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60–633 u 1999

OVERSIGHT HEARING ON RURAL WATER

PROJECT FINANCING

OVERSIGHT HEARING

BEFORE THE

SUBCOMMITTEE ON WATER AND POWER

OF THE

COMMITTEE ON RESOURCES

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

JULY 29, 1999, WASHINGTON, DC

Serial No. 106–51

Printed for the use of the Committee on Resources

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

or

Committee address: http://www.house.gov/resources

(II)

COMMITTEE ON RESOURCES

DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana

JAMES V. HANSEN, Utah

JIM SAXTON, New Jersey

ELTON GALLEGLY, California

JOHN J. DUNCAN, JR., Tennessee

JOEL HEFLEY, Colorado

JOHN T. DOOLITTLE, California

WAYNE T. GILCHREST, Maryland

KEN CALVERT, California

RICHARD W. POMBO, California

BARBARA CUBIN, Wyoming

HELEN CHENOWETH-HAGE, Idaho

GEORGE P. RADANOVICH, California

WALTER B. JONES, JR., North Carolina

WILLIAM M. (MAC) THORNBERRY, Texas

CHRIS CANNON, Utah

KEVIN BRADY, Texas

JOHN PETERSON, Pennsylvania

RICK HILL, Montana

BOB SCHAFFER, Colorado

JIM GIBBONS, Nevada

MARK E. SOUDER, Indiana

GREG WALDEN, Oregon

DON SHERWOOD, Pennsylvania

ROBIN HAYES, North Carolina

MIKE SIMPSON, Idaho

THOMAS G. TANCREDO, Colorado

GEORGE MILLER, California

NICK J. RAHALL II, West Virginia

BRUCE F. VENTO, Minnesota

DALE E. KILDEE, Michigan

PETER A. DEFAZIO, Oregon

ENI F.H. FALEOMAVAEGA, American

Samoa

NEIL ABERCROMBIE, Hawaii

SOLOMON P. ORTIZ, Texas

OWEN B. PICKETT, Virginia

FRANK PALLONE, JR., New Jersey

CALVIN M. DOOLEY, California

CARLOS A. ROMERO-BARCELO ́ , Puerto

Rico

ROBERT A. UNDERWOOD, Guam

PATRICK J. KENNEDY, Rhode Island

ADAM SMITH, Washington

CHRIS JOHN, Louisiana

DONNA MC CHRISTENSEN, Virgin Islands

RON KIND, Wisconsin

JAY INSLEE, Washington

GRACE F. NAPOLITANO, California

TOM UDALL, New Mexico

MARK UDALL, Colorado

JOSEPH CROWLEY, New York

RUSH D. HOLT, New Jersey

LLOYD A. JONES, Chief of Staff

ELIZABETH MEGGINSON, Chief Counsel

CHRISTINE KENNEDY, Chief Clerk/Administrator

JOHN LAWRENCE, Democratic Staff Director

SUBCOMMITTEE ON WATER AND POWER RESOURCES

JOHN T. DOOLITTLE, California, Chairman

KEN CALVERT, California

RICHARD W. POMBO, California

HELEN CHENOWETH-HAGE, Idaho

GEORGE P. RADANOVICH, California

WILLIAM M. (MAC) THORNBERRY, Texas

GREG WALDEN, Oregon

MIKE SIMPSOM, Idaho

CALVIN M. DOOLEY, California

GEORGE MILLER, California

PETER A. DEFAZIO, Oregon

OWEN B. PICKETT, Virginia

ADAM SMITH, Washington

DONNA MC CHRISTENSEN, Virgin Islands

GRACE F. NAPOLITANO, California

ROBERT FABER, Staff Director/Counsel

JOSHUA JOHNSON, Professional Staff

STEVE LANICH, Minority Staff

(III)

C O N T E N T S

Page

Hearing held July 29, 1999 ..................................................................................... 1

Statement of Members:

Statement of Witnesses:

Antonelli, Angela, Director, Thomas A. Roe Institute for Economic Policy

Studies, The Heritage Foundation .............................................................. 57

Prepared statement of ............................................................................... 60

Dougherty, Cynthia C., Director, Office of Ground Water and Drinking

Water, U.S. Environmental Protection Agency .......................................... 26

Prepared statement of ............................................................................... 28

Graves, Thomas P., Executive Director, Midwest Electric Consumers Association ......................................................................................................... 53

Prepared statement of ............................................................................... 55

Kladiva, Susan, Associate Director, Energy Resources, and Science Issues

Resources, Community and Economic Development Division, General

Accounting Office .......................................................................................... 35

Prepared statement of ............................................................................... 38

Ludwigson, Jon, Energy Resources and Science Group, General Accounting Office ........................................................................................................ 66

Martinez, Eluid, Commissioner, U.S. Bureau of Reclamation ...................... 3

Prepared statement of ............................................................................... 7

Romano, John, Deputy Administrator, Rural Utility Service (RUS), Department of Agriculture ................................................................................ 9

Prepared statement of ............................................................................... 13

(1)

OVERSIGHT HEARING ON RURAL WATER

PROJECT FINANCING

THURSDAY, JULY 29, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON WATER AND POWER, COMMITTEE ON RESOURCES, Washington, DC.

The Subcommittee met, pursuant to call, at 2 p.m. in Room 1324,

Longworth House Office Building, Hon. John Doolittle [chairman of

the Subcommittee] presiding.

Mr. DOOLITTLE. The Subcommittee on Water and Power will

come to order.

We’re meeting today to hear testimony on rural water project financing. Two years ago we held a hearing regarding funding options for Bureau of Reclamation projects, and during that period we

heard from several witnesses that provided innovative ways to fund

or encourage the private sector to become partners with the Federal Government in operating and maintaining Bureau of Reclamation facilities.

As many of you are aware, before our Subcommittee we have requests to authorize more than $1 billion for rural water projects in

the States of Montana, North Dakota and South Dakota alone. This

number excludes the identified need throughout the country to

fund tens of billions of dollars worth of additional rural water

projects.

We simply must identify the financial basis for proceeding with

these projects if people are going to be able to live in these areas.

Because what inevitably happens is that people are drinking substandard water, waiting for some promise to upgrade their system.

The promises are made but, in reality, are rarely kept.

Conditions worsen while the population simply evaporates. Citizens need a more honest answer as to what they can expect. There

is no doubt that there is a need for more and better water quality

in many of these areas if their population base is going to survive.

A fundamental question is one of funding. We have heard from

many local individuals and States who have looked into their bank

accounts and feel they do not have the finances to pay for the

water systems they need. When we look at the reality of the Federal budget, we have to realize that we do not have the money

there to simply start another new grant program to fund the

projects requested before this Subcommittee. For all you hear in

the news about vast Federal surpluses, the reality is that we have

enough money to maintain economic health and pay down a portion

of our national debt. In effect, we have ransomed our grandVerDate 11-MAY-2000 09:03 Sep 19, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\60633 pfrm07 PsN: 60633
2

children’s future but may be able to get our great grandchildren

out of hock.

Today we have invited several witnesses to provide testimony regarding the current mission of the administration to provide safe

drinking water to rural areas, as well as several others to talk

about the role the government should play in this area. We also

want to examine the current and future need of the Federal Government to fund these programs, as well as what changes may be

needed to assist our rural constituents in obtaining safe drinking

water. Because there is a need to upgrade existing drinking water

supply systems as well as to find ways to reduce costs, it has been

necessary to identify additional ways to generate the revenue to

pay for these projects.

In areas where the Federal Government is increasing standards

and forcing change, the Federal Government must be prepared to

help citizens pay for these changes. This conclusion is part of taking responsibility. Where the upgrade is driven by internal needs,

there’s a diminished Federal role, and that conclusion is also part

of taking responsibility. Even in those cases, the Federal Government can provide expertise or improved financing options where it

has a role. However, in many cases, the costs may simply remain

a local and State expense.

How we go about designing and financing these rural water

projects will be a test to the Federal Government’s ability to transition to the more efficient, fiscally responsible mode of operation. To

expand our operations, we have spent the last 2 years working to

develop alternatives. While much of the answer lies in local and

State interests turning to the private sector for less costly constructive and more expeditiously available financing, there may be options for Federal involvement.

To that end, several alternatives have been explored that involve

Federal Government participation and funding rural drinking

water systems. These include, one, the historic irrigation method of

using Federal power revenues to fund projects beyond the water

user’s ability to pay it; two, providing long-term financing at Treasury rates; three, setting up a trust fund to pay for rural water

projects based on surcharges on Federal water and power.

There are other options that we will discuss today. These choices

do not represent the universe of alternatives.

I look forward to hearing from the witnesses; and I will recognize

our Ranking Member, Mr. Dooley, for his statement.

Mr. DOOLEY. Thank you, Mr. Chairman.

I commend you for holding this hearing and concur with your

sentiments that there is a need for us really to assess the various

Federal programs that attempt to provide some assistance, financial assistance, for water supply, as well as water quality. I appreciate your interest, as I share those interests, in terms of trying to

determine what is the appropriate role of the Federal Government

in meeting some of the needs that have been presented to Congress

in various authorization bills. So I look forward to the hearing and

the testimony.

Mr. DOOLITTLE. Thank you.

3

We will invite our first panel of witnesses to come forward. Ask

you to please remain standing and raise your right

hands.[Witnesses sworn.]

Mr. DOOLITTLE. Thank you. Let the record reflect that each answered affirmatively.

We’re very pleased to have you here today. I appreciate your arranging your schedules to participate in our hearing.

We will first begin with our Commissioner of Reclamation, Mr.

Eluid Martinez.

Mr. Martinez.

STATEMENT OF ELUID MARTINEZ, COMMISSIONER, U.S.

BUREAU OF RECLAMATION

Mr. MARTINEZ. Mr. Chairman.

Mr. DOOLITTLE. May I—before you begin—remind everyone these

statements, and everything we say, if the microphones are on, goes

out over the Internet. So you do have a switch there to control that

microphone when you aren’t wishing to speaking to the world.

Mr. MARTINEZ. Mr. Chairman, I am pleased to provide the perspective of the Bureau of Reclamation and our involvement and experience with the development of rural water projects in the western United States. My written statement has been submitted for

the hearing record, and I will summarize that statement.

Mr. Chairman, the accessibility of rural America to safe, reliable

and adequate drinking water supplies is an important issue; and

I compliment you and the Committee for scheduling this hearing

to focus attention to this vital issue.

In the western United States where reclamation is involved, reclamation has identified two major categories of need: Indian reservations or Pueblos with nonexistent or substandard water supply

systems and nonIndian rural communities with inadequate or declining water supplies.

Based on an initial and somewhat informal survey of reclamation

offices, we have identified a need for as much as $3 billion in rural

water development and construction activities throughout the 17

western States. One point seven billion dollars of that is for potential Indian projects.

I’m advised that Congress, according to the 1995 General Accounting Office report, has authorized as many as 17 Federal programs and 8 Federal agencies to address rural water needs. Reclamation, however, has been authorized only by specific legislation

to develop site-specific rural water projects.

It has been our experience that project sponsors seeking Reclamation’s involvement do so because, for various reasons, their

projects do not meet the criteria established by the existing 17

other programs.

The Department of Interior supports efforts to meet the water

needs of rural communities. It is concerned, however, about contributing to the overlap in the many Federal programs now in existence. It is concerned with respect to the number of projects being

authorized and the impacts on Reclamation’s ability to efficiently

complete projects already under construction.

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While Reclamation has been directed in statutes to develop specific rural water systems, our policy is that we participate in rural

water projects in two ways.

First, we should provide nonIndian rural water supply as a component of multipurpose projects, as long as the local sponsors reimbursed Reclamation for 100 percent of the costs incurred.

Second is our role to help the Federal Government meet its Trust

obligations with respect to Indian issues. According to long-standing administrationwide policy, single-purpose municipal, rural and

industrial water supply projects have not been considered Reclamation’s responsibility.

At the present time, Reclamation has billions of dollars in authorized projects under way. In addition, Congress currently has

before it proposals to authorize more than $1 billion in new or expanded rural water projects for Reclamation to undertake, and I

will provide a copy of a table breaking this out for the record.

[The information follows:]

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6

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Mr. MARTINEZ. Reclamation’s budget, as you know, is declining,

while our project operation and maintenance costs, our dam safety

concerns and other program obligations continue to grow.

