WATER POLITICS

Water Asset Management LLC recently bought 12,793 acres — nearly 20 square miles — in La Paz County’s McMullen Valley Basin, County Assessor Anna Camacho said Friday. The company paid cash for the land, a county record shows.

“This is an area that already rightfully believes it has been exploited by international companies. Now we’ve got Wall Street swooping in, to take that water, with an obvious intent to sell it to cities in the (Phoenix) valley so they can continue to grow in an unfettered way,” Attorney General Kris Mayes told the Star.

The purchase may well have been the biggest water deal in Arizona history, Mayes said, adding it happened without a single public comment session being held to examine it.

“We know why they are buying it,” said La Paz County Supervisor Holly Irwin. “They are not buying it for the land. They are buying it for the water. It is a natural resource they will probably be marketing to a lot of cities.

“I feel like we are the sacrificial lamb,” Irwin said.

But Robert Glennon, a retired University of Arizona law professor who has long been critical of water overuse and an advocate for water conservation, defended Water Asset Management.

Since we have brokers in every other aspect of life, “what’s different about water?” he asked.

The groundwater basin, already declining from pumping, lies nearly 100 miles west of Phoenix and a bit more than 200 miles northwest of Tucson.

Water rights across SW

The purchase is the latest of many moves by Water Asset Management to acquire water rights across the arid Southwest, both for farming purposes and to sell the land’s water rights to other entities, including cities.

In Arizona, the company had already bought land and water rights in another rural valley just west of Phoenix, and land near the Colorado River in Mohave County. The company tried to sell water rights coming with that land to the Central Arizona Project’s governing agency to serve growth in urban areas, but the agency eventually killed that deal after it generated a storm of protest from county residents and leaders.

The hedge fund has also invested in land in California and Colorado, and at times has been a vocal advocate of what it calls free market solutions to the region’s ongoing water crisis.

In La Paz County, the $100 million purchase, which closed July 19, was officially made by Delaware-based company Emporia III LLC, county records show. But that company provided a New York City address that belongs to Water Asset Management.

The outline of the deal was first reported by Arizona Public Media.

The land was purchased from Arizona Valley Farm, which was owned by a Raleigh, North Carolina-based farm investment company called International Farming Corp. It had bought that land for $30 million from the city of Phoenix in 2012. The purchased land covers a swath of farmland lying along U.S. 60 including in and around the unincorporated rural communities of Wenden and Salome.

The purchase drew deep concern from Mayes and Irwin. Among their concerns is the very real possibility the groundwater now owned by the New York firm could be legally transferred to rapidly growing cities in the Phoenix area as their supplies grow increasingly scarce.

This basin was approved for groundwater transfers by a 1991 state law. The law allows the sale of groundwater rights from the McMullen Basin and three others to entities in urban areas, whose groundwater use is controlled by state-run water Active Management Areas. Such transfers are banned elsewhere in the state.

They’re also concerned because the land purchase lies in an area where foreign companies already engaged in heavy, unregulated groundwater pumping. The United Arab Emirates-based Al Dahra for some time was growing alfalfa on 3,000 of the acres just purchased by Water Asset Management, and the Saudi-based Fondomonte was until recently pumping groundwater for alfalfa-growing on state land in the neighboring Butler Valley basin in La Paz County.

Gary Saiter, board chair and general manager of a public water district in the area of the land purchase, called Water Asset Management’s move into the area “terrifying.” For him, Mayes and Irwin, the prospect of a large, out-of-state company taking over what they see as an already imperiled water supply is particularly concerning.

“Obviously I’m concerned because of the amount of property they purchased and the amount of money — $100 million is a lot of money for an area that’s not a wealthy area,” said Irwin, a longtime crusader against groundwater over-pumping in rural areas.

Mayes’ office has sent investigators to that area to talk with people about wells drying up from over-pumping. She has also held a town hall to hear residents’ concerns about the pumping.

She is looking into the possibility of legal action to try to combat it, with one possible theory being that the over-pumping creates a public nuisance, she said.

“If Water Asset Management’s plan is to transfer even more water out of there to Phoenix, one can only imagine damage is going to grow exponentially,” Mayes said.

Asset performance

But Glennon, the retired UA water expert, countered: “What I have advocated is that in the urban areas, even if it’s through surrogates like asset funds and brokers, if you have sensible policies where the urban areas pay for installation of modern farm infrastructure, modern irrigation equipment, farmers can continue to grow as much products as they are growing now with slightly less water, and the differential would be for water used for non-agricultural purposes,”

He said he thinks that in general, Water Asset Management is trying to “do good and do well at the same time.”

“They say ‘We’re trying to bring added value to rural areas’. They own farms in a number of areas and they aren’t selling. They are modernizing their infrastructure and making farms more efficient,” said Glennon, who spoke at an event sponsored by the company three years ago for a fee.

“They come at it from the perspective of finance guys. They say, ‘Here’s an asset. It’s not performing in the way it could. How can we make it perform better?’ That has the potential to be a life preserver for rural areas.”

Exactly how Water Asset Management intends to manage its new holdings in La Paz County isn’t clear. The Star left two phone messages requesting an interview with Vince Vasquez, a company official who lives in Tucson. He hasn’t returned those calls. Calls to the company’s New York City offices also haven’t been returned.

On its website, the company describes itself as “a global investor in companies and assets that ensure water quality and supply. (Its) two distinct teams invest in global water public equities and private equity in Southwest U.S. water resources and farmland.”

