[House Report 105-327]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-327
_______________________________________________________________________


 
            OLIVENHAIN WATER STORAGE PROJECT LOAN GUARANTEE

                                _______
                                

October 21, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Young of Alaska, from the Committee on Resources, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 134]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 134) to authorize the Secretary of the Interior to 
provide a loan guarantee to the Olivenhain Water Storage 
Project, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. OLIVENHAIN WATER STORAGE PROJECT LOAN GUARANTEE.

  (a) Loan Guarantee.--The Secretary of the Interior may guarantee a 
loan made to either the Olivenhain Municipal Water District (in this 
Act referred to as the ``District'') or to a nongovernmental developer 
selected by the District, for building and financing the Olivenhain 
Water Storage Project in northern San Diego County, California. The 
amount of a loan guaranteed under this subsection may not exceed 
$70,000,000.
  (b) Interest Rate.--Any loan guaranteed under subsection (a) shall 
bear interest at a rate agreed upon by the borrower and lender.
  (c) Obligation of United States.--Any loan guarantee under this 
section shall constitute an obligation, in accordance with the terms 
and conditions of such guarantee, of the United States Government, and 
the full faith and credit of the United States is hereby pledged to 
full performance of the obligation.
  (d) Security.--
          (1) Reserve fund and commitment of district revenues.--To 
        ensure the repayment of any loan guaranteed under this section 
        and as a condition of providing the guarantee, the Secretary of 
        the Interior shall require that--
                  (A) the borrower establish and maintain, with a 
                trustee designated by the Secretary, a reserve fund in 
                the amount of 115 percent of the next year's principal 
                and interest payments on the loan;
                  (B) the District agree to use its revenues to make 
                all payments required under the terms of the loan prior 
                to any payment by the United States under the 
                guarantee, and to make those payments through the 
                trustee designated under subparagraph (A); and
                  (C) the trustee designated under subparagraph (A) 
                agree to use all amounts received for repayment of the 
                loan to repay the loan.
          (2) Reserve fund requirements.--The reserve fund under this 
        subsection shall be established under terms that provide that--
                  (A) all moneys in the reserve fund shall constitute a 
                trust fund for the repayment of the loan guaranteed 
                under subsection (a); and
                  (B) the reserve fund shall be administered in 
                accordance with and pursuant to provisions agreed upon 
                by the borrower and lender for the loan guaranteed 
                under subsection (a).
          (3) Payment of loan amounts.--Proceeds from the loan 
        guaranteed under subsection (a) shall--
                  (A) be deposited directly with the trustee designated 
                by the Secretary of the Interior under paragraph 
                (1)(A); and
                  (B) be disbursed by the trustee consistent with the 
                terms of the loan.
          (4) Qualifications of trustee.--Any trustee designated by the 
        Secretary of the Interior under paragraph (1) must, at a 
        minimum--
                  (A) be a trust company or a bank having the powers of 
                a trust company;
                  (B) have a combined capital and surplus of at least 
                $100,000,000; and
                  (C) be otherwise subject to supervision or 
                examination by a Federal agency.

                          purpose of the bill

    The purpose of H.R. 134 is to authorize the Secretary of 
the Interior to provide a loan guarantee to the Olivenhain 
Water Storage Project.

