Water Resources: Four Federal Agencies Provide Funding for Rural 
Water Supply and Wastewater Projects (07-SEP-07, GAO-07-1094).	 
                                                                 
funds for constructing and upgrading water supply and wastewater 
treatment facilities. As a result, they typically rely on federal
grants and loans, primarily from the Rural Utilities Service	 
(RUS), Economic Development Administration (EDA), Bureau of	 
Reclamation (Reclamation), and the U.S. Army Corps of Engineers  
(Corps), to fund these projects. Concern has been raised about	 
potential overlap between the projects these agencies fund. For  
fiscal years 2004 through 2006 GAO determined the (1) amount of  
funding these agencies obligated for rural water projects and (2)
extent to which each agency's eligibility criteria and the	 
projects they fund differed. GAO analyzed each agency's financial
data and reviewed applicable statutes, regulations, and policies.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1094					        
    ACCNO:   A75849						        
  TITLE:     Water Resources: Four Federal Agencies Provide Funding   
for Rural Water Supply and Wastewater Projects			 
     DATE:   09/07/2007 
  SUBJECT:   Economically depressed areas			 
	     Eligibility criteria				 
	     Federal aid to localities				 
	     Federal aid to states				 
	     Fund audits					 
	     Program evaluation 				 
	     Wastewater management				 
	     Wastewater treatment				 
	     Water supply					 
	     Eligibility determinations 			 
	     Program implementation				 
	     Rural areas					 
	     Standards (water quality)				 

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GAO-07-1094

   

     * [1]Results in Brief
     * [2]Background
     * [3]Four Agencies Obligated about $5 Billion for Rural Water Su
     * [4]Agencies Fund Similar Rural Water Supply and Wastewater Proj

          * [5]RUS, EDA, Reclamation, and the Corps Fund Similar Rural Wate
          * [6]RUS and EDA Have Nationwide Water Supply and Wastewater Prog

               * [7]RUS Only Provides Funding for Water Supply and Wastewater
                 Pr
               * [8]EDA Provides Funding to Projects in Areas Experiencing
                 Econo

          * [9]Reclamation and the Corps Provide Congressionally Directed F

               * [10]Reclamation Funds Specific Congressionally Authorized
                 Projec
               * [11]The Corps Funds Congressionally Authorized Projects,
                 Usually

     * [12]Conclusions
     * [13]Recommendation for Executive Action
     * [14]Agency Comments and Our Evaluation
     * [15]RUS and EDA
     * [16]Reclamation
     * [17]Corps
     * [18]GAO Contact
     * [19]Staff Acknowledgments
     * [20]GAO's Mission
     * [21]Obtaining Copies of GAO Reports and Testimony

          * [22]Order by Mail or Phone

     * [23]To Report Fraud, Waste, and Abuse in Federal Programs
     * [24]Congressional Relations
     * [25]Public Affairs

Report to the Honorable Gordon Smith, U.S. Senate

United States Government Accountability Office

GAO

September 2007

WATER RESOURCES

Four Federal Agencies Provide Funding for Rural Water Supply and
Wastewater Projects

GAO-07-1094

Contents

Letter 1

Results in Brief 3
Background 4
Four Agencies Obligated about $5 Billion for Rural Water Supply and
Wastewater Projects during Fiscal Years 2004 through 2006 6
Agencies Fund Similar Rural Water Supply and Wastewater Projects, but
their Eligibility Criteria Vary 14
Conclusions 25
Recommendation for Executive Action 25
Agency Comments and Our Evaluation 25
Appendix I Scope and Methodology 27
Appendix II Agency Overhead Cost Information, Fiscal Years 2004 through
2006 31
RUS and EDA 31
Reclamation 31
Corps 32
Appendix III Comments from the Department of Defense 33
Appendix IV Comments from the Department of the Interior 35
Appendix V GAO Contact and Staff Acknowledgments 36

Tables

Table 1: Number of Projects and Obligations for Rural Water Supply and
Wastewater Projects for Four Federal Agencies for Fiscal Years 2004
through 2006 7
Table 2: Type of Rural Water Projects, Funding Mechanisms, and Eligibility
Criteria of Four Federal Agencies 14
Table 3: Number of RUS Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006 16
Table 4: Number of EDA Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006 19
Table 5: Number of Reclamation Funded Rural Water Supply Projects by
State, Fiscal Years 2004 through 2006 21
Table 6: Number of Corps Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006 23
Table 7: Agencies' Definitions of Rural Area 28
Table 8: Rural Water Supply and Wastewater Projects Selected for GAO Site
Visits 29
Table 9: Total Obligations, Indirect Obligations, and FTEs for
Reclamation's 11 Rural Water Supply Projects, Fiscal Years 2004 through
2006 32

Figures

Figure 1: RUS Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006 8
Figure 2: EDA Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006 9
Figure 3: Reclamation Funded Rural Water Supply Projects, Fiscal Years
2004 through 2006 10
Figure 4: Corps Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006 11
Figure 5: Location of the Mni Wiconi Project, South Dakota 13

Abbreviations

Corps U.S. Army Corps of Engineers
EDA Economic Development Administration
EPA Environmental Protection Agency
FTE full-time equivalent
G&A General and Administrative
OMB Office of Management and Budget
Reclamation Bureau of Reclamation
RUS Rural Utilities Service

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United States Government Accountability Office
Washington, DC 20548

September 7, 2007

The Honorable Gordon Smith
United States Senate

Dear Senator Smith:

More than 90 percent of public water supply systems and 70 percent of
wastewater systems throughout the United States serve communities with
populations of fewer than 10,000, usually in rural areas.1 The
Environmental Protection Agency (EPA) estimates that these water supply
and wastewater systems will require about $64 billion in upgrades to meet
federal water quality standards. However, rural areas typically lack
adequate funds for constructing and upgrading water supply and wastewater
treatment facilities. Urban areas can take advantage of economies of scale
by spreading the costs of projects among larger populations, which rural
areas cannot. According to EPA, the per-household cost for water supply
and wastewater projects in these areas is almost four times more than the
per-household cost of similar projects in more urban areas. As a result,
communities in rural areas often have to rely on federal grants and loans
to help finance their water supply and wastewater projects.

As we reported in 2005,2 while several federal agencies provide funding
for rural water supply and wastewater projects, these projects are
primarily funded by the U.S. Department of Agriculture's Rural Utilities
Service (RUS),3 the Department of Commerce's Economic Development
Administration (EDA), the Department of the Interior's Bureau of
Reclamation (Reclamation), and the U.S. Army Corps of Engineers

1The federal government has not established a formal or consistent
definition of what constitutes a rural area, but federal agencies usually
define rural areas by population thresholds that range from fewer than
2,500 to fewer than 50,000.

2GAO, Freshwater Programs: Federal Agencies' Funding in the United States
and Abroad, [26]GAO-05-253 (Washington, D.C.: Mar. 11, 2005).

3The Rural Utilities Service is one of several subagencies within
Agriculture's Rural Development agency.

(Corps).4 Historically, RUS has provided grants and loans to construct or
improve water supply and wastewater facilities in rural areas. Similarly,
EDA has provided grants to economically distressed communities, including
those in rural areas, to revitalize, expand, and upgrade their physical
infrastructure, which includes water supply and wastewater facilities. In
contrast, Reclamation has traditionally funded large water infrastructure
projects to irrigate the arid western states, while the Corps has
primarily funded water-related infrastructure for inland navigation and
flood control purposes. More recently, the Congress has directed
Reclamation and the Corps to provide funding for water supply and
wastewater treatment projects, including some in rural areas, raising
concerns about potential overlap between these projects and those
traditionally funded by RUS and EDA.

