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Without Enough Water, You Can Forget Much Economic Growth

Article by William McKenzie January 13, 2014 //   5 minute read

The Wall Street Journal ran a story earlier this month detailing how California is getting hammered because of the drought drying up the Golden State. The line that first got my attention was this one:

“Urban and agricultural consumers, including Southern California’s huge Metropolitan Water District, have been told by the state to expect to receive this year, on average, just 5 percent of the water they historically request, after a year in which rainfall totals hit record lows in many parts of the state.”

Five percent, on average? Wow. That’s a serious reduction -- and then some. The Metropolitan Water District alone supplies water to about 20 million Californians.

Consumers certainly stand to suffer. But so do big parts of the state’s economy. As the Journal reported, farmers are being forced to keep fallow thousands of acres. Also, the lack of precipitation is hurting ski resorts.

The farm angle especially matters. California is the nation’s largest agricultural producer. A slowdown in the growth of that part of the state’s economy could have a sharp ripple effect, including in food prices in California.

An uptick in rain and snow undoubtedly would help. But California business leaders are concerned about more than the here and now. They are worried about how the lack of reliable water supplies could limit the state’s economic growth. Droughts already have wiped out a lot of agricultural production in the Central Valley.

Of course, California long has struggled with water issues. And I don’t purport to understand the ways in which projects move water across the state.

But the essential point here is that economic growth could grind to a halt without adequate water supplies. That sounds obvious, but recurring droughts in the Southwest and West have made this a more central problem. (Look at this link from the U.S. Drought Monitor to see how various drought conditions are reaching across the Southwest and the West Coast.)

Nationally, economic growth rates are very much linked to water supplies. The U.S. Environmental Protection Agency released a study in November that examines this connection.  Here’s a salient point from the study:

“The economy as a whole is directly or indirectly dependent upon the output of industries for which water is an important input, and is potentially sensitive to water supply shocks or heightened competition for water resources.”

Texas voters, fortunately, didn’t overlook the connection between water and economic growth in November. They overwhelmingly approved a measure that will allow the state to finally fund its 50-year water plan. 

Specifically, voters approved using $2 billion from the state’s rainy day fund to capitalize a new water bank. The Texas Water Development Board will use that bank to help local communities finance the water projects they have identified as crucial to their futures.

Those priorities were decided upon by the work of 16 ongoing regional water planning groups. Bill Mullican, formerly chief water planner for the state, told me last week that Texas is one of the few states with a perpetual water planning process. It began in 1997 with then-Gov. George W. Bush signing legislation to set up regional water groups across Texas. The late Democratic Lt. Gov. Bob Bullock was a major force behind the measure, too.

The priorities for those regions now range from water desalination projects to conservation programs to new reservoirs and pipelines. And they will greatly determine how much communities from the Texas Panhandle to Dallas-Fort Worth to the Rio Grande Valley grow.  In fact, without these strategies, the Texas Water Development Board estimated in the state’s 2012 water plan:

“Annual economic losses from not meeting water supply needs could result in a reduction in income of approximately $11.9 billion annually if current drought conditions approach the drought of record, and as much as $115.7 billion annually by 2060, with over a million lost jobs.”

Drought conditions are a bit better here now. But, like California, Texas has been wrestling with droughts. Business leaders in both states – and points in between – are right to worry about their water supplies. As that Journal headline suggests, uncertain water supplies can be a killer.

Image by Mike Rodriguez.