Fretful investors leave small business guessing

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It’s a fulltime job reading investor sentiment these days, and apparently a confusing one for the business press. On consecutive days last week, local reports had stocks rising one day and falling the next on news the Fed would continue ‘quantitative easing’.

There’s little confusion though about the difficulty Colorado small business is having raising capital. Money has always been the bane of start-ups and early stage companies, but today, it’s become an especially tough game. It’s leaving worthy companies without working capital and the service professionals who raise money and manage deal flow singing the blues.

“The rules have changed”, says Andrew Hurry, senior investment banker with The Yale Group, a FINRA-registered broker-dealer based in Denver. “There’s far less tolerance for risk, investors are looking for larger deals, they’re taking longer to close, and now both clients and investors are blowing up deals prior to closing. It’s often like holding two live snakes and not knowing which one will bite first.”

Hurry’s been raising capital for growth and early stage companies in Colorado and internationally for the dozen years or so I’ve known him. He describes a pervasive nervousness about the economy that’s fundamentally changed the investment landscape.

“I attended an Aspen Business Luncheon where John Calamos, a very well know asset manager, was the guest speaker. I couldn’t believe the questions I was hearing from an audience of very high net-worth individuals, like, ‘What will happen to the US economy when the dollar loses reserve currency status?’ or ‘What do we do now that we’ve lost the ability to use gold as a hedge against equities?’ The individuals weren’t asking how to grow their net worth. They were concerned about not losing the value of the current investments.”

The deals that are getting done tend to reflect this risk-averse sentiment. “When I started in investment banking back in 2000 many of my clients were pre-revenue healthcare and technology companies that were looking for capital to complete product development and get to market launch. Today, many VC’s are now looking at companies only with demonstrable and sustainable cash flows where their investment helps revenues and business grow; or help with execution on a business plan already in place. Deals that can be categorized as having no market risk, no technology risk, and no management risk”, Hurry explained.

“The result is that early stage companies have to be more creative in terms of sources of capital – friends, family, non-traditional lenders, crowd-funding – and do a lot more with a lot less resources.”

Hurry’s assessment isn’t a surprise for Colorado start-ups and growth companies. In the few short weeks we’ve published CompanyWeek I’ve met several entrepreneurs frustrated with the shifting investment sands. It’s no secret that the primary barrier to higher deal flow here is money, not a lack of ideas or risk-takers willing to set the wheels in motion to build a new company or follow a dream.

In Andrew Hurry and likely other investment bankers and brokers, Colorado entrepreneurs have an empathetic partner. “These companies are in a ‘catch-22’”, he says. “Great companies with great products and proven management teams are being left hanging to struggle on with limited resources while investors sit on a perch waiting for the ‘blood in the water’ feeding frenzy.”

It’s enough to leave even a seasoned dealmaker shaking his head.

Colorado’s jobs paradox – high unemployment but a lack of skilled labor – bedevils manufacturers.

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You’ve seen the numbers: Colorado’s unemployment remains high by recent standards, roughly 7%, with about 40,000 fewer people employed today than in March 2008, when employment peaked at 2,611,357. Certainly the job picture’s improved from the dreadful period culminating October 2010 when the unemployment rate hit 9.1%, but today’s number remains stubbornly high, inching up again only recently:

(Department of Numbers data)


One might reasonable guess that today, employers benefit from a deep labor pool with plenty of qualified workers to choose from. And while this may be the case in certain industry sectors, manufacturers here are challenged to find qualified employees.

This manufacturing ‘skills-gap’ has become a common theme in the business profiles we’ve published in only four issues of CompanyWeek. When asked about his challenges, Taylor Merritt, CFO at Merritt Equipment Co. in Henderson, was unequivocal. “Skilled workforce is the first thing that comes to mind. Manufacturing has a horrible image. People think it’s dirty, it’s hard work, and there’s no potential for a career.”

Jeff Popiel, CEO at Geotech Environment Equipment echoed the sentiment. “Hiring people with the right skill set and mindset that see manufacturing as a career…is a challenge.” In this week’s issue, Bill Sails of EarthRoamer adds, “One of our biggest challenges is finding skilled, good employees…”.

