Policy Insight No. 119
August 2001

The Klamath Basin crisis: A need for property rights

Introduction

While the press has understandably focused on the drama in terms of endangered species versus agriculture, the problem goes much deeper than that. Fundamentally this is a conflict caused by unclear property rights and inappropriate government intervention in the economy. The solution lies in clarifying those rights, creating a market where they can be traded, and minimizing the role of government. Reformers should resist the urge to pick sides in this crisis, and allow changes to emerge gradually through a market process.

Background

But in 1905 the federal government became involved when the Secretary of the Interior authorized development of the Klamath Project, under provisions of the Reclamation Act of 1902. The Project provides stored water for both agricultural and national wildlife refuge lands. Construction began in 1906 with the building of a large canal, and this was followed by Clear Lake Dam in 1910, the Lost River Diversion Dam in 1912, and the Lower Lost River Diversion Dam in 1921. Additional dams and canals were added in subsequent decades.

The lands formerly inundated by Tule and Lower Klamath Lakes were de-watered as a result of flood control measures and were settled by farmers under various homestead acts. By the late 1990s the Project was providing full irrigation service for 235,667 acres of lands. The principal crops raised included alfalfa, small grains, potatoes, onions, and sugar beets.

Two main sources of water supply the Project. One consists of Upper Klamath Lake (Oregon's largest lake) and the Klamath River. The other consists of Clear Lake, Gerber Reservoir, and Lost River. The Project also created four National Wildlife Refuges (NWFs) that include over 20,000 acres of seasonal and permanent marsh: The Lower Klamath Lake Wildlife Refuge (established in 1908); Clear Lake Refuge (1911); Upper Klamath Lake Refuge (1928); and Tule Lake Refuge (1928). All four of these refuges depend on project water to provide wildlife habitat.

Normally, water is provided to meet the needs of the refuges. The Tule Lake and Lower Klamath refuges attract millions of migrating waterfowl and hold a portion of them through the winter, thereby providing food for bald eagles. The wintering population of bald eagles on the refuges is one of the largest outside of Alaska. It includes birds from Canada, the Pacific Northwest and California, and consists of 150 to 950 eagles annually.

Unfortunately, because the refuges rely on re-used irrigation water they have suffered along with irrigators under the shutdown.

A problem of unclear property rights

By the 1980s cultural values had changed, and the public interest was increasingly defined in many communities to mean leaving the water in-stream for such uses as fish and wildlife, recreation, and scenic viewing. Those property owners who had secured well-defined water rights earlier in the century were in a position to benefit in this new cultural environment by gradually changing their practices through such mechanisms as water leasing. By allowing water to be sold to the highest bidder-usually for urban uses but sometimes for in-stream flow purposes-savvy water rights holders were able to generate new income which allowed them to invest in better irrigation technologies or alternative uses of their land.

However, market transactions in water or any other commodity depend on clear definitions of ownership. The problem in the Klamath Basin is that property rights are murky. The federal government has a paternalistic relationship with irrigators, wildlife refuge managers, and various Indian tribes (who have treaty claims to customary fishing practices), which means that their access to water is not based on real property rights, but on political compromises that can be changed at any time.

In the case of agriculture (both locally and nationally), economic reality has been further distorted through the continual expansion of subsidies, including tariffs, marketing orders, price supports, and the creation of legalized cartels. But because these programs rely on political decisions they are never permanent.

In essence, farmers are caught in a tragedy of the commons because their perceived "property rights" are only political promises, subject to change by various legislative bodies. In this respect the problem is similar to that of Social Security, where people can't pass on their retirement earnings to heirs (because none of us has a property right to future Social Security payments), and the level of payout is subject to change at any time by Congress.

Resolution of this crisis will not be solved by more litigation. We already know that wildlife management by lawsuit doesn't work, as demonstrated by the government's mystifying plan to de-water the four Klamath Project refuges for the sake of a scientifically questionable sucker fish enhancement strategy. The government has no scientifically defensible explanation for allocating water to sucker fish rather than bald eagles; it is simply responding to the arbitrary imperatives of Endangered Species Act (ESA) litigation.

