U.S. GOVERNMENT PRINTING OFFICE

42–742 CC WASHINGTON : 1997

OVERSIGHT HEARING ON BUREAU OF RECLAMATION FUNDING OPTIONS FOR WATER PROJECT

CONSTRUCTION, ENHANCEMENT, REHABILITATION AND MITIGATION

OVERSIGHT HEARING

BEFORE THE

SUBCOMMITTEE ON WATER AND POWER

OF THE

COMMITTEE ON RESOURCES

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

ON

BOR FUNDING FOR WATER PROJECTS

MAY 6, 1997—WASHINGTON, DC

Serial No. 105–31

Printed for the use of the Committee on 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, Idaho

LINDA SMITH, Washington

GEORGE P. RADANOVICH, California

WALTER B. JONES, JR., North Carolina

WILLIAM M. (MAC) THORNBERRY, Texas

JOHN SHADEGG, Arizona

JOHN E. ENSIGN, Nevada

ROBERT F. SMITH, Oregon

CHRIS CANNON, Utah

KEVIN BRADY, Texas

JOHN PETERSON, Pennsylvania

RICK HILL, Montana

BOB SCHAFFER, Colorado

JIM GIBBONS, Nevada

MICHAEL D. CRAPO, Idaho

GEORGE MILLER, California

EDWARD J. MARKEY, Massachusetts

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

MAURICE D. HINCHEY, New York

ROBERT A. UNDERWOOD, Guam

SAM FARR, California

PATRICK J. KENNEDY, Rhode Island

ADAM SMITH, Washington

WILLIAM D. DELAHUNT, Massachusetts

CHRIS JOHN, Louisiana

DONNA CHRISTIAN-GREEN, Virgin Islands

RON KIND, Wisconsin

LLOYD DOGGETT, Texas

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, Idaho

LINDA SMITH, Washington

GEORGE P. RADANOVICH, California

WILLIAM M. (MAC) THORNBERRY, Texas

JOHN B. SHADEGG, Arizona

JOHN E. ENSIGN, Nevada

ROBERT F. SMITH, Oregon

CHRIS CANNON, Utah

MICHAEL D. CRAPO, Idaho

PETER A. DEFAZIO, Oregon

GEORGE MILLER, California

OWEN B. PICKETT, Virginia

CALVIN M. DOOLEY, California

SAM FARR, California

ADAM SMITH, Washington

RON KIND, Wisconsin

LLOYD DOGGETT, Texas

————— —————

————— —————

ROBERT FABER, Staff Director/Counsel

VALERIE WEST, Professional Staff

STEVE LANICH, Democratic Staff
(III)

C O N T E N T S

Page

Hearing held May 6, 1997 ....................................................................................... 1

Statement of Members:

Doolittle, Hon. John T., a U.S. Representative from California; and Chairman, Subcommittee on Water and Power ................................................... 1

Statements of witnesses:

Cody, Betsy A., Specialist in Natural Resources Policy, Congressional

Research Service ........................................................................................... 7

Donnelly, Thomas F., Executive Vice President, National Water Resources Association ....................................................................................... 27

Flicker, Eric L., Vice President, American Consulting Engineers Council .. 25

Martinez, Hon. Eluid L., Commissioner of Reclamation, Department of

the Interior .................................................................................................... 3

McCollom, David C., General Manager, Olivenhain Municipal Water District ................................................................................................................. 29

Rezendes, Victor S., Director, Energy, Resources, and Science Issues,

U.S. General Accounting Office ................................................................... 5

Smith, James N., Executive Director, Council of Infrastructure Financing

Authorities ..................................................................................................... 24

Additional material supplied:

Cody, Betsy A., Specialist in Natural Resources Policy, Congressional

Research Service, prepared statement of .................................................... 53

Charts ......................................................................................................... 00

Donnelly, Thomas F., Executive Vice President, National Water Resources Association, prepared statement of ................................................ 87

Flicker, Eric L., Vice President, American Consulting Engineers Council,

prepared statement of ................................................................................... 65

Jamison, Warren L., Manager, Garrison Diversion Conservancy District,

prepared statement of ................................................................................... 102

Libeu, Larry, Deputy Assistant General Manager, Eastern Municipal

Water District, prepared statement of ........................................................ 104

Martinez, Hon. Eluid L., Commissioner of Reclamation, Department of

the Interior, prepared statement of ............................................................. 38

McCollom, David C., General Manager, Olivenhain Municipal Water District, prepared statement of ......................................................................... 97

Rezendes, Victor S., Director, Energy, Resources, and Science Issues,

U.S. General Accounting Office, prepared statement of ............................ 43

Smith, James N., Executive Director, Council of Infrastructure Financing

Authorities, prepared statement of ............................................................. 60
(1)

OVERSIGHT HEARING ON BUREAU OF RECLAMATION FUNDING OPTIONS FOR WATER

PROJECT CONSTRUCTION, ENHANCEMENT,

REHABILITATION AND MITIGATION

TUESDAY, MAY 6, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON WATER AND POWER,

COMMITTEE ON RESOURCES,

Washington, DC.

The Subcommittee met, pursuant to call, at 2:02 p.m., in room

1324, Longworth House Office Building, Hon. John T. Doolittle

(Chairman of the Subcommittee) presiding.

STATEMENT OF HON. JOHN T. DOOLITTLE, A U.S. REPRESENTATIVE FROM CALIFORNIA; AND CHAIRMAN, SUBCOMMITTEE

ON WATER AND POWER

Mr. DOOLITTLE. The Subcommittee on Water and Power will

come to order. The Subcommittee is meeting today to hear testimony concerning funding options for Bureau of Reclamation

projects. I would like to welcome our witnesses here today. Since

the beginning of this century the Federal Government has played

a major role in the development of water resources in the Western

United States.

The Bureau of Reclamation was created by the Reclamation Act

of 1902 to reclaim arid and semiarid lands. Over the past 95 years,

the Federal Government has invested more than $16 billion in reclamation projects, 80 percent of which is subject to repayment to

the U.S. Treasury.

The purpose of this hearing is to explore various funding mechanisms available to help finance reclamation projects in the future.

The witnesses have been asked to address a wide range of funding

options, including traditional repayment programs, modifying the

existing Small Loan Program, loan guarantees, grants, revolving

funds, and the increased use of private capital.

Today we stand at a crossroads with two opposing forces in view.

There is a need to expand and improve our existing water supply

system to meet agricultural, urban, rural, tribal and environmental

needs. At the same time, we must find ways in every government

program to reduce costs as we move toward a balanced budget.

The Congress is determined to eliminate the Federal budget deficit, and we must find ways in our area of responsibility to reach

that goal. In a recent draft of its Strategic Plan, the Bureau stated

generically that ‘‘there is no ‘new’ water to develop, no new dams
2

to store water for the dry season and little groundwater resources

to pump from the earth.’’

What a tragedy that the Federal Government’s primary water

supply agency has no greater vision. While it remains to be seen

what role the Bureau and the Federal Government should play, we

certainly do not, as a nation, lack opportunities to develop new

water. There are onstream and offstream reservoirs under construction and available to be built.

There are groundwater basins in need of recharge to hold water

resources. There are emerging technologies that make it economical

to recycle our water and to convert ocean water to freshwater. And

every year, there are floods throughout the west that currently destroy homes, lives, and the environment and which could be harnessed to meet productive needs.