No manufacturing sector may be as challenged on the labor front as the apparel business, where for many re-shoring jobs remains only a worthy idea, despite the efforts of some Colorado manufacturers, like Janksa in Colorado Springs. “It is challenging to compete on price with companies that manufacture offshore,” says Jan Erickson, CEO and founder. “Instead of pennies per hour, we are paying a modest, but livable wage. We have not, however, been able to offer the benefits that I believe our skilled sewers need and deserve.”

For Erickson and others in the apparel trade, the challenge amounts to no less than rebuilding a viable workforce. “When everything went offshore in the ’80s and ’90s, a lot of those sewers went to other kinds of jobs. So far we’ve done fine, but I think a lot of those skilled workers are gone who were here 20 years ago.”

So where to go from here? At the behest of industry and with the support of Colorado’s occupational educators, especially, this past spring lawmakers passed legislation designed to better align curriculum with the needs of industry. As described in today’s issue of CompanyWeek by Ben Nesbitt, Program Director with the Colorado Community College System, HB13-1165 authorized the creation of a “Manufacturing Career Pathway…designed to provide efficient and economical on ramps for individuals interested in pursuing careers in the manufacturing sector.” It’s a promising development, even if tangible benefits of HB-1165 remain a ways off.

Of course tomorrow’s classrooms must be filled with students compelled to pursue careers in manufacturing. For this to happen, the manufacturing ‘brand’ must evolve to better reflect the progressive bent of people and companies driving its growth here, in Colorado. As Geotech’s Jeff Popiel notes, “This is where the state and the city are coming in, trying to rebrand manufacturing.”

I agree there’s high awareness. Denver’s Office of Economic Development, in particular, is intent on ‘messaging’ around manufacturing – and for good reason. The city’s identified the sector as key to its growth strategy, understanding that employers would benefit from a growing, MFG-inclined urban workforce.

But industry can’t – and shouldn’t – rely on government efforts alone. The challenge now is to ensure that effort and influence trickle down from those at the top of the manufacturing food-chain to small business who lack resources and need help to retool today’s workforce. Is Big-Manufacturing engaged? More on that later.

MFG jobs build wealth. They may also drive wages higher and ease the growing income gap.

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Is a job a job?

Statistics like the unemployment rate suggest it is, but of course they’re not. Pay is the most obvious differentiator. I’m no economist but it’s also easy to make the case MFG jobs, jobs that produce goods and services, are fundamentally different and critical to a sustained, boom-and-bust-proof economy we seek in our region.

MFG jobs are ‘primary’ jobs; they create wealth here as money and capital flow back to the region from sale of manufactured products – and through the ‘indirect’ jobs they create in retail, supplies, professional services, etc.

They may also be an important catalyst to reversing a decades-long trend that continues to be a drag on the economy. Against the backdrop of growing wage inequality, enough new MFG jobs – a higher percentage of total employment – could drive average wages up.

2011 Annual Wages by Sector Colorado

Management of Companies and Enterprises $130,515
Mining 104,898
Utilities 88,322
Information 84,138
Finance and Insurance 74,312
Wholesale trade 71,428
Manufacturing 61,668
Construction 48,865
Government 48,082
Health Care and Social Assistance 44,852
Real Estate Rental and Leasing 43,918
Transportation and Warehousing 43,761
Education Services 37,978
Administrative and Waste Services 37,704
Arts, Entertainment and Recreation 30,734
Retail Trade 27,113
Accommodation and Food Services 18,042
All Industries 49,043
Source: Bureau of Labor Statistics, Census of Employment and wages

Can average wages grow significantly without new primary jobs in the mix? Of course. And many Colorado manufacturers don’t need higher-skilled manufacturing labor that seems short in supply.

But Colorado business has carved out significant leads in growing MFG sectors. The region is poised to build on the successes of what are now internationally known brands. Demand for manufacturing labor seems to be increasing. Employers I know can’t find enough qualified labor. Wages in MFG should rise as a result.