In this context, you asked us to determine (1) for fiscal years 2004
through 2006, how much federal funding RUS, EDA, Reclamation, and the
Corps obligated for rural water supply and wastewater projects and (2) to
what extent each agency's eligibility criteria and the projects they fund
differ. In addition, you asked us to determine, to the extent possible,
the total overhead costs and number of personnel needed to manage rural
water supply and wastewater projects at each agency during fiscal years
2004 through 2006. This information is included in an appendix to this
report.

To determine the amount of funding RUS, EDA, Reclamation, and the Corps
provided, we collected and analyzed each agency's obligations for rural
water supply and wastewater projects during fiscal years 2004 through
2006. To determine the extent to which each agency's eligibility criteria
and the projects they fund differ, we reviewed and analyzed applicable
statutes, agency regulations, policy guidance, and project specific data
submitted by each agency to us. In addition, we selected a nonprobability
sample of 16 rural water supply and wastewater projects, including at
least one project funded by each of the four agencies, and interviewed
both local officials from the communities sponsoring these projects and
federal agency officials responsible for managing the funding of these
projects. To the extent possible, we also analyzed the amount of overhead
costs and number of personnel necessary to support these projects at each
agency. A more detailed description of our scope and methodology is
presented in appendix I. We performed our work from September 2006 through
August 2007 in accordance with generally accepted auditing standards.

4For the purposes of this report, federal funding includes grants and
loans. The Department of Housing and Urban Development and EPA also
provide substantial funding for water supply and wastewater projects in
rural areas. However, these agencies do not provide funding directly to
rural communities for water supply and wastewater projects, but rather
they provide funding to state governments that administer the funds and
set funding priorities. Therefore, these agencies are not included in this
report.

Results in Brief

RUS, EDA, Reclamation, and the Corps obligated nearly $4.7 billion for
about 3,100 rural water supply and wastewater projects from fiscal years
2004 through 2006. RUS obligated nearly 90 percent of these funds--about
$4.2 billion--for about 2,800 projects. Of the $4.2 billion, RUS loans
accounted for about $2.7 billion, and RUS grants accounted for about $1.5
billion. In contrast, EDA, Reclamation, and the Corps together provided a
total of about $500 million in grants to rural communities for about 300
projects. While RUS provided the majority of the funding and supported the
largest number of projects, Reclamation provided the most funding per
project. For example, the average RUS grant was approximately $680,000 per
project, while the average Reclamation grant was nearly $22 million per
project. EDA and Corps grants averaged about $1 million and $800,000 per
project, respectively.

RUS, EDA, Reclamation, and the Corps fund similar rural water supply and
wastewater projects, but their varying eligibility criteria can restrict
funding to specific communities based on population size, economic need,
or geographic location. Specifically, RUS, EDA, and the Corps provide
funding for both water supply and wastewater projects, while Reclamation
only provides funding for water supply projects. Water supply and
wastewater projects funded by these agencies primarily include the
construction or upgrading of distribution lines, treatment plants, and
pumping stations. RUS and EDA have established formal nationwide programs
with standardized eligibility criteria and processes under which
communities compete for funding. For example, RUS' criteria requires
projects to be located in a city or town with a population of 10,000 or
less, while EDA's criteria requires projects to be located in economically
distressed communities, regardless of the size of the population served,
and the projects must save or create jobs. In contrast, Reclamation and
the Corps have not historically had rural water supply and wastewater
programs; rather, they have provided funding to specific projects in
defined geographic locations under explicit congressional authorizations.
For example, the Mni Wiconi Project Act of 1988, as amended, directs
Reclamation to provide funding to three Indian tribes and seven counties
for a water supply project in South Dakota. Similarly, a section of the
Water Resources Development Act of 1999, as amended, directs the Corps to
provide funding to water supply and wastewater projects in Idaho, Montana,
rural Nevada, New Mexico, and rural Utah. More recently, the Congress
passed the Rural Water Supply Act of 2006, directing Reclamation to
develop a rural water supply program with standard eligibility criteria
within 1 year and to assess within 2 years how the rural water projects
that Reclamation funds will complement those projects being funded by
other federal agencies. However, the Corps continues to fund rural water
supply and wastewater projects under specific congressional
authorizations, many of which are pilot programs. We found that, during
fiscal years 2004 through 2006, the Corps completed more than 100 rural
water supply and wastewater projects under various pilot programs. The
Corps was required to evaluate the effectiveness of the projects funded
under these various pilot programs and recommend to the Congress whether
they should be implemented on a national basis. The Corps has completed
most of the evaluations required under the various pilot programs, but, in
most cases, the Corps either did not make a recommendation or concluded
that it had not completed enough projects to make meaningful
recommendations. In the absence of these evaluations and recommendations,
the Congress does not have information on whether, collectively, the
projects carried out under the Corps' pilot programs merit continued
funding, duplicate other agency efforts, or should be implemented on a
national basis. We are recommending that the Corps provide the Congress a
comprehensive report on the water supply and wastewater projects it has
funded and determine whether or not these programs should continue to be
funded by the Corps. In commenting on a draft of this report, the
Department of Defense concurred with our findings and recommendation. The
Department of the Interior also agreed with our findings and the
Departments of Agriculture and Commerce provided technical comments, which
we have incorporated throughout the report, as appropriate.

Background

RUS, EDA, Reclamation, and the Corps each have distinct missions and fund
rural water supply and wastewater projects under separate programs and
congressional authorizations. Furthermore, each agency has its own
definition of what constitutes a rural area and a unique organizational
structure to implement its programs. Specifically,

           o RUS administers the U.S. Department of Agriculture's rural
           utilities programs throughout the country, which are aimed at
           expanding electricity, telecommunications, and water and waste
           disposal services. RUS provides assistance for water supply and
           wastewater projects through its Water and Environmental Program
           and defines rural areas for this program as incorporated cities
           and towns with a population of 10,000 or fewer and unincorporated
           areas, regardless of population. RUS manages this program through
           its headquarters in Washington, D.C., and 47 state offices, each
           supported by area and local offices.

           o EDA provides development assistance to areas experiencing
           substantial economic distress regardless of whether or not they
           are rural or urban. EDA primarily provides assistance for water
           supply and wastewater projects in distressed areas through its
           Public Works and Development Facilities Program and uses a U.S.
           Census Bureau definition for rural areas that is based on
           metropolitan statistical areas.5 EDA manages this program through
           its headquarters in Washington, D.C., six regional offices, and
           multiple field personnel.

           o Reclamation was established to implement the Reclamation Act of
           1902, which authorized the construction of water projects to
           provide water for irrigation in the arid western states.
           Reclamation generally manages numerous municipal and industrial
           projects as part of larger, multipurpose projects that provide
           irrigation, flood control, power, and recreational opportunities
           in 17 western states, unless otherwise directed by the Congress.6
           Reclamation provides assistance for water supply projects through
           individual project authorizations and defines a rural area as a
           community, or group of communities, each of which has a population
           of not more than 50,000 inhabitants.7 Reclamation manages these
           projects through its headquarters in Washington, D.C., and Denver,
           Colorado, five regional offices, and multiple field offices in the
           western United States.

           o The Corps' Civil Works programs investigate, develop, and
           maintain water and related environmental resources throughout the
           country to meet the agency's navigation, flood control, and
           ecosystem restoration missions. In addition, the Civil Works
           programs also provide disaster response, as well as engineering
           and technical services. The Corps provides assistance for water
           supply and wastewater projects through authorizations for either a
           project in a specific location, or for a program in a defined
           geographic area, and does not have a definition for rural areas.8
           The Corps administers its programs and projects through its
           Headquarters in Washington, D.C., eight regional divisions, and 38
           district offices.
			  
