The cost of financing the construction of federal water projects for irrigation and municipal and industrial consumers has increased substantially since the first projects were built in the early 1900's. Because conditions have changed since repayment policies were established, GAO took a look at the full cost of financing water projects to determine whether expenditures can be reduced.
Matter for Congressional Consideration
|Congress should take a fresh look at the interest-free subsidy in deciding future water project authorizations.||When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.|
|Congress should amend appropriate federal laws, particularly the Water Supply Act of 1958, as amended, to ensure that municipal and industrial water users fully repay their share of interest costs. In amending the legislation, Congress should require the Secretaries of the Army and Interior to: (1) use interest rates, developed by the Treasury, for computing interest during construction and interest on the unpaid balance that more appropriately reflect the Treasury's cost of borrowing funds; (2) compute interest during construction using the interest rates in effect during each year construction funds are spent; and (3) compute interest during construction on a compound rather than a simple interest basis. Where possible, these provisions should be applied to existing projects; for instance, where binding repayment contracts do not exist, when amending existing contracts, or awarding new contracts for future water sales.||When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.|