The challenge we face today is how to encourage the development

and management of water resources in an economically responsible

manner. If the purpose of future developments is to meet general

public benefits such as environmental enhancement or Indian

water settlements or if it is to avoid Federal costs for disaster relief, there is, it seems to me, the need to consider a higher Federal

cost-share.

If the purpose is to meet growing needs for water to support food

production or urban needs we can look to the water users to provide a greater portion of the funding. Indeed, as we will hear from

some of our witnesses, we can use innovative ways to finance these

projects. If we design these programs to maximize the use of the

private sector in financing, constructing, and managing future

water resource projects, we can greatly reduce the cost and the involvement of the Federal Government in many of these endeavors.

Historically, the Reclamation Program does not flow from a single organic Federal statute. There have been various acts since the

1902 Reclamation Act which have shaped the program. Since 1939,

every project has been individually authorized with its own terms

and conditions.

Although the authorizing language in each was developed with

careful consideration of the project beneficiaries in mind, little was

done to step back and look at the overall trend or to anticipate future needs and requests. With this hearing, we are going to begin

looking to the future and assessing new options for funding future

requests.

In recent years, the Subcommittee has not considered requests

for the traditional multi-purpose projects that deliver irrigation

water. Today, the Subcommittee is being asked to authorize rural

water supply systems, water delivery systems for Indian reservations, environmental enhancement/mitigation projects for existing

Reclamation projects, and water reclamation and reuse facilities.

I do not believe that the seemingly conflicting goals of enhanced

water supply and cost control present insurmountable obstacles.

Rather, they represent reasonable parameters and provide attainable goals which should help us develop a blueprint for how the

government will participate in meeting these needs.

New water development has the potential to be used to enhance

the water quality and environmental resources in the west. How

we go about designing and financing these projects will be a test
3

of the Federal Government’s ability to transition to a smarter,

more efficient, less costly mode of operation. After the ranking

member has a chance to make his statement, I will look forward

to hearing from the witnesses. Now let me invite Mr. Pickett, if he

would like to make a statement.

Mr. PICKETT. Mr. Chairman, I do not have an opening statement.

Mr. DOOLITTLE. OK. Let me ask our first panel to come forward.

If you will come forward and remain standing for just a minute,

please. I do want to make this observation. Before we call upon our

witnesses, I would like to indicate that since the intent of the hearing is to look at both the historic funding arrangements as well as

to consider innovative ways to fund or encourage such projects in

the future, we will be hearing from witnesses both inside and outside the Reclamation Program.

As such, with some of the witnesses we are only looking to them

to answer questions limited to private, State and other Federal programs with which they are familiar. We have as witnesses today

the Honorable Eluid L. Martinez, Commissioner of Reclamation;

Ms. Betsy A. Cody, Specialist in Natural Resources Policy, Congressional Research Service; and Mr. Victor S. Rezendes, Director, Energy, Resources, and Science Issues, U.S. General Accounting Office.

Would you please raise your hands and take the oath?

[Witnesses sworn.]

Mr. DOOLITTLE. Thank you. Each answered in the affirmative.

We welcome you here today for your testimony and, Commissioner,

we will recognize you and begin this panel.

STATEMENT OF HON. ELUID L. MARTINEZ, COMMISSIONER OF

RECLAMATION, DEPARTMENT OF THE INTERIOR

Mr. MARTINEZ. Thank you, Mr. Chairman, members of the Subcommittee, thank you for the invitation to discuss funding and costsharing options for the Bureau of Reclamation. Given our mutual

interest in reducing costs and balancing the budget, this hearing

is timely.

With your permission I would like to summarize my remarks and

have the full text of my prepared statement entered into the hearing record. Since fiscal year 1985 Reclamation’s construction budget has declined by more than one-half in real terms. Over the same

period, appropriations for operation and maintenance activities

have nearly doubled.

For fiscal 1988 about 60 percent of Reclamation’s budget requested is for the completion of ongoing projects and the promotion

of an integrated approach to water management. The remaining 40

percent is for operation, maintenance, and rehabilitation of existing

infrastructure.

Now I would like to turn to the specific items mentioned in your

letter of information beginning with cost sharing for traditional

projects. While Reclamation has not established a hard and fast

rule for the required level of cost sharing, in recent years Reclamation has advocated that beneficiaries pay at least 35 percent of the

nominal cost for traditional Reclamation projects.

A portion of the cost sharing can be provided up front in cash or

in-kind services. With respect to the Small Reclamation Projects
4

Act Loan Program, loan guarantees, and the rehabilitation and betterment program, Reclamation believes that in this budget climate

the private sector may be better equipped than the Federal Government to provide financing for these projects.

In 1995 the Administration recommended in the National Performance Review that the Small Reclamation Projects Act Loan

Program should be phased out. Since then, Congress has provided

only limited funding needed to complete grandfathered projects. As

I previously testified, the Administration is opposed to loan guarantees and the authorization of a new comprehensive program.

However, I do believe that there might be meritorious small reclamation projects and all projects should receive authorization on

an individual basis rather than through generic legislation. Reclamation is working hard to cut costs and adapt stringent physical

constraints within our budget limitations.

However, we are prepared to discuss options for the water users

and interested organizations and commerce and we intend to continue our dialog to see what, if any, alternatives may exist for this

particular program. Except as related to dam safety, Dam Reclamation is no longer seeking congressional appropriations to replace,

rehabilitate or renovate facilities related to the reimbursable functions of our projects.

In the event the water district cannot obtain private financing

Reclamation will evaluate its options to address these problems.

With respect to dam safety, the Reclamation Safety of Dams Act

requires that 15 percent of the costs be reimbursable. Our policies

require repayment of dam safety costs allocated to reimbursable

project purposes such as irrigation, municipal and industrial uses

and hydro power.

These reimbursable costs are paid by the beneficiaries of the corrective action within 25 years. Last year upon becoming Commissioner I commissioned a peer review team consisting of dam safety

professionals from outside the Department of the Interior to review

the Department’s Dam Safety Program. That team has issued its

findings and recommendations and a copy of that report has been

provided to Congress.

The report basically said in addition to supplementing Federal

funds the reimbursable policies of both the Safety of Dams Program and the operation and maintenance programs of Reclamation

provide a useful check for the water districts on the amount of

money and expenditures that Reclamation has undertaken for

these programs.

Reclamation is reviewing the findings and recommendations of

the peer review team. In the future, Mr. Chairman, I expect to

come before Congress to request an increase in the cost ceiling authorized by the Dam Safety Program and will address the issue of

cost sharing for dam safety in that context.

Your letter of invitation also asked me to discuss the Bureau’s

position regarding appropriate cost sharing for rural water distribution projects. Longstanding Reclamation policy for municipal,

rural, and industrial water supply projects requires that non-Federal interests pay, at current interest rates, 100 percent of the cost

of the projects.
5

Other Federal agencies such as the Department of Agriculture

might be a more appropriate agency for the project sponsors to

seek for funding. In the past the Administration has supported

rural water supply systems where the needs of the Indian communities justified Federal involvement and Reclamation in my opinion

should be involved with Federal funding as needed to encourage innovation or otherwise serve a basic national purpose.

Finally, I would like to discuss water reuse projects. Last year,

the Congress in Public Law 104–266 authorized 16 new water reclamation and reuse projects, in addition to the four projects that

Reclamation is already funding under the authority of Public Law

102–575. There is a growing demand to devote a greater portion of

Reclamation’s budget to water reuse projects.