5Metropolitan statistical areas are based on county-level data with
central cities of at least 50,000 residents and surrounding contiguous
counties that are metropolitan in character and economically tied to the
core counties. Rural areas may be within or outside such areas.

6The Reclamation states include Arizona, California, Colorado, Idaho,
Kansas, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma,
Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.

7Reclamation's definition of a rural area was established by Pub. L. No.
109-451, enacted December 22, 2006.			  

           These agencies rely on several sources of funding--including
           annual appropriations from the general fund and from dedicated
           funding sources, such as trust funds--to provide financial support
           for these projects and programs.
			  
			  Four Agencies Obligated about $5 Billion for Rural Water Supply and
			  Wastewater Projects during Fiscal Years 2004 through 2006

           RUS, EDA, Reclamation, and the Corps obligated $4.7 billion to
           3,104 rural water supply and wastewater projects from fiscal years
           2004 through 2006.9 Of these obligations, RUS obligated nearly
           $4.2 billion (or about 90 percent) of the funding--about $1.5
           billion in grants and about $2.7 billion in loans10--to about
           2,800 projects. EDA, Reclamation, and the Corps provided a
           combined $500 million in grants to rural communities for about 300
           water supply and wastewater projects. Table 1 shows the number of
           projects and the amount of obligations for rural water supply and
           wastewater projects by agency for fiscal years 2004 through 2006.
           Figures 1 through 4 show the location of these rural water supply
           and wastewater projects by agency during fiscal years 2004 through
           2006.
			  
8Corps officials agreed to use the U.S. Census Bureau's density-based
urban and rural classification system to determine which Corps projects
were in rural areas. Using this approach, we determined for purposes of
this report, rural areas for Corps' projects include all nonurbanized
areas and urban clusters with populations of less than 20,000, as well as
certain areas in Nevada and Utah that the Congress defined as rural for
specific Corps projects.

9Obligations represent amounts for orders placed, contracts awarded,
services received, and similar transactions during a given period that
will require payments during the same or a future period. Obligations
differ from expenditures in that an expenditure is the issuance of a
check, disbursement of cash, or electronic transfer of funds made to
liquidate an obligation. Because, in some circumstances, expenditures made
during a specific fiscal year may fulfill an obligation during prior
years, obligations provide the best estimate of what an agency plans to
spend during a fiscal year.

10Since a high level of repayment is expected on these loans, the ultimate
cost to the federal government for these loans is significantly less than
the amount of the loans provided. Accordingly, $2.7 billion is higher than
the actual cost to the federal government.			  

Table 1: Number of Projects and Obligations for Rural Water Supply and
Wastewater Projects for Four Federal Agencies for Fiscal Years 2004
through 2006

Dollars in thousands                                                                     
                                              Grants                       Loans     
              Number                                                                 
                  of       Total                                                     
Agency      projects obligations  Number Obligations Average  Number Obligations Average
RUS            2,802  $4,154,651  2,117a  $1,439,681    $680  2,287a  $2,714,971  $1,187
EDA              142     153,505     142     153,505   1,081       b           b       b
Reclamation       11     240,185      11     240,185  21,835       b           b       b
Corps            149     118,519     149     118,519     795       b           b       b
Total          3,104  $4,666,860   2,419  $1,951,890    $807   2,287  $2,714,971  $1,187

Sources: GAO analysis of RUS, EDA, Reclamation, and Corps data.

aThe total number of grants and loans does not equal the total number of
projects because, in some cases, projects received a combination of both
grants and loans.

bData not applicable.

Figure 1: RUS Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006

Figure 2: EDA Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006

Figure 3: Reclamation Funded Rural Water Supply Projects, Fiscal Years
2004 through 2006

Figure 4: Corps Funded Rural Water Supply and Wastewater Projects, Fiscal
Years 2004 through 2006

RUS provided the majority of the funding to the largest number of
projects, while Reclamation provided the largest amount of funding per
project. As table 1 shows, the average RUS grant was approximately
$680,000 per project, while the average Reclamation grant was about $22
million per project. EDA and Corps grants averaged about $1 million and
$800,000 per project, respectively. The average Reclamation grant amount
was significantly larger than the grant amounts provided by the other
agencies because Reclamation provided funding to a relatively small number
of large regional water supply projects that span multiple communities.
For example, during fiscal years 2004 through 2006, Reclamation obligated
nearly $87 million of the about $459 million estimated total cost for the
Mni Wiconi project. This project will provide potable water to about
51,000 people in rural communities spanning seven counties and three
Indian Reservations. The Mni Wiconi project covers approximately 12,500
square miles of the state of South Dakota or roughly 16 percent of the
state's total land area. Figure 5 shows the location of the Mni Wiconi
project area.

Figure 5: Location of the Mni Wiconi Project, South Dakota

In contrast, the other three agencies primarily provided funding to
relatively smaller scale projects located in single communities. For
example, Penns Grove, New Jersey, a community with a population of about
5,000, received an $800,000 EDA grant to upgrade a wastewater treatment
plant with an estimated total project cost of $1.16 million. Similarly,
according to Corps officials, Monticello, Kentucky, a community with a
population of about 6,000, received about $312,500 from the Corps for two
sewer line extensions with total project costs of about $435,000. This
community also received about $1 million from RUS for water and sewer line
upgrades with an estimated total project cost of about $1.4 million.

Agencies Fund Similar Rural Water Supply and Wastewater Projects, but their
Eligibility Criteria Vary

While the types of projects RUS, EDA, Reclamation, and the Corps fund are
similar, varying agency eligibility criteria can limit funding to certain
communities based on their population size, economic need, or geographic
location. Specifically, RUS and EDA have established nationwide programs
with standardized eligibility criteria and processes under which
communities compete for funding. In contrast, Reclamation and the Corps
have historically provided funding to congressionally authorized projects
in certain geographic locations, without standardized eligibility
criteria. Table 2 shows the types of projects each agency funds, the
funding mechanisms they use, and their eligibility criteria.

