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We are living in interesting and changing times. Our nation has just carried out one of its most profound responsibilities by electing individuals to serve in positions of local and national leadership. Wildfires are burning longer and bigger, and one of the most severe bark beetle infestations in living memory is taking place in Wyoming and beyond. And perhaps, reassuringly, as ever it does, winter is nearing and in some parts of the state, is already upon us. We are prepared, being hardy Wyomingites, accustomed to finding beauty and a myriad of ways to pass the time through our long and windy winters.

Change has not been a stranger to Wyoming State Forestry Division (WSFD), either. As have many state forestry agencies across the country, baby boomer retirements and increased mobility of the nation’s workforce have led to a plethora of new staff in WSFD. This has brought with it the opportunity to welcome fresh ideas and energy. In light of the challenges facing Wyoming’s forests, there could be no better time to capitalize on change – in our personnel and in the forces impacting the landscape – as a catalyst for achieving healthier, more resilient forests and landscapes in our state. 

As I look ahead at the best ways to approach change and make it work most effectively for WSFD and our work across the state, I find myself landing on three big ideas as the keys to success: Innovation, Integration and Diversification.

Innovation

There is an old saying that goes “100 years of tradition, unimpeded by progress.” I sometimes think this is an apt description of a sentiment held onto by many in the forestry and land management sector.

Yet if we are to accomplish our goals of achieving healthy and resilient forests and landscapes, we must innovate – in our ideas and thinking generally, as well as in our approaches to problems and problem solving. We need creative solutions if we are to solve old problems, problems that old solutions haven’t solved.

  We also need to consider stepping back and redefining some of the problems we face and then work to find relevant and forward thinking solutions.

Integration

Integration is a word many of us have heard frequently over the last 10 years. We have developed State Forest Action Plans, talked about the need for more “cross boundary” cooperation and discussed endlessly ways of better working together.

Nevertheless we still have work to do.

Programs remain relatively stove-piped within our agency, which impacts our ability to deliver diverse services to the public in a holistic way. I believe this presents us with an opportunity to look hard at ourself as an agency and at our relationships with partners and to seek out ways of better working across programs and organizations to achieve the cross boundary successes needed on the ground.

Diversification

I also believe we need to consider how to diversify our programs and projects, as well as our partners, people and ideas. We all serve an increasingly diverse public and workforce; not only do we need to accept this, but we should and can be leaders in embracing this diversity.

We need to grow our understanding about what makes forestry and management relevant to a diverse audience and strive to address those issues. We must look at ways to encourage and promote diversity in our workforce and sector and actively foster interest in natural resources from all groups.

Finally, we need to diversify our ideas and, in some cases, our preconceived notions. This means moving away from a “we have always done it this way” way of thinking and embracing a “yeah, let’s try that” mentality.

Bottom line, we need to strive to be ever more open to new and different ideas and thinking.

These ideas are a pretty tall order, and by no means do I think we will achieve complete success right away. I do believe that these ideas can guide us in the right direction and enable us to better carry out our important roles of protecting forests and landscapes from harm, conserving working forests and lands and enhancing the public benefits that derive from trees, forests and landscapes.

We have no interest to wade into the political debate and are fully cognizant of the fact that passions run high after a very heated election season. But the reality is that a Trump presidency was, for the most part, discounted as unlikely by the markets, and at least initially, we expect some panic trading to occur.

The role of markets is, in part, to price risk, and until proven otherwise, market participants will look to price the risk of trade war(s) with some of our largest trading partners. A selloff is likely but may be tempered by the realization that the immediate material impacts could be limited. In the short term, we think the currency shifts have the more immediate impact. One thing to notice is the dramatic drop in the value of the peso and what that does to the ability of Mexican importers to source U.S. red meat and poultry products. Longer term, however, no one really knows how this will play out.

The only thing we have to go are statements and positions taken by the President-elect Trump during the election. Promises of heavy tariffs on imports, the erection of a physical barrier with one of our largest trading partners, the commitment to do away with North American Free Trade Agreement (NAFTA), no Trans-Pacific Partnership (TPP), limits on free trade to stimulate domestic jobs and other such commitments may have a significant detrimental impact on the meat industry.