Not all is rosy on the wage front. As the Wall St. Journal reported last year manufacturing wages haven’t kept pace with inflation, or with rapidly rising productivity gains. Yet this in turn has made the United States more competitive on the international manufacturing stage, as wages in China and elsewhere are rising.

The opportunity means little if communities won’t develop and support MFG businesses and train a new qualified workforce equal to the advanced technical requirements of today’s maker companies. ‘Making Colorado’, Gov. Hickenlooper’s rebranding effort for the state, is a good start. But the marketing emphasis on ‘making’ is oddly misaligned with the Office of Economic Development and International Trade’s industry sector breakdown, where ‘Advanced Manufacturing’ is a catch-all for all manufacturing in the state. Or not. Frankly I’m not sure.

But if we’re successful developing a new generation of ‘primary’ employers, we’ll build more wealth and begin to reverse a widening income inequality gap, an economic headwind to be sure.

More on jobs and training in this issue – and next week.

Made in America: Will a MFG revival transform the Rocky Mountain economy?

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Meet CompanyWeek, The Voice of Rocky Mountain Manufacturing & Commerce. It’s the culmination of a lot of things, really: ideas and experience, of a perceived opportunity, of a desire to build something, of talented colleagues who can help make it happen.

CompanyWeek’s also about two recurring themes for me in my last few years at ColoradoBiz.

First, I’ve been increasingly drawn to companies here that make stuff – manufacturers. In Colorado you don’t have to look far to find the fruits of their labor. Beer, satellites, IPhone cases, batteries, software, bikes, apparel, fish tanks, organic salsa, shoes – and on. From start-up to billion-dollar company. Plus, they’re nearly always interesting, the cool factor can be off the charts and the personalities are often as compelling as the products. It’s also a growth-sector.

But I’d argue that manufacturing’s at the center of profound change in the economy, and that Colorado will be a case-study in how a region will leverage new manufacturing to great gain, or miss-out to communities that harness the favorable winds pushing along goods-producing businesses.

What manufacturing lacks here, is scale. In Colorado’s service-heavy economy, it accounts for about 8% of Colorado’s employment base and GDP (compared to about 12% nationally). Service business like finance, education and health, and professional services are several times larger, as is government, Colorado’s largest service employer. Three-times as many people work in government than in manufacturing, nearly 400,000 employees

The number’s a bit startling, honesty, and for me an incentive. It seems self-evident that more goods-producing companies are needed. The clearest path for me was the idea of launching a publication that brings this new manufacturing sector to life. Today, business media bends decidedly toward service.

Media’s at its best when it’s at the center of a growing, evolving community. And in this case, there’s also a clear need. In a CompanyWeek interview, when asked how Colorado might help its manufacturers, Rob Mitchell, CEO of Moots Cycling in Steamboat, explained.

“More storytelling is one,” he suggests. “There are some really interesting stories in the state of companies that are very, very well-respected brands, known on a worldwide basis, that are building 100 percent, or very nearly 100 percent of everything they make and sell right here in our back yards. I think a program that highlights those and brings visibility to them and to the state at the same time could be very powerful.”

In focusing on goods-producing companies, service businesses may benefit most. They’re key to manufacturing success and in need, I’d argue, of a new generation of companies to drive growth in their business.

Initially, I hope you’ll ride along by signing up for a free subscription. CompanyWeek will sent to your inbox weekly beginning September 4, with content linked to www.companyweek.com. More later – in every issue of CompanyWeek.

Contact me at btaylor@companyweek.com, or 303-888-2832

Hick’s COIN: Cash or bust?

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Friend or political foe, it’s hard not to be a fan of Gov. John Hickenlooper’s economic development agenda as his one-year anniversary approaches. He ran on jobs and the economy, won, and has since walked the talk. He’s recruited new business, connected meaningfully with both established and up-and-coming industry segments, and generally delivered on his commitment to pursue the state’s business agenda in a non-partisan fashion.

Hickenlooper hopes the recent rollout of his latest idea to spur business, the Colorado Innovation Network, or COIN, will further his agenda and become a watershed moment of his tenure as governor. For me, though, the COIN initiative creates more questions than answers. COIN may be more Waterloo than watershed. Here’s why.

