    Klamath River Basin: Reclamation Met Its Water Bank Obligations,
    but Information Provided to Water Bank Stakeholders Could Be
    Improved (28-MAR-05, GAO-05-283).

    Drought conditions along the Oregon and California border since
    2000 have made it difficult for the Bureau of Reclamation
    (Reclamation) to meet Klamath Project irrigation demands and
    Klamath River flow requirements for threatened salmon. To augment
    river flows and avoid jeopardizing the salmon's existence,
    Reclamation established a multiyear water bank as part of its
    Klamath Project operations for 2002 through 2011. Water banks
    facilitate the transfer of water entitlements between users. This
    report addresses (1) how Reclamation operated the water bank and
    its cost from 2002 through 2004, (2) whether Reclamation met its
    annual water bank obligations each year, (3) the water bank's
    impact on water availability and use in the Klamath River Basin,
    and (4) alternative approaches for achieving the water bank's
    objectives.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-283
        ACCNO:   A20140
      TITLE:     Klamath River Basin: Reclamation Met Its Water Bank
    Obligations, but Information Provided to Water Bank Stakeholders
    Could Be Improved
         DATE:   03/28/2005
      SUBJECT:   Fishes
    	     Land reclamation
    	     Program management
    	     Water conservation
    	     Water resources conservation
    	     Water resources development
    	     Wildlife conservation
    	     Performance measures
    	     Land management
    	     Water supply management
    	     Farmland
    	     Irrigation
    	     Bureau of Reclamation Klamath Project
    	     (CA/OR)

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    GAO-05-283

                     United States Government Accountability Office

                         GAO Report to Congressional Requesters

    March 2005

    KLAMATH RIVER BASIN

     Reclamation Met Its Water Bank Obligations, but Information Provided to Water
                          Bank Stakeholders Could Be Improved

                                           a

    GAO-05-283

    [IMG]

    March 2005

    KLAMATH RIVER BASIN

    Reclamation Met Its Water Bank Obligations, but Information Provided to Water
    Bank Stakeholders Could Be Improved

      What GAO Found

    Reclamation has changed how it operates the Klamath Project water bank, as
    it has gained more experience, to help it meet its growing obligations and
    mitigate costs. For example, Reclamation initially obtained most of the
    water for the water bank by contracting with irrigators to either forego
    irrigation altogether (crop idling), or use only well water (groundwater
    substitution). It later added the option to pump well water into the
    irrigation canals for others to use (groundwater pumping). For the period
    2002 through 2004, Reclamation's water bank expenditures totaled over $12
    million, and the cumulative cost could exceed $65 million through 2011.

    GAO's analysis of water bank contracts and river flow records found that
    Reclamation met its water bank obligations by acquiring and delivering the
    required amount of water for 2002 through 2004. However, Reclamation has
    not provided stakeholders with systematic and clear information concerning
    the water bank's management and status and its decision to use river flow
    data that are not publicly available limited stakeholders' ability to
    monitor water bank activities. This has led to confusion and doubt among
    stakeholders on whether Reclamation met its water bank obligations.

    The water bank appears to have increased the availability of water to
    enhance river flows by reducing the amount of water diverted for
    irrigation, but the actual impacts are difficult to quantify because
    Reclamation lacks flow measurement equipment and monitoring data for the
    Klamath Project. Reviews by external experts of the impacts of the 2002
    and 2003 crop idling contracts indicate that significantly less water may
    have been obtained from these contracts than Reclamation estimated. Given
    the uncertainty surrounding how much water can be obtained from crop
    idling, in 2004 Reclamation officials decided to rely primarily upon
    metered groundwater wells for the water bank. However, Reclamation has
    since learned that groundwater aquifers under the Klamath Project, already
    stressed by drought conditions, have shown significant declines in water
    levels and are refilling at a slower than normal rate in recent years. As
    a result, Reclamation is considering lessening its reliance on groundwater
    for the 2005 water bank but is uncertain if it can meet its water bank
    obligations, particularly for spring flows, while increasing its reliance
    on crop idling.

    Although several alternative approaches for achieving the water bank's
    objectives have been identified by Reclamation and other stakeholders,
    limited information is available regarding their feasibility or costs.
    Some alternatives to the water bank include permanently retiring Klamath
    Project land from irrigation or adding new short-term or long-term
    storage. Each alternative has been considered to varying degrees, but
    significant analysis is still needed on most alternatives before any
    implementation decisions can be made. Meanwhile, Reclamation and the
    National Marine Fisheries Service have an ongoing dialogue regarding the
    water bank and will likely reconsult on Klamath Project operations,
    including the water bank, in 2006.

    United States Government Accountability Office

    Contents

      Letter

    Results in Brief
    Background
    Reclamation Modified Its Water Bank Operations from Year to Year

    as Its Obligations and Costs Increased Reclamation Met Its Water Bank
    Obligations, but Information Provided to Stakeholders Could Be Improved

    The Water Bank Appears to Have Increased the Availability of Water for
    River Flows by Reducing Irrigation Use, but the Extent of Its Impacts is
    Unclear

    Limited Information Is Available Regarding Alternative Approaches

    for Achieving Water Bank Objectives Conclusions Recommendation for
    Executive Action Agency Comments and Our Evaluation

    1 5 8

    14

    17

    25

    30 40 41 41

    Appendixes

                  Appendix I: Appendix II: Appendix III: Appendix IV: Appendix V:

    Scope and Methodology
    Information on Water Bank Applications and Contracts
    Comments from the Department of the Interior
    Comments from the Department of Commerce
    GAO Contacts and Staff Acknowledgments

    GAO Contacts
    Staff Acknowledgments

    43

    45

    50

    52

    55 55 55

    Tables   Table 1: Reclamation's Water Bank Expenditures, Fiscal Years
                                                                        2002
                                          to 2004                              16
                 Table 2: Number of Water Bank Applications and Contracts by
                                                                        Type
                                        and by Year                            45
               Table 3: Volume Represented by Water Bank Applications and
                                Contracts by Type and Year                     47
                 Table 4: Acres of Land Offered in Applications and Accepted
                                                                       under
                                Contracts by Type and Year                     49
    Figures   Figure 1: The Klamath River Basin Figure 2: Reclamation's
                                      Klamath Project                        2 10
                  Figure 3: 2002 Augmented Klamath River Flows and Key Dates   20
                  Figure 4: 2003 Augmented Klamath River Flows and Key Dates   21

    Contents

    Figure 5: 2004 Augmented Klamath River Flows and Key Dates 22 Figure 6:
    Groundwater Pumping for the Klamath Water Bank 28 Figure 7: Upper Klamath
    Lake Expansion Options 34 Figure 8: Long Lake Storage Option 38 Figure 9:
    Proportion and Number of Water Bank Contracts by Type,

    2002 to 2004 46 Figure 10: Proportion and Volume of Water Acquired for the
    Water Bank by Contract Type, 2002 to 2004 48

    Abbreviations

    BLM Bureau of Land Management
    FWS Fish and Wildlife Service
    NMFS National Marine Fisheries Service
    NOAA National Oceanic and Atmospheric Administration
    USGS U.S. Geological Survey

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States Government Accountability Office Washington, D.C. 20548

    March 28, 2005

    The Honorable Henry A. Waxman Ranking Member Committee on Government
    Reform House of Representatives

    The Honorable Mike Thompson House of Representatives

    Located in the Upper Klamath Basin, the Bureau of Reclamation's
    (Reclamation) Klamath Project (Project) is a federal water project
    spanning the borders of southern Oregon and northern California. Initiated
    in 1905, the Project was designed to dam the Upper Klamath Lake to manage
    Klamath River flows, drain nearby lakes and marshlands to create
    approximately 200,000 acres of farmland, and provide farmers with
    irrigation water through an elaborate system of canals and drains. As a
    result, Project operations largely determine the amount of water flowing
    in the Klamath River, which subsequently passes through several
    hydroelectric generating dams before running freely into the Lower Klamath
    Basin and emptying into the Pacific Ocean, as shown in figure 1. On
    average, about 1.5 million acre-feet-nearly 500 billion gallons-of water
    pass from the Upper Basin to the Lower Basin annually.

    Figure 1: The Klamath River Basin

                                  Source: Reclamation.

    Drought conditions since 2000 have made it difficult for Reclamation to
    balance the demands for irrigation water by farmers on the Project with
    the requirements for specific river flows and lake levels for threatened
    and endangered species. The southern Oregon/northern California coho
    (coho), a species of salmon native to the river, was listed as threatened
    under the Endangered Species Act in 1997, and two species of sucker in
    Upper Klamath Lake were listed as endangered in 1988. Project operations
    were severely impacted in April 2001 when Reclamation cut off water
    deliveries to the majority of Project irrigators in order to meet river
    flow and lake level requirements to protect the coho and suckers under the
    act. As a result, agricultural production was impaired or eliminated on
    much of the Project, and some individuals engaged in acts of civil
    disobedience to protest Reclamation's actions.

    To avert future crises similar to 2001, Reclamation proposed a new 10-year
    Project operations plan for 2002 through 2011. As required under the act
    and applicable regulations, Reclamation consulted with the National Marine
    Fisheries Service (NMFS) on its biological assessment of the plan to
    determine its effect on listed species.1 NMFS issued a final biological
    opinion finding that the plan would jeopardize the continued existence of
    the coho and likely adversely modify its critical habitat.2 In its
    opinion, NMFS recommended an alternative plan to protect the coho, which
    included the establishment of a multiyear water bank to provide additional
    river flows that would better protect critical habitat. Reclamation
    incorporated the water bank program into its Project operations plan
    through 2011. The biological opinion also provides for reinitiation of
    consultation to modify the plan if, for example, new scientific
    information on river flow requirements for coho becomes available.

    1NMFS, within the Department of Commerce's National Oceanic and
    Atmospheric Administration, is responsible for administering the act with
    regard to ocean dwelling and anadromous species, such as salmon, which
    live part of their lives in freshwater and part in saltwater. See 50
    C.F.R. S: 402.01(b)(2004); See GAO, Endangered Species: Federal Agencies
    Have Worked to Improve the Consultation Process, but More Management
    Attention Is Needed, GAO-04-93 (Washington, D.C.: Mar. 19, 2003).

    2The biological opinion was the subject of litigation in 2003 when it was
    challenged as arbitrary and capricious by several environmental groups.
    The U.S. District Court in California agreed, in part, and remanded the
    opinion to NMFS with instructions to amend it by addressing certain
    deficiencies. The court added that the biological opinion would remain in
    place until NMFS' amendment was issued. Pacific Coast Federation of
    Fishermen's Associations v. Bureau of Reclamation, U.S. Dist. LEXIS 13745
    (N.D. Cal. 2003).

