Investment Water Speculation

Second Regular Session Seventy-third General Assembly STATE OF COLORADO INTRODUCED SENATE BILL 22-029 LLS NO. 22-0179.01 Jennifer Berman x3286 SENATE SPONSORSHIP Coram and Donovan, Bridges, Jaquez Lewis HOUSE SPONSORSHIP McCormick, Senate Committees House Committees Agriculture & Natural Resources A BILL FOR AN ACT CONCERNING WATER SPECULATION IN THE STATE. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov/.) Water Resources Review Committee. Section 1 of the bill prohibits a purchaser of agricultural water rights that are represented by shares in a mutual ditch company from engaging in investment water speculation. Investment water speculation is the purchase of agricultural water rights that are represented by shares in a mutual ditch company in the state with the intent, at the time of purchase, to profit from an increase in the water's value in a subsequent transaction or by receiving payment from another person for nonuse of all or a portion of the water subject to Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.

Capital letters or bold & italic numbers indicate new material to be added to existing statute. Dashes through the words indicate deletions from existing statute.

the water right. On or after January 1, 2023, the state engineer or the state engineer's designee (state engineer) may investigate complaints of investment water speculation. If a purchaser holds, or by virtue of a proposed sale or transfer, will hold at least a minimum percent of the shares in a mutual ditch company, about which minimum percent the mutual ditch company must determine and notify the state engineer on or before December 31, 2022, there is a rebuttable presumption that the purchaser is engaged in investment water speculation. The state engineer may fine a purchaser up to $10,000 for a violation and require, for a period of up to 2 years after a fine has been imposed, that any sale or transfer of shares in a mutual ditch company to the purchaser be subject to approval by the state engineer. If the state engineer believes that a complaint is frivolous or was filed for the purpose of harassing a seller or purchaser, the state engineer may refer the matter to the attorney general's office for the attorney general or the attorney general's designee (attorney general) to investigate and, if the attorney general determines that enforcement is warranted, bring a civil action in a court of competent jurisdiction alleging the complaint is frivolous or was filed for the purpose of harassment. If the attorney general prevails in the civil action, the court may fine a complainant up to $1,000, prohibit the complainant from filing any complaints alleging investment water speculation for up to one year, and grant attorney fees and court costs. Section 3 authorizes the attorney general to bring a civil action against a complainant if the state engineer refers the matter to the attorney general. Section 2 requires the board of directors of a mutual ditch company to determine the minimum percent of agricultural water rights held by all of the shareholders in the mutual ditch company that a purchaser holds or, by virtue of the sale or transfer of shares in the mutual ditch company, will hold that creates a rebuttable presumption that the purchaser is engaging in investment water speculation.

Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add 37-92-505 as follows: 37-92-505.

Investment water speculation prohibited - determination - penalties - definitions - rules. (1) A PURCHASER SHALL NOT ENGAGE IN INVESTMENT WATER SPECULATION IN THE STATE.

(2) (a) ON OR AFTER JANUARY 1, 2023, THE STATE ENGINEER MAY INVESTIGATE ALLEGED VIOLATIONS OF THIS SECTION. IF THE STATE ENGINEER DECIDES TO INVESTIGATE A SALE OR TRANSFER OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY UNDER THIS SECTION, THE STATE ENGINEER SHALL NOTIFY THE PURCHASER AND, IF THE SALE OR TRANSFER IS NOT COMPLETE, THE SELLER OF THE AGRICULTURAL WATER RIGHTS OF THE INVESTIGATION. THE STATE ENGINEER MAY PROMULGATE RULES TO IMPLEMENT THIS SECTION.

(b) (I) UPON A THIRD-PARTY COMPLAINT OR UPON THE STATE ENGINEER'S OWN MOTION, THE STATE ENGINEER MAY INVESTIGATE A PROPOSED OR COMPLETED SALE OR TRANSFER OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY TO DETERMINE IF THE PURCHASER IS ENGAGING IN INVESTMENT WATER SPECULATION.

