[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT HEARING ON BUREAU OF RECLAMATION FUNDING OPTIONS FOR WATER
PROJECT CONSTRUCTION, ENHANCEMENT, REHABILITATION AND MITIGATION
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON WATER AND POWER
of the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
on
BOR FUNDING FOR WATER PROJECTS
__________
MAY 6, 1997--WASHINGTON, DC
__________
Serial No. 105-31
__________
Printed for the use of the Committee on Resources
U.S. GOVERNMENT PRINTING OFFICE
42-742 CC WASHINGTON : 1997
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana GEORGE MILLER, California
JAMES V. HANSEN, Utah EDWARD J. MARKEY, Massachusetts
JIM SAXTON, New Jersey NICK J. RAHALL II, West Virginia
ELTON GALLEGLY, California BRUCE F. VENTO, Minnesota
JOHN J. DUNCAN, Jr., Tennessee DALE E. KILDEE, Michigan
JOEL HEFLEY, Colorado PETER A. DeFAZIO, Oregon
JOHN T. DOOLITTLE, California ENI F.H. FALEOMAVAEGA, American
WAYNE T. GILCHREST, Maryland Samoa
KEN CALVERT, California NEIL ABERCROMBIE, Hawaii
RICHARD W. POMBO, California SOLOMON P. ORTIZ, Texas
BARBARA CUBIN, Wyoming OWEN B. PICKETT, Virginia
HELEN CHENOWETH, Idaho FRANK PALLONE, Jr., New Jersey
LINDA SMITH, Washington CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California CARLOS A. ROMERO-BARCELO, Puerto
WALTER B. JONES, Jr., North Rico
Carolina MAURICE D. HINCHEY, New York
WILLIAM M. (MAC) THORNBERRY, Texas ROBERT A. UNDERWOOD, Guam
JOHN SHADEGG, Arizona SAM FARR, California
JOHN E. ENSIGN, Nevada PATRICK J. KENNEDY, Rhode Island
ROBERT F. SMITH, Oregon ADAM SMITH, Washington
CHRIS CANNON, Utah WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania DONNA CHRISTIAN-GREEN, Virgin
RICK HILL, Montana Islands
BOB SCHAFFER, Colorado RON KIND, Wisconsin
JIM GIBBONS, Nevada LLOYD DOGGETT, Texas
MICHAEL D. CRAPO, Idaho
Lloyd A. Jones, Chief of Staff
Elizabeth Megginson, Chief Counsel
Christine Kennedy, Chief Clerk/Administrator
John Lawrence, Democratic Staff Director
------
Subcommittee on Water and Power Resources
JOHN T. DOOLITTLE, California, Chairman
KEN CALVERT, California PETER A. DeFAZIO, Oregon
RICHARD W. POMBO, California GEORGE MILLER, California
HELEN CHENOWETH, Idaho OWEN B. PICKETT, Virginia
LINDA SMITH, Washington CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California SAM FARR, California
WILLIAM M. (MAC) THORNBERRY, Texas ADAM SMITH, Washington
JOHN B. SHADEGG, Arizona RON KIND, Wisconsin
JOHN E. ENSIGN, Nevada LLOYD DOGGETT, Texas
ROBERT F. SMITH, Oregon ---------- ----------
CHRIS CANNON, Utah ---------- ----------
MICHAEL D. CRAPO, Idaho
Robert Faber, Staff Director/Counsel
Valerie West, Professional Staff
Steve Lanich, Democratic Staff
C O N T E N T S
----------
Page
Hearing held May 6, 1997......................................... 1
Statement of Members:
Doolittle, Hon. John T., a U.S. Representative from
California; and Chairman, Subcommittee on Water and Power.. 1
Statements of witnesses:
Cody, Betsy A., Specialist in Natural Resources Policy,
Congressional Research Service............................. 7
Donnelly, Thomas F., Executive Vice President, National Water
Resources Association...................................... 27
Flicker, Eric L., Vice President, American Consulting
Engineers Council.......................................... 25
Martinez, Hon. Eluid L., Commissioner of Reclamation,
Department of the Interior................................. 3
McCollom, David C., General Manager, Olivenhain Municipal
Water District............................................. 29
Rezendes, Victor S., Director, Energy, Resources, and Science
Issues, U.S. General Accounting Office..................... 5
Smith, James N., Executive Director, Council of
Infrastructure Financing Authorities....................... 24
Additional material supplied:
Cody, Betsy A., Specialist in Natural Resources Policy,
Congressional Research Service, prepared statement of...... 53
Charts................................................... 00
Donnelly, Thomas F., Executive Vice President, National Water
Resources Association, prepared statement of............... 87
Flicker, Eric L., Vice President, American Consulting
Engineers Council, prepared statement of................... 65
Jamison, Warren L., Manager, Garrison Diversion Conservancy
District, prepared statement of............................ 102
Libeu, Larry, Deputy Assistant General Manager, Eastern
Municipal Water District, prepared statement of............ 104
Martinez, Hon. Eluid L., Commissioner of Reclamation,
Department of the Interior, prepared statement of.......... 38
McCollom, David C., General Manager, Olivenhain Municipal
Water District, prepared statement of...................... 97
Rezendes, Victor S., Director, Energy, Resources, and Science
Issues, U.S. General Accounting Office, prepared statement
of......................................................... 43
Smith, James N., Executive Director, Council of
Infrastructure Financing Authorities, prepared statement of 60
OVERSIGHT HEARING ON BUREAU OF RECLAMATION FUNDING OPTIONS FOR WATER
PROJECT CONSTRUCTION, ENHANCEMENT, REHABILITATION AND MITIGATION
----------
TUESDAY, MAY 6, 1997
House of Representatives,
Subcommittee on Water and Power,
Committee on Resources,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:02 p.m., in
room 1324, Longworth House Office Building, Hon. John T.
Doolittle (Chairman of the Subcommittee) presiding.
STATEMENT OF HON. JOHN T. DOOLITTLE, A U.S. REPRESENTATIVE FROM
CALIFORNIA; AND CHAIRMAN, SUBCOMMITTEE ON WATER AND POWER
Mr. Doolittle. The Subcommittee on Water and Power will
come to order. The Subcommittee is meeting today to hear
testimony concerning funding options for Bureau of Reclamation
projects. I would like to welcome our witnesses here today.
Since the beginning of this century the Federal Government has
played a major role in the development of water resources in
the Western United States.
The Bureau of Reclamation was created by the Reclamation
Act of 1902 to reclaim arid and semiarid lands. Over the past
95 years, the Federal Government has invested more than $16
billion in reclamation projects, 80 percent of which is subject
to repayment to the U.S. Treasury.
The purpose of this hearing is to explore various funding
mechanisms available to help finance reclamation projects in
the future. The witnesses have been asked to address a wide
range of funding options, including traditional repayment
programs, modifying the existing Small Loan Program, loan
guarantees, grants, revolving funds, and the increased use of
private capital.
Today we stand at a crossroads with two opposing forces in
view. There is a need to expand and improve our existing water
supply system to meet agricultural, urban, rural, tribal and
environmental needs. At the same time, we must find ways in
every government program to reduce costs as we move toward a
balanced budget.
The Congress is determined to eliminate the Federal budget
deficit, and we must find ways in our area of responsibility to
reach that goal. In a recent draft of its Strategic Plan, the
Bureau stated generically that ``there is no `new' water to
develop, no new dams to store water for the dry season and
little groundwater resources to pump from the earth.''
What a tragedy that the Federal Government's primary water
supply agency has no greater vision. While it remains to be
seen what role the Bureau and the Federal Government should
play, we certainly do not, as a nation, lack opportunities to
develop new water. There are onstream and offstream reservoirs
under construction and available to be built.
There are groundwater basins in need of recharge to hold
water resources. There are emerging technologies that make it
economical to recycle our water and to convert ocean water to
freshwater. And every year, there are floods throughout the
west that currently destroy homes, lives, and the environment
and which could be harnessed to meet productive needs.
The challenge we face today is how to encourage the
development and management of water resources in an
economically responsible manner. If the purpose of future
developments is to meet general public benefits such as
environmental enhancement or Indian water settlements or if it
is to avoid Federal costs for disaster relief, there is, it
seems to me, the need to consider a higher Federal cost-share.
If the purpose is to meet growing needs for water to
support food production or urban needs we can look to the water
users to provide a greater portion of the funding. Indeed, as
we will hear from some of our witnesses, we can use innovative
ways to finance these projects. If we design these programs to
maximize the use of the private sector in financing,
constructing, and managing future water resource projects, we
can greatly reduce the cost and the involvement of the Federal
Government in many of these endeavors.
Historically, the Reclamation Program does not flow from a
single organic Federal statute. There have been various acts
since the 1902 Reclamation Act which have shaped the program.
Since 1939, every project has been individually authorized with
its own terms and conditions.
Although the authorizing language in each was developed
with careful consideration of the project beneficiaries in
mind, little was done to step back and look at the overall
trend or to anticipate future needs and requests. With this
hearing, we are going to begin looking to the future and
assessing new options for funding future requests.
In recent years, the Subcommittee has not considered
requests for the traditional multi-purpose projects that
deliver irrigation water. Today, the Subcommittee is being
asked to authorize rural water supply systems, water delivery
systems for Indian reservations, environmental enhancement/
mitigation projects for existing Reclamation projects, and
water reclamation and reuse facilities.
I do not believe that the seemingly conflicting goals of
enhanced water supply and cost control present insurmountable
obstacles. Rather, they represent reasonable parameters and
provide attainable goals which should help us develop a
blueprint for how the government will participate in meeting
these needs.
New water development has the potential to be used to
enhance the water quality and environmental resources in the
west. How we go about designing and financing these projects
will be a test of the Federal Government's ability to
transition to a smarter, more efficient, less costly mode of
operation. After the ranking member has a chance to make his
statement, I will look forward to hearing from the witnesses.
Now let me invite Mr. Pickett, if he would like to make a
statement.
Mr. Pickett. Mr. Chairman, I do not have an opening
statement.
Mr. Doolittle. OK. Let me ask our first panel to come
forward. If you will come forward and remain standing for just
a minute, please. I do want to make this observation. Before we
call upon our witnesses, I would like to indicate that since
the intent of the hearing is to look at both the historic
funding arrangements as well as to consider innovative ways to
fund or encourage such projects in the future, we will be
hearing from witnesses both inside and outside the Reclamation
Program.
As such, with some of the witnesses we are only looking to
them to answer questions limited to private, State and other
Federal programs with which they are familiar. We have as
witnesses today the Honorable Eluid L. Martinez, Commissioner
of Reclamation; Ms. Betsy A. Cody, Specialist in Natural
Resources Policy, Congressional Research Service; and Mr.
Victor S. Rezendes, Director, Energy, Resources, and Science
Issues, U.S. General Accounting Office.
Would you please raise your hands and take the oath?
[Witnesses sworn.]
Mr. Doolittle. Thank you. Each answered in the affirmative.
We welcome you here today for your testimony and, Commissioner,
we will recognize you and begin this panel.
STATEMENT OF HON. ELUID L. MARTINEZ, COMMISSIONER OF
RECLAMATION, DEPARTMENT OF THE INTERIOR
Mr. Martinez. Thank you, Mr. Chairman, members of the
Subcommittee, thank you for the invitation to discuss funding
and cost-sharing options for the Bureau of Reclamation. Given
our mutual interest in reducing costs and balancing the budget,
this hearing is timely.
With your permission I would like to summarize my remarks
and have the full text of my prepared statement entered into
the hearing record. Since fiscal year 1985 Reclamation's
construction budget has declined by more than one-half in real
terms. Over the same period, appropriations for operation and
maintenance activities have nearly doubled.
For fiscal 1988 about 60 percent of Reclamation's budget
requested is for the completion of ongoing projects and the
promotion of an integrated approach to water management. The
remaining 40 percent is for operation, maintenance, and
rehabilitation of existing infrastructure.
