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entitled 'Klamath River Basin: Reclamation Met Its Water Bank 
Obligations, but Information Provided to Water Bank Stakeholders Could 
Be Improved' which was released on March 30, 2005. 

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Report to Congressional Requesters: 

March 2005: 

Klamath River Basin: 

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

GAO-05-283: 

GAO Highlights: 

Highlights of GAO-05-283, a report to congressional requesters: 

Why GAO Did This Study: 

Drought conditions along the Oregon and California border since 2000 
have made it difficult for the Bureau of Reclamation (Reclamation) to 
meet Klamath Project irrigation demands and Klamath River flow 
requirements for threatened salmon. To augment river flows and avoid 
jeopardizing the salmon's existence, Reclamation established a 
multiyear water bank as part of its Klamath Project operations for 2002 
through 2011. Water banks facilitate the transfer of water entitlements 
between users. 

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

What GAO Found: 

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

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

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

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

What GAO Recommends: 

GAO recommends that Reclamation improve the information provided to 
stakeholders by systematically providing public information on 
management decisions and the water bank's status. 

The Departments of Commerce and the Interior reviewed a draft of this 
report and generally agreed with the findings; Reclamation agreed with 
the recommendation. 

www.gao.gov/cgi-bin/getrpt?GAO-05-283. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Anu K. Mittal at (202) 
512-3841 or mittala@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

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

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

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

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

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Information on Water Bank Applications and Contracts: 

Appendix III: Comments from the Department of the Interior: 

Appendix IV: Comments from the Department of Commerce: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Staff Acknowledgments: 

Tables: 

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

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

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

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

Figures: 

Figure 1: The Klamath River Basin: 

Figure 2: Reclamation's Klamath Project: 

Figure 3: 2002 Augmented Klamath River Flows and Key Dates: 

Figure 4: 2003 Augmented Klamath River Flows and Key Dates: 

Figure 5: 2004 Augmented Klamath River Flows and Key Dates: 

Figure 6: Groundwater Pumping for the Klamath Water Bank: 

Figure 7: Upper Klamath Lake Expansion Options: 

Figure 8: Long Lake Storage Option: 

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

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

Abbreviations: 

BLM: Bureau of Land Management: 

FWS: Fish and Wildlife Service: 

NMFS: National Marine Fisheries Service: 

NOAA: National Oceanic and Atmospheric Administration: 

USGS: U.S. Geological Survey: 

Letter March 28, 2005: 

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

The Honorable Mike Thompson: 
House of Representatives: 

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

Figure 1: The Klamath River Basin: 

[See PDF for image] 

[End of figure] 

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

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

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

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

To address the objectives of this report, we visited the Klamath 
Project and met with and collected documentation from Reclamation and 
NMFS officials, as well as representatives from other stakeholder 
federal agencies, tribes, irrigators, commercial fishermen, academics, 
and conservationists. To determine how Reclamation operated the water 
bank and its costs, we analyzed water bank planning, contracting, and 
expenditure documentation. To determine whether Reclamation met its 
annual water bank obligations, we analyzed water bank contracts and 
documentation of Klamath River flows. To describe the water bank's 
impact, we analyzed relevant land, surface water, and groundwater use 
data; reviewed relevant studies; and met with stakeholders. We did not 
review the water bank's impact on fish species because the short 
history of the water bank makes it difficult to obtain reliable 
information. To describe alternative approaches to the water bank, we 
met with potential land sellers, reviewed studies of water storage 
options, and reviewed the status of basinwide efforts to increase 
flows. We performed our work between May 2004 and February 2005 in 
accordance with generally accepted government auditing standards. 

Results in Brief: 

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

While Reclamation has met its water bank obligations each year since 
2002, its management and accounting practices have created confusion 
for stakeholders. Our analysis of water bank contracts and river flow 
records found that Reclamation acquired and delivered the required 
amount of water for 2002 through 2004. However, the manner in which the 
agency has managed and accounted for the water bank has caused 
confusion for stakeholders, such as tribes and irrigators. For example, 
on issues where the biological opinion is silent--such as how to count 
any water spilled from dams to prevent flooding and regarding when, or 
if, Reclamation can reclassify baseline river flow requirements-- 
Reclamation has not been clear in communicating what actions it took 
and why it took those actions, resulting in a lack of transparency for 
stakeholders regarding the operation of the water bank. Furthermore, 
Reclamation has not provided stakeholders with systematic and clear 
information concerning the water bank's status or operations and its 
decision to use river flow data that are not publicly available has 
limited stakeholders' ability to independently monitor water bank 
activities. This has led to confusion and doubt among stakeholders on 
whether Reclamation actually met its water bank obligations. We are 
recommending that Reclamation take steps to improve its communications 
regarding the operation of the water bank. 