    To comply with the biological opinion, Reclamation must meet certain river
    flow requirements and also provide a water bank of 30,000 acre-feet in
    2002, 50,000 acre-feet in 2003, 75,000 acre-feet in 2004, and 100,000
    acre-feet from 2005 through 2011 to supplement river flows.3  In broad
    terms, a water bank is an institutional mechanism that facilitates the
    transfer of water entitlements between users and/or uses. As such,
    Reclamation's water bank is not a physical reservoir where water can be
    deposited and withdrawn as needed but is an administrative process under
    which Project irrigators who volunteer to participate are paid by
    Reclamation to forego their contractual entitlement for one irrigation
    season in order to make more water available for release downstream. Water
    accrues to the water bank over the course of the year when participants do
    not use irrigation water for their crops as they normally would. By March
    31 each year NMFS and Reclamation will meet to determine a flow schedule,
    including water bank deliveries. According to Reclamation, the water bank
    provides a temporary means to augment river flows for threatened species
    and also allows it to meet its contractual responsibility to deliver water
    to Project irrigators while longterm, basinwide solutions for balancing
    water demands are evaluated. To collaboratively develop potential
    long-term solutions to improve habitat conditions, some of which could
    increase river flows, the biological opinion also requires Reclamation to
    initiate a Conservation Implementation Program to bring together
    stakeholders, including federal agencies, tribes, and the states.

    This report addresses (1) how Reclamation operated the water bank and how
    much it cost from 2002 through 2004, (2) whether Reclamation met its
    annual water bank obligations each year, (3) the water bank's impact on
    water availability and use in the basin, and (4) alternative approaches
    for achieving the water bank's objectives.

    To address the objectives of this report, we visited the Klamath Project
    and met with and collected documentation from Reclamation and NMFS
    officials, as well as representatives from other stakeholder federal
    agencies, tribes, irrigators, commercial fishermen, academics, and
    conservationists. To determine how Reclamation operated the water bank and
    its costs, we analyzed water bank planning, contracting, and expenditure
    documentation. To determine whether Reclamation met its annual water bank
    obligations, we analyzed water bank contracts and

    3Reclamation identifies the water bank as a pilot program that the agency
    contends is not subject to the National Environmental Policy Act.

    documentation of Klamath River flows. To describe the water bank's impact,
    we analyzed relevant land, surface water, and groundwater use data;
    reviewed relevant studies; and met with stakeholders. We did not review
    the water bank's impact on fish species because the short history of the
    water bank makes it difficult to obtain reliable information. To describe
    alternative approaches to the water bank, we met with potential land
    sellers, reviewed studies of water storage options, and reviewed the
    status of basinwide efforts to increase flows. We performed our work
    between May 2004 and February 2005 in accordance with generally accepted
    government auditing standards.

    Results in  Brief	Reclamation has modified its water bank operations from
    year to year as its obligations and costs increased. Reclamation obtained
    water for the water bank by contracting with irrigators to either (1)
    forego irrigation altogether (crop idling), (2) irrigate using only well
    water (groundwater substitution), or (3) pump well water into the
    irrigation canals for others to use (groundwater pumping). Based on each
    year's experience, Reclamation modified its water bank operations to
    better meet its increasing obligations and to mitigate costs. For example,
    in 2003, Reclamation solicited applications for water bank participation
    from irrigators to either forego irrigation water or substitute
    groundwater at fixed rates, while in 2004, Reclamation broadened the
    program's selection criteria to include contingency contracts for
    groundwater pumping that could be activated "as needed" to deliver
    additional water and sought to reduce costs by competitively bidding rates
    with irrigators. However, as Reclamation's water bank obligation increased
    each year, the water bank's expenditures also increased. Reclamation's
    water bank expenditures through 2004 totaled more than $12 million. Based
    on Reclamation's projected annual costs of about $7.6 million for fiscal
    years 2005 through 2011, the cumulative cost of the water bank could
    exceed $65 million through fiscal year 2011.

    While Reclamation has met its water bank obligations each year since 2002,
    its management and accounting practices have created confusion for
    stakeholders. Our analysis of water bank contracts and river flow records
    found that Reclamation acquired and delivered the required amount of water
    for 2002 through 2004. However, the manner in which the agency has managed
    and accounted for the water bank has caused confusion for stakeholders,
    such as tribes and irrigators. For example, on issues where the biological
    opinion is silent-such as how to count any water spilled from dams to
    prevent flooding and regarding when, or if, Reclamation can

    reclassify baseline river flow requirements-Reclamation has not been clear
    in communicating what actions it took and why it took those actions,
    resulting in a lack of transparency for stakeholders regarding the
    operation of the water bank. Furthermore, Reclamation has not provided
    stakeholders with systematic and clear information concerning the water
    bank's status or operations and its decision to use river flow data that
    are not publicly available has limited stakeholders' ability to
    independently monitor water bank activities. This has led to confusion and
    doubt among stakeholders on whether Reclamation actually met its water
    bank obligations. We are recommending that Reclamation take steps to
    improve its communications regarding the operation of the water bank.

    The water bank appears to have increased the availability of water to
    enhance river flows by reducing the amount of water diverted for
    irrigation in the Project, but there is uncertainty regarding the extent
    of its impacts on river diversions and groundwater use. In 2003, when the
    water bank primarily relied on crop idling to obtain water, 20,335 Project
    acres were unirrigated, about 60 percent more than 2002. However, because
    of annual variations in irrigation demand and because Reclamation does not
    have reliable water flow measurement equipment on the Project and
    monitoring data for the Project, assessing the precise impact of the water
    bank on river flows has been an ongoing issue. Moreover, throughout the
    life of the water bank, Reclamation has used varying assumptions regarding
    the amount of water that can be saved by crop idling as more research and
    information has become available about this practice. Because of the
    uncertainty about how much water crop idling provided in 2003, in 2004,
    Reclamation officials decided to rely primarily upon metered groundwater
    sources for the water bank. However, the U.S. Geological Survey (USGS) and
    Oregon Water Resources Department have found evidence that groundwater
    aquifers under the Project, already stressed by drought conditions, are
    refilling at a slower than normal rate in recent years. Many wells have
    shown significant declines in water levels, and an increasing number of
    wells have been deepened to reach groundwater in Klamath County in recent
    years. Reclamation is considering lessening its reliance on groundwater
    pumping and substitution for the 2005 water bank, but is uncertain whether
    it can meet its water bank obligations, particularly for spring flows,
    while increasing its reliance on crop idling.

    Although several alternative approaches for achieving the water bank's
    objectives have been identified by Reclamation and other stakeholders,
    limited information is available regarding their feasibility or costs.
    Possible alternatives to the water bank have been studied to various
    levels of detail,

    including permanently retiring Project land from irrigation or adding new
    short-term or long-term water storage capacity. For example, under the
    land retirement alternative, at least 50,000 acres of irrigated land would
    need to be permanently removed from agricultural production to achieve an
    estimated 100,000 acre-foot reduction in irrigation. However, the
    feasibility and costs of land purchases and the impacts of this
    alternative on river flows and the agricultural economy have not been
    fully assessed. Similarly, there are several options for increasing water
    storage, either by expanding storage on Upper Klamath Lake or by building
    a separate reservoir. However, there is little reliable information
    available regarding the total costs, environmental impacts, and certainty
    of water availability for storage under these alternatives. Although NMFS'
    2002 biological opinion required the collaborative study of the
    feasibility of alternatives to increase river flows, Reclamation and other
    stakeholders are still developing the framework for this process. In the
    interim, Reclamation and NMFS have an ongoing dialogue regarding water
    bank management and will have the opportunity to consider alternative ways
    to more effectively manage the water bank when they meet for a planned
    reconsultation on the biological opinion in 2006. For example, Reclamation
    officials may consider proposing more flexibility to manage water bank
    volumes in wet or above average water years, thus preserving funding and
    resources for dry years.

    We are recommending that Reclamation take steps to improve the information
    provided to stakeholders regarding water bank management and accounting by
    regularly and systematically providing-through media such as a water bank
    Web-link or a monthly or biweekly press release- public information on the
    rationale and effects of management decisions related to forecasted water
    availability, unexpected spill conditions, or other significant events, as
    well as regularly updated information regarding the water bank's status,
    including the amount of water bank deliveries to date. In commenting on a
    draft of this report, the Departments of Commerce and the Interior
    generally agreed with our findings. Reclamation concurred with our
    recommendation, agreeing to add a water bank page to its Internet Web site
    that will include background information on the water bank, current
    information that is regularly updated, such as the status of water bank
    deliveries, and links to other relevant Web resources. Commerce and
    Interior provided written technical comments which we incorporated as
    appropriate. We requested comments from the Department of Agriculture but
    none were provided. Interior's comments appear in appendix III and
    Commerce's comments appear in appendix IV.

    Background	The Klamath River Basin, spanning the southern Oregon and
    northern California borders, covers over 15,000 square miles. The Klamath
    River originates in the Upper Basin, fed by Oregon's Upper Klamath Lake, a
    large, shallow body of water composed of flows from the Sprague,
    Williamson, and Wood Rivers. The river subsequently flows into the Lower
    Basin in California, fed by tributaries including the Shasta, Scott,
    Salmon, and Trinity Rivers, and empties into the Pacific Ocean. River
    flows and lake levels depend primarily upon snowpack that develops during
    the winter months, melts in the spring, and flows into the river basin.
    Rainfall and groundwater from natural springs also contribute to flows. On
    average, about 1.5 million acre-feet of water pass from the Upper Basin to
    the Lower Basin annually at Iron Gate Dam.

    The Secretary of the Interior authorized construction of the Klamath
    Project in 1905.4 Reclamation dammed Upper Klamath Lake, drained and
    reclaimed Lower Klamath and Tule Lakes, stored the Klamath and Lost
    Rivers' flows, and provided irrigation diversion and flood control on the
    reclaimed land. About 85 percent of the Project lands obtain irrigation
    water from Upper Klamath Lake and the Klamath River, while Gerber
    Reservoir, Clear Lake, and the Lost River supply the remainder of the
    Project. Water is delivered to Project lands using an elaborate system of
    canals, channels, and drains, including diversions directly from the
    Klamath River. The distribution system is considered highly efficient,
    ensuring that water that is diverted for use within the Project is reused
    several times before it returns to the Klamath River. Homesteading of the
    reclaimed lands began in 1917 and continued through 1948.

    As shown in figure 2, the Project is currently composed of about 207,000
    acres of irrigable lands. Historically, about 200,000 acres of Project
    lands have been in agricultural use annually.5 For example, in 2003, the
    most recent year for which data is available, about 202,000 acres were
    considered to be in agricultural use, of which about 180,000 acres were
    irrigated and harvested. Crops grown and harvested on the Project include
    alfalfa, barley, oats, wheat, onions, potatoes, and peppermint, and cattle

    4Interior authorized the Project under provisions of the Reclamation Act
    of 1902, 32 Stat. 388.

    5Includes harvested, unharvested, and fallowed land. Fallowing is the
    practice of not seeding land for one or more seasons, for example, to
    destroy weeds or conserve soil moisture.

    graze on more than 40,000 acres of irrigated pastureland. In addition to
    farm and pastureland, four national wildlife refuges were set aside by
    executive orders in conjunction with the construction of the Project.6 The
    refuges, managed by Interior's Fish and Wildlife Service (FWS) support
    many fish and wildlife species and provide suitable habitat and resources
    for migratory birds of the Pacific Flyway. About 23,000 acres of the two
    refuges within the Project water delivery area-Tule Lake and Lower Klamath
    National Wildlife Refuges-are leased for agricultural purposes.7

    6The Lower Klamath Lake Wildlife Refuge was established in 1908; the Clear
    Lake Wildlife Refuge was established in 1911; the Upper Klamath Lake and
    Tule Lake Wildlife Refuges were established in 1928.