Now I would like to turn to the specific items mentioned in
your letter of information beginning with cost sharing for
traditional projects. While Reclamation has not established a
hard and fast rule for the required level of cost sharing, in
recent years Reclamation has advocated that beneficiaries pay
at least 35 percent of the nominal cost for traditional
Reclamation projects.
A portion of the cost sharing can be provided up front in
cash or in-kind services. With respect to the Small Reclamation
Projects Act Loan Program, loan guarantees, and the
rehabilitation and betterment program, Reclamation believes
that in this budget climate the private sector may be better
equipped than the Federal Government to provide financing for
these projects.
In 1995 the Administration recommended in the National
Performance Review that the Small Reclamation Projects Act Loan
Program should be phased out. Since then, Congress has provided
only limited funding needed to complete grandfathered projects.
As I previously testified, the Administration is opposed to
loan guarantees and the authorization of a new comprehensive
program.
However, I do believe that there might be meritorious small
reclamation projects and all projects should receive
authorization on an individual basis rather than through
generic legislation. Reclamation is working hard to cut costs
and adapt stringent physical constraints within our budget
limitations.
However, we are prepared to discuss options for the water
users and interested organizations and commerce and we intend
to continue our dialog to see what, if any, alternatives may
exist for this particular program. Except as related to dam
safety, Dam Reclamation is no longer seeking congressional
appropriations to replace, rehabilitate or renovate facilities
related to the reimbursable functions of our projects.
In the event the water district cannot obtain private
financing Reclamation will evaluate its options to address
these problems. With respect to dam safety, the Reclamation
Safety of Dams Act requires that 15 percent of the costs be
reimbursable. Our policies require repayment of dam safety
costs allocated to reimbursable project purposes such as
irrigation, municipal and industrial uses and hydro power.
These reimbursable costs are paid by the beneficiaries of
the corrective action within 25 years. Last year upon becoming
Commissioner I commissioned a peer review team consisting of
dam safety professionals from outside the Department of the
Interior to review the Department's Dam Safety Program. That
team has issued its findings and recommendations and a copy of
that report has been provided to Congress.
The report basically said in addition to supplementing
Federal funds the reimbursable policies of both the Safety of
Dams Program and the operation and maintenance programs of
Reclamation provide a useful check for the water districts on
the amount of money and expenditures that Reclamation has
undertaken for these programs.
Reclamation is reviewing the findings and recommendations
of the peer review team. In the future, Mr. Chairman, I expect
to come before Congress to request an increase in the cost
ceiling authorized by the Dam Safety Program and will address
the issue of cost sharing for dam safety in that context.
Your letter of invitation also asked me to discuss the
Bureau's position regarding appropriate cost sharing for rural
water distribution projects. Longstanding Reclamation policy
for municipal, rural, and industrial water supply projects
requires that non-Federal interests pay, at current interest
rates, 100 percent of the cost of the projects.
Other Federal agencies such as the Department of
Agriculture might be a more appropriate agency for the project
sponsors to seek for funding. In the past the Administration
has supported rural water supply systems where the needs of the
Indian communities justified Federal involvement and
Reclamation in my opinion should be involved with Federal
funding as needed to encourage innovation or otherwise serve a
basic national purpose.
Finally, I would like to discuss water reuse projects. Last
year, the Congress in Public Law 104-266 authorized 16 new
water reclamation and reuse projects, in addition to the four
projects that Reclamation is already funding under the
authority of Public Law 102-575. There is a growing demand to
devote a greater portion of Reclamation's budget to water reuse
projects.
With fewer Federal dollars available Reclamation will have
to make difficult choices even to fund the most deserving
projects. Let me put this in context. Reclamation's overall
budget request for fiscal year 1988 is about $764 million. If
all authorized wastewater reuse projects were funded at optimum
levels in fiscal year 99 Reclamation estimates that $130
million would be required.
An estimated $550 million would be required to fund all
authorized projects to the year 2005. Given these budget
realities Reclamation has adopted an internal self-imposed cap
of about $30 million annually in its budget request for
wastewater reuse projects. I would like to commend the
Congress, especially this Subcommittee for taking some
important steps in Public Law 104-266 to alleviate some
problems, in particular, the feasibility study and financial
capability requirements to improve the Federal Government's
ability to control expenses and ensure that Federal funds are
used appropriately.
Nevertheless, there is a need to establish criteria and
prioritize projects for funding to determine what constitutes a
sponsor's financial capability and to develop requirements for
feasibility studies. I have appointed a water recycling team
and that team has reviewed Reclamation's Program and developed
recommendations on how it intends to address these issues.
Last year the water recycling team held a series of public
meetings where individuals presented their ideas. Attendees
suggested that Reclamation explore alternative funding
mechanisms such as competitive annual grants.
Reclamation is hopeful that the team will provide
additional insight based on public participation that will be
useful to this committee and to Reclamation in our efforts to
fund water recycling projects. Mr. Chairman, that concludes my
prepared remarks. I would be pleased to answer any questions.
[Statement of Mr. Martinez may be found at end of hearing.]
Mr. Doolittle. Thank you. Mr. Rezendes, you are recognized
for your testimony.
STATEMENT OF victor s. rezendes, director, energy, resources,
and science issues, u.s. general accounting office
Mr. Rezendes. Thank you, Mr. Chairman. It is a pleasure to
be here. I have two basic points I want to make today. One is
talk a little bit about the evolution of the Reclamation laws
and second, talk a little bit about water project cost
recovery. The Federal Government initially got involved with
Reclamation with the passage of the Reclamation Act of 1902.
Basically that act was to fund irrigation projects in the west
but it was also basically a development pact.
It was intended to settle the West. And right from the
outset basically the intent was for the program to be self-
sufficient. No appropriation funds were intended to be used pro
rata. A revolving fund was set up using moneys from the sale of
Federal lands. Once loans were made and paid back, additional
loans would be made for additional irrigation projects out of
that revolving fund.
Also, from the outset, the Federal Government chose to
forego any interest on these loans. The notion was they wanted
to settle the West and the government felt content with just
receiving the payments for principal in lieu of giving up the
interest for the farmers to settle the West.
Early on though it was also very clear that both the cost
of farming and the cost of building these water projects was
more than anybody expected. Starting in around 1906 came a
series of pieces of legislation to provide not only relief to
farmers in terms of their ability to pay but also extended over
various time periods the requirement on pay back.
Repayment went from 10 years, to 20 years, to 40 years.
Legislation also provided periodic relief to farmers in the
form of charge-offs and provided that funds obtained from the
use of water to generate electricity could offset some of the
costs of the projects.
Probably 1939 was the most significant year. The Congress
fundamentally changed the program. At that point all projects
were funded with appropriated funds rather than through the
revolving fund. Congress also established multi-purpose
projects, basically municipal water, flood control, that sort
of thing, and allocated the cost among the project uses so they
could all be judged individually in terms of the economic
viability. They also changed the payment system for the
irrigators by providing for both a variable annual payment
based on crop returns as well as providing an interest-free
development period of up to 10 years beyond the 40 years
already established.
The last piece of legislation I want to talk about was
enacted in 1982 which was the Reclamation Reform Act. That was
the first time Congress established the notion of full cost
recovery. The legislation required, for specific leased acres,
over 960 acres, full recovery of the cost of irrigation. For
the first time Congress charged not only the cost of
construction but also the operation and maintenance as well as
the interest cost for those specific uses.
I now want to call your attention to appendix I of my
testimony and just talk a little bit about how these costs are
defined in terms of reimbursable and nonreimbursable and who
pays them. I will quickly walk you through that. Basically you
see on the top of that chart it shows reimbursable construction
costs. In essence, irrigation pays the cost of construction
based on their ability to pay but is relieved of any interest
payment. The next is municipal and industrial users. They pay
the cost of construction plus interest during construction and
interest during the repayment process.
The last one is general power generation. They pay similar
to municipal and industrial users construction plus interest
but they also pay a good part of the irrigation costs that the
irrigators, the farmers, cannot pay.
The bottom of the chart shows nonreimbursable costs. Those
are pretty much construction costs that are defined as national
in scope. They include things like fish and wildlife purposes,
recreation and flood control. Historically, the Federal
Government has borne the cost of those aspects of projects.
Through the end of fiscal year 1994, there were 133
projects that had some sort of irrigation involved with them
and the total cost was about $22 billion. Of that $22 billion,
roughly about 77 percent is in the reimbursable cost category
and 23 percent is in the nonreimbursable. That is probably a
good place for me to stop and turn it over to Ms. Cody who is
going to bring you up to date on the most recent legislation.
[Statement of Mr. Rezendes may be found at end of hearing.]
Mr. Doolittle. Thank you. Ms. Cody, you are recognized.
STATEMENT OF BETSY A. CODY, SPECIALIST IN NATURAL RESOURCES
POLICY, CONGRESSIONAL RESEARCH SERVICE
Ms. Cody. Thank you. My testimony focuses on repayment
obligations established in law for capital projects authorized
or modified since 1979. In particular, I will discuss the
projects authorized over the last two decades and the breakdown
between reimbursable and nonreimbursable costs. There are two
points I would like to make before summarizing my analysis.
First, it appears that projects authorized or modified
within the last 18 years that are similar to traditional
Reclamation projects have generally followed the typical
repayment pattern that GAO has described. Many projects
authorized in recent years have had a higher proportion of
nonreimbursable costs such as for flood control, fish and
wildlife and Indian water right settlement purposes.
This may raise the question of whether Federal policy has
changed regarding reimbursable costs. My review does not find
any major alteration in overall policy. However, there are some
instances where Congress has departed from past reimbursement
procedures, particularly for rural water supply projects.
Based on information gathered from the Bureau of
Reclamation, Congress has authorized at least 55 projects since
1979. I have placed these authorizations in a table
accompanying my testimony which you should find on page 7. Of
the 55 projects authorized that I analyzed, 24 percent were for
the relatively traditional multi-purpose/irrigation projects or
project modifications, 7 percent were for rural water supply
systems, 36 percent were for reclamation water reuse and
recycling, also known as Title XVI projects, 18 percent were
for water quality, fish and wildlife, or conservation purposes,
and 15 percent were for Indian water rights settlement.
The repayment obligations authorized for these projects and
modifications vary greatly. They vary depending both on
reimbursement provisions established in law and upon the
percentage of project costs allocated to non-reimbursable
purposes such as flood control, fish and wildlife, Indian water
rights.
For the traditional multi-purpose projects, repayment
obligations range from 0 percent non-reimbursable to 100
percent non-reimbursable. The two totally non-reimbursable
projects are flood control projects, which under reclamation
law are typically non-reimbursable. Outside of these two
projects, reimbursement responsibilities ranged from 33 percent
to 93 percent with the average being 79 percent reimbursable.
This is very close to the 77 percent average reimbursable rate
that GAO estimated for the 133 projects it looked at since
1902.
When the two flood control projects are considered, the
average comes to 66 percent, still roughly in the same
ballpark. For the rural water supply projects, the non-
reimbursable component is higher than typical for traditional
reclamation projects. Here the non-reimbursable share ranged
from 75 percent to 85 percent with one exception, the Mni
Wiconi project in South Dakota.
In each case here, Congress specified the reimbursement
ratio in the authorizing legislation. These projects differ
from the more traditional reclamation projects in that they
focus on municipal and industrial water supplies for rural
areas with specific water quality and quantity concerns.
For the reclamation water recycling and reuse projects the
non-reimbursable component established in law is generally 25
percent. Again, this ratio is similar to the ratio that has
evolved over time for the traditional projects. However, the
financing arrangements, as have been described by GAO, are
quite different. Instead of financing and building the projects
up front and requiring repayment of reimbursable costs through
contract the Federal Government funds only a portion of project
costs with the rest shared by local participants. Essentially
the Federal Government funds the 25 percent non-reimbursable
share as a grant.