Table 2: Type of Rural Water Projects, Funding Mechanisms, and Eligibility
Criteria of Four Federal Agencies

                                 Funding                 
             Type of project    mechanism                        Eligibility criteria
                                                            Project                                         
                                                         must serve                                 Project 
                                                          a city or                                    must 
                                            Project must  town with   Project area                  provide 
                                                    meet          a             is Project area    economic 
                                            standardized population geographically      must be development 
Federal      Water                              national  of 10,000  restricted by economically      in the 
agency      supply Waste-water  Grant Loan      criteria   or lessa        statute   distressed      region 
RUS              X           X      X    X             X          X                                         
EDA              X           X      X                  X                        Xb           Xc             
Corps            X           X     Xd                  X                                                    
Reclamation      X                  X                  X                                                    

Sources: GAO analysis of RUS, EDA, Reclamation, and Corps regulations and
program guidance.

aProject may also serve an unincorporated rural area, regardless of the
area's population.

bEDA defines an area as economically distressed if it meets one of the
following three conditions: (1) an unemployment rate that is at least 1
percent greater than the national average, (2) a per capita income that is
80 percent or less of the national average, or (3) has experienced or is
about to experience a special need arising from changes in economic
conditions.

cEconomic development consists of the creation or retention of higher
skilled, higher wage jobs and/or the attraction of private capital
investment.

dIn some cases, projects are funded through reimbursable payments from the
Corps for project costs already accrued.

RUS, EDA, Reclamation, and the Corps Fund Similar Rural Water Supply and
Wastewater Projects

The rural water projects that RUS, EDA, Reclamation, and the Corps fund
are similar, and all four agencies use similar funding mechanisms. While
Reclamation primarily provides funding for water supply projects, RUS,
EDA, and the Corps fund both water supply and wastewater projects. These
projects primarily include the construction or upgrading of water or
wastewater distribution lines, treatment plants, and pumping stations. For
example, all four agencies funded water line expansions or upgrades in
either residential or commercial areas. RUS, EDA, and the Corps also
funded sewer line extensions into either residential or commercial areas.

RUS and EDA Have Nationwide Water Supply and Wastewater Programs with Standard
Eligibility Criteria

RUS and EDA have established nationwide programs with standardized
eligibility criteria and processes under which communities compete for
funding. Specifically, RUS' eligibility criteria require projects to be
located in a city or town with a population of less than 10,000 or an
unincorporated rural area, regardless of the area's population. EDA's
eligibility criteria require projects to be located in economically
distressed communities, regardless of the size of the community served,
and the project must also create or retain jobs.

  RUS Only Provides Funding for Water Supply and Wastewater Projects Located in
  Rural Areas

RUS' eligibility criteria require water supply or wastewater projects to
serve rural areas. A project must be located in a city or town with a
population of less than 10,000 or in an unincorporated rural area
regardless of the population. For example, St. Gabriel, Louisiana, with a
population of about 6,600, received RUS funding to expand sewer lines to
connect residents to a wastewater treatment plant. Similarly, Laurel
County Water District No. 2, which provides potable water to about 17,000
residents who live in unincorporated rural areas of southeastern Kentucky
between the cities of London, Kentucky, and Corbin, Kentucky, received RUS
funding to upgrade a water treatment plant to accommodate potential growth
opportunities in the area. Table 3 provides the number of RUS funded rural
water supply and wastewater projects by state for fiscal years 2004
through 2006.

Table 3: Number of RUS Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006

                                                     Number of combined       
                  Number of rural Number of rural    rural water supply       
                     water supply      wastewater        and wastewater       
State                 projects        projects              projects Total 
Alabama                     38              16                     0    54 
Alaska                       1               2                     6     9 
Arizona                     18               6                     0    24 
Arkansas                    93              23                     7   123 
California                  47              31                     2    80 
Colorado                    15               4                     2    21 
Connecticut                  2               7                     0     9 
Delaware                     4               5                     0     9 
Florida                     13              10                     6    29 
Georgia                     12               8                     0    20 
Hawaii                       3               0                     0     3 
Idaho                       30              20                     4    54 
Illinois                    84              18                     4   106 
Indiana                     17              31                     2    50 
Iowa                        39              35                     0    74 
Kansas                      28              17                     1    46 
Kentucky                    76              28                     3   107 
Louisiana                   65              19                     0    84 
Maine                       30              35                     2    67 
Maryland                    14              14                     2    30 
Massachusetts               18              11                     0    29 
Michigan                    42              53                     0    95 
Minnesota                   16              34                    10    60 
Mississippi                 99              15                     6   120 
Missouri                    56              57                     4   117 
Montana                     22              12                     0    34 
Nebraska                    34              14                     1    49 
Nevada                      13              11                     0    24 
New Hampshire                9               6                     4    19 
New Jersey                   4              21                     2    27 
New Mexico                  47              17                     3    67 
New York                    93              41                     0   134 
North Carolina              40              23                     5    68 
North Dakota                31               5                     4    40 
Ohio                        19              46                     1    66 
Oklahoma                    29              24                     2    55 
Oregon                      16              15                     2    33 
Pennsylvania                10              48                     2    60 
Rhode Island                10               3                     1    14 
South Carolina              33              10                     7    50 
South Dakota                34              17                     6    57 
Tennessee                   90              24                     9   123 
Texas                      116              43                    12   171 
Utah                        21               4                     1    26 
Vermont                     13              11                     2    26 
Virginia                    27              28                     4    59 
Washington                  28              13                     5    46 
West Virginia               54              16                     2    72 
Wisconsin                   23              27                     1    51 
Wyoming                      7               3                     1    11 
Total                    1,683             981                   138 2,802 

Source: GAO analysis of RUS data.

To apply for RUS funding for a water supply or wastewater project, a
community must submit a formal application. Once the formal application is
submitted, communities then compete for funding with other projects
throughout the state. In general, RUS officials in the state office rank
each proposed project according to the project's ability to alleviate a
public health issue, the community's median household income, and other
factors. As applications are reviewed and ranked on a rolling basis, RUS
officials in the state office generally decide which projects will receive
funding until all funds are obligated for the fiscal year.

RUS provides both grants and loans for eligible projects, and communities
must meet certain requirements depending upon the type of assistance they
are requesting. For example, RUS grants can be used to finance up to 75
percent of a project's cost based on a number of factors including a
community's financial need and median household income. Alternatively, to
receive a loan, the community must certify in writing, and RUS must
determine, that the community is unable to finance the proposed project
from their own resources or through commercial credit at reasonable rates
and terms. For projects also funded through RUS loans, RUS requires the
community to charge user fees that, at a minimum, cover the costs of
operating and maintaining the water system while also meeting the required
principal and interest payments on the loan. For example, RUS provided the
Wood Creek Water District, located in Laurel County, Kentucky, a $1
million grant and a $7.98 million loan for a major water treatment plant
expansion. A Wood Creek official told us that the water district had
attempted to obtain a loan from a commercial lender; however, the loan
would have had an interest rate of 7 percent and a term of 20 years, which
would have rendered the project financially unfeasible. According to RUS,
Wood Creek was able to receive a loan with an interest rate of 4.3 percent
and a term of 40 years, thereby significantly reducing the annual loan
payments. RUS also required Wood Creek to slightly increase its user fees
to support the operation and maintenance of the water system and cover the
loan repayment.

  EDA Provides Funding to Projects in Areas Experiencing Economic Distress

EDA's eligibility criteria require water supply or wastewater projects to
be located in an economically distressed area, regardless of the area's
population size. EDA defines an area as economically distressed if it
meets one of the following three conditions: the area has (1) an
unemployment rate that is at least 1 percent greater than the national
average, (2) a per capita income that is 80 percent or less of the
national average, or (3) has experienced or is about to experience a
special need arising from changes in economic conditions. The project must
also create or retain long-term private sector jobs and/or attract private
capital investment. For example, Assumption Parish Waterworks District
No.1 in Napoleonville, Louisiana, received EDA funding to upgrade water
service to two sugarcane mills. The community qualified for the funding
because Assumption Parish met EDA's criteria for unemployment and per
capita income. The water supply project allowed the sugarcane mills to
maintain and expand their operations, saving 200 existing jobs, creating
17 new jobs, and attracting $12.5 million in private investment. Table 4
provides the number of EDA funded rural water supply and wastewater
projects by state for fiscal years 2004 through 2006.

