A new study identifies the biggest users of the overused Colorado River.

Plus... what the Federal Reserve thinks of Nevada's economy.

That's this week on Nevada Week.

♪♪♪ Support for Nevada Week is provided by Senator William H. Hernstadt.

Welcome to Nevada Week.

I'm Amber Renee Dixon.

The Federal Reserve visits Las Vegas.

Its message to Southern Nevadans hoping mortgage rates will soon drop.

That's ahead.

We begin with the Colorado River.

For decades water from it has been overused, and now a new study shows where it's all going.

Joining me to discuss the study's findings is Alan Halaly, Water Reporter for the Las Vegas Review-Journal.

Alan, welcome.

Tell us, Colorado River water, where is it all going?

(Alan Halaly) Yeah.

It's a good question.

It's something that scientists have wondered for decades, and they've tried to figure out.

And this data kind of shows us the most definitive account of where all this water is going.

The main takeaway is that alfalfa, which is used for cattle grazing and to feed other farm animals, and other hayes takes about 46% of the Colorado River water.

And agriculture in general takes about 52%.

So those are big numbers when you compare to 18%, to municipal water use, especially, that's something front of mind for Southern Nevadans who have to rip out their grass.

So there's a lot of interest in how, how we're using all this water that we're continuing to negotiate.

-What have reactions to this study been?

-Well, I think scientists are interested in kind of getting this information out there before this looming deadline of 2026 to reallocate the Colorado River.

Every state gets a certain amount of water that they're allowed to use, Nevada being the lowest amount of water.

And, you know, before-- they're trying to rush to do these negotiations before the election, which could see a major shake up in the Bureau of Reclamation.

So I think the main takeaway is negotiators now have the most accurate up-to-date information as to where all this water is going.

I don't think it's very surprising for them.

Very often, we like to point the finger at agriculture as being this big water user that we need to regulate.

So it's interesting to see kind of the timing of it as well.

There's this big disagreement between the Upper and Lower Basin in how to proceed.

-And you talk about agriculture, but Nevada has a lot of agriculture as well.

Alfalfa hay is the state's leading cash crop.

How does this study impact Nevada's role in those negotiations?

-Yeah, it's interesting.

There's a distinction that needs to be made.

Most of Nevada's agriculture is dependent on our groundwater.

In these rural parts of the state that don't have big pipelines coming from Lake Mead, they need to rely on this over-appropriated groundwater.

There's more rights given to farmers than there is on paper, or than there is actually in the basin.

So I think it's interesting, and we're thinking about how to rectify this.

You know, can we put more water-efficient crops in?

Will that even fix the problem?

And Nevada isn't necessarily a big agricultural force in the context of the country or even the Southwest.

California's Imperial Valley is a big producer, as well as kind of near Arizona and Yuma.

There's a small portion of farming that's based on this Colorado River water.

But at least in Nevada, most of it is from the ground.

-And in these negotiations of the Colorado River, there is the Upper Basin and then there is the Lower Basin, which might benefit most from this study?

-It's a good question.

You know, the big question right now is there's this thing called the structural deficit, the water that we lose to evaporation, which is studied in this new paper.

It's about 1.5 million acre feet that both basins agree that the Lower Basin, including us, Nevada, California, and Arizona, should shoulder those cuts.

But past that there's this question of should the Upper Basin be required to take cuts even though they don't benefit from big reservoirs like Lake Mead or Lake Powell.

So that's kind of the nexus of the disagreement.

And this study, I think, could maybe help them think about solutions.

I think it's important for-- there's 40 million people that benefit from the Colorado River.

And there's a whole lot of local leaders that would be interested to know that farming is taking so much of their water.

So I think there's a lot of implications going forward in how we regulate farming and what the solution is to this big 2 1/2 decade drought that we've had here in the Southwest.

-Do farmers react to these studies?

-It's interesting.

I always point to that ProPublica investigation where one farming family, they found, uses more water than the entire Las Vegas Valley.

I think that might be shocking for people to know.

But you know, you read that story, and the farmers are like, Well, we have the right.

