The Bush administration is close to settling a legal dispute with California farmers that could cost the government millions and make it more difficult for federal authorities to protect endangered species, according to legal analysts and some state and federal officials.
Justice Department officials are working to reach an agreement with five San Joaquin Valley water districts that would affirm a federal judge's 2001 decision that federal authorities' efforts to conserve water for two imperiled kinds of local fish violated farmers' private property rights. The ruling, the first of its kind, would set an important precedent and could make it costly for federal officials to take protective actions under the Endangered Species Act.
 
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The negotiations have touched off a controversy both within the administration and in California, with some state and federal officials arguing the government would be better off appealing a federal claims judge's decision that the government owes as much as $26 million for depriving San Joaquin farmers of their water rights in the early 1990s.
The case has been closely watched because of its potential implications for the ongoing debate over whether property owners should be compensated when environmental, zoning and construction regulations limit how they can use their land.
Justice Department officials said they could not comment on whether they had reached an agreement with the California farmers, who lost as much as a third of their water deliveries in 1992 and 1994 when a prolonged drought posed a threat to the survival of the area's Chinook salmon and delta smelt populations. The smelt live in the Sacramento-San Joaquin River Delta their entire lives, while young Chinooks swim through it on their way to the sea.
"As in any litigation, we always entertain settlement negotiations," said Justice Department spokesman Blain Rethmeier.
Sources close to the investigation said the two parties, who held a conference call with court officials Friday, were near agreement, but the accord -- which would have to be approved by senior Justice officials -- could still fall apart.
Last week the chairman of California's State Water Resources Control Board, Arthur G. Baggett, urged the Bush administration to appeal Judge John Paul Wiese's decision, saying the ruling "could fundamentally change the way that water resources are managed in California." The board issues permits for water use in the state.
Lawyers at the National Oceanic and Atmospheric Administration, which oversees the nation's fisheries, have also asked Justice officials to hold off paying the farmers. In a March 8 letter obtained by The Washington Post, NOAA General Counsel James R. Walpole wrote to the Justice Department reaffirming his agency's view "that liability was wrongly decided and its recommendation [is] that the United States appeal the final judgment as to liability." Walpole added that NOAA was confident an appeal "should readily result in a judgment in the United States' favor."
House Resources Committee Chairman Richard W. Pombo (R-Calif.), however, has urged the administration to accept defeat and compensate his state's farmers for their losses.
"This case should spell profound change for conservation policy, requiring the federal government to pay for what it takes under the Endangered Species Act," Pombo said yesterday. "The Justice Department needs to stop dragging its feet, award damages, and do a better job of protecting constitutional private property rights. When it does, the federal government will have to make property owners a partner in species conservation, rather than the victim of a taking."
In the past, federal judges have ruled endangered species protections trumped individual water contracts with state or federal governments. But Wiese wrote in 2001, "The federal government is certainly free to preserve the fish; it must simply pay for the water it takes to do so." A year ago he determined the water agencies deserved $14 million in compensation, a figure that ballooned after the court factored in attorneys' fees and accrued interest.
Joseph Sax, a law professor at the University of California at Berkeley who worked on briefs opposing the farmers' claims, said a settlement would hamper government officials' ability to protect the public interest in recreation, navigation and other matters.
"It has serious implications, not only for endangered species but for all the protections for public use of water," Sax said in an interview. "It has great potential to cost both the federal government, and potentially states, a great deal of money because it potentially requires payment for historically and conventionally permissible public regulation of water use."
The farmers' allies, on the other hand, said a settlement would reflect the administration's consistent support for private property rights.
"This administration recognizes that when farmers own water rights and they plant crops in anticipation of being able to use that water, and are then told they can't have that water and are seriously damaged by that, they have the right to sue for damages," said Pacific Legal Foundation principal attorney Robin Rivett, whose group filed a brief on behalf of the five water agencies.