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

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

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

Background: 

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

The Secretary of the Interior authorized construction of the Klamath 
Project in 1905.[Footnote 4] Reclamation dammed Upper Klamath Lake, 
drained and reclaimed Lower Klamath and Tule Lakes, stored the Klamath 
and Lost Rivers' flows, and provided irrigation diversion and flood 
control on the reclaimed land. About 85 percent of the Project lands 
obtain irrigation water from Upper Klamath Lake and the Klamath River, 
while Gerber Reservoir, Clear Lake, and the Lost River supply the 
remainder of the Project. Water is delivered to Project lands using an 
elaborate system of canals, channels, and drains, including diversions 
directly from the Klamath River. The distribution system is considered 
highly efficient, ensuring that water that is diverted for use within 
the Project is reused several times before it returns to the Klamath 
River. Homesteading of the reclaimed lands began in 1917 and continued 
through 1948. 

As shown in figure 2, the Project is currently composed of about 
207,000 acres of irrigable lands. Historically, about 200,000 acres of 
Project lands have been in agricultural use annually.[Footnote 5] For 
example, in 2003, the most recent year for which data is available, 
about 202,000 acres were considered to be in agricultural use, of which 
about 180,000 acres were irrigated and harvested. Crops grown and 
harvested on the Project include alfalfa, barley, oats, wheat, onions, 
potatoes, and peppermint, and cattle graze on more than 40,000 acres of 
irrigated pastureland. In addition to farm and pastureland, four 
national wildlife refuges were set aside by executive orders in 
conjunction with the construction of the Project.[Footnote 6] The 
refuges, managed by Interior's Fish and Wildlife Service (FWS) support 
many fish and wildlife species and provide suitable habitat and 
resources for migratory birds of the Pacific Flyway. About 23,000 acres 
of the two refuges within the Project water delivery area--Tule Lake 
and Lower Klamath National Wildlife Refuges--are leased for 
agricultural purposes.[Footnote 7]

Figure 2: Reclamation's Klamath Project: 

[See PDF for image] 

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

[End of figure] 

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

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

Reclamation must comply with the Endangered Species Act to ensure that 
any action it authorizes, funds, or carries out is not likely to 
jeopardize the continued existence of any listed species of plant or 
animal or adversely modify or destroy designated critical habitat. 
Interior's FWS and Commerce's NMFS are responsible for administering 
the act.[Footnote 10] If FWS or NMFS finds that an agency's proposed 
activity is likely to jeopardize a threatened or endangered species or 
destroy or adversely modify its critical habitat, then a "reasonable 
and prudent alternative" that would avoid such harm must be identified. 
Three species of fish that are of particular importance to the cultures 
of the tribes--the threatened southern Oregon/northern California coho, 
and the endangered Lost River sucker and shortnose sucker--are affected 
by Project operations. NMFS listed the coho as threatened in 1997, and 
FWS listed the two species of suckers, which populate Upper Klamath 
Lake and rivers other than the Klamath, as endangered in 1988. 

Drought conditions since 2000 have complicated Reclamation's efforts to 
balance the irrigation water demands on the Project with the 
requirements for specific river flows and lake levels for threatened 
and endangered species. Reclamation operates the Project according to 
an annual operations plan that helps the agency to meet its various 
obligations and responsibilities, given varying hydrological 
conditions. In 2001, responding to Reclamation's biological assessment 
of its proposed Project operations plan, FWS and NMFS issued biological 
opinions that suggested[Footnote 11] Reclamation take numerous actions, 
including maintaining higher water levels in Upper Klamath Lake and two 
reservoirs on the Lost River and higher flows of the Klamath River 
below Iron Gate Dam. Because of the new biological opinions and drought 
conditions, Reclamation was prohibited from releasing normal amounts of 
water to most Project irrigators, which impaired or eliminated 
agricultural production on much of the Project. 

Subsequently, Reclamation proposed a new 10-year Project operations 
plan for 2002 through 2011. NMFS reviewed Reclamation's biological 
assessment of the plan to determine its effect on listed species, and 
issued a final biological opinion on May 31, 2002, directing 
Reclamation to establish a multiyear water bank to provide additional 
river flows. Reclamation incorporated this water bank into its Project 
operations plan through 2011. NMFS and Reclamation can reconsult on the 
requirements of the biological opinion as warranted, for example, if 
new scientific information on river flow requirements for fish is 
developed. Reconsultation is likely during 2006, when ongoing studies 
of Klamath River flows are expected to be completed. 

