Matthew Fienup is the executive director of the Center for Economic Research and Forecasting, or CERF, at California Lutheran University in Thousand Oaks, where he has served as an economist and adjunct faculty member since 2014. He is also chairman of the Fox Canyon Groundwater Management Agency Water Market Group, which plans to launch Ventura County’s first water trading program early next year. Prior to enrolling in graduate school at the University of California – Santa Barbara, Fienup managed a marine biology program about the Catalina Islands and taught science courses to elementary students at the Curtis School in Los Angeles. An avid rock climber, he is the founding president of Earthworks Climbing School in Santa Barbara. He met with the Business Journal in his office at Cal Lutheran’s incubator Hub101 to discuss water rights, development policies and where to find the best rocks in California. TITLE: Executive Director ORGANIZATION: California Lutheran University Center for Economic Research and Forecasting EDUCATION: Doctorate in environmental economics and applied econometrics, University of California – Santa Barbara; master’s degree in economics, UCSB; bachelor’s degree in interdisciplinary studies, Woodbury University; associate of arts degree in photojournalism, Brooks Institute of Photography HOBBIES: Photography, rock-climbing and spending time outdoors with family Question: What is an “environmental” economist? Answer: The title is a bit of a misnomer. I’m an applied empirical economist, also called an applied econometrician, which means I do applied statistical analysis of economic data. I happen to apply my trade to the environmental realm – my goal is to use data to answer questions about challenging policy issues. Why did you decide to go into environmental policy? I’ve always been interested in the environment. I spent a few years teaching marine science on the Catalina Islands, and while I was there I was asked to start a rock-climbing school, which I still run today. My family and I are all “outdoorsy” people – both my sons were rock-climbing by age 4. I’m very passionate about environmental policy. In your experience, is protecting the environment overwhelmingly bad for business? Not necessarily. My work over the last couple years has premised on the notion that incentive-based environmental policies are the most effective – and there are few better ways to institute incentives than through markets. Can you give an example? One is the water shortage here in California. The current system essentially encourages groundwater users to pump the basins dry before the person next to them does. But in regions with a market system of allocating water, there’s an economic return to conservation. So rather than assuming there’s tension between business and the environment, I actually think we have a lot to gain by using market incentives to drive really positive environmental outcomes. What is your similar project with the Water Market Group in Ventura County? The process started about two years ago when I reached out to Edgar Terry, a farmer who serves on the board of CERF. We both just had a natural instinct that markets work – or at least work better than the alternative. So he and I started meeting with farmers for coffee to see what they thought of the idea, and they were unanimously on board. Then we met one-on-one with (Fox Canyon Groundwater Management Agency) board members, which eventually led to the development of the Water Market Group. How was the group established? That started with the 2014 Sustainable Groundwater Management Act, or SGMA, which authorizes market allocation of water. It also requires a broad stakeholder process. WMG was formed out of another group of stakeholders that was advising (Fox Canyon) GMA on issues affecting agriculture, and has since expanded to more than 50 members. Who are the stakeholders? There’s robust participation from growers, and the cities of Camarillo and Ventura are involved as well. We also have the Nature Conservancy, a landowner in the county that is representing environmental water use. What does the group do? We were tasked with working on the structures and operational mechanisms for a water market. We spent over 40 hours reading case studies, meeting with folks who run water markets elsewhere and sketching out how one might look in Ventura County. In September, we unanimously approved a set of recommendations, which is remarkable when you remember the room includes environmentalists, cities and farmers. Can you explain how the water system works now in Ventura County? The primary water right is called the “overlying right,” which says that if you’re a private landowner whose property overlies groundwater, then you have the primary right. If it’s a river, it’s called a “riparian” right. If you don’t fall under either of those designations, then you have an “appropriative” right to water, meaning you get whatever water is leftover after the primary rights holders are done. In any case, you don’t actually own the water – you own the right to use the water. So if there’s groundwater under your property, you can dig a well and pump it for your own economic benefit, but you can’t bottle it and sell it to the city of San Francisco or the City of L.A. Why not? Because again, you don’t own the water – you own the