Additionally, Mr. Chairman, we have a growing concern with the

trend towards Reclamation being obligated for operation and maintenance costs associated with some of our Native American rural

water systems that are now under construction. We are concerned

about the impact this obligation has now and in the future to enable us to complete and adequately fund construction projects

under way. We would like to open a dialogue with this Subcommittee on how we can and should address this issue. Given this

context and experience, Reclamation believes that careful consideration should be given to the Federal interests in these rural water

projects and the appropriate level of Reclamation’s involvement.

Mr. Chairman, there is a need to focus attention to the drinking

water needs of rural America. As such, there may be a need to review the coordination of existing Federal programs a well as the

funding and skills and expertise available to the different Federal

agencies and a need for greater coordination with State and local

governments to bring their expertise and resources to the table.

Mr. Chairman, this concludes my testimony. I will be pleased to

answer any questions.

Mr. DOOLITTLE. Thank you.

[The prepared statement of Mr. Martinez follows:]

STATEMENT OF ELUID L. MARTINEZ, COMMISSIONER, U.S. BUREAU OF RECLAMATION, DEPARTMENT OF THE INTERIOR

My name is Eluid Martinez, I am Commissioner of the U.S. Bureau of Reclamation. I am pleased to provide the perspective of the Bureau of Reclamation on our

involvement and experience with the development of rural water projects in the

western United States.

MAGNITUDE OF THE NEED

According to a 1995 needs assessment conducted by the U.S. Department of Agriculture’s Rural Development Office, more than 1 million people in the United States

had no water piped into their home, and a total of 2.4 million people were considered as having critical drinking water needs. Many rural residents carry heavy containers of water from cisterns, purchase bottled water or pay a water for hauling

service. Recently released Environmental Protection Agency (EPA) data indicates

that to meet the need nationwide for small systems serving 3,300 people or less

could cost more than $37 billion.

In the Western United States, where Reclamation is involved, rural needs are

identified in two major categories—Indian reservations with nonexistent or substandard water supply systems and non-Indian communities with inadequate or declining water supplies. Based on an initial survey of Reclamation offices conducted

recently, we have identified a need for as much as $3 billion in rural water development and construction activities throughout the 17 western states. Of that amount

approximately $1.7 billion were estimated for potential Indian projects and $1.3 billion for non-Indian Projects.

In addition, the Indian Health Service (IHS), which publishes an annual report

on Tribal water needs, found that more than 2,000 homes on Indian reservations

are without potable water supplies. While many of those homes are on the Navajo

Nation and in Alaska, the larger need is identified by the approximately 146,000

Indian homes which have substandard or inadequate potable water supplies or systems. IHS has estimated that it would cost approximately $950 million to address

their identified needs.

Existing Federal Programs

In response to the need and demand for assistance on this issue, Congress has,

according to a 1995 General Accounting Office report, authorized as many as seventeen Federal programs in eight Federal agencies including the EPA, IHS, Department of Commerce and the USDA. The primary programs are the EPA Drinking

8

Water State Revolving Fund, USDA’s Rural Utilities Service Program, and the Department of Housing and Urban Development’s Block Grant Program. For the most

part, these were authorized as ‘‘programs’’ to address the needs of communities that

meet the specific criteria established by statute, regulation or policy within the constraints of available appropriations.

While Reclamation has been directed in statutes to develop specific rural water

systems, our policy is that we participate in rural water projects in two ways. First,

we should provide non-Indian rural water supply as one component of a multi-purpose project, as long as the local sponsor reimburses Reclamation for 100 percent

of the costs. Second, to help the Federal Government meet its Trust responsibilities

to Indian Tribes, our policy states that, in appropriate cases, we will provide Indian

communities with rural water supply assistance. According to long-standing Administration-wide policy, single-purpose municipal, rural and industrial water supply

projects have not been considered Reclamation’s responsibility.

In the past several years, there have been numerous proposals to authorize Reclamation to develop single-purpose municipal rural and industrial (MR&I) water

supply projects for rural communities throughout the western United States. While

the Department supports efforts to meet the water needs of rural communities, we

remain concerned both about contributing to overlap in the myriad of Federal programs and projects already authorized, the impacts of the projects on Reclamation’s

overall budget, and our ability to address current obligations and to work with rural

communities in the future to identify and assist them in addressing their water

management needs.

At the present time, the Bureau of Reclamation has billion of dollars in authorized projects that are underway. In addition, Congress currently has before it proposals to authorize more than $1 billion in new or expanded single purpose rural

projects for Reclamation to undertake—all at a time when Reclamation’s budget is

declining and the operation and maintenance, dam safety, and other Reclamation

program obligations continue to grow.

Given this context and experience, we are concerned about a number of issues associated with the proposals and programs involving Reclamation’s participation in

these projects currently before Congress:

First, careful consideration should be given to the Federal interest in the

projects and the appropriate level of Federal involvement—especially given the

role that state and local governments can play.

Second, the level of non-Federal cost share for Reclamation rural water components in multi-purpose projects needs to be significantly greater than has

been proposed in the past. Most of the proposals which we have provided testimony or comments on in recent years have included minimal non-Federal contributions—some with Federal cost shares as high as 85 percent. It is our longstanding policy that MR&I components, particularly those that are non-Indian

components, should be fully reimbursable with interest.

Third, I would like to bring to your attention a growing concern within Reclamation for the trend toward Reclamation being obligated for operations, maintenance and replacement (OM&R) costs for MR&I projects. Paying the OM&R

costs, as is proposed in some case and as has occurred in the case of the Mni

Wiconi Project and others, could ultimately limit the ability of the Reclamation

program to help Native American Tribes and others to address the water resources problems throughout the west. The Administration believes that as a

general policy, Tribes where possible and other project beneficiaries should be

responsible for the OM&R expenses of their projects. We would like to open a

dialog with the Committee on how this can and should be addressed.

Mr. Chairman, this is an incredibly important issue, that I hope gets more attention in the future. The number of proposals before this Committee and the multiple

demands for funding make it clear that there is a need for attention to the need

to address the water supply needs of thousands of Americans in rural areas. As I

stated earlier, a 1995 GAO study identified eight Federal agencies with seventeen

programs designed specifically for use by rural areas to construct or improve water

and wastewater facilities. Given that, there may need to be a review of the coordination of the programs, funding, and skills and expertises of the Federal agencies, as

well as greater coordination with the state and local governments which have expertise and resources dedicated to this purpose.

That concludes my testimony. I would be pleased to answer any questions.

Mr. DOOLITTLE. Our next witness will be the Deputy Administrator of the Rural Utilities Service, RUS, the U.S. Department of

Agriculture, Mr. John Romano. Mr. Romano.

9

STATEMENT OF JOHN ROMANO, DEPUTY ADMINISTRATOR,

RURAL UTILITY SERVICE (RUS), DEPARTMENT OF AGRICULTURE

Mr. ROMANO. Mr. Chairman, Mr. Ranking Member, we appreciate the opportunity—good afternoon, we appreciate the opportunity to be here to talk about a subject that is of great everyday

importance to us and, obviously, is important to the Subcommittee,

the financing of rural water systems.

I’m happy to be here on behalf of Secretary of Agriculture Dan

Glickman to talk about USDA’s water and waste disposal loan and

grant program, which has been making loans and grants to the

rural water and wastewater system since 1940. The goal of the program has been safer and cleaner water for rural communities, particularly distressed rural communities. In short, we finance the

construction, expansion and improvement of rural water and

wastewater systems, with a premium on modesty in size, design

and construction.

We are proud of the results we and our customers have achieved

over these almost 60 years through the water and waste disposal

program. And we are very well aware of the continuing pressing

needs, as we have documented in our own assessments and our colleagues at the EPA have particularly strongly documented, for improved water quality, quantity and dependability in the economically distressed parts of rural America that we work to serve.

By law, regulation and policy, it’s our job to target our limited

loan and grant resources to communities that need them most in

terms of economic distress and serious public health challenges. We

are a unique public bank. Sixty percent-plus of our total funds go

out as loans. However, we target the remainder, almost 40 percent,

as grants that effectively buy down the loan rates for the most financially strapped of our borrowers.

The result is reasonable, affordable water rates for the customers

of the rural water systems we finance and debt service our borrowers can reasonably handle. The evidence of this is something we

are very proud of, a 99.9 percent repayment rate on the more than

$16 billion of water and waste disposal loans that have been made

over this period of almost 60 years.

Here’s the capsule summary of our loan portfolio as of September

30th, 1998, the end of the last fiscal year: 7,557 borrowers, 15,915

loans, approximately 60 percent of the loans were made for drinking water projects, the rest were made for sanitary sewer and a relative small handful of solid waste disposal projects, outstanding

principal of $5.89 billion, 1/10 of 1 percent, as I noted earlier, of

the total loan principal delinquent—I should say only 1/10 of 1 percent of the total loan principal is delinquent.

And here is the capsule summary of our fiscal year ’98 investment activity: $1.33 billion committed to 1,072 projects nationwide,

just over 60 percent of them drinking water projects. Of the $1.33

billion we committed, $800 million went out as loans and $530 million as grants. The average loan size was $840,000; the average

grant size was $590,000. The average median household income for

a family served by our water projects in FY ’98 was just under $20,000. By comparison, the national poverty rate for a family of

four is $16,500.

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Our total FY ’98 commitments will serve approximately 1.3 million people with new or expanded or improved drinking water or

wastewater disposal facilities. Our total annual commitment leveraged, in FY ’98, more than $250 million, $250 million in loans and

grants from other sources.

The principal other sources included community development

block grants, HUD funds that go through State agencies; State revolving loan funds, through the States, that’s EPA dollars; Appalachian Regional Commission Grants administered directly by our

people in the field under an agreement with the Appalachian Regional Commission and Indian Health Service Grants for tribal

projects. And we are funding an increasing number of tribal

projects, five times as many as we did 6 years ago. State-appropriated funds and economic development administration grants,

once again under an agreement that’s almost 30 years old, the cooperative agreement with the EDA where our staffs work together

on this.

Here is a quick portrait of a high-priority customer, a hypothetical high-priority customer.

It’s eligible for our program; it’s a small town or city or it’s a

rural county or nonprofit water association or Indian tribe. The

population is under 5,500, eligible population is under 10,000, but

we’re particularly looking for the very small, distressed communities with limited resources that have nowhere else to turn.

They’re unable to obtain credit for the improvements from private

commercial sources. They have water-related health and safety

concerns, as evidenced by a mandate or threat of a mandate from

a State or Federal regulatory agency.

Mr. Chairman, I have about 2 more minutes. Should I wrap it

up or—— Mr. DOOLITTLE. Go ahead and just finish your statement.

Mr. ROMANO. I appreciate it.

The median household income on this average project of ours for

the service area is less than 80 percent of the Statewide nonmetropolitan median household income, which is typically almost always

lower than the Statewide median household income overall.

This project would merge two or more small water systems to

maximize operating and cost efficiencies. The project would not just

improve water service to existing users but would also bring some

new users, very important to us, new users in the system. The

project financing would consist of at least 20 percent of the total

development costs, and ideally more than 50 percent, to get the

maximum score under our priority scoring system from financing

sources, such as the ones I mentioned earlier, from sources other

than the USDA.

We believe our track record is notable and our impact deep and

broad throughout rural America.

I want to note, and I can make these summaries available, that

over the past 5 years, talking about broad coverage in the districts

of the 15 members of the Subcommittee over the last 5 years, and

I have that information for the Committee, we funded 138 water

and wastewater disposal projects.

Over the last 5 years, we’ve also made the following improvements in the way we operate: Done a major overhaul of our proVerDate 11-MAY-2000 09:03 Sep 19, 2001 Jkt 010199 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HEARINGS\60633 pfrm07 PsN: 60633
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gram regulations. We’ve eliminated 40 percent of their volume.

We’ve cut a major step out of our application process. We’ve created

more incentives for small water systems to join together. We’ve created more incentives for our customers to use other funds to leverage funds from other sources, and our leveraging percentages are

going up every year.

We’ve pushed more project responsibilities into the field, where

we have about 350 employees on the ground in the States, compared with Washington, where we are down to 27 employees working on our water and waste disposal program. We have beefed up

the delivery of technical assistance and training to our customers

and potential customers through a network of hands-on nonprofit

circuit riders, especially through the State rural water associations.

These circuit riders are proficient in fixing pumps, setting water

rates, working out management problems, and they’re particularly

proficient in training water system operators to be independent

and to run their systems better and more efficiently.

During that 5 years we have renewed an almost 20-year-old cooperative agreement—I have a copy for the Subcommittee—with

the Appalachian Regional Commission, whereby, in 1998, our people directly administered almost 17 million of their project funds.

Their staff does very little. They have given complete authority to

our people to administer their funds.

