[Final Audit Report on Followup of Recommendations Concerning the Valuation of Project Facilities Proposed for Sale, Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 96-I-1026

Title: Final Audit Report on Followup of Recommendations Concerning
       the Valuation of Project Facilities Proposed for Sale,
       Bureau of Reclamation

Date: July 29, 1996

                  **********DISCLAIMER**********

This file contains an ASCII representation of an OIG report.  No attempt has been made to display
graphic images or illustrations.  Some tables may be included, but may not resemble those in the
printed version.

A printed copy of this report may be obtained by referring to the PDF file or by calling the Office
of Inspector General, Logistical Services Branch at (202) 219-3840.
                  ******************************

United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL

Washington, D.C. 20240

MEMORANDUM

TO:                 The Secretary

FROM:               Wilma A. Lewis
                    Inspector General

SUBJECT SUMMARY:    Final Audit Report for Your Information - "Followup of
                    Recommendations Concerning the Valuation of Project Facilities
                    Proposed for Sale, Bureau of Reclamation" (No. 96-I-1026)

Attached for your information is a copy of the subject final audit report. The objective of the
followup review was to determine whether the Bureau of Reclamation had satisfactorily
implemented the recommendations in our 1991 audit report "Valuation of Project Facilities
Proposed for Sale, Bureau of Reclamation" (No. 91-I-822).

We concluded that the Bureau of Reclamation had made considerable progress in
implementing the three recommendations contained in our prior audit report in that it issued
a framework policy for the title transfer of facilities proposed for sale. We also noted issues
taxpayers. Specifically, we found that the framework policy did not fully address the title
transfer of complicated projects and did not require the development of a range of valuation
methods to determine the fair value of projects. In addition, we noted that non-Federal
entities interested in acquiring facilities continued to present, directly to the Congress, sales
legislation that was not in compliance with Bureau policy or that did not protect the interests
of project beneficiaries and the general taxpayers. By expanding the framework policy to
address these issues, the Bureau should enhance its ability to complete its plans to transfer
the ownership of projects and facilities at a fair return and protect the interests of the
taxpayers.

Since the Bureau had implemented or partially implemented the prior report's
recommendations, we made no additional recommendations, and therefore no response to
the report was required.

If you have any questions concerning this matter, please contact me or Mr. Robert J.
Williams, Acting Assistant Inspector General for Audits, at (202) 208-5745.

Attachment


W-IN-BOR-O02-96

United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington,  D.C. 20240

AUDIT REPORT

Memorandum

To:     Assistant Secretary for Water and Science

Subject:   Final Audit Report on Followup of Recommendations Concerning the
Valuation of Project Facilities Proposed for Sale, Bureau of  Reclamation (No. 96-I-1026)

INTRODUCTION

This report presents the results of our followup review of recommendations
contained in our May 1991 audit report "Valuation of Project Facilities Proposed for
Sale, Bureau of Reclamation" (No. 91-I-822). The status of the recommendations
and corrective actions is in Appendix 1. The objective of the followup review was
to determine whether the Bureau  had satisfactorily implemented the
recommendations in our 1991 audit report and whether any new recommendations
were warranted.

BACKGROUND

Since 1902, the Bureau has built a sizeable infrastructure of 238 water resource
projects and related facilities throughout 17 western states. Currently, the Bureau
holds title to 343 storage dams and reservoirs, 58 hydroelectric powerplants, and
54,550 miles of canals and other water conveyance and distribution facilities.
According to the Bureau's financial records, the Federal investment in these projects,
including construction work in progress, totaled about $20 billion as of September
30, 1994.

The sale or transfer of water projects to non-Federal water user organizations has
been proposed or contemplated since the early 1980s. According to Bureau officials,
some of the Bureau's projects represent valuable resources for local entities, while
others represent a continuing liability for Federal taxpayers. In September 1993, the
President and the Vice President released the National Performance Review report,
which proposed ways of increasing the efficiency and cost effectiveness of the Federal
Government. The first phase of the National Performance Review concentrated on
creating a Government that works better and costs less. In the second phase of the

 
Review, which was initiated in December 1994, agencies were requested to identify
Governmental functions that could be better administered by states, communities,
and private entities. As part of this second phase, the Bureau had undertaken a
program to transfer, to non-Federal entities, the titles of facilities that were not of
national importance and that could be managed efficiently and effectively by the non-
Federal entities. As of January 30, 1996, the Bureau had identified 42 projects or
facilities in which non-Federal entities had expressed interest in title transfer. In
addition to the Bureau's title transfer program, four bills were introduced in the
Congress during 1995 that proposed the sale of 13 Bureau projects (see Appendices
2 and 3). Also introduced was a Reclamation Facilities Transfer Act bill, which
directed the Secretary of the Interior to transfer all rights, title, and interests in a
project without consideration and at no cost to the beneficiary.

