Bureau of Reclamation:

Reclamation Law and the Allocation of Construction Costs for Federal Water Projects

T-RCED-97-150: Published: May 6, 1997. Publicly Released: May 6, 1997.

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GAO discussed the Bureau of Reclamation's financing of federal water projects, focusing on the: (1) evolution of reclamation law primarily from 1902 to 1982; and (2) allocation and repayment of construction costs for federal water projects among the projects' beneficiaries.

GAO noted that: (1) the Reclamation Act of 1902 established the Reclamation Fund and provided for the construction of single-purpose irrigation projects in the West; (2) since then, reclamation law has been significantly amended and supplemented; (3) initially, the federal water project construction program was to be self-sufficient; (4) projects were to be funded through a revolving fund initially capitalized by revenue generated from the sale of public lands and, upon project completion, irrigators were to repay the revolving fund for project construction costs within 10 years; (5) irrigators were not required to pay interest on their repayment obligation; (6) early on, it was discovered that the costs of establishing irrigated farming on previously unfarmed, arid land were much higher than expected and the costs of building water projects were much higher than originally estimated; (7) as a result, major funding and repayment changes were made to the reclamation program between 1902 and 1939; (8) in 1939, the Congress fundamentally changed the nature of the program by enacting the Reclamation Project Act of 1939, under which projects could be authorized for multiple purposes, and the construction costs would be allocated among the projects' various purposes; (9) the act provided that construction costs allocated to municipal and industrial water supply and power could be repaid with interest and gave irrigators additional relief in fulfiling their repayment obligations; (10) with passage of the Reclamation Reform Act of 1982, the Congress increased the number of acres that an individual or legal entity could irrigate with federal project water from 160 acres to 960 owned or leased acres, but required irrigators to pay the "full cost" for water delivered to leased land over the limit, which was a significant departure from prior reclamation law; (11) reclamation law determines how the costs of constructing reclamation projects are allocated and how repayment responsibilities are assigned among the projects' beneficiaries; (12) a project's construction costs are divided into two categories; (13) reimbursable costs are those that are repaid by the project's beneficiaries and nonreimbursable costs are those that are borne by the federal government because certain purposes of the project are viewed as national in scope; (14) the amount of reimbursable costs that a water user is responsible for repaying varies by the type of user; (15) as of September 1994, the federal government had spent $21.8 billion to construct 133 water projects that included irrigation as a purpose; and (16) the Bureau has determined that the federal government should be reimbursed for $16.9 billion.

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