Table 4: Number of EDA Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006

                                                     Number of combined       
                  Number of rural Number of rural    rural water supply       
                     water supply      wastewater        and wastewater       
State                 projects        projects              projects Total 
Alabama                      4               1                     4     9 
Alaska                       0               0                     1     1 
Arkansas                     0               1                     3     4 
California                   2               1                     0     3 
Colorado                     0               1                     0     1 
Florida                      1               0                     0     1 
Georgia                      0               4                     2     6 
Idaho                        0               0                     2     2 
Illinois                     3               1                     0     4 
Indiana                      1               2                     1     4 
Iowa                         3               0                     0     3 
Kansas                       0               0                     1     1 
Kentucky                     2               2                     4     8 
Louisiana                    1               2                     1     4 
Maine                        0               1                     0     1 
Michigan                     1               0                     2     3 
Minnesota                    0               3                     1     4 
Mississippi                  2               0                     2     4 
Missouri                     1               0                     1     2 
Montana                      2               0                     0     2 
Nebraska                     4               0                     0     4 
Nevada                       0               1                     0     1 
New Jersey                   1               1                     0     2 
New Mexico                   0               0                     1     1 
New York                     1               1                     1     3 
North Carolina               4               4                     1     9 
North Dakota                 0               0                     1     1 
Ohio                         0               1                     3     4 
Oklahoma                     1               0                     2     3 
Oregon                       1               0                     0     1 
Pennsylvania                 1               3                     1     5 
South Carolina               2               3                     1     6 
South Dakota                 1               1                     0     2 
Tennessee                    2               6                     0     8 
Texas                        2               0                     3     5 
Utah                         0               0                     2     2 
Vermont                      0               1                     0     1 
Virginia                     1               1                     0     2 
Washington                   1               1                     0     2 
West Virginia                3               1                     5     9 
Wisconsin                    0               0                     4     4 
Total                       48              44                    50   142 

Source: GAO analysis of EDA data.

To apply for EDA funding for a water supply or wastewater project, the
community must submit a preapplication to an EDA Regional Office. If the
proposed project is found eligible, the community must then submit a
formal application to an EDA Regional Office. The Regional Office then
prioritizes and makes funding decisions that are forwarded to EDA
headquarters for approval. These decisions are based upon, among other
things, how the project promotes innovative, entrepreneurial, or long-term
economic development efforts. EDA applications are reviewed on a rolling
basis, and funding decisions are made until all of the funds for the
fiscal year are obligated.

EDA provides grants for eligible projects that may finance 50 to 100
percent of a project's total costs based on a number of factors including
an area's level of economic distress. For example, the London-Laurel
County Industrial Development Authority located in Laurel County,
Kentucky, qualified for an EDA grant because the county has a per capita
income of $14,165, which is 66 percent of the national average. Because
Laurel County's per capita income was between 60 to 70 percent of the
national average, EDA's grant could fund no more than 60 percent of the
project's total cost. The project received a $950,000 grant, which covered
50 percent of the $1.9 million total project cost to construct water and
sewer line extensions for an industrial park. The new occupants of this
industrial park were expecting to create 425 new jobs and provide $20.9
million in private investment.

Reclamation and the Corps Provide Congressionally Directed Funding for Specific
Projects, without Standard Eligibility Criteria

Reclamation and the Corps have not historically had rural water supply and
wastewater programs; rather they have provided funding to specific
projects or programs in certain geographic locations under explicit
congressional authorizations. Although the Corps continues to provide
assistance to projects under specific congressional authorizations, many
of which are pilot programs, the Rural Water Supply Act of 200611 directed
Reclamation to establish a rural water supply program with standardized
eligibility criteria.

  Reclamation Funds Specific Congressionally Authorized Projects and Is Also
  Establishing a Rural Water Supply Program

Reclamation provides grants to individual rural water supply projects in
eligible communities for which the Congress has specifically authorized
and appropriated funds. These grants finance varying amounts of a
project's total costs depending upon the specific authorization. According
to a program assessment conducted by the Office of Management and Budget
(OMB), the Congress has chosen Reclamation to fill a void for projects
that are larger and more complex than other rural water projects and which
do not meet the criteria of other rural water programs. For example, the
Mni Wiconi Project Act of 1988, as amended, directs Reclamation to provide
funding to three Indian tribes and seven counties for a rural water supply
project in South Dakota that encompasses 16 percent of state's total land
area. For the Mni Wiconi project, Reclamation grants provide funding for
100 percent of the project costs on Indian lands and 80 percent of the
project costs on non-Indian lands. Table 5 provides the number of
Reclamation funded rural water supply projects by state for fiscal years
2004 through 2006.

Table 5: Number of Reclamation Funded Rural Water Supply Projects by
State, Fiscal Years 2004 through 2006

Dollars in thousands                                                       
State                Number of rural water supply projects Funds obligated 
Montana                                                  2         $33,197 
Nebraska                                                 1             213 
New Mexico                                               3           2,053 
North Dakota                                             1          35,510 
South Dakota                                            4a         169,212 
Total                                                   11        $240,185 

Source: GAO analysis of Reclamation data.

aOne of the four rural water supply projects located in South Dakota is
also located in portions of southwestern Minnesota and northwestern Iowa.

11Pub. L. No. 109-451 (Dec. 22, 2006).

While rural water supply projects are outside of Reclamation's traditional
mission, according to Reclamation officials, the agency became involved in
such projects because individual communities or groups of communities
proposed projects directly to the Congress. In response, the Congress
created specific authorizations for these rural water supply projects, and
Reclamation was designated responsibility for funding and overseeing the
construction of the projects. Because Reclamation is responding to
Congressional direction in implementing these projects, it has not
established eligibility criteria for communities or prioritized these
projects for funding. In a May 11, 2005 testimony, the Commissioner of the
Bureau of Reclamation indicated that the agency would like more authority
to plan and oversee the development and construction of rural water supply
projects.

In 2006, the Congress passed the Rural Water Supply Act directing
Reclamation to develop a rural water supply program. Within 1 year,
Reclamation was required to develop standardized criteria to determine
eligibility requirements for rural communities and prioritize funding
requests under this program. Further, the act directed Reclamation to
assess within 2 years how the rural water supply projects funded by
Reclamation will complement those being funded by other federal agencies.
Reclamation is now beginning to address these requirements, including: (1)
developing programmatic criteria to determine eligibility for
participation and (2) assessing the status of authorized rural water
supply projects and other federal programs that address rural water supply
issues. According to a Reclamation official, the agency plans to complete
these requirements by August 2008 and December 2008, respectively.
Reclamation officials also said the development of a rural water supply
program will, among other things, allow Reclamation to be directly
involved in the planning, design, and prioritization of rural water supply
projects and provide recommendations to the Congress regarding which
projects should be funded for construction. Projects recommended for
funding by Reclamation must still receive a specific congressional
authorization for design and construction.