SCOPE OF AUDIT

The scope of our followup audit was limited to reviewing: (1) the Bureau's
implementation of the recommendations made in the May 1991 report and (2)
actions taken by the Bureau on sales legislation introduced in the Congress during
1994 and 1995. To accomplish our objective, we reviewed existing and pending
Congressional legislation and related House hearings on the title transfer of Bureau
projects; public laws and legal opinions; Office of Management and Budget circulars
and Departmental and Bureau policies and guidelines; and draft documents and
records pertaining to title transfer of Federal projects to non-Federal entities. We
also interviewed Bureau officials, including members of the Bureau's task force
teams who studied issues related to the title transfer of Bureau water projects.

In performing the audit, we visited or contacted the Bureau offices listed in
Appendix 4.  The review was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller General of the United
States. Accordingly, we included such tests of records and other auditing procedures
that were considered necessary under the circumstances. Because of the limited
scope and objective of our review, we reviewed internal controls only to the extent
that they affected corrective actions taken on the recommendations. We also
reviewed the Department's Annual Statement and Report, as required by the Federal
Managers' Financial Integrity Act, for fiscal years 1994 and 1995 and determined that
none of the reported weaknesses were directly related to the objective and scope of
our audit.

PRIOR AUDIT COVERAGE

Our prior audit concluded that the legislative proposals for the sale of the Solano
Project and the Sly Park Unit in California did not permit the Government to
recover fair market value for the facilities. The report noted that the proposed sales
prices, which totaled $33 million, were below what the facilities were worth, since the

2

 
proposed sales prices did not recognize from $30 million to $114 million of Federal
interest subsidies. The report also stated that while there were no specific criteria
that related directly to the sale of Federal water facilities, the Federal Property and
Administrative Services Act of 1949, as amended, and Office of Management and
Budget Circular A-25, "User Charges," provided that Government agencies should
obtain fair market value from the sale of real property.

We recommended that the Bureau take the following actions: (1) develop a policy
to be used for negotiating a fair price for projects proposed for sale to local water
user entities; (2) seek legislative authority to negotiate sales prices in accordance with
the policy; and (3) oppose any sales legislation that was not in compliance with the
policy. The Bureau agreed to take actions to ensure that negotiated sales prices
would recover fair market value or protect the taxpayers' interests in the projects
(see Appendix 1).

RESULTS OF AUDIT

We concluded that the Bureau had made considerable progress in implementing the
three recommendations contained in our prior audit report in that it issued a
framework policy for the title transfer of facilities proposed for sale. Of the three
recommendations, we consider two recommendations fully implemented and one
recommendation partially implemented.  We also noted issues relating to the
Bureau's development and implementation of the framework policy that, if
addressed, could further enhance the Bureau's ability to protect the interests of the
general taxpayers. Specifically, we found that the framework policy did not fully
address the title transfer of complicated projects and did not require the
development of a range of valuation methods to determine the fair value of projects.
In addition, we noted that non-Federal entities interested in acquiring facilities
continued to present, directly to the Congress, sales legislation that was not in
compliance with Bureau policy or that did not protect the interests of project
beneficiaries and the general taxpayers. By expanding the framework policy to
address these issues, the Bureau should be better able to complete its plans to
transfer the ownership of projects and facilities at a fair return and protect the
interests of the taxpayers.

Recommendation 1. Develop a policy to be used for negotiating a fair price for
projects Proposed for sale to local water user entities. The policy should include the
methods to be used for estimating a project's market value and a process for
evaluating economic, legal, and environmental issues related to the transfer of
project ownership.

Our prior report found that the Bureau did not have a policy for valuing Bureau
projects and facilities subject to sale and title transfer to local water districts. As a
result, the Bureau could not ensure that proposed sales prices recovered fair value

3

 
and adequately protected the taxpayers' interests in the projects. The Bureau agreed
to develop a title transfer policy by September 30, 1991, but subsequently extended
the implementation date to May 1995.