With fewer Federal dollars available Reclamation will have to

make difficult choices even to fund the most deserving projects. Let

me put this in context. Reclamation’s overall budget request for fiscal year 1988 is about $764 million. If all authorized wastewater

reuse projects were funded at optimum levels in fiscal year 99 Reclamation estimates that $130 million would be required.

An estimated $550 million would be required to fund all authorized projects to the year 2005. Given these budget realities Reclamation has adopted an internal self-imposed cap of about $30

million annually in its budget request for wastewater reuse

projects. I would like to commend the Congress, especially this

Subcommittee for taking some important steps in Public Law 104–

266 to alleviate some problems, in particular, the feasibility study

and financial capability requirements to improve the Federal Government’s ability to control expenses and ensure that Federal funds

are used appropriately.

Nevertheless, there is a need to establish criteria and prioritize

projects for funding to determine what constitutes a sponsor’s financial capability and to develop requirements for feasibility studies. I have appointed a water recycling team and that team has reviewed Reclamation’s Program and developed recommendations on

how it intends to address these issues.

Last year the water recycling team held a series of public meetings where individuals presented their ideas. Attendees suggested

that Reclamation explore alternative funding mechanisms such as

competitive annual grants.

Reclamation is hopeful that the team will provide additional insight based on public participation that will be useful to this committee and to Reclamation in our efforts to fund water recycling

projects. Mr. Chairman, that concludes my prepared remarks. I

would be pleased to answer any questions.

[Statement of Mr. Martinez may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Mr. Rezendes, you are recognized for

your testimony.

STATEMENT OF victor s. rezendes, director, energy, resources,

and science issues, u.s. general accounting office

Mr. REZENDES. Thank you, Mr. Chairman. It is a pleasure to be

here. I have two basic points I want to make today. One is talk a

little bit about the evolution of the Reclamation laws and second,
6

talk a little bit about water project cost recovery. The Federal Government initially got involved with Reclamation with the passage

of the Reclamation Act of 1902. Basically that act was to fund irrigation projects in the west but it was also basically a development

pact.

It was intended to settle the West. And right from the outset basically the intent was for the program to be self-sufficient. No appropriation funds were intended to be used pro rata. A revolving

fund was set up using moneys from the sale of Federal lands. Once

loans were made and paid back, additional loans would be made

for additional irrigation projects out of that revolving fund.

Also, from the outset, the Federal Government chose to forego

any interest on these loans. The notion was they wanted to settle

the West and the government felt content with just receiving the

payments for principal in lieu of giving up the interest for the

farmers to settle the West.

Early on though it was also very clear that both the cost of farming and the cost of building these water projects was more than

anybody expected. Starting in around 1906 came a series of pieces

of legislation to provide not only relief to farmers in terms of their

ability to pay but also extended over various time periods the requirement on pay back.

Repayment went from 10 years, to 20 years, to 40 years. Legislation also provided periodic relief to farmers in the form of chargeoffs and provided that funds obtained from the use of water to generate electricity could offset some of the costs of the projects.

Probably 1939 was the most significant year. The Congress fundamentally changed the program. At that point all projects were

funded with appropriated funds rather than through the revolving

fund. Congress also established multi-purpose projects, basically

municipal water, flood control, that sort of thing, and allocated the

cost among the project uses so they could all be judged individually

in terms of the economic viability. They also changed the payment

system for the irrigators by providing for both a variable annual

payment based on crop returns as well as providing an interest-free

development period of up to 10 years beyond the 40 years already

established.

The last piece of legislation I want to talk about was enacted in

1982 which was the Reclamation Reform Act. That was the first

time Congress established the notion of full cost recovery. The legislation required, for specific leased acres, over 960 acres, full recovery of the cost of irrigation. For the first time Congress charged

not only the cost of construction but also the operation and maintenance as well as the interest cost for those specific uses.

I now want to call your attention to appendix I of my testimony

and just talk a little bit about how these costs are defined in terms

of reimbursable and nonreimbursable and who pays them. I will

quickly walk you through that. Basically you see on the top of that

chart it shows reimbursable construction costs. In essence, irrigation pays the cost of construction based on their ability to pay but

is relieved of any interest payment. The next is municipal and industrial users. They pay the cost of construction plus interest during construction and interest during the repayment process.
7

The last one is general power generation. They pay similar to

municipal and industrial users construction plus interest but they

also pay a good part of the irrigation costs that the irrigators, the

farmers, cannot pay.

The bottom of the chart shows nonreimbursable costs. Those are

pretty much construction costs that are defined as national in

scope. They include things like fish and wildlife purposes, recreation and flood control. Historically, the Federal Government has

borne the cost of those aspects of projects.

Through the end of fiscal year 1994, there were 133 projects that

had some sort of irrigation involved with them and the total cost

was about $22 billion. Of that $22 billion, roughly about 77 percent

is in the reimbursable cost category and 23 percent is in the nonreimbursable. That is probably a good place for me to stop and turn

it over to Ms. Cody who is going to bring you up to date on the

most recent legislation.

[Statement of Mr. Rezendes may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Ms. Cody, you are recognized.

STATEMENT OF BETSY A. CODY, SPECIALIST IN NATURAL

RESOURCES POLICY, CONGRESSIONAL RESEARCH SERVICE

Ms. CODY. Thank you. My testimony focuses on repayment obligations established in law for capital projects authorized or modified since 1979. In particular, I will discuss the projects authorized

over the last two decades and the breakdown between reimbursable

and nonreimbursable costs. There are two points I would like to

make before summarizing my analysis.

First, it appears that projects authorized or modified within the

last 18 years that are similar to traditional Reclamation projects

have generally followed the typical repayment pattern that GAO

has described. Many projects authorized in recent years have had

a higher proportion of nonreimbursable costs such as for flood control, fish and wildlife and Indian water right settlement purposes.

This may raise the question of whether Federal policy has

changed regarding reimbursable costs. My review does not find any

major alteration in overall policy. However, there are some instances where Congress has departed from past reimbursement

procedures, particularly for rural water supply projects.

Based on information gathered from the Bureau of Reclamation,

Congress has authorized at least 55 projects since 1979. I have

placed these authorizations in a table accompanying my testimony

which you should find on page 7. Of the 55 projects authorized that

I analyzed, 24 percent were for the relatively traditional multi-purpose/irrigation projects or project modifications, 7 percent were for

rural water supply systems, 36 percent were for reclamation water

reuse and recycling, also known as Title XVI projects, 18 percent

were for water quality, fish and wildlife, or conservation purposes,

and 15 percent were for Indian water rights settlement.

The repayment obligations authorized for these projects and

modifications vary greatly. They vary depending both on reimbursement provisions established in law and upon the percentage

of project costs allocated to non-reimbursable purposes such as

flood control, fish and wildlife, Indian water rights.
8

For the traditional multi-purpose projects, repayment obligations

range from 0 percent non-reimbursable to 100 percent non-reimbursable. The two totally non-reimbursable projects are flood control projects, which under reclamation law are typically non-reimbursable. Outside of these two projects, reimbursement responsibilities ranged from 33 percent to 93 percent with the average being

79 percent reimbursable. This is very close to the 77 percent average reimbursable rate that GAO estimated for the 133 projects it

looked at since 1902.