    7The Kuchel Act (Pub. L. No. 88-567 (1964)) specifies that refuge lands be
    leased for agricultural use to the extent consistent with their primary
    purposes, waterfowl management. Contracts are issued for 5 to 8 years but
    require annual renewal. These lands are the most productive lands in the
    Klamath Basin and represent about 10 percent of the land area receiving
    Project water.

    Figure 2: Reclamation's Klamath Project

                                  Source: Reclamation.

    Note: Due to space limitations, Upper Klamath Lake is not shown to scale
    with the Klamath Project.

    Reclamation, through contracts, provides water for irrigation and
    hydropower production and must also provide water for the national
    wildlife refuges. Reclamation has entered into contracts with numerous
    irrigation districts and individual irrigators on the Project to provide
    for the repayment of Project costs and the right to receive Project water.
    The contracts most commonly specify a land acreage amount to be covered by
    the contract-not a specific water amount to be delivered. Also by contract
    with Reclamation, California-Oregon Power Company (now PacifiCorp)
    obtained the right to use certain amounts of water, after requirements of
    the Klamath Project are satisfied, for hydropower generation at its
    privately owned and independently operated dams on the Klamath River
    downstream of the Project.8 PacifiCorp's southernmost hydropower dam, Iron
    Gate Dam, located about 20 miles downriver of the Oregon-California
    border, is the last control point before Klamath River flows run freely to
    the Pacific Ocean. Finally, the national wildlife refuges have federally
    reserved rights for the water necessary to satisfy the refuges' primary
    purposes, and Reclamation must satisfy refuge water needs after its other
    obligations are met.

    Reclamation is also obligated to protect tribal trust resources, such as
    water and coho salmon. The Klamath River Basin is home to four federally
    recognized tribes, identified by Reclamation as the Klamath Tribes in the
    Upper Basin area of Oregon, and the Hoopa Valley Tribe, Yurok Tribe, and
    Karuk Tribe in the Lower Basin area of California. Each tribe has
    longstanding cultural ties to the Klamath River, its tributaries, and
    native fish species. Furthermore, the Klamath, Hoopa, and Yurok tribes
    have, either by treaty or executive order, reserved rights to sufficient
    water quality and flows to support all life stages of fish life in
    protection of tribal fishing rights.9 As with all federal agencies,
    Reclamation has a trust responsibility to protect these tribal resources
    and to consult with the tribes regarding its actions in a
    government-to-government relationship.

    Reclamation must comply with the Endangered Species Act to ensure that any
    action it authorizes, funds, or carries out is not likely to jeopardize
    the continued existence of any listed species of plant or animal or
    adversely modify or destroy designated critical habitat. Interior's FWS
    and

    8PacifiCorp's hydroelectric dams are operated under a Federal Energy
    Regulatory Commission license; relicensing of the power project is
    scheduled for 2006.

    9The Karuk Tribe of California did not obtain federal tribal recognition
    until 1979, and is seeking recognition of a fishing right.

    Commerce's NMFS are responsible for administering the act.10 If FWS or
    NMFS finds that an agency's proposed activity is likely to jeopardize a
    threatened or endangered species or destroy or adversely modify its
    critical habitat, then a "reasonable and prudent alternative" that would
    avoid such harm must be identified. Three species of fish that are of
    particular importance to the cultures of the tribes-the threatened
    southern Oregon/northern California coho, and the endangered Lost River
    sucker and shortnose sucker-are affected by Project operations. NMFS
    listed the coho as threatened in 1997, and FWS listed the two species of
    suckers, which populate Upper Klamath Lake and rivers other than the
    Klamath, as endangered in 1988.

    Drought conditions since 2000 have complicated Reclamation's efforts to
    balance the irrigation water demands on the Project with the requirements
    for specific river flows and lake levels for threatened and endangered
    species. Reclamation operates the Project according to an annual
    operations plan that helps the agency to meet its various obligations and
    responsibilities, given varying hydrological conditions. In 2001,
    responding to Reclamation's biological assessment of its proposed Project
    operations plan, FWS and NMFS issued biological opinions that suggested11
    Reclamation take numerous actions, including maintaining higher water
    levels in Upper Klamath Lake and two reservoirs on the Lost River and
    higher flows of the Klamath River below Iron Gate Dam. Because of the new
    biological opinions and drought conditions, Reclamation was prohibited
    from releasing normal amounts of water to most Project irrigators, which
    impaired or eliminated agricultural production on much of the Project.

    Subsequently, Reclamation proposed a new 10-year Project operations plan
    for 2002 through 2011. NMFS reviewed Reclamation's biological assessment
    of the plan to determine its effect on listed species, and issued a final
    biological opinion on May 31, 2002, directing Reclamation to establish a
    multiyear water bank to provide additional river flows.

    10Along with NMFS, the FWS administers the act and is responsible for
    protecting terrestrial, or land-dwelling species, and freshwater animal
    and plant species, including suckers.

    11Although the opinion "suggested" that Reclamation implement certain
    measures, such as a water bank, to prevent harm to the threatened or
    endangered species, such recommendations were required to be implemented
    if Reclamation was to be protected under the act from enforcement actions
    for prohibited "takings," for example, actions that result in harm,
    harassment, or the killing of protected species. See 16 U.S.C. S:S:
    1532(19), 1536(b)(4), 1536(o)(2), 1538(a)(1)(B).

    Reclamation incorporated this water bank into its Project operations plan
    through 2011. NMFS and Reclamation can reconsult on the requirements of
    the biological opinion as warranted, for example, if new scientific
    information on river flow requirements for fish is developed.
    Reconsultation is likely during 2006, when ongoing studies of Klamath
    River flows are expected to be completed.

    Although NMFS' biological opinion recommended a water bank as an
    alternative and specified the amounts of water to be provided each year,
    it provided Reclamation little specific guidance regarding the structure,
    management, or operation of the water bank. Water banking is broadly
    defined as an institutional mechanism that facilitates the legal transfer
    and market exchange of various types of surface water, groundwater, and
    water storage entitlements. Water banks have been proposed or are
    operating in almost every western state. However, significant differences
    exist in the way that each bank operates with respect to market structure,
    degree of participation, pricing, regulatory oversight, environmental
    objectives, and other factors.12

    Under Reclamation's water bank program, participating irrigators would be
    paid to forego their contractual entitlement to water for one irrigation
    season in order to make more water available for release into the river.
    Water acquired by Reclamation would accrue to the water bank over the
    course of the year as participants did not divert water for irrigation
    purposes as they normally would. A schedule for delivery of additional
    flows is determined by NMFS and Reclamation by March 31 each year, with
    the majority of the water bank provided in the spring and early summer
    when the water is most needed by the coho. According to Reclamation, the
    water bank would enable the agency to augment river flows for threatened
    species and also meet its contractual responsibility to deliver water to
    Project irrigators until other solutions for balancing water demands were
    identified. Reclamation was also required to initiate a Conservation
    Implementation Program that would bring together basin stakeholders,
    including federal agencies, tribes, and the states, to collaboratively
    develop

    12California's state administered Drought Water Bank, operating since
    1991, is a 1-year leasing program to reallocate water between users during
    drought conditions and acts as a clearinghouse that pools water and
    allocates supplies to critical demands in the state. In contrast, Oregon's
    Deschutes Water Exchange Groundwater Mitigation Bank, administered by the
    Deschutes Resources Conservancy, facilitates surface water leases and
    time-limited transfers to create mitigation credits for groundwater
    pumping in the Deschutes Basin.

    long-term solutions, some of which would increase flows, such as surface
    water storage and groundwater resource development.

    Reclamation Modified Its Water Bank Operations from Year to Year as Its
    Obligations and Costs Increased

    Reclamation modified its water bank operations from year to year as its
    obligations and costs increased. Reclamation acquired water for the water
    bank by contracting with irrigators for the water needed to augment
    Klamath River flows as required by the biological opinion. As it gained
    more experience each year, Reclamation modified its water bank operations
    to better meet the increasing obligations and to mitigate costs. As its
    annual obligations increased, Reclamation's annual water bank expenditures
    also increased, totaling more than $12 million through 2004. Based on
    Reclamation's estimated annual cost of about $7.6 million for fiscal year
    2005 and onward, the cumulative cost of the water bank could exceed $65
    million through fiscal year 2011.

    Reclamation Modified Its Water Bank Operations from Year to Year to Meet
    Increasing Obligations

    Reclamation initiated the Klamath Project water bank program in 2002, as
    recommended under NMFS' biological opinion, with the objective of
    purchasing irrigators' water entitlement for one irrigation season so that
    this water could be used to provide additional Klamath River flows for
    threatened coho salmon. The water bank is not a physical reservoir of
    stored water but an administrative mechanism through which Reclamation
    contracts with irrigators both on and off the Klamath Project. Through
    these contracts irrigators agreed to either (1) forego irrigation
    altogether (crop idling), (2) irrigate using only well water (groundwater
    substitution), or (3) pump well water into the irrigation canals for
    others to use (groundwater pumping), thus making water available to
    augment river flows. Water accrues to the water bank over the course of
    the irrigation season as water bank contractors forego irrigating their
    land by crop idling or groundwater substitution and as groundwater is
    pumped into canals under water bank contracts. However, because
    Reclamation is required to provide large amounts of water in spring and
    early summer before sufficient water has accrued to the water bank, it
    actually "borrows" water for the bank from short-term storage supplies.
    This water is later replaced by foregone irrigation water over the course
    of the year.

    Reclamation modified its water bank operations each year, changing its
    composition, selection process, contracting process, and program rules as
    it gained experience to meet its increasing obligations. In 2002 when the
    obligation was 30,000 acre-feet, the water bank sources included crop

    idling off-Project and groundwater pumping; in 2003 when the obligation
    was 50,000 acre-feet, sources included crop idling on-Project and
    groundwater substitution; and in 2004 when the obligation was 75,000
    acrefeet, all three sources of water were included in the water bank.
    Reclamation modified the selection process from relying on only two
    irrigators in 2002-without a public application process13-to soliciting
    applications from any qualified irrigator in both 2003 and 2004. In 2004,
    Reclamation solicited water bank applicants earlier in the year than it
    had in 2003, in part, to allow successful applicants more lead time in
    planning their irrigation.14 Reclamation also modified the contracting
    process to obtain more flexibility by competitively bidding contract rates
    in 2004 rather than paying a fixed rate as in 2003 and entering into
    contingency contracts for groundwater pumping that could be activated "as
    needed" to deliver additional water to meet its increasing water bank
    obligation and uncertain delivery schedule. These contingency contracts
    allowed Reclamation to acquire only the amount of water it needed to meet
    the agreed upon delivery schedule. Finally, Reclamation expanded its
    program rules to make participation in the water bank more practical and
    attractive to potential applicants. For example, Reclamation changed the
    rules for the 2004 water bank to allow harvesting of crops on land under
    crop idling contracts, reflecting the fact that some crops such as alfalfa
    can grow with water from subsurface moisture alone.

    Similarly, Reclamation modified its monitoring process for the water bank
    over time. For example, in 2003, Reclamation monitored every participant
    for compliance with the program rules. Enforcement staff examined and
    tested each crop idling parcel of land at least once over the course of
    2003's water bank to ensure that no intentional irrigation occurred. In
    addition, Reclamation relied on self-policing by irrigators who called in
    tips identifying potential cheaters. A Reclamation official estimated a
    greater than 95 percent compliance rate in 2003 and only terminated the
    contract of one participant who intentionally irrigated fields after
    deciding to withdraw from water bank participation without notifying
    Reclamation. In

    13While NMFS wanted Reclamation to operate a water bank in the spring of
    2002, the final biological opinion was not released until May 31, 2002.
    Nevertheless, NMFS and Reclamation agreed to operate the water bank from
    May 1 to May 31, before the biological opinion was finalized and released.