DETERMINATION AS TO WHETHER THE PURCHASER IS ENGAGING IN INVESTMENT WATER SPECULATION WITHIN THIRTY-FIVE DAYS AFTER THE COMPLAINT IS FILED OR WITHIN THIRTY-FIVE DAYS AFTER THE STATE ENGINEER, ON THE STATE ENGINEER'S OWN MOTION, DECIDES TO INVESTIGATE A SALE OR TRANSFER UNDER THIS SECTION AND SHALL SEND A COPY OF THE DETERMINATION TO THE COMPLAINANT AND THE PURCHASER. IF THE STATE ENGINEER FAILS TO MAKE A DETERMINATION WITHIN THIRTY-FIVE DAYS, THE COMPLAINT IS DEEMED DISMISSED WITHOUT PREJUDICE.

THE STATE ENGINEER SHALL MAKE A WRITTEN

(II) THERE IS A REBUTTABLE PRESUMPTION THAT A PURCHASER IS ENGAGING IN INVESTMENT WATER SPECULATION IF THE PURCHASER HOLDS, OR BY VIRTUE OF THE SALE OR TRANSFER OF SHARES IN THE MUTUAL DITCH COMPANY AT ISSUE, WILL HOLD AT LEAST A MINIMUM PERCENT OF THE AGRICULTURAL WATER RIGHTS HELD BY ALL OF THE SHAREHOLDERS IN THE MUTUAL DITCH COMPANY, ABOUT WHICH MINIMUM PERCENT THE MUTUAL DITCH COMPANY SHALL DETERMINE AND NOTIFY THE STATE ENGINEER ON OR BEFORE DECEMBER 31, 2022, IN ACCORDANCE WITH SECTION 7-42-119. A MUTUAL DITCH COMPANY MAY PERIODICALLY REVIEW AND UPDATE THE MINIMUM PERCENT DETERMINED PURSUANT TO

SECTION 7-42-119 AND SHALL NOTIFY THE STATE ENGINEER OF ANY CHANGES TO THE MINIMUM PERCENT DETERMINED. THE PURCHASER MAY OVERCOME A PRESUMPTION OF ENGAGING IN INVESTMENT WATER SPECULATION BY PRESENTING EVIDENCE TO THE SATISFACTION OF THE STATE ENGINEER THAT THE PURCHASER ENGAGED IN OR IS ENGAGING IN A BONA FIDE PURCHASE OF THE WATER RIGHTS AT ISSUE FOR THE PURCHASER'S OWN BENEFICIAL USE OF THE WATER SUBJECT TO THE WATER RIGHTS.

(III) IN INVESTIGATING AN ALLEGATION OF INVESTMENT WATER SPECULATION, THE STATE ENGINEER MAY SEEK TO INSPECT ANY DOCUMENT, INCLUDING AN ELECTRONIC DOCUMENT, THAT THE STATE ENGINEER BELIEVES IS RELEVANT TO A DETERMINATION AS TO WHETHER A SALE OR TRANSFER OF AGRICULTURAL WATER RIGHTS IS INVESTMENT WATER SPECULATION. THE STATE ENGINEER SHALL SAFEGUARD ANY TRADE COMMERCIAL OR FINANCIAL INFORMATION VIEWED OR RECEIVED IN RESPONSE TO A REQUEST TO INSPECT A DOCUMENT, AND THE STATE ENGINEER SHALL NOT ALLOW A THIRD PARTY TO INSPECT ANY SUCH DOCUMENT PURSUANT TO PART 2 OF ARTICLE 72 OF TITLE 24.