When the two flood control projects are considered, the average

comes to 66 percent, still roughly in the same ballpark. For the

rural water supply projects, the non-reimbursable component is

higher than typical for traditional reclamation projects. Here the

non-reimbursable share ranged from 75 percent to 85 percent with

one exception, the Mni Wiconi project in South Dakota.

In each case here, Congress specified the reimbursement ratio in

the authorizing legislation. These projects differ from the more traditional reclamation projects in that they focus on municipal and

industrial water supplies for rural areas with specific water quality

and quantity concerns.

For the reclamation water recycling and reuse projects the nonreimbursable component established in law is generally 25 percent.

Again, this ratio is similar to the ratio that has evolved over time

for the traditional projects. However, the financing arrangements,

as have been described by GAO, are quite different. Instead of financing and building the projects up front and requiring repayment of reimbursable costs through contract the Federal Government funds only a portion of project costs with the rest shared by

local participants. Essentially the Federal Government funds the

25 percent non-reimbursable share as a grant.

For the water quality/fish and wildlife, and conservation projects,

the non-reimbursable costs ranged from 35 percent to 100 percent.

All of the projects in this category outside of California have been

100 percent non-reimbursable by law. All of the California projects,

however, as authorized under CVPIA have a significant reimbursable cost share, some paid by the State, some paid by local project

users. I should note, however, that some of these costs may be offset by payments in the CVP Restoration Fund.

Finally, the Indian water rights settlement projects are all 100

percent non-reimbursable (although, there is local cost-share with

some). Unlike other reclamation projects, both new and old, these

projects have been authorized as part of settlement agreements between tribes, the Federal Government, and other interested parties. Therefore, they do not really fall within the realm of traditional reclamation law and consequently are not directly comparable to other reclamation projects.

In conclusion, it appears that projects authorized or modified in

the last 18 years have followed a typical repayment pattern, with

a few exceptions, most notably three of the four rural water supply

projects have a significantly higher non-reimbursable share than

has been typical for other industrial and water supply projects attached to the traditional irrigation projects. However, these

projects in total represent less than 7 percent of all the projects

analyzed since 1979.
9

Most of the rest of the projects where the non-reimbursable cost

exceeds 50 percent involve project purposes that Congress has declared as non-reimbursable, flood control, fish and wildlife, water

quality, and Indian water rights settlement. In other words, the reimbursement provisions generally have not changed, rather, the

typically reimbursable functions of these projects as a percent of

total project functions, have declined. Thank you.

[Statement of Ms. Cody may be found at end of hearing.]

Mr. DOOLITTLE. Commissioner, in your testimony you state that

Reclamation no longer requests congressional appropriations to replace rehabilitative facilities related to reimbursable functions in a

project with the exception of dam safety. And yet the government,

Reclamation, hold title to these projects. Does that strike you as

paradoxical?

Mr. MARTINEZ. I think on the face of it, it looks like an inconsistency. But we spent about 40 percent of our budget on rehabilitation, maintenance and operation. Reclamation continues to expend

moneys to make sure that our facilities are kept up in a good operational status.

As I understand the betterment and rehabilitation activity that

we are talking about was a separate act. It enabled moneys to be

used by districts for projects or for work that was not funded under

regular operation and maintenance programs. In the two years that

I have been involved with the Bureau of Reclamation I have not

had an irrigation district or representative of irrigation districts

raise concern to me that they have not been able to address rehabilitation and maintenance on district properties and government

properties as a result of the Reclamation not requesting funds for

this program.

So I think we are talking about two distinct efforts by Reclamation. We are talking about this program versus operation and

maintenance for our facilities.

Mr. DOOLITTLE. You went on to state that in the event private

financing could not be obtained, Reclamation will need to evaluate

its options, including revision of operating standards. Is that then

telling us that it is going to be the Administration’s policy to allow

the infrastructure to deteriorate to the point that operations would

have to be modified rather than to seek the necessary appropriated

funds to rehabilitate these facilities?

Mr. MARTINEZ. I think we need to put this in context. If what

we are talking about is an internal water distribution system within a district facility that delivers water from a canal to another

canal and to the extent that that facility might deteriorate because

the district is not maintaining that facility then it might be possible that if the district does not obtain financing of some sort and

if the Federal Government does not provide financing that water

might not be able to become available.

And in that case the facility might be inoperable. But if we are

looking at a facility such as a dam or a structure that has a national interest, I do not think it is in the Federal Government’s

best interest to let those kind of facilities deteriorate because of a

lack of funding. Those are the kind of facilities that we would continue to make sure that they are adequately maintained if it comes
10

to a situation where we had to come to Congress to get authorization. You have to look at the different facilities.

Mr. DOOLITTLE]. But for the ones you deemed to be the highest

priority, you would not let them fall into disrepair but would come

and seek appropriate funds if necessary?

Mr. MARTINEZ. That would be my recommendation.

Mr. DOOLITTLE. Mr. Flicker on the panel to come will state in his

testimony that the Bureau of Reclamation no longer needs to do inhouse engineering and in fact it is competing with the private sector to provide those services. Could you comment on that issue?

I realize this is not your testimony, but I want to address that

question to you, Commissioner. Mr. Flicker is going to testify in the

next panel that the Bureau of Reclamation in-house engineers are

competing with the private sector to provide those services, apparently now competing both domestically as well as internationally.

Could you comment on that?

Mr. MARTINEZ. That is an issue I am sensitive to. We have engineers in Denver that work on a cost reimbursable basis. They are

primarily charged to provide engineering services to regional areas

in the Bureau of Reclamation. There are instances where governmental entities such as cities and counties and States ask the Bureau of Reclamation because of their expertise to provide assistance.

What I have told my engineers is I do not want them competing

with the private sector and going out and soliciting business but

if we have these entities that come to us and seek assistance and

we can work out something that is in their best interest and our

best interest we will proceed.

We have an international arm in the Bureau of Reclamation and

we have other countries that seek our assistance in certain areas

but I think if you look at our record, and I will be glad to provide

you the information, even Reclamation goes out to quite a few private entities seeking engineering services.

Mr. DOOLITTLE. Thank you. Mr. Dooley is recognized.

Mr. DOOLEY. Thank you, Mr. Chairman. Thank all of you for attending. I guess, Mr. Martinez, just for a little bit of clarification

in your statement you talked about how there has been a change

in direction and allocation of funds with Reclamation which we all

I think are fairly well aware of.

You talk about, in one sentence you say that reflects the need to

focus on the Federal funding on higher Federal priorities such as

addressing adverse impacts of existing projects. You then go on to

say Reclamation has organized this program so almost 40 percent

of its fiscal year budget request is allocated to operation, maintenance, rehabilitation of the existing structure and the other 60 percent is for completion of ongoing projects and a promotion of an integrated approach to management of water.

My question is what is the amount of the Bureau’s budget that

really is being allocated and indeed can you account for that that

is allocated for addressing the adverse impacts of existing projects?

I guess what I am looking at is environmental enhancement and

do you have that figure that it also does not account for the reimbursable funding as we are doing with the CVPIA?
11

Mr. MARTINEZ. I am sorry, Mr. Dooley, I do not have that information handy but I will be glad to provide it to the committee and

to you.

Mr. DOOLEY. What I am a little interested in is we see the mission of the Bureau of Reclamation changing and that it is no longer

being directed in terms of construction and new projects which the

periods are quite evident even within your testimony is that the

issue as it relates to reimbursable or nonreimbursable also appeared to be changing too because the issue of what is reimbursable really often times has been a function of who the primary beneficiary was and assuming that if the environmental enhancement

would be more allocated as a side benefit are we seeing a change

in a reduction in what we are expecting from reimbursable contributions that reflect what appears to be a traditional nonreimbursable function of the Bureau?