And they do.

They have these senior water rights to use this Colorado River water, compared to say these native tribes that benefit from it that don't even get their full allocation that, you know, water that should be theirs anyway.

-And that family is from the Imperial Valley?

-From the Imperial Valley in California.

-For your article, you spoke with Sarah Porter.

She's the director of Arizona State University's Kyl Center for Water Policy.

And she said that the solutions to this have to be nuanced.

What did she mean by that?

-Right.

I mean, you could say the solution is to point to alfalfa and rip it all out.

And, you know, that could be the path forward, But there's all these local economies in these rural parts of California and Arizona and even here in Nevada.

They depend on alfalfa and agriculture for, to live and to support their livelihoods.

So there's questions about if we change that crop, is that even going to fix the problem.

Very often, farmers in the Southwest will use the warm weather to grow year round, which is also contributing to that high water use.

So there's a lot of questions about how can we best regulate agriculture in a way that is both amenable to these local economies that depend on it and places like Southern Nevada, which are struggling to meet these big conservation deadlines.

-With a growing population.

-Absolutely.

-Last thing.

The snowpack typically peaks around this time up in the Rocky Mountains, melts, and gets down to Lake Mead eventually.

What's it looking like now?

How's it going to affect Lake Mead water levels?

-Yeah.

It's a good question.

Last year was a record wet year.

They measure it in a 30-year average.

And we were hovering for most of the year at about 130% of that 30-year average.

This year, we're kind of closer to 103, 105%, which is good news because, generally, hydrologists will tell you that a very wet year is followed by a very dry one, and a series of dry ones.

So we do have this wet year that isn't as wet as last year, but is generally good news for Lake Mead.

I will say those projections that they release at the beginning of every month, they do about two years.

They try to figure out where the water levels are going to be at every month.

And we are going to be close to that 2022 record low by the end of 2025.

So it kind of ebbs and flows depending on the season.

Of course, we're dependent on snowpack and releases from Lake Powell.

But you know, I think generally it's good news, but I think most hydrologists would tell you that in the future, we should be expecting more dry years to come.

-Alan Halaly of the Las Vegas Review-Journal, congratulations on making your Nevada Week debut, and welcome to Las Vegas.

You've been here for about four months from Florida.

Your thoughts on Vegas so far?

-Well, I will say it's very affordable.

I can afford my own apartment on a starting salary.

Housing affordability is something they're talking about right now.

-Certainly.

-But, yeah, it's been great.

I love the culture here.

-We look forward to having you back on.

-Thank you.

-We move from low water levels to higher interest rates.

The Federal Reserve began raising them in early 2022 to fight inflation.

And while the Fed is projecting three rate cuts this year, its Federal Open Market Committee most recently voted to keep rates where they are.

Mary C. Daly is a voting member of that committee and the president of the Federal Reserve Bank of San Francisco, which serves nine states, including Nevada.

I asked her about that decision and about her economic outlook for Nevada when I moderated a fireside chat at Windmill Library.

What would you say, though, to people here in Southern Nevada who are perhaps waiting on interest rates to be lowered in order to buy a home, to refinance, or to even put their home up for sale, thinking it'll make their home more competitive, about the Fed's decision not to cut rates?

-So that's a terrific question, and I want to answer this in two parts.

So the first part is that we're making progress.

All the interest rate adjustments we've made have shown through to lower inflation than we had a year ago.

We have an economy that's coming back into balance.

The labor market is coming back into balance, both because demand for workers has slowed, but also because supply of workers has improved.

And so we're seeing the signs that monetary policy is working.

And that's very good news, as we think about where's the path of interest rates going forward.

The second thing I'll say, though, is that, you know, we were in a world that was completely unsustainable.

We were in a world where house price appreciation was rising, rising, rising, and people couldn't afford homes then either.

So what we're doing, the part of our job that we do in the housing market, is to balance the economy so that we don't have inflation chewing up affordability.

But we do have a supply and demand imbalance in our nation.

And that's not just here in Southern Nevada, it's across the country.