SECRETS, PRIVILEGED INFORMATION, AND CONFIDENTIAL

(3) IF THE STATE ENGINEER BELIEVES THAT A COMPLAINT FILED PURSUANT TO THIS SECTION IS FRIVOLOUS OR HAS BEEN FILED FOR THE PURPOSE OF HARASSING A SELLER OR PURCHASER, THE STATE ENGINEER MAY REFER THE MATTER TO THE ATTORNEY GENERAL'S OFFICE FOR THE ATTORNEY GENERAL OR THE ATTORNEY GENERAL'S DESIGNEE TO INVESTIGATE. IF THE ATTORNEY GENERAL OR THE ATTORNEY GENERAL'S DESIGNEE DETERMINES THAT ENFORCEMENT IS WARRANTED, THE ATTORNEY GENERAL OR THE ATTORNEY GENERAL'S DESIGNEE MAY BRING A CIVIL ACTION IN A COURT OF COMPETENT JURISDICTION ALLEGING THE COMPLAINT IS FRIVOLOUS OR WAS FILED FOR THE PURPOSE OF HARASSING A SELLER OR PURCHASER. IF THE ATTORNEY GENERAL PREVAILS IN THE CIVIL ACTION, THE COURT MAY IMPOSE A FINE AGAINST THE COMPLAINANT IN AN AMOUNT NOT TO EXCEED ONE THOUSAND DOLLARS, MAY PROHIBIT THE COMPLAINANT FROM FILING ANY COMPLAINTS UNDER THIS SECTION FOR A PERIOD NOT TO EXCEED ONE YEAR, AND MAY AWARD ATTORNEY FEES AND COURT COSTS.

(4) (a) IF, AFTER INVESTIGATION, THE STATE ENGINEER DETERMINES THAT A SALE OR TRANSFER OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY IS INVESTMENT WATER SPECULATION, THE STATE ENGINEER MAY IMPOSE A FINE AGAINST THE PURCHASER IN AN AMOUNT NOT TO EXCEED TEN THOUSAND DOLLARS. ADDITIONALLY, THE STATE ENGINEER MAY REQUIRE THAT, FOR A PERIOD UP TO TWO YEARS AFTER THE FINE IS IMPOSED, ANY SALE OR TRANSFER OF SHARES IN A MUTUAL DITCH COMPANY TO THE PURCHASER BE SUBJECT TO APPROVAL BY THE STATE ENGINEER.

(b) A PURCHASER MAY BE FINED ONLY ONCE FOR A SINGLE PROPOSED OR COMPLETED SALE OR TRANSFER OF AN AGRICULTURAL WATER RIGHT, REGARDLESS HOW MANY COMPLAINTS HAVE BEEN FILED IN RELATION TO THE PROPOSED OR COMPLETED SALE OR TRANSFER OF AGRICULTURAL WATER RIGHTS.

(5) THE STATE ENGINEER SHALL TRANSMIT ANY FINES IMPOSED AND COLLECTED PURSUANT TO THIS SECTION TO THE STATE TREASURER, WHO CONSERVATION BOARD CONSTRUCTION FUND CREATED IN SECTION 37-60-121 (1)(a).

SHALL CREDIT THE MONEY TO THE COLORADO WATER

(6) AS USED IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES:

(a) (I) "INVESTMENT WATER SPECULATION" MEANS THE PURCHASE OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY IN THE STATE WITH THE INTENT, AT THE TIME OF PURCHASE, TO PROFIT FROM AN INCREASE IN THE WATER'S VALUE IN A SUBSEQUENT TRANSACTION, SUCH AS A SALE OR LEASE OF THE WATER, OR BY RECEIVING PAYMENT FROM ANOTHER PERSON FOR NONUSE OF ALL OR A PORTION OF THE WATER SUBJECT TO THE WATER RIGHT; EXCEPT THAT PAYMENT FOR NONUSE OF A WATER RIGHT IS NOT INVESTMENT WATER SPECULATION IF IT IS DONE AS PART OF:

(A) A STATE OR LOCAL GOVERNMENT'S, MUNICIPAL WATER PROVIDER'S, WATER CONSERVANCY DISTRICT'S, WATER CONSERVATION DISTRICT'S, OR NONPROFIT ORGANIZATION'S ESTABLISHED WATER CONSERVATION PROGRAM; OR

(B) THE COLORADO WATER CONSERVATION BOARD'S INSTREAM FLOW PROGRAM.