Economists can argue about the overall macro effects of such policies and what the general impact may be on the economy. But for livestock producers, the issue is much more parochial. And some livestock producers stand to lose more than others. This chart on page 21 shows the evolution of net trade in the last 20 years, since NAFTA and General Agreement on Tariffs and Trade (GATT) went into effect.

The biggest beneficiary during this process has been pork, largely because the opening of new markets, including Mexico, allowed low-cost U.S. pork producers to better compete in world markets. In 1995, U.S. pork exports were 787 million pounds on a carcass weight basis, and our pork imports were 664 million pounds. The net trade effect then was just 123 million pounds. Total U.S. pork production in 1995 was 17.8 billion pounds, and only about 4.4 percent of that went to export markets.

For the past 20 years, however, the U.S. pork industry has expanded dramatically, and most of the growth is due to booming pork exports. Last year, total U.S. pork production was 24.5 billion pounds, 6.7 billion pounds or 37.6 percent higher than was it was in 1995. Pork exports were 5 billion pounds while pork imports were 1.11 billion, thus leaving a positive trade balance of 3.9 billion pounds.

In other words, more than half of the expansion of the U.S. pork industry in the last 20 years is due to the increase in exports. Last year, one out of five pounds of pork produced in the U.S. went to exports.

The supply of chicken going to exports has also continued to increase since 1995 although exports always have been a significant driver for that industry. Back in 1995, exports accounted for 15.7 percent of overall U.S. chicken production. Last year chicken exports were constrained due to bird flu bans but in prior years the share of exports in chicken has been around 19 to 20 percent.

For the beef industry, the trade deficit that was in place 20 years ago has gotten larger. In 2015, we had a 1.1 billion pound trade deficit in beef, i.e. imports exceeded exports by that amount. However, consider why that is the case. Over the last two decades, the beef industry has become more efficient. We are getting more beef per animal in the herd, and therefore, the beef cowherd has declined. As we generate more fat trimmings, more lean beef is needed to mix into an acceptable hamburger meat block. Exports accounted for 9.6 percent of U.S. beef production in 2015 compared to 7.3 percent in 1995. The main reason why a more restrictive trade environment could be bad for beef is because of ample supplies of competing proteins; lack of access to growing markets in Asia; and our competitors establish trade pacts with our current customers and undercut U.S. competitiveness.

The Wyoming Water Development Commission (WWDC) is set to enter its busy fall season in which the Commission develops and recommends to the Legislature the proposed 2017 water development program for the state.

WWDC has been accepting applications for project funding since last summer, and at the Nov. 9-11 meeting in Casper, they will hear from project sponsors and staff regarding the specifics of the projects. From there, WWDC will provide preliminary recommendations for the drafting of the omnibus water bills for both planning and construction projects. WWDC will then consider and finalize the omnibus water bills at the Dec. 14-15 meeting in Cheyenne.

Once approved by the WWDC, the omnibus water bills will be forwarded to the Select Water Committee of the Legislature.

Funding concerns

As with all state agencies this last year, funding has been a concern for WWDC. The funding used by the Commission to fund water projects is derived from severance tax collections, with each of the three water development accounts (WDA) receiving a statutorily fixed percentage of taxes flowing into the Severance Tax Distribution Account. At this point in time, the distribution formulas remain unchanged, and the revenue stream supporting the water development program is stable.

The three water development accounts are designated for very specific purposes as described below:

WDA I is to fund new development projects such as new transmission pipelines, storage tanks and small reservoirs.

WDA II is to fund rehabilitation projects including canal lining, diversion structure replacement or placing open canals into pipelines.

WDA III was established in 2005 with the specific purpose of constructing new dams and reservoirs with a capacity of 2,000 acre-feet or greater and existing reservoir enlargements of 1,000 acre-feet in size or larger.

Projects

A preliminary review of the projects seeking WWDC funding this year shows a broad mix of municipal, irrigation district and conservation district projects. In the municipal sector, WWDC will be considering several new water storage tanks, multiple transmission lines, three groundwater exploration wells and supply studies that look at enhancing or expanding potable water supplies into underserved areas. Generally, these types of projects are considered new development and are funded from WDA I.

An unusually large number of watershed study requests – seven – were received this year from conservation districts. Watershed studies provide a comprehensive review and analysis of watershed health and water supply issues in the target drainage. Often times, the studies identify irrigation water shortages, which is the starting point to begin the planning process for constructing new storage reservoirs. This is exactly what happened in the Blacks Fork Watershed Study which has now advanced to a feasibility study to enlarge Meeks Cabin Dam and Reservoir.

