching its original request.

Based on the new evaluation, the state agency concluded Greenstone could transfer 2,033 acre-feet — an increase of 955 acre-feet, or 311 million gallons.

That change is drawing criticism from Lingenfelter and others, who argue such a substantial increase ought to have involved another round of public hearings, like a series of meetings in 2019, when the proposal drew an outpouring of opposition in communities along the river.

"If they're going to change the recommendation that much, they should go through a new public process," Lingenfelter said.

"But instead, it looks like they worked this all out, this huge difference with GSC Farm and Queen Creek, behind closed doors," he said. "It smells bad."

The Department of Water Resources defended its handling of the matter. The agency analyzed the company's development plans in response to a request by the federal Bureau of Reclamation, said Doug MacEachern, a spokesperson for ADWR.

The federal agency "will take public comment on the volume being transferred" as it reviews the proposal under federal environmental law, MacEachern wrote in an email.

Buschatzke wrote in a Jan. 20 letter to the Bureau of Reclamation that the company provided several documents with more information about its development plans for the farmland in Cibola. Greenstone said it intends to turn about 280 acres into 40 single-family homes on large lots of about 7 acres each while leaving more than 200 acres undeveloped.

Buschatzke's agency, which had based its initial recommendation on a more densely built subdivision, concluded that keeping 50 acre-feet of water per year on the land would be enough.

Greenstone also owns other farmlands in Arizona. It says its investors include MassMutual as well as various public-employee pension funds.

Lawyers for Greenstone have argued that opponents' concerns about the plan are unfounded.

"I don't think this proposal opens any floodgates or creates some massive precedent for other transfers to take place," said Grady Gammage, Jr., an attorney representing Greenstone. "There is plenty of water on the river for both urban growth and continued agricultural use. This is not in any way going to cause some catastrophic result in water on the river."

Gammage said the state's series of four hearings on the proposal offered ample opportunities for public input. He said the question of how much water is left behind for use on the land depends on Greenstone's plan for future development, "and that's not really something that public input is needed for."

The state's initial recommendation of leaving so much water on the property was based on a "wildly unrealistic" scenario of building eight housing units per acre, a density for townhouses or condominiums that would be more tightly packed than the average density of housing in Phoenix, Gammage said. So the Department of Water Resources modified its recommendation, he said, "based on receiving more realistic information about the development potential of the property."

The company has been leasing out its land in Cibola and using the water to irrigate fields of alfalfa and cotton. The fields extend across parts of the Cibola Valley, where about 4,000 acres of lush irrigated farmlands hug a curving stretch of the river.

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Lingenfelter said taking the water and sending it 175 miles away to the suburb would represent an enormous economic loss, carving away at a pool of water that was allocated and reserved for communities along the river.

The state's approval, he said, sends a message that "Arizonans that live in Queen Creek are more valuable than Arizonans that live along the Colorado River."

Mohave County supervisors have passed resolutions opposing the deal and the state's approval of the transfer.

In one resolution, they cited a press release from Queen Creek that listed more than $300 million in estimated economic benefits from the water transfer. They said that wealth rightly belongs to communities on the river and this sort of deal represents an "attack" on their water rights and prospects for economic growth.

The county supervisors have drawn a sharp distinction between this deal to sell water and a different proposal by the Colorado River Indian Tribes, whose leaders are seeking federal legislation to lease some of their water off the reservation, a change that Mohave County has supported.

The Mohave supervisors noted in one resolution opposing the Greenstone deal that in 1972 when these Colorado River allocations were divvied up, the urban areas of Central Arizona received about 10 times more water and the remainder went to communities along the river.

"Now it seems like we're seeing a play to come for that last 10%," Lingenfelter said. "We're going to be as fully engaged as we can be to prevent this."

That includes supporting a bill introduced by Rep. Regina Cobb, R-Kingman, which would prohibit such water transfers.

"What we're doing is picking winners and losers. And the losers are going to be the communities you're transferring it from," Cobb said. "It's just not fair to those communities."

Cobb and others who oppose the deal stress that it’s not the first attempt to transfer Colorado River water from the area to cities in central Arizona. Previously, the agency that manages the Central Arizona Project had looked at buying farmland in Mohave County and leaving land fallow to put the water into the CAP Canal. But the agency's directors voted to drop that proposal in 2018 after an outpouring of opposition.

State water officials also turned down a proposal in 2018 by the town of Quartzsite to lease Colorado River water for use in central Arizona.

