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1.

D-5200 DEC I ~i’996

MEMORANDUM

To: Commissioner

Attention: W-1000

Manager, Washington Administration and Performance Review Programs

Attention: W-1100

Director, Policy and External Affairs

Attention: W-1500

Chief, Program Analysis - Washington Liaison

Attention: W-5000

Director, Operations

Attention: W-6000

Chief, Program, Budget, and Liaison

Attention: W-6300

Special Assistant to the Commissioner

Attention: LC-9000

Director, Reclamation Service Center

Attention: D-lOOO

Director, Human Resources

Attention: D-4000

Director, Management Services

Attention: D-7000

Director, Technical Service Center

Attention: D-8000

Regional Directors, PN, MP, LC, UC, GP

Attention: PN-1000, MP-lOO, LC-lOOO, UC-100, GP-lOOO

From .~uid L. Martinez

1.~Zi Commissioner ~. s~~n Richardson

Subject: Policy for Funding Future Capital Improvements on Reclamation Projects

In the Audit by the Office of the Inspector General entitled “Assessment of User Charges

after Initial Project Payout” the recommendation was made to fund future capital

improvements through the use of user charges imposed after project payout. The Inspector

General defined capital improvements as the replacement, rehabilitation, or renovation of

facilities. The user charges would be a charge similar to that provided for in 0MB

Circular A-25, where the Federal Government would collect a rental-type fee for the use of
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the facilities and the proceeds would offset a need for future appropriations. The user charge

would fund activities not currently included in the replacement (R) component of the

O&M&R expenditure.

Specifically, the two recommendations in the report stated:

1. Initiate a policy review which addresses the funding requirements for capital

improvements and the options for and impediments to assessing user charges to finance these

requirements.

2. Based on the results of the review, develop a user charge policy for finding capital

improvements and seek legislative authority, if necessary, to implement the policy.

In meeting the requirements for Recommendation 1 in the Report, an evaluation was made of

our existing programs and authorities to provide capital improvements on projects after

completion ofinitial construction. This review concluded that existing laws do not provide

sufficient authority for Reclamation to utilize user fees as a means to fund capital

improvements of the magnitude envisioned by the Inspector General. Consequently,

additional authority from Congress would be required. As a matter of policy, Reclamation

does not plan to seek this authority for two reasons.

1. Currently, Reclamation does not have authority to collect non-appropriated funds,

place them in a revolving fund, and then allocate them to capital improvements without

obtaining appropriations through the Congressional budget process. That is, Reclamation

does not have authority to operate a programmatic revolving fund for the benefit offuture

capital improvements independent ofthe Congressional appropriations process. Reclamation

does not anticipate that Congress is going to provide this authority given the budget reform

acts which have been passed in recent years. Consequently, we do not believe it would be

fruitful to pursue this legislative effort.

2. In today’s shifting perspective of the Federal Government and with the bipartisan

efforts to reduce the deficit and balance the budget, implementing the Inspector General’s

recommendation could put further pressure on increases in future Federal expenditures. The

revenues derived from the imposition of user fees could be deposited to the General Fund

and, therefore, potentially could be used to balance the Federal budget or for other purposes

instead of the stated purpose. This has occurred a number oftimes over the last several

years affecting other Federal programs. Reclamation would then be faced with seeking new

appropriations to fulfill the capital investment funding requirements incurred after a project is

paid out.

In Reclamation’s current effort to cooperate in reducing the budget deficit, we are exploring

ways to shift the financial responsibility for projects from the Federal Government to the

project beneficiaries. That is, we believe the entities should be responsible for future capital

improvements through the use oftheir own resources. This may require the use of district
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reserve funds or private financing through loans, tax levies, or bond issues. The Federal

Government would still be obligated to provide for costs allocated to non-reimbursable

purposes when a facility is improved or replaced. Therefore, as a statement of policy

Reclamation will not seek Congressional appropriations to replace, rehabilitate, or renovate

facilities related•to the reimbursable functions of a project. Private financing is t6 be

encouraged and should be used as an incentive in the title transfer program. This policy

does not affect activities undertaken pursuant to the Safety of Dams Program.

In the event private financing cannot be obtained, Reclamation will need to evaluate its

options, which may include the revision of operating standards, or, in a worst case scenario,

discontinuing operation of the facilities.

This approach is in keeping with the theme of the National Performance Review regarding

the mission of the Bureau of Reclamation. That is, Reclamation’s traditional construction

mission has essentially ended, and the focus should now be on water management, while

transferring other functions to non-Federal authorities. Concurrence with Recommendation 2

of the Inspector General’s report would not be consistent with this objective. In essence,

requiring the non-Federal entities to be responsible for future capital investments

accomplishes the same general objective as that of the Inspector General, but with a greater

chance for success.

bc: D-5000, D-5200

WBR:LSchluntz: mdk:91I 8196:236-1061x287

P:\CURREWTh5200\SCHLUNTZ\USBRFEES.RE3