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

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

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

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

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

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

Reclamation modified its water bank operations each year, changing its 
composition, selection process, contracting process, and program rules 
as it gained experience to meet its increasing obligations. In 2002 
when the obligation was 30,000 acre-feet, the water bank sources 
included crop idling off-Project and groundwater pumping; in 2003 when 
the obligation was 50,000 acre-feet, sources included crop idling on- 
Project and groundwater substitution; and in 2004 when the obligation 
was 75,000 acre-feet, all three sources of water were included in the 
water bank. Reclamation modified the selection process from relying on 
only two irrigators in 2002--without a public application 
process[Footnote 13]--to soliciting applications from any qualified 
irrigator in both 2003 and 2004. In 2004, Reclamation solicited water 
bank applicants earlier in the year than it had in 2003, in part, to 
allow successful applicants more lead time in planning their 
irrigation.[Footnote 14] Reclamation also modified the contracting 
process to obtain more flexibility by competitively bidding contract 
rates in 2004 rather than paying a fixed rate as in 2003 and entering 
into contingency contracts for groundwater pumping that could be 
activated "as needed" to deliver additional water to meet its 
increasing water bank obligation and uncertain delivery schedule. These 
contingency contracts allowed Reclamation to acquire only the amount of 
water it needed to meet the agreed upon delivery schedule. Finally, 
Reclamation expanded its program rules to make participation in the 
water bank more practical and attractive to potential applicants. For 
example, Reclamation changed the rules for the 2004 water bank to allow 
harvesting of crops on land under crop idling contracts, reflecting the 
fact that some crops such as alfalfa can grow with water from 
subsurface moisture alone. 

Similarly, Reclamation modified its monitoring process for the water 
bank over time. For example, in 2003, Reclamation monitored every 
participant for compliance with the program rules. Enforcement staff 
examined and tested each crop idling parcel of land at least once over 
the course of 2003's water bank to ensure that no intentional 
irrigation occurred. In addition, Reclamation relied on self-policing 
by irrigators who called in tips identifying potential cheaters. A 
Reclamation official estimated a greater than 95 percent compliance 
rate in 2003 and only terminated the contract of one participant who 
intentionally irrigated fields after deciding to withdraw from water 
bank participation without notifying Reclamation. In contrast, during 
2004 Reclamation sought to reduce enforcement costs and increase 
efficiency by examining and testing crop idling parcels of land only 
toward the end of the year while following up on tips identifying 
potential cheaters throughout the year. In 2004, Reclamation found no 
intentional violations. 

Water Bank Costs Could Exceed $65 Million through Fiscal Year 2011: 

Reclamation's water bank expenditures through fiscal year 2004 exceeded 
$12 million and could total more than $65 million through 2011. As 
shown in table 1, Reclamation's total expenditures have increased 
annually as the water bank obligation has grown from 30,000 acre-feet 
in 2002 to 75,000 acre-feet in 2004. 

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

Expenditures: Groundwater substitution or pumping contracts; 
Fiscal year 2002: $1,000,000; 
Fiscal year 2003: $1,788,711; 
Fiscal year 2004: $4,009,451; 
Total: $6,798,162. 

Expenditures: Crop idling contracts; 
Fiscal year 2002: $0; 
Fiscal year 2003: $2,700,789; 
Fiscal year 2004: $637,258; 
Total: $3,338,047. 

Expenditures: Klamath Basin Rangeland Trust contracts for off-Project 
crop idling; 
Fiscal year 2002: $$948,300; 
Fiscal year 2003: $0; 
Fiscal year 2004: $690,221; 
Total: $1,638,521. 

Expenditures: Administration; 
Fiscal year 2002: $2,479; 
Fiscal year 2003: $175,233; 
Fiscal year 2004: $255,119; 
Total: $432,831. 

Expenditures: Other; 
Fiscal year 2002: $10,215; 
Fiscal year 2003: $22,213; 
Fiscal year 2004: $144,785; 
Total: $177,213. 

Expenditures: Total; 
Fiscal year 2002: $1,960,994; 
Fiscal year 2003: $4,686,946; 
Fiscal year 2004: $5,736,834; 
Total: $12,384,774. 

Source: Reclamation, Klamath Basin Area Office. 

Note: Dollar amounts are not adjusted for inflation. 