Over the past 6 years, the Bureau has devoted extensive effort to developing and
implementing an effective title transfer program. In 1989, the Bureau established a
Transfer of Facilities Team to evaluate the economic, legal, and environmental issues
related to the transfer of project ownership. Since our prior audit, the Bureau
expanded the Team's efforts and established 10 teams to study and evaluate the
various aspects of title transfer, such as asset valuation, environmental compliance,
power facility transfers, and legal and liability issues. The Team's results formed the
basis of the Bureau's framework policy.

In August 1995, the Bureau formalized a framework policy for the title transfer of
"uncomplicated" reclamation projects and facilities to qualifying non-Federal entities.
The Bureau defined "uncomplicated' projects as those projects that do not have
competing interests and that have financial arrangements and legal and institutional
concerns which can be readily addressed during transfer. Pursuant to the policy, title
transfers are required to meet six major criteria: protect the Federal Treasury and
thereby the taxpayers' financial interests; comply with all applicable state and Federal
laws; protect interstate compacts and agreements; meet the Secretary's Native
American trust responsibilities; fulfill treaty obligations and international agreements;
and protect public aspects of the project.  The policy also stated that transferees
should demonstrate the technical capability to maintain project safety on a
permanent basis and the ability to meet the legal and financial obligations associated
with the project, including compliance with applicable Federal, state, and tribal laws.
The transferees should also assume full liability for matters associated with
ownership and operation of the transferred facilities. Further, the policy stated that
the "title transfer process will be carried out in an open and public manner" and the
financial aspects of the Bureau's valuation analyses should be reviewed by an
independent financial advisor for reasonableness and accuracy.  However, we
consider the recommendation resolved but not fully implemented because the policy
did not address the transfer of complicated projects and did not require that a range
of valuation methods be used to determine the fair value of projects or facilities.

  Project Complexity.  The Bureau's framework policy applied only to
uncomplicated projects.  According to Bureau officials, the Bureau and its
constituents have minimal experience in transferring title to publicly constructed and
taxpayer-financed facilities. Therefore, according to these officials, the Bureau
wanted to gain experience in transferring title to uncomplicated, noncontroversial
projects before attempting to negotiate for the transfer of large multipurpose projects
that involved competing interests and had complex financial arrangements.

4

 
Although the Bureau has developed a title transfer policy for uncomplicated projects,
we believe that this policy could be expanded by applying the policy's six major
transfer criteria both to uncomplicated and complicated title transfers of projects and
facilities. While we recognize the complexity and controversial aspects of developing
a comprehensive title transfer policy, we also noted that since our prior audit, there
has been increased interest in acquiring complicated Bureau-owned projects and
facilities. For example, of the 42 projects or facilities identified by the Bureau as
those in which non-Federal entities had expressed an interest in title transfer, we
found that 25 were complicated and 17 were uncomplicated, as defined by policy.
In addition, 8 of the 25 complicated projects or facilities had sales legislation
proposed in the Congress during 1995 to transfer ownership (see Recommendation
2 of this report). Accordingly, we believe that the framework policy could be
enhanced to include additional guidance for transferring title of complicated projects
and facilities.

  Valuation Method.  The Bureau's policy did not include a requirement to
develop a range of project values under different valuation methods. Our prior
report recommended a market approach to valuation but, in the absence of the
ability to determine market price, suggested that other pricing methods be employed.
These methods were the retention value approach, which compares the value from
selling the asset to the value of retaining the asset in Federal control; replacement
costs, which are the costs to construct comparable facilities according to today's
standards using existing technology; and reproduction costs, which are the costs to
reproduce the facility as it currently exists. We believe that utilizing different
valuation methods would allow the Bureau to establish a reasonable range of values
that would foster successful negotiation of fair value.

Our followup review disclosed that the policy required facilities to be assessed at
"base value," which is defined as the present valuel of all future revenues2 due the
Federal Government using the U.S. Treasury interest rates current at the time of the
transaction. This base value computation allows for adjustments if conditions, such

lPresent value is a financial term that refers to the time value of money, which recognizes that a
dollar
available in the future is worth less than a dollar available today, since money can be invested.
Therefore,
in discounting a future stream of revenues, prevailing interest rates provide the basis for converting
future
amounts into today's dollar equivalents. For example, assuming an interest rate of 8 percent, $1 due
in
10 years is worth only $.46 today.

