Lake Dimmick Brief

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W h y t h e Tr u s t e e s o f t h e U n i v e r s i t y o f t h e S o u t h S h o u l d P l a c e t h e L a k e J a c k s o n / D i m m i c k Wa t e r s h e d I n a C o n s e r v a t i o n Tr u s t t h a t P r e v e n t s H i g h D e n s i t y D e v e l o p m e n t o n Wa t e r s h e d P r o t e c t i o n L a n d Executive Summary •

The DPS Development Company (“DPS”) Phase II study (4/27/06) includes some reasonable and responsible ideas for developing land that the University presently owns. However, the high-density (250-400 building lots on 1,100 acres) secondhome development in the Lake Jackson/Dimmick watershed is neither reasonable nor responsible land-use planning.1 Lake Jackson is a secondary water supply for the University and Lake Dimmick is a tertiary water supply for the University. This watershed land may have an economic value (see footnote #11 below) far in excess of its “developed potential.”

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Development in a watershed, especially high-density development, is a tricky business. That is because a “criticality” is oftentimes reached where a minute disturbance in one part of the watershed can shift – or even crash – the entire watershed.2 This is oftentimes unbelievably expensive to fix, far outweighing any benefits derived from development. Because of this criticality, some states and localities no longer allow high-density development in their watersheds.

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The University has not engaged the services of expert watershed management planners to calculate the present economic value to the University for not developing the Jackson/Dimmick watershed.3 Until such watershed valuation work is performed, the University will not have completed its due diligence concerning plans presented by DPS concerning development in this watershed.4

1

A watershed is the land that feeds a particular stream, creek, or other body of water; a body of water has a watershed. The term is not restricted to surface water runoff and includes interactions with subsurface water. Lakes Dimmick and Jackson share the same watershed; Lake O’Donnell is in a different one. All these lakes are part of the Tennessee River watershed. 2

See Per Bak, How Nature Works: The Science of Self-Organized Criticality (New York: Oxford University Press, 1997), 1-3. 3

The DPS Development Company does not have the incentive to do this work, nor should it be asked to perform this work due to conflicts of interest as a development company. 4

See Jared Diamond, Collapse: How Societies Choose to Fail or Succeed (New York: Viking, 2005) for examples where the economies of communities collapsed by mistaking short-term financial well-being for a long-term, healthy economic future.

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The University talks as though the Jackson/Dimmick watershed has “produced nothing [in terms of economic value] for sixteen years” (public presentation 4/27/06). This view of the value of the Jackson/ Dimmick watershed is economic nonsense. An analogy might be imagining that the air in the room one is in has no value. In fact it has quite a large value, especially if one were to slowly pump it out. A similar analogy can be made for the Jackson/Dimmick watershed. Fresh drinking water is an economic good; its value is something other than cash-in vs. cash-out. As Benjamin Franklin so wisely said, “When the well’s dry, we know the value of water.”5 “Human activities that use water should also guarantee the protection of the source” of this water.6

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As backup water supply for the University’s operations, the Jackson/Dimmick watershed produces an annual, ongoing, real economic subsidy that enables the University to operate.7 A risk management professional should be able to calculate an imputed, annual economic value of the Jackson/Dimmick watershed.8 From a fiduciary standpoint, the University needs to calculate the value of the environmental services of the Jackson/Dimmick watershed before any development decision is made.

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The economic flow of the imputed premium for drinking water assurance underpinning the University’s operations might be thought of as a perpetual annuity. Such water supply assurance is critical in a time of abrupt climate change and increasingly highly variable weather.9 The University will have not completed

5

Quoted in Robert Glennon, Water Follies: Groundwater Pumping and the Fate of America’s Fresh Waters (Washington, D.C.: Island Press, 2002), 195. 6

Marlou Tomkinson Church, “Valuing Watersheds: Market Based Instruments for Watershed Protection,” slide show, Huangshan, China (May 11-12, 2001) available at http://www.foresttrends.org/documents/meetings/Huangshan_2001/Church_Watersheds_HS.pdf (accessed 06/17/2006). 7

The University may have large amounts of cash from its endowment funds, but if it lacks adequate water supply, it is essentially out of business. 8

If such a calculation is actually done, this value would most likely be greater on a risk-adjusted net present value basis than a risk-adjusted cash flow stream from any proposed high-density development in this watershed.

