Federal Charges for Irrigation Projects Reviewed Do Not Cover Costs

PAD-81-07: Published: Mar 3, 1981. Publicly Released: Mar 3, 1981.

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The Water and Power Resources Service (WPRS) is responsible for most Federal irrigation projects and charges beneficiaries for the use of water. GAO reviewed several WPRS projects under construction to determine: (1) what charges will be made for the water; (2) to what extent the charges will cover the costs to the Federal Government for providing the water; and (3) whether farmers could pay more for the water without impairing their operations or seriously damaging their profits.

Legislation originally stipulated that the charges for Federal water should return all the costs of building the irrigation projects; however, subsequent laws have not required certain beneficiaries to repay their share in full. WPRS fixes a price for its irrigation water according to the farmer's ability to pay for the water, which is the amount left over from an average farmer's gross income after deducting all production costs. This amount is much less than the Federal Government's cost of producing the water. A GAO economic analysis indicated that charging full cost for the water at a 7.5 percent interest level would be too expensive for farmers to afford Federal water. GAO found that charging a full-cost price without the interest charge, called the interest-subsidy price, would lower the cost of irrigated agriculture and increase yield enough so that farmers could probably increase their net income by buying Federal water.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Interior should direct the Commissioner of WPRS to develop and include the following economic analyses in their documents prepared as support for Congress during the authorization and appropriation process: (1) estimates of the Federal Government's full cost of producing irrigation water, including an interest rate that reflected the then-current cost of money borrowed by the Federal Government presented as an annual figure on an acre-foot and irrigated acre basis; (2) estimates of only the yield increases expected for the acres that will receive Federal water. This will allow Congress and other decisionmakers to compare the gains in net income from the WPRS farm budget approach to the gains directly attributable to the application of more irrigation water; and (3) estimates of the change in net income on the acres to receive Federal water at full cost. This comparison of costs and gross income changes because of irrigation will show policy makers the direct economic value of producing more irrigation water.

    Agency Affected: Department of the Interior

 

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