Mr. MARTINEZ. To the extent that our budget is increasing for

addressing environmental issues, restoration issues and wetlands

and to the extent that our budget has increased for operation and

maintenance at facilities where there are nonreimbursable purposes then we would begin heading down the road toward situations where you would get less reimbursement for expenditures in

our budget.

Mr. DOOLITTLE. Mr. Thornberry is recognized.

Mr. THORNBERRY. Thank you, Mr. Chairman, and I appreciate

your efforts and the interest in trying to update and modernize

funding of Bureau of Reclamation projects. I listened to the testimony and cannot help but think the issues are not strictly funding

issues because as you are well aware some of the difficulties that

we have experienced in just trying to modernize and put some

flexibility into the Bureau and getting them to follow the law are

not funding issues but seemingly just common sense issues.

I will not go into the details of what we have been trying to do.

We talked to Commissioner Martinez about that before when he

has been before this Subcommittee. It is not getting better. I think

we can also see as evidence going back several years to Vice President Gore’s reinventing government proposal where title transfers

were part of what he suggested and encouraged.

It does seem like if we could have title transfers it could free up

resources and maybe look at other projects or more maintenance of

existing projects. And as I understand it there has not been a single title transfer occurred since he first made that proposal. So

from our perspective I think it is rather discouraging as to the Bureau’s attitude toward putting more flexibility and modernization

into the way that projects are funded or for that matter the operation and maintenance and rehabilitation of existing projects. It

has been extremely difficult.

I am going to ask Commissioner Martinez, are you going to have

any title transfers this year? Where do we stand with that?

Mr. MARTINEZ. I think I testified last time that from my perspective I think we need to bring some of these to closure. I continue

to work with the Administration to make sure we bring some of

these to closure and I am hopeful that we will have some this session.
12

Mr. DOOLEY. I think the difficulty, Mr. Chairman, as you know,

is that in some of the negotiations so far have been drug out for

years and in others there are just unbearable conditions that get

put on by the Administration which has the effect that none occur.

And so it is unfortunate. I think this is an area where the Federal Government could do more on behalf of the taxpayers and the

people that are served but we seem to have a difficult time getting

there and I certainly want to continue working with you to help

move it along.

Mr. DOOLITTLE. Mr. Farr is recognized.

Mr. FARR. Thank you very much, Mr. Chairman. I want to first

of all thank you for having the hearing. I think this is one that this

Congress needs to really focus on. It is kind of a misnomer that the

Bureau of Reclamation reclaims all this water because my idea of

reclaim is reuse and I think we ought to put more emphasis on it.

I am a little bit disturbed because I am not sure which way your

testimony wants to lead us. At one point you point out that you

commend Congress for cutting out the small loan program and on

the other part of your paper you say that there is a growing demand to devote a greater portion of the Reclamation budget to

water reuse projects.

How can we meet the demand which I think is an appropriate

one, to use essentially very expensive water that we are cleaning

up; sewage water that we are treating and move that treated water

from dumping it in rivers and oceans to moving it to Reclamation.

As you know, the area I represent in Salinas Valley has been a

very successful project thanks to the Department, and frankly,

thanks to the Department being able to grant the last large loan.

These projects are going to be opening in the latter part of this

year and it will be the largest amount of agricultural land in the

United States that is being irrigated by reclaimed water. The point

is that I do not find in the Bureau’s new strategic plan under the

reinventing government initiative any language regarding new

projects which the Bureau intends to undertake regarding reuse of

reclaimed water.

And I would like to see us put more emphasis on that. Mr.

Garamendi, when he was here on the CVPIA oversight hearing,

discussed water that we needed in the Pajaro Valley. They have

been on the list to get CVP water for a long, long time. They are

not able to get it. And the question was how do you resolve this

problem because you can’t just drop that ball.

So my point of interest here is to see what we can do to expedite

the stand to get some moneys to those communities who really

want to go to effective reuse for Reclamation projects.

Mr. MARTINEZ. Mr. Chairman, my personal perspective is that

reclamation and reuse of these water resources is a good way to

create for lack of a better word new water supply. What I am trying to point out here is that Reclamation has a budget to work

with, $764 million, with competing interest.

To the extent that we would aggressively fund wastewater reuse

projects it indicates that in the next year we will need $130 million. The question is where are we going to get the $130 million?

If we turn to our $764 million budget, this will impact our ability

to continue to construct the projects that have been authorized.
13

It will further complicate our ability to maintain and operate our

system. The question is, if we are going to move forward on some

of these initiatives how are we going to fund them?

Mr. FARR. Well, exactly. The loan program seems to me a way

to work that. I understand it was very cumbersome. It was too

long. It took years and years to qualify for the loan and some of

the loans were not paid back but if indeed when you say that reuse

is the newest source of water and it is a high priority for you then

why isn’t there an emphasis in moving that priority into the fiscal

arena as well?

Mr. MARTINEZ. I think my testimony in the past has indicated

that it is my belief that the Small Projects Reclamation Loan Act

as it currently exists has outlived its usefulness. I think that perhaps there might be a reformulation, from my personal perspective,

a reformalization of that program that might allow Reclamation to

fulfill its mission and I will continue to engage other parts of the

Administration to try and see if we can move forward in that initiative.

Mr. FARR. We need some leadership here. That is what I am asking. Where is the leadership to say that what you just stated, that

this is the best new source of water. It might be it is all paid for

because it is already in—you know, it is being collected and delivered to the households and businesses and it is being delivered

back to its treatment plant.

It is just a matter of upgrading those treatment plants and getting the distribution system in. It seems to me a very cost effective

way of gaining new water and environmentally without any problems. But where is the leadership from the Bureau of Reclamation

saying that this is going to be one of our agendas?

Mr. MARTINEZ. We are taking an aggressive approach to try and

move these projects forward. The bottom line is that the demand

for these programs is expensive. The Federal commitment on the

four projects that have been authorized already and where construction is taking place in California requires a Federal commitment of over $300 million.

Mr. FARR. And those were loan programs, they were not grants.

Mr. MARTINEZ. They were grants.

Mr. FARR. Well, not the one that I am involved with. It was a

loan.

Mr. MARTINEZ. Yes, the loan but these are—and I am talking

about the wastewater reuse projects in California are grants. Over

$300 million.

Mr. FARR. And yet, excuse me, it turns out that your paper says

you do not support the loan program, you are glad it is phased out

and you would like to encourage the grants. See, I do not see where

the leadership is coming from to try to get to move in that direction.

Mr. DOOLITTLE. Mrs. Chenoweth is recognized.

Mrs. CHENOWETH. Thank you, Mr. Chairman. Mr. Martinez, the

Chairman in his opening remarks made reference to the recent

draft as a strategic plan of the Bureau of Reclamation and I studied that plan also and I was pleased to see that the Chairman

pointed out the fact the Bureau has said there is no new water and

yet just two pages away you talk about acquiring more water espe-
14

cially for conservation practices in the movement of fish especially

in the west. Where do you intend to get that water?

Mr. MARTINEZ. If I might try to put it in context. I think the

GPRA plan basically says that we need to turn our attention away

from the concept that we are going to provide new water resources

by building water projects, building new dams, new reservoirs for

two practical reasons. One is the expense of these projects, and second of all is the mood of the country.