And that is going to take the work of people, not Federal Reserve official, but people to bring that supply and demand back into balance.

But if you're looking to when am I going to be able to get back in the market, the economy is improving.

We are seeing inflation come down, albeit gradually, and there is a path in my mind where interest rates start to adjust this year.

We're just not there yet.

-What's the risk of cutting interest rates too soon?

-The risk of cutting interest rates too soon is a real risk.

You know, we had a roundtable before we walked in here with workforce and community leaders, and you can really see the vestiges of the long tail of high inflation.

It does take a toll.

So the risk of cutting it too soon is that that gets locked in.

Right now we're not at price stability.

If we lock inflation in at this level, that is just a toxic tax on everyone.

But it really hits hardest people who are least able to bear it.

And we've already seen some of that occur.

We don't want to continue that.

We want to fully bring inflation back to our 2% target and restore the balance in the economy that's necessary to maintain that.

-Now, the Fed has indicated it expects three interest rate cuts this year.

Is there any reason to doubt that will still happen?

-So I think that is a very reasonable baseline.

But I would like to say here that this is a projection.

Three rate cuts is a projection, and a projection is not a promise.

And I think that's really important because a projection is saying, Here's how the economy is expected to evolve.

And here's how policy evolve should that occur.

But you have to maintain this ready position.

And I feel we're in a good place to be ready.

-Here in Nevada, a recent study out of UNLV-- or excuse me, the University of Nevada, Reno, found that of all the businesses in Nevada, 98% are small businesses.

What have you heard about the impacts on them that these interest rates have had, and what would you tell them?

-So one thing that really is important is small businesses make up most businesses in the United States.

And here in Nevada, they're an extremely large percentage.

And they're an engine of growth.

And so we want to think about the health of small businesses.

And during the pandemic, of course, small businesses were very negatively affected by the closures.

Then we come out of the pandemic, and it's hard to find workers and input costs are rising and margins are squeezed.

And people are just trying to hang on.

Today, this morning, we heard that, depending on, in this roundtable, depending on what sector you're in, businesses are thriving.

The volumes are good, right?

People want to come and buy the proceeds, they want to buy the products, they want to come and eat dinner or lunch, etc.

But you're still facing hard time finding workers and high input costs and trying to meet your margins.

And so overtime, that's a strain.

And it's a strain on all businesses, but for small businesses in particular, really trying to figure out how do we get through this.

How do we make sure that we can manage these competing things?

The sentiment, though, when we look at the sentiment in all of the states, it doesn't seem to be getting worse and worse.

It's just not getting better and better.

We're sort of in a holding pattern of, wow, we're relieved inflation is not 7, 8% anymore.

We're relieved the labor market slowed a little bit.

But boy, it's not continuing to get better at a rapid clip.

And so there's still some question out there about when will the true relief come.

When will we be completely back to, well, in economist terms, we call steady state.

I think in everyday parlance, we call normal life.

-Las Vegas' venture into sports, the explosion in the sports industry here, do you really consider that economic diversification, or is it just more entertainment?

-So I think of it as there's two ways to diversify.

Or there's multiple ways to diversify, but I think, importantly, here in Southern Nevada, I'm seeing both.

I wonder if you would agree, but here's what I'm seeing and hearing is that there's a diversification of you want entertainment to come here, you want to be an entertainment capital.

That was gaming.

But not everybody gambles.

So okay, now we're going to add shows and nice restaurants.

And so that expands the clientele, but it also expands the length of stay because, families might come, some gamble, some see shows, they do things collectively.

Now you add sports, and you're covering a portfolio that most American consumers partake in.

If you put concerts, other kinds of shows, gambling, and sports, I mean, that covers a lot.

Plus it's a beautiful area.

You can hike and bike and partake in good weather.

Then that's a really large span.

So that's one type of diversification, but it's very consumer dependent.

-What are your thoughts about a recession in 2024?

-So it's interesting.

If you-- and if I may, I'm just gonna pull out my economist hat for a second and say that if you run any statistical models or you look at history, there's always some probability of a recession because it's just that's what-- you can always have something.