right to use the water. You can use it for your own economic benefit. I can package the water as a raspberry and sell the raspberry, but I cannot sell the water directly. If you could do that, the person who could pump it to the bottom the fastest would bottle all the water and sell it. The property line limit is meant to prevent your “reasonable, beneficial use” from infringing on someone else’s. What happens when there isn’t any water left over? That’s what’s tricky: We’re in a state of overdraft. More water is being pumped out (of basins) than is being pumped in – there is no surplus. So hypothetically, the appropriative right vanishes. That’s why Gov. (Jerry) Brown imposed water use cuts on all of the cities – cities have appropriative rights to water. He didn’t cut water use for farmers because he doesn’t have the authority to affect overlying or riparian rights. He can only touch the appropriative rights. Is there any way for appropriative rights holders to recoup access to water during a drought? There’s actually one other kind of right that’s a bit obscure. It’s called a “prescriptive” right, and it says that if you have continuous adverse use of water for five years, then your right becomes as senior as the overlayers. So if a city pumps water from a basin for five years, and the farmers who own the right to that water don’t adjudicate, then the city’s rights become as senior as the farmer’s. Has this happened locally? In Ventura County, appropriative water rights actually vanished back in the ’80s when the state identified saltwater intrusion in the region. But the cities continued using the water for more than five years, and the farmers didn’t intervene. Today they uphold the cities’ prescriptive rights to the water, which puts both parties on an equal playing field. In Ventura County that unique cooperation between interest groups has made it possible to try solutions like a water market. What might a water market look like? It will be similar to what we’re already seeing in Santa Paula, where a basin was adjudicated after farmers went to court to assert the primacy of their water right over the city of Ventura’s. What came out of that was a system that allows agricultural water users to buy and sell water, but trading volumes are low and there’s not that much water that changes hands. In Ventura County, we’re talking about an actual centralized exchange where those transfers happen, and I expect much larger trading volumes than we’ve seen in Santa Paula. Will both farmers and the cities be involved in the exchanges? Most trades will be between farmers at first, but there are some pretty cool opportunities for transfers between growers and cities. That will most likely involve advanced water purification through places like the GREAT (Ground Water Recovery Enhancement and Treatment) facility in the city of Oxnard. It’s also conceivable that in times of drought, farmers who fallow their crops might sell water to the cities. Some are concerned using a market system to allocate water could prevent low-income households from access to a vital resource. That hasn’t been the experience of places that implement water markets. Residents said nationwide water trading during Australia’s 14-year “millennium drought” benefited the cities by giving them access to new resources, allowing them to provide water at a lower cost than they would have been able to otherwise. What challenges stand in the way of implementing water markets on a national level? You have to start simple, because while the goal is for water transfers to support environmental objectives, it can work in the other direction. In Australia, it took more than a decade of robust trading before policy-makers worked out the details of interbasin and interstate transfers. When done well, water markets have been associated with increases in water levels and quality, but there’s a lot of learning that has to happen before you can move to something on a wider scale. CERF’s Bill Watkin’s last annual forecast on Nov. 11 suggested a bleak future for local business. Do you share his view? Bill is right in the sense that Ventura County lags the rest of the state in almost every economic measure. As of October, we were the only county in Southern California that still hadn’t recovered the jobs lost during the recession. One problem is our attitude toward what we say is “urban” growth, but is really economic growth. The SOAR initiative is one of the reasons we’re so far behind our neighbors in terms of economic recovery. It’s not the only reason, but it’s a big one. What’s the SOAR initiative? SOAR, which stands for “Save Open Space and Agricultural Resources,” is a countywide ordinance passed in 1998. It states that areas outside of designated urban growth boundaries require a majority vote of the county electorate to permit commercial or residential development. How does SOAR hinder economic growth? SOAR creates a dramatic scarcity of developable land, which increases property values within the growth boundaries. That means residential and industrial spaces are both more expensive, which impacts the cost of doing business directly in the form of high commercial rents and indirectly through low housing affordability for the workforce. Businesses say they can’t attract talent with the skillset and experience they need because