But if there are other forces to create additional water supply,

wastewater reuse would be one source, water marketing would be

another, water conservation or the improved management of water

resources would be another. So in summary where we are headed

is to make better use of the resource that we have developed to

provide the needs out west rather than creating a new water supply project.

Out west there is a tremendous amount of water underground

that is saline. To the extent that we take the leadership in reclaiming saline water in a cost effective way it would be providing new

resources. Wastewater reuse we just finished talking about. But

those are expensive projects and my testimony indicates that with

the Bureau of Reclamation’s existing budget there is not enough

money to fund all projects.

On the 16 projects that have been authorized for construction for

the next few years, they require almost half a billion dollars. I support these projects but I cannot support them at the expense of

moving money from one part of my budget to another part because

I got a commitment, other commitments, I have to live with.

Mrs. CHENOWETH. In your draft strategic plan you talk about acquisition or leasing of water rights and ways to improve environmental conditions and I found that beginning on page—you also

discuss it on page 2 of your testimony. How do you intend to finance this kind of acquisition and when and where did the Congress give the authority or confer the authorization to the Bureau

for this kind of acquisition whether it be leasing of water rights or

selling of storage rights?

And then the second part of my question—the first part, where

is the money going to come from, secondly, did Congress defer that

on your Department? And, thirdly, isn’t a storage right a contract

obligation rather than a right that was somehow acquired by the

Bureau to be able to sell or rent?

Mr. MARTINEZ. The authorization to use those kind of moneys

would have to come from Congress. In the absence of a new allocation to the Bureau of Reclamation for those purposes, we would

have to look within our existing resources and make recommendations as to how to best utilize those resources.

And if the national priority to purchase water to address certain

environmental concerns outweighs the use of the money for other

purposes, we would be making those kind of recommendations to

the Congress.

With respect to the acquisition of water the one that comes to

mind is the Thunder River Basin where based on the biological

opinion issued by the National Marine Fisheries Service Reclamation is charged with acquiring water. We are acquiring it from willing sellers under Idaho law for the purpose of addressing fish con-
15

cerns. We have requested the appropriations in our budget and

Congress has seen fit to appropriate the money to us.

Mrs. CHENOWETH. Thank you, Mr. Chairman. I have no more

questions.

Mr. DOOLITTLE. Commissioner, how many in-house engineers

does the Bureau employ?

Mr. MARTINEZ. I would be glad to provide that information to you

but I would probably say that the Bureau of Reclamation is primarily an engineering organization.

Mr. DOOLITTLE. And yet you are abandoning the structural solutions in favor of non-structural, as I understand your testimony.

Mr. MARTINEZ. Well, we have a large infrastructure out west and

it is imperatively important that we maintain an expertise, an engineering expertise, to maintain that infrastructure. So one of the

things that I did when I became Commissioner is I created an inhouse task force, to look at how we were going to be able to maintain an engineering capability to make sure that our facilities remained adequately maintained and sound replacements were made

from an engineering standpoint. And we are not going to lose that

expertise.

Mr. DOOLITTLE. So where there is a trend toward privatization

going on all around the world, why couldn’t you maintain that expertise largely through contracting out and terminating the inhouse engineers that you have, retaining a few who you need to supervise the work of the contractor? I do not know how many hundreds you have but you have a lot, I presume.

Mr. MARTINEZ. Let me try to answer it from this perspective, Mr.

Chairman. The Bureau of Reclamation at the height of its dam

building in the 1960’s had, I understand, about 35,000 employees.

We have cut back in the last two years approximately 20 percent

of our employees and we are reducing the number of engineers. We

are hoping to maintain an adequate work force to address our

needs. And we are down to about 6,000 employees now.

Mr. DOOLITTLE. So you went from 35,000 in the 1960’s to 6,000

now?

Mr. MARTINEZ. About 6,000 now.

Mr. DOOLITTLE. And what percentage of those, and I realize you

can submit the precise number for the record, but what you get,

what percentage of the remaining employees are engineers?

Mr. MARTINEZ. I would venture to say—I would be happy to provide the information to you but in terms of overall percentages we

probably have less engineers percentage wise now than we did

back then but I will provide that information to you.

Mr. DOOLITTLE. What about the idea of contracting out to the

private engineering firms that have demonstrated an ability now to

design big complex projects like we used to build and hopefully will

build in the future?

Mr. MARTINEZ. I will provide you the information but I believe,

like I said, we are contracting out but it would still be my recommendation and I think it would be remiss as long as the Federal

Government holds title to some of these facilities, especially facilities such as the dam on the Columbia River, Grand Coulee Dam,

and Hoover Dam and these large dams that it is imperative that

we maintain in-house expertise to address those issues.
16

Mr. DOOLITTLE. Well, couldn’t you maintain in-house expertise

and simultaneously accelerate the amount of work going out to the

private companies? Are we so lean in the Bureau of Reclamation

that we are not capable of further reducing in-house engineers

without damaging the minimum level of necessary expertise?

Mr. MARTINEZ. If what you are asking me is should the Bureau

of Reclamation operate with entirely outside consultants I think

that my advise to this commission, to the Administration would be,

no, we need to maintain some in-house expertise.

Mr. DOOLITTLE. Just so we have a meeting of the mind—if the

private sector can do it, and if by definition they can do it less expensively than the government, do you really need to have in-house

engineers beyond the minimum necessary to supervise the work of

the private contractors?

Mr. MARTINEZ. I see your objective and I believe that the record

will reflect that we have reduced our in-house engineers. We do

contract but we need to have a balance and I will revisit that and

I do believe that we ought to be as cost efficient as possible but we

need to make sure that we protect the Federal Government’s interest in doing that.

Mr. DOOLITTLE. I still do not feel like you have given me a direct

answer to that question. I am not trying to badger you to say something you do not want to say, but—well, maybe you do not want

to say it. To me, the answer should clearly be, yes, we can make

further reductions. Now is that not the case in your mind?

Mr. MARTINEZ. Mr. Chairman, I would have to look because we

have reduced substantially in the last two years. What I do not

want to do is leave you with an impression that I can reduce much

further than that. I need to go back and revisit that and find that

information because of the 2,000 positions that we have lost in the

last two years, the majority of those have been highly technical engineering positions.

I do not think I can tell you that I am going to reduce my staff

by another 2,000 engineers. I might not have that flexibility but I

can provide that information.

Mr. DOOLITTLE. I agree with you. I think we have suffered a

tragic loss in expertise out of the Bureau of Reclamation, but it

must be very demoralizing for these highly trained engineers to

find themselves being converted into an environmental restoration

agency instead of a water management agency, which is what the

law intended and I believe intends them to be. Mr. Farr is recognized.

Mr. FARR. Thank you, Mr. Chairman. I would like to follow up

with a question for Mr. Rezendes. If we are going to have a fixed

budget for the Bureau of Reclamation in this downsizing era, if indeed there is an agenda out there that, we need to find some capital funds for moving into the new reuse issues. I guess the question then comes to where you can cut the Bureau’s budget.

And it seems to me we have gone through a process here, that

is the same in the military, where we went to the BRAC Commission to suggest to Congress what bases ought to be closed; and it

was a recognition that we really did not need all that Federal real

estate for the mission.
17

I come from a State where you have a California State water

canal and you have a Federal canal, two canals running right next

to each other, one run by one government and one run by the

State. The price of water is different in each canal. It begins to appear that maybe we have reached a time of maturity in this country where a lot of those projects that we run at the Federal level

be run by the States or by a consortium of States.