2According to the Bureau's methodology, the term "revenues" includes the following: (1) water
revenues,
such as revenues from existing water service and repayment contracts, and any operation and
maintenance
deficits if applicable; (2) revenues from any additional or modified water delivery contracts expected
to
be implemented because of additional or changed demand, such as from irrigation use to municipal
and
industrial use; (3) revenues from water transfers; (4) revenues from commercial power, such as
revenues
received as "aid to irrigation"; and (5) miscellaneous revenues, such as lease and fee revenues from
facilities and lands.

5

 
as the conversion of irrigation water to municipal and industrial uses, can reasonably
be expected to change in the future after title is transferred. Bureau officials told
us that they believed the base value reflected the fair market value of projects under
consideration.

The Bureau's internal study, which evolved into the asset valuation policy, suggested
performing several valuations3to establish a range of values. Specifically, the study
stated:

In order to provide the most useful information to negotiators,
Reclamation may want to perform several valuations of a given asset
in order to establish upper and lower bound on the asset value. . . .
It is extremely important that the base value not be confused with the
asking price for starting negotiations.

The study's suggested use of a range of values was supported by the Bureau's
independent financial advisor, who reviewed the Bureau's asset valuation framework
and policy documents. The advisor's report stated that using different valuation
methods for different assets and projects not only was appropriate but also was
necessary to arrive at a project's "realistic" and "fair value" price. The report further
stated that a "'what-if' type analysis may provide insights to negotiators and assist
Reclamation in realizing maximum value for the assets being transferred."

We agree with the conclusions of the Bureau's study team and the analyses of the
financial advisor that different valuation methods would provide a greater
opportunity to achieve a fair value return to the taxpayers. To illustrate, the Sly
Park Project's base value using the Bureau's policy totaled approximately $17.3
million, whereas the Project's original construction costs were $31.9 million, and our
prior audit identified project reproduction costs ranging from $90 million to $110
million4 depending on the cost index used. In addition, the base value method does
not adequately determine fair value for facilities that are considered to be paid off.

3Valuation methods suggested included: (1) cost-based methods, such as historical costs, historical
costs
less depreciation, replacement costs estimated by indexing historical costs, replacement costs
estimated
by determining the cost of the least cost replacement, and historical costs with foregone interest;
(2) revenue-based methods, such as present value of future revenues, income capitalization, and
remaining
repayment obligation; and (3) market-based methods, such as auctions, sealed bids, and sales
comparisons.

4Appendix 3 of our prior audit report discussed "reproduction cost" as being a valuation method that
estimates today's cost to reproduce the facilities proposed for sale exactly as the facilities now exist
and
stated that the General Accounting Office used this method for valuing Federal assets intended for
sale.
The three indices used to estimate the costs were the "Bureau Component Index" ($90.1 million),
the
"Bureau Composite Index" ($89.7 million), and a non-Federal construction cost index ($110.4
million).

6

 
Using the base value method for these facilities would yield a zero value, even
though only a portion of the project's construction costs were repaid.

Recommendation 2. Seek legislative authorization to enable the Bureau to negotiate
a sales price for any p roject proposed for sale, using methods that adhere to the
policy developed under Recommendation 1.

The Bureau initially agreed to seek general legislative authority to implement the
policy to be developed under Recommendation 1 but subsequently decided to seek
legislative authority on a project-by-project basis after negotiations were completed,
At the time of our prior audit, only two projects had legislative proposals for sale;
therefore, we accepted the Bureau's decision to seek legislation on a project-by-
project basis and consider this recommendation implemented.

Our followup review disclosed that public interest in acquiring projects and facilities
has grown significantly since our prior audit. In accordance with the National
Performance Review, the Bureau formalized a program to privatize certain Bureau
projects and facilities. Accordingly, the Bureau identified 42 projects or facilities as
possible candidates for transfer. For 13 of these projects or facilities, we found that
sales legislation was introduced in the Congress before the Bureau could evaluate the
value of the projects and the environmental, recreational, legal, and liability issues
involved.  Of the 13 proposed sales, 5 involved uncomplicated projects and 8
involved more complex projects under the Bureau's policy.

Latest data available from the Bureau indicated that the 13 projects being considered
for sale provide over 260,000 acre-feet of water annually and serve over 1 million
farming and nonfarming users (see Appendix 2). We found that the proposed
legislation did not adequately address the financial, environmental, liability, and legal
issues and, as such, did not fully protect the interests of all project beneficiaries and
general taxpayers, as envisioned in the Bureau's framework policy (see Appendix 3).
For example:

  - The proposed Texas Reclamation Project Indebtedness Purchase Act
establishes a purchase price of $30,715,367 for the Nueces River Project that is to
be discounted to a final price for factors such as the costs for liability as determined
by the State of Texas, costs to implement nonreimbursable project features such as
recreation, and loss of payments in lieu of taxes once the project is transferred.
Bureau officials said that they believe that because of the discount and deduction
provisions, the project, with a reimbursable indebtedness of about $72.5 million,
"could be transferred for a small fraction of its true value--as little as five percent or
even less" (see Appendix 3).