For the water quality/fish and wildlife, and conservation
projects, the non-reimbursable costs ranged from 35 percent to
100 percent. All of the projects in this category outside of
California have been 100 percent non-reimbursable by law. All
of the California projects, however, as authorized under CVPIA
have a significant reimbursable cost share, some paid by the
State, some paid by local project users. I should note,
however, that some of these costs may be offset by payments in
the CVP Restoration Fund.
Finally, the Indian water rights settlement projects are
all 100 percent non-reimbursable (although, there is local
cost-share with some). Unlike other reclamation projects, both
new and old, these projects have been authorized as part of
settlement agreements between tribes, the Federal Government,
and other interested parties. Therefore, they do not really
fall within the realm of traditional reclamation law and
consequently are not directly comparable to other reclamation
projects.
In conclusion, it appears that projects authorized or
modified in the last 18 years have followed a typical repayment
pattern, with a few exceptions, most notably three of the four
rural water supply projects have a significantly higher non-
reimbursable share than has been typical for other industrial
and water supply projects attached to the traditional
irrigation projects. However, these projects in total represent
less than 7 percent of all the projects analyzed since 1979.
Most of the rest of the projects where the non-reimbursable
cost exceeds 50 percent involve project purposes that Congress
has declared as non-reimbursable, flood control, fish and
wildlife, water quality, and Indian water rights settlement. In
other words, the reimbursement provisions generally have not
changed, rather, the typically reimbursable functions of these
projects as a percent of total project functions, have
declined. Thank you.
[Statement of Ms. Cody may be found at end of hearing.]
Mr. Doolittle. Commissioner, in your testimony you state
that Reclamation no longer requests congressional
appropriations to replace rehabilitative facilities related to
reimbursable functions in a project with the exception of dam
safety. And yet the government, Reclamation, hold title to
these projects. Does that strike you as paradoxical?
Mr. Martinez. I think on the face of it, it looks like an
inconsistency. But we spent about 40 percent of our budget on
rehabilitation, maintenance and operation. Reclamation
continues to expend moneys to make sure that our facilities are
kept up in a good operational status.
As I understand the betterment and rehabilitation activity
that we are talking about was a separate act. It enabled moneys
to be used by districts for projects or for work that was not
funded under regular operation and maintenance programs. In the
two years that I have been involved with the Bureau of
Reclamation I have not had an irrigation district or
representative of irrigation districts raise concern to me that
they have not been able to address rehabilitation and
maintenance on district properties and government properties as
a result of the Reclamation not requesting funds for this
program.
So I think we are talking about two distinct efforts by
Reclamation. We are talking about this program versus operation
and maintenance for our facilities.
Mr. Doolittle. You went on to state that in the event
private financing could not be obtained, Reclamation will need
to evaluate its options, including revision of operating
standards. Is that then telling us that it is going to be the
Administration's policy to allow the infrastructure to
deteriorate to the point that operations would have to be
modified rather than to seek the necessary appropriated funds
to rehabilitate these facilities?
Mr. Martinez. I think we need to put this in context. If
what we are talking about is an internal water distribution
system within a district facility that delivers water from a
canal to another canal and to the extent that that facility
might deteriorate because the district is not maintaining that
facility then it might be possible that if the district does
not obtain financing of some sort and if the Federal Government
does not provide financing that water might not be able to
become available.
And in that case the facility might be inoperable. But if
we are looking at a facility such as a dam or a structure that
has a national interest, I do not think it is in the Federal
Government's best interest to let those kind of facilities
deteriorate because of a lack of funding. Those are the kind of
facilities that we would continue to make sure that they are
adequately maintained if it comes to a situation where we had
to come to Congress to get authorization. You have to look at
the different facilities.
Mr. Doolittle]. But for the ones you deemed to be the
highest priority, you would not let them fall into disrepair
but would come and seek appropriate funds if necessary?
Mr. Martinez. That would be my recommendation.
Mr. Doolittle. Mr. Flicker on the panel to come will state
in his testimony that the Bureau of Reclamation no longer needs
to do in-house engineering and in fact it is competing with the
private sector to provide those services. Could you comment on
that issue?
I realize this is not your testimony, but I want to address
that question to you, Commissioner. Mr. Flicker is going to
testify in the next panel that the Bureau of Reclamation in-
house engineers are competing with the private sector to
provide those services, apparently now competing both
domestically as well as internationally. Could you comment on
that?
Mr. Martinez. That is an issue I am sensitive to. We have
engineers in Denver that work on a cost reimbursable basis.
They are primarily charged to provide engineering services to
regional areas in the Bureau of Reclamation. There are
instances where governmental entities such as cities and
counties and States ask the Bureau of Reclamation because of
their expertise to provide assistance.
What I have told my engineers is I do not want them
competing with the private sector and going out and soliciting
business but if we have these entities that come to us and seek
assistance and we can work out something that is in their best
interest and our best interest we will proceed.
We have an international arm in the Bureau of Reclamation
and we have other countries that seek our assistance in certain
areas but I think if you look at our record, and I will be glad
to provide you the information, even Reclamation goes out to
quite a few private entities seeking engineering services.
Mr. Doolittle. Thank you. Mr. Dooley is recognized.
Mr. Dooley. Thank you, Mr. Chairman. Thank all of you for
attending. I guess, Mr. Martinez, just for a little bit of
clarification in your statement you talked about how there has
been a change in direction and allocation of funds with
Reclamation which we all I think are fairly well aware of.
You talk about, in one sentence you say that reflects the
need to focus on the Federal funding on higher Federal
priorities such as addressing adverse impacts of existing
projects. You then go on to say Reclamation has organized this
program so almost 40 percent of its fiscal year budget request
is allocated to operation, maintenance, rehabilitation of the
existing structure and the other 60 percent is for completion
of ongoing projects and a promotion of an integrated approach
to management of water.
My question is what is the amount of the Bureau's budget
that really is being allocated and indeed can you account for
that that is allocated for addressing the adverse impacts of
existing projects? I guess what I am looking at is
environmental enhancement and do you have that figure that it
also does not account for the reimbursable funding as we are
doing with the CVPIA?
Mr. Martinez. I am sorry, Mr. Dooley, I do not have that
information handy but I will be glad to provide it to the
committee and to you.
Mr. Dooley. What I am a little interested in is we see the
mission of the Bureau of Reclamation changing and that it is no
longer being directed in terms of construction and new projects
which the periods are quite evident even within your testimony
is that the issue as it relates to reimbursable or
nonreimbursable also appeared to be changing too because the
issue of what is reimbursable really often times has been a
function of who the primary beneficiary was and assuming that
if the environmental enhancement would be more allocated as a
side benefit are we seeing a change in a reduction in what we
are expecting from reimbursable contributions that reflect what
appears to be a traditional nonreimbursable function of the
Bureau?
Mr. Martinez. To the extent that our budget is increasing
for addressing environmental issues, restoration issues and
wetlands and to the extent that our budget has increased for
operation and maintenance at facilities where there are
nonreimbursable purposes then we would begin heading down the
road toward situations where you would get less reimbursement
for expenditures in our budget.
Mr. Doolittle. Mr. Thornberry is recognized.
Mr. Thornberry. Thank you, Mr. Chairman, and I appreciate
your efforts and the interest in trying to update and modernize
funding of Bureau of Reclamation projects. I listened to the
testimony and cannot help but think the issues are not strictly
funding issues because as you are well aware some of the
difficulties that we have experienced in just trying to
modernize and put some flexibility into the Bureau and getting
them to follow the law are not funding issues but seemingly
just common sense issues.
I will not go into the details of what we have been trying
to do. We talked to Commissioner Martinez about that before
when he has been before this Subcommittee. It is not getting
better. I think we can also see as evidence going back several
years to Vice President Gore's reinventing government proposal
where title transfers were part of what he suggested and
encouraged.
It does seem like if we could have title transfers it could
free up resources and maybe look at other projects or more
maintenance of existing projects. And as I understand it there
has not been a single title transfer occurred since he first
made that proposal. So from our perspective I think it is
rather discouraging as to the Bureau's attitude toward putting
more flexibility and modernization into the way that projects
are funded or for that matter the operation and maintenance and
rehabilitation of existing projects. It has been extremely
difficult.
I am going to ask Commissioner Martinez, are you going to
have any title transfers this year? Where do we stand with
that?
Mr. Martinez. I think I testified last time that from my
perspective I think we need to bring some of these to closure.
I continue to work with the Administration to make sure we
bring some of these to closure and I am hopeful that we will
have some this session.
Mr. Dooley. I think the difficulty, Mr. Chairman, as you
know, is that in some of the negotiations so far have been drug
out for years and in others there are just unbearable
conditions that get put on by the Administration which has the
effect that none occur.
And so it is unfortunate. I think this is an area where the
Federal Government could do more on behalf of the taxpayers and
the people that are served but we seem to have a difficult time
getting there and I certainly want to continue working with you
to help move it along.
Mr. Doolittle. Mr. Farr is recognized.
Mr. Farr. Thank you very much, Mr. Chairman. I want to
first of all thank you for having the hearing. I think this is
one that this Congress needs to really focus on. It is kind of
a misnomer that the Bureau of Reclamation reclaims all this
water because my idea of reclaim is reuse and I think we ought
to put more emphasis on it.
I am a little bit disturbed because I am not sure which way
your testimony wants to lead us. At one point you point out
that you commend Congress for cutting out the small loan
program and on the other part of your paper you say that there
is a growing demand to devote a greater portion of the
Reclamation budget to water reuse projects.
How can we meet the demand which I think is an appropriate
one, to use essentially very expensive water that we are
cleaning up; sewage water that we are treating and move that
treated water from dumping it in rivers and oceans to moving it
to Reclamation. As you know, the area I represent in Salinas
Valley has been a very successful project thanks to the
Department, and frankly, thanks to the Department being able to
grant the last large loan.
These projects are going to be opening in the latter part
of this year and it will be the largest amount of agricultural
land in the United States that is being irrigated by reclaimed
water. The point is that I do not find in the Bureau's new
strategic plan under the reinventing government initiative any
language regarding new projects which the Bureau intends to
undertake regarding reuse of reclaimed water.
And I would like to see us put more emphasis on that. Mr.
Garamendi, when he was here on the CVPIA oversight hearing,
discussed water that we needed in the Pajaro Valley. They have
been on the list to get CVP water for a long, long time. They
are not able to get it. And the question was how do you resolve
this problem because you can't just drop that ball.
So my point of interest here is to see what we can do to
expedite the stand to get some moneys to those communities who
really want to go to effective reuse for Reclamation projects.
Mr. Martinez. Mr. Chairman, my personal perspective is that
reclamation and reuse of these water resources is a good way to
create for lack of a better word new water supply. What I am
trying to point out here is that Reclamation has a budget to
work with, $764 million, with competing interest.
To the extent that we would aggressively fund wastewater
reuse projects it indicates that in the next year we will need
$130 million. The question is where are we going to get the
$130 million? If we turn to our $764 million budget, this will
impact our ability to continue to construct the projects that
have been authorized.
It will further complicate our ability to maintain and
operate our system. The question is, if we are going to move
forward on some of these initiatives how are we going to fund
them?
Mr. Farr. Well, exactly. The loan program seems to me a way
to work that. I understand it was very cumbersome. It was too
long. It took years and years to qualify for the loan and some
of the loans were not paid back but if indeed when you say that
reuse is the newest source of water and it is a high priority
for you then why isn't there an emphasis in moving that
priority into the fiscal arena as well?
Mr. Martinez. I think my testimony in the past has
indicated that it is my belief that the Small Projects
Reclamation Loan Act as it currently exists has outlived its
usefulness. I think that perhaps there might be a
reformulation, from my personal perspective, a reformalization
of that program that might allow Reclamation to fulfill its
mission and I will continue to engage other parts of the
Administration to try and see if we can move forward in that
initiative.