Should we consider the unloading of some of those projects to a

local level and then reserve whatever savings we get then to move

into these new agenda items?

Mr. MARTINEZ. We have not specifically looked at that. I can tell

you the cost effectiveness of what the implication of that would be

but I think that certainly is an option, I think you put your finger

on it. I think a decision has to be made here in the Congress as

to what the missions and the roles or responsibilities of the Bureau

of Reclamation and which business you want to be in at the Federal level.

And once you decide that then it is easy for GAO and other people to come in and then tell you how best that could be played out

through either the State level or contracting out or various other

kinds of options.

Mr. FARR. Well, I have a vested interest in this law because my

great-great uncle was Senator Newlands who wrote the new Reclamation Act, but on the other hand we are in a different era now

where we have different sources of water and we need to practice

water conservation.

I live in a coastal area that gets no water except for what comes

out of the sky and if we get a dry year we live with it and we have

learned to—we have a water bank for every community that essentially you are given an allocation of water. In that community that

is all they get. If they want to build water-intensive projects and

use up their water allocation that is it, but once they have reached

that limit they cannot get any more water so people have become

very conscientious about water and I think we probably done a better conservation job than anywhere in the United States.

And we have allowed with that savings to provide for growth. It

just seems to me that we need to in the 1990’s to relook at the way

we govern water and suggest that perhaps there is some governance at the local level that could be more progressive than at the

Federal level and be more cost effective.

And I would think that your agency, the general county agency,

ought to be coming to this Congress and making some of those recommendations.

Mr. DOOLITTLE. Mrs. Chenoweth.

Mrs. CHENOWETH. Thank you, Mr. Chairman. I am interested,

Mr. Martinez, in your telling us how the Bureau intends to address

the continuing O&M backlog at many of our projects. I know in

Idaho we have a backlog of operation and maintenance. With the

financial picture that you have presented and so forth could you

please let us know when you are going to bring that up to date?

Mr. MARTINEZ. It is my understanding that the Bureau of Reclamation is addressing operation and maintenance in all facilities

to the point where we do not have any unsafe projects. Now there

are some needs out there that need to be addressed and we have
18

identified those needs and we will seek funding to address those

needs over the next few years.

In California, we will be seeking funding over the next few years

to complete those items on our RACS lists. But I do not want to

leave you with the impression that we have unsafe facilities. We

are adequately addressing the maintenance of our facilities to

make sure that they are in safe condition.

And I have told my management team that I place great emphasis on that and in the last two budgets we put more money into

that area because I am concerned as you are concerned about those

facilities.

Mrs. CHENOWETH. Thank you, Mr. Martinez. With regard to your

answer on a previous question where I asked where did the Congress confer the power to the agency to move water or managed

water for environmental purposes, I believe that your answer was

because the money has been appropriated for that purpose, is that

correct?

Mr. MARTINEZ. Well, we have several Federal laws, and I will be

more than glad to provide the information, but with respect to the

appropriations our budget document specifies and documents how

those moneys will be used.

And I am assuming that when Congress appropriates our money

for our budget it appropriates under the conditions that we have

requested for.

Mrs. CHENOWETH. I wonder, Mr. Chairman, if it would be all

right with you if we can ask for a copy of that for this 1997–98

year.

Mr. MARTINEZ. Yes, we can provide it.

Mrs. CHENOWETH. How much of a percentage of your budget has

been allocated in that document for acquisition of water in one

form or another either rental or leasing or purchased?

Mr. MARTINEZ. I am advised that it is under 1 percent but we

will provide you that information.

Mrs. CHENOWETH. Thank you. And then we also ran out of time

last time when I asked you how is it possible to sell storage rights

as a water right? Since it is a contract it is a concept in contract

and it was never a condition of the bargain that storage rights

could be sold and it tortures the whole concept of contracting.

Mr. MARTINEZ. Well, I am not prepared—I am not familiar

enough with the concept to answer that question but I will get an

answer to it.

Mrs. CHENOWETH. Would you, please? Mr. Leshy has been very

aggressive in pushing for the sale of storage rights and storage

rights are much like a building that you drive your car into to rent

that space. The Bureau does not own the car when it is driven out.

It does not even own the car when it is in the space and so we are

very concerned. This is an issue that I am watching very, very

carefully.

I hope we do not have to resolve this issue in the courts because,

Mr. Martinez, I very sincerely believe that you do exude leadership

and I have not been entirely pleased with the philosophy and the

direction of the Bureau but I believe you are a very, very capable

man. And to that end I want to congratulate you. Thank you.
19

Mr. MARTINEZ. Thank you. In New Mexico where I am from, we

do not have any storage right conflicts so I am not familiar with

that but I will find out about that and visit with you.

Mr. DOOLITTLE. Mr. Smith is recognized.

Mr. ROBERT SMITH. Thank you, Mr. Chairman. I apologize for

being late and to the other members as well. Thank you very much

for holding this hearing and I am pleased to be able to say hello

again to Mr. Martinez who has been to Oregon and is very familiar

with an issue that I want to raise with him today which has to do

exactly with the climate of irrigation projects which is in northern

California and southern Oregon which has been, Mr. Chairman,

under great debate of late with respect to the questions of increased demand of water between the BIA and the environmentalists, Fish and Wildlife, and of course the concern by those who irrigate in the climate’s region of about 12,000 families, by the way,

who take their living from the project which was completed in ’95

by the Bureau of Reclamation and probably is the most efficient

use of water, everyone agrees, maybe in the nation.

It is an immense effort and one that everybody I think agrees is

an engineering wonder. Of late, however, as I say, under the increased competition for water there has been increased concerns

that water that comes through that region be identified for other

purposes than irrigation.

And, Mr. Martinez, though I might add, Mr. Chairman, two to

four decisions have been made on the distribution of water which

really is in the area of the Bureau of Reclamation by the Bureau

of Reclamation. Normally it is done at a local level by those people

that are in charge. Recently, however, in the last year and a half

or two years the decisions have been seized from the Bureau of

Reclamation and are now being made in Washington, D.C., by the

Department of Interior.

Now that creates a whole different cast on the decisionmaking

process and the question I am about to ask Mr. Martinez may be

involved with decisions that he had nothing to say about because

he was not consulted. And they go like this. Mr. Martinez, let me

review again, the question I have of you some time ago regarding

the reimbursable cost to the climate project and we went through

that and I would ask you if you have it to further identify those

costs that are reimbursable or non-reimbursable to water users

simply because there is great concern.

For instance, I have before me here the previous five-year repayment history of the climate project which indicates an item called

investigation cost—I think it means fish cost from $189,000 in September to $3.797 million in 1995. That is so far as I can understand it the reimbursable cost which means water users have to

pay for it.

The question is should the water users pay for a public interest

item like the advancement of fish or should they only be paying for

project direct costs for approving the project?

Mr. MARTINEZ. I am aware that the costs for that project have

gone up and I am aware that the irrigators are concerned about

the portion that they have to pay. I will be glad to look at that and

then visit with you. That is sort of an issue that also is tied in with

this facility transfer issue and the cost studies.
20

Mr. ROBERT SMITH. Well, let me ask one other point, as you well

know about, but, for instance, as short a time ago as three years—

I may want to correct that. Yes, a short a time ago as three years

the districts were about to repay the total cost of the Reclamation

project, Mr. Chairman, that started in 1995. Irrigators must pay,

as you know, for all of these costs over a period of time.