  - The sales price of projects in the proposed Missouri River Basin, Kansas and
Nebraska, Pick-Sloan Project Facilities Transfer Act does not include the

7

 
construction costs above the irrigators' "ability to pay,"5 which is known as aid to
irrigation.  This irrigation aid can be substantial, such as in the case of the
Frenchman-Cambridge Division6 of the Project, where the sales price of $1,478,291
does not consider reimbursable irrigation construction costs of $53.5 million that are
not part of the irrigation district's contractual obligation.

  - The Sly Park Unit Conveyance Act proposes a sales price of $3,993,982 for
title transfer to all facilities owned by the United States, including dam and reservoir,
diversion dam and tunnel, conveyance and distribution systems, and recreational
facilities. According to the Bureau's estimates, the sales price does not cover the
present value of expected revenues of approximately $7.5 million from the irrigation
district for the Sly Park Dam and Reservoir. These revenues consist of about
$3.7 million for Central Valley Project water service payments and about $3.8 million
for restoration payments under the Central Valley Project Improvement Act. In
addition, the sales price does not include a value for the conveyance and distribution
system. Instead, the legislation states that title transfer will not affect the current
repayment obligations of over $17 million owed by the irrigation district for the
conveyance and distribution system.

  - The proposed Reclamation Facilities Transfer Act would allow title transfer
as long as eligible beneficiaries have completed repayment regardless of the fair
value of the projects or facilities and without addressing and resolving environmental,
recreational, legal, and liability issues.

The 13 legislative sales proposals also included language that waived environmental
and other Federal laws and requirements, such as the National Environmental Policy
Act of 1969,7 the Endangered Species Act of 1973, the Federal Water Pollution

5The irriga o t rs' ability to pay consists of the amount that irrigators can afford to pay for water
service
as determined by farm budget analyses, which compare the income derived from the sale of crops
with
the cost of producing the crops, along with a reasonable return to the farmer. Bureau policy generally
requires that power users assist in repaying reimbursable irrigation costs that are beyond the ability
of the irrigators to pay. Such reimbursable irrigation costs beyond the ability of the irrigators to pay
are repaid by power users after they have repaid the power investment debt.

6The Frenchman-Cambridge Division construction costs of $87,956,252 are allocated as follows:
$11,271,047 for contractual debt of irrigation districts; $53,516,139 for irrigation aid; $563,219 for
fish
and wildlife conservation; $637,372 for recreation; $21,841,250 for flood control; and $127,225 for
safety of dams.

7The National Environmental Policy Act, as amended, establishes the national charter for the
protection of the environment. The purpose of the Act is to ensure that the appropriate consideration
of environmental issues and alternative scenarios are put into a procedural framework which allows
decision makers to make an informed decision based on the extent of the significance of the issues.
It is the policy of Federal agencies that public involvement should be encouraged during the
implementation and decision-making processes of the Act.

8

 
Control Act, and Reclamation laws8 (see Appendix 3). The Bureau was not
involved in developing the proposed sales legislation introduced in the Congress.
The Bureau subsequently opposed some of the legislation by written and oral
testimony before Congressional committees.9 For example, during the hearing
before the Senate Subcommittee on Forests and Public Land Management on May
23, 1995, the Commissioner testified that the Bureau "must work with the Congress
in crafting legislation to transfer assets on terms that protect the taxpayers, national,
environmental and native American interests. " In addition, the Assistant Secretary
for Water and Science's April 5, 1996, letter to the Chairman of the Subcommittee
on Water and Power Resources strongly opposed the remaining legislation and asked
that the "Administration's view" be included in the Subcommittee's November 16,
1995, hearing records.

