Massive Farm Owned by L.A. Man Uses Water Bank Conceived for State Needs

Los Angeles Times

December 19, 2003

By Mark Arax, staff writer

BAKERSFIELD — The Kern River, dry as bone, meets Interstate 5 on an expanse of land no longer tamed by agriculture. The last stand of cotton was plowed under a decade ago, and now tumbleweeds hide jackrabbits and coyotes.

But cotton's white gold has given way to new riches stored deep below the ground. That's where 730,000 acre-feet of water — a lake worth more than $180 million on the open market — awaits the pump.

In a new era of buying and selling water, there may be no bigger stockpile than the Kern Water Bank. It was conceived in the mid-1980s by the state Department of Water Resources as a way to store water in the aquifer in wet years so that it can be pumped out in dry years.

Today, though, the massive underground pool is controlled by one corporate farmer, wealthy Los Angeles businessman Stewart Resnick, who owns Paramount Farming Co., the Franklin Mint, and Teleflora, a flowers-by-wire service.

The Kern bank, which was intended to help balance out the state's water supply to cities, farms and fish, has instead allowed Paramount Farming to double its acres of nuts and fruits since 1994.

In recent years, Paramount received enough water from the state to irrigate its existing orchards and withdraw enough water from the bank to plant more trees.

Paramount Farming is now the largest grower and seller of almonds and pistachios in the world, according to an international business directory. Paramount Citrus, also owned by Resnick, ranks as the largest citrus grower and packer in the U.S.

Critics say Resnick's control of the water bank is a glaring example of the perversion of water marketing — how a handful of California's most powerful and wealthy men continue to grab the state's most precious natural resource.

The state purchased the 20,000 acres along I-5 and funded the initial planning and plumbing, a public investment totaling $74 million. But the water bank went from public to private hands after a series of closed meetings between state water bureaucrats and large water contractors, including Paramount.

"A water bank designed as a safeguard against drought is being used by Paramount and other mega-farms to grow even bigger," said John Gibler of Public Citizen, a Washington, D.C.-based nonprofit organization founded by Ralph Nader.

"In some cases, this water is being promised to major developers, such as Newhall Ranch, as a way to get thousands of houses green-lighted by county governments. A public resource has been privatized by and for the wealthiest."

William D. Phillimore, Paramount's vice president as well as chairman of the Kern Water Bank, said his company is not the only one to benefit.

The water, by dint of legal contracts with the State Water Project, belongs to Paramount and other farming entities that make up five local water districts. Although Paramount does control more than 50% of the water bank, scores of other farming operators, as well as residents in nearby Bakersfield, also draw water from the bank, he said.

By banking water and drawing less from Northern California rivers during dry times, he said, farmers also are helping the environment.

"The water bank, as it currently exists, is an asset for the entire state. The problem with these water deals is they are very convoluted and very complicated," Phillimore said. "But anyone advancing the argument that the benefits are going to one grower hasn't done their homework."

Resnick, one of the richest people in Los Angeles — with an estimated net worth of $740 million — didn't begin farming in the San Joaquin Valley until the mid-1980s. He and his wife, Lynda, had built their fortune on flowers and burglar alarms before buying the Franklin Mint in 1984 and marketing such items as John Wayne Collector Plates.

Resnick now oversees more than 100,000 acres from his office on Olympic Boulevard in West Los Angeles, placing him second only to cotton king J.G. Boswell, America's biggest farmer with 150,000 acres in Kings County. Paramount's buying spree, which now includes 6,000 acres of pomegranates, would not have been possible without the water bank, managers agree.

But Resnick, 65, isn't inclined to talk about the rise of his farm, which consists of leftover chunks of old Texaco, Mobil Oil and Dole Foods land.

His one subsidiary that controls the largest share of the water bank has no office and no telephone number. His Los Angeles-based holding company, Roll International, has no public relations arm. The secretary answering the phone shoos away reporters with no wasted words. "We don't talk to the press. Goodbye."