[End of table]

Reclamation attributes the increasing costs of the water bank to the 
increasing annual volume of water purchases, as well as increasing 
administrative costs due to the large increase from 2002 to 2003 in the 
number of contracts to manage and the addition of the groundwater 
pumping program in 2004 and its associated contract negotiations. 
Reclamation estimates that the 100,000 acre-foot water bank 
requirements for fiscal years 2005 through 2011 will cost at least $7.6 
million annually, bringing the total water bank costs to more than $65 
million. For 2005 and onward, according to Reclamation, the water bank 
will be a specific budget item in its budget request.[Footnote 15] 
Accordingly, Reclamation requested $7.626 million for fiscal year 2005 
and plans to gradually increase annual budget requests to about $7.660 
million by 2011. 

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

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

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

Reclamation Met Its Water Bank Obligations Each Year: 

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

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

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

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

Figure 3: 2002 Augmented Klamath River Flows and Key Dates: 

[See PDF for image] 

[A] The augmented flow during May 2002 consists of water bank 
deliveries only. 

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

[End of figure] 

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

Figure 4: 2003 Augmented Klamath River Flows and Key Dates: 

[See PDF for image] 

[A] The augmented flow between May 21 and October 31 consists of both 
water bank and tribal trust deliveries. 

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

[End of figure] 

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

Figure 5: 2004 Augmented Klamath River Flows and Key Dates: 

[See PDF for image] 

[A] The augmented flow during 2004 consists of both water bank and 
tribal trust deliveries. 

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

[End of figure] 

Reclamation's Management and Accounting Practices Confused 
Stakeholders: 

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

Reclamation's management of the water bank during 2003's spill 
condition--when water was released by dams to prevent overflow or 
flooding--and its lack of clear communication with stakeholders, caused 
significant confusion. Heavier than expected rainfall in early spring 
of 2003 caused a "spill condition" to exist on April 1 when the water 
bank was set to begin. However, the biological opinion does not specify 
how much, if any, spill water can be counted as a water bank delivery. 
In the absence of specific guidance from NMFS, Reclamation could have 
counted spill toward water bank deliveries in one of three ways: (1) up 
to the amount already scheduled for delivery during the spill; (2) in 
its entirety, including water above the scheduled amount; or (3) not at 
all. According to Reclamation officials, they eventually decided to 
reset the water bank's start to May 21--when the spill condition ended-
-and started counting augmented flows as of that date. However, 
Reclamation did not clearly communicate its decisions to stakeholders 
leading to confusion among stakeholders on how, or if, Reclamation was 
meeting its water bank obligations. For example, according to some 
tribal representatives, Reclamation provided a preliminary status 
report in July stating that over 20 percent of the water bank--over 
11,000 acre-feet--was delivered during the spill. This contradicted a 
Reclamation official's statement that the agency had retroactively 
reset the water bank's start date to after the spill conditions ceased. 
Reclamation officials concede that stakeholder confusion as a result of 
these actions was understandable. Subsequently, NMFS and Reclamation 
agreed that, beginning in 2004, spill water will be counted only up to 
the amount already scheduled for delivery by the water bank. 

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

Reclamation also has not clearly or systematically communicated the 
water bank's status and operations, further increasing stakeholder 
confusion. Specifically, Reclamation does not have a systematic 
mechanism to communicate information regarding the water bank to all 
stakeholders. Rather than regularly providing updated calculations of 
year-to-date deliveries to all stakeholders simultaneously through a 
single mechanism, such as a Web site or regularly scheduled press 
releases, Reclamation provides information on the water bank and its 
status "upon request" and through occasional press releases. 
Consequently, different stakeholders receive different information at 
different times. According to Reclamation officials, they meet 
regularly with the tribes and discuss the water bank's status. However, 
Reclamation does not systematically seek feedback on the operation of 
the water bank from all stakeholders, limiting the opportunities to 
clarify misunderstandings. As a result, after several years of 
operation, questions continue to persist among stakeholders, including 
some Project irrigators and tribes, on basic topics such as the purpose 
of the water bank. Reclamation placed some information about the water 
bank application process on its Web site; however, Reclamation has not 
made other water bank information--such as the year-to-date status-- 
available since that time, in part, because Reclamation has been 
reluctant to release status information that will almost certainly 
require revision later in the year. 

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

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

Reclamation's water bank appears to have increased the availability of 
water to enhance river flows by reducing irrigation water use on the 
Project, but there is uncertainty regarding the extent of its impacts 
on river diversions and groundwater resources. In 2003, when the water 
bank primarily relied on crop idling to obtain water, there was a 
significant increase in the amount of land not using irrigation water 
compared with recent years. While it was likely that a reduction in 
river and lake diversions for Project irrigation resulted, a university 
study funded by Reclamation found that the reduction attributable to 
the water bank alone was highly uncertain due to the lack of effective 
flow measurement equipment and monitoring data for the Project. Because 
Reclamation was uncertain about how much water crop idling actually 
provided to the water bank, Reclamation shifted to groundwater 
substitution and pumping as the primary sources for the 2004 water 
bank. However, USGS and Oregon state officials have since found 
evidence that groundwater aquifers under the Project, already stressed 
by drought conditions, are being pumped by an increasing number of 
wells and refilling at a slower than normal rate, prompting Reclamation 
to consider lessening its future reliance on groundwater substitution 
and pumping. 