  The Corps Funds Congressionally Authorized Projects, Usually through Pilot
  Programs

The Corps funds rural water supply and wastewater projects under specific
congressional authorizations, many of which are pilot programs, and makes
funding available to specific communities or programs in certain
geographic areas. For example, a section of the Water Resources
Development Act of 1999, as amended, authorized a pilot program that
directed the Corps to provide funding to water supply and wastewater
projects to communities in Idaho, Montana, rural Nevada, New Mexico, and
rural Utah. When directed to fund these types of projects, the Corps
provides either grants or reimbursements for project costs incurred by the
community. To receive reimbursements, a community submits invoices
received from its contractors to the Corps, and the Corps generally
reimburses the community up to 75 percent of project costs. Table 6
provides the number of Corps funded rural water supply and wastewater
projects by state for fiscal years 2004 through 2006.

Table 6: Number of Corps Funded Rural Water Supply and Wastewater Projects
by State, Fiscal Years 2004 through 2006

                                                     Number of combined       
                  Number of rural Number of rural    rural water supply       
                     water supply      wastewater        and wastewater       
State                 projects        projects              projects Total 
Arkansas                     1               0                     0     1 
California                   3               1                     1     5 
Idaho                        2               5                     0     7 
Kentucky                     0              14                     0    14 
Louisiana                    0               0                     2     2 
Michigan                     0               6                     0     6 
Minnesota                    3               6                     0     9 
Mississippi                  2               8                     2    12 
Montana                      2               2                     0     4 
Nevada                       4              12                     0    16 
New Mexico                   3               5                     2    10 
New York                     0               3                     0     3 
North Carolina               0               2                     0     2 
Ohio                         7              10                     1    18 
Pennsylvania                 6               8                     4    18 
Tennessee                    1               0                     0     1 
Utah                         5               4                     1    10 
West Virginia                0               7                     0     7 
Wisconsin                    2               2                     0     4 
Total                       41              95                    13   149 

Source: GAO analysis of Corps data.

Even though the Corps provides congressionally directed funding to
specific geographic areas through these pilot programs, eligibility
criteria and the degree to which projects compete for funding can differ
between programs. For example, the Corps' Southern and Eastern Kentucky
Environmental Improvement Program is available only to communities located
in 29 counties in southeastern Kentucky. The program requires these
communities to submit formal applications, which are prioritized and
ranked annually against all received applications. The Corps, in
conjunction with a nonprofit organization, selects projects for funding
based on certain factors such as economic need. For example, the Wood
Creek Water District submitted a formal application and received
approximately $500,000 in reimbursements--about 72 percent of the total
project costs--to extend sewer service to a school and 154 households who
live near the school. In contrast, the Corps' Rural Utah Program is
available to communities in 24 counties and part of another county that
the Congress designated as rural. This program requires communities in
these counties to submit a request letter that includes, among other
things, a brief project description and an estimate of total project
costs. Request letters are considered for funding on a rolling basis by
Corps officials, and no other formal eligibility criteria exist. For
example, Park City, Utah, submitted a letter that provided a project
description and the estimated total cost for the project. According to a
Corps official, the Corps evaluated the letter and provided approximately
$300,000 in reimbursements--or about 60 percent of the total project
costs--for the replacement of water and sewer lines in Park City's Old
Town area.

While the Corps funds projects carried out under these pilot programs as
directed by the Congress, it does not request funds for them as part of
its annual budget process because, according to Corps officials, these
types of projects fall outside the Corps' primary mission of navigation,
flood control, and ecosystem restoration. This position was reiterated in
a May 11, 2007, policy document released by OMB, which stated that funding
of such local water supply and wastewater projects is outside of the
Corps' mission, costs taxpayers hundreds of millions of dollars, and
diverts funds from more meritorious Corps Civil Works projects.

When the Congress authorized the Corps to fund these various pilot
programs, it also required the agency to evaluate the effectiveness of
several of them and recommend to the Congress whether these pilot programs
should be implemented on a national basis. The Corps has completed 9 of
the 12 required evaluations. Of the completed evaluations, only four made
recommendations--all in favor of the establishment of a national program.
The other five evaluations either did not make the required recommendation
or stated that the agency had not yet funded enough projects to
effectively evaluate the program. However, we found that between fiscal
years 2004 and 2006, the Corps provided funding to over 100 rural water
supply and wastewater projects under pilot programs, and it is unclear why
the Corps has still not completed all of the evaluations required by the
Congress. In the absence of the outstanding evaluations and
recommendations, the Congress does not have information on whether,
collectively, the projects carried out under the Corps' pilot programs
merit continued funding, duplicate other agency efforts, or should be
implemented on a national basis.

Conclusions

The Congress has determined that RUS, EDA, and now Reclamation should
provide funding for rural water projects as part of their overall missions
and target federal assistance to certain communities based on their
population size, economic need, or geographic location. However, for the
Corps, the Congress has not yet determined whether funding of rural water
supply projects should permanently be included within the agency's water
portfolio. To help inform congressional decision making on this issue, the
Corps was required to evaluate its various water supply and wastewater
pilot programs and recommend to the Congress whether these programs should
be continued. However, the Corps has not consistently provided the
information required by the Congress even though it has completed over 100
rural water projects under various pilot programs. As a result, the
Congress does not have the information it needs to determine whether the
Corps' projects meet a previously unmet rural water need or duplicate the
efforts of other agencies. Such information is important for making
decisions on how to allocate limited federal resources in a time when the
nation continues to face long-term fiscal challenges.

Recommendation for Executive Action

To ensure that the Congress has the information it needs to determine
whether the Corps should continue to fund rural water supply and
wastewater projects, we recommend that the Secretary of Defense direct the
Commanding General and the Chief of Engineers of the U.S. Army Corps of
Engineers to provide a comprehensive report on the water supply and
wastewater projects that the Corps has funded under its pilot programs and
determine whether these pilot programs duplicate other agency efforts and
should be discontinued, or whether these pilot programs address an unmet
need and should be expanded and made permanent at a national level.

Agency Comments and Our Evaluation

We provided the Departments of Agriculture, Commerce, Defense, and the
Interior with a draft of this report for review and comment. The
Department of Defense concurred with GAO's findings and recommendation,
and its written comments are included in appendix III. The Department of
the Interior also agreed with GAO's findings, and its written comments are
included in appendix IV. The Departments of Agriculture and Commerce
provided us with technical comments, which we have incorporated throughout
the report, as appropriate.

We will send copies of this report to interested congressional committees;
the Secretaries of Agriculture, Commerce, Defense, and the Interior; and
other interested parties. We will also 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 staff has any questions about this report, please contact
me at (202) 512-3841, or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix V.