We regularly consult with the IHS and EPA on the funding of

water projects in Indian country; and, in fact, this year we have

jointly funded several projects with the IHS, most notably, very recently, in the last month, the Shoshone-Bannock project in Idaho

in the district of Mr. Simpson.

I have a copy for the Subcommittee of a memorandum between

us and the IHS on specific project funding.

Finally, and perhaps most notably, in 28 States, 28 states, our

staff and the staffs of other key water infrastructure agencies meet

on a regular basis as part of formal or informal groups. In some

places, they’re called water assistance councils; in other places,

they’re called infrastructure financing councils in 28 States. Basically, our people get together on a regular basis with other public

employees to broker projects, to discuss projects and the best way

to fund them, either singly or jointly.

By our estimate, 5 years ago that was only happening in 13

States. So that’s more than doubled. And I have a copy of an infrastructure survey done by the Council of State Community Development Agencies of what the status of those infrastructure councils

in the States is right now.

There is still a great deal to do in the way of targeting investment in rural America to improve public health, fire protection and

economic opportunity through improved drinking water. The Department of Agriculture is pleased to play a very active role in increasingly, with other public partners, State and Federal, to assist

the many communities that turn to us as their primary investor.

One last pile of paper for the Subcommittee, 14 pages singlespaced, both sides of the page, of our present backlog of

preapplications for water and waste disposal financing, $2.28 billion in loan backlog, $1 billion in grant backlog available to the

Subcommittee.

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Thank you for this opportunity.

Mr. DOOLITTLE. Thank you.

Mr. ROMANO. And for the extra time.

[The prepared statement of Mr. Romano follows:]

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Mr. DOOLITTLE. Our next witness is Cynthia C. Dougherty, the

Director of the Office of Groundwater and Drinking Water within

the U.S. Environmental Protection Agency. Ms. Dougherty.

STATEMENT OF CYNTHIA C. DOUGHERTY, DIRECTOR, OFFICE

OF GROUND WATER AND DRINKING WATER, U.S. ENVIRONMENTAL PROTECTION AGENCY

Ms. DOUGHERTY. Thank you, Mr. Chairman, for the opportunity

to testify before you today on Federal financing of rural drinking

water projects. I’m from EPA’s Office of Groundwater and Drinking

Water, which oversees implementation of the Safe Drinking Water

Act.

Through the Safe Drinking Water Act, the Environmental Protection Agency is charged to protect the health of people who drink

water from public water supplies. Three years ago, President Clinton signed amendments to the Safe Drinking Water Act, which

were passed by Congress, that made significant changes to the Act

to focus it and our work on the greatest risk to human health so

that America’s drinking water will continue to be of high quality.

Those 1996 amendments provided a new source of financial assistance for all public water systems to help pay for the costs of the

national standards that we would be setting in the future, as well

as for other drinking water treatment needs.

Between fiscal years 1997 and 1999, Congress appropriated near- ly $2.8 billion for that program, the Drinking Water State Revolving Fund. States use these resolving funds with a 20 percent State

match to provide financial assistance to systems to protect public

health and ensure compliance with the Safe Drinking Water Act

objectives.

The State revolving funds provide low-cost loans to publicly- and

privately-owned water systems as well as nonprofit, noncommunity

systems, with repayment terms of up to 20 years. The Nation’s

public water systems must make significant investments to continue to ensure delivery of safe drinking water to their customers

over time.

In 1997, EPA’s survey of drinking water infrastructure needs

concluded that more than $138 billion will be needed over the next

20 years to fund necessary drinking water treatment improvements, including $37 billion for systems serving fewer than 3,300

people. This treatment need is large because of the size of the

drinking water universe. There are 55,000 community water systems, serving 250 million Americans. The vast majority of these

systems serve fewer than 3,300 people. These approximately 46,000

small community water systems provide water to 25 million people

in both rural and suburban America.

The drinking water SRF was created to address drinking water

quality needs. States determine which projects are funded within

their State by using a priority system which ranks projects primarily based on three criteria—the risks to human health, the necessity of the project to ensure compliance with the Safe Drinking

Water Act, and the economic needs of the system.

Eligible projects include expenditures to upgrade or replace

drinking water treatment infrastructure, treated water distribution

or storage facilities, and system consolidation. States are prohibited

27

from providing loans to finance growth, dams and most reservoirs

and water rights.

EPA is committed to ensuring that all Americans served by regulated water systems receive the public health protection benefits

envisioned in the Safe Drinking Water Act. EPA fully supports financing of drinking water treatment projects for smaller and rural

systems to address public health concerns, since many of the systems in greatest needs are small water systems.

States have made funding small water systems projects a priority. As of the beginning of July, 1999, States have made 637

loans—we’re actually a much younger program since we’ve only

been in place 3 years—637 loans totalling $1.3 billion to eligible

water systems for drinking water projects. More than 3/4 or 497 of

these loans went to small systems.

While the Safe Drinking Water Act requires that at least 15 percent of the funds be made available to small systems, States have

provided almost 41 percent of the funds loaned to date to small systems. This is particularly notable because many States have found

these loans can take a significant amount of administrative assistance to finance.

EPA also recognizes the need to coordinate with other agencies

to better serve rural America. EPA has worked with other funding

agencies, including the Rural Utility Service and HUD’s community

development block grant program, to coordinate activities to address small systems’ needs. In 1997, the three agencies issued a

joint memorandum to foster cooperation among our agencies as we

administer our grant and loan programs and to encourage State

administrators of our programs to do the same.

This coordination is taking place at the State level. In Washington State, nine projects from the first round of drinking water

SRF applications were cofunded from various sources including

RUS, CDBG and the State Public Works Trust Fund. Several

States, including Oregon and Arizona, have developed one-stop

meetings that bring funding agencies together in one place with applicants for funding. We will continue to work with rural funding

organizations at the Federal and State level to provide coordinated

assistance to rural water systems.

Separate from the drinking water SRF, some communities, small

and large, have sought financial assistance for water and wastewater projects as line items in EPA’s budget. EPA is responsible

for managing grants to these projects which are administered as direct grants with a 45 percent cost share by the grant recipient.

EPA remains concerned that the funding of these projects undermines the authority of States, as established by Congress in creating both the drinking water and clean water SRF programs—to

decide which projects will provide the greatest public health and

water quality benefits, and to fund those projects that the State determines, under statutory criteria, represent the greatest public

health, environmental and economic need priorities across the

State as a whole.

Loans given out through the drinking water SRF address the

highest priority public health needs of the water systems in each

State, including those in rural areas. State priority lists are developed through a responsive public process which allows citizens

28

within the State to participate in deciding on public health priorities.

EPA and the States are coordinating their drinking water SRF

funding activities with other agencies to ensure that these priority

drinking water treatment needs of rural America can be met in the

most efficient manner possible.

Thank you.

Mr. DOOLITTLE. Thank you.

[The prepared statement of Ms. Dougherty follows:]

STATEMENT OF CYNTHIA C. DOUGHERTY, DIRECTOR, OFFICE OF GROUND WATER AND

DRINKING WATER, U.S. ENVIRONMENTAL PROTECTION AGENCY

Thank you, Mr. Chairman, for the opportunity to testify before you today on Federal financing of rural drinking water projects. I am Cynthia Dougherty, Director

of the Environmental Protection Agency’s (EPA’s) Office of Ground Water and

Drinking Water, which oversees implementation of the Safe Drinking Water Act.

The Safe Drinking Water Act (SDWA) is the principal Federal statute governing

drinking water quality in the United States. Through the Act, the Environmental

Protection Agency is charged with protecting the health of persons who drink water

from public water supplies. EPA works with the States, drinking water suppliers,

and the public to set health standards for drinking water, and to ensure that these

standards are met by the public drinking water suppliers, so that the finished,

treated water will be of high quality. Three years ago President Clinton signed into

law amendments to the Safe Drinking Water Act, passed by Congress, that focus

our efforts on the greatest risks to human health. Congress and the Administration

agreed to make some significant changes in the Act to increase public health protection while controlling costs, and EPA and its partners in the drinking water community have spent the last 3 years making those changes a reality.

The drinking water universe is large—55,000 community water systems serve 250

million Americans—and the vast majority of these systems serve fewer than 3,300

persons. These approximately 46,000 small community water systems provide water

to 25 million persons in both rural and suburban America. Rural water systems face

significant challenges as they work to provide safe drinking water, as low population

densities increase the fixed costs of drinking water distribution while offering a limited consumer base to spread out costs.

EPA is committed to ensuring that all Americans served by regulated water systems, regardless of the size of their water system or their location, receive the public

health protection benefits envisioned in the SDWA. The nation’s public water systems must make significant infrastructure investments to continue to ensure the delivery of safe drinking water to their consumers. A 1997 EPA survey of drinking

water needs identified that more than $138 billion will be needed over the next 20

years to fund necessary infrastructure improvements, including $37 billion for systems serving fewer than 3,300 persons. Historically, many water systems, particularly small systems, found it difficult to obtain affordable financing for those infrastructure improvements.

The Administration and Congress worked to address the needs of rural drinking

water systems in the 1996 Amendments to the SDWA through technical assistance,

flexibility in Federal requirements, and funding. The SDWA Amendments provided

a new source of financial assistance for public water systems to address public

health protection needs. Between fiscal years 1997 and 1999, Congress appropriated

nearly $2.8 billion through the Drinking Water State Revolving Fund (DWSRF) for

States and Tribes to address their drinking water needs. States are required to provide a 20 percent match on DWSRF grants they receive. States use the funds received from EPA grants to capitalize their own drinking water revolving funds and

finance other activities that support drinking water protection. States then use

these revolving funds to provide financial assistance to systems to protect public

health and ensure compliance with SDWA objectives. The State revolving funds provide low-cost loans to publicly and privately owned water systems, as well as nonprofit non-community ones, with repayment terms of up to 20 years. Interest rates

on loans can be at, or below, market interest rates.

A recognition of the special needs facing small systems is the SDWA requirement

that States target a minimum of 15 percent of the funds available to provide systems serving under 10,000 persons with financial assistance. Also, for many rural

communities, even the low interest rate for loans available through the DWSRF

may be too high to make loans affordable. To help address this challenge, a State

29

has the option of providing additional subsidies, including forgiveness of principal,

to systems that meet the State’s definition of ‘‘disadvantaged.’’ ‘‘Disadvantaged’’ systems can also receive extended loan repayment terms of up to 30 years.

EPA fully supports the financing of small drinking water projects to address public health concerns through the DWSRF, since many of the systems in greatest need

are small water systems. States have made funding small water system projects a

priority. As of the beginning of July 1999, States’ revolving funds had made 637 loans totaling $1.3 billion dollars to eligible water systems for drinking water

projects. More than three-quarters (497) of these loans went to small systems. While

the SDWA requires that 15 percent of the funds be made available to small systems,

States have provided almost 41 percent of the funds available to small systems. This

is particularly notable because many States have found that these loans can take

a significant amount of administrative assistance to finalize.

EPA has worked with other funding agencies, including the Rural Utilities Service

(RUS) and the Department of Housing and Urban Development Community Development Block Grant (CDBG) Program, to coordinate activities and to address rural

systems’ needs. In 1997, EPA, RUS, and HUD issued a joint memorandum to foster

cooperation between the agencies as they administer their grant and loan programs,

and to encourage State administrators of our programs to do the same. This coordination is taking place. In Washington, nine projects from the first round of DWSRF

applications were co-funded from various sources, including RUS, CDBG, and the

State Public Works Trust Fund. In Maine, monthly meetings are held between the

State staff administering DWSRF, CDBG and RUS funds to identify projects and

optimize use of funds. Several States, including Oregon and Arizona, have developed

one-stop meetings that bring funding agencies together in one place with potential

applicants for funding. We will continue to work with rural funding organizations

at the Federal and State level to provide coordinated assistance to rural water systems. The Department of Commerce advises us that, through its Economic Development Administration, it also provides financial assistance to rural communities to

improve their water supply systems. Examples of projects that have been funded include $36,000 to the city of Mitchell, Oregon to make improvements in its chlorination system in response to colifom

bacteria contamination, and $1,030,000 to the city of South Bend to fund construction of a new membrane treatment facility. In addition, the Bangor [Maine] Water

District used a $556,000 loan through a DWSRF set-aside to purchase 725 acres of

land in the direct watershed of Floods Pond, the District’s source of water, which

will add protection from microbial contamination.

