The Trouble with Cadiz
Cadiz Inc.’s 34,000-acre property is located just south of the old Santa Fe railroad line between one of the last undeveloped stretches of historic Route 66. Here, a string of alphabetically named desert towns of Amboy, Bolo, Cadiz, Danby, Essex, Fenner and others were first established as eastern Mojave railroad water stops. Below Cadiz Inc.’s holdings lies the Fenner Basin, an ancient aquifer estimated to hold between 17 million and 34 million acre-feet of water, slowly replenished by infrequent rainfall events occurring in the surrounding federally protected desert mountain ranges. The scarce surface water that seeps into the aquifer through gravitational forces is part of an unfathomable aqueous process that has occurred, largely uninterrupted, for thousands of years. A contentious public-private water grab may just change all that.
Cadiz Inc.’s two founders, Keith Brackpool, a controversial British investor who had previously pleaded guilty to "criminal charges that included dealing in securities without a license” in the U.K., and Mark Liggett, a corporate mining hydrologist, snatched up the bulk of their holdings in 1983. [1] [2]The duo purchased land and all associated water rights after scouring Landsat imagery of the eastern Mojave Desert in their quest for a hydrologically isolated region that could yield a potential waterborne financial bonanza. Studies conducted by Liggett confirmed their suspicion—the Cadiz and Fenner Valleys sat upon a vast, untapped groundwater resource. As this groundwater was far from demand and would once have been prohibitively expensive to ship, the federal government had never apportioned the water out to would-be users. It was seemingly there for Cadiz’s taking.
Over time Cadiz Inc. amassed additional properties, including remnant checkerboarded parcels previously owned by the railroad. The entity has operated an agricultural front growing lemons, grapes and other seasonal crops on 9,600 acres at their Cadiz Valley property. Cadiz will likely continue with their modest farming enterprise until their ultimate goal, mining and exporting the water below them to distant coastal Southern California municipalities, is fully realized.
Thirty-five years after their initial investment — set against a perplexing backdrop of ongoing setbacks, including embattled public relations, shareholder rebellion and constant legal wrangling—it seems that Cadiz Inc.’s land speculation may just pay off if certain political twists of fate continue to work in their favor. And so far that’s been the case; the Trump administration lists the Cadiz project as number 15 of 50 national emergency and security projects earmarked for federal support as key infrastructure priorities. Additionally, several affluent California State Democrats, including former Governor Gray Davis, former Los Angeles Mayor Antonio Villaraigosa and others, have in the past received substantial campaign contributions from the company. [3] [4] [5]
But politics aside, more paramount to this conversation is whether or not it is ethical to mine and export water from a distant, arid landscape to an affluent coastal population whose end users, for the most part, will not use this invaluable resource sustainably. We must also deeply reflect on the long-term repercussions of draining a desert aquifer for short-term use that may permanently destroy a delicate and rare spring complex supporting a variety of flora and fauna, including big horn sheep that has been called the only source of water of its size in over 1,000 square miles of desert.
To grasp the underpinnings of the modern Cadiz Inc. controversy, we need to backtrack into California statehood’s earliest accounts of collusion, money and politics in water and land speculation. Marc Reisner’s "Cadillac Desert" (1986) and William Kahrl’s "Water and Power" (1983) illustrate in detail how the willful Los Angeles Department of Water and Power (LADWP) drained the Owens Valley to build Los Angeles. However, less is known about powerful public-private partnerships that continue to govern and control water throughout the state.
Reflecting the 19th century transcontinental railroad’s strategy of a public-private model that relied on government support and subsides, the “Iron Triangle” comprised of California state water agencies, local government officials and Congress, gained popularity throughout much of the twentieth century, thereby ensuring that large-scale water development projects were understood as an unquestionable public good.
When the California State Water Project (SWP) was first proposed during Governor Pat Brown’s tenure (the current governor’s father), public support of the project remained high. However, by the 1970s, voters began to reconsider water provision not as a technical problem but as a political and ethical one. Rather than continuing to greenlight all public-private water projects, public opposition grew. More and more Californians protested the most egregious water-grabbing because their view of water as a shared natural resource had changed.
As the SWP was constructed, hungry land speculators began to buy up agricultural land for the water underneath it. During the 1980s, these investors were buoyed by the newfound worry about access to water in urban areas after the 1977-1978 drought, realizing that California’s groundwater might be their next best investment.
In times of surface water shortage, Californians almost always turn to groundwater. In contrast to the highly regulated appropriative water rights — the “first in time, first in right” system that rules Colorado River water consumption — California groundwater use remained largely unregulated at the state level until 2014 with the passage of the Sustainable Groundwater Management Act (SGMA). When unregulated, the standard practice was to drill a well and start pumping until your locality created a water organization or your neighbor sued you for stealing their water. As a result, California groundwater law has been piecemeal at best, determined by a number of local court cases between neighbors instead of a cohesive statewide law similar to those in other Western states such as Arizona and Nevada.
