May 24, 2023 – AB 1205 passed California’s House yesterday and will now be considered by the Senate.  The bill amends the code titled “Water rights: sale, transfer, or lease: agricultural lands,” by curbing speculative investments in surface water and groundwater rights and labels such activities as “waste or unreasonable use.” As amended by the House earlier this month:

SECTION 1. Section 100.1 is added to the Water Code, to read:

100.1. (a) For the purposes of this section, the following definitions apply:
(1) “Agricultural land” has the same meaning as defined in Section 10213 of the Public Resources Code.
(2) “Investment fund” means a private equity fund, public equity fund, venture capital fund, hedge fund, fixed income fund, real estate fund, infrastructure fund, or similar pooled investment entity that is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, holding, or trading securities or other assets.
(3) “Speculation” means the sale, transfer, or lease of an interest in a water right by an investment fund to profit from an increase in the water’s value in a subsequent transaction or without a plan to put the water to beneficial use.
(b) The Legislature hereby finds and declares that speculation or profiteering by an investment fund in the sale, transfer, or lease of an interest in any surface water right or groundwater water right previously put to beneficial use on agricultural lands within the state is a waste or an unreasonable use of water within the meaning of Section 2 of Article X of the California Constitution.

Agricultural Associations Oppose Curbing Investment Funds in Water Rights.

The Bill Analysis published on the legislative website on May 10 did not list any comments that were submitted in favor of the amendment.  It states that the Western Growers and a number of agricultural trade associations oppose the bill for the following reasons:

• The bill would prohibit a potential solution afforded by private capital invested in developing reliable supplies.  Private capital can help address water scarcity and “help to facilitate the conversion of unreliable, year-to-year variable, geographically diverse sources into dependable annual supplies of water to support investments in water-dependent enterprise.”
• Restricting or hindering transfers by some entities but allowing the exact same transfer activity by others is also arbitrary and sets up a standard of “winners and losers” and that transfers, often involving private investment funds, “have become a normal part of modern operations for California agriculture” and that this is likely to continue to be the case in the future.
• A water transfer is not in and of itself a beneficial use of water and that, instead, it is the recipient of the transferred water who puts it to beneficial use thus making the consequences of this bill unclear.