The DWSRF was created to address drinking water quality needs. States determine which projects are funded by using a system that ranks projects, giving priority to those projects that: address the most serious risk to human health, are necessary to ensure compliance with the requirements of the SDWA, and assist systems

most in need on a per household basis. Eligible projects include expenditures to upgrade or replace drinking water infrastructure, treated water distribution or storage

facilities, planning and design, and system consolidation. States are prohibited from

providing loans to finance growth, economic development, dams, and most reservoirs

and water rights.

States also have the option of setting aside funds from their DWSRF grants to

support a number of SDWA priority initiatives including capacity development, operator certification, and source water protection. All of these activities can help

water systems, including small rural systems, improve their ability to provide public

health protection. One of the set-asides is specifically targeted to benefit small systems. This set-aside, which provides funding for technical assistance for small systems, has been popular among States, which reserved 1.6 percent (of a maximum

2 percent) of FY 1997 grants or $20.2 million to conduct activities. States that have

received FY 1998 funds have reserved approximately the same percentage of their

grants for this particular set-aside.

Some communities, small and large, have sought financial assistance for water

projects as line items in EPA’s budget. EPA is responsible for managing grants to

these projects which are administered as direct grants with a 45 percent cost share

by the grant recipient. EPA remains concerned that the funding of these projects

undermines the authority of States—as established by Congress in creating the

DWSRF (and the Clean Water State Revolving Fund under the Clean Water Act)—

to decide which projects will provide the greatest public health and water quality

benefits, and to fund those projects that the State determines to fund, in accordance

with the applicable statutory criteria.

Loans given out through the DWSRF address the highest priority public health

needs of water systems in each State, including those in rural areas. State priority

lists are developed through a responsive public process which allows citizens within

30

the State to participate in deciding on public health priorities. The Administration

and Congress intended for the DWSRF to be the primary vehicle to fund drinking

water treatment improvements, and EPA supports assistance to rural water systems under the DWSRF.

This concludes my prepared remarks. I would be happy to address your questions

at this time.

Mr. DOOLITTLE. Commissioner, why isn’t the Bureau part of the

April ’97 joint memorandum between HUD, EPA and RUS to involve coordination amongst the agencies involved in funding or providing technical assistance for rural water projects?

Mr. MARTINEZ. Mr. Chairman, if I may, let me try to place this

in context. There’s no question that there’s a multitude of rural

water systems all over the west. Some are small, some are larger

than others.

For the most part, these systems access a local water supply

that, for most purposes, is adequate for drinking standards. They

need assistance either to enlarge the system or if they’ve got some

local groundwater problems they take care of these issues, and

probably that’s what these programs and these other agencies, are

geared to help with.

But the projects that have been coming before the Bureau of Reclamation, at least the while I’ve been commissioner of Reclamation,

are these projects that are much larger in scope. These are projects

that are taking water from one location, where it’s available in

quantity and quality, and moving it across large distances and

tying together existing rural systems where water quality is lacking or inadequate into a much larger component.

And if you look at what’s before you, it’s these large infrastructure systems that are coming before this Subcommittee. It’s not the

small rural systems that are trying to improve their pipelines and

so forth.

So I think that, from that perspective, Reclamation has never

been in this business of helping these small rural water projects

and probably it’s appropriate that they didn’t join this memorandum, which I wasn’t even aware existed. But, at any rate, these

projects that have been funded by Congress or that the Bureau of

Reclamation has become involved in are not what I would consider

the small rural water projects but rather they are combining these

projects into much larger systems.

The Bureau of Reclamation’s history on developing projects that

deliver water for municipal, industrial needs has always been,

under Reclamation law, reimbursable with interest. Basically that

follows our position that any of these projects that are funded

through Bureau of Reclamation should follow Reclamation law and

should be reimbursed at 100 percent with interest.

Notwithstanding that, Congress in the last few years has approved legislation and the Bureau of Reclamation today is helping

build projects in North and South Dakota and in Montana for these

large regional systems. I am aware of at least two projects being

proposed or in the pipeline in the State of New Mexico. So the

issue is, is there a Federal role in building these systems that are

not addressed by these other programs and, if so, which Federal

agency or agencies should be responsible and how should they be

financed?

31

So, you know, maybe I’m going a bit overboard, but I’m trying

to sort of isolate the differences in the systems and the issues that

are before this Subcommittee with respect to the proposals that

have come before you in the last 2 or 3 years.

That’s a long answer to—maybe it wasn’t a direct answer to your

question, but I sort of wanted to set the tone for what I believe

could help the Subcommittee in its deliberations.

Mr. DOOLITTLE. Well, I think you’ve crystallized the issue very

well. And in a minute I would like you to express what you think

is the right thing to do on this, since it’s obviously, for the people

that live in these areas, it is a problem. But, you know, is there

a Federal role, and if there is, what is it, and how much it would

be?

Let me just ask you if you could, with your staff, to look at that

memorandum, perhaps, and maybe you can send word after you

further consider the issue, if you think there might—does BOR— does it make sense to have them be part of that memorandum?

Mr. MARTINEZ. I will do that.

Mr. DOOLITTLE. Okay. Now, I know the yellow light is there. You

posed those questions very articulately. What do you think the answers ought to be?

Mr. MARTINEZ. Well, let me just share some thoughts with you.

I think that there’s no question that there should be a Federal role,

and there is a Federal role. Congress has spoken with respect to

its funding of programs for both the rural, small systems and the

need for these large, interconnecting systems.

It has already approved six or seven projects that the Bureau of Reclamation is engaged with, to the extent of a total cost of $750

million. The administration has gone on record supporting delivery

of adequate water supply to the rural communities. The question

is now, how do we crystallize the resources and the legislation to

provide this service that apparently is lacking? Because these

project sponsors are trying to figure out where they need to go.

Now, the question, how do you finance that? Well, the concern

I have as the Bureau of Reclamation commissioner, as I expressed

to you before, is, given our budget resources and the needs for continuing to upgrade and maintain our existing facilities, I cannot,

you know, in all due conscience say here that I support the Bureau

of Reclamation engaging in these activities in the absence of additional resources being brought to the table in terms of additional

funding.

On the other hand, I cannot sit here and support that those resources should be siphoned up from some other program, particularly if those programs are delivering a need that exists and is

being utilized by the American public. So I don’t know—there’s no

easy answer to this, but it appears to me that the Congress and

the administration, with the resources available to the Federal

Government or the support of the States, need to put together a

program for funding reclamation activities like they did back in

1902. Together we can surely come up with an approach to address

this issue.

I would refer you to the other program that the Bureau of Reclamation is involved in, which is our development of wastewater

reuse projects. If you recall, the original projects that were funded

32

by Congress were site specific. Then Congress revisited that issue

a few years ago and redid its wastewater reuse law, set some criteria, directed the Bureau of Reclamation to set up some criteria,

which projects they would support and not support and recommend

to Congress for funding. They set a cap on the amount going to

each project.

So I think there’s precedent, and I would defer to you in your

judgment as to how Congress should react on this issue.

Mr. DOOLITTLE. Well, thank you.

Mr. Dooley, I will recognize you for your questions.

Mr. DOOLEY. Thank you, Mr. Chairman.

I guess, just to try to help me frame this issue, is if we look at

a specific project that’s been proposed, the Lewis and Clark project,

which I had the chance to review the GAO report that was prepared on that, and basically my assessment of it is there really is

not one Federal program out there, any one agency that really is

authorized to participate in a manner that would I guess lead to

the construction of or the completion of this project. And would you

concur with that, Commissioner Martinez?

Mr. MARTINEZ. That is my understanding, if I recall the testimony of the project sponsors, is that they tried going to the different programs and weren’t able to put a project together and had

come to this Subcommittee and the Bureau of Reclamation because

they were aware that the Bureau of Reclamation was involved in

a similar project that the subcommittees had authorized and that

the Bureau of Reclamation had that expertise for the project in

question, which we’re talking about these large trunk lines and

processing facilities.

Mr. DOOLEY. I guess, Ms. Dougherty, in terms of the EPA’s involvement on this, when you have a project like this, which the

proponents are advocating or arguing that it is one which is critical

to meeting water quality standards, what is the opportunities for

EPA’s participation in a project of this nature?

Ms. DOUGHERTY. I talked to the people who had come to town to

engage people in the project and both John and I did together—and

the size of that project dwarfs the money that’s available from the

drinking water SRF with the three States that would be involved.

It would take all of their money every year for several years to go

to that one part of their State, and they wouldn’t be able to deal

with the needs that they have in other parts of their State. So it

really overwhelms what’s available at the State level from the

drinking water SRF.

The total national DWSRF budget each year is around $800 million, so that project is just very large when you look at that. Some

of the issues that we were also looking at were drinking water

standard related and some were drinking water issues that we—

that related to the specific standards that we have right now.

Mr. DOOLEY. I guess have we basically in some ways almost

made a de facto decision because there isn’t the ability of the local

participants or the States to finance a significant share of this and

there’s not the available Federal resources nor the policy that

would necessarily require Federal participation, that this is just

one that there’s not a home for?

33

Ms. DOUGHERTY. Not in the program that we have at EPA; because of size but also because it goes beyond what we normally

would be funding.

Mr. DOOLEY. Mr. Romano, as far as USDA is concerned, would

your response be very similar to that?

Mr. ROMANO. My response would be very similar, Congressman,

except that we would tend to look at a project like that as several

potential phases of projects. We would tend to look at a project like

that as in cooperation with other agencies; and, as you heard in my

statement, we’re working more and more closely with other agencies. We would try to look at the possibility there.

If a larger project like that was built over several phases to look

at piece by piece, the communities that could potentially apply for

our assistance as part of a phase. If it were a community along

that system—if somehow the wherewithal could be found to develop the treatment plant and the transmission line or the beginning of the transmission line, we might be able to help with specific

communities that were income eligible, that were population eligible, along the way.

In fact, we’ve been doing that with the Southwest Pipeline

Project in the State of North Dakota, which is part of the bigger

Garrison Diversion Project.

Now, you might look at 5 percent of what’s been spent over the

past 13 years as insignificant, but, you know, as I look at that

funding, it’s been pretty good gap or linchpin funding along the

way to make it possible. Apparently, $160 million from various

public sources have been spent there in various phases over 13

years. Eight million dollars of that, mostly in grants, but partly in

loans, have come from our program. We would expect to continue

to participate with that Southwest Pipeline Project in the future.

I mentioned our average loan and grant size. Our average loan

size is $800,000. Occasionally, we do somewhat bigger loans. Last

year on a pipeline project, well, not out west but in Louisiana, an

all loan deal, we came in with a loan of around $7 million. It’s a

couple of phases, but there’s several other financing sources. As I

recall, we’re slightly over 50 percent of that Project.

The Shoshone-Bannock Project, it’s not one of these

macroprojects, if you will, in terms of a couple hundred million dollars in Idaho, but the projected cost is $15 to $20 million. We look

at that as a potential three or four phase project with funding from

us, from IHS, and from EPA.

Now, if the BOR were involved—and BOR already has, I believe,

a half million dollars in there for a feasibility study, not the part

we’ve already funded, which is in the village where things—where

homes are concentrated but out in the rural areas—BOR already

has feasibility study money in there. It may be an appropriate role

for the BOR later if that study shows a feasibility for their programs to join the other three funding sources—us, EPA, and IHS—

to make that four- or five-phase project a two- or three-phase

project.

Mr. DOOLEY. Thank you.

Mr. DOOLITTLE. Mr. Pombo.

Mr. POMBO. No questions.

34

Mr. DOOLITTLE. Let me ask you, Mr. Romano, with what you

know about the various programs and the people you serve, do you

think the Bureau should be part of that agreement?

Mr. ROMANO. The agreement——

Mr. DOOLITTLE. This 1997 joint memorandum involving HUD

and the EPA and RUS.

Mr. ROMANO. Probably, from what I know of their activities and,

you know, there certainly is the opportunity to amend it.

Mr. MARTINEZ. Mr. Chairman.

Mr. DOOLITTLE. Yes, Mr. Martinez.

Mr. MARTINEZ. If I may, and, again, if I’m wrong, I’ll have the

record corrected, but because Reclamation has no general authority

to engage in these kinds of projects, and I’m assuming that these

two agencies to my left have general authority, they’re working

under a general authority, under a memorandum, it might be

somewhat difficult for us, quite frankly, to join into that kind of

memorandum unless it’s site specific for each of the projects. So

there might be some problems there.

And I guess this goes to the question of what is Reclamation’s

role in this area and what should be the role. To date, we have

moved forward in these activities with planning efforts directed by

Congress and authorized, because before we can go into a certain

level of study we have to have authority and then we have to have

authority for the specific projects.

