Water Rights: A Developer’s Loophole
Bozeman is running out of water. The city is drought prone and in a phase of population growth. According to its website, “without water conservation, Bozeman could be facing a water shortage within the next 10 years.” And while the issue is becoming more of a priority, there is a major loophole that must be addressed: cash-in-lieu or “paper water”allows developers to buy water rights that do not exist.
Water law basics: The three ways to obtain a water right in Bozeman, MT
To start, Bozeman is located at the headwaters of the Missouri Basin and, as a result, there is nowhere upstream to access new water. At the same time, all existing water has already been legally appropriated. So, there are no unaccounted-for, new water rights that can just be purchased. The city is in what is called a “closed basin.”
Therefore, developers can obtain water rights three different ways. 1) Transfer, 2) water efficiency offsets, and 3) cash-in-lieu.
1. Transfer
The first option is simple, if someone owns a water right, they can sell that right to someone else. For example, imagine a landowner has water rights tied to her land and decides to sell her property. Typically, the purchase price would include water rights and thus the ability for the new owners to use that water. In this scenario, the landowner transfers her water rights with the sale of her property.
2. Water Efficiency Offsets
The second two options are more abstract. First, the city allows folks to purchase water efficiency offsets in exchange for water rights that do not exist. The cost of water rights in this scenario is used to save water elsewhere instead of transferring an existing right—expanding the amount of property owners in the city with water rights. According to the Bozeman City Ordinances Section 38.410.130(D), water efficiency offset projects may include installing high efficiency water fixtures or appliances, drought resistant or drought tolerant landscaping, non-potable water supply systems for landscaping, and/or “other water efficiency and conservation methods brought forward as part of the development by the applicant.” The idea is that by investing in water efficient technology, Bozeman can create more rights for people with the water it already has. Still in a closed basin, and with an impending water crisis, there are arguments to be made that even this is too risky without serious oversight. Since the water rights people purchase in this option do not initially exist, there is a fear that people may consume more water than they save.
3. Cash-in-Lieu
Thirdly, the city allows cash-in-lieu in exchange for water rights. This option is very similar to the water efficiency program but, here, developers can buy water rights that do not exist and instead of the money going towards efficiency, it is put into a cash-in-lieu pool of money that the city then uses to purchase future rights. So, instead of waiting for a water right to become available (or investing in water efficiency), developers can just pay to move forward with their projects and can use the water on their land even they did not have the right to do so initially. When a developer does not have the option to purchase a transferred water right, the city incentivizes people to choose water efficiency option with discounted prices, but it is not mandatory. Cash-in-lieu, which requires much less work, is always an option.
2023 Water Conservation Plan Updates to the Existing Cash-in-lieu policy
Notably, there have been moves by the city to phase out cash-in-lieu. During a City Commission Meeting on October 24th, 2023, Bozeman approved Resolution 5547 adopting a new 2023 Water Conservation Plan. In the new plan, the cash-in-lieu in exchange for water rights policy has been amended. According to the City Commission Meeting on October 24th, in the future money that is now generated through cash-in-lieu will be required to go towards water conservation. The new plan calls this measure “Mandatory Water Efficiency Offsets” and once it is implemented it assumes a 1:1 offset requirement. This means that however much water is purchased through a water right, that same amount of water will need to be saved elsewhere creating a net-zero outcome. Once this new policy starts, the city will only allow the first two options; transfer or water efficiency offsets. Unfortunately, this change is scheduled to be implemented from 2033 through 2040. And even so, once the current policy is updated, developers will still be able to purchase water rights that may not exist, expanding city consumption.
Lastly, the city of Bozeman recently filed a motion to amend water rights to expand its current usage of Lyamn Creek. Similarly, there is talk that the city is also considering building a water pipeline from Canyon Ferry to account for water shortages. Both options also involve increasing Bozeman’s water consumption. Canyon Ferry specifically, may be a very expensive option and is undoubtably disruptive.
Policy Suggestions
Given all of this, why should Bozeman wait to update its cash-in-lieu policies? Instead, the city should do so now. The new plan even states that, “with climate change, long-term drought, and challenges associated with the delivery of imported water, without conservation, additional water supplies may not be available to meet future increases in demands” and notes that “conservation is the least expensive means of meeting future water supply needs for the area.” The city should not wait. Developers should not be able to purchase water rights that do not exist, just for that money to be saved to purchase more water in the future. Lastly, the city should also disclose how much money it currently has because of this policy and should use its cash-in-lieu money to conserve water instead of buying more. All of this should happen before the city begins to look for water elsewhere.