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

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

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

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

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

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

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

Figure 6: Groundwater Pumping for the Klamath Water Bank: 

[See PDF for image] 

[End of figure] 

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

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

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

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

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

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

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

The amount of irrigated land that would need to be retired to reduce 
irrigation and enhance river flows by 100,000 acre-feet can be roughly 
estimated at about 50,000 acres but is not precisely known. As 
discussed earlier in this report, estimates of forgone irrigation water 
can prove to be much less than expected, and the lack of reliable water 
flow information on the Project makes it difficult to accurately 
determine the specific effects of crop idling--which is the short-term 
equivalent of permanent land retirement--and other strategies for 
reducing river diversions. Reclamation, irrigators, and tribal 
representatives told us that they believe that retiring irrigated land 
would reduce river diversions, but none are certain as to precisely by 
how much. Nevertheless, Reclamation, based on its most recent estimate 
of the amount of irrigation water obtained from crop idling for the 
water bank, assumes that irrigation is reduced by about 2 acre-feet of 
water per acre idled. Using this assumption, Reclamation estimates that 
at least 50,000 irrigated acres--about 30 percent of the acreage 
currently irrigated by water from Upper Klamath Lake and the Klamath 
River--would need to be retired to reduce irrigation by 100,000 acre- 
feet. However, according to Reclamation officials, because crop idling 
provides little water from April to June, such land retirement by 
itself will not provide sufficient water to meet spring river flow 
requirements under the biological opinion. Furthermore, the actual 
reduction in irrigation would depend upon factors such as the extent of 
irrigation on the land before it was retired and how it is used after 
retirement. 

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

Additionally, the price at which land might be obtained for retirement 
is unknown. According to the Conservancy, the appraised value of the 
potential willing sellers' land in 2001 was $3,000 per acre. However, 
based on 2001 estimates from an Oregon State University and University 
of California economic study, the market value for Project irrigated 
land can range from $300 per acre for Class V soils--the lowest quality 
for agricultural purposes--to $2,600 for Class II soils--some of the 
better agricultural soil on the Project. In addition, Project 
landowners are concerned that property values may have decreased due to 
the uncertainty of water deliveries for irrigation after the 2001 water 
restriction. Using the 2001 price estimates from the universities' 
study, the total cost to retire 50,000 acres, assuming the land is 
available from willing sellers, could range from $15 to $130 million, 
depending upon the mixture of low and high valued land offered for 
sale. 

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

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

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

Upper Klamath Lake Expansion: 

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

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

Figure 7: Upper Klamath Lake Expansion Options: 

[See PDF for image] 

[End of figure] 

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

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

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

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

* Caledonia Marsh is a privately owned 794-acre farm on the southern 
end of Upper Klamath Lake with the potential capacity to store nearly 
5,000 gross acre-feet of water. According to Reclamation, the owner has 
expressed interest in selling; however, the surrounding levees would 
need to be improved and the Highway 140 road bed raised to protect the 
neighboring property, Running Y Marsh. The cost of these improvements 
has not been determined. 

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

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

Separate Reservoir Development: 

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

According to Reclamation, converting Long Lake Valley into a reservoir 
could yield up to 250,000 acre-feet of water, with a depth of 250 to 
300 feet when full. Thus, Long Lake represents "deep" water storage, 
which generally contains colder water--beneficial to fish--than shallow 
Upper Klamath Lake can provide. Reclamation indicated that the 
reservoir's 250,000 acre-foot capacity would be filled by pumping water 
from Upper Klamath Lake to Long Lake between March and June, using the 
piping system shown in figure 8. However, much like the Upper Klamath 
Lake expansion options, the certainty of Long Lake's water supply 
depends entirely upon the availability of spill water to fill it and, 
according to NMFS officials, the impacts on the river of diverting 
these flows to a reservoir need to be studied. Once filled, Long Lake 
could provide a sustainable supply of water to supplement river flows. 
In addition, the amount of water stored by Long Lake and delivered to 
enhance river flows could easily be measured by metering water flow in 
the pipeline to and from the lake or, potentially, in a pipeline 
emptying directly into the Klamath River. 