The question that remains is, for Congress and the administration to work through, is what should be the appropriate role of the

Bureau of Reclamation in these activities? Should we have a role

in terms of no role at all, continue the way things are working, or

should we become more actively engaged in this initiative?

Thank you.

Mr. DOOLITTLE. Well, thank you.

Let me ask, Ms. Dougherty, what are the estimated costs, if you

know, for providing a reliable source of drinking water to rural

communities throughout the rural areas in the United States? Do

you have a figure for that?

Ms. DOUGHERTY. I just have a figure for the small systems that

serve less than 3,300 people, which I assume——

That’s the $37 billion.

Mr. DOOLITTLE. That’s your policy criteria?

Ms. DOUGHERTY. That’s the $37 billion, right.

Mr. DOOLITTLE. How much is it?

Ms. DOUGHERTY. $37 billion over 20 years, the needs over the

next 20 years. That doesn’t simply include the costs to comply with

the Safe Drinking Water Act, but also includes other necessary infrastructure upgrades that people would need to just supply water

to replace equipment or to replace pipes or to replace storage towers.

Mr. DOOLITTLE. But over 20 years for rural communities or just

communities.

Ms. DOUGHERTY. For existing rural public water systems.

Mr. DOOLITTLE. Of less than 3,300 population.

Ms. DOUGHERTY. Less than 3,300.

Mr. DOOLITTLE. $37 billion?

35

Ms. DOUGHERTY. Yes. And we actually have a needs survey,

which I didn’t bring with me, that we would be happy to provide

to the Committee.

Mr. DOOLITTLE. I think that would be useful.

[The information follows:]

Mr. DOOLITTLE. Well, what do you think I should tell these people that come to this Subcommittee with these big projects? I

mean, obviously they have a need, but obviously we don’t—I don’t

think we have the money to do it in the way, you know, they would

have us do it.

I’m kind of looking to the administration to work with us to figure out, what people can reasonably expect of this Subcommittee?

What is the right policy for us to sit down to help people work

through these problems? Any suggestions?

Mr. MARTINEZ. Mr. Chairman, here we’re dealing with Bureau of

Reclamation and the oversight responsibility you have with respect

to authorization language for Bureau of Reclamation issues. Given

the budget limitations that the Bureau of Reclamation has and,

again, given the constraints on our budget based on existing needs,

I see no other alternative in the Committee than to say, in the absence of a unified program, Federal program, it’s very difficult for

us to fund these projects. That’s a practicality, because you’re going

to be robbing Peter to pay Paul.

Mr. DOOLITTLE. Well, we’ve been saying that. Then, the Senate

passes something out that undermines our position a little bit.

I do believe the need is legitimate, but I do think we’ve got to

find a different way to do this. And I appreciate your coming before

us.

I want to give Mr. Dooley an opportunity——

Mr. DOOLEY. No questions.

Mr. DOOLITTLE. I think what we will do is recess the Committee,

we will excuse this panel, and thank you very much for coming,

and ask you to respond expeditiously to supplementary questions

we put to you.

And with that, we will excuse the panel. We will recess the Committee, and we will come back after this vote.

[Recess.]

Mr. DOOLITTLE. Well, the Subcommittee will reconvene. We have

Panel II, and we will ask our members of the panel—let’s see, we

don’t have—it was a rather long break; we had several votes. I

think we will just begin with the two witnesses we have and pick

up our third one when she arrives.

Let me ask, please, you two if you will rise and raise your right

hands.

[Witnesses sworn.]

Mr. DOOLITTLE. Thank you. Each answered affirmatively. We are

very happy to have you here, and we will recognize, as our first

witness, the Associate Director of Energy Resources and Science

Issues Resources—these are long titles—within the Community

and Economic Development Division of the General Accounting Office. That is Ms. Susan Kladiva.

36

STATEMENT OF SUSAN KLADIVA, ASSOCIATE DIRECTOR, ENERGY RESOURCES, AND SCIENCE ISSUES RESOURCES, COMMUNITY AND ECONOMIC DEVELOPMENT DIVISION, GENERAL ACCOUNTING OFFICE

Ms. KLADIVA. Thank you, Mr. Chairman. In your request for us

to testify, you asked that we address questions on the funding of

rural water projects based on the work that we have been doing for

the Subcommittee.

As you know, we have been working on the Lewis and Clark

rural water projects as a case study. In that connection, we have

reviewed issues concerning the relative benefits and certain alternatives that you recommended for financing the project.

The Lewis and Clark project is a proposed solution to insufficient

amounts of good water quality near the junction of South Dakota,

Minnesota, and Iowa. The project would divert and treat up to 23.5

million gallons daily of Missouri River water that would be piped

to 22 cities and rural communities throughout the area. The cost

of the project in 1993 dollars is estimated to be at about $283 million, and the proposed legislation provides a formula for Federal

and non-Federal sharing of planning and construction costs under

which the Federal Government would be responsible for a grant of

about $193 million.

In May of last year, we testified before you that the Lewis and

Clark project would meet some of the criteria of the USDA and

EPA rural water programs, but not key criteria relating to the population of the service area, economic feasibility and priority. Further, its dependence on grants is inconsistent with BOR’s longstanding policy of having water users repay 100 percent of costs of

projects.

While officials of USDA, EPA and BOR said that they believed

that the Lewis and Clark project is worthwhile and needed by the

communities it would serve, its biggest limitation is its high cost

relative to their agencies’ funding availability.

Today we will provide further testimony on Lewis and Clark. My

statement will summarize the results of a report that we issued to

you in May of this year, discussing the benefit that could result

from the project, who would receive them and how they are valued.

Potential benefits fall into three categories: societal, economic

and fiscal.

Societal benefits consist of improvements in the health and safety and life-style of residents. Economic benefits include increases in

the regional output of goods and services or transfer of economic

activity into the Lewis and Clark service area from outside the region. Fiscal benefits are net increases in government revenues,

such as sales and property taxes that result from an increase in

economic activity.

The primary recipients of these benefits would be local water

users such as households and businesses. They would benefit from

lower water-related expenditures, as well as higher incomes because of increases in local economic activity.

Local and State governments would be the beneficiaries of any

increases in sales and income tax revenues. Counties and school

districts could benefit if there were an increase in property taxes.

37

However, the Federal Government would realize little fiscal benefit

from the Lewis and Clark project.

We attempted to quantify the benefits of the project, but found

that benefits from municipal and industrial water supplies are difficult to value. Specifically, societal benefits cannot be monetarily

measured with reasonable accuracy. Economic benefits are also difficult to measure because of the difficulty in attributing increases

in economic activity directly to changes in the quantity and quality

of water.

Despite this difficulty, we believe that increases in the value of

agricultural goods and services due to Lewis and Clark will be

minimal at the national level. At the regional level, however, economic benefits should be greater because they include not only the

increase in the value of regional goods and services, but also the

transfer of industries into the area from outside the region.

For example, local planners expect that if the project is built,

food processing and ethanol plants may consider relocating to the

Lewis and Clark service area. Because of the difficulty in identifying and directly attributing changes in economic activity to the

quantity and quality of water, economists have developed other

methods that can approximate the value of benefits attributable to

water projects. One such method is estimating the cost of reasonable alternatives that would be avoided if the project is built.

Individual Lewis and Clark water districts reported that their alternatives consisted of drilling additional water wells, modifying or

building treatment plants, and purchasing water from other water

districts. We estimate that the sum of these alternative costs for

the Lewis and Clark projects’ 22 member districts ranges between $71 million and $81 million. This compares to the 1993 estimate

of $283 million to build the project, which is about $313 million in

today’s dollars.

However, it is important to note that these estimates are minimum value because many of the alternatives would not produce

the same quality of water as Lewis and Clark and because two districts did not estimate their alternatives.

In summary, it is apparent that the Lewis and Clark Rural

Water Project poses a dilemma. It is deemed to be a worthwhile

project that is needed to improve drinking water supplies that are

low in quantity and quality, yet its benefits will be minimal at the

national level and existing Federal rural water assistance programs are not funded at levels to accommodate such large projects.

It is timely therefore, Mr. Chairman, that this Subcommittee has

begun the dialogue to address options for funding rural water

projects.

This concludes our prepared statement. We will be pleased to answer questions.

Mr. DOOLITTLE. Thank you.

[The prepared statement of Ms. Kladiva follows:]

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50

51

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53

Mr. DOOLITTLE. Our next witness is the Executive Director of the

Midwest Electric Consumers Association, Mr. Thomas P. Graves.

Mr. Graves.

STATEMENT OF THOMAS P. GRAVES, EXECUTIVE DIRECTOR,

MIDWEST ELECTRIC CONSUMERS ASSOCIATION

Mr. GRAVES. Thank you, Mr. Chairman. Mid-West Electric Consumers Association appreciates the opportunity to come and testify

before this Subcommittee on rural drinking water systems.

Mid-West is the regional coalition of consumer-owned electric

utilities that purchase power generated at Federal dams in the

Missouri River Basin. Since 1958, Mid-West has represented the

interests of more than 3 million consumers that depend in part on

the Pick-Sloan Missouri Basin program for their power supply.

More than 100 years ago, John Wesley Powell recommended that

the boundaries of the western States be determined by river basin

drainages. The scope and vision of the Pick-Sloan Missouri Basin

program, wittingly or not, followed Powell’s concept.

The original Pick-Sloan program provided a variety of benefits

for the region—flood control, navigation, municipal and industrial

water, irrigation, and, of course, hydropower. Of all the project purposes, only the hydropower function and municipal and industrial

water supply pay 100 percent of the costs allocated to that project

purpose with interest.

As part of the bargain struck that led to the enactment of the

Pick-Sloan program, Pick-Sloan’s power users also agreed to shoulder that capital investment in Federal irrigation projects beyond

the ability of irrigators to repay. This is the only instance where

hydropower revenues provide financial assistance to another

project purpose.

As I noted above, municipal and industrial water users are responsible for 100 percent of the capital investment, as well as

O&M.

The irrigation support is no small obligation for the power users.

Currently, Pick-Sloan power users have over $700 million in aid to

irrigation in their rate base to help repay that capital investment.

There is another $700 million or so of projects that may yet be authorized and built, that were envisioned by the original Pick-Sloan

program.

The development of rural drinking water systems was not part

of the original Pick-Sloan plan. In an effort to see that Pick-Sloan

can meet contemporary needs of the region as well as its historical

obligations, Mid-West has developed a policy position that recognizes that the contemporary need of the region is adequate and

safe supplies of drinking water. We began working with rural

water systems several years ago to ensure that they could make

use of some of the seasonal Pick-Sloan power as an important consideration in the operations of these systems.

We are committed to the economic well-being of our region, for

we are not solely hydropower users. We are the ranchers, farmers

and small businesses of the region. There are, however, limitations

on how much support hydropower users can provide.

First, Pick-Sloan generation is a finite resource. There is not

going to be any new Federal hydropower development in the reVerDate 11-MAY-2000 09:03 Sep 19, 2001 Jkt 010199 PO 00000 Frm 00057 Fmt 6633 Sfmt 6602 E:\HEARINGS\60633 pfrm07 PsN: 60633
54

gion. So the size of the canteen is fixed. Pass that canteen around

to too many people and everyone is still thirsty.

Already allocations to new consumer-owned electric utilities and

Native American tribes, which Mid-West has and continues to support, will withdraw 4 percent of the current firm power customers’

allocations. In 2005, firm power Pick-Sloan customers will have another 2 percent of that resource withdrawn for allocation to new

customers.

As a consequence, firm power customers will have to secure new

resources to make up for that shortfall, which will most likely

mean higher costs.

The overall Pick-Sloan hydroresource is not just being spread

among new customers, but also is a shrinking resource. Threatened

and endangered species, currently the Piping Plover and Interior

Least Tern, cost Pick-Sloan Federal power customers approximately $2 million a year in lost generation as the Corps attempts

to operate the dams without harming the species. This does not include other costs incurred by the Corps to protect these species.

Additionally, the recovery plan for the Pallid Sturgeon, another

species on the threatened or endangered list, has not yet been finalized and could further affect the ability of Pick-Sloan hydropower.

The Corps of Engineers is also in the final stages of revising the

master manual which controls the operation of the Missouri River,

which could have a dramatic impact on hydrogeneration. We are

also facing additional power investments that will have to be made

in the near future. Turbine replacements, generator staters, rewinds and the like are going to add an additional $100 million to

the rate base, probably within the next 5 to 10 years, and that is

only on the main stem system. It does not include the costs of similar activities being conducted by the Bureau of Reclamation on its

projects in Montana, Wyoming and Colorado.