    14Those participating in the water bank do not have to forego irrigating
    all of the land they own in a given year, but they must forego irrigation
    entirely for the year on those lands accepted into the water bank.

    contrast, during 2004 Reclamation sought to reduce enforcement costs and
    increase efficiency by examining and testing crop idling parcels of land
    only toward the end of the year while following up on tips identifying
    potential cheaters throughout the year. In 2004, Reclamation found no
    intentional violations.

    Water Bank Costs Could Reclamation's water bank expenditures through
    fiscal year 2004 exceeded Exceed $65 Million through $12 million and could
    total more than $65 million through 2011. As shown Fiscal Year 2011 in
    table 1, Reclamation's total expenditures have increased annually as the

    water bank obligation has grown from 30,000 acre-feet in 2002 to 75,000

    acre-feet in 2004.

    Table 1: Reclamation's Water Bank Expenditures, Fiscal Years 2002 to 2004

                                      Fiscal year

                        Expenditures       2002       2003       2004       Total
            Groundwater substitution
                or pumping contracts $1,000,000 $1,788,711 $4,009,451  $6,798,162
               Crop idling contracts          0 2,700,789     637,258   3,338,047
             Klamath Basin Rangeland
            Trust contracts for off-
                 Project crop idling    948,300          0    690,221   1,638,521
                      Administration      2,479    175,233    255,119     432,831
                               Other     10,215     22,213    144,785     177,213
                               Total $1,960,994 $4,686,946 $5,736,834 $12,384,774

    Source: Reclamation, Klamath Basin Area Office.

    Note: Dollar amounts are not adjusted for inflation.

    Reclamation attributes the increasing costs of the water bank to the
    increasing annual volume of water purchases, as well as increasing
    administrative costs due to the large increase from 2002 to 2003 in the
    number of contracts to manage and the addition of the groundwater pumping
    program in 2004 and its associated contract negotiations. Reclamation
    estimates that the 100,000 acre-foot water bank requirements for fiscal
    years 2005 through 2011 will cost at least $7.6 million annually, bringing
    the total water bank costs to more than $65 million. For 2005 and onward,
    according to Reclamation, the water bank will be a specific budget

    item in its budget request.15 Accordingly, Reclamation requested $7.626
    million for fiscal year 2005 and plans to gradually increase annual budget
    requests to about $7.660 million by 2011.

    Reclamation's expenditures fall into five categories: groundwater contract
    costs, crop idling contract costs, Klamath Basin Rangeland Trust contract
    costs, administrative costs, and other costs. Reclamation's largest water
    bank expenditures were for groundwater contracts with irrigators-for both
    substitution and pumping-totaling nearly $7 million, or 55 percent of
    total expenditures from 2002 through 2004. Reclamation's second largest
    water bank expenditures were for crop idling contracts with Project
    irrigators, totaling about $3.3 million, or 27 percent of total
    expenditures. Reclamation's contracts with the Klamath Basin Rangeland
    Trust to forego irrigation of pastureland outside of the Klamath Project
    totaled more than $1.6 million, or about 13 percent of total water bank
    expenditures through 2004. Reclamation's administrative costs-mainly
    payroll and overhead- for planning and implementing the water bank
    comprised about 3 percent of total water bank expenditures. Reclamation
    also incurred other costs related to the operation of the water bank, such
    as water quality analysis, contract compliance monitoring, and a contract
    for assistance from the Oregon Water Resources Department.

    Reclamation Met Its Water Bank Obligations, but Information Provided to
    Stakeholders Could Be Improved

    Reclamation met its water bank obligations to provide additional water to
    supplement Klamath River flows each year since 2002. However, the manner
    in which the agency has managed and accounted for the water bank has
    caused confusion for some stakeholders, such as tribes and irrigators, and
    has reduced the transparency of the water bank's status and operation.

    15The 2002 through 2004 water banks were unanticipated and thus not
    included in Reclamation's budget requests nor specifically provided for in
    agency appropriations. Instead, funds appropriated for feasibility studies
    under the Klamath Basin Water Supply Enhancement Act of 2000 were used, as
    well as other budget sources such as the Central Valley Project and the El
    Paso Water Reclamation and Reuse Program.

    Reclamation Met Its Water Bank Obligations Each Year

    According to NMFS and Reclamation officials, Reclamation's obligation is
    to both acquire the amount of water required in the biological opinion
    each year and deliver the water-some of it or all of it-in accordance with
    the schedule mutually agreed to by both agencies. Regarding the
    acquisition of water, NMFS concluded, and our analysis of Reclamation
    contract records verified, that Reclamation met its obligation to acquire
    30,000 acre-feet in 2002, 50,000 acre-feet in 2003, and 75,000 acre-feet
    in 2004, by contracting for about 47,000; 59,000; and 111,000 acre-feet,
    respectively. Appendix II provides detailed information on water bank
    applications and contracts. According to Reclamation officials, they
    contracted to acquire more water than required, in part to serve as a
    buffer against unexpected changes in water conditions and as insurance
    against uncertainty about how much water is actually obtained from crop
    idling.

    Regarding the delivery of water to augment flows, NMFS concluded, and our
    analysis of USGS river flow records verified, that Reclamation met its
    obligation each year as established in the schedule agreed upon with NMFS.
    We found that, in total, Reclamation augmented Klamath River flows by
    approximately 30,000 acre-feet within the brief 2002 water bank time
    frame-meeting its 30,000 acre-feet schedule requirement; by more than
    71,000 acre-feet in 2003-surpassing its 50,000 acre-feet schedule
    requirement; and by more than 95,000 acre-feet in 2004-surpassing its
    74,373 acre-feet schedule requirement. According to Reclamation officials,
    these augmented flows represent water provided per water bank requirements
    plus additional releases of water purchased and stored to meet tribal
    trust obligations. Because the water bank is not a physical pool of water
    allowing the constant measurement and monitoring of deposits and
    withdrawals, estimating the status of water bank accruals or deliveries
    and differentiating water bank deliveries from tribal trust deliveries
    during the year is neither precise nor easy. Reclamation views water bank
    deliveries as simultaneously meeting both its requirement to augment river
    flows under the biological opinion and its tribal trust responsibilities.
    However, to account for its annual deliveries, Reclamation officials have
    generally counted augmented flows as first satisfying the water bank
    requirement and consider excess flows, such as the approximately 20,000
    acre-feet delivered above the water bank requirement in 2003 and 2004, as
    tribal trust deliveries.

    Augmented flow is defined as the volume of water in excess of base flows
    measured at Iron Gate Dam.16 Klamath River base flows are determined
    according to "water-year types." Based on an April 1 forecast of snowpack
    and runoff, Reclamation initially classifies each year as Wet, Above
    Average, Average, Below Average, and Dry in accordance with the biological
    opinion.17 Each classification requires a specific base flow of water at
    Iron Gate Dam. Forecasts are updated at least monthly, incorporating
    actual water conditions as the year progresses, and providing Reclamation
    with increasingly accurate data with which to determine if the water-year
    type needs to be reclassified during the year.

    In 2002, the water bank operated from May 1 to May 31, during which
    Reclamation met its water bank delivery obligation by augmenting flows by
    approximately 30,000 acre-feet, as shown in figure 3. NMFS released its
    final biological opinion on May 31 directing Reclamation to operate a
    water bank through 2011.

    16Klamath River flows-actual and base-are calculated by taking the average
    daily flow rates measured in cubic feet per second (1 cubic foot per
    second per day equals 1.9835 acrefeet).

    17The Department of Agriculture's Natural Resources Conservation Service
    provides the forecasts.

    Figure 3: 2002 Augmented Klamath River Flows and Key Dates

    Cubic feet per second 2,500

    2,000

    1,500

    1,000

    o  2002 water  o  2002 water bank  o  Water-year  o  Fish die-off  o  Fish
    die-off

    bank begins	ends type changed begins ends from Below

    o  Final 2002 Average toNMFS biological Dryopinion released

    Average daily Klamath River flow

    Base river flow required for a Below Average water-year

    Base river flow required for a Dry water-year

    Augmented flow equals 29,965 acre-feeta

    Sources: GAO analysis of USGS river flow data and Reclamation water bank
    and water-year type data.

    aThe augmented flow during May 2002 consists of water bank deliveries
    only.

    Note: Klamath River flows are measured at Iron Gate Dam.

    In 2003, Reclamation met its water bank delivery obligation by augmenting
    flows by at least 50,000 acre-feet as agreed in its schedule with NMFS.
    Heavier than expected rainfall in early spring prompted Reclamation to
    move the official start of the water bank from April 1 to May 21, as shown
    in figure 4. The water bank operated between May 21 and October 31,

    during which time Reclamation reclassified the water-year type from Dry to
    Below Average due to better than expected water conditions.

               Figure 4: 2003 Augmented Klamath River Flows and Key Dates

                                 Cubic feet per second

    3,500

    3,000

    2,500

    2,000

    1,500

    1,000

    4/1/03: 5/21/03: 6/13/03: 7/9/03: 10/31/03:

    o  Initial start date  o  Spill condition  o  Water-year  o  Reclamation
    o  2003 water for 2003 water ends type changes declares water bank ends
    bank  o  2003 water from Dry to bank exhausted,

    o  Klamath Project bank begins Below subsequently

    irrigation season (revised start Average reopened

    begins date)  o  "Spill condition" exists

                            Average daily Klamath River flow

                     Base river flow required for a Dry water-year

                Base river flow required for a Below Average water-year

                        Augmented flow equals 71,428 acre-feeta

                                 Spill condition exists

    Sources: GAO analysis of USGS river flow data and Reclamation water bank
    and water-year type data.

    aThe augmented flow between May 21 and October 31 consists of both water
    bank and tribal trust deliveries.

    Note: Klamath River flows are measured at Iron Gate Dam.

    In 2004, Reclamation met its water bank delivery obligation by augmenting
    flows by at least 74,373 acre-feet as agreed in its schedule with NMFS. As
    shown in figure 5, the 2004 water bank started on April 1 and ended on
    October 31, as planned. The water-year type was reclassified from Below
    Average to Dry on May 7, shortly after the water bank began due to a
    smaller than expected water supply.

               Figure 5: 2004 Augmented Klamath River Flows and Key Dates

                                 Cubic feet per second

    4/1/04: 5/7/04: 10/31/04:

    o  2004 water  o  Water-year type  o  2004 water bank begins changed from
    Below bank ends

    o  Klamath Project Average to Dry irrigation season begins

                            Average daily Klamath River flow

                Base river flow required for a Below Average water-year

                     Base river flow required for a Dry water-year

    Augmented flow equals 95,176 acre-feeta Sources: GAO analysis of USGS
    river flow data and Reclamation Water Bank and water-year type data.

    aThe augmented flow during 2004 consists of both water bank and tribal
    trust deliveries.

    Note: Klamath River flows are measured at Iron Gate Dam. Average daily
    flow data for October 11, 2004, is missing. Therefore, the 2004 augmented
    flow calculation does not include data for that date.