COIN follows on the heels of the Colorado Blueprint, the “framework for innovation” developed within the Governor’s Office of Economic Development and International Trade (OEDIT). It’s designed to “align with the Blueprint’s core objectives. Its mission “stimulates economic growth, creates jobs, increases tax revenue and attracts new businesses to the state of Colorado by supporting innovative business activities and establishing a reputation for Colorado as the most innovative state in the country.” A paid staff will develop initiatives that would among other things, enhance cross-university collaboration, establish an Angel Investor platform, create a business-plan competition, and educate lawmakers. Events and “publications” will also be created.

All good ideas. But if you’re familiar at all with Colorado’s superb research, technology transfer and commercialization ecosystem – in energy, bioscience, and aerospace, for example – COIN’s initiatives seem very late to a game that’s well under way. Researchers and entrepreneurs operating here now enjoy the support of a very credible, innovative, professional network of public and private resources. COIN’s prescriptions would outwardly duplicate some efforts.

An angel investor tech platform – Angelsoft – already exists to facilitate deal-flow. Business-plan competitions have been a staple for years. The Colorado Research Collaboratory, among others, has drawn the state’s research entities together in incredibly productive ways. Lawmakers have never been better informed about the impact of research investment and programs that transfer.

Why then reinvent an ecosystem that’s developing nicely on its own? What’s fundamentally different?

For one, COIN looks outside of Colorado for inspiration. COIN’s new executive director, Kelly Quann, was plucked from the Kellogg Innovation Network at Northwestern University. Guraraj “Desh” Deshpande of MIT fame is mentioned prominently in the COIN overview as inspiration for the new approach. It’s clear that OEDIT wants COIN to actively emulate and embrace the methodology of “successful models like the Research Triangle of North Carolina, Silicon Valley and Cambridge/Boston,” which “provide valuable lessons for our success.”

Okay. But Colorado’s own innovation eco-system has developed with these models in mind for years – for at least the eight years I’ve followed it closely. Moreover, looking elsewhere for inspiration really changes the nature of Hickenlooper’s core development message. The governor is a walking billboard for the unique, independent, risk-taking, Colorado-based entrepreneur. How do COIN’s admonitions to emulate Boston’s tech-corridor align with Hickenlooper’s business brand? A brand I’ve advocated Colorado embrace and develop as it has tourism in the past.

COIN won’t be cheap. OEDIT proposes tapping the private sector to fund it, near a million dollars in year one growing to $2 million-plus in year three. Presumably COIN will seek funds from the same, finite pool of resources funding the current network of research, transfer, lobbying, media and support entities. What impact would COIN have on funds deployed now on operations of proven, established entities? Will a dollar to COIN mean less to everyone else? Would this spur, or stifle, innovation?

It’s confusing why the Colorado Blueprint’s “ground-up” approach didn’t inspire the authors of COIN to better acknowledge and build on Colorado’s capable and highly developed research, tech-transfer, commercialization and finance infrastructure. A Hickenlooper-esque network would also provide a much clearer path to support and a return on time and money invested in entrepreneurs in home-grown, high-potential industries like snow-sports manufacturing, resort management, food and beverage, media and marketing.

I run a small business – a media business. Like others, I also wonder how COIN will help me. And by some chance Hickenlooper moves on in three short years, or OEDIT leadership changes, what becomes of COIN? Leadership, and their ideas, come and go. Are we left with Advance Colorado?

Hickenlooper has demonstrated an ability to parry challenges to find solutions and compromise – to find “win-wins.” Perhaps his answers to these question and others will ensure COIN translates into CASH, and not BUST.

Report from China: The land of cleantech opportunity

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My first thought on landing in China was that we’d come for the right reason.

We’ve flown here to finalize a content partnership with China Dealmaker magazine. After flying 6,000 miles, we’d descended to a thousand feet or so, and I still couldn’t make out terra firma in the thick soup of fog and smog out the airplane window.