What this means for the rural electric cooperatives, municipal

electric utilities and public power districts in the region is that

their resource mix is going to be changing. There is going to be upward pressure on electricity rates at a time when the industry is

restructuring and deregulating.

We are not talking about developing rural water systems here for

towns or areas that have not made every effort to make the best

use of the resource they have. The Upper Great Plains is not a region that rewards profligate use of resources. We are talking about

places such as Worthington, Minnesota, a city of some 10,000 people that has already spent over $1 million looking for a water supply. This is a community with an average residential consumption

of 5,000 gallons per month, as compared with a national average

of 9,000 gallons per month. Losses in the city water system have

also been well below the national average. The two major industries in the city have been able to increase their production without

additional water consumption, but now must have additional water

supply.

The future economic viability of these communities depends upon

the development of adequate water supplies. They have undertaken

programs to ensure wise use of the water they already have, but

55

face the prospect of losing business opportunities and economic

growth without further additional water supplies.

The Upper Great Plains region is not, as you know, one of the

wealthiest regions of the country. The cost-sharing mechanisms

that Congress has enacted to fund these projects recognizes the development of rural water as a substantial undertaking for sparsely

settled areas, but every American should be able to have an adequate supply of clean, safe drinking water.

Surcharging Federal power to pay for rural water systems in the

region runs the risk of threatening local economies and the marketability of Pick-Sloan power. Despite the prosperity elsewhere in the

region, the Upper Great Plains still struggles with the inherent

problems of a region dependent upon agricultural and natural resources as their economic engine for the vagaries of the marketplace can have a devastating impact. As of 2 weeks ago, corn sold

at 1952 prices, 47 years later. Spring and winter wheat were selling at only a few cents above 1952 levels. The last thing the region

needs is increases in the price of electricity.

The economic fragility of this region should not mark it as a candidate for abandonment. This is the part of the country that usually leads the way in voter turnout and participation in the governance of their communities, their States and their country. This is

a part of the country whose children consistently achieve top scores

in educational testing and they send those children out of the region, bringing their talents to the rest of the Nation. This is a part

of the country that is strongly self-reliant. The cost-sharing mechanisms that Congress has crafted over the past decade have served

the region and the country well.

Thank you very much.

Mr. DOOLITTLE. Thank you.

[The prepared statement of Mr. Graves follows:]

STATEMENT OF THOMAS P. GRAVES, EXECUTIVE DIRECTOR, MID-WEST ELECTRIC

CONSUMERS ASSOCIATION, DENVER, COLORADO

Mr. Chairman, my name is Thomas Graves. I am the executive director of the

Mid-West Electric Consumers Association. Mid-West appreciates the opportunity to

appear before the House Resources Subcommittee on Water and Power to testify on

rural water systems.

Mid-West is the regional coalition of consumer-owned electric utilities that purchase power from Federal dams in the Missouri River Basin. Since 1958, Mid-West

has represented the interests of more than three million consumers that depend in

part on the Pick-Sloan Missouri Basin Program for their power supply.

More than one hundred years ago, John Wesley Powell recommended that the

boundaries of western states conform to river basins and their drainages. The scope

and vision of the Pick-Sloan Missouri Basin Program, wittingly or not, followed

Powell’s concept.

The original Pick-Sloan program provided a variety of benefits to the region—

flood control, navigation, municipal and industrial water, irrigation, and hydropower. Of all the project purposes, only the hydropower function and municipal and

industrial water function pay 100 percent of the costs allocated to that project purpose.

As part of the bargains struck that led to the enactment of the Pick-Sloan Missouri Basin Program, Pick-Sloan’s power users also agreed to shoulder that capital

investment in Federal irrigation projects beyond the ability of irrigators to repay.

This is the only instance where hydropower revenues provide financial assistance

to another project purpose. As I noted above, municipal and industrial water uses

are responsible for 100 percent of the capital investment, as well as operation and

maintenance.

56

That is no small obligation. Currently, Pick-Sloan power users have over $700

million in their rate base to help repay the capital investment in ‘‘used and useful’’ irrigation projects. There is another $700 million or so of projects that may yet be

authorized and built under the Pick-Sloan Missouri Basin Program.

For some time, Mid-West and its members have been grappling with how to insure the continued viability of the Pick-Sloan Missouri Basin Program and its original vision of multi-purpose development of resources in the region.

The development of rural drinking water systems was not part of the Pick-Sloan

plan. In an effort to see that Pick-Sloan can meet contemporary needs of the region

as well as its historical obligations, Mid-West developed a policy position that recognized that a contemporary need of the region is adequate and safe supplies of drinking water.

Several years ago, Mid-West began working with rural water systems to insure

that they could make use of some of the seasonal Pick-Sloan power, an important

consideration in the operations of these systems. We are committed to the economic

well-being of our region, for we are not solely hydropower users. We are the ranchers, farmers, and small businesses of the region.

There are, however, limitations on how much support the hydro users can provide.

First, Pick-Sloan generation is a finite resource. There is not going to be any new

Federal hydropower development in the region. So the size of the canteen is fixed.

Pass the canteen around to too many people and everyone is still thirsty. Already,

allocations to new consumer-owned electric utilities and Native American Tribes,

which Mid-West has and continues to support, will withdraw 4 percent of current

firm power customers’ allocations. In 2005, firm power Pick-Sloan customers will

have another 2 percent of their resource withdrawn for allocation to new customers.

As a consequence, firm power customers will have to secure new resources to

make up for that shortfall, which will most likely mean higher costs for electric utility consumers.

The overall Pick-Sloan hydro resource is not just being spread among new customers, but is also a shrinking resource. Threatened and endangered species—the

Piping Plover and Interior Least Tern—cost Pick-Sloan Federal power customers ap- proximately $2 million a year in lost generation to operate the dams without harming these species. This does not include other costs incurred by the Corps of Engineers to protect these species. Additionally, the recovery plan for the pallid sturgeon, another species on the threatened or endangered list, has not yet been finalized, and could further affect the availability of Pick-Sloan hydropower.

The U.S. Army Corps of Engineers is in the final stages or revising the Master

Manual for operation of the Missouri River, which could have a dramatic impact on

hydro generation.

Pick-Sloan power users also face additional power costs that will have to be made

in the near future. Turbine replacements, generator staters, rewinds and the like

are going to add an additional $100 million to the rate base, probably within the

next five to 10 years. And that is only on the mainstem dams. It does not include

the costs of similar activities by the United States Bureau of Reclamation on its

projects in Montana, Wyoming, Colorado and Nebraska.

What this means for the rural electric cooperatives, municipal electric utilities

and public power districts in the region is that their resource mix is going to be

changing. There is going to be upward pressure on electricity rates, all at a time

when the industry is restructuring and deregulating.

And we are not talking about developing rural water systems for towns or areas

that have not made every effort to make best use of the resources they have. The

Upper Great Plains is not a region that rewards profligate use of resources. We’re

talking about places such as Worthington, Minnesota, a city of 10,000 that has already spent over $1 million looking for additional water supply alternatives. This

is a community with an average residential consumption of only 5,000 gallons per

month, as compared to the national average of 9,000 gallons per month. Losses in

the city water system are also well below the national average. The two major industries in the city have been able to increase their production without additional

water consumption, but now must have additional water supply.

The future economic viability of these communities depends upon the development

of adequate water supplies. They have undertaken programs to insure wise use of

the water they already have, but face the prospect of losing future business opportunities and economic growth without additional water supplies.

The Upper Great Plains region is not one of the wealthiest in the country. The

cost-sharing mechanisms that Congress has enacted to fund these projects recognize

that development of rural water systems is a substantial undertaking for sparsely

settled areas. But every American should be able to have an adequate supply of

clean, safe, drinking water.

57

Surcharging Federal power to pay for rural water systems in the region runs the

risk of threatening local economies and the marketability of Pick-Sloan hydropower

generation. Despite the prosperity elsewhere in the nation, the Upper Great Plains

still struggles with the inherent problems of a region dependent on agriculture and

natural resources as their economic engine, where the vagaries of the market place

can have a devastating impact. As of two weeks ago, corn sold at 1952 prices. Spring

and winter wheat were selling at only a few cents above 1952 levels. The last thing

the region needs is increases in the price of electricity.

The economic fragility of the region should not mark it as a candidate for abandonment. This is a part of the country that usually leads the way in voter turnout and participation in the governance of their communities, their states, and their

country. This is a part of the country whose children consistently achieve top scores

in educational testing. In North Dakota, 8th graders placed first in math scores

three times in the 1990’s. This is a part of the country where those children leave

the region, bringing their talents to the rest of the nation. This is a part of the country that is strongly self-reliant. The cost-sharing mechanisms that Congress has

crafted over the past decade have served both the region and the country well.

Thank you.

Mr. DOOLITTLE. Our next witness is Angela Antonelli, Director of

the Thomas A. Roe Institute for Economic Policy Studies of The

Heritage Foundation.

Ms. Antonelli, will you please rise and raise your right hand.

[Witness sworn.]

Mr. DOOLITTLE. Thank you. You were out of the room when we

did that for the other two. We are not singling you out.

Ms. ANTONELLI. I apologize.

Mr. DOOLITTLE. That is quite all right. The votes dragged us out

a little longer than we thought.

You are recognized for your testimony.

STATEMENT OF ANGELA ANTONELLI, DIRECTOR, THOMAS A.

ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, THE HERITAGE FOUNDATION

Ms. ANTONELLI. Thank you, Chairman Doolittle. Thank you for

the opportunity to testify before you today. The views I express in

my testimony are my own and should not be construed as representing the official position of The Heritage Foundation.

This Subcommittee is now considering the Federal financing of

rural water projects. These projects are controversial primarily due

to the large share of the costs that would be paid for by the Federal

Government. An even more fundamental question should be asked,

however, and that is whether any Federal role is justified in this

area. Many of the newer proposed rural projects reflect a troubling

continued expansion of the Bureau of Reclamation’s mission, one

from that of a construction agency to that of yet another Economic

Development Agency and Environmental Protection Agency.

Unfortunately, Congress can’t seem to resist the opportunity to

seize control of responsibility for water resources that belong to

States, regions, local communities and the private sector. Each

time Congress contemplates another proposed rural water project,

it must face squarely the question of what the role of the Federal

Government will be in developing and managing our Nation’s

water resources. So far, Congress’ decisions have been disappointing to many of us.

Although the Federal Government has been supporting water

projects since the turn of the century, as GAO has often noted,

these programs have been based on a long-standing policy of full

58

reimbursement for its contributions to the projects. Although many

of these loans have been forgiven or reduced, the original continuing intent was that beneficiaries of the program would bear the

costs of the program. However, that appears to be changing. In the

case of the proposed Lewis and Clark project, for example, the Federal Government’s share, depending upon one’s definition of cost,

could be as much as 80 percent.

This increase in nonreimbursable costs certainly appears to be a

function of the fact that more of these projects have a greater proportion of nonreimbursable requirements, particularly to meet environmental objectives such as water quality, fish and wildlife and

conservation requirements.

It is important to remember that the Federal funding of rural

water projects in the Upper Great Plains States only perpetuates

the long-held and mistaken notion that water is not valuable

enough for people and businesses to own and manage wisely. I reject this view. Federally subsidized construction of these projects

will not fundamentally alter the economic base of this region of the

country. Indeed, while the infusion of Federal dollars may be somewhat of a boost to the region, in the end, the boost will not lead

to sustained long-term change, but rather addiction to more Federal dollars. Ultimately, such projects will be added to the myriad

of expensive and often duplicative special interest projects dressed

up as another Federal economic development program.

If we look to the Federal experience with the Economic Development Administration, for example, according to the GAO, in areas

where there have not been incentives to produce sufficient private

sector investment for economic development, Federal interventions

consistently proved to be temporary at best. Indeed, this history

suggests that these latest programs are also destined to continue

this poor legacy. And as GAO and our first panel today indicated

and reported on more than one occasion, these types of rural water

projects do not fit Federal funding criteria for programs at USDA,

EPA or the Bureau, criteria which I would assume are in place to

protect Federal financial interests, that is, the interests of all

American taxpayers.

In addition, according to GAO’s work, the people in these areas

also do not support the project enough to pay for it, even though

the per capita costs are quite modest. GAO States that the cost of

the project is $282.9 million in 1993 dollars, and it is designed to

serve 300,000 people in 14 counties. This is equal to $943 per person.