Understandably, land with ample groundwater and associated extraction rights makes a good investment in a state that is perpetually in and out of drought. Laws passed in the early 1980s made it easier for investors to buy land and sell the underlying groundwater at a profit. Richard Katz (D-Sylmar) sponsored a bill that made selling groundwater to another user or municipal water district effortless. Economist Mason Gaffney argues that this created two classes of landowners — those who were committed to keeping their water and those who envisioned commercializing the water and sending it elsewhere.
“The geography of the property speaks of their intentions,” states National Parks Conservation Association’s David Lamfrom. <i>“It was always a water project.”</i>
By the 1990s, it was clear that Cadiz Inc. was not an agricultural company, but instead a natural resource company with an agricultural business on the side. In 1996, Cadiz Inc. purchased Sun World, a Coachella Valley and Bakersfield producer of watermelon and raisins. Their filings with the government’s Securities and Exchange Commission say as much about their intentions. Under “Transaction Rationale,” they list the value of Sun World’s water rights before they even bother talking about the agricultural value of the lands:
“Sun World owns approximately 20,000 acres of developed farmland with prime senior water rights primarily in the Central Valley of California. The Company believes that with ever increasing pressure to relieve the water shortages in the state and with agriculture consuming in excess of 80 percent of the water used, established acreage with prime water rights will increase in value substantially over the next several years.”
As Cadiz Inc. was buying out Sun World, they were scheming to turn a profit from water located underneath their land holdings. In a nearly done deal with the Metropolitan Water District of Southern California (MWD), Cadiz Inc. proposed that the MWD use the Fenner Basin aquifer as storage for surplus water from the Colorado River and then draw from it in years of drought. Like other similar projects, this private-public relationship promised a hefty profit from sales of state-subsidized agricultural water bought and resold above its original subsidized purchase cost to municipal customers. Known as water banking, the scheme became enormously popular in the 1990s when private-public groundwater storage projects began popping up across California.
For instance, the Kern Valley Water Bank (KWB), capable of holding one million acre-feet of water, is the most controversial water storage project to date. The KWB’s primary owners, the Resnicks, are infamous water barons who have “shrewdly maneuvered the backroom politics of California’s byzantine water rules.” Shady, behind-the-scenes arrangements such as the 1994 Monterey Amendments, have allowed the Resnicks, along with other members of the privately-controlled Kern Water Bank Authority, to gain ownership of this previous state-owned entity. Today, the Resnicks own nearly 60 percent of the KWB, which Forbes Magazine estimates alone is worth at least $250 million. Their combined agricultural holdings in California suck up 450 million cubic meters of water — enough water to supply all Los Angeles’ homes for a year.[6] A 2014 lawsuit forced the KWB to undergo a new environmental review.
In 2002, the MWD/Cadiz Inc. water bank scheme deal fell apart from fears that the project would begin depleting the aquifer, thereby causing the water table to drop significantly and thus prompting pump shutdowns. The MWD would lose money in the long run because their investment would bring in far less water than expected.
Senator Dianne Feinstein — who has long opposed development in the Mojave Desert and championed the 1994 Desert Protection Act — pressured Cadiz Inc. to stop moving forward with the water bank and has consistently opposed all of their water mining and extraction plans to date. Little was heard about Cadiz Inc. for the next couple of years, except for when their subsidiary Sun World filed for Chapter 11 bankruptcy in 2003, or when it was subsequently sold to Black Diamond Capital Management in 2005.
According to a 2017 L.A. Weekly feature SEC filings show that Cadiz Inc. has lost $430 million over their 34-year history. Cadiz remained associated with Brackpool, who had by this time begun to dabble in California horse racing and eventually would achieve prominence as chairman of a board that manages both Golden Gate Fields and Santa Anita Park. However, by 2008 Brackpool had faded from public view. That same year, media savvy water lawyer Scott Slater was named CEO and president of Cadiz Inc.
If water speculation has one rule, it is this: waiting pays off. The droughts in 2006-2010 and 2012-2017 exacerbated pressures on local water supplies to the point that municipal water agencies began turning elsewhere to quench their thirst.
Orange County’s Santa Margarita Water District has long been dependent on imported water supplies instead of their own groundwater. In fact, most of coastal southern California lacks substantial groundwater sources. The district jumped at Cadiz Inc.’s newest water mining scheme, which would transport 50,000 acre-feet per year of Mojave Desert water to Orange County via a proposed pipeline from Cadiz to the MWD’s Colorado River Aqueduct. There, Cadiz’s water would be dumped into the MWD aqueduct to flow downstream to Southern California water districts.