The primary mission of our content partnership is to profile U.S. cleantech solutions and markets to China’s financial and M&A community. With China slated to invest many times the resources as the U.S. in the coming years to clean and green their economy, and my window view testament to their challenge, I’d say we’re on the right track.

The short drive from the airport also begins to confirm my suspicion that I’ve really no concept of how engaged, how awake China now is, and U.S. media headlines have proven inadequate in communicating the profound changes taking place here – good and bad. Driving into this bustling city, past a phalanx of modern office buildings topped with corporate logos from around the globe, is an immediate eye-opener.

One accurate characterization is that China has money – and markets – that potentially can benefit U.S. cleantech firms and startups. And as I read today from Beijing about the push in the U.S. to couple approval of the Keystone oil pipeline to a tax credit for business, I’m reminded that our political dialogue may be doing no favors for U.S. research and commercialization interests in cleantech and renewables.

Firms seeking capital and waiting for US capital markets to improve may be taking a risk. China’s moving fast. This from last week’s Planet-Profit Report and www.renewableenergyfocus.com:

China is creating 16 national energy research and development centres intended specifically to drive innovation in the clean energy sector, and by the end of 2011, national Chinese R&D expenditures are targeted to rise 11 percent over levels recorded just earlier in the year. Eight of 10 companies with the largest R&D budgets have established R&D facilities in China, India, or both. There has been a 600 percent increase in the number of college graduates in science fields in China between 1995 and 2005.

More later from China on Planet-Profit’s content plans with China Dealmaker, opportunities for U.S.-based firms that should develop as a result, and developments from meetings we have lined up with a cast of energy, water and policy officials in Beijing and Shanghai over the next several days.

China’s investment revolution

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What if you started a revolution and no one came?

Wang Wei, arguably China’s most influential businessman of the past decade, may have contemplated the question eight years ago when he launched China’s first mergers and acquisitions association. Years of service had earned him a comfortable path to retirement as a senior and well-respected governmental official, if he chose. But a more risky journey beckoned.

His choice transformed this nation’s economy. Wang’s investment revolution blossomed. We met Wang Wei at the office in Beijing.

Private-sector M&A didn’t exist in China before Wang’s efforts. Even the term wasn’t part of China’s business lexicon. Today, membership in the China Association of Private Equity, the China M&A Association and The China M&A Group numbers in the thousands, including U.S. heavyweights who support the sector like Pricewaterhouse. This new investment community is fueling China’s extraordinary private-sector growth.

[Three years ago, at one of the many investment conferences that now dot the Chinese business landscape, it was suggested that Wei launch a magazine in support of the sector. The China Dealmaker is now a must-read for investors and the nation’s business elite. Last Thursday we signed an agreement to provide content to China Dealmaker about U.S. cleantech and new energy sectors.]

The associations have in effect provided the structure to encourage investment dollars by facilitating connections, providing research and lobbying public-sector entities. Wang’s M&A group has been a catalyst for growth and investment – 90 percent of which backs private enterprise. The resulting explosion of entrepreneurship in China’s private-sector middle-market has changed the economic landscape here.

How significant has the change been? Consider China businessman Chen Dan’s brand development and design firm, Bang. In addition to becoming the go-to firm for some of China’s largest companies like China Telecom and Bank of China, Bang has developed a low-cost design alternative for China’s expanding small and medium-size business market, www.toidea.com. Demand is off the charts.

Over three short years, Bang’s ToIdea.com has churned out over 700,000 design projects, from over 130,000 designers registered on the site, for 20,000-plus businesses from across China. Businesses submit a project, Bang set’s a price, and designers respond with ideas. Check it out; there’s a real-time counter. If brand and project design is one measure of business activity, then www.toidea.com is chronicling the growth in China’s private sector.