According to a Regional Director who has been an active member of the Bureau's
task force team since 1989, the Bureau may consider introducing general legislation
after it first acquires experience with successful title transfers of uncomplicated
projects. In addition, the Bureau's independent financial advisor had recommended
that the Bureau expedite the legislative authorization process by obtaining some kind
of "pre-approved" negotiating authority to avoid unnecessary costs and "frustration"
and "ill-will" between the Bureau and transferees caused by fluctuations in the initial
and negotiated sales price. Such general legislation could require entities interested
in acquiring Bureau facilities to work more closely with the Bureau and its
framework policy prior to proposing sales legislation. In the future, the Bureau
could consider general legislation similar to the Federal Power Administration
Transfer Act proposed by the Secretary of Energy on May 3, 1995, which attempts
to address controls over the title transfer process involving the sale of the power
marketing administrations. This proposed bill does not explicitly authorize the
Secretary of Energy to transfer titles; however, it specifies a "minimum price to be
received by the United States at the time of transfer which shall not be less than the
net present value of the principal, interest, and capitalized deficit payments" for the
facilities if they are to remain in Federal ownership. The bill also stipulates that title
transfer plans become effective 60 days after being transmitted to the Congress.

8Reclamation law is a term used to refer to the total body of public laws governing the reclamation
program, beginning with the Reclamation Act of 1902 and including all laws amending and
supplementing the Act, such as the Reclamation Reform Act of 1982, which limits the receipt of
subsidized water to no more than 960 acres per qualified recipient.

9Statements by the Commissioner, Bureau of Reclamation, before the Senate Subcommittee on
Forests and Public Land Management, Committee on Energy and Natural Resources, on the
Reclamation Facilities Transfer Act, S.620, on May 23, 1995, and the Regional Director,
Mid-Pacific
Region, Bureau of Reclamation, before the House Subcommittee on Water and Power Resources,
Committee on Resources, on June 15, 1995.

9

 
We believe that subjecting sales proposals to the Bureau's policy would expedite the
title transfer process and help ensure that issues concerning fair value, environment,
liability, and legal aspects of projects are addressed before title transfer is completed.
For example, the existence of such a policy may have assisted the attempt to transfer
title of the Vermejo Project in New Mexico. Although title transfer legislation for
this project was passed by the Congress in 1980 and clarifying legislation was enacted
in 1992, ownership has not yet transferred because long-standing financial,
environmental, and legal issues that were not addressed prior to passage of the
legislation remain unresolved.

Recommendation 3. Oppose legislation proposing the sale of projects when the
proposal does not adhere to the policy developed under Recommendation 1.

Our prior audit recommended that the Bureau oppose sales legislation introduced
in the Congress that did not adequately address fair market value and environmental
and legal issues of the projects.  The Bureau agreed to implement the
recommendation through issuance of the policy to be developed under
Recommendation 1. Our followup review disclosed that the Bureau, by written and
oral testimony, opposed sales legislation for the transfer of two projects, as this
transfer was not in compliance with Bureau policy. Therefore, we consider this
recommendation implemented.

On April 11, 1996, the Bureau provided written comments to the preliminary draft
of this report that concurred with the results of the audit. We also discussed the
comments with the designated Bureau official and considered and incorporated the
comments into the report as appropriate.

Since we found that the Bureau had implemented or had partially implemented the
prior report's recommendations, no additional recommendations are necessary and
no response to this report is required.

The legislation, as amended, creating the Office of Inspector General requires
semiannual reporting to the Congress on all audit reports issued, actions taken to
implement audit recommendations, and identification of each significant
recommendation on which corrective action has not been taken.

cc: Commissioner, Bureau of Reclamation

10

 
                                    APPENDIX 1

STATUS OF RECOMMENDATIONS AND CORRECTIVE
ACTIONS FOR AUDIT REPORT `VALUATION OF PROJECT
     FACILITIES PROPOSED FOR SALE,
        BUREAU OF RECLAMATION"

     Recommendations

1.  Develop a policy to be used for
negotiating a fair price for projects
proposed for sale to local water user
entities. The policy should include the
methods to be used for estimating a
project's market value and a process for
evaluating  economic,  legal, and
environmental issues related to the
transfer of project ownership.

2.  Seek legislative authorization to
enable the Bureau to negotiate a sales
price for any project proposed for sale,
using methods that adhere to the policy
developed under Recommendation 1.

3. Oppose legislation proposing the sale
of projects when the proposal does not
adhere to the policy developed under
Recommendation 1.

Status of Recommendations
and Corrective Actions

Partially implemented. On August 7,
1995, the Bureau issued a framework
policy for title transfer of facilities. This
policy  did not address  complex,
multipurpose,  and/or  controversial
projects. In addition, the Bureau's policy
did not require the use of a range of
valuation methods to determine the fair
value of projects.