Even assuming that we use a per family figure and assume a

five-person family, we are only talking about $4,715 per family,

much less than the cost of a used car and financed over a much

longer period of time. But despite this low cost, every survey GAO

has done in the area demonstrates that the people in these communities are unwilling to pay for the system-increased water fees.

Why should taxpayers throughout the Nation be asked to pay for

a project that the beneficiaries themselves refuse to fund? If the potential economic and other benefits that have been talked about are

indeed real, then you would expect to see an interest among local

water users. But the local community thinks the project is worth

less than a used car, so why should the Nation’s hard-working taxVerDate 11-MAY-2000 09:03 Sep 19, 2001 Jkt 010199 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HEARINGS\60633 pfrm07 PsN: 60633
59

payers value it more highly? Why should Congress take money

from hard-working taxpayers to pay for life-style improvements,

such as landscaping? And it certainly doesn’t seem as if we are

really talking about a water shortage, but more about water quality.

But assuring a supply of clean water doesn’t necessarily mean

that Washington has to take over. Indeed, for the amount of money

many area residents seemingly are willing to pay, according to the

GAO, it seems to be a lot cheaper for them to contract out privately

to some entity to simply truck pristine water into the communities

that they could use for eating, drinking, bathing and so on.

Indeed, to the extent that the commitments in small rural

projects are $37 billion over the next 20 years, I would suggest for

$20 billion of that we probably could get a very good contractor to

provide the kinds of water that these communities would need.

Over the past three decades, Congress has allowed the Bureau

to move away from the construction and operation of traditional,

large, multipurpose water projects. Congress should not expand the

mission of the Interior Department. These new Economic Development-Environmental Protection rules and the movement into more

States will ultimately just allow Congress to justify more federally

financed special interest public work projects. We do not need another EPA or EDA for the West or for anywhere else.

A June, 1996 GAO report counted more than 72 Federal programs or other initiatives cutting across eight departments or

agencies that either directly or indirectly support water quality.

Similarly, the agency’s strategic plan submitted to Congress as

a requirement of the Government Performance and Results Act reveal that there are 342 economic development programs managed

by 13 agencies with little or no coordination.

The best way to help support the water supply needs of rural

areas in this country is for government to look towards water markets and privatizing existing assets. This means the Federal Government has to get comfortable about the idea of doing less, rather

than more.

Today, between 7 and 10 percent of water supply projects in the

U.S. Are privately held. The trend for an increasing number of

States, counties and municipalities is to look to the private sector

to build and maintain necessary infrastructure, such as wastewater

treatment plants, prisons, schools, highways and airports. Indeed,

other nations already are way ahead of the United States in their

privatization of such infrastructure. In Britain, 100 percent of

water and wastewater treatment facilities are privatized, and in

France, 75 percent are privatized.

The United States should be a leader and not a follower, and this

trend toward Federal financing of rural water projects moves us in

the wrong direction. Instead, Congress should allow local communities to determine what their needs are and to work cooperatively

with private entities to provide what is needed and to meet those

needs.

And the Federal Government can certainly play a role in facilitating that. The Congress also can work to develop a better understanding of the extent to which environmental and other policies

place constraints on local water resources. Congress also should

60

simply resist pressures to reinvent the missions of agencies like the

Bureau of Reclamation. There is no reason why the Federal Government needs to fund the 73rd water quality program or the

343rd economic development program.

Congress needs to take steps to get the Federal Government out

of the business of maintaining water projects. The Federal Government should not be in direct competition with private entities in

providing generous subsidies to special interests at great cost to

the American taxpayer.

Thank you.

[The prepared statement of Ms. Antonelli follows:]

STATEMENT OF ANGELA ANTONELLI, DIRECTOR, THOMAS A. ROE INSTITUTE FOR

ECONOMIC POLICY STUDIES, THE HERITAGE FOUNDATION

Chairman Doolittle, Members of the Committee:

Thank you for the opportunity to testify before you today. The views I express in

the testimony are my own and should not be construed as representing any official

position of The Heritage Foundation.

This Subcommittee is now considering the Federal financing of rural water

projects. These projects are controversial primarily due to the large share of the construction costs that would be paid for by the Federal Government. An even more

fundamental question should be asked, however; and that is whether any Federal

role is justified in this area. Many of the newer, proposed rural projects reflect a

troubling expansion of the Bureau of Reclamation’s (BOR) mission—from one of a

construction agency to that of yet another economic development agency and environment protection agency.

Although Congress and the Administration appeared to agree some time ago that

it makes sense to transfer responsibility for some Bureau of Reclamation projects

to states, local communities and the private sector, the pace of progress on this front

has been pitifully slow. Moreover, Congress appears more than willing to authorize

and finance new federally controlled rural water supply projects. The era of big government water projects is not over.

Congress cannot seem to resist the opportunity to seize control of responsibilities

for water resources that belong to states, regions, local communities, and the private

sector. Each time Congress contemplates another proposed rural water project, it

must face squarely the question of what the role of Federal bureaucrats will be in

developing and managing our nation’s water resources, and, more specifically, the

role of the Interior Department. So far, Congress’s decisions have been disappointing for many of us.

A Long History of Federal Water Subsidies

More than one hundred years ago, the Federal Government began to subsidize

construction and operation of major water storage and delivery projects. The primary goal was to convert arid land into productive farmland through irrigation, and

water was provided to users at highly subsidized prices. Although the costs of the

construction of these projects are supposed to be repaid, few have been, and there

is a long history of audits by the U.S. General Accounting Office (GAO) that address

the allocation and repayment of project costs and the government’s poor track record

of recovering those costs. Ultimately, much of the costs of these projects are spread

over all taxpayers, although the benefits are concentrated on well-defined groups.

As a consequence of these poorly designed programs, the predominant consumer

of water today in the West is agriculture. As GAO and others have noted, the disparities in the cost of water between farmers and urban consumers can be tremendous, as much as 100 times more expensive for the urban user. In addition to burdening the taxpayer, subsidized prices create an insatiable demand for water and

encourage inefficient use. With low prices, the users have no incentive to consider

alternative technologies and lifestyle changes that would save water. Many irrigation systems use less than half of the water flowing into them. The rest runs off

fields, evaporates from open canals, or percolates into the ground through unlined

ditches. The low price of water encourages farmers to irrigate even marginal lands.

In some cases, Federal water subsidies create, rather than solve, environment problems. For example, wastewater from a farm that drains into a wildlife refuge via

a drainage system built by the Federal Government.

Contrary to what the public has been led to believe, our nation is not about to

run out of clean water. If just 5 percent of the agricultural water supply could be

61

allocated through water markets to municipal uses, the needs of urban areas in

Western states would be met for the next 25 years, according to Terry Anderson and

Pamela Snyder, authors of Water Markets: Priming the Invisible Pump. Fortunately,

predictions of natural resource shortages are often wrong because they ignore the

impact of market forces on supply and demand. There is an ample supply of water

in this nation to meet the needs of farmers, municipalities, and industrial users.

The real problem is a political system that denies ownership of water rights and

thus precludes the market from efficiently allocating it. New federally funded rural

water projects only serve to continue and expand such inefficiencies.

Financing Rural Water Projects Continues the Tradition

Although the Federal Government has been supporting rural water projects since

the turn of the century, these programs have largely been loan based and required

a 100 percent repayment obligation. Although many of these loans may have been

forgiven or reduced, the original and continuing intent was that beneficiaries of the

program would bear the costs of the program. However, that appears to be changing. According to the Congressional Research Service, for the more recent rural

water supply projects, the non-reimbursable component has been higher than typical for traditional reclamation projects. The non-reimbursable share can be as high

as 75 to 85 percent or more. The increase in non-reimbursable costs may well be

a function of the fact that more of these projects have a greater proportion of nonreimbursable requirements, particularly to meet environmental objectives such as

water quality, fish and wildlife and conservation requirements.

What is most important to remember is that the Federal funding of rural water

projects in the Plains states only perpetuates the long held and mistaken notion

that water is not valuable enough for people and businesses to own and wisely manage. I reject this view. Federally subsidized construction of these projects will not

fundamentally alter the economic base of this region of the country. Indeed, while

the infusion of Federal dollars may be somewhat of a boost to the region, in the end,

the boost will not lead to long-term sustained change, but addiction to Federal dollars. Ultimately, such projects will just be added to the myriad of expensive and

often duplicative special interest pork dressed up as a Federal economic development program.

If we look to the Federal experience with the Economic Development Administration according to the GAO, in areas where there have not been incentives to produce

sufficient private sector investment for economic development, Federal interventions

consistently prove to be temporary at best. To quote GAO, ‘‘the study found that

EDA’s program had a very small effect on income growth rates during the period

the aid was received and no significant effect in the years after the aid ceased.’’ The

Subcommittee may want to consider asking GAO to do a similar study of the impact

of Federal owned water projects on economic development.

A New Mission for the Bureau of Reclamation to Justify New Projects

Over the past three decades, the Bureau has been moving away from the construction and operation of traditional, large, multipurpose water supply projects.

And within the past decade, the mission of the Bureau has shifted to focus more

on environmental mitigation and function as another branch of the Environmental

Protection Agency. Indeed, the Bureau’s self-described mission today is ‘‘to manage,

develop, and protect water and related resources in an environmentally and economically sound manner in the interest of the American public.’’

Congress should rein in, rather than expand, the Interior Department. These new

economic development and environmental protection roles allow Congress to justify

more federally financed, special interest public works projects. And, of course, the

Bureau’s bureaucracy appears more than willing to reinvent and expand its budget

if given the opportunity. We do not need another EPA or EDA for the West. For

example, a June 1996 GAO report counted more than 72 Federal programs or other

initiatives cutting across 8 departments and agencies that either directly or indirectly support water quality protection. Similarly, the agency strategic plans submitted to Congress as a requirement of the Government Performance and Results

Act revealed that there are 342 economic development programs managed by 13

agencies with little or no coordination among them.

The shift in the Bureau’s mission, and Congress’s willingness to fund projects consistent with this expanded mission is detrimental to our nation’s water resources.

As long as a free market does not apply water, no one will have incentive to use

it wisely or to invest in more advanced technologies or lifestyle changes that will

conserve it. And certainly such policies will make any effort to transfer responsibility or to privatize existing assets and develop water markets more difficult. For

example, the often unexpected costs of environment enhancement and mitigation reVerDate 11-MAY-2000 09:03 Sep 19, 2001 Jkt 010199 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 E:\HEARINGS\60633 pfrm07 PsN: 60633
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quirements that are added to projects (either directly through the Bureau or by Federal laws or programs) have the effect of discouraging beneficiaries or investors who

might otherwise be interested in assuming responsibility for the asset because they

are afraid that there would be no certainty with regards to the costs. The tension

within the Bureau’s budget to pay for these activities competes with the need for

funds to simply operate and maintain existing facilities.

Policy Recommendations

The best way to help support the water supply needs of rural areas of this country

is for government to look toward water markets and privatization of existing assets.

This means the Federal Government must get comfortable with the idea of doing

less rather than doing more. A new Federal water policy for the 21st century should

be one in which Congress and the Administration work together and with state, regional, and local governments to develop local and private alternatives that will

meet their water needs. Ultimately, this will significantly reduce, if not eliminate,

the Federal role.

If the true purpose of these rural water supply projects is to meet growing needs

for water to support municipal and industrial needs, then water users should provide the funding. A demonstrated need is a signal to the private sector that there

is a secure revenue stream to justify the financing of a project. Successful private

investment can minimize the costs and the involvement of the Federal Government

in many of these projects.

Today, between 7 and 10 percent of water supply projects in the United States

are privately held. The trend for an increasing number of states, counties, and municipalities is to look to the private sector to build and maintain necessary infrastructure, such as wastewater treatment plants, prisons, schools, highways, and airports. Indeed, other nations already are way ahead of the United States in their privatization of such infrastructure. In Britain, 100 percent of water and water treatment facilities are privatized, and in France 75 percent are privatized.

The United States should be a leader and not a follower. A trend toward Federal

financing of rural water project moves us in the wrong direction. Instead, Congress

must:

1.Allow local communities to determine water resource needs and to work cooperatively with private entities to provide what is needed to meet those needs.

2.Require better information about whether a project is economically viable

and produce an expected return on investment before making any decisions.

3.Develop a better understanding of the extent to which environmental and

other policies place constraints on local water resource management.

4.Resist pressures to reinvent the mission of the Bureau of Reclamation.

There is no reason why the Federal Government needs to fund the 73rd-water

quality program or a 343rd-economic development program.

5.Act to transfer responsibilities for existing assets to states, local communities and the private sector.