____________________________

And on another note…

It’s impossible to visit China without commenting on the food. Thanks to our partner in this endeavor and host on the trip, Jeff Wang of Colorado-based Poetica, LLC, our culinary sojourn in Beijing has been off-the-charts great. I’ve also tried my best to emulate the Travel Channel’s Bizarre Food series. Among the “unique” fare I’ve sampled: a duck’s blood soup, boiled chicken’s feet, deep-fried scorpion-on-a-stick, tender goat and donkey (sorry; fare of a former emperor, I’m told), spicy duck’s feet, and a couple other things I’m not at liberty to disclose but wouldn’t have tried if I’d known the source.

Like a little heat, like me? Beijing’s your place.

Western states press for a closer reading of the Colorado River Compact

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(originally published 2012)

Ninety years old this year, the Colorado River Compact is more relevant and consequential than any time in its history. That says a lot. Sharing water within its collaborative, progressive framework, the Southwest blossomed, and its sustained influence on our current water dialogue is immeasurable.

Indeed it’s more than an interstate agreement. It’s a way of life, not to be trifled with carelessly. Arizona Senator John McCain was reminded of this in 2008 when he was roundly thrashed on the campaign trail for suggesting the Compact be renegotiated. (Though Arizona has never been thrilled with the Compact).

It’s also an agreement that’s largely ignored in a surprising way.

Turns out the Colorado River has never really been divided as the Compact authors envisioned. At least as much as we can tell. The legendary treatise, constructed to apportion the prodigious fruits of the Colorado River equitably between the Upper and Lower River Basin, really hasn’t.

In 1922 legislators divided the Colorado River roughly in-half, in theory, requiring the Upper Basin, the headwater states, to send 7.5 million acre-feet of water downstream on average every year past Lee Ferry’s, Arizona, to users in the Lower Basin. It was assumed based on information available at the time that about the same amount would remain for use by Colorado, Wyoming, Utah, and New Mexico.

But Eric Kuhn of the Colorado River Water Conservation District cites Bureau of Reclamation data that indicates usage has been far different. Over the past fifteen years, for example, “Lower Basin Consumptive Uses” has been around 11,000 million acre-feet per year; uses by the Upper Basin, roughly 4 million acre-feet. It’s a big discrepancy from the Compact parameters. The River tilts to the southwest – in more ways than one.

This imbalance may have been agreeable in the past. Not anymore, for two reasons.

One is demand. There used to be plenty of water to go around. However much water rose in the headwaters of the River was enough. A precise accounting wasn’t really necessary. The other is information – data. Usage throughout the River system is far better understood, and more data is coming. This will enable states, in this new era of scarcity, to track supply and call on the resources of the River more accurately. As a result, any notion of a River-wide surplus is disappearing. And with it any casual, generous interpretation of the terms of the Compact.

Of course states, not the Basins, will press the case to revisit apportionment of the River given the imbalance, and Colorado may stand to gain as the River is more accurately measured. The Compact allocated 51% of the Upper Basin share to Colorado, or 3.6 million acre-feet annually. Kuhn estimates that last year, in 2010, the state tapped the River to the tune of about 2 million acre-feet.

Is Colorado therefore entitled to more water per the Compact? In theory, yes. In practical terms, maybe. In the estimation of some, including voices in the environmental community, no.

Kuhn’s District is one influential voice advocating very deliberate action relating to a possible Colorado surplus. CRWDC makes their case for caution in a thorough, authoritative report released early this year. (Read it here.) The CRWCD simply doesn’t believe water’s available in the long run, guessing that any additional supply Colorado might be entitled to is illusory. The CRWCD sites a diminished River as evidence.

Data indicates that in the early 1900’s, when volume was measured for purposes of dividing the River, conditions throughout the Basin were unusually wet. Recently, drought has been the norm. Like others, they’re also concerned that climate change will lessen the amount of future precipitation in the region. It adds up to a total volume of water less than the 15-18 million acre-feet Compact authors divided in the first place. As the first obligation of Colorado and other Upper Basin states is to send 7.5 million acre-feet of water downstream every year, plus a little more for Mexico, Colorado’s 51 percent share would be calculated from a smaller total. In this new calculation, its surplus evaporates. Literally.

It’s the potential of developing more water only to have the supply curtailed, reversed after users come to rely on it that leaves the CRWCD uneasy (if I read their report correctly). Imagine cities that come to rely on a new supply only to have it cut-off.