Mr. Farr. We need some leadership here. That is what I am
asking. Where is the leadership to say that what you just
stated, that this is the best new source of water. It might be
it is all paid for because it is already in--you know, it is
being collected and delivered to the households and businesses
and it is being delivered back to its treatment plant.
It is just a matter of upgrading those treatment plants and
getting the distribution system in. It seems to me a very cost
effective way of gaining new water and environmentally without
any problems. But where is the leadership from the Bureau of
Reclamation saying that this is going to be one of our agendas?
Mr. Martinez. We are taking an aggressive approach to try
and move these projects forward. The bottom line is that the
demand for these programs is expensive. The Federal commitment
on the four projects that have been authorized already and
where construction is taking place in California requires a
Federal commitment of over $300 million.
Mr. Farr. And those were loan programs, they were not
grants.
Mr. Martinez. They were grants.
Mr. Farr. Well, not the one that I am involved with. It was
a loan.
Mr. Martinez. Yes, the loan but these are--and I am talking
about the wastewater reuse projects in California are grants.
Over $300 million.
Mr. Farr. And yet, excuse me, it turns out that your paper
says you do not support the loan program, you are glad it is
phased out and you would like to encourage the grants. See, I
do not see where the leadership is coming from to try to get to
move in that direction.
Mr. Doolittle. Mrs. Chenoweth is recognized.
Mrs. Chenoweth. Thank you, Mr. Chairman. Mr. Martinez, the
Chairman in his opening remarks made reference to the recent
draft as a strategic plan of the Bureau of Reclamation and I
studied that plan also and I was pleased to see that the
Chairman pointed out the fact the Bureau has said there is no
new water and yet just two pages away you talk about acquiring
more water espe-
cially for conservation practices in the movement of fish
especially in the west. Where do you intend to get that water?
Mr. Martinez. If I might try to put it in context. I think
the GPRA plan basically says that we need to turn our attention
away from the concept that we are going to provide new water
resources by building water projects, building new dams, new
reservoirs for two practical reasons. One is the expense of
these projects, and second of all is the mood of the country.
But if there are other forces to create additional water
supply, wastewater reuse would be one source, water marketing
would be another, water conservation or the improved management
of water resources would be another. So in summary where we are
headed is to make better use of the resource that we have
developed to provide the needs out west rather than creating a
new water supply project.
Out west there is a tremendous amount of water underground
that is saline. To the extent that we take the leadership in
reclaiming saline water in a cost effective way it would be
providing new resources. Wastewater reuse we just finished
talking about. But those are expensive projects and my
testimony indicates that with the Bureau of Reclamation's
existing budget there is not enough money to fund all projects.
On the 16 projects that have been authorized for
construction for the next few years, they require almost half a
billion dollars. I support these projects but I cannot support
them at the expense of moving money from one part of my budget
to another part because I got a commitment, other commitments,
I have to live with.
Mrs. Chenoweth. In your draft strategic plan you talk about
acquisition or leasing of water rights and ways to improve
environmental conditions and I found that beginning on page--
you also discuss it on page 2 of your testimony. How do you
intend to finance this kind of acquisition and when and where
did the Congress give the authority or confer the authorization
to the Bureau for this kind of acquisition whether it be
leasing of water rights or selling of storage rights?
And then the second part of my question--the first part,
where is the money going to come from, secondly, did Congress
defer that on your Department? And, thirdly, isn't a storage
right a contract obligation rather than a right that was
somehow acquired by the Bureau to be able to sell or rent?
Mr. Martinez. The authorization to use those kind of moneys
would have to come from Congress. In the absence of a new
allocation to the Bureau of Reclamation for those purposes, we
would have to look within our existing resources and make
recommendations as to how to best utilize those resources.
And if the national priority to purchase water to address
certain environmental concerns outweighs the use of the money
for other purposes, we would be making those kind of
recommendations to the Congress.
With respect to the acquisition of water the one that comes
to mind is the Thunder River Basin where based on the
biological opinion issued by the National Marine Fisheries
Service Reclamation is charged with acquiring water. We are
acquiring it from willing sellers under Idaho law for the
purpose of addressing fish con-
cerns. We have requested the appropriations in our budget and
Congress has seen fit to appropriate the money to us.
Mrs. Chenoweth. Thank you, Mr. Chairman. I have no more
questions.
Mr. Doolittle. Commissioner, how many in-house engineers
does the Bureau employ?
Mr. Martinez. I would be glad to provide that information
to you but I would probably say that the Bureau of Reclamation
is primarily an engineering organization.
Mr. Doolittle. And yet you are abandoning the structural
solutions in favor of non-structural, as I understand your
testimony.
Mr. Martinez. Well, we have a large infrastructure out west
and it is imperatively important that we maintain an expertise,
an engineering expertise, to maintain that infrastructure. So
one of the things that I did when I became Commissioner is I
created an in-house task force, to look at how we were going to
be able to maintain an engineering capability to make sure that
our facilities remained adequately maintained and sound
replacements were made from an engineering standpoint. And we
are not going to lose that expertise.
Mr. Doolittle. So where there is a trend toward
privatization going on all around the world, why couldn't you
maintain that expertise largely through contracting out and
terminating the in-house engineers that you have, retaining a
few who you need to supervise the work of the contractor? I do
not know how many hundreds you have but you have a lot, I
presume.
Mr. Martinez. Let me try to answer it from this
perspective, Mr. Chairman. The Bureau of Reclamation at the
height of its dam building in the 1960's had, I understand,
about 35,000 employees. We have cut back in the last two years
approximately 20 percent of our employees and we are reducing
the number of engineers. We are hoping to maintain an adequate
work force to address our needs. And we are down to about 6,000
employees now.
Mr. Doolittle. So you went from 35,000 in the 1960's to
6,000 now?
Mr. Martinez. About 6,000 now.
Mr. Doolittle. And what percentage of those, and I realize
you can submit the precise number for the record, but what you
get, what percentage of the remaining employees are engineers?
Mr. Martinez. I would venture to say--I would be happy to
provide the information to you but in terms of overall
percentages we probably have less engineers percentage wise now
than we did back then but I will provide that information to
you.
Mr. Doolittle. What about the idea of contracting out to
the private engineering firms that have demonstrated an ability
now to design big complex projects like we used to build and
hopefully will build in the future?
Mr. Martinez. I will provide you the information but I
believe, like I said, we are contracting out but it would still
be my recommendation and I think it would be remiss as long as
the Federal Government holds title to some of these facilities,
especially facilities such as the dam on the Columbia River,
Grand Coulee Dam, and Hoover Dam and these large dams that it
is imperative that we maintain in-house expertise to address
those issues.
Mr. Doolittle. Well, couldn't you maintain in-house
expertise and simultaneously accelerate the amount of work
going out to the private companies? Are we so lean in the
Bureau of Reclamation that we are not capable of further
reducing in-house engineers without damaging the minimum level
of necessary expertise?
Mr. Martinez. If what you are asking me is should the
Bureau of Reclamation operate with entirely outside consultants
I think that my advise to this commission, to the
Administration would be, no, we need to maintain some in-house
expertise.
Mr. Doolittle. Just so we have a meeting of the mind--if
the private sector can do it, and if by definition they can do
it less expensively than the government, do you really need to
have in-house engineers beyond the minimum necessary to
supervise the work of the private contractors?
Mr. Martinez. I see your objective and I believe that the
record will reflect that we have reduced our in-house
engineers. We do contract but we need to have a balance and I
will revisit that and I do believe that we ought to be as cost
efficient as possible but we need to make sure that we protect
the Federal Government's interest in doing that.
Mr. Doolittle. I still do not feel like you have given me a
direct answer to that question. I am not trying to badger you
to say something you do not want to say, but--well, maybe you
do not want to say it. To me, the answer should clearly be,
yes, we can make further reductions. Now is that not the case
in your mind?
Mr. Martinez. Mr. Chairman, I would have to look because we
have reduced substantially in the last two years. What I do not
want to do is leave you with an impression that I can reduce
much further than that. I need to go back and revisit that and
find that information because of the 2,000 positions that we
have lost in the last two years, the majority of those have
been highly technical engineering positions.
I do not think I can tell you that I am going to reduce my
staff by another 2,000 engineers. I might not have that
flexibility but I can provide that information.
Mr. Doolittle. I agree with you. I think we have suffered a
tragic loss in expertise out of the Bureau of Reclamation, but
it must be very demoralizing for these highly trained engineers
to find themselves being converted into an environmental
restoration agency instead of a water management agency, which
is what the law intended and I believe intends them to be. Mr.
Farr is recognized.
Mr. Farr. Thank you, Mr. Chairman. I would like to follow
up with a question for Mr. Rezendes. If we are going to have a
fixed budget for the Bureau of Reclamation in this downsizing
era, if indeed there is an agenda out there that, we need to
find some capital funds for moving into the new reuse issues. I
guess the question then comes to where you can cut the Bureau's
budget.
And it seems to me we have gone through a process here,
that is the same in the military, where we went to the BRAC
Commission to suggest to Congress what bases ought to be
closed; and it was a recognition that we really did not need
all that Federal real estate for the mission.
I come from a State where you have a California State water
canal and you have a Federal canal, two canals running right
next to each other, one run by one government and one run by
the State. The price of water is different in each canal. It
begins to appear that maybe we have reached a time of maturity
in this country where a lot of those projects that we run at
the Federal level be run by the States or by a consortium of
States.
Should we consider the unloading of some of those projects
to a local level and then reserve whatever savings we get then
to move into these new agenda items?
Mr. Martinez. We have not specifically looked at that. I
can tell you the cost effectiveness of what the implication of
that would be but I think that certainly is an option, I think
you put your finger on it. I think a decision has to be made
here in the Congress as to what the missions and the roles or
responsibilities of the Bureau of Reclamation and which
business you want to be in at the Federal level.
And once you decide that then it is easy for GAO and other
people to come in and then tell you how best that could be
played out through either the State level or contracting out or
various other kinds of options.
Mr. Farr. Well, I have a vested interest in this law
because my great-great uncle was Senator Newlands who wrote the
new Reclamation Act, but on the other hand we are in a
different era now where we have different sources of water and
we need to practice water conservation.
I live in a coastal area that gets no water except for what
comes out of the sky and if we get a dry year we live with it
and we have learned to--we have a water bank for every
community that essentially you are given an allocation of
water. In that community that is all they get. If they want to
build water-intensive projects and use up their water
allocation that is it, but once they have reached that limit
they cannot get any more water so people have become very
conscientious about water and I think we probably done a better
conservation job than anywhere in the United States.
And we have allowed with that savings to provide for
growth. It just seems to me that we need to in the 1990's to
relook at the way we govern water and suggest that perhaps
there is some governance at the local level that could be more
progressive than at the Federal level and be more cost
effective.
And I would think that your agency, the general county
agency, ought to be coming to this Congress and making some of
those recommendations.
Mr. Doolittle. Mrs. Chenoweth.
Mrs. Chenoweth. Thank you, Mr. Chairman. I am interested,
Mr. Martinez, in your telling us how the Bureau intends to
address the continuing O&M backlog at many of our projects. I
know in Idaho we have a backlog of operation and maintenance.
With the financial picture that you have presented and so forth
could you please let us know when you are going to bring that
up to date?
Mr. Martinez. It is my understanding that the Bureau of
Reclamation is addressing operation and maintenance in all
facilities to the point where we do not have any unsafe
projects. Now there are some needs out there that need to be
addressed and we have identified those needs and we will seek
funding to address those needs over the next few years.
In California, we will be seeking funding over the next few
years to complete those items on our RACS lists. But I do not
want to leave you with the impression that we have unsafe
facilities. We are adequately addressing the maintenance of our
facilities to make sure that they are in safe condition.
And I have told my management team that I place great
emphasis on that and in the last two budgets we put more money
into that area because I am concerned as you are concerned
about those facilities.