                  background and need for legislation

    The Olivenhain Water Storage Project is located in a 
relatively unpopulated portion of San Diego County situated 
approximately one mile southwest of the city limits of 
Escondido. The project consists of an open, raw water storage 
reservoir with a capacity between 4,000 acre-feet (AF) and 
24,000 AF, a roller-compacted concrete dam, an 82 million 
gallons-per-day water treatment plant, a raw water pipeline 
connecting the reservoir to the San Diego County Water 
Authority, a flow control station, a treated water line, a pump 
station, the installation of new above-ground electrical power 
poles to provide electric service to the pump station, four 
staging areas for construction activities, and the improvement 
of an existing unpaved access road.
    The lead agency for purposes of environmental review is the 
Olivenhain Municipal Water District. The project's 
environmental review process has spanned more than 10 years. 
Throughout this period, the project has evolved with a number 
of alternatives analyzed and, ultimately, rejected in favor of 
the preferred alternative.
    Since the lands in the project area include those owned by 
the Water District and the Bureau of Land Management (BLM), a 
joint Environmental Impact Report and Environmental Assessment 
(EIR/EA) was completed for the project pursuant to the 
California Environmental Quality Act and the National 
Environmental Policy Act, respectively. The Final EIR/EA 
evaluated the environmental impacts of a reservoir ranging in 
size from 6,000 AF to 24,000 AF. The 6,000 AF reservoir has 
been further downsized to 4,000 AF, the minimum size necessary 
to meet the emergency storage needs of the Water District 
through the year 2030. The larger reservoir would also provide 
emergency storage to meet an existing regional need. The larger 
reservoir would not be constructed unless neighboring water 
districts agree to participate financially in the larger 
reservoir.
    The dam and reservoir would be located in the easternmost 
portion of the Water District's service area. The parcel 
consists of the 756-acre Elfin Forest Recreational Reserve, of 
which 279 acres is owned by the District and 477 acres is owned 
by the BLM and leased to the Water District.
    The Bureau of Reclamation has traditionally funded the 
construction of reclamation projects, with the reimbursable 
costs being repaid by the project beneficiaries. In addition, 
Reclamation has provided loans and grants under the provisions 
of the Small Reclamation Projects Act of 1956. H.R. 134 reduces 
the federal exposure from that of the traditional direct 
financing party to that of a guarantor. This bill would foster 
a viable, private-public partnership to meet a pressing 
infrastructure need at a time when the federal government is 
moving away from its role as direct lender and grant provider.
    The Committee approved this bill as a demonstration of new 
financing mechanisms that can leverage and maximize federal 
funds as we move to balance the federal budget. This loan 
guarantee would reduce the cost of interest on the project to 
the customers and encourage private sector funding of needed 
water infrastructure. The guaranteed loan will bear interest at 
the rate agreed upon by the borrower and the lender. Any 
guarantee issued pursuant to the legislation would constitute 
an obligation, in accordance with the terms of such guarantee, 
of the United States government, and H.R. 134 further 
stipulates that the full faith and credit of the United States 
is pledged to the full performance of the obligation.
    In authorizing the Secretary of the Interior to make this 
loan guarantee, the Committee anticipates that the Secretary 
will exercise sufficient oversight concerning the terms and 
conditions of the loan, and the creditworthiness of the 
borrower, to ensure that the taxpayers of the United States are 
protected. This oversight will supplement the safeguards to 
protect the financial interests of the United States that are 
contained in the legislation, including: the requirement that a 
reserve fund be established; the requirement that a trustee 
oversee the reserve fund; and the requirement that the District 
agree to use its revenues to make all payments required under 
the terms of the loan prior to any payment by the United States 
under the guarantee.

                            committee action

    H.R. 134 was introduced on January 7, 1997, by Congressman 
Randy ``Duke'' Cunningham (R-CA). The bill was referred to the 
Committee on Resources, and within the Committee to the 
Subcommittee on Water and Power. On June 24, 1997, the 
Subcommittee held a legislative hearing on H.R. 134, where the 
Administration opposed the legislation. The Olivenhain 
Municipal Water District testified in support of the bill. On 
July 29, 1997, the Subcommittee met to mark up H.R. 134. An 
amendment in the nature of a substitute was offered by 
Congressman John Doolittle (R-CA) to address issues raised by 
the Administration about the federal risks which would be 
incurred. The amendment requires the borrower to establish a 
reserve fund; commits Olivenhain Municipal Water District 
revenues for default payments; requires the Secretary to 
designate a trustee to maintain the reserve fund; stipulates 
that the reserve fund will constitute a trust fund for the 
repayment of the guaranteed loan; and requires that should the 
borrower default on the loan, the district is required to make 
payments to the trustee before any payment is made by the 
United States. The amendment in the nature of a substitute was 
adopted by voice vote. The bill was then ordered favorably 
reported to the Full Committee by voice vote. On September 17, 
1997, the Full Resources Committee met to consider H.R. 134. 
The bill, as amended by the Subcommittee, was ordered favorably 
reported to the House of Representatives by voice vote, in the 
presence of a quorum.