    Reclamation's Management and Accounting Practices Confused Stakeholders

    Although Reclamation met its annual water bank obligations each year, the
    manner in which the agency managed and accounted for the water bank
    confused stakeholders. Specifically, for two issues where the biological
    opinion is silent-how to count spill water released to prevent flooding,
    and whether Reclamation can reclassify the water-year type designation
    midyear due to changing water conditions-Reclamation has not been clear in
    communicating related management and accounting decisions. Furthermore,
    Reclamation has not provided stakeholders with systematic and clear
    information concerning the water bank's status or operations, and its
    decision to use river flow data unavailable to stakeholders limited
    stakeholders' ability to independently monitor water bank activities. This
    has led to confusion and doubts among stakeholders on whether Reclamation
    actually met its water bank obligations.

    Reclamation's management of the water bank during 2003's spill
    condition-when water was released by dams to prevent overflow or
    flooding-and its lack of clear communication with stakeholders, caused
    significant confusion. Heavier than expected rainfall in early spring of
    2003 caused a "spill condition" to exist on April 1 when the water bank
    was set to begin. However, the biological opinion does not specify how
    much, if any, spill water can be counted as a water bank delivery. In the
    absence of specific guidance from NMFS, Reclamation could have counted
    spill toward water bank deliveries in one of three ways: (1) up to the
    amount already scheduled for delivery during the spill; (2) in its
    entirety, including water above the scheduled amount; or (3) not at all.
    According to Reclamation officials, they eventually decided to reset the
    water bank's start to May 21-when the spill condition ended-and started
    counting augmented flows as of that date. However, Reclamation did not
    clearly communicate its decisions to stakeholders leading to confusion
    among stakeholders on how, or if, Reclamation was meeting its water bank
    obligations. For example, according to some tribal representatives,
    Reclamation provided a preliminary status report in July stating that over
    20 percent of the water bank-over 11,000 acre-feet-was delivered during
    the spill. This contradicted a Reclamation official's statement that the
    agency had retroactively reset the water bank's start date to after the
    spill conditions ceased. Reclamation officials concede that stakeholder
    confusion as a result of these actions was understandable. Subsequently,

    NMFS and Reclamation agreed that, beginning in 2004, spill water will be
    counted only up to the amount already scheduled for delivery by the water
    bank.

    Similarly, Reclamation's reclassification of the water-year type-which
    determines the base river flow requirement-has also caused confusion for
    stakeholders. Like spill conditions, the biological opinion is silent on
    whether the water-year type can be reclassified midyear after its initial
    determination in April. NMFS and Reclamation officials contend that
    reclassifying the water year type to reflect changing water conditions is
    necessary to reflect the most current and accurate data available.
    However, some stakeholders, such as the tribes, contend that midyear
    reclassification is not allowed under the biological opinion and could
    lead to the improper manipulation of water bank delivery schedules. While
    Reclamation issued a press release informing the public of its
    reclassification of the water-year type in 2003, the impact of such
    changes on the water bank was not clearly articulated. For example,
    Reclamation did not mention that it would also change its estimate of
    year-to-date water bank deliveries as a result of the midyear
    reclassification in water-year type, leading to stakeholder concerns that
    water deliveries were being manipulated to benefit irrigators at the
    expense of fish. Reclamation officials believe that reclassifying
    water-year types is in compliance with the biological opinion and that the
    confusion related to reclassifying the water-year type stems from
    Reclamation's attempt to incorporate the most recent and accurate data on
    water conditions in their water bank delivery schedules.

    Reclamation also has not clearly or systematically communicated the water
    bank's status and operations, further increasing stakeholder confusion.
    Specifically, Reclamation does not have a systematic mechanism to
    communicate information regarding the water bank to all stakeholders.
    Rather than regularly providing updated calculations of year-to-date
    deliveries to all stakeholders simultaneously through a single mechanism,
    such as a Web site or regularly scheduled press releases, Reclamation
    provides information on the water bank and its status "upon request" and
    through occasional press releases. Consequently, different stakeholders
    receive different information at different times. According to Reclamation
    officials, they meet regularly with the tribes and discuss the water
    bank's status. However, Reclamation does not systematically seek feedback
    on the operation of the water bank from all stakeholders, limiting the
    opportunities to clarify misunderstandings. As a result, after several
    years of operation, questions continue to persist among stakeholders,
    including

    some Project irrigators and tribes, on basic topics such as the purpose of
    the water bank. Reclamation placed some information about the water bank
    application process on its Web site; however, Reclamation has not made
    other water bank information-such as the year-to-date status- available
    since that time, in part, because Reclamation has been reluctant to
    release status information that will almost certainly require revision
    later in the year.

    Finally, Reclamation's use of river flow data generated by PacifiCorp to
    estimate the water bank's river flow augmentation has reduced the
    transparency of the water bank and limited the ability of stakeholders to
    independently monitor the operation of the water bank. The PacifiCorp data
    used by Reclamation to calculate actual Klamath River flows is not
    available to the public. Therefore, interested stakeholders must use a
    different source-the publicly available USGS data on actual Klamath River
    flows-to calculate year-to-date water bank deliveries. The PacifiCorp and
    USGS flow data differ because each uses a different formula to calculate
    the average daily flow. Thus, Reclamation and stakeholders will arrive at
    different augmented flow calculations, depending upon which data source
    they use. For example, we found that, in 2003, augmented flows appeared to
    be about 2,500 acre-feet greater when using USGS data than when using
    PacifiCorp data. Furthermore, Reclamation, using PacifiCorp data, would
    calculate that it had met its water bank obligation on a different date
    than a stakeholder would using USGS data, creating the potential for
    stakeholder confusion and doubt regarding the status of water bank
    deliveries. Reclamation officials told us that as of October 2004 they
    began using the publicly available USGS data to calculate and communicate
    the water bank's status.

    The Water Bank Appears to Have Increased the Availability of Water for
    River Flows by Reducing Irrigation Use, but the Extent of Its Impacts is
    Unclear

    Reclamation's water bank appears to have increased the availability of
    water to enhance river flows by reducing irrigation water use on the
    Project, but there is uncertainty regarding the extent of its impacts on
    river diversions and groundwater resources. In 2003, when the water bank
    primarily relied on crop idling to obtain water, there was a significant
    increase in the amount of land not using irrigation water compared with
    recent years. While it was likely that a reduction in river and lake
    diversions for Project irrigation resulted, a university study funded by
    Reclamation found that the reduction attributable to the water bank alone
    was highly uncertain due to the lack of effective flow measurement
    equipment and monitoring data for the Project. Because Reclamation was
    uncertain about how much water crop idling actually provided to the water

    bank, Reclamation shifted to groundwater substitution and pumping as the
    primary sources for the 2004 water bank. However, USGS and Oregon state
    officials have since found evidence that groundwater aquifers under the
    Project, already stressed by drought conditions, are being pumped by an
    increasing number of wells and refilling at a slower than normal rate,
    prompting Reclamation to consider lessening its future reliance on
    groundwater substitution and pumping.

    Crop Idling under the Water Bank Has Reduced the Amount of Irrigated Land,
    but the Extent of Its Impacts on River Diversions Is Unclear

    In 2003, Reclamation obtained about 60 percent of its water bank
    acquisitions by contracting with irrigators for crop idling on nearly
    14,500 acres of land, based on the assumption that water foregone from
    irrigation on those lands would be available to enhance river flows. Crop
    idling contributed to a significant increase in the amount of land not
    irrigated in 2003, compared with recent years. For example, according to
    Reclamation's 2003 crop report, a total of 20,335 Project acres were not
    irrigated, which is about a 60 percent increase over 2002 when 12,546
    acres of land were not irrigated, and well exceeds the average of 7,665
    acres of Project land not irrigated due to agricultural fallowing
    practices from 1998 through 2000-the three years preceding Reclamation's
    restriction of irrigation water in 2001.

    Although the number of acres of crop land idled is a useful indication of
    the water bank's impacts, it does not provide a reliable estimate of the
    true extent to which irrigation water has been made available for river
    flows. According to Reclamation officials, the precise impact of the water
    bank cannot be determined because of year-to-year variation in irrigation
    demand and its determining factors such as temperature, precipitation, and
    crop types. Moreover, throughout the life of the water bank, Reclamation
    has used varying assumptions about the amount of water that can be saved
    by crop idling as more research and information has become available about
    this practice. Specifically, in 2002, Reclamation assumed that it could
    obtain about 5 acre-feet of irrigation water per acre of crop idling, in
    2003 and 2004 assumed 2.5 acre-feet, and is currently assuming that it can
    obtain 2 acre-feet per acre through crop idling. To help it quantify the
    actual results of the water bank, Reclamation has turned to other
    organizations for assistance. For example, after the 2002 water bank was
    completed, Reclamation engaged USGS to review the assumptions and results
    for its off-Project crop idling. In February 2004, USGS reported to
    Reclamation that, based on the available data, the amount of water
    actually obtained per acre of crop land idled during the 2002 water bank
    was most likely in the range of .9 to 1.3 acre-feet of water per acre.

    Similarly, in 2003, Reclamation was again unable to obtain precise
    information on the measurable impacts of the water bank for the year, so
    it contracted with California Polytechnic State University to study this
    issue. This study concluded that without effective flow measurement
    equipment and monitoring data for the Project it could not precisely
    estimate the impact of the water bank in reducing Upper Klamath Lake and
    Klamath River diversions to the Project. According to the study, in 2003
    the reduction in diversions compared with 2000 may have ranged from 11,000
    to 71,000 acre-feet and, moreover, this reduction may have been
    attributable to numerous other factors in addition to the water bank, such
    as heavy rainfall, a large amount of groundwater pumping, changes in
    irrigation district operations, and awareness among Project irrigators of
    the need to reduce water use. Based on subsequent university analysis,
    Reclamation now estimates that it actually obtained about 2 acre-feet of
    water per acre from crop idling in 2003 and 2004.

    Despite the ongoing uncertainty regarding the impact that reducing the
    amount of irrigated land has on the availability of water for river flows,
    Reclamation officials told us they must continue to rely on crop idling
    for a significant portion of the water bank. While some stakeholders favor
    taking farmland out of irrigation, they are also uncertain of the extent
    to which crop idling reduces diversions for irrigation. For example, both
    tribal and fishing industry representatives told us that they doubt that
    Reclamation can accurately estimate how much additional water is actually
    made available to the river. Some irrigators question the effectiveness
    and accountability of crop idling as a strategy for the water bank, and
    also are concerned about the economic impacts to taking farmland out of
    production.

    Groundwater Pumping for the Water Bank under Drought Conditions Raises
    Concerns about the Impacts on Aquifers

    Because of the uncertainty regarding the measurable impact of crop idling,
    Reclamation shifted to groundwater for most of its water bank acquisitions
    in 2004; however, the impact of groundwater pumping on basin aquifers
    during ongoing drought conditions is largely unknown and continued
    reliance may not be sustainable. Reclamation obtained over 70 percent of
    the 2004 water bank deliveries by pumping nearly 60,000 acre-feet of
    water, either to substitute for irrigation water or to fill canals for use
    by others. Figure 6 below shows a groundwater pump delivering water into a
    canal for the water bank. According to Reclamation officials, in the
    absence of stored water, groundwater pumping is the only way to meet
    required flows in the spring and early summer because land idling provides
    little water in the April through June time period. An advantage of
    groundwater pumping

    for the water bank is that, unlike crop idling, flow meters on pumps and
    wells allow the exact measurement of the amount of groundwater being used
    in place of river diversions for irrigation.