Mrs. Chenoweth. Thank you, Mr. Martinez. With regard to
your answer on a previous question where I asked where did the
Congress confer the power to the agency to move water or
managed water for environmental purposes, I believe that your
answer was because the money has been appropriated for that
purpose, is that correct?
Mr. Martinez. Well, we have several Federal laws, and I
will be more than glad to provide the information, but with
respect to the appropriations our budget document specifies and
documents how those moneys will be used.
And I am assuming that when Congress appropriates our money
for our budget it appropriates under the conditions that we
have requested for.
Mrs. Chenoweth. I wonder, Mr. Chairman, if it would be all
right with you if we can ask for a copy of that for this 1997-
98 year.
Mr. Martinez. Yes, we can provide it.
Mrs. Chenoweth. How much of a percentage of your budget has
been allocated in that document for acquisition of water in one
form or another either rental or leasing or purchased?
Mr. Martinez. I am advised that it is under 1 percent but
we will provide you that information.
Mrs. Chenoweth. Thank you. And then we also ran out of time
last time when I asked you how is it possible to sell storage
rights as a water right? Since it is a contract it is a concept
in contract and it was never a condition of the bargain that
storage rights could be sold and it tortures the whole concept
of contracting.
Mr. Martinez. Well, I am not prepared--I am not familiar
enough with the concept to answer that question but I will get
an answer to it.
Mrs. Chenoweth. Would you, please? Mr. Leshy has been very
aggressive in pushing for the sale of storage rights and
storage rights are much like a building that you drive your car
into to rent that space. The Bureau does not own the car when
it is driven out. It does not even own the car when it is in
the space and so we are very concerned. This is an issue that I
am watching very, very carefully.
I hope we do not have to resolve this issue in the courts
because, Mr. Martinez, I very sincerely believe that you do
exude leadership and I have not been entirely pleased with the
philosophy and the direction of the Bureau but I believe you
are a very, very capable man. And to that end I want to
congratulate you. Thank you.
Mr. Martinez. Thank you. In New Mexico where I am from, we
do not have any storage right conflicts so I am not familiar
with that but I will find out about that and visit with you.
Mr. Doolittle. Mr. Smith is recognized.
Mr. Robert Smith. Thank you, Mr. Chairman. I apologize for
being late and to the other members as well. Thank you very
much for holding this hearing and I am pleased to be able to
say hello again to Mr. Martinez who has been to Oregon and is
very familiar with an issue that I want to raise with him today
which has to do exactly with the climate of irrigation projects
which is in northern California and southern Oregon which has
been, Mr. Chairman, under great debate of late with respect to
the questions of increased demand of water between the BIA and
the environmentalists, Fish and Wildlife, and of course the
concern by those who irrigate in the climate's region of about
12,000 families, by the way, who take their living from the
project which was completed in '95 by the Bureau of Reclamation
and probably is the most efficient use of water, everyone
agrees, maybe in the nation.
It is an immense effort and one that everybody I think
agrees is an engineering wonder. Of late, however, as I say,
under the increased competition for water there has been
increased concerns that water that comes through that region be
identified for other purposes than irrigation.
And, Mr. Martinez, though I might add, Mr. Chairman, two to
four decisions have been made on the distribution of water
which really is in the area of the Bureau of Reclamation by the
Bureau of Reclamation. Normally it is done at a local level by
those people that are in charge. Recently, however, in the last
year and a half or two years the decisions have been seized
from the Bureau of Reclamation and are now being made in
Washington, D.C., by the Department of Interior.
Now that creates a whole different cast on the
decisionmaking process and the question I am about to ask Mr.
Martinez may be involved with decisions that he had nothing to
say about because he was not consulted. And they go like this.
Mr. Martinez, let me review again, the question I have of you
some time ago regarding the reimbursable cost to the climate
project and we went through that and I would ask you if you
have it to further identify those costs that are reimbursable
or non-reimbursable to water users simply because there is
great concern.
For instance, I have before me here the previous five-year
repayment history of the climate project which indicates an
item called investigation cost--I think it means fish cost from
$189,000 in September to $3.797 million in 1995. That is so far
as I can understand it the reimbursable cost which means water
users have to pay for it.
The question is should the water users pay for a public
interest item like the advancement of fish or should they only
be paying for project direct costs for approving the project?
Mr. Martinez. I am aware that the costs for that project
have gone up and I am aware that the irrigators are concerned
about the portion that they have to pay. I will be glad to look
at that and then visit with you. That is sort of an issue that
also is tied in with this facility transfer issue and the cost
studies.
Mr. Robert Smith. Well, let me ask one other point, as you
well know about, but, for instance, as short a time ago as
three years--I may want to correct that. Yes, a short a time
ago as three years the districts were about to repay the total
cost of the Reclamation project, Mr. Chairman, that started in
1995. Irrigators must pay, as you know, for all of these costs
over a period of time.
Since that time there have been loaded up on the district
enough questionable payments to indenture the district for 20
years and at the same time that the irrigators were never asked
whether they supported or opposed these additional charges. And
so that brings the next question. If I might ask unanimous
consent to continue, Mr. Chairman.
Mr. Doolittle. Just reasonably follow the redlight. There
are not too many of us here so please just go ahead.
Mr. Robert Smith. I will be happy to yield back----
Mr. Doolittle. Just quickly.
Mr. Robert Smith. Thank you, Mr. Chairman. The question
that follows again, Mr. Martinez, is I want to ask you indeed
in the future if there is a reimbursable cost that you have
identified for the irrigation district would you consult with
the irrigation district prior to the time you went forward with
that sort of an endeavor?
Mr. Martinez. I can commit to you that from the Bureau of
Reclamation's perspective we will do that. But I think that
what you have hit is a very interesting issue and the issue is
this. As the Bureau of Reclamation is charged with relooking at
how it should operate its projects to meet either Indian trust
responsibilities or environmental issues.
And to the extent that it undertakes expenses and studies
is it proper to charge the irrigators for those studies or
should that be a national expenditure and that is what you are
asking really. And at this point in time the irrigators are
being asked to pay a certain percentage of it and they have a
concern. And I know what your concern is and I will follow up
on that.
Mr. Robert Smith. And I will take that with anybody. If we
are pursuing an endangered species that is a nationwide problem
brought on by an act of Congress. If we are pursuing the Bureau
of Indian Affairs rights that is again a national problem. It
has nothing to do with the Bureau of Reclamation project in the
climate project. I would yield back, Mr. Chairman, and wait for
another round. I had one more question.
Mr. Doolittle. Why don't you just go ahead and ask it.
Mr. Robert Smith. Thank you very much. I thank the members
of the committee for indulging me here. Mr. Martinez, you may
know, I know you know, there is a water supply initiative that
is being proposed which I welcome, that everybody does, the
satisfaction of the climate project issue can be solved with
either increased storage or groundwater or both. We need 70,000
to 100,000 acre feet of water that satisfies the Endangered
Species Act, that satisfies the tribes, and it would protect
water coming from--for irrigators.
In the water supply initiative do you have money in your
budget to begin either pumping water or determining the aquifer
for trying to find a method to put more water in that river
below Iron Gate going into California which would really
support the full system immensely?
Mr. Martinez. I became aware of the water augmentation
initiative that you are talking about. I have not been engaged
in discussions to date but to the extent that there is support
for that proposal within the Department of Interior and the
water users and if I have the flexibility within my financial
resources I will direct the money to that.
Mr. Robert Smith. Thank you, gentlemen.
Mr. Doolittle. Commissioner, following up on the question
Mr. Smith raised with you, does it seem strange to you, it
seems strange to me, that for fully reimbursable costs for
operation and maintenance the Federal Government is not
undertaking these obligations on the one hand and yet on the
other hand they are more than happy to mandate costs on the
irrigators, etc., for environmental purposes? What an upside
down world we live in. Doesn't that seem strange to you?
Mr. Martinez. In that context it does seem strange to me.
And I have been trying to come to grasps with that issue and I
guess the issue is that we could put before the Congress a
budget request for instead of $764 million--$864 for an
additional rate program for efficiency. They do occur out
there.
Even though they are reimbursable we still would need the
appropriation and I think that is the crux of the question.
That is based on the limited resources that we have and the
competing mass we have put together, our budget proposal we
think best meets the needs that exist out there.
Mr. Doolittle. Mr. Martinez, I hold you in high regard, so
I apologize that sometimes my questions seem hostile, because
really they are not directed at you personally. You are in the
position you are in and you are defending the Administration of
which you are a part.
But this philosophy of smaller is better reminds me of a
bygone era, namely, the Jimmy Carter-Jerry Brown era and I find
it very frustrating to sit here and to maintain that we do not
need to develop new sources of water. In one of the counties I
represent, and one I used to represent, they are busily
overdrafting their groundwater basins just so we can make sure
we are in tune to the so-called national climate that I believe
you mentioned which I think there is no national climate at all
opposed to dam building.
It is a tiny minority which has incredible clout with the
public officials and with the media. I think the national
climate would support having ample supplies of clean water.
When I witness this overdraft of the groundwater, we are
ruining our aquifer in San Joaquin County because of the
overdrafting.
But that is OK because it fits in with the environmental
agenda and dams do not anymore. Let me ask one of the three of
you if you could comment. Don't these multi-purpose dams that
we have pay for themselves many times over? Could someone
comment upon that?
I know that it has to be addressed dam by dam but I have
been told, for example, the Folsom Dam completed, I believe, in
1955 or thereabouts has paid for itself two or three times
over. Could one of you comment upon that?
Mr. Martinez. Let me just answer from a general
perspective. To the extent that the Bureau of Reclamation
projects in my opinion, personal opinion, have opened the west
to development that have prevented flooding in certain areas,
they have paid for themselves. Now whether that is good or bad
can be debated.
Mr. Robert Smith. Well, I am not going to debate. I think
it is good, don't you?
Mr. Martinez. But we have an infrastructure and a develop
list that has basically come about because of water development
projects.
Mr. Doolittle. Well, do you think that is good?
Mr. Martinez. I personally believe it is good.
Mr. Doolittle. Does the Clinton Administration think it is
good?
Mr. Martinez. But now that we have completed that task we
are turning our attention to other issues and that is what the
mirror of this discussion is.
Mr. Doolittle. Well, I am not going to argue with you about
it. I would ask the question, why are we turning our attention
to other issues? It seems to me that as the population
continues to grow, the demands on the limited resource, unless
we develop more of it, are going to get more intense. So, we
ought to be responding.
I am in favor of water conservation like everybody else but
to pretend that that is going to be the main source of our
future water supplies is absurd because we are not going to be
willing to live with the restrictions that go along with
extreme conservation measures.
All right, let me ask you this. We have talked about
transfers. Have we had any transfers under the Clinton
Administration since their policy on transfers was announced?
Mr. Martinez. Facility transfers?
Mr. Doolittle. Pardon me? Facility transfers, yes.
Mr. Martinez. Yes, we have had the transfers on the lower
Rio Grande project and the project in New Mexico but I believe
the legislation most probably passed before the Clinton
Administration.
Mr. Doolittle. Those were the ones that were in the
pipeline before the reinventing government policy came along,
weren't they?
Mr. Martinez. That is my understanding.
Mr. Doolittle. Have we had any out there since the policy
was set forth?
Mr. Martinez. No.
Mr. Doolittle. And I am trying to transfer one little
isolated unit of the Central Valley project and the Clinton
Administration opposes it.
Mr. Martinez. We are working toward making sure that we get
some on board. Hopefully we will be successful this session.
Mr. Doolittle. I see my time is up, but if Mr. Smith, who
is the only one who could possibly object, will indulge me.
What is the present backlog of operation and maintenance for
the Bureau of Reclamation?
Mr. Martinez. I do not have that and I do not believe we
have any eminent backlog but there is a list of RAC items in
the California region. I would be glad to provide you that. I
will be glad to provide you our response to that in writing if
I can.
Mr. Doolittle. Well, the figure just for the CVP strikes me
as about $80 million. Does that ring a bell?
Mr. Martinez. I will be glad to respond to that.