(II) "INVESTMENT WATER SPECULATION" DOES NOT INCLUDE PURCHASES OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY BY THE FOLLOWING PURCHASERS:

(A) A MUNICIPALITY OR OTHER WATER PROVIDER THAT PROVIDES DRINKING WATER TO CUSTOMERS LOCATED WITHIN ITS SERVICE AREA;

(B) A WATER CONSERVANCY DISTRICT OR WATER CONSERVATION DISTRICT;

(C) THE COLORADO WATER CONSERVATION BOARD OR ANY OTHER STATE ENTITY; OR

(D) A GOVERNMENTAL OR QUASI-GOVERNMENTAL AGENCY OR NONPROFIT ORGANIZATION THAT PURCHASES AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY PRIMARILY FOR A PUBLIC PURPOSE, SUCH AS CONSERVATION OR COMPACT COMPLIANCE.

(b) "PURCHASER" MEANS:

(I) A PERSON THAT HAS PURCHASED OR THAT IS IN THE PROCESS OF NEGOTIATING THE PURCHASE OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY IN THE STATE; OR (II) A PERSON FOR WHOM ANOTHER ACTS AS AGENT IN NEGOTIATING THE PURCHASE OF AGRICULTURAL WATER RIGHTS THAT ARE REPRESENTED BY SHARES IN A MUTUAL DITCH COMPANY IN THE STATE.

(c) "STATE ENGINEER" MEANS THE STATE ENGINEER OR THE STATE ENGINEER'S DESIGNEE.

SECTION 2. In Colorado Revised Statutes, add 7-42-119 as follows:

7-42-119. Investment water speculation - ditch company determination of amount that creates a rebuttable presumption - definitions. (1) TO ASSIST THE STATE ENGINEER IN EXERCISING THE STATE ENGINEER'S AUTHORITY TO INVESTIGATE AND ENFORCE AGAINST INVESTMENT WATER SPECULATION PURSUANT TO SECTION 37-92-505, ON OR BEFORE DECEMBER 31, 2022, THE BOARD OF DIRECTORS OF A MUTUAL DITCH COMPANY SHALL DETERMINE THE MINIMUM PERCENT OF AGRICULTURAL WATER RIGHTS HELD BY ALL OF THE SHAREHOLDERS IN THE MUTUAL DITCH COMPANY THAT A PURCHASER HOLDS OR, BY VIRTUE OF THE SALE OR TRANSFER OF SHARES IN THE MUTUAL DITCH COMPANY, WILL HOLD THAT CREATES A REBUTTABLE PRESUMPTION THAT THE PURCHASER IS ENGAGING IN INVESTMENT WATER SPECULATION.

(2) THE BOARD OF DIRECTORS SHALL NOTIFY THE STATE ENGINEER OF THE MINIMUM PERCENT DETERMINED PURSUANT TO SUBSECTION (1) OF THIS SECTION AND OF ANY SUBSEQUENT CHANGES TO THE MINIMUM PERCENT THAT THE BOARD OF DIRECTORS MAY DETERMINE.

(3) A MUTUAL DITCH COMPANY MAY PERIODICALLY REVIEW AND UPDATE THE MINIMUM PERCENT DETERMINED AND SHALL NOTIFY THE STATE ENGINEER OF ANY CHANGES TO THE MINIMUM PERCENT DETERMINED.

(4) AS USED IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES:

(a) "INVESTMENT WATER SPECULATION" HAS THE MEANING SET FORTH IN SECTION 37-92-505 (6)(a).

(b) "PURCHASER" HAS THE MEANING SET FORTH IN SECTION 37-92-505 (6)(b).

(c) "STATE ENGINEER" MEANS THE STATE ENGINEER APPOINTED PURSUANT TO SECTION 37-80-101 OR THE STATE ENGINEER'S DESIGNEE.

SECTION 3. In Colorado Revised Statutes, 24-31-101, add (5) as follows:

24-31-101. Powers and duties of attorney general. (5) THE ATTORNEY GENERAL MAY BRING A CIVIL ACTION PURSUANT TO SECTION 37-92-505 (3) IF THE STATE ENGINEER REFERS THE MATTER TO THE ATTORNEY GENERAL.

SECTION 4.

Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly; except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2022 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.

(2) This act applies to purchases of agricultural water rights that are represented by shares in a mutual ditch company and that are made or negotiated on or after the applicable effective date of this act.