Water and Opportunity

The water crisis in the Western United States worsens each year, particularly in the Colorado River Basin. The Colorado River is a vital water source for much of the Southwest. It supplies water to 40 million people and 5 million acres of agricultural land, supporting an estimated $1.4 trillion in annual economic activity, according to data from the U.S. Geological Survey (USGS). The river has fueled the growth of major cities like Las Vegas, Phoenix, and Denver.

However, prolonged drought, rising temperatures, and increased demand mean the Colorado River is no longer the reliable water source it once was. In the last century, almost the entire U.S. Southwest warmed by at least 2 degrees Fahrenheit. At the same time, many Western cities continue to grow. Ultimately, this has led to a 20% decline in the available water supply in the Colorado River compared with 100 years ago, according to USGS estimates.

Colorado River Basin water levels became critically low in the summer of 2022. Both Lake Mead and Lake Powell fell significantly, threatening hydroelectric turbine operations. In other parts of the basin, levels were at risk of dropping below intake valves, potentially cutting off supplies to major cities. These extreme conditions prompted one of the region’s most aggressive plans to reduce water use.

In 2023, Arizona, California, and Nevada agreed to conserve 3 million acre-feet of Colorado River water by 2026. At the same time, funding efforts increased, with the U.S. Bureau of Reclamation pledging $8.3 billion over five years for infrastructure projects and an additional $4.6 billion to address the historic drought by funding conservation efforts.

Cities and regions across the Western United States are under similar pressure to ensure a stable water supply. Aggressive solutions to shortages are needed more than ever, but managing water comes with multifaceted challenges. Water management involves social, legal and economic factors that are not present with other resources.

There is an emotional connection to water not found when dealing with other resources.

“Water is everything that gold, wheat, and oil are … but it is also everything that faith, art, and poetry are,” Rhett Larson, the Richard Morrison Professor of Water Law at Arizona State University’s Sandra Day O’Connor College of Law, said in an interview with the George W. Bush Institute. “We don’t throw lumps of coal in the winter or swim in oil in the summer. We don’t get baptized it is a different kind of resource.”

This connection means there is a higher emotional stake when dealing with water. And water is constantly changing, making it challenging to manage.

The doctrine of prior appropriations is at the heart of water rights in the Western United States. The doctrine gives the first person to put water to beneficial use the right to that water. Subsequent users’ rights are subordinate to the first. When there are shortages, senior rights holders will have their water allotments met first, sometimes at the expense of junior rights holders. For example, in 2012, Dow Chemical Company made a “priority call” in response to a severe drought. Dow’s water rights were issued in 1942, so any claimants with rights issued after that were cut off to meet Dow Chemical’s needs.

Some components of the prior appropriation system can be obstacles to developing water supply solutions. The “rule of forfeiture” is one such component. The rule states that a rights holder who fails to use their whole allotment productively risks forfeiting their water rights. While the requirement was intended to prevent waste and hoarding, it can also discourage conservation efforts. Rights holders who invest in water-saving methods and reduce water use could lose their allocation in the future. This can disincentivize investment in conservation efforts and innovations.

Additionally, the water right is connected to specific uses, diversion points, and amounts, and changing any aspect of the right can be hard. If a factory with an industrial use permit wants to use its water for irrigation, it risks losing its priority dates and the value of its water rights. The relevant agency in each state evaluates every proposed change to ensure they do not harm other rights holders. This can create a ridged system that can make implementing dynamic solutions difficult.

While the doctrine of prior appropriations generally governs water allocations between individuals within a state, there is another layer. Compacts and treaties govern rivers that flow across state and international borders. The most famous of these is the 1922 Colorado River Compact. This agreement divided the water between the upper basin (Colorado, New Mexico, Utah, and Wyoming) and lower basin (California, Arizona, and Nevada), allocating 7.5 million acre-feet to each.

Over time, additional agreements, treaties, and legislation have impacted river operations and allocation. The 1944 U.S.-Mexico Treaty guaranteed 1.5 million acre-feet to Mexico, while the 1948 Upper Colorado River Basin Compact specified allocations between the upper basin states. In recent years, further agreements have been needed to address water shortages in the basin, such as the 2019 drought contingency plan and the 2023 agreement. Navigating this framework can be tricky. Any large-scale solution must consider these agreements and stakeholders to ensure all water delivery requirements are still met.

Even as the Colorado Basin’s climate becomes hotter and dryer, its population is growing – posing a water demand challenge. Western U.S. cities are among the fastest growing and economically vibrant in the country.

Denver and Salt Lake City have robust technology sectors and access to outdoor recreation that make both cities a magnet for growth, along with highly educated populations that support thriving local economies, as outlined in the George W. Bush Institute-SMU Economic Growth Initiative’s Blueprint for Opportunity project. Similarly, Phoenix, Las Vegas, Dallas, and San Antonio draw newcomers with diverse economies and affordable housing options.

Unfortunately, water resources are further strained as populations increase and developments grow, and many of the locations growing the fastest are in areas that already have water concerns.

In the last five years, major metropolitan areas like San Antonio, Dallas, Denver, and Phoenix have all needed to look for new resources to meet water demand. Suburban communities near Salt Lake City, Phoenix, and Denver have had to curtail building permits due to limited water availability. With increased investment and low water levels, now is the time for cities and states to be aggressive about conserving and diversifying their water supply.

Waters of the West is a special report from the George W. Bush Institute. This four-part series aims to answer key questions surrounding urban development: Will water availability hinder growth in Western U.S. cities? What can be done to ensure that these high-opportunity places are sustainable?

To answer these questions, we spent months speaking with policy experts and stakeholders. We also looked at water usage data and state water plans where available.

Part two will concentrate on water planning. Part three will examine water conservation. And part four will delve into water markets.