On a section about its mission, Water Asset Management says it invests in “companies and assets that ensure water quality and availability for communities, agriculture and the environment. WAM’s team-oriented culture, based on integrity, innovation, and transparency, is focused on solving water problems. WAM places the interests of its investors above its own and our teams are incentivized on long-term returns.”

A groundwater basin on the edge

What’s clear is that the company is moving into an area where groundwater supplies reachable with existing wells have already grown increasingly scarce, and where controversy has already been fierce over out-of-state companies moving in to pump those water resources with no state oversight.

The valley covers about 720 square miles and goes into Maricopa and Yavapai counties as well as La Paz County. Barely 3,200 people live there, and crops are grown on about 32,000 acres in the basin, a 2023 Arizona Department of Water Resources report found.

From 1990 through 2022, three acre-feet of groundwater left the basin through pumping for every acre-foot of water that entered the basin through rainfall-driven natural recharge and other means. That rate has steadily increased since 2008, and in 2022 five acre-feet left the basin for every acre-foot that came in, ADWR said.

By 2022, the amount of groundwater stored in the basin at its average well depth of 573 feet had fallen by more than half to about 1.3 million acre-feet. By 2075, the basin’s entire water table is expected to fall below 573 feet under any of five different scenarios affecting water use. if that were to happen, 46% of the area’s wells would go dry, ADWR’s report said.

“To continue mining groundwater within the basin, well owners would have to deepen wells or drill new wells at a significant financial cost,” ADWR said.

One result of this over-pumping is that the ground is sinking due to land subsidence. At one spot that’s been measured in the basin, the ground has fallen 5.6 feet since 1991 and currently drops about one-quarter of a foot yearly, said ADWR’s Brian Conway, a hydrogeologist and land subsidence expert.

“Back in the 1970s the water table where I’m sitting was about 170 some feet deep. Right now today, it’s at 545 feet,” said Saiter, general manager for the Wenden Domestic Water Improvement District. It sells drinking water to some of the farming operations that Water Asset Management just bought. “That’s the result of farming in this valley.”

But “taking it out of agriculture to sell to the metropolitan market, that’s terrifying,” Saiter said. “Eventually, that means there won’t be water for the people that live here.”

Agriculture still produces an economic benefit there for its water use, but “I don’t see an economic benefit for us if water is taken out and sent to Phoenix. How does it preserve life in the McMullen Valley?” he said.

Saudi, UAE controversies

For several years, this area was aflame with controversy over unregulated pumping for alfalfa grown on state land in the neighboring Butler Valley by the Saudi-based Fondomonte. It shipped it back to the home country where groundwater use for alfalfa growing is forbidden due to limited supplies.

But in March, Gov. Katie Hobbs announced the company is no longer pumping on state land because the State Land Department canceled one of its leases and didn’t renew three others whose terms had expired. Fondomonte continues to pump groundwater for alfalfa on private land in the region, however.

The United Arab Emirates-based firm Al Dahra Farms until very recently grew alfalfa on about 3,000 acres it leases of the farmland that was sold to Water Asset Management, Saiter said. It’s one of six farms on 30,000 acres in Arizona and Southern California where the company grows alfalfa and other grains, Al Dahra said on its website.

Last summer, controversy erupted when it became known that the Arizona State Retirement System, the state’s largest public pension fund, had invested $175 million in 2012 into International Farming Corp. The fund announced at the time it was selling its interest in that company.

Saiter said Al Dahra has recently stopped growing alfalfa and now plans to convert its land to growing agave until its lease runs out next year.

Al Dahra officials couldn’t be reached for comment. International Farming declined to comment, saying through a spokeswoman, “Due to confidentiality requirements, we are unable to share additional information about tenants or the sale.”

‘Magnet for exploiters’

For Mayes, this sale is a symptom of the statewide problems in rural areas caused by a lack of regulation of groundwater pumping there.

“I think the lack of groundwater regulations with teeth is absolutely acting as a magnet for these exploiters,” she said. “Whether it is Water Asset Management or the Saudis, there’s no doubt about it that they see our state’s failure to protect itself as an open season.”

The Legislature has failed after years of trying to enact rural groundwater legislation allowing for some sort of regulation in those areas. In its last session, the Legislature failed to enact a law allowing creation of rural groundwater management districts that would have the power to regulate groundwater pumping — after Democrats, Republicans and rural interest groups on both sides of the issue couldn’t agree on a compromise. Both sides are continuing to discuss the issue in hopes of reaching a deal.

Given the timing of the Water Asset Management purchase, Mayes acknowledged she doesn’t know if a new law this year could have prevented such a deal, unless it had an emergency clause that made it take effect immediately. But having state-run Active Management Areas in this area — “I know for sure it would have prevented the kind of exploitation that happened with Fondomonte and the UAE farm,” she said.

Rep. Tim Dunn, a Yuma Republican who has been active in water issues, acknowledged that Water Asset Management is the “poster child of what people are concerned with when people come here to buy water.

“But they are buying water in an appropriate spot that was designed to transfer water out of the valley. That’s a natural progression of things,” he said.

Noting the company also owns land in the Harquahala Valley, another legal water transfer basin, he said “these are long-term holds. You buy something now and that doesn’t mean you are going to start transferring the water immediately.’

“The process takes awhile. The hedge fund has long-term investments. They’re looking 20 years down the road. Eventually, that water probably will transfer.”

“I don’t know the deal itself. I do know they are buying the land. I assume they’ll keep the employees and La Paz County will still get a tax base from those wells. Nothing should change in the interim,” Dunn said.

Finally, he noted that the state law authorizing these transfers puts limits on how much groundwater can be transferred to another groundwater basin. The law says it has to be shown that the transfer doesn’t harm other existing wells in the vicinity.