New Mexico Headed to (Water) Bankruptcy Court?

No, not in the usual way.  However, …. Let us think about what happens when a company finds its income and assets to be far smaller than its expenditures and debts.

The company cannot continue to operate the way it has been operating.  The company files paperwork with an appropriate Court, describing the situation. The paperwork divulges assets, debts, incomes, expenses, and a whole lot of other data, to the extent known and asks the Court to let it dissolve or be reorganized. The Court notifies the known creditors and informs the public to seek any further unknown creditor claims. The creditors then provide rationale for their claims and for the perceived priority of their claims (written contracts, oral contracts, implied contracts, human hardships, etc.). Based on the claims, the claims’ perceived validity and the judge’s intuition, the Court offers to direct how the remaining, but insufficient assets will be divided among creditors … OR … the Court offers to allow the claimants to negotiate among themselves to decide how to divide the remainder. 

Neither option will make the creditors whole or happy, but frequently the threat of the first option will drive the claimants to seek a better result via the second option.

The State Constitution requires the State to balance its annual budget, which prevents financial bankruptcy. However, the State is hurtling toward water bankruptcy in many of the State’s distinct hydrologic regions. These are regions that share a common physically and legally available water supply used at unsustainable rates. The Ogallala Aquifer is virtually exhausted. Pumping from several closed or slowly recharging groundwater basins is on a trajectory to exhaust those aquifers.   

Historic decisions and agreements, exacerbated by climate change, have caused uses of water from our annual water income (aquifer recharge and flows in rivers) and withdrawals from our water savings accounts (aquifers and surface reservoirs) to exceed sustainable amounts. 

Surely, a concerned citizen might think or say that New Mexico has a plan for stewardship and equitable distribution of its limited shared water supply. Surely, the State has acted to face the lack of sustainability or resilience of its water uses in many hydrologic regions and avoid water bankruptcy court. 

There is no such plan, despite the 2003 State Water Plan Act requiring one.  The State’s water quantity institutions act in denial or are paralyzed by (lack of) political will and agency resources.

The State’s water assets (groundwater) and incomes (inflow and precipitation) are now forecast to be far less than its debts and obligations (water permits, water rights, compacts, depleted aquifers that are connected to rivers), and opportunities (potential new water sources, increased conservation).

New Mexico may soon have to appeal to a (not-yet-created) hydrologic bankruptcy court.  

Let us explain this a bit further.  Yes, we have a state constitutional concept to deal with shortfalls called “prior appropriation,” also called “first in time, first in right.”  Priority Administration is the blunt legal tool to cut off junior appropriators (users) until senior users have a full supply.  

That blunt tool:

  • requires significant numbers of skilled water agency staff who unfortunately do not exist to organize, implement, measure, monitor, and cut off junior uses;
  • requires massive amounts of information that must be adequate in court, that doesn’t exist or that may not be more than dubious, untested claims; 
  • works poorly or—in many New Mexico settings–not at all; and
  • produces socially and economically unacceptable results.

Priority administration is a surface water concept. It performs poorly when excessive groundwater pumping is exhausting aquifers or surface water during seasonal low flow periods.

Numerous water commitments or claimants rely on untested and overstated claims–water rights, vested rights, undeclared senior rights, dedications, urban groundwater pumping permits with conditions that are hydrologically impossible to honor–and tens of thousands of domestic wells. 

Junior users, which include most cities, towns, and domestic wells, have legal or scientific defenses that make priority administration even more difficult. Priority administration of junior wells to protect senior surface water users may be futile unless they are cut off permanently.  In many cases, cutting off junior groundwater pumping provides more water for senior surface water users only after significant delays–from months to decades depending on the specific hydrogeology and the distance of the wells from the river.

Rigorous priority administration is politically stressful. Domestic wells are not going to be shut down without depopulating many areas. Neither can large water purveyors including cities and universities be cut off.

State water agencies have revealed no plans to take the steps that will avoid bankruptcy court, even though the New Mexico Supreme Court in 2012 upheld the State Engineer’s 2004 general rules for priority administration, shortage-sharing agreements, water banking, and other necessary elements of any water administration solution.

It is a complex situation, needing prompt planning leading to a solution.  New Mexico needs to figure out how the remaining water assets and water incomes, after water bankruptcy is recognized, should equitably be divvied up among the claimants. We must increase the resilience and sustainability of New Mexico’s shrinking water supplies.

Representative Melanie Stansbury has correctly observed, during the 2020 Interim Legislative meetings, that we must transform the way New Mexico administers, protects, and distributes its limited annual water income (precipitation and stream flow) and its savings (groundwater and reservoirs).

We may get some insight into solving the problem, by reviewing and possibly adapting some of the decision-making logic that is regularly employed by financial bankruptcy judges in divvying up the spoils from a deceased company. That would be a sad state of affairs for New Mexico, Land of Enchantment.