            committee oversight findings and recommendations

    With respect to the requirements of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee on Resources' oversight findings and 
recommendations are reflected in the body of this report.

                   constitutional authority statement

    Article I, section 8 of the Constitution of the United 
States grants Congress the authority to enact H.R. 134.

                        cost of the legislation

    Clause 7(a) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs which would be incurred in carrying out 
H.R. 134. However, clause 7(d) of that Rule provides that this 
requirement does not apply when the Committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
under section 403 of the Congressional Budget Act of 1974.

                     compliance with house rule xi

    1. With respect to the requirement of clause 2(l)(3)(B) of 
rule XI of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, H.R. 
134 does not contain any new budget authority, spending 
authority, credit authority, or an increase or decrease in 
revenues or tax expenditures. The bill does authorize the 
Secretary of the Interior to provide a loan guarantee.
    2. With respect to the requirement of clause 2(l)(3)(D) of 
rule XI of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform and 
Oversight on the subject of H.R. 134.
    3. With respect to the requirement of clause 2(l)(3)(C) of 
rule XI of the Rules of the House of Representatives and 
section 403 of the Congressional Budget Act of 1974, the 
Committee has received the following cost estimate for H.R. 134 
from the Director of the Congressional Budget Office.

               congressional budget office cost estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 29, 1997.
Hon. Don Young,
Chairman, Committee on Resources,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 134, a bill to 
authorize the Secretary of the Interior to provide a loan 
guarantee to the Olivenhain Water Storage Project, and for 
other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Gary Brown.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

H.R. 134--A bill to authorize the Secretary of the Interior to provide 
        a loan guarantee to the Olivenhain Water Storage Project, and 
        for other purposes

    Summary: H.R. 134 would authorize the Secretary of the 
Interior to provide a loan guarantee for the Olivenhain Water 
Storage Project (the project). CBO estimates that providing the 
loan guarantee would cost about $7 million in fiscal year 1998, 
assuming appropriation of the necessary amount. Enacting H.R. 
134 would not affect direct spending or receipts; therefore, 
pay-as-you-go procedures would not apply to the bill. The bill 
contains no private-sector or intergovernmental mandates as 
defined by the Unfunded Mandates Reform Act of 1995 (UMRA) and 
would not impose any costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: H.R. 134 would 
authorize a guarantee for a loan of up to $70 million for the 
project. Based on information provided by the Olivenhain 
Municipal Water District (the district), CBO assumes that the 
guarantee would be provided to a private developer (that has 
not yet been selected) for constructing the project. The 
district would lease the completed facility from the private 
developer. The lease payments would be derived from future 
increases in the district's water service rates and would 
represent the security for the loan. Assuming appropriation of 
the necessary amount, CBO estimates that providing the loan 
guarantee would cost about $7 million in fiscal year 1998.
    The Federal Credit Reform Act of 1990 defines the cost of a 
loan guarantee as ``the net present value * * * [of] estimated 
payments by the government to cover defaults and delinquencies, 
interest subsidies, or other payments, and the estimated 
payments to the government including origination and other 
fees, penalties and recoveries.'' This cost is recorded in the 
year in which the loan is disbursed. Based on the water 
district's credit history, and assuming a 20-year repayment 
period for the loan, CBO estimates a subsidy cost of $7 million 
in fiscal year 1998. The costs of this legislation fall within 
budget function 300 (natural resources and environment).
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: The bill 
contains no private-sector or intergovernmental mandates as 
defined by UMRA and would impose no costs on state, local, or 
tribal governments. The municipal water district would have to 
agree to certain terms and conditions in order to receive the 
loan guarantee, but such an agreement would be voluntary.
    Estimate prepared by: Federal costs: Gary Brown; impact on 
State, local, and tribal governments: Marjorie Miller.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                    compliance with public law 104-4

    H.R. 134 contains no unfunded mandates.