Incentive-oriented solutions

The most obvious source of funds for compensation is the Land and Water Conservation Fund, which is specifically referred to in Section 5 (b) of the ESA as a means for "acquiring lands, waters, or interests therein" needed for the implementation of the Act. Currently there is an unappropriated fund balance of more than $13.2 billion. That is far in excess of what it will cost to compensate Klamath Basin irrigators, whose collective losses are likely to cost at least $200 million this year.

Next, it's time to begin shrinking the role of the federal government in agriculture. The pervasive presence of the federal government is having a crippling effect on farmers, depriving them of the choices necessary to become economically independent. Therefore, not only should farm subsidies be phased out, the entire mission of the Bureau of Reclamation should be re-examined with an eye towards privatization of BOR facilities and dismantling of the agency itself. Subduing the wild west through federal "reclamation" projects is no longer a relevant national goal, and even if it were, subsidies would be inappropriate because the farm economy suffers from too many commodities, not shortages. A different economic vision needs to emerge based on dispersed knowledge, secure property rights, and entrepreneurial initiative.

Saving endangered species from the Endangered Species Act

The best thing that could happen to endangered wildlife would be the complete repeal of the ESA. Without the sword of federal law hanging over their necks, landowners would once again have incentives to both protect and enhance species habitat. The value of wildlife for non-consumptive purposes, e.g. scenic viewing or simply existing, has never been higher, as demonstrated by the burgeoning eco-tourism industry, and the explosive growth of land trusts that protect habitat in perpetuity through conservation easements.

When natural assets have such high value, the best way to enhance that value is through market mechanisms. The literature is replete with examples of entrepreneurs investing their own money to protect wildlife, whether it's Sea Lion Caves in Oregon or Hawk Mountain Bird Sanctuary in Michigan. Repeal of the ESA would allow these market forces to be unleashed for the further benefit of species preservation.

Government buyouts: Beware the Trojan Horse

For one thing, the federal government already owns more than 54 percent of Oregon, and a large portion of those lands have been mismanaged for decades (e.g., below-cost sales of timber and forage, and the excessive suppression of fire that has resulted in the current wildlife crisis in the west). It would be better to minimize the level of federal involvement, because it was the large-scale intervention of the federal government that created the problem in the first place.

Secondarily, large-scale buyouts would promote the long-standing agenda of some environmental groups to de-populate the countryside. There is a large, and growing wing of the environmental movement seeking to remove all human presence from nature outside of existing cities. This is reflected in land-use laws that restrict most types of development (through urban growth boundaries and exclusionary zoning) to the 2 percent of Oregon that is already urbanized; it's evident in the ESA that authorizes government agents to take virtually any measure to protect endangered species or their perceived habitat, regardless of the cost to affected individuals; and it's expressed in the growing call for zero harvesting on federal forestland and demands for logging restrictions even on private land.

This religious approach to nature is sometimes referred to as "deep ecology" in the academic literature, or more colloquially as "rural cleansing." Regardless of its name, there is no scientific reason to pursue such a strategy. Humans have demonstrated an ability to live with nature without threatening the basic functioning of natural systems, and the manipulation of the federal budget to re-locate rural residents onto urban reservations should be rejected as both immoral and illogical.

The primary job for the government is to sort out and clarify the competing property rights claimed by Tribal interests, farmers, refuge managers, and special interests such as environmental groups. Once those property rights are clarified-so that they are defined, enforced, and available for trade-resources such as water, wetlands and fish will naturally flow to those who value them the most. When those resources are then firmly under the management of private parties who place high value on them, their long-term survival will be ensured.

If we choose this option, it's possible that some farmers will sell their water rights to conservation organizations; others will buy more water and expand crop production; Tribal groups might exchange some land for more secure access to water; or wildlife refuges might develop their own groundwater sources, financed through a "pay to watch" system for birders and other recreationists.

No one really knows, of course, but that's exactly the point; let's get the government out of the way and watch people and wildlife flourish in the Klamath desert.