Mr. Doolittle. OK, well, it is my impression it is tens of
millions of dollars at a minimum.
Mr. Martinez. That is not my understanding but I will be
glad to----
Mr. Doolittle. All right, then we will wait for the written
response. My point is, wouldn't privatization relieve the
Federal Government of millions and millions of dollars worth of
liabilities?
Mr. Martinez. Let me answer from this perspective. Leaving
aside whether there is or is not a backlog right now we have a
large infrastructure out west and the Federal Government has a
large responsibility to maintain that infrastructure. That
infrastructure is aging and it is going to require more and
more Federal monetary commitments.
So it is in the Federal Government's best interest to get
some projects in private hands if it can so that others bear
the cost. The issue is going to be if you do transfer that you
put in place a provision where the project owners then do not
come back to the Federal Government at some point in the future
to seek funding if they are not able to correct the actions.
So there is benefit in transferring the projects to private
hands if they are going to assume all liability and all
financial risks in the future.
Mr. Doolittle. Well, I was under the impression that the
ones who want to do it have been willing to go for that but
this has met with resistance by the same national climate that
opposes the development of more water supplies or opposes doing
anything that is not consistent with their own narrow agenda.
Because I can tell you this. This is the most anti-transfer
Administration I think I could say I have ever seen. The
Administration's actions are so contrary to what it says in
public, which is it supports transfers. When you attempt one,
it erects every possible barrier to accomplishing it.
Mr. Martinez. Mr. Chairman, I commit to working with other
parts of the Administration to make sure that we bring some of
these to closure.
Mr. Doolittle. Well, let me tell you. I hope they increase
your power and influence, Mr. Martinez, because I do believe if
you have the ability to implement some of these policy
directives, you would produce solutions. I simply express my
frustration that it appears as someone else, I think Mr. Smith,
was talking about many of these decisions being made at a
higher level than yours so your hands are in effect tied.
But I value your good will and practical problem-solving
oriented approach. If you could, Commissioner, I would
specifically ask for information that you can submit
supplementary to the hearing, regarding the issue of the Folsom
Dam, its construction cost and the amount returned to the
Treasury over the years from the dam.
Let me ask our General Accounting Office and the
Congressional Research Service also to please look into this
general subject area on the issue of the dams and provide the
committee with the information that you turn up.
And I will be happy, if you want further specificity, to
put it in a letter. It is my belief that in the terms of both
the actual costs recovered from the sale of power and in terms
of the avoided costs and natural disasters these things have
paid for themselves many times over, and I would like to see
that documented. I am finished with my questions and I
recognize Mr. Smith.
Mr. Robert Smith. Thank you, Mr. Chairman.
Mr. Doolittle. All right. We thank the first panel and we
will have perhaps further questions. I would ask you to please
respond expeditiously when they are tendered. Thank you. With
that we will excuse you and ask our second panel to come
forward.
We have on the second panel James Smith, Executive
Director, Council of Infrastructure Financing Authorities, Mr.
Eric L. Flicker, Vice President, American Consulting Engineers
Council, Mr. Thomas F. Donnelly, Executive Vice President,
National Water Resources Association, Mr. David C. McCollom,
General Manager, Olivenhain Municipal Water District. Let me
ask you, please, to rise to raise your right hands.[Witnesses
sworn.]
Mr. Doolittle. Let the record reflect that each answered in
the affirmative. Well, gentlemen, we are just here together.
Let me recognize Mr. Smith if he will begin the panel's
testimony.
STATEMENT OF JAMES N. SMITH, EXECUTIVE DIRECTOR, COUNCIL OF
INFRASTRUCTURE FINANCING AUTHORITIES
Mr. James Smith. Thank you, Mr. Chairman. I am James Smith,
Executive Director of the Council of Infrastructure Financing
Authorities referred to as CIFA. It is a non-profit association
representing state and local public financing authorities.
Members of the organization have the capacity to issue debt
mostly in terms of bond indebtedness for infrastructure
financing and most administer at least the financial aspects of
the State Revolving Loan Funds for wastewater and drinking
water facilities. I am pleased to be here today to describe
that program and its successful operation to the committee at
their request.
In 1987 the Clean Water Act was amended to alter the
fundamental approach to financing municipal wastewater
treatment improvements. The construction grant program, which
had provided grant assistance for municipal wastewater
treatment projects, was transformed into a revolving loan
program.
Under the loan program, capital grants are now made to each
state. They are matched by a state contribution of 20 percent,
and they provide a source of low-cost borrowing for localities
to finance their wastewater treatment needs with 20-year loans
to municipalities and communities.
Managed as a revolving loan fund, with the retainment of
principal and interest returning to the fund to be lent again,
Congress envisioned a loan fund that could effectively operate
in perpetuity, providing low-cost financing well into the next
century.
In addition, Congress provided one other unique feature
which has proven to greatly enhance the growth and lending
capacity of the funds, that is, the capacity to leverage the
dollars in the fund by borrowing in the municipal tax-exempt
market. This capability to leverage the funds is one of the
most innovative and successful features of the SRF.
About one-half of the states have used this funding device
to increase their lending capacity, and a number of other
states, while not directly leveraging the Federal dollars,
combine the SRF fund with other state funds which are leveraged
in the bond market, also increasing the overall pool for
lending. Some states leverage their funds at ratios as high as
4:1. I mention this because it is an example of the flexibility
and ingenuity that can be demonstrated in the management of
these loan funds.
Together, the Clean Water SRF lending pool, according to
recent EPA data, has grown to approximately $22 billion.
Through state match, fund leveraging and the return flow of
interest and principal back to the fund, the Federal capital
contribution of approximately $11 billion has been more than
doubled.
Over 4,400 low-interest loans have been made; 1,000 just in
the last year. The average rate, the lending rate, for these
loans which I mentioned are 20-year loans is roughly about 3
percent and so far I am very pleased to say that in the
experience of the program there has not yet been a default.
SRFs are a true success story. Loan repayments are
approaching $1 billion a year, returning to the fund to be
relent again. Does the SRF loan prototype have potential for
application to other types of infrastructure investments? Well,
obviously, as a loan program, the SRF is most adaptable to
those types of financings with a revenue stream for repayment,
such as a public utility.
Congress, in last year's reauthorization of the Safe
Drinking Water Act, created a State Revolving Loan Fund to
finance needed public drinking water supply improvements. Here
I might just parenthetically add that EPA has restricted the
use of those funds for funding any kind of reservoir or dam
facility even though it may be associated with water supply. I
think this reflects a colossal misunderstanding of how water is
supplied, domestic water is supplied, particularly in the west.
The loan fund concept is being advanced for other areas as
well. The State Infrastructure Banks created by the National
Highway Designation Act of 1995, initiates a system of loan
project financing that can be a revolving loan system.
In closing, I am not closely familiar with the project cost
allocation and repayment requirements of the Bureau of
Reclamation's water projects, so I am not prepared to provide
an opinion on the adaptability of the loan funds, especially
with its leverage capacity, to those types of projects.
However, I am willing to provide the committee and its
staff with any additional information you may wish on the SRF
operations, or answer any of your questions. Thank you.
[Statement of Mr. Smith may be found at end of hearing.]
Mr. Doolittle. Thank you. Mr. Flicker, you are recognized
for your testimony.
STATEMENT OF ERIC L. FLICKER, VICE PRESIDENT, AMERICAN
CONSULTING ENGINEERS COUNCIL
Mr. Flicker. Good afternoon, Mr. Chairman, and thank you
for inviting me to testify before the Water and Power
Subcommittee. I am Eric Flicker, Vice President of Pennoni
Associates, Inc., and also a Vice President for the American
Consulting Engineers Coun-
cil, or ACEC, a trade association representing approximately
5,000 engineering firms.
Each year, our member firms design over $100 billion in
completed public and private infrastructure projects. Our firms
are overwhelmingly small business with 80 percent of our
members employing 30 people or less. Nevertheless, ACEC member
firms have worked in nearly every country in the world.
I will first touch on the infrastructure crisis that our
country faces. The United States faces a critical challenge to
provide sufficient infrastructure investment to meet the ever
increasing demand placed upon our roads, water and solid waste
systems, ports, and other public works. Today, all we must do
is look around and we will see evidence of neglect all around
us, particularly in the area of water pollution and the
availability of a ready supply of clean drinking water.
Why is infrastructure important? Both the quality of life
our citizens enjoy and our nation's overall competitiveness are
at stake. We know, for example, that countries that invest a
higher percent of GDP in public works than the United States
enjoy a higher productivity growth.
Truly the value of infrastructure is not the jobs that
construct it, but in the way the completed infrastructure
underpins the quality of life of a region. Just ask those who
have suffered a natural disaster if infrastructure is
important. The arguments for infrastructure impact directly on
the issue before this committee, providing for the water
resource needs of our western states.
Lack of adequate resources will impact cities, farms, and
industry, which will have a tremendous effect on the economic
vitality of the region. Privatization is an important tool. Let
me take a moment to talk about it.
As the Federal source of infrastructure funding decreases
others must pick up the slack.
The states, counties and municipalities are now turning to
the private sector to help them achieve their mission of
assuring there is adequate infrastructure to protect the health
and safety of their constituents. Drinking water, wastewater
treatment, prisons, highways and airports are all being
privatized under a number of schemes.
In some cases, the asset is actually sold to the private
sector. In most cases, particularly wastewater treatment, the
facility is leased to the private sector for a length of time,
which saves considerable amounts of money for the municipality.
In my written statement, I highlight the tremendous growth of
privatization in this country and particularly in other nations
around the world.
The United States is behind a number of developed and
developing nations in this area. It is my hope that we will
soon catch up. There are significant funding mechanisms that
have potential to improve this situation. Let me touch on them.
Over the years, well-intentioned regulations have been
issued to protect the public's interest.
Unfortunately, they are having the opposite effect by
limiting the ability of government to use innovative financing,
or partnering with the private sector, to deliver
infrastructure. In my written statement, I highlight four
Federal changes that would facilitate private sector
infrastructure investment.
I urge you to work with your colleagues on the Ways and
Means Committee to address these issues. I have shared with you
a number of ways to use the private sector to help the
government and this subcommittee achieve their goals of
providing for the water resource needs of the nation. The
important question to answer now is how to use the private
sector and what is the role of the government in delivering
infrastructure.
There may have been a time in this country when the Bureau
of Reclamation needed to do in-house engineering to meet a
specific need. This is no longer the case because it can
contract out to the private sector. Unfortunately, not only
does the Bureau of Reclamation maintain a significant in-house
capability, it is marketing that capability in competition with
the private sector.
I have attached to my written statement a copy of a
marketing brochure used by the Bureau that has been provided by
our Washington State affiliate. ACEC has also received
complaints from our members that the Bureau of Reclamation is
competing with them for design at state, local, and tribal
projects. They are not only competing with us domestically but
internationally.
Mr. Chairman, I have included a report in my written
statement that shows that agencies that contract out the
majority of their engineering work are the most efficient. The
lessons of this study apply to Federal agencies and to the type
of work that the Bureau of Reclamation is doing. I hope that
the relevance of this report to the issues we are discussing
today is clear, the subcommittee can stretch its project
resources further by assuring that the Bureau of Reclamation
contract out to the maximum extent practical.
Even quasi Federal agencies are competing with us. For
example, Bonneville Power Authority has increased the size of
its internal engineering resources and begun marketing them to
clients in competition with consulting engineers. Let me
conclude, Mr. Chairman, and members of the subcommittee by
saying that ACEC stands prepared to assist you in achieving
your goal of assuring that the water resource needs of this
country are met as efficiently as possible. Again, thank you
for this opportunity to testify before the subcommittee. I look
forward to answering your questions.
[Statement of Mr. Flicker may be found at end of hearing.]
Mr. Doolittle. Thank you. Mr. Donnelly, you are recognized.