But what's really important to know is it's not very high right now.

It's sort of what we consider normal.

And that normal is what I see when I go and talk in communities, because the ingredients of a recession are really, absent some shock, some unexpected event, they are really that you see weaknesses emerging.

And we don't see weaknesses emerging.

We see, I see, the economy coming back into balance.

But look at the labor market.

It remains strong.

And we have good job growth.

We have opportunities.

Job vacancies are still higher than available workers.

There's still more jobs than there are workers looking for work.

And so that's obviously a strong labor market, healthy labor market.

Inflation is coming down, but we need it to come down more.

And so I see the probability of recession as not being something that's worrying me.

I didn't have a modal outlook for a recession last year, and I don't have one for this year.

What I have is sort of the case where how quickly will inflation come down, and what will we then do with the path of interest rates?

-Help us understand this.

Back in 2023, Nevada had the highest job growth in the country but also the highest unemployment rate.

How does that make sense?

-What I learned in the roundtable will help, but I'll start as a labor economist.

So what you learn is that sometimes rapid job growth causes a lot of churning in an economy.

So jobs are rising, job growth is rising rapidly, people are seeing new and ever new opportunities, and so they move back and forth.

But as you move from one job to another, you often have a spell of unemployment, which raises the unemployment rate.

The other thing that's true is the younger your population is or the newer to work they are or if new people are moving into the state to take job opportunities, they have a period of higher unemployment.

So those two things are not necessarily contradictory, that you can have rapid job growth and rapid changes, adding new industries, etc., and you could have people who have spells of unemployment because they're searching for the best opportunity for them.

And younger workers just search more and are in and out of work more than more experienced populations.

That's just a fact of how the labor market works.

But something I learned today in the roundtable is that, and it makes a lot of sense, when you bring a new industry in, like lighter manufacturing, and you're building it up, it takes time for people to say, Oh, I might want to work in that industry.

So they have vacancies that don't go filled while people stay without jobs, looking for a job that fits them.

And so I think that's just part of a natural process, that you have to make sure people know about the jobs, know about the opportunities they bring, but this is the third thing that we could have a lot of, all of you here have a lot to say about, which is you've got to train and make sure your workforce is ready for the new opportunities coming in.

So whether it's moving workers from the back office operations in gaming to the front office or it's moving people who were in, entertainment into light manufacturing and helping them get the training and the mindset that says, oh, those are good opportunities, that's just going to take time.

But it has to be done for that unemployment rate to come back into better balance.

What you ultimately want is good job growth and a low unemployment rate.

But I think you're-- that's a process that I know you're working on here and will continue to need effort.

-The importance of putting a story to a data point, you hold that very dearly.

-I do.

-Is there an example you have of a Nevadan you've spoken with, they've told you something about themselves, and it's helped you better understand a specific issue?

-So I'm gonna go-- I love that question.

And you see my tone change a little bit because, so I'm a rookie economist.

I had just gotten my Ph.D., went to my postdoc, I started the Fed in September of 1996.

And my first "out of the head office" San Francisco assignment is to come to Las Vegas.

So I come to Las Vegas.

We're in early 1997.

And I'm going to do an event in the evening, and so I arrive around 11 o'clock.

And it is in the spring, so school is in session.

It is not spring break.

And I pull up my car, rented a car, pull up the car, and valet parking me are kids who look like they're in high school.

And I say, Why are you out of school?

Is it a day off?

And he said-- I still feel emotion when I say this.

He said, No.

I dropped out because the labor market is strong, and I can make more parking cars, and I need money and I want money.

Mostly it was need, sometimes it was want.

And then he said, And all my buddies are here, too.

And I look, and this, like half of his high school--felt like half of his high school class, but it was at least 10 guys--and they're all parking cars.

And that is a tragedy.

And so it is the first-- it is, because you know if you trace the data for those students when they're young and you look at what they're earning trajectory is, they don't actually ever rise that much above that, that level of income they were getting unless they go back for training.