Sincerely yours,

Anu K. Mittal
Director, Natural Resources and Environment

Appendix I: Scope and Methodology

To determine how much federal funding the U.S. Department of Agriculture's
Rural Utilities Service (RUS), the Department of Commerce's Economic
Development Administration (EDA), the Department of the Interior's Bureau
of Reclamation (Reclamation), and the U.S. Army Corps of Engineers (Corps)
obligated for rural water supply and wastewater projects for fiscal years
2004 through 2006, we collected and analyzed obligation and project
location data submitted by each agency. We determined that the data were
sufficiently reliable for the purposes of this report. To identify water
supply and wastewater projects that were located in rural areas, we
applied the definition of rural used by RUS, EDA, and Reclamation to the
geographic location each agency provided for its water supply and
wastewater projects.1 Because the Corps does not have a definition for
rural areas, we asked the Corps to use the U.S. Census Bureau's
density-based urban and rural classification system to identify projects
that it funds in rural areas. This classification system divides
geographical areas into urban areas, urban clusters, and nonurban areas
and clusters. Using this information, we determined that Corps funded
water supply and wastewater projects were in rural areas if they were
located in: (1) any nonurban areas or clusters, (2) urban clusters with a
population of less than 20,000, and (3) areas of Nevada and Utah that the
Congress specifically defined as rural in the Water Resources Development
Act of 1999, as amended. Table 7 provides the definition of rural area
used by each agency for water supply and wastewater projects.

1The federal government has not established a formal or consistent
definition of what constitutes a "rural" area. The term "rural" is defined
differently by the Congress and each federal agency according to agency
guidelines and individual project or program authorizations. Depending on
the agency, rural areas may be defined as ranging from less than 2,500 to
less than 50,000 persons.

Table 7: Agencies' Definitions of Rural Area

Agency      Definition of rural area                                       
RUS         Rural areas include incorporated cities and towns with a       
               population of 10,000 or fewer and unincorporated areas,        
               regardless of population.                                      
EDA         Rural areas include areas the U.S. Census Bureau designates as 
               rural that are within or outside of a metropolitan statistical 
               area.a                                                         
Reclamation Rural areas include a community, or group of communities, each 
               of which has a population of not more than 50,000              
               inhabitants.b                                                  
Corps       The Corps does not define rural areas.c                        

Sources: RUS, EDA, Reclamation, and the Corps.

aMetropolitan statistical areas are based on county-level data with
central cities of at least 50,000 residents and surrounding contiguous
counties that are metropolitan in character and economically tied to the
core counties. Rural areas may be within or outside such areas.

bReclamation's definition of a rural area was established by Pub. L. No.
109-451 (Dec. 22, 2006).

cCorps officials agreed to use the U.S. Census Bureau's density-based
urban and rural classification system to determine which Corps projects
were in rural areas. Using this approach, we determined for purposes of
this report, rural areas for Corps projects include all nonurbanized areas
and urban clusters with populations of less than 20,000, as well as areas
in Nevada and Utah that the Congress specifically defined as rural for
Corps projects.

To determine the extent to which each RUS, EDA, Reclamation, and the Corps
eligibility criteria and the projects they fund differed, we reviewed and
analyzed applicable statutes, agency regulations, and policy guidance. In
addition, we used a nonprobability sample to select 16 rural water supply
and wastewater projects, including at least one project funded by each of
the four agencies, and conducted site visits to each of the selected
projects. These projects were selected based upon project type (water
supply or wastewater), geographic location, type of assistance (loan,
grant, or a combination of these) and the federal agency funding the
project. During the site visits, we interviewed local officials from the
communities receiving funding and federal agency officials responsible for
managing the funding of those projects. We also collected and analyzed
project-specific documentation such as applications and letters of intent.
Table 8 lists the 16 projects we selected for site visits and the type of
project, location, type of assistance, and funding agency(ies) for each
project.

Table 8: Rural Water Supply and Wastewater Projects Selected for GAO Site
Visits

                                        Project      Type of      Funding     
Project name            Project type location     assistancea  agencyb     
Ascension Parish        Water supply Ascension    Grant        Corps       
Environmental           and          Parish, La.                           
Infrastructure          wastewater                                         
Assumption Parish Water Water supply Assumption   Grant        EDA         
Works District No. 1                 Parish, La.                           
Water System                                                               
Improvements                                                               
Bluffdale Water Storage Water supply Bluffdale    Loan         RUS         
                                        City, Utah                            
Jamestown Water         Water supply Jamestown,   Grant        EDA         
Treatment Plant Upgrade              Ky.                                   
                                                     Loan and     RUS         
                                                     grant                    
Laurel County Water     Water supply Laurel       Loan and     RUS         
District No. 2, Water                County, Ky.  grant                    
Treatment Plant                                                            
Expansion                                                                  
London-Laurel County    Water supply London, Ky.  Grant        EDA         
Industrial Development  and                                                
Authority No. 2 Water   wastewater                                         
and Sewer Line                                                             
Extensions                                                                 
Wood Creek Water        Water supply London, Ky.  Grant        EDA         
District Water                                                             
Treatment Plant                                   Loan and     RUS         
Expansion                                         grant                    
Wood Creek Water        Wastewater   London, Ky.  Grant        Corps       
District Sewer Line                                                        
Extension                                                                  
College St. Sewer Line  Wastewater   Monticello,  Grant        Corps       
Extension                            Ky.                                   
Downtown Water and      Water supply Monticello,  Loan and     RUS         
Sewer Line Replacement  and          Ky.          grant                    
                           wastewater                                         
Webster St. Sewer Line  Wastewater   Monticello,  Grant        Corps       
Extension                            Ky.                                   
Park City Municipal     Water supply Park City,   Grant        Corps       
Corporation Prospect    and          Utah                                  
Avenue Water and Sewer  wastewater                                         
Line Replacement                                                           
Project                                                                    
Penns Grove Wastewater  Wastewater   Penns Grove, Grant        EDA         
Treatment Plant Upgrade              N.J.                                  
Snyderville Basin Water Water supply Park City,   Grant        Corps       
Supply Master Plan                   Utah                                  
Mni Wiconi Rural Water  Water supply S. Dak.      Grant        Reclamation 
Supply Project                                                             
St. Gabriel Wastewater  Wastewater   St. Gabriel, Loan and     RUS         
Treatment Sewer Line                 La.          grant                    
Extension                                                                  

Source: GAO.

aIn some cases, Corps projects are funded through reimbursable payments
from the Corps for project costs already accrued.

bIn some instances, rural communities may be eligible to receive funding
from multiple agencies. As a result, RUS and EDA signed a memorandum of
understanding regarding projects that qualify for both EDA and RUS
funding. For example, if EDA decides to provide a grant to a RUS funded
project, EDA transfers those funds to RUS which then administers and
distributes them.

To determine the overhead costs and number of personnel needed to support
rural water supply and wastewater projects, we collected and analyzed
agency policy guidance and interviewed agency officials to determine the
extent to which RUS, EDA, Reclamation, and the Corps tracks these data for
rural water supply and wastewater projects. We also requested these data
from each agency to the extent they could provide them to us.

We conducted our work from September 2006 through August 2007 in
accordance with generally accepted auditing standards.

Appendix II: Agency Overhead Cost Information, Fiscal Years 2004
through 2006

The U.S. Department of Agriculture's Rural Utilities Service (RUS), the
Department of Commerce's Economic Development Administration (EDA), the
Department of the Interior's Bureau of Reclamation (Reclamation), and the
U.S. Army Corps of Engineers (Corps) each calculate their overhead costs,
commonly referred to as general and administrative (G&A) costs,1 and the
number of personnel needed to manage rural water supply and wastewater
projects, referred to as full-time equivalents (FTE),2 differently. This
appendix describes how each agency calculates these costs for rural water
supply and wastewater projects.