STATEMENT OF THOMAS F. DONNELLY, EXECUTIVE VICE PRESIDENT,
NATIONAL WATER RESOURCES ASSOCIATION
Mr. Donnelly. Thank you, Mr. Chairman. Before I begin, I
have two statements from member agencies within our association
that I have been asked to submit for the record.
Mr. Doolittle. We will include them in the record.
Mr. Donnelly. Thank you. In the west water infrastructure
needs continue to exist. However, on the whole they are quite
different from those of the past. No one envisions a future
infrastructure development program and financing arrangements
like the Reclamation Program. It is time to recognize and
address a new generation of infrastructure development needs
and financing realities.
Future projects are more likely to feature non-structural
solutions, environmental enhancement, proven best management
practices, innovative approaches to water quality/quantity
problems, and greater levels of non-Federal financing.
Meanwhile, however, the Bureau of Reclamation must continue to
maintain and improve upon existing projects and programs.
An essential element, which is currently missing from the
planning equation, is a basin by basin infrastructure needs
assessment. Such assessment cannot be developed without the
active involvement and, perhaps, the leadership of the Western
governors, water resources professionals, and state and local
officials.
Over the years, several Federal water projects have been
authorized by Congress but remain unfunded. These projects
should be reviewed to determine if they still meet the needs
that they were authorized to address. Additionally, Congress
should determine what projects benefits remain in the Federal
interest for funding purposes.
The Bureau of Reclamation recently published its draft
Strategic Plan. The plan calls for the Bureau to complete
construction of all sixteen water and energy supply projects
which are currently under construction. These projects should
be completed as rapidly as possible in an effort to minimize
cost and keep faith with the states and project beneficiaries
involved.
Congress should not allow special interests to continue to
unnecessarily delay these projects until the cost to complete
the projects has undermined the Federal investment. Congress
should take a more aggressive role to ensure that projects
which facilitate the settlement of longstanding Native American
water rights claims against the Federal Government are funded
and completed expeditiously.
There are urgent needs in existing programs that are not
being completely met. These include the Colorado River Salinity
Control Program, annual operation and maintenance, Native
American water rights settlements, rehabilitation and
betterment, and the Small Reclamation Loan Program projects.
Without an adequate annual operation and maintenance budget
the question simply becomes how many balls you can keep in the
air at one time. Given the fact that Bureau of Reclamation
project water users are required by law to reimburses the
Federal Government for operation and maintenance expenditures
on an annual basis, there seems to be little justification for
annual O&M budgets that require deferred maintenance to occur
and accumulate to a crisis level.
Generally, throughout the Federal Government, small project
programs provide the most bang for the buck. Nowhere has this
been truer than the Bureau of Reclamation's Small Reclamation
Projects Program. One comment that Mr. Farr made earlier about
possibly being several defaults. To my understanding, in the
Small Reclamation Program there has not been one default since
1956 since its inception in 1956.
In early 1995 the Administration announced the termination
of several Department of Interior programs, one of which was
the Small Reclamation Program. Rather than accept the
Administration's bad decision NWRA took a more responsible
course and developed ideas that culminated with the
introduction of H.R. 3041 during the 104th Congress.
The changes proposed by H.R. 3041 are contained in my full
statement. Loan guarantees remain an unresolved issue for us.
We have committed to sit down with the proponents of loan
guarantees. We would like to get that done in May so that
legislation could be reintroduced and hearings held in June.
We do not have a problem with the concept of loan
guarantees. However, at this time our position remains only to
support such guarantees if they are made to governmental
entities with specific conditions. There is no question that
the financing of future project development will be necessarily
different than in the past.
Times have changed and the national goals accomplished
through the Reclamation Program are generally satisfied. A
significantly higher percentage of the cost of future
development must be borne by state and local governments and
project beneficiaries. However, other important sources of
revenue must continue to be utilized.
Power revenues in particular must continue to be made
available as a funding source for water resources development.
The National Water Resources Association strongly supports the
position that tidal and operational control should be
expeditiously transferred to Reclamation project beneficiaries
where the contracting entity is willing and able to assume full
responsibility for the project.
In order to concentrate on its future goals and objectives
the Bureau of Reclamation should be anxious to transfer those
projects that can be operated and maintained more efficiently
by local beneficiaries. Congress should take the appropriate
steps to facilitate transfers that make sense from a financial
and public policy perspective.
Thank you, Mr. Chairman. At this time I will attempt to try
to answer any questions that the committee might have.
[Statement of Mr. Donnelly may be found at end of hearing.]
Mr. Doolittle. Thank you. Mr. McCollom is recognized.
STATEMENT OF DAVID C. McCOLLOM, GENERAL MANAGER, OLIVENHAIN
MUNICIPAL WATER DISTRICT
Mr. McCollom. Thank you Mr. Chairman and members of the
subcommittee for this opportunity to testify today. My name is
David McCollom. I am the General Manager of the Olivenhain
Municipal Water District in Encinitas, California. Our agency
serves in the cities of Encinitas, Carlsbad, San Diego, Solana
Beach, San Marcos, and unincorporated communities of
Olivenhain, Leucadia, Rancho Santa Fe, Fairbanks Ranch and 4S
Ranch.
I note with great interest the variety of opinions and
issues that are before the committee today and before the
Bureau and I have to assure you that north San Diego County and
the Olivenhain Water District faces the same kinds of problems
as any of the agencies in southern California and for that
matter the arid west.
And in California, particularly in my part of California,
we have a more particular problem in terms of the importance
source of all of our water. Our water runs from 500 miles away
in the Bay Delta or from 200 miles away in the Colorado River.
And what I would like to focus on today are ways that we can
improve and help our communities and our people with financing
options through the Bureau of Reclamation.
I am very glad to hear the expertise of yourself, Chairman
Doolittle, and the knowledge that Congressman Farr expressed
today. It shows that perhaps the issue here as Congressman Farr
was mentioning is not a leadership issue as much as urging the
subcommittee to put together the directives and the programs
that we need to manage the next generation of water projects.
I heard a lot from the Bureau today with regard to
tradition and I think it is incumbent on all of us to be
thinking of tradition. That is how our country maturated but it
is also incumbent to think of the future and have vision. And
somebody had vision when they built the Grand Coulee Dam. In
fact, that vision helped us so much that probably without the
Grand Coulee there would have been insufficient electrical
energy to smelt the aluminum that was necessary to defeat
Hitler's Third Reich.
So we never know what these projects may end up doing. The
fact of the matter is that we at some point in time in this
country's history decided to settle the arid west and make more
water available and we did that and that is certainly extremely
good. But the job is not over. The job is far from over and we
heard about the environmental problems that we have.
And the programs that I am going to briefly give you an
overview on today help cure a lot of those problems and also
set the stage for more innovative public and private partnering
that really gets us outside the box of having government do for
us but puts government in a position of helping the people help
themselves while the people pay for the projects.
I think this is necessary for the Bureau to change to this
kind of a role. I do not think the Bureau should be going out
of business. They should be taking a very forward looking
position with regard to getting outside the box, outside I
guess the current buzz word is the paradigm of traditional
government.
First of all, we are here to discuss the loan guarantee
proposal. Congressman Duke Cunningham has introduced
legislation that is pending before this committee. The
legislation is called H.R. 134 and it would demonstrate by the
Olivenhain Water Storage Project the loan guarantee program of
which we speak and the one we are interested in working with
the Bureau of Reclamation on.
These loan guarantee programs could be very, very helpful
in the future for the EPA which we are estimating that the Safe
Drinking Water Act is going to require $200 billion in the next
20 years. In Olivenhain our price of wholesale water has gone
up 55 percent in the last five years. That is well over $250
per acre foot increase in price that our customers have to pay.
It is very difficult for local agencies to meet these
increasing financial challenges. In addition, I named cities
that we serve in and cities have terrific financial pressures
today. A loan guarantee would help the cities avoid layering of
traditional municipal debt which eventually as the municipal
debt layers and layers and layers lead the risk factor goes up.
The rating agencies rate the interest rates higher and higher.
It would keep low interest rates for other forms of
infrastructure and public service projects like schools,
police, fire, and some of those programs that are not
entrepreneur and enterprise programs that ought to be run more
like a private entity. We have a product to sell. We ought to
be managing our water resources like a company that is selling
the product reserving the elected officials to maintain the
public trust for the benefit of the people.
So our loan guarantee program would go a long way toward
leveraging money from the Federal Government, allow the Federal
Government to maintain a balanced budget and improve the level
of service to our customers, the quality of life, and assure
good quality of life in the future.
Additionally, we are here to talk about Title XVI Program
for water reclamation. I just wanted to reiterate some of the
things that I heard. The issue of environment. The Secretary of
the Interior has a responsibility to control and operate the
Colorado River. 100 percent of Olivenhain's water is currently
coming from the Colorado River.
We are willing to make a substantial investment in water
reclamation programs that will recycle Colorado River water. As
Congressman Farr said it is already paid for and the sewer
plants have treated it. We ought to be reusing that resource.
There is a new source of water in the west. The new source of
water is reclaimed water and it ought to be used as many times
as possible.
You may have heard there are not customers for reclaimed
water in the west. That is not correct. It is pretty difficult
to get started in this business because it starts slowly but
there are customers out there. Olivenhain has six golf courses
and hundreds and hundreds of acres of greenbelt that reuse
water to be used to offset the cost of new infrastructure to
deliver scarce resources from the Colorado River.
And this infrastructure is partially in the ground now. We
can put it to good use immediately and we urge your support on
both of these bills. And if I may, I will be glad to answer any
questions. I hope we can stimulate a little bit of conversation
like we had in the previous panel. Thank you.
[Statement of Mr. McCollom may be found at end of hearing.]
Mr. Doolittle. Thank you. Let's begin with you. When you do
reclaim water don't you tend to have a separate distribution
for that?
Mr. McCollom. Yes, you do, and that is why we are here
asking for Federal help. It is a separate distribution system
and some day we may not have separate distribution systems but
for now it can be most economically handled that way but the
separate distribution systems are really the problem. The
problem is at the treatment plant it is getting the water out
to the customers.
Mr. Doolittle. So when you build these distribution systems
they all line up at the treatment plants, is that where they
begin?
Mr. McCollom. These distribution systems need to connect
with treatment plants. In our particular case in the case of
the north San Diego County project much of the infrastructure
is in place. We need the connecting pipelines to the treatment
plant to transfer this water and so what we are looking for is
some seed money to take care of that.
Once the project is operative and selling water it will
become an enterprise of the various agencies, Olivenhain
included, and then we will be self-funding. And so a short-term
investment by the Federal Government turns into a long-term
benefit for the community.
Mr. Doolittle. I am trying to envision how this would work.
If you got six golf courses then there would be a pipeline
built between the treatment plant and each of the six golf
courses or any other additional customers, is that right?
Mr. McCollom. That is essentially correct.
Mr. Doolittle. And so then you are involved in tearing up
the streets, because you have a completely separate pipeline,
right?
Mr. McCollom. In our particular case we have already laid
close to eight miles from pipeline. A goodly portion of it has
been laid in developing communities in preparation and so while
yes, there is the drawback of having to rip up streets in some
cases to make the full connection to the system our district
and many of the districts in north San Diego County as well as
others under the Title XVI Program have been planning for this
for a long time. This is not something that just arose quickly
and it is very thoroughly planned in most communities.
Regrettably, any kind of infrastructure improvements or
additions require some inconvenience to the general public but
in our communities people are very anxious to see this kind of
inconvenience and very, very supportive of water reclamation
and the need to recycle.
Mr. Doolittle. Just out of curiosity, what is the diameter
of these pipes that are attaching to the water treatment plant?
Mr. McCollom. In our particular project most of the
pipelines would not exceed 21 to 24 inches and the majority of
them would be in the 10 and 12 inch category. Most of the--we
have part of our 7\1/2\ mile system is as large as 18 inches
for a short ways.
Mr. Doolittle. This water is treated to secondary
standards?