It's hard to go back for training without a high school degree.

So it was the first time.

I'm a labor economist.

I'm like, Wow, a strong labor market.

Who could complain about it?

And what I realized is a strong labor market is great, a frothy and overheated labor market has consequences that we don't even see.

And that consequence that I witnessed right there in my first outing outside of the head office was here in Las Vegas.

And it made me realize why the balanced economy and the dual mandate are so important.

-I wonder how much you think it's improved since then.

-Unfortunately, I'd heard the same story today.

And so here's what-- here's the reminder for all of us: Why are we, you asked me at the beginning, you know, what do I say to people who are trying to buy a home about interest rates.

The higher interest rates we have are to bring down inflation.

If we bring down inflation and the economy comes into more balance, then, yes, homes become more available and affordable, and mortgages do as well.

But those kids make better decisions, make decisions that are better for their long-term future.

They're probably making honestly the exact right decision for their current situation.

They've got to often help their families help themselves.

They can't afford the things.

But that's what a balanced economy offers.

It offers the opportunity to step away from making just-in-time decisions to making decisions that last a longer period of time.

Now, you know, I dropped out of high school myself and went back and got a GED, eventually, but I dropped out because my family needed income.

I grew up in, you know, I was in the '80s, high inflation and then the Volcker disinflation, and it was a meaningful time because people in my community went from battling, fighting high inflation, to not having jobs because the Volcker disinflation came.

So you asked me, people do ask me why I stay committed to bringing inflation down.

Because that Volcker disinflation is not something we want to have to do again.

We don't want to run the risk inflation gets locked in and you really have to force it, because people want both things: They want price stability and they want a job.

And that's what we're doing.

That's why I take the great responsibility here as an honor that I have at the Federal Reserve, because it's an honor to try to work hard to deliver those two things.

-What was the job that you took when you dropped out of high schoool?

-I drove a doughnut truck.

I did.

So I had three jobs.

I drove a delivery truck for doughnuts, I then got a job washing the doughnut machines-- and I was 16--and then I also worked a side gig at a department store, which I've learned to not name.

[laughter] No, I think it's okay.

I mean, I was 16.

It was Target in Missouri.

So I worked all three jobs.

And you know, my aspiration was to be a bus driver because I could have one job in benefits.

But I was fortunate.

I met a mentor.

You asked, what can we all do for workforce development?

A mentor saved me, changed my trajectory.

That's what I wanted to do.

I didn't know I needed a GED to drive a bus, but she taught me that.

And then after I got my GED, she said, You know, you could go to college.

Just take a semester.

I didn't have money to pay for my first semester, so she wrote a $216 check.

I went, and now I'm here as president of the San Francisco Fed.

So it's possible.

[applause] -You talk about the importance of a balanced economy, but I think economic diversification plays into that-- -It does.

- --with what kind of jobs are available.

And so back to sports.

With these teams and the stadiums that are being built, I mean, the Tropicana closing.

-I saw that.

-In its place is set to be a Major League Baseball stadium.

The jobs that stadiums and these professional sports teams provide, what does that do to address the wage gap in Southern Nevada?

-You know, I live in Oakland, and people are boarding up playing all the time, from Oakland, LA, coming to Las Vegas for the weekend to do things on Friday night, all day Saturday, Sunday morning, then see the Raiders play on Sunday, then they go home.

And so that is more of an experience that you're-- that you're investing in.

And those experiences are just part of that whole equation that Las Vegas has had for so long.

So I think of that as probably-- and I don't, I didn't talk to the people who thought of these ideas, but I have talked to people here in Las Vegas before who said, Our plan is to just create experiences and have people show up for a weekend for experiences, sometimes even a week, instead of, you know, you go to the stadium and you see the game and then you go home.

And that is less of a job creator than these experience-based investments, which I believe that people are thinking about this or trying to do here.

-The Feds next meeting is in May.

Meanwhile, the Las Vegas Global Economic Alliance is holding its annual economic development event on Tuesday, April 9.

We will have that next week on Nevada Week.

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