Although the Santa Margarita Water District has fully endorsed the project, it has been plagued by opposition, mostly by environmental organizations and desert locals afraid that draining a desert aquifer will take a toll on their lands. Those opposing the project cite Cadiz Inc.’s faulty science and agencies’ lax enforcement of regulations as the reasons why this Cadiz water grab has gotten this far.
Cadiz Inc.’s press releases promote their enterprise as a “water conservation, recovery and storage project,” claiming that exported water would be otherwise “lost” to evaporation. As part of their required environmental review process, Cadiz Inc. has paid for environmental studies in their effort to show that pumping water from the Fenner Basin will not pose a threat to the fragile ecosystem now protected by the Mojave Trails National Monument, where their water extraction project lies. Cadiz Inc. additionally claims that the recharge rate for the aquifer is about 32,000 acre-feet a year. Comparable independent scientific analyses, including a report by the well-regarded USGS, question this number: Cadiz’s figures appear to be between two and five times higher than all other estimates for recharge rates conducted by independent scientists, which are closer to 8,000 acre-feet/year. Without federal review, Cadiz’s scientific data will remain largely unquestioned, and no federal study of groundwater in the area will be conducted.[7]
In addition, questions about the scientific basis of Cadiz Inc’s claims have extended to the environmental review process that was approved in 2014. During the review, the Santa Margarita Water District acted as the lead agency—seen by many as a blatant conflict of interest since Orange County would benefit from receiving the water, not San Bernardino locals. Environmental groups sued to ask that the project be reviewed by San Bernardino County, but those suits did not prevail.
San Bernardino County supervisors additionally exempted the Cadiz project from certain stringent County regulations that would have prevented it from drawing down more water than is replenished each year. Essentially, the supervisors disregarded the county’s established desert groundwater management ordinance to support Cadiz. A 2017 bill in the California State Legislature (AB 1000) would have required the project to be reviewed by the State Lands Commission and Department of Fish and Wildlife, but never made it out of committee.
Nearly all environmentalists concerned with the project warn of direct and devastating impacts to the regional watershed if Cadiz Inc. goes forward with pumping based on their own recharge assumptions. Local spring systems, like the bountiful Bonanza Spring, located about fifteen miles away on federal land will be ravaged. “Just looking at the rainfall catchment area for Bonanza Spring,” said Chris Clarke, the CA Desert Program Manager for the National Parks Conservation Association, “you can tell that the spring isn’t fed by local rainfall alone. There’s too much water for that.” He, along with many others, believe that Bonanza Spring is not a “perched” aquifer, but instead connected to the underground network of water that links to the Cadiz and Fenner Valleys. They argue that the spring will suffer, and with it the bighorn sheep and other animals that depend on it.
One of the many challenges of this project is that groundwater extraction comes with a time lag: The impacts of pumping can show up long after irreversible damage is done. Subsidence, when the ground sinks from over-pumping below, can take up to one hundred years to appear. In some cases, the aquifer can recover if extracted water is replenished, but damage can last forever if materials underneath the aquifer compact, which is likely in this particular scenario.
Other impacts would be more immediate, such as the displacement of desert tortoises from prime habitat during the project’s construction. Cadiz Inc. has planned a way to compensate by creating the Fenner Valley Tortoise Bank, in partnership with the San Diego Zoo. As of yet, the Fenner Valley Tortoise Bank contains no tortoises and has not been opened.
Despite heavy opposition from locals and environmental groups across the state, including multiple lawsuits, accusations that the Fenner Basin aquifer is contaminated with higher than normally allowed levels of chromium-6, and the recent California Legislature effort, the project seems poised to move forward with the blessing of the Trump Administration.
The Obama administration ruled in 2015 that Cadiz Inc.’s proposed conveyance pipeline was subject to federal approval despite using a railroad right-of-way, but the Trump administration reversed that guidance, which could be linked to Deputy Secretary of the Interior David Bernhardt [8] [9]. Bernhardt, who has lobbied in the past for the Central Valley’s Westlands Water District, is Cadiz CEO Scott Slater’s former partner at the law firm Brownstein Hyatt Farber Schreck (BHFS) whose motto is, “Where business, law and politics converge.” According to the Los Angeles Times, BHFS has collected at least $2.75 million in fees from Cadiz Inc., along with 200,000 shares of company stock that will double in value if the project goes through as planned.