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its due diligence until it has assessed the risk to its operations from periodic droughts.10 •

Not all income to the University’s operations are financial or show up as “monetized” assets on the University’s balance sheet. For example, the Jackson/Dimmick watershed actually throws off current income in the form of a subsidy for fresh water assurance without which the University could not earn present income from operations. From a balance sheet perspective, the economic value of the Jackson/Dimmick watershed is neither the present value of its financial cash flow nor its “developed potential.” The value of the Jackson/Dimmick watershed is actually its economic replacement value.11

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High-density development is economically and environmentally incompatible with protecting the Jackson/Dimmick watershed.12 Best Management Practices

9

See Tim Flannery, The Weather Makers: How Man Is Changing the Climate and What It Means for Life On Earth (New York: Atlantic Monthly Press, 2005) for a good overview of how abrupt climate change is making existing water supply less predictable. Also, the two upper dams (O'Donnell and Jackson) tend to leak and have been patched in the past by injecting grout through boreholes. During this repair process, one or more of these lakes may be drawn down several meters in the future. The backup capacities of Lakes Jackson and Dimmick are already important for maintaining the University’s operations by assuring a continuing source of fresh water supply. 10

For example, more frequent periodic droughts might necessitate Lakes Jackson and Dimmick becoming primary sources for the University’s fresh water needs. 11

The economic replacement value is either the estimated value of: (a) what one would be willing to accept (WTA) in compensation for not having the Jackson/Dimmick watershed, assuming that is was possible to develop another watershed to serve the University community’s needs or, (b) the amount one would be willing to pay (WTP) to avoid losing the Jackson/Dimmick watershed to another use, such as high-density residential development. Typically, WTA tends to be calculated in cases of a loss and WTP in cases of a prospective benefit. Thus, in this case the economic replacement value would be the WTA. This capital value would include all environmental services presently provided by the watershed in its present state that would be lost with the proposed high-density residential development. This value would include all those things being lost by virtue of the development: e.g., recreational benefits to the broader community, recruiting of potential students, campus biodiversity, sense of commitment to Christian environmental and/or social values, watershed services for drinking water not needing tertiary treatment, etc. 12

See Fred Pearce, When the Rivers Run Dry: Water – The Defining Crisis of the Twenty-First Century (Boston: Beacon Press, 2006) for many examples in the U.S. and worldwide where “development” has depleted surface and groundwater supplies. “Usually the benefits [of development] are short-term while the costs are long-term” (Pearce, 138).

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(BMPs) for protecting watersheds from high-density development that inevitably pollutes fresh-water bodies used for drinking water supply (without enduring the astronomical costs for tertiary water treatment) are not development-specific engineering solutions or protective covenants on lots. These solutions have proven not to work to protect watersheds in real-life. The BMPs for protecting watersheds like the Jackson/Dimmick watershed are: (1) land use planning techniques including: (a) watershed-based planning, (b) overlay zoning, (c) performance zoning, and (d) large lot zoning; (2) protective land conservation easements; (3) aquatic buffers; (4) better site design; (5) erosion and sediment control; (6) stormwater best management practices; (7) non-stormwater discharges; and (8) watershed stewardship programs.13

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The University should engage a qualified land-use expert from a top graduate planning school as part of its diligence process. This land-use expert would validate that it is not possible to adequately protect watersheds from pollution through lot-specific engineering or covenantal means. Also, as part of this due diligence, the University should price out the cost for tertiary treatment of fresh water supply used for drinking water to confirm that such expense is oftentimes greater than the positive cash flow from development in the watershed.

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DPS was asked by the Regents to “see how much cash ‘excess land’ (DPS words, 10/26/05 public presentation) that the University owns might generate for residential development.” The DPS study has been justified because the University needs to provide building lots for its alumni. However, neither the University nor DPS has provided adequately vetted data to support this supposition or intent. In fact, DPS’s Phase I Study concludes that the type of development it proposes for the Jackson/Dimmick watershed is not supportable by alumni, as alumni “do not exist in sufficient numbers to drive a full-scale development” (DPS Phase I Study, 10/9/05). Additionally, some alumni are vigorously opposed to second home development in the Jackson/Dimmick watershed. Apparently, the alumni do not view development in the watershed, supposedly for their benefit, with one mind.