The story of how the state's largest water bank — jump-started with $74 million in taxpayer money — ended up as an integral piece of the private empire of Stewart Resnick begins with a lawsuit, or at least the threat of it.

A seven-year drought ending in the early 1990s pitted Southern California water contractors, such as the Metropolitan Water District, against agricultural contractors, such as the Kern County Water Agency. Each region made its case to the state, telling why it deserved to receive the water guaranteed by long-standing contracts. In the drought's worst years, urban users got 30% of the draw, while Kern farmers received less than 5%.

In 1994, agricultural and urban interests threatened to sue the state for nondelivery. The main parties gathered in a closed-door meeting in Monterey to hash out a settlement. Public interest groups, environmentalists and smaller water contractors — locked out of the meeting — cried foul.

When it was over, the very flow of California water had been redirected.

The state Department of Water Resources set the stage for water banking and marketing on a larger scale. Water marketing became more important because the State Water Project had never been fully built out. As a result, Water Resources couldn't live up to its yearly contractual obligation to deliver 4.2 million acre-feet of water to cities and farms statewide.

To create more water, the department agreed to turn over its fledgling water bank to the Kern County Water Agency and let area farmers capture more water in wet years. In return for the water bank, Kern agreed to amend its contract with the state by reducing its draw of 1.1 million acre-feet by 45,000 acre-feet.

"At the time we took over the water bank, it was the biggest white elephant boondoggle that DWR had ever wasted its money on. There were no recharge ponds, no new wells," said Scott Hamilton, Paramount's resource planning manager.

"We gave up 45,000 acre-feet of water to get it, and then we spent $30 million on infrastructure. It's the locals here who built the water bank."

Public Citizen, in a report by Gibler titled "Water Heist" to be released today, contends that the state's transfer of the bank led to a water grab by Resnick and other big corporate farmers.

"The state invested a lot of money and created a bank that could store 1 million acre-feet — for the benefit of the entire state," Gibler said. "It was absurd to then trade that away to a privileged few."

Gibler argues that the 45,000 acre-foot entitlement that Kern County gave up was really "paper water." It existed only as a promise on a contract between the Kern County Water Agency and the Department of Water Resources. Because the state consistently fell short on those contracts, Gibler said, the 45,000 acre feet wasn't real water actually shipped from the Sacramento-San Joaquin Delta.

"Kern County gave up a pittance at best and got an invaluable water storage facility in return," he said.

Current and former staff at Water Resources say both sides are partly right. Yes, the 45,000 acre-feet could be considered an illusion in most years. But the water bank itself was nowhere near to being in working order when the state handed it over to Kern.

"We bought the land and put in the money, but we couldn't make it work," said Steve Macaulay, the department's former chief deputy director.

With the bank in hand, the Kern County Water Agency signed a joint powers agreement in 1995 with four other local water districts and one private water company. The agreement divided up the ownership of the water bank, with the largest share, about 48%, going to Westside Mutual Water, a subsidiary of Paramount Farming.

Dudley Ridge Water District, whose president, Joseph C. MacIlvane, is also the president of Paramount Farming, got 10%.

As a result, Resnick now controlled a water bank capable of extracting 240,000 acre-feet each year — enough water to furnish the needs of 500,000 households.

"He's got some 5 million almond trees planted in the desert. Most of the water has gone to create a nut empire," Gibler said. "By controlling the water bank, they are now poised to profit from water sales to urban development.

"And don't think it won't happen. Look at Newhall and Tejon ranches. Big Ag is becoming Big Sprawl through water trading."

Resnick, a major philanthropist and art collector who has donated hundreds of thousands of dollars to Democratic political candidates, including personal friends Bill and Hillary Clinton, has put his farming empire in the hands of experts, locals say.

Paramount's vice president, Phillimore, declined to answer questions about the company's holdings or plans to sell water for urban growth. "We honestly don't like to share information with people," he said. "It's one of the advantages of being a private company."

Other Paramount managers took issue with the notion that the water bank was purely a vehicle to enrich Resnick. When the Delta has needed more water during heavy pumping months to spare fish, the Kern Water Bank has been a willing seller, they said. #