CHAPTER 9 FEDERAL-STATE PROBLEMS IN PACKAGING WATER RIGHTS

• Jurisdiction: United States

Water Acquisition for Mineral Development
(Mar 1978)
CHAPTER 9
FEDERAL-STATE PROBLEMS IN PACKAGING WATER RIGHTS
Frank J. Trelease
Professor of Law McGeorge School of Law University of the Pacific
Sacramento, California

In the earlier stages of this program the audience has heard in one paper that water may be obtained from the United States, and in another that water may be appropriated or water rights purchased under state laws. Whenever the same thing is the subject of different laws or the object of different rights, the question arises as to what will happen when the rights conflict or the laws are inconsistent with each other. Which will prevail? Our federated nation has a simple answer in her Constitution: you will do it Mother's way. The "Supremacy Clause" says, "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof...shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."¹

This is a constantly recurring problem, and one may well wonder why it seems to loom so important in the field of water law, how federal-state conflicts arose, and why they persist. The answers are not really unique to water, they are found in the rise of federalism throughout this century and the vast expansion of federal authority and control into several areas once thought to be the exclusive province of the states. Control of water rights is an especially sensitive area, however, since more than mere inter-governmental jealousy is involved. State water rights, at least in the west, are property and the foundation of wealth, and when the authority of state water laws is questioned, the western water user feels that his property rights may be threatened.

The possibility of this conflict was seen long ago. John Marshall, in 1829, noted that a state law authorizing a dam across navigable waters would have to yield if Congress passed a law regulating commerce on the waters.² But most water rights in the eastern states were common law riparian property rights, clearly within state authority over local matters. When the nation grew it carried westward its land laws and while it could have devised a system of federal water law for the distribution of the rivers and streams on the public domain it never did so. Major John Wesley Powell,

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the famous explorer of the Colorado River and Director of the U. S. Geological Survey, recommended to Congress in 1879 a system of land law better suited to the arid west than the preemption and homestead laws worked out for the Trans-Appalachian middle west, together with a system of water law designed for a land devoted to grazing and irrigation.³ But Powell came too late, by then vast areas of land had passed into private hands, and the states, to fill the vacuum of water law, had done as the eastern states did and adopted common law and statutory property rights to water, although most of this law was not riparian but based on the western theory of prior appropriation. Pursuant to these state laws, most of the water came to be taken up by appropriative water rights for the irrigation of what had earlier been thought of as the Great American Desert.

Some early notions of prior appropriation were quite crude, but most states eventually adopted a quite sophisticated system. Water came to be regarded as property of the state, although private rights could be obtained for beneficial uses. Rights were initiated by obtaining a permit, and development was controlled to some extent by "the public interest." Limited quantities were doled out, changes and transfers were regulated. A substantial bureauracy administered the law and enforced water rights.

The first real need of the United States for water came when the government entered the field of irrigation with the Reclamation Act of 1902. At that time the federal government looked upon state water laws and found them good. Section 8 of the Act therefore provided that the Act was not to be construed as interfering with state laws relating to the control, appropriation, use or distribution of water used in irrigation, and further provided that in administering the Act the Secretary of the Interior "shall proceed in conformity with such laws."⁴ This set the tone of western state-federal relations in water rights for many years. The United States furnished the money and the works, the states the water law. As long as government projects were simply enlarged irrigation schemes that fitted into the existing pattern of western development, the partnership worked fairly well. When federal projects grew larger and began to serve other interests of the federal government, however, and when the states started to show a disposition to try to control the federal projects and their operations, the partnership fell apart. The dissolution came slowly, step by step, but today it is quite complete.

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I. FEDERAL POWERS v. STATE POWERS

I recently read a news story to the effect that the State of South Dakota had "deferred approval" of the West River Aqueduct, a proposed pipeline that would take water from the Oahe Dam in South Dakota to the coal fields of north-eastern Wyoming. Consideration was postponed, it was said, pending completion of a feasibility study of the project sponsored and financed by the Old West Commission. My understanding is that Oahe is a dam constructed on the navigable Missouri River by the United States Government by virtue of an act that put the water supply features of the project under Reclamation law.⁵ The details of South Dakota's claim of power to approve or consider the project, and agency of the state holding this function, were not disclosed. The whole story had a faintly quaint sound to me. It was familiar, as well as old fashioned. If the report meant that some South Dakota officials, as citizens, might someday applaud the project and agree that it was a fine plan, or that they might contemplate issuing an expression of distaste or urge their Congressman not to fund the project, I see no problems. But if the item meant that some official arm of the state might eventually refuse to issue a permit or license without which the pipeline could not be built, I think that South Dakota is opening up an old sore and picking a fight it cannot win. Battles like this have been fought, and lost, for the past half-century.

The first giant multipurpose river regulation work of the federal government was Hoover Dam built under the 1928 Boulder Canyon Project Act. The Act contained a disclaimer that it was intended to interfere with state rights and powers over water, and a statement that Reclamation law should govern the management of the works except as otherwise provided.⁶ The State of Arizona felt that she was not getting her share of the benefits of the project and that the project might eventually preclude her from getting her share of the river. Since the mid-channel of the river is the boundary between Nevada and Arizona, half the dam and half the water would be within Arizona territory. The state sued the Department of the Interior to prevent construction of the dam and reservoir without first securing the approval of the state engineer as required by Arizona statute. (California was in the suit only as a necessary party). The Supreme Court of the United States gave the state's claim short shrift: "The United States may perform its functions

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without conforming to the police regulations of a state.... The federal government has the power to create this obstruction in the river for the purpose of improving navigation."

The Midwest was the scene of the next chapter, and a different federal law the subject. The Federal Power Act of 1920 rather clearly seemed to require that a hydroelectric power plant must comply with both state and federal laws. Each applicant for a federal license to construct a power dam on navigable waters must submit to the F.P.C. "...satisfactory evidence that the applicant has complied with the requirements of the laws of the state...with respect to...the appropriation, diversion and use of water." The Supreme Court apparently felt that a state veto was so incompatible with the federal power that it could not stand, regardless of what Congress had said. In a rather amazing exegisis of this language the Court said that the Commission could be satisfied with evidence that the company had asked for state permission and had it denied!

A similar fate has befallen Section 8 of the Reclamation Act. In the 1958 Ivanhoe case, the Supreme Court said, "As we read Section 8, it merely requires the United States to comply with state law when, in the construction and operation of a reclamation project, it becomes necessary for it to acquire water rights or vested interest therein. But the acquisition of water rights must not be confused with the operation of federal projects."⁸ Project management was thus excluded from state control. Five years later, in Dugan v. Rank, it was held that a federal water right acquired under state law could not be regulated like other water rights, so that when the United States exceeds its bounds an injured senior appropriator may claim only money, not water.⁹ In a companion case, Fresno v. California, Section 8 was reduced completely to a financial doctrine. The only "conformity with state law" practiced by the government today when it overrides the rights of water users is to look to state law to determine the property interest for which compensation must be paid.¹⁰

Even though the substance is so reduced, Section 8 expressly directs procedural compliance. One last attempt is being made to use this procedural requirement to give the states some control over federal projects. This is still before the courts. If the Secretary is to proceed in conformity with modern state appropriation laws he...