Implemented.  The Bureau decided to
seek legislation on a project-by-project
basis.

Implemented.  The Bureau opposed
legislation  that appeared  to be
detrimental to the general taxpayer
and/or the Federal Government.

11

 


APPENDIX 2
Page 1 of 3

Project Name
and Location

Central Valley Project:
Sly Park Unit

Collbran Utah Project:
Collbran, Colorado

Pick-Sloan Projects:
Ainsworth Unit,
Nebraska

PROJECTS WITH PROPOSED LEGISLATION

Description1

1 reservoir,
1 diversion dam,
7.2 miles of canals,.
and .97 miles of
tunnels

14 reservoirs,5
3 diversion dams,
37 miles of canals,
10 miles of pipelines,
and .45 miles of tunnels

1 reservoir,
53 miles of canals,
170 miles of
distribution facilities,
and 6 miles of drains

Beneficiaries2

Irrigation, municipal
and industrial,
power, recreation,
and flood control

Irrigation, power,
recreation, and fish
and wildlife

Irrigation,
recreation, and fish
and wildlife

Annual Water  Number of
supply    Water Users
(Acre-Feet)3    Served4

13,305

16,161

34,541

80,000

1,428

624

1 Bureau of Reclamation 1992 "Summary Statistics, Water, Land and Related Data,"  Table 14,
pages 97-104. This table includes only "major'' pumping plants
and does not identify power plants. Information for the Sly Park Unit was obtained from the Bureau's
Project Data Sheets.

2Bureau of Reclamation Project Data Sheets from Project Data Book.

3Bureau of Reclamation 1992 "Summary Statistics, Water, Land and Related Data," Table 11, pages
66-77. An acre-foot is the amount of water needed to
cover 1 acre of land to a depth of 1 foot, or about 326,000 gallons. The acre-feet reported in the
schedule represent the delivered water, which is calculated
by reducing the net water supply by operational spills and transport losses.

4Bureau of Reclamation 1992 "Summary Statistics, Water, Land, and Related Data," Table 10, pages
63-65. The number includes full-time and part-time farms
receiving full or supplemental irrigation services and municipal, industrial, and other nonfarming
water services, such as cities and counties. Information for
the Sly Park Unit was obtained from the local project office.

5This  includes 13  small, privately owned reservoirs that are operated and maintained by the Bureau
of Reclamation as part of the Collbran Project and used
for power generation. The 13 reservoirs are not part of the proposed sale legislation; however, a
request to receive perpetual, nonexclusive easement rights
across Federal lands to access these storage facilities is included in the proposed legislation.

12

 
APPENDIX 2
Page 2 of 3

PROJECTS WITH PROPOSED LEGISLATION (Continued)

Project Name
and Location        Description

Pick-Sloan Projects: (Con't.)
Almena Unit, Kansas     1 reservoir,
           1 diversion dam,
           28 miles of canals,
           14 miles of
           distribution facilities,
           and 6 miles of drains

Bostwick Division,
Kansas and Nebraska

Farwell Unit, Nebraska

Frenchman-Cambridge
Division, Nebraska

1 reservoir,
1 diversion dam,
206 miles of canals,
201 miles of
distribution facilities,
and 208 miles of drains

1 reservoir,
1 diversion dam,
115 miles of canals,
.38 miles of tunnels,
268 miles of distribution
facilities, and 58 miles
of drains

4 reservoirs,
4 diversion dams, 204
miles of canals, 181
miles of distribution
facilities, and 48 miles of
drains

Annual Water    Number of
supply     Water Users

Beneficiaries2    (Acre-Feet)3     Served4

Irrigation, municipal
and industrial, flood    4436      3,732
control, recreation, and
fish and wildlife

Irrigation, flood     12,326
control, recreation,
and fish and wildlife

Irrigation, flood     21,784
control, recreation,
and fish and wildlife

Irrigation, flood control,  16,849
recreation, and fish and
wildlife

638

738

790

60nly municipal and industrial water supply was listed in the table.
                   13

 
APPENDIX 2
Page 3 of 3

    PROJECTS WITH PROPOSED LEGISLATION (Continued)
                            Annual Water   Number of
Project Name                              supply     Water Users
and Location        Description       Beneficiaries2    (Acre-Feet) 3     Served4

Pick-Sloan Projects: (Con't.)
Kirwin Unit, Kansas     1 reservoir,       Irrigation, flood control,
           44 miles of canals, 38    recreation, and fish and
           miles of distribution    wildlife
           facilities, and 3 miles of drains