Congress needs to take steps to get the Federal Government out of the business

of building and maintaining water projects. The Federal Government should not be

in direct competition with private entities or provide generous subsidies to special

interests at great cost to the American taxpayer.

63

64

Mr. DOOLITTLE. Thank you.

Could you make available those studies in Great Britain on the

water and wastewater plants that are all 100 percent privately financed?

Ms. ANTONELLI. Sure. These are studies that have been done by

people at the Reason Foundation. I would be more than happy to.

Mr. DOOLITTLE. Great.

Ms. Kladiva, could you tell us, if the Federal share for the Lewis

and Clark project costs were included in the electric rates for the

Pick-Sloan program, what would be the impact on the rates?

Ms. KLADIVA. Mr. Chairman, we have conducted a preliminary

analysis into the question. In general, the rate impact would depend upon the assumptions that you use.

On average, the dams that are developed in the Pick-Sloan program produce approximately 12 million megawatt hours of electricity each year, and in 1998, the electricity was sold at an average rate of 1.6 cents per kilowatt hour. These are wholesale rates.

That includes the transmission cost.

As an example of how the rates could be affected, in order to am- ortize approximately $193 million, which would be the Federal

grant portion of the project, at 6 percent interest over 50 years,

which is the traditional repayment period for water projects, it

would take about a 6 to 7 percent increase, based on the 1998 sales

figures. The 6 percent rate increase would raise the rate by less

than one-tenth of 1 cent in the Upper Great Plains area, and it

would raise it slightly over one-tenth of 1 cent in the Rocky Mountain region. Based on our preliminary analysis, we believe that this

level of rate increase does not appear likely to push the power cost

for Pick-Sloan generated power above what the prevailing market

in that area is.

Our answer is subject to a variety of factors that include—such

as the directions of the deregulation of electricity at Federal and

State levels, as well as other factors, but this is a preliminary estimate.

Mr. DOOLITTLE. Thank you. We have talked about increasing

rates as one alternative method of financing rural water projects

such as the Lewis and Clark project. However, there may be some

opportunities to increase the generating capacity and electricity

generation from some of the Pick-Sloan hydroelectric dams.

Could you discuss some of these?

Ms. KLADIVA. Yes, Mr. Chairman. During the course of our work

on issues related to the Pick-Sloan program, we identified, we believe, some opportunities to boost output from some of the existing

Federal facilities, in particular the large dams that are operated on

the Missouri River main stem by the Army Corps of Engineers.

As you know, the Pick-Sloan program was initiated over 50 years

ago. Many of the dams and hydroelectric equipment are now in the

30-year-old range, some as old as 50 years. Since the time that

these generators and turbines have been installed, there have been

increases in efficiency of equipment, and particularly for generators

and turbines.

Again, based on our preliminary analysis, there appear to be a

number of generators that could be refurbished that could add substantial generating capacity and a number of turbines that could

65

be refurbished that would offer improved efficiencies and other benefits. Under WAPA’s current repayment guidelines, any increased

revenue resulting from such an improvement could go toward the

repayment of the Federal investment in the project. Adoption of

legislation mandating any other applications would be a policy

question for the Congress to determine.

Mr. DOOLITTLE. Thank you. So if I understand what you are saying then, this new equipment would pay the entire Federal share

in this Lewis and Clark project, in other words, the increased sales

resulting from the new equipment?

Ms. KLADIVA. Well, talking about not reallocating the existing

firm power that is there now for preference power, but if you could

increase the amount of capacity, which appears to be a possibility,

from rewinding the generators and refurbishing the turbines, then

you get an additional generation that is not now committed. And

if those funds were earmarked, its revenues that were sold, and the

revenues were earmarked for repayment of the cost of Lewis and

Clark project, then that is a possibility.

Mr. DOOLITTLE. What do you think about that, Mr. Graves?

Mr. GRAVES. Well, all I can say, Mr. Chairman, I feel a little bit

like I am between Scylla and Charybbis here. But the fact of the

matter is, I do disagree with that on several bases.

Number one, the rewinds of the generators and turbines are not free. They cost money. That is the $100 million I was talking

about. That is part of the rate base.

Pick-Sloan is a cost-based rate. The rate charged is the cost of

the generation, so there are no extra dollars, unless the government wants to invest this and then not put it in the rate base.

Number two, the assumption of increased generation forgets that

there has been a degradation of generation throughout the system

because as the equipment ages, it erodes and corrodes. The estimates at Fort Randall, for instance, we are talking about a 4 to 5

percent increase in the capacity, in generation capacity, but that ignores the fact that there has been a loss of capacity at those facilities. So we would be merely getting back the capacity we had already paid for.

Number three, it assumes that these units are going to be run

in a very efficient manner, which they will be by the Corps, but at

Fort Randall, which is one of the units that is there, and Garrison

as well, the operation of those facilities are constrained by the

threatened and endangered species during the entire summer season, from about April or March through the end of August. So we

cannot run those units even today at full efficiency.

So I think much of the increased generation capacity is, one, recapturing generation capacity that has been lost, and may or may

not be there, depending on whether the water is there, because the

Pick-Sloan averages about 12 billion kilowatt hours, I believe—excuse me, 10 billion, not 12—and it fluctuates wildly.

In 1988, the river only ran at 12.5 million acre-feet, which is 50

percent of its normal capacity. Generation is not a steady, reliable

thing on the Missouri River.

Mr. DOOLITTLE. Well, as you have observed, there are some environmental factors thrown in. But actually power users are stuck

paying for that now in some cases, aren’t they?

66

Mr. GRAVES. Oh, to be sure. But I am just suggesting that projections of increased capacity are not taking into account all of the potential constraints on generation that occur either for environmental problems or the lack of water. I mean, you have to look at

this very closely. And the erosion of our capability through the age

of the equipment is very real, and the Corps of Engineers will tell

you that.

Mr. DOOLITTLE. Ms. Kladiva, did you take into account these

variables when you were making your assessment about the increased opportunities for revenues to be generated by this updating

of the equipment?

Ms. KLADIVA. Yes, we did, Mr. Chairman. In fact, we made visits

to WAPA, to the Corps and to the Bureau just within the last couple of months. So we have current information from them and current contact with them concerning what they believe is doable.

Obviously, if you make an investment in doing the rewinds or refurbishing the turbines, then you need to take into consideration

that you need to recover the cost of those refurbishments and that

you have to look at what the potential payoff for that is going to

be, so that it makes economic sense to do that.

At Garrison, for example, where they have done the turbine—I

am sorry, the generator rewinds, they found that they had a 36

percent increase in capacity in the output, based on what they had

done, and it cost approximately $1 million per generator to do the

rewinds. The mention of the fact that the current equipment, because it is old, there is some degradation in its potential to produce

power, is true; so you would gain from making the investment

where it makes sense, you would gain, basically getting the equipment back up so it is working at full performance, so you would

regain efficiencies that have been lost because the equipment is

old, as well as getting increased generation capacity.

Particularly where the big power opportunities are is on the Missouri mainstream, because that is where 80 percent of the power

generated by Pick-Sloan is available; that is where the big dams

are, and that is where the cheap power is from the standpoint of

its capacity.

When you look at that part, yes, you have to take into account—

in considering what your potential upside would be in the gain, you

have to take into consideration Missouri River flows. That is why,

in fact, only 80 percent of the power produced from those dams on

the Missouri mainstream are currently committed as firm power

sales to the preference customers, and that is because they take

into consideration that you are going to have years of high water

flow and low water, and therefore, the purpose in the contracts is

to be sure that they will be able to deliver on the contracts.

So potentially you have in any given year now 20 percent of the

power that is being sold at market rates. As WAPA tells us, it is

sold at ‘‘market rates’’ and it is generally done through bilateral

agreements with companies in the area.

But, yes, we did take those factors into consideration, and we do

believe that this is an area that is worth pursuing, but it needs to

be done so that it makes economic sense to proceed.

Mr. GRAVES. Mr. Chairman, if I might just try to address this

issue, they only market 80 percent of the power because, like all

67

electric utilities, they are responsible for maintaining reserves in

the event of the drop of a generator or facilities. And the additional

power that is ‘‘available’’ in Pick-Sloan they cannot market as firm

power because they are committed—they have committed that generation to reserves in the event of failure in other dams, as all utilities must do.

Mr. DOOLITTLE. Well, let’s go back to one of the other possibilities, which is the 6 percent increase. Was that in the retail rate,

Ms. Kladiva?

Ms. KLADIVA. That was in the wholesale rate.

Mr. DOOLITTLE. So what would that translate to the retail customer?

Ms. KLADIVA. For the Upper Great Plains, that would be less

than one-tenth of 1 cent added to the wholesale rate for power.

Mr. DOOLITTLE. And so—— Ms. KLADIVA. That is looking across both firm and nonfirm sales

for 1998.

Mr. DOOLITTLE. So if your power bill were $200 a month, how

much extra would it be?

Ms. KLADIVA. I don’t know what that would translate to in terms

of the retail sales, because, number one, it would depend on the

wholesale increase, how much of the increase was passed through

to the retail customer. It would also depend upon the retail customer’s power company, how much of their power they were getting

from the power marketing administration.

Mr. DOOLITTLE. Well, would it be safe to say that it couldn’t be

more than 6 percent? Do you want to answer that, Ms. Antonelli?

Would that be the upper figure, right?

Ms. KLADIVA. May I invite to the table Jon Ludwigson, who is

an energy expert with our office?

Mr. DOOLITTLE. Sure.

We have to do this. Raise your right hand. I only have about 5

minutes, but let’s do this.

[Witness sworn.]

Mr. DOOLITTLE. Thank you. Will you just identify yourself,

please, and your position for the record.

STATEMENT OF JON LUDWIGSON, ENERGY RESOURCES AND

SCIENCE GROUP, GENERAL ACCOUNTING OFFICE

Mr. LUDWIGSON. My name is Jon Ludwigson. I work at the Energy, Resources and Science Group at the U.S. General Accounting

Office.

Mr. DOOLITTLE. Okay.

Mr. LUDWIGSON. In response, as far as what the effect on retail

rates would be, it would—as Ms. Kladiva said, it would depend on

the supply picture for each of the co-ops or municipals. If they received 100 percent of their power, for example, from the PMA, in

this case WAPA, it would not necessarily translate to a 6 percent

increase in retail rates, because the power component of retail

rates is only one of several including distribution, administrative

and customer service. The relative importance of these others varies depending on the individual municipal.

It really at this point, is not prudent to estimate the percentage

impact for any, or all, recipients of PMA power.

68

Mr. DOOLITTLE. Let me just ask you this: There is no way it

could be more than 6 percent, since that is the wholesale rate increase, right? It is either that or something less. In all likelihood,

it is considerably less, right?

Mr. LUDWIGSON. All other things being equal, it would be something less.

Mr. GRAVES. Mr. Chairman?

Mr. DOOLITTLE. Yes.

Mr. GRAVES. I noted in Ms. Kladiva’s statement to you that they

were averaging this over both firm and nonfirm sales. There is no

set price for nonfirm sales on Pick-Sloan. It is on the spot market.

The rate that the power customers pay is the rate for all of the

generation and all of the firm generation and all of those costs. To

spread the costs of this over nonfirm generation is diluting the pie.

The costs need to be isolated on the firm power. The nonfirm sales

vary in price widely, depending on the time of year.

We didn’t get any of that really expensive stuff that was sold in

the Mid-West last summer, but it is the firm power sales that set

the rate, where the rate is set, and where the power repayment is

set.

Mr. DOOLITTLE. Let me just sum up.

It seems to me in the testimony I am hearing, first of all, it

seems like there it is no way the Federal Government is going to

come up with the money to do these vast projects for rural areas.

Secondly, it seems like the seeds are out there for a solution to

this problem, so that somehow these people can get the better quality water they need, and in some cases, the greater quantities that

they need, without burdening the Federal taxpayer. I think we are

going to have to look further into this when we get into these hearings on this Lewis and Clark.

But I would invite you to be thinking about how—you know,

Great Britain apparently has—I am interested in your evidence

there, because we know how expensive these wastewater treatment

plants are, and it is intriguing to me that those are all privately

financed there. So I am interested in that.

I really wish we could prolong this, but if I do, you will have to

hang around for another series of votes, and I won’t inflict that

upon you.

So I would like to thank you for your efforts and your testimony

this afternoon, and we will have further questions, keep the record

open for hopefully what will be your timely response.

Mr. DOOLITTLE. With that, this hearing is adjourned.

[Whereupon, at 4:50 p.m., the Subcommittee was adjourned.]