                        changes in existing law

    If enacted, H.R. 134 would make no changes in existing law.

                            DISSENTING VIEWS

    The bill proposes relief to the Olivenhain Municipal Water 
District (or to a ``nongovernmental developer selected by the 
District'') in the form of a Federal loan guarantee of up to 
$70,000,000 for the purpose of building and financing the 
Olivenhain Water Storage Project in northern San Diego County, 
California. According to hearing testimony from project 
sponsors, the project consists of a dam and reservoir to be 
used by the water district for emergency water storage.
    The purpose of the loan guarantee is to allow the project 
sponsors to leverage their borrowing power by having the 
backing of ``full faith and credit of the United States.'' With 
the Federal loan guarantee in hand, the Olivenhain Municipal 
Water District (or the ``nongovernmental developer'') expects 
to receive a substantial discount on their interest rate for 
borrowing from a commercial credit source.
    The bill's reference to a ``nongovernmental developer 
selected by the District'' is apparently intended to allow the 
District to turn over much of the responsibility for financing 
and construction of this project to a private contractor.
    Federal loan guarantees are not new, but they are not 
commonly used by the Secretary of the Interior to assist in 
meeting local infrastructure needs. The Secretary of the 
Interior currently has authority to make loans and grants under 
the Small Reclamation Projects Act of 1956 (70 Stat. 1044). 
However, current Reclamation law does not include general 
authorization for a loan guarantee program.
    A significant objection to H.R. 134, as amended, is that 
the bill requires essentially nothing from the project 
sponsors. Obviously the loan guarantee contemplated by H.R. 134 
represents a major financial commitment on the part of the 
United States. Yet the bill sets no standards to be met by the 
District, requires no information regarding the 
creditworthiness of the parties, and does not require the 
Secretary to perform even a cursory review of the feasibility 
of the proposed project before making a commitment of as much 
as $70,000,000 on behalf of the United States. H.R. 134 does 
not require anybody to meet even the most fundamental standards 
for reviewing, approving and assisting in the financing of a 
public infrastructure project. In addition:
          The Administration is on record in opposition to the 
        bill, primarily because it does not want the Bureau of 
        Reclamation in the business of making loan guarantees 
        and because there are no provisions for approving the 
        terms of the loan or the underlying project. The 
        Administration also cites the absence of assurances 
        that the District will be able to repay the leader as a 
        reason for its opposition.
          Reclamation projects normally have to meet strict 
        requirements of feasibility and have demonstrable 
        benefits as determined by published government 
        guidelines. H.R. 134, however, does not even mention 
        the cost of the project or require a finding of 
        feasibility, nor does it identify the ``private 
        developer'' for whom a loan might be guaranteed.
          The loan guarantee could go to a nongovernmental 
        developer, while loans and grants under the 1956 Small 
        Reclamation Projects Act, for example, can only go to 
        public entities such as water districts.
    Loans and loan guarantees from the United States are 
financial instruments that can be used to facilitate the 
operations of local government, including the construction of 
water storage and delivery facilities. They result in financial 
exposures and as such carry with them risks and obligations 
that may be called on in the future. Therefore they need to be 
carefully formulated and used, with the resultant exposures 
monitored regularly. H.R. 134, as amended, does not meet even 
these minimum standards to minimize risk to the United States.

                                   George Miller.
                                   Peter DeFazio.