The watershed studies are also used to identify needed small water projects, thereby qualifying them for the very popular Small Water Project Program (SWPP). In the SWPP, WWDC provides 50 percent grants to construct water features such as stock wells, stock ponds, stock water pipelines, solar platforms for stock wells and environmental improvements to stream systems.

Another interesting project up for WWDC consideration is a proposal for the state to purchase the private water assets in Lake DeSmet and Healy Reservoir. Currently, Johnson County owns Lake DeSmet with the exception of 62,199 acre-feet of space and water rights that are privately owned. Healy Reservoir, which has 5,140 acre-feet of storage, and the associated Clear Creek diversion structure, pump station and 6.7 miles of transmission pipeline are part of the package of water assets now for sale. What are the potential benefits to the state and its citizens? How might the water be used now and into the future? What are the liabilities in owning these water assets? These and other questions will need to be addressed as the WWDC determines whether to add this proposal to the 2017 Omnibus Water Bill – Construction.

Water strategy

WWDC is aggressively pursuing the Governor’s “10 in 10” water strategy. This initiative seeks to construct 10 reservoirs in the next 10 years, with the start date being 2015. Four projects in the Level II planning phase are being recommended to advance from Phase I to Phase II. Level II, Phase II studies perform extensive analyses on the preferred reservoir site along with potential alternatives. Evaluations include geotechnical, cultural resources, wetland impacts, fishery benefits/impacts, wildlife impacts, social/economic factors, hydrologic modeling, preliminary designs and cost estimates, all factors that will be considered in the project’s required environmental impact statement.

The four projects recommended for more detailed study include:

Big Wind Storage Study – Fremont County,

Greybull Valley Irrigation District Storage Enlargement – Park and Big Horn counties,

Little Wind Storage Study – Fremont County, and

New Fork Lake Dam Enlargement – Sublette County.

Additionally, the Dams and Reservoir section of the Water Development Office is recommending that construction funding be appropriated for four reservoir projects that are now in the design and permitting process. Those projects are as follows:

Alkali Creek Reservoir, located in Big Horn County, will impound approximately 8,000 acre-feet of water. The proposed dam is a 110 feet high earth-fill structure. The reservoir will provide a minimum recreation/fishery pool of 2,000 acre-feet and provide 6,000 acre-feet of late season irrigation water to the lower Nowood River drainage.

Leavitt Reservoir Expansion, located in Big Horn County, will impound approximately 6,600 acre-feet of water. The new dam will replace or enlarge the existing Leavitt Reservoir, with 643 acre-feet of storage, with a 95-foot-high earth-fill dam. The reservoir will provide an additional 5,100 acre-feet of supplemental irrigation supply to the Beaver Creek and Shell Creek drainages, along with a 1,500 acre-feet minimum recreation and fishery pool.

Middle Piney Reservoir is located in Sublette County and impounds approximately 3,370 acre-feet. It is owned by the Forest Service and, due to safety of dam issues, is at risk of being decommissioned. This project will reconstruct a portion of the earth-fill dam to resolve the safety issues. WWDC intends to enter into a long-term management agreement with the Forest Service to provide water to downstream irrigators.

Big Sandy Reservoir Enlargement, located in Sublette and Sweetwater counties, will impound an additional 13,500 acre-feet of water. If maximized, the project will enlarge the existing reservoir by raising the existing spillway approximately five feet. The additional water storage will be used to improve the reliability of the irrigation supply for Eden Valley Irrigation and Drainage District.

WWDC continues to pursue the construction of water development projects across the state that provide secure and safe drinking water supplies, reliable irrigation systems and enhanced water storage so Wyoming citizens may continue to prosper during times of drought as well as enjoy the associated recreation benefits. Overall, some 65 projects and programs are on the agenda for the November 2016 WWDC meeting.

Would you like to know how to bypass capital gain taxes on the sale of your land and have the U.S. government pay you? I know it sounds too good to be true but that is exactly what we have helped many Wyoming ranchers do. Allow me to explain.

IRC Section 1031 Exchange

Section 1031 of the Internal Revenue Code allows a person with appreciated land to sell their land, to purchase or exchange into other real estate and to defer taxes on the sale. Many agricultural families who are transitioning into retirement use the 1031 exchange to preserve their wealth and to generate passive income by exchanging into various types of commercial property.

