The Southwest’s Drought Economy: What Happens When Disaster Response Becomes Politicized
After record-low snowpack and a record warm winter season, the West is seeing the consequences already. Fires over the weekend have already burned more than 80,000 acres across Colorado, and as of June 30, all of them remain at 0% contained. Critical fire weather (high heat, strong winds, and humidity below 15%) persists, making it difficult or impossible for firefighting efforts. Three firefighters lost their lives trying to contain the Snyder Fire, near the Colorado-Utah border, over the weekend.
The drought in the West isn’t just an issue because of wildfire risk. The extreme weather patterns we have witnessed over the last few decades are exposing how much Colorado, Utah, California, Arizona, and other states in the West are vulnerable to disruptions in water availability and infrastructure to move water and power.
Just as we are facing the worst drought ever recorded, an early start to wildfire season, and increasing power outages as a result, the Trump administration is actively cutting resources for emergency responses and denying emergency funding to blue states like California and Colorado. The response from the states and Congress- emergency declarations and punting water rights issues every year- is no longer a working strategy. The crisis is now, and the response needs to be long-term investment in infrastructure, reducing fossil fuel use, and dedicated resources to mitigate risks of extreme weather.
The Southwest’s Crisis Has a Structural Root Cause
This isn’t a current problem due to this year’s extreme circumstances. Colorado’s snowpack collapse, homeowner’s insurance markets, and tourism receipts are all moving in the same direction at the same time, exposing how much of the region’s economy, and its power grid, is structurally dependent on water and weather stability the state can no longer count on. Emergency declarations and annual water-rights punting were a survivable strategy when bad years were occasional. They aren’t anymore, and the response has to shift from crisis response to sustained investment in infrastructure that isn’t exposed to the same risk.
Wildfires, drought, and extreme weather don’t just devastate local communities; they cause lasting damage to the economy at the state, national, and global level. That economic toll shouldn’t be underestimated as solutions are developed. Colorado’s biggest industries – outdoor recreation and agriculture – are already facing historically difficult conditions. The 2025-2026 ski season saw steep declines in revenue across the West, driven by poor snow conditions and shortened operating seasons: Colorado recorded its lowest ski turnout since 1992, according to Colorado Ski Country USA, and the falloff rippled through local economies as ski towns saw spending drop across the board.
The outdoor recreation impacts extend beyond the ski industry. Low snowpack also means low river levels and a shift in peak water levels this summer. Rafting and kayaking outfitters along the Colorado and Arkansas rivers are already sounding the alarm on water availability, which will likely hit river tourism hard later this summer — on track to mirror the ski industry’s decline from last winter. When tourism spending falls, so does the sales tax revenue mountain towns depend on to sustain their year-round populations. That’s a growing problem for the industry, and requests for food and housing assistance are rising faster than average in these communities, where seasonal workers are already struggling to find work.
Colorado’s economy is also highly reliant on agriculture, which generates $5 billion in economic output annually, according to the state’s Office of Economic Development and International Trade. Drought-driven water restrictions are preventing ranchers and farmers from growing their typical crops or feeding cattle and other animals. Lake Powell (Glen Canyon Reservoir) currently holds less than half its normal water level, forcing farmers upstream to fallow their fields.
Colorado residents outside these industries are also feeling the economic pain. The state’s homeowners insurance rates are the sixth most expensive in the nation and have risen 58% since 2018, driven largely by wildfire risk. Drivers also face some of the highest auto insurance rates in the country, largely due to hail.
The region’s power sector isn’t insulated from this crisis, it’s exposed to the same risk it’s supposed to help solve. Fossil fuel power generation, including natural gas and coal plants, depends on substantial water for cooling, and hydropower capacity drops directly with reservoir levels. Glen Canyon Dam that provides power for millions of people depends on the same reservoirs already sitting at historic lows this year. That means in a drought year, the grid is competing with agriculture and municipal water systems for the same shrinking supply, compounding pressure to a crisis it should be helping absorb. Solar and wind require negligible water to operate, a structural difference that highlights why diverse energy sources are economically ound.. A grid less dependent on water is a grid less correlated with the state’s worst-case economic scenario, which is why clean energy deployment belongs in the same conversation as water conservation and disaster funding reform.