Webster Unit, Kansas

Texas Projects:
Canadian River, Texas

Nueces, Texas

Palmetto Bend, Texas

Totals

1 reservoir,       Irrigation, flood
1 diversion dam,      control, recreation, and
33 miles of canals,     fish and wildlife
30 miles of distribution
facilities, and 3 miles
of drains

1 reservoir, 4 major     Municipal and industrial,
pumping plants, and 323   flood control, fish and
miles of pipeline     wildlife, and recreation
1 reservoir        Municipal and industrial,
          recreation, and fish and
          wildlife
1 reservoir and      Municipal and industrial,
6 miles of drains      recreation, and
          fish and wildlife

07       350

08

69,975


65,663


3,490

262,338

285

429,000


558,821


09

1,076,666

7In 1992, no project water supply was available for this project. However, according to Bureau of
Reclamation documents, the Unit received 6,534 acre-
feet of water in 1994.

8In 1992, no project water supply was available for this project. However, according to Bureau of
Reclamation documents, the Unit received 2,670 acre-
feet of water in 1994.

9Water is provided to two industrial plants.

14

 
o

ANALYSIS OF PROJECTS WITH PROPOSED LEGISLATION

                                   Requirements Waived or
                  Per 1994 Financial Statements       Liability Limited

       Sales   Construction Construction
      Price Per  Substantially   cost   Contractual
Uncomplicated Legislation  Completed  Incurred1   Debt

Remaining
Debt

Federal
Laws

       Project
  Central Valley Project:
   Sly Park Unit
  Collbran Project:
   Collbran
  Pick-Sloan Projects:
   Ainsworth Unit
   Almena Unit
   Bostwick Division
   Farwell Unit
   Frenchman-Cambridge
   Division
   Kirwin Unit
   Sargent Unit
   Webster Unit

Environment

No    $3,993,9822

$24,323,230

$17,828,111

Yes

1979

$31,874,218

Yes

Yes

No    12,900,000

1962

21,450,217

1,070,000

448,497

Yes

No

Yes

Yes    1,747,097
No     112,631
No    4,333,804
Yes    2,399,874

1966
1967
1968
1966

25,827,825
21,990,544
56,880,105
45,437,529

6,700,000
987,800
19,634,000
10,421,000

3,768,750
563,809
9,969,124
5,280,115

Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes

No    1,478,291
No     253,967
Yes    565,862
No     232,012

1964
1958
1957
1961

87,956,252
19,374,068
6,282,493
17,292,074

11,271,047
1,190,313
1,450,200
1,217,475

2,070,389
375,880
507,570
660,155

Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes

Texas Projects:
Canadian River

Yes    21,187,8813
No    30,715,3673
Yes    33,923,2453
   $113,844,013

1968
1983
1985

90,614,050
142,245,508
93,480,854 _

83,632,536
72,480,531
67,962,653

59,839,146
70,905,341
66,741,997

No
No
No

Yes
Yes
Yes

Yes
Yes
Yes

Nueces
Palmetto Bend
Totals

$660,705,737 $302,340,785 $238,958,8844

1These costs represent costs incurred for the features of the entire project. However, the contracting
parties, such as irrigation districts, affiliated with these projects are responsible only for their
allocated portion of the project's construction costs.

4As of fiscal year 1994, 79 percent of the contractual debt remains outstanding.



 
APPENDIX 4

BUREAU OF RECLAMATION
OFFICES VISITED AND CONTACTED

Office                Location

Office of Program Analysis        Denver, Colorado

Office of Policy and External Affairs     Washington, D.C.

Great Plains Regional Office        Billings, Montana

Lower Colorado Regional Office      Boulder City, Nevada

Mid-Pacific Regional Office*        Sacramento, California

Pacific Northwest Regional Office      Boise, Idaho

Upper Colorado Regional Office      Salt Lake City, Utah

*Office visited.

16

 
Sending written documents to:            Calling:

Within the Continental United States

U.S. Department of the Interior         Our 24-hour
Office of Inspector General           Telephone HOTLINE
1550 Wilson Boulevard             1-800-424-5081 or
Suite 402                  (703) 235-9399
Arlington, Virginia 22210

TDD for hearing impaired
(703) 235-9403 or
1-800-354-0996

Outside the Continental United States

Caribbean Region

U.S. Department of the Interior         (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

(700) 550-7279 or
COMM 9-011-671-472-7279