While land may offer good growth potential, the cash flow returns on land are generally significantly lower than those offered with other types of commercial properties, such as office buildings.

For this reason, many agricultural families prefer to exchange into commercial properties because they can typically earn about three to four times what they can leasing land. And, by hiring a property management firm, you can free yourself from the responsibility of actively managing your property.

Tenant credit ratings

The value of commercial income-producing real estate is largely based on the financial security of the tenant the property. When investing in commercial property, you want to make sure your tenant can pay their rent and meet all terms of a lease. If your tenant defaults on their lease, you could end up with an empty building, and you’re stuck with paying all the property expenses.

A credit rating is an evaluation of the credit risk of a prospective debtor, either a company or a government, which predicts their ability to pay back the debt. It measures a company or government’s financial strength  and the likelihood of them defaulting on a lease agreement.

The higher the credit rating of a tenant, the greater assurance you have of their ability to pay the rent. Examining a tenant’s credit rating is an important step when evaluating commercial property investments.

Three of the most reputable credit rating companies are Standard and Poor’s (S&P), Moody’s and Fitch. S&P assigns credit ratings that range from AAA, which signifies an “extremely strong capacity to meet financial commitments, to D, which indicates “payment default on financial commitments.” Investment grade properties have a rating of BBB or higher. A BBB rating indicates that a company has “adequate capacity to meet financial commitments but is more subject to adverse economic conditions.”

The U.S. federal government maintains the highest credit rating in the world, making it arguably the most secure tenant in the world. After all, they are the only tenant that can print their rent.

Many people, however, don’t realize you can personally own properties leased to the federal government.

U.S. government agency real estate market

The federal government is the largest user of real estate in the nation, occupying more than 370 million square feet of office and related space. Currently, over 180 million square feet of that space is leased.

According to the General Services Administration (GSA), property manager for the federal government, the amount of government-leased space continues to grow. During the 10-year time span of 2005-14, the federal government increased its occupancy of leased office space by 38.3 million square feet, representing a 25 percent growth rate. The federal government currently leases over 8,000 separate locations throughout the country to run its missions.

Although there is a large amount of government leased office space, finding government leased buildings available for purchase and effectively analyzing them for investment can be difficult. Many of the newly constructed federal government buildings are not publicly listed for sale. Locating these buildings largely depends on knowing the contractors who constructed the buildings.

In addition to being difficult to find, federal government buildings have unique leases. Understanding the nuances in these leases is very important if you are going to invest in them.

U.S. federal government real estate leases

With an average lease term of 10 years, U.S. federal government real estate leases provide consistent, predictable cash flows. Due to their high historical lease renewal rates, U.S. federal government tenants have remained in single locations for an average of nearly 30 years.

The credit strength of the federal government, combined with their high historical lease renewal rates, makes federal government leased office buildings an attractive investment for the typical agricultural family who is selling their ranch and transitioning into retirement. With a federal government building, you have the upside potential of commercial real estate with the credit of a Treasury bond.

Chris Nolt is the owner of Solid Rock Wealth Management, Inc. and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families around the country who are selling a farm or ranch and transitioning into retirement. For more information, visit: solidrockproperty.com and solidrockwealth.com.

Nobody in the water business really wants to become embroiled in an interstate water lawsuit.  These types of suits tend to be very costly, create acrimony among the parties that can take years to heal and place ultimate decisions in the hands of a court that, while well-meaning and schooled in the law, can be unpredictable, confusing and ultimately take control out of the hands of the states – where it belongs. 

But, where regional water conflicts gain momentum or where drought is so severe that even going to court looks like the lesser evil, they happen.  Wyoming, in fact, started the ball rolling by filing one of the first interstate suits in the western water business – against Colorado in the early 1900s.  We complained that our neighbors to the south were using water without consideration for senior rights in Wyoming. We won. The ruling essentially said that priority of right applies across state lines when both states involved follow the prior appropriation system.

Be careful what you ask for because next time Wyoming will likely be the upstream state.

