Report on Cost Allocation Resulting in Increased Federal Contribution to the State of California for Flood Control, Oroville Project, Feather River, California, Corps of Engineers (Civil Functions)

B-146863: Published: Apr 29, 1964. Publicly Released: Apr 29, 1964.

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The General Accounting Office has reviewed the cost allocation prepared by the Corps of Engineers (Civil Functions), Department of the Army, used to establish the Federal contribution to the State of California for the flood-control accomplishments of the Oroville project, Feather River, California. This review was made pursuant to the Budget and Accounting Act, 1921 (31 U.S.C. 53), and the Accounting and Auditing Act of 1950 (31 U.S.C. 67). We examined the basic laws and related agreements which authorized a Federal contribution to the project. We ascertained applicable policies and procedures followed by the Corps and the State of California and examined into their effect upon the amount of the Federal contribution. We examined the cost allocation reports and related correspondence and other available records. Our review was made at the Office of the Chief of Engineers in Washington, D.C., and at the district office of the Corps of Engineers in Sacramento, California. Various aspects of our findings were discussed with officials of the State of California Department of Water Resources.

Our review of the computation of the Federal contribution to the State of California for flood control, Oroville project, showed that the omission by the Corps of Engineers of recreation as a primary project purpose in the allocation of joint costs resulted in an increase in the Federal contribution of about $9,000,000, In addition, the use of a compromise rate of interest higher than the Federal rate of interest on long-term borrowings in the mathematical allocation procedures increased the Federal contribution by about $4,650,000. We believe that the Corps of Engineers should have included recreation as a project purpose in the allocation of joint costs of the Oroville project and that the Federal rate of interest should have been used in the computations. The Chief of Engineers has informed us that he believes it was appropriate to omit recreation as a project purpose in view of the then existing Corps policies, and it was indicated that the special situation and circumstances justified the use of the compromise rate of interest. An amount of approximately $66,000,000 was agreed to as the Federal contribution for flood-control accomplishments of the Oroville project in a contract dated March 8, 196Z, between the Corps of Engineers, for the Federal Government, and the State of California. However, the contract includes a provision that payment of the Federal contribution would be subject to appropriation of funds by the Congress. The Public Works Appropriation Act, 1964, approved an interim contribution to the State of California for estimated flood-control costs incurred in fiscal year 1963. The legislative history indicates that the amount was based in part on an interest rate not in excess of the going rate of interest on long-term borrowings of the Federal Government, pending further consideration of the matter during the hearings for appropriations for fiscal year 1965.

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