LANSING — Just days after Michigan Governor Jennifer M. Granholm used her annual State of the State address to focus exclusively on creating jobs and designing a 21^st-century economy, top business organizations and leading Republican officials seized on the theme as a platform to oppose measures that aim to safeguard the Great Lake State’s most important asset: A robust supply of clean, fresh water.

Citing glum unemployment figures and high taxes, representatives from the Michigan Chamber of Commerce and the Michigan Manufacturers Association stepped up their attack on Governor Granholm’s nearly year-old proposal to establish, for the first time in Michigan, a permit system to manage large extractions of water from lakes, rivers, and underground aquifers.

The governor, a Democrat, says the new policy is needed to bring Michigan law up to speed with neighboring states, strengthen Michigan’s ability to resist bulk water diversions from the Great Lakes, and guarantee healthy resources for future economic development. But advocates for business characterize the proposal as a poorly timed and unnecessary threat to job creation that will further shackle industry’s ability to compete and worsen already depressed economic conditions.

The boiling political conflict over a new law to improve stewardship of the Great Lakes ecosystem is not surprising. It comes as Democrats and Republicans begin to position their respective parties for the 2006 campaign, when the governor must seek reelection. Water resource issues likely will be hotly contested in that election, as both parties have maneuvered in recent years to define themselves as the champions of Great Lakes protection while accomplishing little substantive action. Top statewide business leaders are working to make sure state Republicans do not waver.

“The proposal imposes over $100 million in new costs on business, it discourages companies from expanding, and it creates a high degree of uncertainty for job providers,” said Doug Roberts, Jr., director of environmental and regulatory affairs at the Michigan Chamber. “The governor calls it the Water Legacy Act. We call it the Water Regulation Act.”

Twin Attacks
Mr. Roberts’ remarks came on Feb. 10 at a well attended public forum in Lansing organized by the Environmental Law Society at Michigan State University’s College of Law. Earlier that same day, across town at the state Capitol, leading Republican lawmakers set a similar tone when state Representative David Palsrok expressed his concern about a comprehensive statewide permit program for water withdrawals. He took the opportunity when Steve Chester, the director of the state Department of Environmental Quality, appeared before House members to provide an update on his agency’s activities. Director Chester’s agency currently is leading several initiatives to modernize Michigan water withdrawal policy.

“I don’t call it the Water Legacy Act,” said Representative Palsrok, a Republican from Manistee who chairs the House Natural Resources, Great Lakes, Land Use, and the Environment Committee. Representative Palsrok referred to Governor Granholm’s proposal as a “water regulatory scheme” and said, “I question whether it is necessary and I question the costs.”

Mr. Chester, though, defended the proposal. “We haven’t done an economic assessment,” Mr. Chester said. “But in thinking about the impact of the legislation we did look at how many large users we are likely to capture if the Legacy became law. We estimate four to six new users a year [at the two million gallon per day-100 million gallon per year regulatory level]. We are talking about relatively large withdrawals.”

Like the 170,000 manufacturing jobs Michigan lost in the past four years, the political debate about the state’s water policy is one piece of a much larger story. It reflects the state’s fundamental struggle to adapt to and compete in the changing global economy.

Michigan’s economy traditionally relies heavily on extracting water to not only irrigate farm fields, but also to refine petroleum, generate electricity, and manufacture steel, automobiles, and other goods. Toyota Motor North America’s proposal to build a new engine factory near Ann Arbor indicates that those uses will continue as important economic activities in the state.

New Century, but Old Arguments
But the 21^st century’s knowledge driven economy brings new industries and new ideas, including trends that make water resource even more valuable. Increasingly, fresh water is seen not only as a raw material but also as a critical asset for attracting talented workers and executives in knowledge-based industries, and for generating new economic opportunities, such as Michigan’s life sciences initiative. Some observes say that the chief challenge facing state leaders and economic development officials is recognizing this new global reality and updating the state’s 19^th-century water laws to reflect the new era.