    Figure 6: Groundwater Pumping for the Klamath Water Bank

    Source: GAO.

    The impact of groundwater pumping on Upper Basin aquifers, however, is not
    well understood, and its use during drought conditions is a matter of
    growing concern for Reclamation and others. The basin has suffered drought
    conditions since 2000, resulting in less rain and snowmelt to fill lakes,
    rivers, and aquifers. Recognizing that water demand would cause more users
    to turn to groundwater but that there is little reliable information on
    the groundwater hydrology of the Upper Klamath Basin, USGS and the Oregon
    Water Resources Department initiated a cooperative study in 1998 to study
    and quantify the Upper Basin's previously unknown groundwater flow system.
    The study, funded in part by Reclamation, is expected to be substantially
    completed in 2005.

    Nevertheless, USGS and Oregon Water Resources Department officials have
    found evidence that groundwater aquifers in the Upper Basin, already

    stressed by drought conditions, are being pumped by an increasing number
    of newly drilled wells and refilling at slower than normal rates in recent
    years. According to state officials, well drilling sharply increased after
    2000, and an increasing number of domestic wells have needed to be
    deepened-a symptom of dropping water levels-in Klamath County during that
    same time frame. According to state records for Klamath County, Oregon,
    from 1998 to 2000, 14 irrigation wells were drilled; from 2001-when
    Project deliveries were restricted-through 2003, 124 irrigation wells were
    drilled. From 1998 to 2000, 21 domestic wells were deepened; from 2001 to
    2003, 30 domestic wells were deepened; and in 2004, another 13 were
    deepened. Furthermore, USGS officials have identified wells in various
    parts of the Upper Basin, within and outside the Project boundaries, which
    have shown significant water level declines. For example, wells outside
    the Project have shown declines of up to 10 feet since 2000, thought to be
    primarily attributable to climatic conditions. Wells within the Project
    have shown a variety of responses to pumping- some wells seem to decline
    during irrigation season and then recover substantially during winter
    months, while other wells have shown steady year-to-year declines, some
    dropping more than 15 feet.

    Reclamation engaged USGS in May 2004 to conduct an assessment of their
    current water bank strategies and any potential strategies that could help
    the agency meet its obligations. Specifically, Reclamation asked USGS to
    (1) document current and planned water bank activities, (2) assess the
    effectiveness of the 2003 and 2004 water banks, (3) determine if
    sufficient information is available to assess the impact of the water bank
    on Klamath River flows, and (4) develop a matrix of water bank management
    options, including their potential positive or negative consequences. In
    December 2004, USGS officials briefed Reclamation officials on their
    assessment, presenting the pros and cons of various management options to
    assist Reclamation's 2005 water bank planning. Reclamation officials are
    considering lessening their reliance on groundwater pumping and
    substitution for the 2005 water bank but are uncertain whether they can
    meet their water bank obligations, particularly for spring flows, while
    significantly increasing their reliance on crop idling.

    Limited Information Is Available Regarding Alternative Approaches for
    Achieving Water Bank Objectives

    While several alternative approaches for achieving the water bank's
    objectives have been identified by Reclamation and other stakeholders,
    limited information is available with which to reliably judge the
    feasibility or costs of these alternatives. Possible alternatives to the
    water bank include permanently retiring Project land from irrigation,
    expanding Upper Klamath Lake storage, or building a new reservoir separate
    from the lake. A large amount of Project land was offered for retirement
    by willing sellers in 2001, and a number of storage options have been
    evaluated to some extent, but implementation is not imminent for any of
    these alternatives. Although one of the objectives of the Conservation
    Implementation Program, required under NMFS' 2002 biological opinion, is
    the collaborative study of the feasibility of water storage and
    groundwater development alternatives, Reclamation and other stakeholders
    are still developing the framework for that process. In the interim,
    Reclamation and NMFS have an ongoing dialogue regarding water bank
    management and will likely reconsult on Klamath Project operations,
    including the water bank, in 2006.

    A Significant Amount of Irrigated Land Would Need to Be Retired to
    Adequately Enhance River Flows, with Unknown Costs and Impacts

    As an alternative to the water bank, permanently retiring a large area of
    irrigated Project land could provide 100,000 acre-feet of water to enhance
    Klamath River flows, but little reliable information is available to
    comprehensively assess this option. It is not known with any certainty the
    amount of irrigated land that would need to be retired to replace the
    water bank, how much irrigated land for retirement could actually be
    obtained from sellers, or the price at which it could be obtained.
    Furthermore, while this option is viewed positively by some Klamath River
    stakeholders, the potential impacts on the agricultural economy from
    retiring a large portion of Project lands is cause for concern in the
    farming community.

    The amount of irrigated land that would need to be retired to reduce
    irrigation and enhance river flows by 100,000 acre-feet can be roughly
    estimated at about 50,000 acres but is not precisely known. As discussed
    earlier in this report, estimates of forgone irrigation water can prove to
    be much less than expected, and the lack of reliable water flow
    information on the Project makes it difficult to accurately determine the
    specific effects of crop idling-which is the short-term equivalent of
    permanent land retirement-and other strategies for reducing river
    diversions. Reclamation, irrigators, and tribal representatives told us
    that they believe that retiring irrigated land would reduce river
    diversions, but none are certain as to precisely by how much.
    Nevertheless, Reclamation, based on its most recent estimate of the amount
    of irrigation water obtained from

    crop idling for the water bank, assumes that irrigation is reduced by
    about 2 acre-feet of water per acre idled. Using this assumption,
    Reclamation estimates that at least 50,000 irrigated acres-about 30
    percent of the acreage currently irrigated by water from Upper Klamath
    Lake and the Klamath River-would need to be retired to reduce irrigation
    by 100,000 acre-feet. However, according to Reclamation officials, because
    crop idling provides little water from April to June, such land retirement
    by itself will not provide sufficient water to meet spring river flow
    requirements under the biological opinion. Furthermore, the actual
    reduction in irrigation would depend upon factors such as the extent of
    irrigation on the land before it was retired and how it is used after
    retirement.

    Although there may be a fairly large number of potential willing land
    sellers on the Project, the amount of irrigated land actually available
    for purchase and permanent retirement is not known. In 2001, the American
    Land Conservancy (Conservancy)-a national, nonprofit organization involved
    in land conservation efforts-obtained 1-year agreements with 78 different
    landowners to purchase over 25,000 acres of irrigated land for the purpose
    of land retirement. The Conservancy made agreements with willing
    sellers-who, according to Conservancy officials, were generally aging and
    fearful of future drops in property values-expecting that the federal
    government would purchase the land for retirement. However, according to
    the Conservancy, Reclamation was not interested because the land was not
    in a single block. Moreover, according to Reclamation officials, the
    federal government is not interested in acquiring more land in the Klamath
    Basin. Subsequently, the Conservancy's agreements with the sellers lapsed.
    Whether a coalition of willing sellers could be put together again is
    unknown. An incentive to potential sellers could come from an expected
    increase in power rates in 2006. According to a recent Oregon State
    University economic study, an increase in power rates could raise
    agricultural production costs by an average of $40 per sprinkler-irrigated
    acre, potentially making agriculture unprofitable on as much as 90,000
    acres of Project land. This scenario could potentially make more land
    available for sale and might even result in some voluntary land retirement
    due to lack of profitability, thus increasing river flows.

    Additionally, the price at which land might be obtained for retirement is
    unknown. According to the Conservancy, the appraised value of the
    potential willing sellers' land in 2001 was $3,000 per acre. However,
    based on 2001 estimates from an Oregon State University and University of
    California economic study, the market value for Project irrigated land can
    range from $300 per acre for Class V soils-the lowest quality for

    agricultural purposes-to $2,600 for Class II soils- some of the better
    agricultural soil on the Project. In addition, Project landowners are
    concerned that property values may have decreased due to the uncertainty
    of water deliveries for irrigation after the 2001 water restriction. Using
    the 2001 price estimates from the universities' study, the total cost to
    retire 50,000 acres, assuming the land is available from willing sellers,
    could range from $15 to $130 million, depending upon the mixture of low
    and high valued land offered for sale.

    Finally, while tribal representatives and others favor significant
    irrigated land retirement as a means to reduce demands on the river, the
    extent of impacts on the agricultural economy is cause for concern in the
    Project farming community. Tribal representatives and downstream fishing
    representatives told us that irrigated land retirement is essential to
    restoring the balance between the supply of and demand for water in the
    basin. However, according to Klamath irrigators, the Klamath agricultural
    economy is fragile and must maintain close to current levels of
    agricultural acreage in production to sustain its infrastructure.
    Irrigators argue that retiring large amounts of irrigated farmland on the
    Project could eliminate or adversely impact key aspects of agricultural
    infrastructure, such as fuel, transportation, equipment and fertilizer
    suppliers, and affect a whole host of other dynamics of the agricultural
    community. However, retiring land with the lowest agricultural value could
    help minimize the potential negative effect on the region's agricultural
    economy. According to the study by Oregon State University and the
    University of California, retiring lands with the least productive soils
    and, therefore, lowest agricultural value, would have the smallest
    potential negative effect on the region's agricultural economy.

    Expanding Upper Klamath Lake or Building a Separate Reservoir Are under
    Consideration, but Costs and Impacts Have Not Been Extensively Evaluated

    Adding water storage capacity in the Klamath River Basin could provide an
    alternative to the water bank for river flow augmentation, and several
    options to either expand Upper Klamath Lake or build a separate reservoir
    have been considered or pursued to various extents. In general, Klamath
    River stakeholders-irrigators, tribes, federal entities, and others-view
    either option favorably as a potential solution to help balance competing
    water demands. However, the extent and reliability of information
    regarding the total cost for each water storage option, the amount of
    water potentially provided, the certainty and sustainability of water
    storage, and the environmental impacts are largely unknown.

    Upper Klamath Lake Expansion	Upper Klamath Lake (including adjoining
    Agency Lake) is the primary source of water for the Project and the
    Klamath River. To satisfy the water contracts of irrigators, as well as
    river flow and lake level requirements, Upper Klamath Lake must be full at
    the start of the irrigation season. However, when the lake exceeds its
    maximum storage capacity-generally due to heavy runoff before the
    irrigation season begins-the lake goes into "spill condition," releasing
    water into the Klamath River (and eventually into the Pacific Ocean) to
    avoid flooding the surrounding area. Expanding the lake's capacity by
    purchasing and flooding adjoining properties with water that would
    otherwise be spilled would enable Reclamation to preserve this water for
    peak demand periods-late spring to early fall-for both fish and
    irrigators. It would also reduce irrigation demand from these lands,
    leaving more water in the lake for Project and other uses.

    In 1998, Reclamation prepared a report identifying numerous options for
    expanding the lake, but only six options were evaluated regarding their
    feasibility for water storage development. Collectively the six options
    have the potential to provide approximately 100,000 gross acre-feet of
    water, however, according to Reclamation officials, evaporation losses
    would reduce the net usable water storage to about half that amount. As
    shown in figure 7, the six water storage options-listed roughly from north
    to south and by proximity to each other-include Agency Lake Ranch, Barnes
    Ranch, Wood River Ranch, the Williamson River Delta Preserve, Caledonia
    Marsh, and Running Y Marsh.