If this deal goes through, Cobb said, it would set a precedent and put "a big price tag on water," clearing the way for more deals to follow. She said if water leaves rural areas and flows away through the CAP Canal, the communities will be losing out economically and getting "absolutely nothing" in return.

Cobb said she and others are upset that Buschatzke allowed for more discussions with Greenstone and then made another recommendation without opening up the matter for public comment.

"That is almost sneaky and non-transparent, and I'm not happy about it," Cobb said. She said there was already a groundswell of opposition to the plan, and this latest change has galvanized the opposition.

"This has just riled the troops up. I'm seeing all kinds of letters come through saying, 'What happened? I thought this was a done deal,'" Cobb said.

Cobb introduced the same bill last year but it wasn’t heard. In addition to pushing for the legislation, Cobb said she will urge federal officials to conduct a full environmental impact study. She said she’ll also be talking with members of Congress.

Officials in Queen Creek have pointed out that the town, which was founded in 1989, gets a relatively small allocation of Colorado River water from the CAP Canal. They've said buying water rights is part of a long-term effort to reduce reliance on groundwater pumping while helping to support growth. They've argued the water transfer would bring economic benefits and more tax revenues to the rural area and the state as a whole.

Queen Creek is one of the fastest-growing parts of Arizona. The 2010 census recorded a population of about 26,000. The town now estimates the population is about 61,000. Its water service area is twice the size of the town’s boundaries, supplying an estimated population of more than 90,000.

Based on average water use in the Phoenix area, the water from Cibola would be enough to supply more than 6,000 single-family homes in Queen Creek.

Opponents of the deal have questioned the idea of moving more water away from the Colorado River to support growth at a time when Arizona is already taking cutbacks under a three-state deal aimed at reducing risks of severe shortages.

But Gammage argued that transferring the water is in line with longstanding water policy in Arizona, including the goals of the state’s 1980 groundwater management law, which limits pumping in urban areas to preserve those supplies. He said it also makes economic sense.

"The economic studies that we have done show that the economic value of the development that's proposed will be much greater than what's happening with the largely alfalfa, once in a while cotton, that's grown on this property," Gammage said. "And on the other hand, the town of Queen Creek is booming. It is exploding. The growth of Arizona is taking place in the Sun Corridor and that growth is beginning to hit some constraints and is still existing too much on groundwater."

Moving the water from the Colorado River would help, Gammage said. "So seeing this as somehow strange or anomalous or threatening is really inconsistent with Arizona water policy."

Now that the state has weighed in, the federal Bureau of Reclamation is set to consider the level of environmental review that needs to be carried out. The post-election transition is expected to slow the process. Deb Haaland, President Joe Biden's nominee for Interior secretary, has yet to be confirmed, and the administration has yet to appoint a new commissioner of the Bureau of Reclamation.

Although the Interior secretary has the ultimate authority to approve or reject a transfer of Colorado River water, the Bureau of Reclamation "works collaboratively with ADWR on water allocations and proposed transfers," said Leslie Meyers, manager of the bureau’s Phoenix-area office.

The Bureau of Reclamation has received the state's recommendation, Meyers said, and the proposal would require amending a water delivery contract, creating a new contract and reaching an agreement to move the water through the CAP Canal.

A federal review "will consider potential impacts of the proposed action," Meyers said, and the "level of environmental compliance required for this action has not yet been determined."

The Bureau of Reclamation is preparing a website that will provide information about the process, which will include opportunities for public comments, Meyers said.

Judging from the vocal opposition from many in western Arizona over the past year, federal officials will get an earful. In an Oct. 13 letter to then-President Trump, nine mayors of cities and towns along the river opposed the water transfer saying it "threatens the basic American way of life in rural Arizona."

The mayors included those of Yuma, Bullhead City, Kingman and Page, among other cities and towns. They wrote that when the company bought the land, it obtained a contract right to use water but "did not buy the actual water in that land transaction," and should not have the ability to sell it and transfer it away.

The mayors said what is "most dangerous" about the transfer proposal are the future transfers that could follow. They said Greenstone owns thousands of acres of farmlands with entitlements to Colorado River water, which it could similarly seek to cash in on.

"Obviously, such an outcome would be devastating to Arizona River communities and the future of rural Arizona, crippling and potentially killing our agricultural industry, our cities," the mayors wrote.

They said they believe there are other solutions to meet the future water needs of Queen Creek and that wouldn't "set a precedent of commoditizing water entitlements from rural Arizona."

Ian James covers water, climate change and the environment in the Southwest. Send him story tips, comments and questions at ian.james@arizonarepublic.com and follow him on Twitter at @ByIanJames.