RUS and EDA

RUS and EDA each receive separate appropriations to fund their agencywide
G&A costs. These agencies do not track these costs or FTEs on a
project-by-project basis. Therefore, we were unable to calculate each
agencies total G&A costs and total FTEs by rural water supply and
wastewater project.

Reclamation

Reclamation divides water supply project costs into two categories, direct
costs and indirect costs.3 According to Reclamation, if all activities are
correctly and consistently charged, then all activities assigned to
indirect costs can be considered overhead costs for a project. Although a
standard formula is used to determine indirect cost rates, which are
applied as a percentage of labor, Reclamation officials stated that the
rates may vary by area office and region depending primarily on the amount
of costs that can be charged directly to a project. Furthermore, according
to documentation provided by Reclamation officials, these indirect cost
rates were updated each fiscal year. As can be seen in table 9,
Reclamation provided the following indirect costs and FTE estimates for
the 11 rural water projects for which Reclamation obligated funds for
fiscal years 2004 through 2006.

1G&A costs typically cover items such as office supplies, buildings,
equipment, and personnel expenses.

2An FTE reflects the total number of regular straight-time hours (i.e.,
not including overtime or holiday hours) worked by employees divided by
the number of compensable hours applicable to each fiscal year. Annual
leave, sick leave, and compensatory time off and other approved leave
categories are considered to be "hours worked" for purposes of defining
FTE employment.

3Direct costs include all costs that can be specifically and readily
identified with an output such as a vehicle being used solely by an
employee on a specific project. Indirect costs include costs that are
jointly or commonly used to produce two or more outputs and typically
include overhead costs such as a secretary whose job is to provide support
to an area office in which there are a variety of projects and programs.

Table 9: Total Obligations, Indirect Obligations, and FTEs for
Reclamation's 11 Rural Water Supply Projects, Fiscal Years 2004 through
2006

Dollars in                                                                 
thousands                                                                  
                     Total      Indirect          Percentage of indirect      
Fiscal year obligations  obligationsa                     obligations FTEs 
2004            $77,237        $1,194                            1.5%   27 
2005            $81,077        $1,253                            1.5%   26 
2006            $81,871        $1,147                            1.4%   25 

Source: GAO analysis of Reclamation data.

aIndirect obligations is the term used by Reclamation to indicate
obligations made for indirect project costs.

Corps

The Corps' G&A costs for its headquarters and divisions are funded through
a general expenses appropriation. G&A costs at the district level are
distributed to projects and programs through the use of predetermined
rates established by the district Commander at the beginning of each
fiscal year and are automatically distributed to specific projects or
programs based on the direct labor charged to the projects or programs.

There are two types of overhead costs charged by the districts, general
and administrative overhead and departmental overhead. General and
administrative overhead includes administrative and support costs incurred
in the day-to-day operations of a district. Departmental overhead includes
costs incurred within technical divisions at the district headquarters
that are not attributable to a specific project or program. While a
standard formula is used to determine overhead rates, these rates may vary
by district depending on a variety of factors including, geographic
location--an office in a high cost area will cost more to operate than a
similar office in a rural area, and composition of the workforce--an
office staffed by senior-level employees will cost more to operate than an
office staffed by junior-level employees.

The Corps G&A costs and FTE data for its water supply and wastewater
projects are calculated at the program level and cover projects in both
rural and urban areas. The Corps could not readily provide these data for
obligations on a rural water supply and wastewater project basis.

Appendix III: Comments from the Department of Defense

Appendix IV: Comments from the Department of the Interior

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Anu K. Mittal, (202) 512-3841, [email protected]

Staff Acknowledgments

In addition to the individual named above, Ed Zadjura, Assistant Director;
Patrick Bernard; Diana Goody; John Mingus; Lynn Musser; Alison O'Neill;
Matthew Reinhart; and Barbara R. Timmerman made significant contributions
to this report.

(360754)

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[33]www.gao.gov/cgi-bin/getrpt?GAO-07-1094 .

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Highlights of [34]GAO-07-1094 , a report to the Honorable Gordon Smith,
U.S. Senate

September 2007

WATER RESOURCES

Four Federal Agencies Provide Funding for Rural Water Supply and
Wastewater Projects

Rural areas generally lack adequate funds for constructing and upgrading
water supply and wastewater treatment facilities. As a result, they
typically rely on federal grants and loans, primarily from the Rural
Utilities Service (RUS), Economic Development Administration (EDA), Bureau
of Reclamation (Reclamation), and the U.S. Army Corps of Engineers
(Corps), to fund these projects. Concern has been raised about potential
overlap between the projects these agencies fund. For fiscal years 2004
through 2006 GAO determined the (1) amount of funding these agencies
obligated for rural water projects and (2) extent to which each agency's
eligibility criteria and the projects they fund differed.

GAO analyzed each agency's financial data and reviewed applicable
statutes, regulations, and policies.

[35]What GAO Recommends

GAO recommends actions to ensure that the Congress has adequate
information to determine whether rural water supply and wastewater
projects that the Corps funds merit continued funding or duplicate other
agency efforts.

In its comments on a draft of this report, the Department of Defense
concurred with GAO's findings and recommendation. The Departments of
Agriculture, Commerce, and the Interior also agreed with GAO's findings.

From fiscal years 2004 through 2006, RUS, EDA, Reclamation, and the Corps
obligated nearly $4.7 billion to about 3,100 rural water supply and
wastewater projects. RUS obligated the majority of these funds--about $4.2
billion--to about 2,800 projects. Of this $4.2 billion, RUS loans
accounted for about $2.7 billion, and RUS grants accounted for about $1.5
billion. EDA, Reclamation, and the Corps, combined, obligated a total of
about

$500 million in grants to rural communities for about 300 water projects.

Percentage of Rural Water Supply and Wastewater Projects and Funds
Obligated by RUS, EDA, Reclamation, and the Corps, Fiscal Years 2004
through 2006

Note: Numbers may not add to 100 percent due to rounding.

RUS, EDA, Reclamation, and the Corps fund similar rural water supply and
wastewater projects, but they have varied eligibility criteria that limit
funding to certain communities based on population size, economic need, or
geographic location. RUS, EDA, and the Corps provide funding for both
water supply and wastewater projects, while Reclamation provides funding
only for water supply projects. Eligible water projects can include
constructing or upgrading distribution lines, treatment plants, and
pumping stations. RUS and EDA have formal nationwide programs with
standardized eligibility criteria and processes under which communities
compete for funding. In contrast, Reclamation and the Corps fund water
projects in defined geographic locations under explicit congressional
authorizations. In 2006 the Congress passed the Rural Water Supply Act,
directing Reclamation to develop a rural water supply program with
standard eligibility criteria. The Corps continues to fund rural water
supply and wastewater projects under specific congressional
authorizations, many of which are pilot programs. The Congress required
the Corps to evaluate the effectiveness of these various pilot programs
and recommend whether they should be implemented on a national basis. The
Corps has only completed some of the required evaluations and, in most
cases, has not made the recommendations that the Congress requested about
whether or not the projects carried out under these pilot programs should
be implemented on a national basis.

References

Visible links
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-253
  27. http://www.gao.gov/
  28. http://www.gao.gov/
  29. http://www.gao.gov/fraudnet/fraudnet.htm
  30. mailto:[email protected]
  31. mailto:[email protected]
  32. mailto:[email protected]
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1094
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1094
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