The Trump Administration’s support couldn’t have come at a better time for the company, Cadiz Inc.’s stock jumped in price during December 2016 when the new administration’s preliminary infrastructure projects were made public. Shareholder lawsuits seemed to take a back seat as well. One in 2015 alleged that the company had deliberately issued misleading statements about the permitting process, saying they hadn’t needed a railroad right-of-way permit to begin construction (the case was settled). Still, other shareholder suits could result, including those arising from any other regulatory hurdles that Cadiz Inc. has not shared with its stockholders, including any permits from the State Lands Commission.
Additionally, the Trump administration has rolled back regulations that would make projects like Cadiz subject to less environmental review. To avoid this issue altogether, Congressman Paul Cook (R), who oversees California’s Mojave Desert region, asked Interior Secretary Ryan Zinke to remove the Cadiz Valley entirely from the Mojave Trails National Monument, although this suggestion was not included in Interior’s much-anticipated announcement on monument review.
Even Cadiz Inc’s public relations ploy, a desert steam train, seems more appropriate under a presidency that wants to return to coal-fired power plants and encourage extraction leases on public lands. The train, evoking days of yore, would travel parts of the line built in 1910 by the Santa Fe Pacific Railroad between Cadiz and Parker, AZ.
This all hearkens back to the earlier days, when the “Iron Triangle” was still intact and providing water was merely an engineering problem rather than an ethical one. It comes from a time before environmental reviews and consideration of the federally-reserved water rights that protect local plants and animals. It comes from the early days of California groundwater law, when how much you took was a matter of desire, not need.
Notes
[1] Hiltzik, Michael. "Cadiz water deal was all wet the last time." Los Angeles Times. June 11, 2009. Accessed February 07, 2018. http://articles.latimes.com/2009/jun/11/business/fi-hiltzik11/.
[2] Sterngold, James. "Private Sector Sets Water Sale To Californians." The New York Times. December 25, 2000. Accessed February 07, 2018. http://www.nytimes.com/2000/12/26/us/private-sector-sets-water-sale-to-californians.html.
[3] Campbell, Duncan. "The British businessman who aims to make $1bn taking water from the desert." The Guardian. February 01, 2001. Accessed February 07, 2018. https://www.theguardian.com/world/2001/feb/02/uk.duncancampbell.
[4]Hiltzik, ibid.
[5] Bruck, Connie. "Fault Lines." The New Yorker. August 28, 2017. Accessed February 07, 2018. https://www.newyorker.com/magazine/2007/05/21/fault-lines-2.
[6] Josh Harkinson, “Meet the California Couple Who Uses More Water Than Every Home in Los Angeles Combined,” Mother Jones, August 9, 2016.
[7] Cadiz Inc. did have a review of their research results by a committee as part of the review process; however, the committee report published in their final Environmental Impact Statement as “Appendix B1 Updated GMMMP, SubAppendix A Groundwater Stewardship Committee April 2012 Summary of Findings and Recommendations” does not indicate any substantial scientific review of the watershed or geology. Instead, the short (two page) report just indicates that their models seem to be adequate, and does not indicate analysis of other studies conducted in the region or comparative work.
[8] "Here are a few of the potential conflicts a key Interior Department nominee may face." Los Angeles Times. Accessed February 07, 2018. http://www.latimes.com/la-me-trump-bernardt-sidebar-20170516-htmlstory.html.
[9] Hauck, Grace. "Who is David Bernhardt, the new deputy Interior secretary?" CNN. July 25, 2017. Accessed February 07, 2018. https://www.cnn.com/2017/07/24/politics/david-bernhardt-confirmed-deputy-secretary-interior-department/index.html.
The following corrections in text have been made:
- The article original stated that Brackpool had pleaded guilty to charges of securities fraud in the U.K. This statement was further clarified to previously pleaded guilty to "criminal charges that included dealing in securities without a license.”
- The article stated that the Cadiz project was 15 of 50 national emergency and security projects under the Trump administration and that it was earmarked for federal funding. It has since been amended to reflect that the project would be privately funded, but it is earmarked as a priority project.
- The article originally stated former Governor Gray Davis, former Los Angeles Mayor Antonio Villaraigosa and others have been handsomely bankrolled by the company's lobbyists in exchange for their support. It has since been amended to state that these politicians have only received substantial campaign contributions from the company.
- The article originally stated Cadiz remained owned and controlled by Brackpool. It now says Cadiz remained associated with Brackpool at this time.
- The article originally stated that Deputy Secretary of the Interior David Bernhardt had outspoken support for the Cadiz project. It now clarifies the relationship Bernhardt may have with the company through his previous activities before his taking on the Deputy Secretary position.
Top Image: A view of the Cadiz and Fenner Valleys photographed by Kim Stringfellow from the Cadiz Summit off historic Route 66 in the Mojave Trails National Monument. | Kim Stringfellow