“Watershed protection is about making choices about what tools to apply and in what combination…. Each of these tools is an essential element of a comprehensive watershed protection approach.” See Hye Yeong Kwon, Rebecca Winer, and Tom Schueler, “Eight Tools of Watershed Protection in Developing Areas,” Center for Watershed Protection (Ellicott City, Maryland) available at http://www.epa.gov/ watertrain/protection/ (accessed 06/17/2006).

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Recently, the rational for the DPS study has changed to include the notion that under the terms of the agreement with Mr. Day, the University previously agreed to development in the Jackson/Dimmick watershed to produce an endowment – to fund improvements in faculty and student life. However, under the agreement with Mr. Day, there is no requirement to develop this watershed with high-density development. Also overwhelmingly, faculty and students at the University appear to oppose such development of this watershed.14

Recommendations (1)

That the Trustees of the University of the South direct the Board of Regents to engage the professional environmental economics expertise, independent of DPS Development Company, capable of: (a) assessing the ongoing economic value to the University of not developing the Jackson/Dimmick watershed; (b) of assessing the risk to the University’s existing water supply from more frequent periodic droughts due to abrupt climate change; (c) calculating the particular economic replacement cost of the environmental services presently provided by the Jackson/Dimmick watershed; and (d) determining the tertiary treatment costs if the University’s water supply becomes polluted from highdensity development in this watershed.15

(2)

Additionally, the Regents should retain land-use and watershed planners to assure itself that the BMPs for adequately protecting watersheds are not lotspecific engineering or covenants proposed by DPS but watershed-wide landuse planning, environmental management, and conservation easement tools.

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Two petitions in opposition to the study process itself and to development in this watershed have circulated attracting the signatures of a significant number of residents and students/faculty. 15

“The problem which we face in dealing with actions which have harmful effects [e.g. developing the Jackson/Dimmick watershed] is not simply one of restraining those responsible for them. What has to be decided is whether the gain from preventing the harm is greater than the loss which would be suffered elsewhere as a result of stopping the action which produces the harm.” See Ronald Coase, “The Problem of Social Cost,” in Robert N. Stavins, ed., Economics of the Environment: Selected Readings, 4th Ed. (New York: W.W. Norton & Company, 2000), 37.

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(3)

That the Regents remove any consideration of high density development in the Jackson/Dimmick watershed until such studies described in recommendations #1 and #2 above are completed and publicly vetted.

(4)

That the Regents investigate the preservation of the Jackson/Dimmick watershed as protected land due to the large and ongoing economic value to the University for not allowing high-density development in this watershed.

Rationale for Protective Easements and Conservation of the Jackson/Dimmick Watershed Financial, economic, and environmental analyses are not merely tools. They are also “a fundamental statement about morality” in that “factors that cannot be quantified are, in practice, simply often not included in the analysis.”16 Other than financial capital, social, cultural, and natural capital must also be accounted for. Social capital is measured by the “capacity to generate social value like [community], friendship, collegiality, trust, respect, and responsibility.” Cultural capital is measured by the capacity to generate new ideas; “to inspire and be inspired” to contribute one’s energy and creativity for the betterment of the larger community in which one lives.17 Effects on natural capital are measured by the development’s support of sustainability. That is, the development’s footprint (destruction of non-renewable resources or polluting use of renewable resources) is as close to zero as current technology and building methods enable. Because of the University’s stature, any decision by the University to develop in the Jackson/Dimmick watershed will be viewed by the University’s public – its students, faculty, staff, alumni, Regents, Trustees, residents of Sewanee and neighboring communities, and potential donors to the Sewanee Fund Capital Campaign (“the stakeholders” or “constituents”) as a moral decision. Because of its institutional nature and association with the Episcopal Church, its constituents will hold the University to a different and higher ethical and moral standard for decision-making concerning development. For these reasons, the University must be willing, as part of prudent due diligence process, to go beyond the limited study process it initiated with DPS 16

See T. E. Graedel and B. R. Allenby, Industrial Ecology, 2nd edition (Upper Saddle, NJ: Pearson Education, 2003), 86-7. 17

See Argo Klamer, “Property and Possession: The Moral Economy of Ownership,” in William Schweiker and Charles Mathewes, Having: Property and Possession in Religious and Social Life (Grand Rapids: Eerdmans, 2004), 343-5.