Accelerated Climate Change Met With a Shrinking Federal Response
Although no single observed weather season can be fully attributed to climate change, scientists can definitively say that anthropogenic climate change has made these events more frequent and more extreme. Climate change is responsible for about 75% of the observed increase in dry fuel in forested areas across the West from 2000 to 2015. NOAA data shows peak snowpack in the West now arrives an average of 8 days earlier than it did in 1982 — a marker of warming temperatures and earlier melt-off. Colorado’s average temperatures have warmed about 2 degrees Celsius (3.6 degrees Fahrenheit), driving earlier snowmelt and shifting precipitation patterns.
In the midst of worsening conditions across Colorado and other Western states, the Trump administration has politicized federal disaster aid, denying emergency funding to blue states like Colorado. In 2025, the Elk and Lee fires and historic flooding in the state’s conservative-leaning southwest caused tens of millions of dollars in damage. The Trump administration denied Colorado’s appeals for FEMA assistance, the first such denial for the state in 35 years. Denying aid to blue states has become a pattern: according to Politico, the administration has approved just 23% of Democratic-led states’ disaster requests, compared with 89% for Republican-led states — the most partisan disparity since FEMA’s founding in 1979.
When DOGE took over in 2025, it cut 16% of the Forest Service’s workforce, and programs directly responsible for the federal wildfire response were part of the downsizing. The entire State, Private, and Tribal Forestry Program was zeroed out in the budget — a program that funds state and volunteer fire assistance directly supporting state and local fire departments’ wildland fire prevention, detection, and suppression work. The Forest and Rangeland Research Program funding was also eliminated, canceling the agency’s research on wildfire tracking, prevention, and impacts. One analysis found that, following these cuts, prescribed burning fell 44% by area and wildfire risk-reduction work dropped 38% compared with the prior four-year average.
Addressing the water emergency will also require federal funding. Colorado was promised $152 million for water projects tied to the Colorado River District, but the Trump administration froze that funding for a year and a half immediately after taking office. Only $47 million of it was released in May 2026, amid confusion over the grant application process and funding priorities. Colorado’s entire bipartisan congressional delegation has criticized the holdup of this funding in the midst of this year’s drought. The Colorado River Basin doesn’t just serve Coloradans — it’s the water source for 40 million Americans across Colorado, Arizona, and California, roughly 12% of the country’s population.
The funding gap isn’t a matter of the money not existing, the money has already been set aside but is being withheld. A coalition of 76 organizations, spanning agriculture, water providers, tribes, hydropower, and business interests, asked Congress in May 2026 for at least $2 billion in near-term Colorado River drought mitigation funding, explicitly framing the need to move beyond “enduring from crisis to crisis” toward a durable federal funding mechanism. That ask comes even though the money has, in theory, already been appropriated: the Inflation Reduction Act and Bipartisan Infrastructure Law secured $8 billion for western water infrastructure, $10 billion for forests, $19 billion for agricultural conservation, and $4 billion for drought funding, according to Sens. Hickenlooper and Bennet. That funding is now sitting partially frozen or delayed under the current administration. Separately, $40 million for the Colorado River District’s Shoshone Power Plant water rights purchase remains unreleased. The investment framework Colorado needs already exists on paper; the obstacle is access to it.
The Window to Act Is Still Open
Colorado and other southwestern states must prioritize addressing the drought and its causes more proactively. Natural infrastructure like watersheds, forests, and wetlands is critical infrastructure and should be treated equally to built infrastructure. Water for Colorado, a coalition of environmental groups and local communities with the goal of addressing water scarcity, proposes a more proactive approach to water management, including incentives to conserve across the basin.
The state has already tried to address rising insurance rates by funding mitigation through fees on homeowners insurance policies, but the proposal failed to pass the legislature. Policies need to be designed to give relief to residents from increasing costs of living compounded with industries that are sensitive to the impacts of increasingly frequent extreme weather. This includes bold proposals to fund emergency response outside of the federal government, and to strengthen water conservation efforts, including for new development.
Congress, independent of the Trump administration, can still act to unfreeze critical funding and grant emergency relief funding. Colorado’s senators, Bennet and Hickenlooper, have introduced a bill that requires presidential justification for FEMA denials, and gives Congress the authority to override those denials. It will require Republican support in order to pass under the current makeup of Congress.
Western states have been operating in survival mode instead of adapting to thrive in the conditions they now face. The Southwest’s economies — and the wellbeing of its residents — depend on policymakers coming together to find solutions now, before worsening conditions force their hand.