Figure 8: Long Lake Storage Option: 

[See PDF for image] 

[End of figure] 

Reclamation completed an initial study of the geology of Long Lake 
Valley in March 2004, which determined that Long Lake Valley's floor 
would provide a good barrier to prevent water leakage. Geologic 
investigations of Long Lake Valley are continuing in 2005. To date, 
Reclamation has not conducted a full feasibility study for Long Lake 
development, and it will not do so until a funding plan has been 
established. Reclamation estimates that a feasibility study would take 
three years to complete and would cost approximately $12 million. 
Subsequently, reservoir construction funds would need to be obtained. 
There are no reliable estimates available, but Reclamation's most 
recent projection of construction costs is about $350 million, not 
including real estate acquisition costs. The Long Lake development 
project would take at least 10 years to complete, which means that Long 
Lake would not address any immediate water demand issues in the Klamath 
Basin. Based on Reclamation's initial study, if Reclamation can address 
funding, technical, and environmental impact requirements, Long Lake 
may offer a promising long-term storage option for the Klamath Basin. 

Reclamation's Conservation Implementation Program Is Still Being 
Developed: 

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

The Water Bank Could Be Modified in 2006: 

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

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

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

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

Conclusions: 

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

Recommendation for Executive Action: 

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

Agency Comments and Our Evaluation: 

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

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

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

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

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

Signed by: 

Anu K. Mittal: 
Director, Natural Resources and Environment: 

[End of section]

Appendixes: 

Appendix I: Scope and Methodology: 

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

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

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

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

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

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

[End of section]

Appendix II: Information on Water Bank Applications and Contracts: 

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

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

Total water bank applications; 
2002: [A, B]; 
2003: 521; 
2004: 449. 

Total water bank applications: Crop idling; 
2002: [A]; 
2003: 335; 
2004: 277. 

Total water bank applications: Groundwater substitution; 
2002: [A]; 
2003: 186; 
2004: 172. 

Total water bank applications: Groundwater pumping; 
2002: [B]; 
2003: [B]; 
2004: [B]. 

Total water bank contracts; 
2002: 2; 
2003: 315; 
2004: 141. 

Total water bank contracts: Crop idling; 
2002: 1; 
2003: 223; 
2004: 53. 

Total water bank contracts: Groundwater substitution; 
2002: 0; 
2003: 92; 
2004: 41. 

Total water bank contracts: Groundwater pumping; 
2002: 1; 
2003: 0; 
2004: 47. 

Source: GAO analysis of Reclamation data. 

[A] Due to the timing of the water bank in 2002, Reclamation negotiated 
contracts without a formal application process. 

[B] Reclamation negotiated contracts for groundwater pumping outside of 
the formal application process. 

[End of table]

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

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

[See PDF for image]

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

[End of figure]

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

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

Total volume represented by applications[A]; 
2002: [B, C]; 
2003: 104,151; 
2004: 154,908. 

Total volume represented by applications[A]: Crop idling; 
2002: [B]; 
2003: 49,274; 
2004: 75,637. 

Total volume represented by applications[A]: Groundwater substitution; 
2002: [B]; 
2003: 54,877; 
2004: 79,271. 

Total volume represented by applications[A]: Groundwater pumping; 
2002: [C]; 
2003: [C]; 
2004: [C]. 

Total volume acquired through contracts[A]; 
2002: 47,072; 
2003: 59,332[D]; 
2004: 110,877[E]. 

Total volume acquired through contracts[A]: Crop idling; 
2002: 27,072; 
2003: 35,389[D]; 
2004: 22,582. 

Total volume acquired through contracts[A]: Groundwater substitution; 
2002: 0; 
2003: 23,943[D]; 
2004: 16,656. 

Total volume acquired through contracts[A]: Groundwater pumping; 
2002: 20,000; 
2003: 0; 
2004: 71,639[E]. 

Source: GAO analysis of Reclamation data. 

[A] Acre-feet of water. 

[B] Due to the need to establish the water bank expeditiously in 2002, 
Reclamation negotiated contracts without a formal application process. 

[C] Reclamation negotiated contracts for groundwater pumping outside of 
the formal application process. 

[D] Reclamation voided two of these 2003 water bank contracts--one crop 
idling contract for 64.45 acre-feet and one groundwater substitution 
contract for 254.29 acre-feet. 

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

[End of table]

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

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

[See PDF for image] 

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

[End of figure] 

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

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

Total acreage offered in applications; 
2002: [A,B]; 
2003: 47,215; 
2004: 67,508. 

Total acreage offered in applications: Crop idling; 
2002: [A]; 
2003: 23,093; 
2004: 33,841. 