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Development Company. What is morally required is the use of an “ecological economics” rather than an economics that denies its dependency on the environmental resource base. When such ethically appropriate and morally responsive economic due diligence is completed, a process that objectively looks at the present environmental services value of the Jackson/Dimmick watershed both on an annual operating income value and as a capital asset to the University, the Regents and Trustees will realize that the responsible fiduciary and moral decision is to not encumber the Jackson/Dimmick watershed with high-density, second-home development. High-density development in this watershed essentially results in wealth destruction, not wealth creation for the University.18 Consider Assyria, a cedar of Lebanon, with fair branches and forest shade, and of great height, its top among the clouds. The waters nourished it,… Foreigners from the most terrible of the nations have cut it down and left it. On the mountains and in all the valleys its branches have fallen, and its boughs lie broken in all the watercourses of the land; and all the peoples of the earth went away from its shade and left it. (Ezekiel 31:3-4a, 31:12) What a trifling difference must often determine which shall survive, and which perish! – Charles Darwin, letter to Asa Gray19

Lyle A. Brecht wrote this analysis after DPS’s Phase II presentation to the faculty and public in the spring, 2006. He is presently in Sewanee while his wife completes her seminary work at the School of Theology. Mr. Brecht has a graduate degree in Applied Ecology, and an MBA from Harvard. He has consulted on water management policy issues for the U.S.E.P.A. 18

The difference between first-order “financial benefits” and the real economics of a project often are based on the inclusion of externalities, especially diseconomies that may reduce or eliminate any financial benefits. Diseconomies are negative externalities. “With a negative externality, the victim [the University and its constituents] is the unwilling recipient of the effect [loss of the environmental services of the watershed] and cannot himself directly exclude the effect. The producer [developer of the watershed] does not bear the cost but shifts it to the victim.” Thus, “An externality can be defined as the incidental but not necessarily unanticipated effect caused by the actions of one economic agent on the welfare of another economic agent, in which the effect does not pass through markets.” See Charles S. Pearson, Economics and the Global Environment (Cambridge: Cambridge University Press, 2000), 56, 58. 19

Quoted in Jonathan Weiner, The Beak of the Finch: A Story of Evolution in Our Time (New York: Vintage Books, 1994), 49.

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The following resolution was passed by the Order of Gownsmen unanimously

on March 8, 2006.

A Resolution Concerning Development at Lake Dimmick - Haley M. Merrill (approved) WHEREAS the University of the South has hired the development firm Dollan, Pollak & Shram, DPS) to conduct a land use feasibility study of the Lake Dimmick tract on the Domain, and WHEREAS the mission of the University of the South is to prepare students "to search for truth, seek justice for all, [and to] preserve liberty under law," and WHEREAS the University maintains its historic affiliation with the Episcopal Church, which "is dedicated to the increase of knowledge, understanding, and wisdom" and which allows "students [and faculty, staff, alumni, and residents of Sewanee] to live with grace, integrity, and a reverent concern for the world," and WHEREAS the 2003 Management Plan from the Office of Domain Management specifically recommends that the reservoir of Lake Dimmick, which serves the University as a backup water source, be protected "from housing developments or any other activities that might endanger the sources of drinking water," and WHEREAS Lake Dimmick is a local hub of biodiversity for rare plants and animals and provides the Domain with a wetland laboratory and a major recreational amenity, THEREFORE, BE IT RESOLVED that the development of the Domain, specifically the Lake Dimmick area, is in keeping with neither the mission of the University nor the best interest of the students, faculty, staff, alumni, and members of the Sewanee community, BE IT FURTHER RESOLVED that the Order of Gownsmen recommends that the Board of Regents suspend all work by DPS related to a "active-lifestyle-type" residential development, and BE IT FURTHER RESOLVED that the Order of Gownsmen recommends that the Board of Regents immediately cease any consideration of commercial or residential development on the Lake Dimmick tract.