                     Figure 7: Upper Klamath Lake Expansion Options

                                  Source: Reclamation.

    o 	Agency Lake Ranch is a 7,125-acre, Reclamation-owned marshland located
    on the west side of Agency Lake. Reclamation purchased the land in 1998 to
    store spill water during periods of high inflow to the lake. Agency Lake
    Ranch currently has the capacity to store about 13,000 gross acre-feet
    without flooding neighboring properties. However, it has the potential to
    store up to 35,000 gross acre-feet of water if the existing levees
    surrounding the land are raised, at an unknown cost.

    o 	Barnes Ranch is a privately owned 2,671-acre pasture bordering the west
    side of Agency Lake Ranch with the capacity to store 15,000 gross
    acre-feet of water if the levees surrounding the property are improved. If
    the Barnes Ranch is acquired and Reclamation removed the levees bordering
    Agency Lake Ranch and Agency Lake, a combined total of approximately
    40,000 gross acre-feet of water could be stored and would potentially fill
    to this capacity in most years. In January 2004, Reclamation had Barnes
    Ranch appraised for $5.9 million, but the owners and Reclamation have not
    yet agreed on a purchase price.

    o 	Wood River Ranch is an approximately 3,000-acre site on the north end
    of Agency Lake, adjacent to Agency Lake Ranch. The Bureau of Land
    Management (BLM) purchased Wood River Ranch in 1994 to restore as a
    wetland, among other objectives. Because of its proximity to Agency Lake
    Ranch and Barnes Ranch, Reclamation officials would like to convert the
    land to store approximately 7,500 gross acre-feet of water. However, local
    BLM managers feel that this would not be compatible with the existing
    goals and objectives of the Klamath Resource Management Plan, telling us
    that converting the land to water storage would destroy wildlife habitat
    and reverse a 10-year, multimillion dollar restoration effort accomplished
    with many private contributors.

    o 	The Williamson River Delta Preserve is a 7,440-acre site, located at
    the southern end of Agency Lake, that was converted from wetland to
    farmland in the 1930s and 1940s. The Nature Conservancy purchased two
    properties-Tulana Farms in 1996 and Goose Bay Farms in 1999- and is
    developing a restoration plan for the combined site. With the
    encouragement and financial support of Reclamation, the Nature Conservancy
    has considered the option of returning the properties to Upper Klamath
    Lake. Reclamation estimates that the preserve would add 35,000 gross
    acre-feet of water storage capacity, at relatively low cost with the
    Nature Conservancy's collaboration.

    o 	Caledonia Marsh is a privately owned 794-acre farm on the southern end
    of Upper Klamath Lake with the potential capacity to store nearly 5,000
    gross acre-feet of water. According to Reclamation, the owner has

    expressed interest in selling; however, the surrounding levees would need
    to be improved and the Highway 140 road bed raised to protect the
    neighboring property, Running Y Marsh. The cost of these improvements has
    not been determined.

    o 	Running Y Marsh is a privately owned 1,674-acre farm and wetland area
    adjacent to Caledonia Marsh with the potential to store about 10,000 gross
    acre-feet of water if converted to lake storage. However, because of the
    high value crops grown there, the owner is not currently interested in
    selling the property to Reclamation.

    For all of these options, while it would be relatively easy to determine
    the amount of additional water storage provided by measuring changes in
    the lake surface area, there are a number of associated uncertainties and
    constraints. For example, since these storage areas are essentially
    extensions of the lake itself, filling the additional capacity is
    dependent upon adequate flows into the lake-if the lake does not fill to
    capacity, the storage areas would not be filled to their capacity. In
    addition, use of the additional stored water in these areas would be
    constrained by the minimum lake level requirements set out by the FWS
    biological opinion for Upper Klamath Lake to protect the two species of
    sucker. As an extension of the lake, the new storage areas could not be
    drained below these minimum levels. Finally, the environmental impacts of
    developing water storage areas vary and would need to be addressed by
    Reclamation as part of the water storage development process.

    Separate Reservoir Development	The development of a separate reservoir
    would create a long-term storage area in the Klamath Basin that could far
    surpass the capacity of the water bank as a source of flows for the river,
    potentially benefiting all Klamath River stakeholders and protected
    species. Evaluation of such potential water storage areas has focused on
    Long Lake Valley, located southwest of Upper Klamath Lake. Developing Long
    Lake Valley into a reservoir would enable water to be stored that would
    otherwise be spilled into the Klamath River when Upper Klamath Lake's
    water level exceeds the maximum lake elevation. Reclamation, irrigators,
    and others generally agree that Long Lake Valley is the most viable option
    currently available for new reservoir development.

    According to Reclamation, converting Long Lake Valley into a reservoir
    could yield up to 250,000 acre-feet of water, with a depth of 250 to 300
    feet when full. Thus, Long Lake represents "deep" water storage, which
    generally contains colder water-beneficial to fish-than shallow Upper

    Klamath Lake can provide. Reclamation indicated that the reservoir's
    250,000 acre-foot capacity would be filled by pumping water from Upper
    Klamath Lake to Long Lake between March and June, using the piping system
    shown in figure 8. However, much like the Upper Klamath Lake expansion
    options, the certainty of Long Lake's water supply depends entirely upon
    the availability of spill water to fill it and, according to NMFS
    officials, the impacts on the river of diverting these flows to a
    reservoir need to be studied. Once filled, Long Lake could provide a
    sustainable supply of water to supplement river flows. In addition, the
    amount of water stored by Long Lake and delivered to enhance river flows
    could easily be measured by metering water flow in the pipeline to and
    from the lake or, potentially, in a pipeline emptying directly into the
    Klamath River.

    Figure 8: Long Lake Storage Option

                                  Source: Reclamation.

    Reclamation completed an initial study of the geology of Long Lake Valley
    in March 2004, which determined that Long Lake Valley's floor would

    provide a good barrier to prevent water leakage. Geologic investigations
    of Long Lake Valley are continuing in 2005. To date, Reclamation has not
    conducted a full feasibility study for Long Lake development, and it will
    not do so until a funding plan has been established. Reclamation estimates
    that a feasibility study would take three years to complete and would cost
    approximately $12 million. Subsequently, reservoir construction funds
    would need to be obtained. There are no reliable estimates available, but
    Reclamation's most recent projection of construction costs is about $350
    million, not including real estate acquisition costs. The Long Lake
    development project would take at least 10 years to complete, which means
    that Long Lake would not address any immediate water demand issues in the
    Klamath Basin. Based on Reclamation's initial study, if Reclamation can
    address funding, technical, and environmental impact requirements, Long
    Lake may offer a promising long-term storage option for the Klamath Basin.

    Reclamation's Conservation Implementation Program Is Still Being Developed

    Storage options and other potential long-term solutions to water quantity,
    quality, and wildlife resource issues are expected to receive greater
    attention in coming years under Reclamation's Conservation Implementation
    Program. In addition to the water bank, NMFS' 2002 biological opinion
    required Reclamation to establish such a program, and Reclamation and
    other stakeholders began developing the framework for future collaboration
    in 2003. One of the objectives of the program is the development and
    implementation of feasibility studies to identify opportunities for
    increased water storage and groundwater development alternatives. The
    Governors of the states of California and Oregon and heads of the
    Departments of the Interior, Agriculture, and Commerce, as well as the
    Environmental Protection Agency, signed an agreement in October 2004 to
    coordinate their efforts to achieve program objectives, and Reclamation is
    currently preparing a third draft program document for stakeholder review.

    The Water Bank Could Be Reclamation and NMFS will have the opportunity to
    discuss revising some

    Modified in 2006	elements of the biological opinion, including the water
    bank, when they meet for an expected reconsultation in 2006.
    Reconsultation could address the following potential changes to the
    biological opinion, affecting Reclamation's responsibility for river
    flows, its water bank obligation, and how it operates the water bank:

    o 	Adjusting Reclamation's level of responsibility for ensuring Klamath
    River flows to reflect information currently being developed regarding the
    water quality and quantity requirements of Klamath River fish, as well as
    historic natural flows of the Klamath River. Based on a recent USGS study
    of irrigated acreage in the Upper Basin, Reclamation- currently held
    responsible for ensuring 57 percent of needed flows- may suggest reducing
    that number to about 40 percent. Such an adjustment would not directly
    alter Reclamation's water bank obligations; however, it would decrease
    Reclamation's overall responsibility for ensuring Klamath River base flows
    by increasing the responsibilities of other basin stakeholders, such as
    the states and other federal agencies. According to NMFS, such a change
    would need to be considered within the context of the U.S. District
    Court's 2003 criticism of the allocation of responsibility for providing
    flows.

    o 	Not requiring a water bank in Above Average or Wet water years, thus
    eliminating the cost and effort of obtaining and managing the water bank
    when natural flows are abundant.

    o 	Changing the method for determining water-year types from a five-tier
    system to a more incrementally adjustable method that would cause less
    dramatic changes in flow requirements, thus addressing one of the concerns
    raised by stakeholders. Currently being piloted by Reclamation with FWS
    for managing Upper Klamath Lake levels, this method would reduce the
    magnitude of changes and the need for significant water bank delivery
    recalculations.

    Conclusions	Water shortages in the Klamath River Basin have created
    serious conflicts and placed Reclamation in the difficult position of
    balancing competing demands for water among numerous stakeholders. Over
    the last three years, Reclamation has demonstrated commitment and
    resourcefulness in this task, particularly under drought conditions, by
    implementing and meeting the obligations of the temporary water bank.
    However, whether Reclamation can continue meeting its water bank
    obligation using current methods is unclear, given the uncertain results
    of crop idling and the unknown sustainability of groundwater pumping. This
    uncertainty adds urgency to Reclamation and stakeholder efforts to
    collaboratively identify and evaluate long-term solutions. In the mean
    time, because the water bank acts as the primary mechanism for balancing
    competing demands for water, Reclamation must be able to clearly
    communicate to stakeholders how the water bank is managed and how water is
    accounted for. This

    information will make the management and accountability for this public
    resource more transparent to all those that rely on and are affected by
    the water bank.

    Recommendation for Executive Action

    We are recommending that Reclamation take steps to improve the information
    provided to stakeholders regarding water bank management and accounting by
    regularly and systematically providing-through media such as a water bank
    Web-link or a monthly or biweekly press release- public information on the
    rationale and effects of management decisions related to forecasted water
    availability, unexpected spill conditions, or other significant events, as
    well as regularly updated information regarding the water bank's status,
    including the amount of water bank deliveries to date.

    Agency Comments and Our Evaluation

    We provided copies of our draft report to the Departments of Agriculture,
    Commerce, and the Interior for their review and comment. We received a
    written response from the Under Secretary of Commerce for Oceans and
    Atmosphere that includes comments from the National Oceanic and
    Atmospheric Administration (NOAA) and from Interior's Assistant Secretary,
    Policy, Management and Budget that includes comments from Reclamation and
    BLM. Overall, NOAA stated that the report accurately reflects the history
    of the water bank, and Reclamation expressed appreciation for GAO's
    efforts to report on the complex Klamath River Basin situation. We
    requested comments from Agriculture, but none were provided.