Nevertheless others here and throughout the Upper Basin would move aggressively to grab more water and let policy-makers catch-up to new information that for now seems to indicate there’s room for a revised apportionment upward. As risky as some think this strategy may be, if it’s shown that more can be done to capture and use water allocated under the terms of the Compact, officials in water-challenged communities or states may choose to pick-up where Senator McCain left-off.

And the Compact, in its 91st year, will yet again prove its relevance.

More from the pro-development camp next time.

When a statewide water plan is not

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(originally published 2/10/2012)

Colorado is well-served by a cadre of water officials, many of whom gathered late last month at the annual Colorado Water Congress convention in what’s being called the “Year of Water,” or Colorado Water 2012.

No doubt many will use the designation to bring attention to the considerable challenges that lie ahead for the state’s water community, like the supply ‘gap’ that looms in the near future, diminishing aquifers, agricultural land drying up as water rights are sold to urban interests and a Western Slope/Front Range competition for water that simmers uncomfortably just below a veneer of cooperation and trust.

If this isn’t enough, one session at the Congress brought to light another Mt. Elbert-sized obstacle that some argue stands between the state and a more secure water future – the development of a statewide plan, a water blueprint, where supply and demand issues are contemplated with the collective interests of the state in mind first.

To varying degrees, other states operate in this manner, and the prospect of such a plan was discussed at this year’s Water Congress. (Watch a video of the session.)

For many, such a top-down approach is impossible to envision given Colorado water law. Colorado has an established water policy – prior appropriation – but not a plan. If you got there first, put the water to beneficial use, the right was yours – in perpetuity. As a result, our water community is comprised of fiefdoms, basically, more feudal system than modern bureaucracy. Water is owned and allocated on a local or regional basis, pursuant to these long-standing rights. Water is property, more valuable than gold. And today, this is truer than ever.

Huerfano County Commissioner Roger Cain, interviewed in the Denver Post, summed up the high-stakes game this way: “You take away our water, and there’s not much left.”

The question today is this: Can the current system provide for the collective economic interests of the state? Many say no, that without a plan that mandates future allocations, selects the infrastructure projects to deliver it and mitigates the damage that will most certainly be done to current rights-holders, Colorado will be unable to meet its urban and industrial needs. Or, we’ll decimate agriculture and other water-related industries along the way or become an economic-development pariah nationally without water – or a plan – to sustain growth.

Welcome to the water discussion.

John Stulp is Governor Hickenlooper’s Agriculture Commissioner and the man charged with starting a conversation about a statewide plan. Or deciding whether the conversation is a good idea. Think about that. We’re not talking yet about what a plan would entail; we’re still at the “does a plan make sense?” stage.

But by any measure, Stulp is well-qualified to lead the discussion, if one develops. He has deep roots here. He’s a Colorado farmer and entrepreneur. He understands how water works in Colorado – and how difficult it will be for some to even contemplate a binding, comprehensive agreement.

The degree of difficulty of the issue was reflected in the Congress discussion. (View the video.) Eric Kuhn, general manager of the Colorado River Water Conservation District, the largest and oldest of Colorado’s four conservation district, reminded the audience that we’ve reached the point where tough decisions need to be made. Steven Vandiver, general manager of the Rio Grande Water District, looked forward and suggested any plan include provisions for a ‘soft-landing’ for those impacted. Generally, the panel seemed to acknowledge the idea that the water status quo will change.

The burning question is, how? Stulp’s attempt at the Water Congress to explore the idea only served to emphasize how far away Colorado is from a substantive, top-down framework. And with the myriad water interests in the state operating at cross-purposes with each other in so many instances, it’s at once difficult to see how a consensus will ever be reached on a comprehensive plan, or how the state can find a sustainable water future without one.

Dissonance at Flaming Gorge

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(published 12/12/12)

In January, the Colorado Water Conservation Board (CWCB) will release the findings of its Flaming Gorge pipeline task force, convened early this year to study a project that’s divided the water community throughout the Colorado River Basin. Supported by users in Colorado with an acute need for water, the pipeline is opposed by motivated, well-funded interests who seemed to have the upper hand in a long-running debate over the project’s feasibility and wisdom.

