Water Markets:

Increasing Federal Revenues Through Water Transfers

RCED-94-164: Published: Sep 21, 1994. Publicly Released: Sep 21, 1994.

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Pursuant to a congressional request, GAO examined how federal revenues could be increased through market transfers of Bureau of Reclamation-provided water, focusing on: (1) whether such transfers would increase federal revenues; (2) how the Bureau could increase its revenues from transferred water; and (3) what issues the Bureau should consider in establishing water transfer charges.

GAO found that: (1) many irrigators pay only a portion of their share of construction costs and are exempt from interest charges; (2) water transfers to municipal and industrial users could increase revenues, since these users pay rates based on their full share of construction costs and interest; (3) water transfers to other irrigators, fish and wildlife habitats, and recreation areas would not increase revenues because these users do not pay their full share of construction costs; (4) the Bureau does not specify how water transfer charges will be determined, but there are a number of ways the Bureau could increase revenues under existing laws; (5) changes in reclamation laws would allow the Bureau to charge users current Treasury rates where authorizing legislation specifies a lower interest rate; (6) the Bureau needs to balance increasing federal revenues with retaining incentives for water transfers, since high charges will discourage some transfers and preclude economic efficiency; and (7) charges for water transfers need to be set on a case-by-case basis because of the different factors affecting transfer incentives.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has not acted on this recommendation.

    Matter: To allow the Bureau of Reclamation greater flexibility in recovering the costs of federal water projects, Congress should consider allowing the use of current Treasury borrowing rates in establishing charges for transferred water, regardless of the interest rates included in some authorizing legislation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Secretary of the Interior directed the Bureau of Reclamation to examine ways to increase federal revenues and to charge amounts that consider the factors identified in the recommendation.

    Recommendation: The Secretary of the Interior should direct the Commissioner of the Bureau of Reclamation, in reviewing the principles governing water transfers, to examine ways in which federal revenues may be increased while retaining incentives for transfers. In examining ways in which federal revenues may be increased, the Secretary should direct the Commissioner to consider charging amounts that: (1) are based on Treasury borrowing rates; (2) include compound interest; (3) recover interest and power assistance subsidies; (4) recover costs throughout the useful life of the project; and (5) are higher than necessary to recover costs or constitute transfer fees, when such amounts are consistent with current law, are appropriate, and will not discourage transfers.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: The Secretary of the Interior directed the Bureau of Reclamation to consider the factors affecting the incentives for transfers and consider various approaches for determining charges.

    Recommendation: The Secretary of the Interior should direct the Commissioner of the Bureau of Reclamation to consider the factors affecting the incentives for transfers, to the extent feasible, and consider various approaches for determining charges, including case-by-case negotiation and set rates and rate formulas.

    Agency Affected: Department of the Interior

 

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