Mr. McCollom. It would be treated to secondary standards,
yes.
Mr. Doolittle. And if it were to be drinking water under
the current rules it would have to be tertiary standards?
Mr. McCollom. It would have to go to some sort of tertiary
standard. And in addition, I might add some might argue that
the secondary standards are actually tertiary standards and we
did put it through a final filtration so it would be a very
advanced secondary. When I say that to a point of a confusion
between tertiary in terms of what is consumable.
Mr. Doolittle. And the reason that you are doing it as a
separate system is just the concern over the public reaction
mainly to intermingling that with the existing water supply?
Mr. McCollom. Public reaction and the ability to create a
product competitively that can be used for alternative uses and
so perhaps the expense isn't necessary in terms of what has to
be done at a treatment plant.
Mr. Doolittle. OK, because it is just for irrigation so you
do not have to----
Mr. McCollom. That is correct. I would envision throughout
the west that there would always be parallel systems in the
future just like there are grades of gasoline but the ability
to make this water drinkable and put it into the total system
is actually here and the city of San Diego to the south of us
has done considerable work toward this and I believe we will
see that as a reality very shortly and that will also be very
significant in terms of the benefits and the impacts that it
will have on the arid west and recycling water.
Mr. Doolittle. Is San Diego devoid of aquifers?
Mr. McCollom. San Diego County is for all intents and
purposes devoid of aquifers. There are very small local
pockets. In fact, in our district we had been working on the
San Dieguito Basin but it presents a very small pocket. It is a
very low quality water. Historically we have had tremendous
amounts of natural occurring salt in the water and so our
aquifers are very poor.
And so we do not have the benefit to be able to inject
treated groundwater in and pumping it out later. We have to do
everything on the surface but that may be seen as an advantage
in the case of our Title XVI project because we are going to be
delivering from the plant to the customer and with the
exception of the small amount of storage that has to be built
in the form of tanks this is a much more direct use and could
be managed and controlled much more thoroughly than a
groundwater recharge program. And we may do some groundwater
recharge on the side, Mr. Chairman, but it is not really a
great resource that we can depend upon.
Mr. Doolittle. Mr. Flicker, you have heard my exchange with
the Commissioner about the in-house engineers and I think it is
true he has lost a lot of expertise which I think anybody
committed to the traditional function of the Bureau would
regret. Nevertheless, do you have an impression as to the
number of in-house engineers the Bureau retains at this time?
Mr. Flicker. I do not.
Mr. Doolittle. I thought your suggestion there was
interesting. Of course we will have to be careful or they will
cut that back and we will have them going to the Americorps or
some other Clinton Administration social program but I think if
it could be used to stretch the dollar and enable them to do
their operation and maintenance backlog and to help develop
some of these water projects can be a very good thing including
the reclamations and interesting technology coming out of line
beginning to expand.
You mentioned in your testimony, you gave us those four
things that you thought were very useful. One of the
impediments you said was the limitations on private activity
bonds which are contained in the '86 Tax Act. And I want to ask
Mr. Smith probably about these--let's see, you called them SRFs
which actually stands for State Revolving Loan Fund, right?
Mr. James Smith. Correct.
Mr. Doolittle. And are those private activity bonds, funds,
are those covered by that cap, do you know?
Mr. James Smith. No, sir, they are not. At the present time
because under the wastewater SRF only the public entity can
access the fund so there is no limitations under the private
activity bond rules. With the new drinking water program,
however, for the first time the privatizer may access this
revolving loan fund and in doing that they will if there are
bonds that are issued in conjunction with that they will become
private activity bonds. If more than 10 percent of the use of
bond proceeds goes to the privatizer.
Mr. Doolittle. Therefore, they come under the caps, you
mean?
Mr. James Smith. They would come under the caps, that is
right, sir.
Mr. Doolittle. Well, it would seem if we are serious about
privatization that those caps should be removed or altered.
Mr. James Smith. We would certainly support that and there
is legislation before the Ways and Means Committee to consider
that and expand the cap availability. It is something though
that requires a revenue offset and that has always been a
difficult situation.
Mr. Doolittle. And the purpose of the cap is what, to make
sure we do not have too much infrastructure?
Mr. James Smith. The purpose of the cap originally was to
limit the access of the private sector to tax exempt proceeds
on the assumption that there should not be--these preferred
interest rates should not be available to the private sector.
They were intended for the public sector.
Mr. Doolittle. Yes, the view being that the public sector
is going to be the one that met these needs but now we are in a
new era where it may be the private sector.
Mr. James Smith. That is true.
Mr. Doolittle. Let's see now. Mr. Flicker, in your
testimony you indicated that $137 billion worth of
infrastructure in just wastewater treatment was going to be
needed here between now and the year 2012?
Mr. Flicker. Yes, that was based EPA's 1992 needs survey.
Mr. Doolittle. Right, and that is just the sewage treatment
facilities.
Mr. Flicker. That is correct.
Mr. Doolittle. And you pointed out that it has been at
about $2 billion per year for the last ten years. Then you gave
us this chart. Let me ask you what happened between 1982 and it
looks like 1984 was the zenith of it and it began to decline
after that. What was that?
Mr. Flicker. We do not have a copy of the chart in front of
us. I apologize.
Mr. Doolittle. It says Federal investment in infrastructure
as percent of GDP and this little peak I think--our consultant
is bringing it to you but it went up. Something good must have
happened.
Mr. Flicker. I cannot explain that. We will get back with
some explanation.
Mr. Doolittle. But since that point it has been quiet and
then declining rather precipitously. You testified, Mr. Smith,
and I did not quite catch everything you said but it sounded
like the EPA restricted on its own the application of the SRF
Program to anything that might involve dams, is that right?
Mr. James Smith. That is right, Mr. Chairman. In the
implementation of the new drinking water State Revolving Loan
Fund they specifically restricted the use of those loan funds
for anything that would involve the construction or dam or
reservoir storage.
Mr. Doolittle. Was there anything in the authorizing
statute or the appropriation that granted them the authority to
do that or did they have some authority?
Mr. James Smith. There is no restriction whatsoever in the
authorizing legislation nor is there in the appropriation. It
was purely on their own volition.
Mr. Doolittle. And when was that done?
Mr. James Smith. That was done about three months ago.
Mr. Doolittle. Would you please provide the subcommittee
with the documentation for that?
Mr. James Smith. I will indeed.
Mr. Doolittle. Because that is something we ought to follow
up on with the oversight powers that we have now in Congress.
Has the engineering community ever thought of trying to
challenge that?
Mr. James Smith. Some of the states have suggested a
challenge to it and there may be the possibility of actually a
court case on it although I am not familiar specifically with
what is happening on that issue. The engineering community I do
not believe has considered it although you may know better than
I.
Mr. Flicker. Not that I am aware of.
Mr. Doolittle. Well, I want to encourage you gentlemen. As
you are aware, where the agencies do these things it is
usuallly by an executive order, some agency rule or something.
We now have the ability to overturn that by majority vote in
both houses and then the President of course can veto it and
then we are back at the two-thirds situation.
But this is a whole new area that is now going to be
thoroughly tested and explored so as you become aware, as I am
sure you will since you work in the intricacies of these areas
where actions are being taken like that and you think something
like the dam and reservoir regulation suggests, I would
appreciate hearing about it.
Mr. James Smith. Very well.
Mr. Doolittle. That will allow us to elevate the issue. Mr.
Donnelly, you talked about supporting privatization efforts
where the recipients are willing to assume full responsibility.
What is your impression of the record of the Clinton
Administration on this issue?
Mr. Donnelly. What record? They have not transferred
anything that I am aware of. And I agree with Mr. Smith that
that is not the Commissioner's fault. Those decisions are being
made at a much higher level. I think he is doing everything he
can to make the process work.
Mr. Doolittle. How many such projects are you aware of,
roughly, that people would like to have transferred?
Mr. Donnelly. I probably could not give you an accurate
number west wide or how many projects--initially when we first
started the discussion about project transfer a lot of the
people that came forward and wanted to get involved in having
their projects transferred back to them both title--and for the
most part operation and maintenance has been transferred on a
number of projects but title transferred to them have second
thoughts about it, particularly those that were involved--that
were concerned about the liability.
What we have told our members is if you are concerned about
the liability issue, you do not belong in the debate of title
transfer. You cannot expect the Federal Government to turn over
title and everything to the beneficiaries and then expect the
Federal Government to retain the liability for the structure.
That is just not the way it goes.
We feel that there are a number of projects out there that
should be transferred. They make more sense from an efficiency
standpoint, from a cost standpoint as far as the Federal
Government is concerned. I sense there are probably also
projects out there that should not be transferred simply
because--for several reasons, because the involve multi-state,
multi--the projects like the Hoover Dam, something like that
where it is not one state or one water district that is
controlling the title to it.
There are other reasons too. I believe that there are water
districts out there that do not have the capability financial
or otherwise to continue to operate and maintain those projects
in a safe manner.
Mr. Doolittle. Mr. McCollom, how much do you presently pay
per acre-foot of water?
Mr. McCollom. Currently our wholesale price for treated
potable water is $511 per acre foot.
Mr. Doolittle. You said that in the last five years that
went up by $250?
Mr. McCollom. That is correct.
Mr. Doolittle. How come it went up so much?
Mr. McCollom. Cost of infrastructure, government
regulation, costs for meeting service water treatment rules,
things of that nature.
Mr. Doolittle. What is the cost to lay a mile of 12-inch
pipeline anyway?
Mr. McCollom. Well, a 12-inch pipeline in an extremely
general rule of thumb would probably cost about $2 to $2.50 a
foot per diameter inch. That is very general. If you have rock
or if you have issues such as pumping, pressure reduction, that
price would be considerably higher.
Mr. Doolittle. OK, I will have to work out the numbers on
that. So if it is 12-inch pipe----
Mr. McCollom. $25 to $40 a linear foot. On average around
$32 a linear foot.
Mr. Doolittle. It does sound pretty expensive.
Mr. McCollom. Oh, it is very expensive, yes. Very
definitely but these kind of facilities last and today even
more so I believe that the facilities we are building today
instead of being 25 or 30-year construction projects we are
really building for 100 years into the future due to improved
engineering techniques and improved construction techniques and
improved material.
Mr. Doolittle. You mean you only had to dig up the street
the first time and the pipe will last 100 years?
Mr. McCollom. Well, I started this business 25 years ago.
We had to dig up the streets regularly. When I started at the
Olivenhain Water District we have a regular leak crew that went
around. Today if we have one or two leaks a year it is unusual.
These are due to improvements with knowledge of pothotic
protection from the oil industry. These are due to improvements
of materials for service connections and diligent maintenance.
You cannot let your maintenance go to the point where you are
just using bubble gum and baling wire.
But I would like to point out that all these innovations
came from private companies and I am a lifelong public servant
and very proud of it. I have not had time to invent anything or
develop anything. I use public sector knowledge and I put that
into good use and so just as the Department of Defense
employees do not build airplanes, Boeing and Douglas does, the
things that we are proposing here today are really not at all
unusual or new. They are just business as usual using
ingenuity.
Mr. Doolittle. Well, I would like to recommend you to the
Bureau of Reclamation. Maybe your views on operation and
maintenance could have some positive effect.
Mr. McCollom. Well, thank you, Mr. Chairman, and if you
stay around long enough and I get my dam and lake built perhaps
I do want to do a stint in Washington if all the days would be
like today but I bet you won't promise that. It was a glorious
day today in Washington, D.C.
Mr. Doolittle. It is indeed. Well, I think I have concluded
my questions. I really appreciate the suggestions you gentlemen
have offered. I think there are some very good ones in here and
we will look forward to getting any further responses some of
which we have talked about for the record.
And I would like to thank you all for your time and trouble
to be here today and we will excuse you and with that the
hearing is adjourned.
[Whereupon, at 4:15 p.m., the subcommittee was adjourned;
and the following was submitted for the record:]
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