About 80 percent of California's "developed water" stored in dams, 20
million acre-feet a year, is used to irrigate 9.6 million acres of farm
land. Half of the water used in agriculture is used to irrigate
relatively low-value field crops such as cotton, hay and rice. The cost
of water to California farmers averages $14 an acre-foot (43,560 cubic
feet or 325,851 gallons), but the variance is enormous, from essentially
free to over $600 an acre foot.

The three key elements of water supply are rights (generally prior
appropriation--first in time, first in use, or the first person to put
water to beneficial use "owns" the water), storage and transfer.

California stopped building water storage and transfer facilities in the
1970s. As the demand for water for agriculture and urban uses rose in
the 1980s and 1990s, economists, environmentalists, and policymakers
began to embrace water marketing, allowing farmers (water districts) to
sell water to other farmers or urban users. With less water, crop
production in water export areas can fall, while farm and nonfarm jobs
can be created in water import areas.

It is difficult to develop rules-of-thumb to estimate the job impacts of
water transfers because: (1) there have been relatively few so far; and
(2) there are several steps between exporting water and calculating net
job losses. For example, farmers using water to produce alfalfa hay, one
of the most water-intensive crops in California, may sell some of their
water and plant pinto beans, which require a tenth as much water. In
such cases, the number of farm jobs may be about the same, even if less
water is available.

Most labor-intensive crops are also water intensive, for instance,
lettuce requires 80 percent as much water as alfalfa, so exporting water
can reduce the number of farm jobs, leading to negative second-round
effects in farm worker communities. To mitigate these effects,
regulators who must approve water transfers have discussed imposing
"impact assessments" or taxes of five to 10 percent of the price received
by water sellers to cushion the effects on farm workers and their
communities.

In the case of Imperial Valley farmers, who discussed selling 200,000
acre-feet of water to San Diego in 2002, farmers pay $16 an acre-foot for
water, and the sales price was expected to be about $300 an acre-foot. A
five percent impact assessment would raise $15 an acre foot or a total of
$3 million; a 10 percent assessment would raise $30 an acre foot or $6
million.

There are precedents for impact assessments in other industries to
offset the effects of a government-approved action that increases global
welfare, but may harm some individuals. Perhaps the best-known example
is Trade Adjustment Assistance. The economic theory of comparative
advantage teaches that free trade increases the economic well-being of
many, but can hurt particular firms and their workers, and TAA offers
compensation to firms and workers hurt by freer trade. Similarly, the
expansion of national parks, or deregulation of particular industries,
can increase overall economic well-being but hurt particular individuals,
and the US government has approved special adjustment assistance programs
for individuals who were adversely affected, generally extended
unemployment insurance and job-training services.

When firms extract a non-renewable resource from an area, oil, gas, or
minerals, they may be required to pay a severance fee or assessment to
provide for the well being of residents after the resources run out.
Even when resources are renewable, as with timber, there is precedent for
requiring a severance fee, since there may not be significant economic
activities for decades afterward. For example, California consumes nine
to 10 million board feet of timber a year, 80 percent imported from other
states or Canada, and the state's timber industry employs 110,000
workers.

California is taking too much water from the Colorado river, an extra
800,000 acre-feet a year. The federal government required California to
reduce its take from the Colorado river, the source of the Imperial
Valley's water, by December 31, 2002, or lose its "surplus" Colorado
river water. One proposed solution was the sale of water from Imperial
to San Diego, but that was rejected by Imperial in December 2002.

Imperial gets 75 percent of the 4.4 million acre-feet a year of Colorado
river water allocated to California, and grows water-hungry crops such as
alfalfa. The federal Bureau of Reclamation declared that this was not a
"reasonable and beneficial use" of Colorado river water, alleging that
the "tail water" from flood irrigating 500,000 acres of farm land showed
that Imperial farmers did not adopt water-saving irrigation methods
despite the drought in the west.

The 935-square-mile Westlands Water District, the nation's largest
irrigation agency, is also considering land retirement in order to avoid
soil salination that occurs because there is no outlet for excess
irrigation water. Westlands farmers were promised federal irrigation
drainage in 1960, but it has never been built. Instead, the Bureau of
Reclamation recommended that 5,063 acres of ponds be constructed into
which treated drain water could be sent to evaporate, but that raises
fears of a repeat of the Kesterson National Wildlife Refuge problem,
which received excess irrigation water and had deformed wildlife. The
U.S. Fish and Wildlife Service in July 2003 proposed instead that up to a
third of Westlands farm land be retired, so it would not have to be
irrigated.

If land is retired, jobs in west Fresno county cities such as Mendota
are likely to disappear. School enrollment and the number of businesses
have already begun to decline, and there are projections that, if land is
retired, the area will stagnate economically.