Total acreage offered in applications: Groundwater substitution; 
2002: [A]; 
2003: 24,122; 
2004: 33,667. 

Total acreage offered in applications: Groundwater pumping; 
2002: [B, D]; 
2003: [B, D]; 
2004: [B, D]. 

Total acreage accepted under contracts; 
2002: 3,161; 
2003: 25,469; 
2004: 22,371. 

Total acreage accepted under contracts: Crop idling; 
2002: 3,161[C]; 
2003: 14,430; 
2004: 15,497[C]. 

Total acreage accepted under contracts: Groundwater substitution; 
2002: 0; 
2003: 11,039; 
2004: 6,874. 

Total acreage accepted under contracts: Groundwater pumping; 
2002: [B]; 
2003: [B]; 
2004: [B]. 

Source: GAO analysis of Reclamation data. 

[A] Due to the need to establish the water bank expeditiously in 2002, 
Reclamation negotiated contracts without a formal application process. 

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

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

[D] Reclamation negotiated contracts for groundwater pumping outside of 
the formal application process. 

[End of table]

[End of section]

Appendix III: Comments from the Department of the Interior: 

United States Department of the Interior: 

OFFICE OF THE ASSISTANT SECRETARY
POLICY, MANAGEMENT AND BUDGET: 
Washington, DC 20240: 

MAR 01 2005: 

Ms. Anu K. Mittal: 
Director, Natural Resources and Environment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548: 

Dear Ms. Mittal: 

Thank you for providing the Department of the Interior the opportunity 
to review and comment on the draft United States Government 
Accountability Office report entitled, "Klamath River Basin: 
Reclamation Met Its Water Bank Obligations, But Information Provided to 
Water Bank Stakeholders Could Be Improved," (GAO-PUB No. 05-283), 
transmitted to the Secretary of the Interior on February 4, 2005.

The enclosure provides comments and suggestions from the Bureau of 
Reclamation and the Bureau of Land Management. We hope our comments 
will assist you in preparing the final report.

Sincerely,

Signed by: 

P. Lynn Scarlett: 
Assistant Secretary: 
Policy, Management and Budget: 

Enclosure: 

U. S. Government Accountability Office (GAO) Draft Report "KLAMATH 
RIVER BASIN: Reclamation Met Its Water Bank Obligations, But 
Information Provided to Water Bank Stakeholders Could Be Improved" GAO- 
PUB No. 05-283 February 2005: 

Reclamation's Response to the Draft Audit Recommendation: 

Recommendation 1: 

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

Reclamation's Response: Concur. Reclamation will implement the 
following steps to enhance Water Bank communications through systematic 
feedback for stakeholders on water bank information.

Reclamation will add a new page to our internet website exclusively for 
the Water Bank. The web page will include changing information as it 
becomes available. There will be a link to the USGS gauge at Iron Gate 
for down stream data. It will include a base flow chart, with a clear 
explanation and graphic that will show how much water the water bank 
will add to the base flow. As this information changes through the 
water year, but at least every 2 weeks, Reclamation will update the 
data. There will be a notice posted on the site about checking back to 
get updated information.

The website will include a primer, explaining the what, why, and how of 
the Water Bank. The website will also have a button to link the user to 
the current Operations Plan, to obtain more data if they so desire.

Additionally, Reclamation will continue formal notification of the 
Tribes by fax and letter of changes or impending changes, including 
year-type changes, as they are recognized by Reclamation.

The completion of an updated website, as described above, to enhanced 
Water Bank communications is scheduled for June 30, 2005. 

[End of section]

Appendix IV: Comments from the Department of Commerce: 

UNITED STATES DEPARTMENT OF COMMERCE: 
The Under Secretary of Commerce for Oceans and Atmosphere: 
Washington, D.C. 20230: 

May 2, 2005: 

Ms. Anu K. Mittal: 
Director, Natural Resources and Environment: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Mittal: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's draft report entitled Klamath River Basin: 
Reclamation Met Its Water Bank Obligations, But Information Provided to 
Water Bank Stakeholders Could Be Improved (GAO-05-283). Enclosed are 
the National Oceanic and Atmospheric Administration's comments to this 
draft report.