the candidates who could fill them would have to take an immediate cut to their standard of living due to the price of housing. The jobs in the two sectors that have seen growth, health care and hospitality, don’t pay enough for those workers to afford to live here. The people locating to Ventura County are those whose economic well-being is independent of economic activity. Is there any chance this economic restructuring might have happened anyway? No. This wasn’t inevitable – economic data predicted this would happen. The data and theory are aligned here: SOAR impacts the county’s economic performance. Our performance lags our neighbors who don’t have these policies. We have the most stringent land use policies in the United States of America, and policies have consequences. Do your expectations for Ventura County’s economy differ from Mr. Watkins’? We agree in regards to its outlook. But I don’t believe the county electorate doesn’t want growth; I think there’s a kind of “policy elite” that controls the message. The county electorate was told for more than a decade, “SOAR does not impact land values.” At one point, there was even a page on the SOAR website “explaining” this, but I think our findings have finally put that misconception to bed. What are those findings? My empirical analysis shows that not only is SOAR’s effect on land values large, it’s larger than any ever recorded in an area that has established urban growth boundaries. Why do you think the misconception persists? The story we’ve been told about SOAR for years is an alluring one. People want to believe it, so they do. But again, I don’t think it’s the county electorate that doesn’t want growth. I think there’s a minority that doesn’t – these “NIMBYs,” these “not-in-my-backyard” folks. I don’t think they’re representative of the majority view. If that’s the case, why did Ventura County voters pass a ballot measure to extend SOAR through 2050? Well, it went from 70 percent approval to 50 percent, right? So it had less support this time than in the past. The Ventura County Star came out against SOAR because 2050 just seems unthinkably distant. So my goal is to tell the story. SOAR is allowed a vote at any time because it’s a ballot issue. That 2050 date next year could be changed by a ballot initiative. But I think the lessons learned from water markets apply in the area of land use. How so? I would like to see a tradable system of development rights, like we’ve seen statewide in New Jersey and Pennsylvania as well as in Montgomery County, Maryland. Montgomery County stands out because it’s in some ways similar to Ventura County, with high-income communities adjacent to agricultural land. They used a market transfer of development rights to permanently secure 50,000 acres of open space. That number is important, because 50,000 is exactly the number of acres of prime agricultural land (at stake) down here around the Oxnard Plain. How could market-based development rights be integrated into the current system? The way it might work in Ventura County would be modest expansion of growth boundaries in exchange for permanent preservation of open land. So in order to develop, say, 10 acres in one area, a developer would go find 50 acres of open space in another area and purchase the development rights there, securing 50 acres of open space in exchange for 10 acres of development. Have you identified any groups that might collaborate on this initiative? In my dream scenario we would work with the Nature Conservancy. They’re a significant landowner with great sensitivity to the environmental needs of the county. They’re actually buying up property along the Santa Clara watershed to permanently preserve that ecologically sensitive land. So they would be the perfect people to identify the biggest environmental bang for the buck. That will be the “sending” area, where we will try to conserve development rights. And then we’ll trade modest increases in the growth boundaries for preservation of that ecologically sensitive land. Regarding national economic growth, do you have any thoughts on what we can expect from the Trump administration? While I’m pretty dour on the current outlook, I’m also not that worried about the change in administration. I don’t think the risk is that severe and I don’t see the upside as being that severe either. I think it’s going to be more of the same – slow, plodding growth. And unfortunately what that means for Americans is less economic opportunity than we had a couple of decades ago. What would you do differently if you were in the White House? I’m what I would call a “subsidiarian,” meaning I believe challenging policy issues should be handled at the smallest unit of decision-making possible. This is another lesson from the policy work in groundwater – by handling it locally, we can put stakeholders in the room who have skin in the game, and they can voice their needs and their concerns and they can listen to what the other side says. That’s a really effective way to do policy-making. Where are your favorite places to rock climb? Dome Rock, 550 feet up in an area known to climbers as “the Needles” in the southern Sierra Nevada Mountains. It’s the coolest piece of rock in all of California. It’s also where I had my first date with my now-wife. Any tips for aspiring climbers? Always hire a guide!
