Many western states are on the verge of bankruptcy, with debts exceeding assets. And yet, they continue to take on additional debt through contracts and other commitments. Although such distress may sound like an outgrowth of the 2008 recession, this crisis involves water, not money. In particular, the problem concerns the western prior appropriation system of water law, which allocates the right to use water under the priority principle of “first in time, first in right.” In many states, the system is so “over-allocated” that it promises to deliver annually much more water than nature provides. The crisis will deepen as climate change causes variability in the water supply and as over-tapped rivers push ever more species to the brink of extinction.
Increasingly, states recognize that the solution lies in reallocating water rights to support critical values such as environmental preservation. Frustrated stakeholders have been engaging in voluntary, collaborative negotiations to find a new way to stretch precious water supplies. Bargaining in the shadow of the priority doctrine, these groups have convened throughout the West to negotiate plans to reallocate water for society’s most pressing and beneficial needs. But with considerable unease, these groups have developed ad hoc processes in search of a consistent conceptual framework. To harmonize the rhetoric of priority with the reality of reallocation, this Article develops the new concept of “water bankruptcy” that draws an analogy between water reallocation and Chapter 9 municipal bankruptcy. Just as traditional bankruptcy provides a familiar, comprehensive, and well-reasoned model that gives debtors a fresh start under dire circumstances, so too might water bankruptcy assist states in restructuring debts and reallocating assets related to society’s most precious, life-sustaining, and irreplaceable resource.