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28 April 2006

Dear University of the South Trustees, We are writing to express our concern about the ongoing study of potential housing developments at Sewanee. We are a diverse group of faculty, staff, students and community members, but we are united in our deep concern about the intent of this study and the way in which it is being carried out. Our concerns include the following: (1) We are distressed that no students, community members, faculty or staff were included in the planning stages of this project, and that faculty were only added to the project team after the faculty passed a motion requesting some representation. We would prefer that major decisions affecting our community be explored in a more inclusive manner. (2) Extensive development on the Domain has the potential to disrupt the ecological integrity of the land and to put significant pressures on town and University resources (e.g., Fowler Center, library, SUD sewage processing, trail maintenance). We therefore believe that local expertise (both in the University and in the wider community) should be brought to bear on any significant land-use changes in our area. Such wide consultation seems not to have occurred. (3) We are unhappy that the study was commissioned without a competitive bidding process. We are also distressed by fact that although DPS has expertise in building upscale residential developments, it has apparently little expertise with planning for other land uses (e.g., forestry, environmental education, conservation, low- or middle-income housing). Thus, the current study seems to be examining one narrow set of uses of our land. We believe that wise planning requires careful exploration of a wider array of possibilities. (4) How we choose to use our land makes a powerful statement about our values and priorities. Our University purpose statement states that we seek to train students to “search for truth, seek justice for all, preserve liberty under law, and serve God and humanity.” The proposals that have emerged from the study so far seem to serve the desire for luxury of an elite segment of our society. We prefer that the study give much higher priority to serving the true needs of our community and the world. (5) The planning process so far has involved very little opportunity for public discussion. The discussions that have taken place have been distressing. There appears to be a disconnect between the rhetoric used by the consultants and the needs and values of the vast majority of people in Sewanee. This disconnect is unhealthy and does not contribute to the sense of open community that we value at Sewanee. Thank you for considering our concerns. We urge you to act with great caution as you consider the results of the DPS study. Yours sincerely,

David G. Haskell, Ph.D. . and Associate Professor and Chair of Biology

1041 Faculty, Students, Staff, and Community Members. Complete list of signatures available via email as a pdf file: send request to [email protected]

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A BUSINESS DEVELOPMENT PERSPECTIVE OF THE DEAL TO DEVELOP THE JACKSON/DIMMICK WATERSHED By Lyle Brecht – August 21, 2006 The University Gives

The University Gets

The conveyance of title to ________ acres of land gifted to it for its educational mission. The environmental services presently provided by this watershed, land crucial to the water quality and quantity necessary for ongoing University operations, are worth $__________.20

The right to participate in the revenue stream from developing this land. DPS projects that the University’s share of revenue from the sale of lots in this watershed might amount to $_______.21

The right for the developer to divide the land into as many as ______ house lots.

A negotiated portion (_____%) of the total proceeds from the sale of these lots.22

The necessary infrastructure (roads, sewer, schools, police, fire, water supply, etc.) for the projected development amounting to an estimated $________ value.23

The long-term costs of providing additional infrastructure for the development amounting to $________ that are expected to be funded by _______________ mechanism.24 Association with any legal troubles that evolve from the developer’s or marketer’s use of the University’s name and reputation.

The right for the developer to market the house lots under the imprimatur of the University.

An implicit waiver to the developer that Any contingent liabilities related to his costs to develop house lots on this land unanticipated costs and externalities will be will not exceed a given amount, $_______. borne by the University. These are estimated to be as much as $__________.25

20

The Regents and Administration have not yet hired an independent watershed expert to value the environmental services of this watershed. 21 An independent appraisal of these projected revenues has not yet been prepared. 22 This development project has not yet been competitively bid, so the actual percentage may be different. 23 An independent estimate of the actual value of the infrastructure provided by the University for this development has not yet been prepared. 24 An independent estimate of the potential long-term infrastructure costs of this development has not yet been prepared. 25 This is why some localities require a bond from the developer to cover unanticipated development-related costs. This avoids waiting for the outcome of litigation before corrective action is taken. The amount of the bond is typically determined by the risk exposure to the community from the proposed development.