Sincerely,

Signed by: 

Conrad C. Lautenbacher, 
Vice Admiral, U.S. Navy (Ret.) 
Under Secretary of Commerce for Oceans and Atmosphere: 

Enclosure: 

NOAA Comments on the Draft GAO Report Entitled "Klamath River Basin: 
Reclamation Met Its Water Bank Obligations, But Information Provided to 
Water Bank Stakeholders Could Be Improved" (GAO-05-283/April 2005): 

General Comments: 

The report accurately reflects the history of the water bank. GAO 
acknowledges that the Bureau of Reclamation (Reclamation) and NOAA's 
National Marine Fisheries Service (NMFS) are making modifications to 
the mechanisms for administration of the water bank in response to new 
information. The report should emphasize that predicting water supply 
in the Klamath River Basin is difficult, and agencies have encountered 
unusual events not anticipated in the early development of the water 
bank. The one important issue not clearly addressed or reviewed that is 
the coho salmon needs supplemental water mainly in the spring period, 
while the water in the bank accrues through the irrigation season as 
foregone diversions are saved to the lake. For this reason, Reclamation 
has had to "borrow against" the Upper Klamath Lake (i.e., spend more 
water bank water than has accrued to the bank) to meet the spring fish 
flows. This results in tension in the spring of drier water years 
between keeping the lake high enough to meet endangered sucker needs, 
meeting coho salmon needs, and meeting demands for agriculture. This 
issue is addressed in footnote 12 of the report. We recommend GAO 
expand on this problem in the narrative because it is a complicated 
issue in disclosing how the water bank is being used on a day to day 
basis.

Recommended Chances for Factual/Technical Information: 

GAO Highlights, What GAO Found, last sentence: 

The discussions planned for 2006 are contingent upon the Department of 
the Interior completing studies on unimpaired flow and instream fish 
requirements (Hardy Phase II Study). We suggest changing this sentence 
to read: "Meanwhile Reclamation and the National Marine Fisheries 
Service will have the opportunity to explore alternative ways to more 
effectively manage the water bank when they review new information on 
instream flow and fish habitat relationships that is expected in spring 
2005."

Page 5, second paragraph, third sentence: 

This sentence should be revised to read: "NMFS issued a final 
biological opinion finding that the plan would jeopardize the continued 
existence of Southern Oregon/Northern California coastal coho and 
adversely modify its critical habitat."

Page 40: 

This discussion of the Long Lake Valley Reservoir should identify the 
concern that the diversion of large volumes of water from the Upper 
Klamath Lake necessary to fill and maintain such a large reservoir may 
have adverse effects on the river below the project. Loss of high 
winter flows could reduce the occurrence of geomorphic events necessary 
to maintain healthy riparian zones, adequate spawning gravels, and good 
juvenile rearing habitat. While such a large reservoir would provide a 
good mechanism for operation of a water bank, its effect on the health 
of the river would need to be evaluated before it could be implemented 
as a viable option.

Page 43, first bullet: 

This section should indicate the court that reviewed the biological 
opinion was critical of the allocation of responsibility for providing 
flows. The mechanism for acquiring water from other responsible parties 
was not certain to produce the water necessary to ensure the fish needs 
were met, and absence of this contribution, the continued existence of 
the fish may be jeopardized. The agencies will have to consider the 
court's criticism when they reinitiate consultation to address 
information on the unimpaired flow study and the Hardy Phase II Study, 
which we anticipate will be available in spring 2005.

Editorial Comments: 

Page 4, line 4: 

Insert "coastal" between California and coho.

Page S, footnote 2: 

In the citation to the court case, change "LELIS" to "LEXIS."

Page 13, line 12: 

Delete "of the Yurok Reservation." Singling out the Yurok Reservation 
creates confusion and is not necessary.

Page 13, end of second paragraph: 

Add the following sentence: "The Karuk Tribe is seeking federal 
recognition of a fishing right."

Page 13, line 23: 

Change "will" to "is likely to."

Page 13, line 24: 

Insert "destroy or adversely modify" before "its critical habitat."

Page 13, line 25: 

Change "must" to "shall."

Page 14, line 11: 

Delete the word "to" before the word "take."

Page 14, line 19: 

Include May 31, 2002, as the date for issuance of the final biological 
opinion.

Page 34, line 25: 

Providing an explanation for the expected rate of increase in power 
rates in 2006 would give a more informative discussion.

NOAA Response to GAO Recommendations: 

The report did not have recommendations specific to NOAA.  

[End of section]

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Anu K. Mittal (202) 512-3841; 
Edward M. Zadjura (202) 512-9914: 

Staff Acknowledgments: 

In addition to those individuals named above, Brad C. Dobbins, David A. 
Noguera, and Tama R. Weinberg made key contributions to this report. 
Also contributing to the report were John W. Delicath, Philip G. Farah, 
Curtis L. Groves, Julian P. Klazkin, Kim M. Raheb, and Monica L. 
Wolford. 

(360453): 

FOOTNOTES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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