“How do we develop policies and regulations to help guide us in a way that optimizes economic growth while sustaining the ecosystem?” said Jon Bartholic, director of the Institute of Water Research at Michigan State University, during the forum. “Both will keep Michigan strong.”

But two of the state’s top business leaders told the forum they believe the opposite to be true. They insist that they oppose wholesale water diversions out of the Great Lakes, but contend that Governor Granholm’s current water use proposal is not based on sound science, arbitrarily selects certain water users, and would significantly raise the cost of doing business in Michigan.

“The [Legacy Act] will discourage job creation in Michigan,” said Mr. Roberts of the state Chamber. “We estimate that an individual company will have to pay between $300,000 to $800,000 just to submit a permit application under this proposal. That is [money] you will not be able to spend growing your business, creating new jobs. It’s just money for regulation.”

“The other Great Lakes states really hope that we regulate ourselves,” added Mike Johnston, the director of regulatory affairs for the Michigan Manufacturers Association. “Because it will be more expensive for us than it will be for them, handing them an economic advantage to compete over us.”

The Minnesota Advantage
But enactment of clear water use standards does not necessarily retard economic growth. For example, Minnesota, which enforces one of the Great Lake Basin’s more stringent water withdrawal programs, began implementing tougher water use standards after the Dust Bowl drought of the 1930’s. Despite the added regulation, the state in 2001 had above average per capita income and economic growth from 1969 to 2001, compared to national figures. Michigan, by contrast, scores below average in both categories, according to a recent report prepared by Donald Grimes, a professor at the University of Michigan, and Lou Glazer, president of Michigan Future, Inc. What’s more, progressive industries in Michigan are finding that water conservation actually reduces operating costs and makes their factories more efficient.

Governor Granholm’s proposed Water Legacy Act could encourage those savings by requiring businesses to prepare conservation plans. The proposal would also require a permit for certain water withdrawals exceeding two million gallons per day or 100 million gallons per year, and would gradually ratchet down that threshold to 100,000 gallons per day by 2010. Minnesota’s policy, by contrast, is much more strict; it regulates all water withdrawals exceeding 10,000 gallons per day. One expert at the forum asserted that the strict standards actually help that state’s business climate.

“The benefits of a state regulatory system are greater predictability, a neutral decision maker, a level playing field, clearer standards for water use that are spelled out in state statute, and the traditional administrative review for challenging the process if necessary,” said Chris Shafer, an associate professor at Thomas M. Cooley Law School.

Mr. Shafer listed the reasons why he thought Michigan should quickly strengthen its water withdrawal policy. Among them: Michigan and its neighboring U.S. states and Canadian provinces signed the 1985 Great Lakes Charter, promising to improve water use management in the Basin. But, after 20 years, Michigan has yet to meet the agreement’s basic requirements. He said that Michigan traditionally opposes mass water diversions from the Great Lakes but the lack of a clear state policy minimizes local authority over water resource decisions, leaving the state legally vulnerable. He also said that Michigan is far behind other states around the region and nation in establishing a basic system to manage large water withdrawals.

Cost Questions
Mr. Shafer said one troubling result is that expensive litigation is the only recourse that competing users have to settle disputes or that citizens have to protect aquatic resources such as streams and wetlands from harmful withdrawals. As a prime example, Mr. Shafer cited the ongoing court battle between Nestle Waters and the Michigan Citizens for Water Conservation over water withdrawals that company is making in Mecosta County.

“We need a comprehensive statute to regulate current uses, minimize conflicts, avoid adverse impacts to lakes, headwater streams, and wetlands, and put us in a legally defensible position to keep the water in the Great Lakes and not lose it to a serious challenge to divert it."

Andy Guy, who writes extensively about sustaining the Great Lakes in the global economy, directs the Michigan Land Use Institute’s Great Lakes Project and reports on Smart Growth from the Institute’s Grand Rapids office. Reach him at aguy@mlui.org.