    Reclamation agreed with our recommendation to improve the information
    provided to stakeholders regarding water bank management and accounting.
    Reclamation agreed to implement steps to enhance water bank communications
    through systematic feedback to stakeholders with information regarding the
    water bank. Reclamation said that it would add a new page to its Web site
    exclusively for the water bank, which will include background information,
    new information as it becomes available, links to relevant Web resources
    such as USGS' Klamath River gauge at Iron Gate Dam, and graphics showing
    the status of water bank flow augmentation. This information will be
    updated at least biweekly, with notices posted to direct stakeholders to
    updated information. Reclamation plans to complete these changes to its
    Web site by June 30, 2005.

    NOAA, Reclamation, and BLM provided comments of a factual and technical
    nature, which we have incorporated throughout the report as appropriate.
    Because of the length of the technical comments provided by Reclamation
    and BLM, we did not reproduce them in the report. Interior's transmittal
    letter and response to our recommendation are presented in appendix III,
    and NOAA's comments are presented in appendix IV.

    We are sending copies of this report to the Secretaries of Agriculture,
    Commerce and the Interior, appropriate congressional committees, and other
    interested Members of Congress. We also will make copies available to
    others upon request. In addition, the report will be available at no
    charge on the GAO Web site at http://www.gao.gov.

    If you or your staffs have any questions about this report, please contact
    me at (202) 512-3841 or mittala@gao.gov. Key contributors to this report
    are listed in appendix V.

    Anu K. Mittal Director, Natural Resources and Environment

    Appendix I

    Scope and Methodology

    To determine how the Bureau of Reclamation (Reclamation) operated the
    water bank and how much it cost, we analyzed Reclamation's water bank
    planning, contracting, and expenditure documentation. We researched and
    analyzed laws, regulations, the National Marine Fisheries Service's (NMFS)
    biological opinion, and related court cases pertinent to the water bank
    and how it operates. For each year of the water bank, we reviewed and
    analyzed data on applications and contracts in comparison with the
    biological opinion requirements. We reviewed and analyzed expenditures for
    contracts and program administration, as well as future budget request
    estimates, for total costs incurred to date and expected future costs of
    the water bank. Finally, we interviewed staff from Reclamation, NMFS, and
    other relevant agencies, as well as stakeholders-including representatives
    from tribal, commercial fisheries, and irrigator groups-on water bank
    program obligations, operations, and monitoring.

    For each year of the water bank program, we reviewed and analyzed data on
    water bank contracts to determine whether Reclamation met its water bank
    acquisition obligations, and we reviewed and analyzed scheduled base
    Klamath River flows, as well as the daily average Klamath River flows,
    using both U.S. Geological Survey (USGS) and PacifiCorp-generated data to
    calculate the augmented flows to determine whether Reclamation met its
    water bank delivery obligations. We interviewed staff from Reclamation and
    other relevant agencies, as well as stakeholders- including
    representatives from tribal, commercial fisheries, and irrigator groups-on
    water bank program obligations, operations, and monitoring.

    To describe the water bank's impact on water availability and use in the
    Klamath River Basin, we interviewed staff from Reclamation, USGS, the
    Oregon Water Resources Department, California Polytechnic State
    University, and the Klamath Basin Rangeland Trust. We gathered and
    analyzed Reclamation crop reports, a USGS study of irrigation water use,
    and a California Polytechnic State University study of the 2003 water bank
    to describe the impact of crop idling on river flows. To describe the
    impacts of groundwater use, we collected and analyzed Oregon Water
    Resources Department information on groundwater pumping, well drilling,
    and well deepening in Klamath County, Oregon, and USGS information on well
    levels in the Upper Basin. We also collected descriptions of the joint
    USGS/Oregon Water Resources Department study of Upper Basin groundwater
    and the USGS study of Reclamation's water bank. In addition, we
    interviewed and obtained relevant documentation from stakeholders
    including irrigators, tribes, and commercial fisheries. We did not review
    the

    Appendix I Scope and Methodology

    water bank's impact on fish species because the short history of the water
    bank makes it difficult to obtain reliable information.

    To describe alternative approaches to the water bank, we collected
    information and interviewed staff from Reclamation and the Bureau of Land
    Management, as well as potential land sellers, irrigators, irrigation
    experts, economists, and conservationists. We also toured the Klamath
    Project area by plane and car to visit and observe potential irrigated
    land retirement options and water storage areas. In addition, we collected
    and analyzed documentation of potential water storage locations, a study
    of options for increasing water storage, as well as a Reclamation study of
    a potential new reservoir. Finally, we reviewed the requirements for
    coordinated efforts among stakeholders in NMFS' biological opinion and the
    status of basinwide planning to increase river flows.

    To assess the reliability of the noncomputerized data we received, we
    interviewed officials most knowledgeable about the collection and
    management of each data set. We assessed the relevant general and
    application controls and found them adequate. In addition, we reviewed the
    methodology of the economic and water use studies and interviewed the
    authors to discuss their scope, data quality, and results. Finally, we
    conducted tests of the reliability of computerized data. On the basis of
    these interviews, tests, and reviews, we concluded that the data from the
    various sources and studies were sufficiently reliable for the purposes of
    this report.

    We performed our work between May 2004 and February 2005 in accordance
    with generally accepted government auditing standards.

    Appendix II

    Information on Water Bank Applications and Contracts

    As shown in table 2, the total numbers of applications from irrigators
    seeking participation in the water bank decreased from 2003 to 2004;
    Reclamation did not solicit applications in 2002. The total number of
    contracts for participation has fluctuated up and down since the inception
    of the water bank.

    Table 2: Number of Water Bank Applications and Contracts by Type and by
    Year

                                                       2002    2003          2004
                   Total water bank applications       a, b    521            449
                                     Crop idling          a    335
                        Groundwater substitution          a    186
                             Groundwater pumping          b          b          b
                      Total water bank contracts          2    315
                                     Crop idling          1    223
                        Groundwater substitution          0     92
                             Groundwater pumping          1          0

    Source: GAO analysis of Reclamation data.

    aDue to the timing of the water bank in 2002, Reclamation negotiated
    contracts without a formal application process.

    bReclamation negotiated contracts for groundwater pumping outside of the
    formal application process.

    Reclamation shifted its contracting emphasis from primarily crop idling in
    2003 to primarily groundwater contracts in 2004. As such, the number of
    groundwater contracts (groundwater pumping plus groundwater substitution)
    has grown to represent a larger proportion of all contracts as
    Reclamation's water bank obligation increased, as shown in figure 9.

    Appendix II Information on Water Bank Applications and Contracts

    Figure 9: Proportion and Number of Water Bank Contracts by Type, 2002 to
    2004 Number of water bank contracts

    350

    300

    250

    200

    150

    100

    50

    0

    2002 2003 2004

    Groundwater pumping Groundwater substitution Crop idling Source: GAO
    analysis of Reclamation data.

    Note: In 2002, there were two water bank contracts-one for crop idling and
    one for groundwater pumping.

    The volume of water (acre-feet) offered in water bank applications
    increased by almost 50 percent from 2003 to 2004. The volume of water
    Reclamation acquired through contracts more than doubled since the water
    bank's inception, as shown in table 3.

    Appendix II Information on Water Bank Applications and Contracts

    Table 3: Volume Represented by Water Bank Applications and Contracts by
    Type and Year

                                                          2002      2003     2004
              Total volume represented by applicationsa   b, c  104,151   154,908
                                            Crop idling      b  49,274     75,637
                               Groundwater substitution      b  54,877     79,271

    cc

    Groundwater pumping

             Total volume acquired through contractsa  47,072  59,332d   110,877e
                                          Crop idling  27,072 35,389 d     22,582
                             Groundwater substitution       0 23,943 d     16,656
                                  Groundwater pumping  20,000         0   71,639e

    Source: GAO analysis of Reclamation data.

    aAcre-feet of water.

    bDue to the need to establish the water bank expeditiously in 2002,
    Reclamation negotiated contracts without a formal application process.

    cReclamation negotiated contracts for groundwater pumping outside of the
    formal application process.

    dReclamation voided two of these 2003 water bank contracts-one crop idling
    contract for 64.45 acrefeet and one groundwater substitution contract for
    254.29 acre-feet.

    eReclamation only purchased 82,257 of the 110,877 acre-feet it acquired
    through contracts in 2004, as it did not need to exercise the options on
    all of its contingency groundwater pumping contracts in order to meet the
    delivery schedule.

    As shown in figure 10, from 2002 to 2004, Reclamation has increased the
    volume of groundwater as a proportion of the total water bank acquired by
    contract.

    Appendix II Information on Water Bank Applications and Contracts

    Acre-feet (in thousands)

    120

    105

    90

    75

    60

    45

    30

    15

    0 2002 2003 2004

    Groundwater pumping

    Groundwater substitution

    Crop idling

    Source: GAO analysis of Reclamation data.

    Note: Reclamation was able to meet the water delivery schedule without
    exercising the options on all of its contingency groundwater pumping
    contracts, purchasing only 82,257 of the 110,877 acre-feet it acquired in
    2004. Of this 82,257 acre-feet of water actually purchased, 43,019
    acre-feet (52 percent) is attributable to groundwater pumping alone, while
    73 percent of actual purchases is attributable to groundwater sources
    overall.

    As shown in table 4, the total irrigated land acreage offered in water
    bank applications and accepted under contracts has increased since the
    inception of the water bank.

    Appendix II Information on Water Bank Applications and Contracts

    Table 4: Acres of Land Offered in Applications and Accepted under
    Contracts by Type and Year

                                                          2002     2003      2004
                Total acreage offered in applications      a,b  47,215     67,508
                                          Crop idling        a  23,093     33,841
                             Groundwater substitution        a  24,122     33,667
                                  Groundwater pumping     b, d     b, d      b, d
               Total acreage accepted under contracts    3,161  25,469     22,371
                                          Crop idling   3,161c  14,430    15,497c
                             Groundwater substitution        0  11,039      6,874
                                  Groundwater pumping        b        b         b

    Source: GAO analysis of Reclamation data.

    aDue to the need to establish the water bank expeditiously in 2002,
    Reclamation negotiated contracts without a formal application process.

    bBecause groundwater pumping does not represent water foregone from a
    particular area of land, the amount of land represented by the pumping is
    not applicable.

    cCrop idling included an off-Project contract with the Klamath Basin
    Rangeland Trust that accounted for all 3,161 acres of crop idling in 2002
    and 11,133 acres in 2004.

    dReclamation negotiated contracts for groundwater pumping outside of the
    formal application process.

    Appendix III

    Comments from the Department of the Interior

    Note: Because of the length of the technical comments provided by
    Interior, we are not including them here. We have incorporated suggested
    changes into the report as appropriate.

    Appendix III
    Comments from the Department of the
    Interior

    Appendix IV

    Comments from the Department of Commerce

    Appendix IV
    Comments from the Department of
    Commerce

    Appendix IV
    Comments from the Department of
    Commerce

    Appendix V

                         GAO Contacts and Staff Acknowledgments

    GAO Contacts	Anu K. Mittal (202) 512-3841 Edward M. Zadjura (202) 512-9914

    Staff 	In addition to those individuals named above, Brad C. Dobbins,
    David A. Noguera, and Tama R. Weinberg made key contributions to this
    report. Also

    Acknowledgments	contributing to the report were John W. Delicath, Philip
    G. Farah, Curtis L. Groves, Julian P. Klazkin, Kim M. Raheb, and Monica L.
    Wolford.

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