But based on updates published by meeting facilitators, it’s a good bet the task force will recommend further study and deliberations, a result certain to anger its opponents. Even a neutral result that stops short of killing the idea outright would be a bitter disappointment for those hoping Flaming Gorge will be flushed by Colorado water officials.

The pipeline would tap Flaming Gorge reservoir in western Wyoming and move water east along the I-80 corridor, then south, for use and storage along Colorado’s thirsty Front Range. Flaming Gorge backs up Wyoming’s Green River, the Colorado River’s primary tributary. Opponents argue there’s no surplus water to divert, that the entire Colorado River system – including the Green – is tapped out, overdeveloped. The Bureau of Reclamation supply and demand study has demonstrated that demand in the seven-state river basin has indeed outstripped supply in most years.

Yet Colorado and the other Upper Basin states seem poised to tip over the current allocation regime along the river, and do so legally, pursuant to the Colorado River Compact. Colorado, Utah, Wyoming and New Mexico, the Upper Basin, haven’t developed their full river entitlement. For decades, California, Arizona and Nevada have used their share plus the Upper Basin’s unused portion. Given the economic value that flows downstream with every lost gallon of undeveloped water, this appears certain to change. Today, the headwater states need the water.

Can Flaming Gorge help Colorado develop its full entitlement? Certainly this question motivated CWCB to fund more research. Under the objective lens of the task force – with a timely assist from nature – the project’s attributes may be holding up.

As its proponents have argued, tapping the Green River in Wyoming provides a back up of sorts to the main stem of the Colorado River. The Green rises in north central Wyoming, near Jackson. If you’re a skier, you know a northerly storm track has dumped more than nine feet of snow at the Jackson Hole resort so far this winter.

When Colorado’s Rockies are dry, as they are now, Wyoming’s might hold more snow – essentially taking the pressure off the Colorado River headwaters, a scenario apparently not lost on the task force. In effect, Colorado would be able to tap a different source within the Colorado River system to realize its allocation. In years like those we’re currently experiencing, this could be significant.

Drought may also be accelerating supply shortfalls that were initially forecast to develop in Colorado in 2030 and beyond. Gary Barber, Chairman of the Arkansas Basin Roundtable and a task force participant, issued a stark warning in mid-November to John Stulp, Colorado’s Director of Interbasin Compact Negotiations and Gov. John Hickenlooper’s water ‘czar’.

“The very real potential exists for a water supply gap in agriculture next year, 2013, if the snow pack along the Continental Divide is average or less,” he said. “A municipal supply gap could exist as early as the year 2020.”

Flaming Gorge proponents have long held that this was the right project to take the pressure off Colorado’s agriculture sector. It would be ‘new’ water into the system – a new source. Currently most ‘new’ supplies sustaining Colorado’s economic growth, from energy to urban development, are coming from the state’s ag sector. Ag transfers are watering Colorado’s boom. But for how long? Much is being written today about the future of agriculture here and throughout the West. How long can state planners here lean on ag?

As Barber notes, “The alternative to moving forward on new supplies will be the loss of irrigated agriculture in the Arkansas Basin.”

Of course, few if any of the arguments for Flaming Gorge will convince opponents of its viability. After all, it’s an infrastructure option in a time of diminishing support for large water infrastructure projects. It’s expensive.

Wyoming isn’t a fan, although water law may obviate their objection in the end. And there’s the current state of the basin. We know with certainty that demand now exceeds supply. Flaming Gorge opponents argue there is no more water to develop.

Finally, there’s the possibility that if Colorado develops more water from the river, drought, over-use and Lower Basin obligations will dry up new users that have grown accustomed to it. Curtailment, as it’s called, would present very large headaches for water officials here.

It’s a good possibility we might get an even closer look at Flaming Gorge in the near future if task force deliberations are an indication of how they’ll report on the year-long process. We should know in early January. The blowback from opponents will certainly not go unnoticed.