I wrote a guest piece for the Wyoming Livestock Roundup back in 2005 entitled, “When Wyoming’s Water Really Isn’t,” that, were it reprinted here, would be a good introduction to this article.  In essence, it reminds us that many states grew up along our western rivers, and all had some water uses that grew up with them – uses that became subject to interstate compacts and court decrees. So, yes, because of those old “pre-compact” type rights and uses in downstream states, not all water flowing in Wyoming’s interstate rivers is ours alone. That’s true, even though our constitution says every drop within our borders is owned by Wyoming. 

While many interstate litigation contests are instructive, the two most recent for purposes of this piece are the Nebraska v. Wyoming litigation on the North Platte River, settled in 2001, and the Montana v. Wyoming lawsuit filed in 2007, in which we are currently involved on the Tongue River. 

Let’s look at these contests from about 30,000 feet.  In the 30 years since Nebraska v. Wyoming was filed and the nine years Montana v. Wyoming has been around, the big picture is clearer than when we’re in the heat of battle.

Nebraska sued Wyoming for any number of reasons – nonregulation of tributaries, use of connected groundwater in the Torrington area and the proposed Deer Creek Dam near Glenrock come to mind. This river basin had already been under a decree since 1945, and Wyoming already had an irrigated acreage cap and access to only 25 percent of the natural flow in the Torrington area.  After 1945, the river was viewed as fully appropriated. In hindsight, were we simply using the river to what we believed to be the fullest legal extent, or were we guilty of overuse? I’m not sure it matters.

Looking back over the 15 years since settlement in 2001, under an additional consumptive use cap, a replacement water obligation for groundwater use in the Torrington area and the prospect of a February-to-April call to fill federal reservoirs in “allocation” years, how have we fared? Not bad, given what we’ve seen the following:

There have been six allocation years in the last 15. Under allocation year administration, agricultural operations have been essentially unaffected because they typically aren’t actively diverting during the call, and municipal and industrial users have devised alternate water supplies to avert curtailment;

The state has found replacement water for groundwater use in the Torrington area every year;

We have never violated the irrigated acreage or consumptive use caps;

Existing uses at the time of settlement have been protected; and

Transparency in our compliance operations has dissolved the acrimony of the lawsuit days.

A solid, mutually respectful, working relationship with Nebraska now exists.

How about the Montana v. Wyoming case? 

The first major ruling in 2011 said Wyoming wasn’t violating the compact by our appropriators changing from flood to sprinkler irrigation. Later, the Powder River was dropped from the case, and allegations of injurious groundwater use were not proven. All of these were positive for Wyoming.  However, because the prior appropriation system applies across state lines with regard to post-compact rights, we are obligated to regulate those users if a valid call is received to fill Montana’s pre-compact Tongue River Reservoir (TRR) or to meet the demands of pre-compact natural flow users in Montana. And, if we store water out of priority in our post-compact reservoirs and TRR doesn’t fill after a call, we risk having to release that stored water to Montana.

In both 2015 and 2016, we received the call to fill TRR and honored it both times. In both years, it filled after a few short weeks, resulting in only a handful of post-compact users being affected, and Wyoming retained its post-compact stored water in our part of the Tongue River Basin. 

Much like in the North Platte, appropriators are seeking lawful ways to improve their access to water to avoid being impacted by this call, from acquiring storage water to petitioning to move water rights or by entering exchange agreements to solidify their water supplies.  The working relationship among water administrators in both Wyoming and Montana now exhibits a more open exchange of information, and we are hard at work with Montana and federal natural resource agencies to improve runoff forecasting in the Tongue River Basin.  This coordination between Wyoming and Montana continues, despite the fact that the lawsuit has yet to come to closure. Active litigation or not, we still have a river to administer and users who need some predictable system under which to operate.

Returning to the title of this article, it is easy in hindsight to distinguish the bad from the good and the helpful. The bad is the real or perceived injury that launched the case, the damage caused to critical working relationships and the many drawbacks of litigation. The good and the helpful part is that when a case ends, reparations are made, and we know better the expectations for future operations. 

Wyoming has been successful in protecting the vast majority of our users from impact due to these cases, while in a few instances we have learned that regulation for the benefit of the other state is appropriate.  So we do it. After all, we were once the downstream state, and demanded, and got, the same result. We cannot act like we are the only state on a river. Law and comity demand otherwise. But we can defend our uses under that law in a way that also respects downstream lawful uses. It’s a balancing act and a relationship, which must be carefully maintained.