Since that time there have been loaded up on the district enough

questionable payments to indenture the district for 20 years and at

the same time that the irrigators were never asked whether they

supported or opposed these additional charges. And so that brings

the next question. If I might ask unanimous consent to continue,

Mr. Chairman.

Mr. DOOLITTLE. Just reasonably follow the redlight. There are

not too many of us here so please just go ahead.

Mr. ROBERT SMITH. I will be happy to yield back——

Mr. DOOLITTLE. Just quickly.

Mr. ROBERT SMITH. Thank you, Mr. Chairman. The question that

follows again, Mr. Martinez, is I want to ask you indeed in the future if there is a reimbursable cost that you have identified for the

irrigation district would you consult with the irrigation district

prior to the time you went forward with that sort of an endeavor?

Mr. MARTINEZ. I can commit to you that from the Bureau of Reclamation’s perspective we will do that. But I think that what you

have hit is a very interesting issue and the issue is this. As the

Bureau of Reclamation is charged with relooking at how it should

operate its projects to meet either Indian trust responsibilities or

environmental issues.

And to the extent that it undertakes expenses and studies is it

proper to charge the irrigators for those studies or should that be

a national expenditure and that is what you are asking really. And

at this point in time the irrigators are being asked to pay a certain

percentage of it and they have a concern. And I know what your

concern is and I will follow up on that.

Mr. ROBERT SMITH. And I will take that with anybody. If we are

pursuing an endangered species that is a nationwide problem

brought on by an act of Congress. If we are pursuing the Bureau

of Indian Affairs rights that is again a national problem. It has

nothing to do with the Bureau of Reclamation project in the climate project. I would yield back, Mr. Chairman, and wait for another round. I had one more question.

Mr. DOOLITTLE. Why don’t you just go ahead and ask it.

Mr. ROBERT SMITH. Thank you very much. I thank the members

of the committee for indulging me here. Mr. Martinez, you may

know, I know you know, there is a water supply initiative that is

being proposed which I welcome, that everybody does, the satisfaction of the climate project issue can be solved with either increased

storage or groundwater or both. We need 70,000 to 100,000 acre

feet of water that satisfies the Endangered Species Act, that satisfies the tribes, and it would protect water coming from—for

irrigators.

In the water supply initiative do you have money in your budget

to begin either pumping water or determining the aquifer for trying

to find a method to put more water in that river below Iron Gate
21

going into California which would really support the full system

immensely?

Mr. MARTINEZ. I became aware of the water augmentation initiative that you are talking about. I have not been engaged in discussions to date but to the extent that there is support for that proposal within the Department of Interior and the water users and

if I have the flexibility within my financial resources I will direct

the money to that.

Mr. ROBERT SMITH. Thank you, gentlemen.

Mr. DOOLITTLE. Commissioner, following up on the question Mr.

Smith raised with you, does it seem strange to you, it seems

strange to me, that for fully reimbursable costs for operation and

maintenance the Federal Government is not undertaking these obligations on the one hand and yet on the other hand they are more

than happy to mandate costs on the irrigators, etc., for environmental purposes? What an upside down world we live in. Doesn’t

that seem strange to you?

Mr. MARTINEZ. In that context it does seem strange to me. And

I have been trying to come to grasps with that issue and I guess

the issue is that we could put before the Congress a budget request

for instead of $764 million—$864 for an additional rate program for

efficiency. They do occur out there.

Even though they are reimbursable we still would need the appropriation and I think that is the crux of the question. That is

based on the limited resources that we have and the competing

mass we have put together, our budget proposal we think best

meets the needs that exist out there.

Mr. DOOLITTLE. Mr. Martinez, I hold you in high regard, so I

apologize that sometimes my questions seem hostile, because really

they are not directed at you personally. You are in the position you

are in and you are defending the Administration of which you are

a part.

But this philosophy of smaller is better reminds me of a bygone

era, namely, the Jimmy Carter-Jerry Brown era and I find it very

frustrating to sit here and to maintain that we do not need to develop new sources of water. In one of the counties I represent, and

one I used to represent, they are busily overdrafting their groundwater basins just so we can make sure we are in tune to the socalled national climate that I believe you mentioned which I think

there is no national climate at all opposed to dam building.

It is a tiny minority which has incredible clout with the public

officials and with the media. I think the national climate would

support having ample supplies of clean water. When I witness this

overdraft of the groundwater, we are ruining our aquifer in San

Joaquin County because of the overdrafting.

But that is OK because it fits in with the environmental agenda

and dams do not anymore. Let me ask one of the three of you if

you could comment. Don’t these multi-purpose dams that we have

pay for themselves many times over? Could someone comment

upon that?

I know that it has to be addressed dam by dam but I have been

told, for example, the Folsom Dam completed, I believe, in 1955 or

thereabouts has paid for itself two or three times over. Could one

of you comment upon that?
22

Mr. MARTINEZ. Let me just answer from a general perspective.

To the extent that the Bureau of Reclamation projects in my opinion, personal opinion, have opened the west to development that

have prevented flooding in certain areas, they have paid for themselves. Now whether that is good or bad can be debated.

Mr. ROBERT SMITH. Well, I am not going to debate. I think it is

good, don’t you?

Mr. MARTINEZ. But we have an infrastructure and a develop list

that has basically come about because of water development

projects.

Mr. DOOLITTLE. Well, do you think that is good?

Mr. MARTINEZ. I personally believe it is good.

Mr. DOOLITTLE. Does the Clinton Administration think it is

good?

Mr. MARTINEZ. But now that we have completed that task we are

turning our attention to other issues and that is what the mirror

of this discussion is.

Mr. DOOLITTLE. Well, I am not going to argue with you about it.

I would ask the question, why are we turning our attention to

other issues? It seems to me that as the population continues to

grow, the demands on the limited resource, unless we develop more

of it, are going to get more intense. So, we ought to be responding.

I am in favor of water conservation like everybody else but to

pretend that that is going to be the main source of our future water

supplies is absurd because we are not going to be willing to live

with the restrictions that go along with extreme conservation measures.

All right, let me ask you this. We have talked about transfers.

Have we had any transfers under the Clinton Administration since

their policy on transfers was announced?

Mr. MARTINEZ. Facility transfers?

Mr. DOOLITTLE. Pardon me? Facility transfers, yes.

Mr. MARTINEZ. Yes, we have had the transfers on the lower Rio

Grande project and the project in New Mexico but I believe the legislation most probably passed before the Clinton Administration.

Mr. DOOLITTLE. Those were the ones that were in the pipeline

before the reinventing government policy came along, weren’t they?

Mr. MARTINEZ. That is my understanding.

Mr. DOOLITTLE. Have we had any out there since the policy was

set forth?

Mr. MARTINEZ. No.

Mr. DOOLITTLE. And I am trying to transfer one little isolated

unit of the Central Valley project and the Clinton Administration

opposes it.

Mr. MARTINEZ. We are working toward making sure that we get

some on board. Hopefully we will be successful this session.

Mr. DOOLITTLE. I see my time is up, but if Mr. Smith, who is the

only one who could possibly object, will indulge me. What is the

present backlog of operation and maintenance for the Bureau of

Reclamation?

Mr. MARTINEZ. I do not have that and I do not believe we have

any eminent backlog but there is a list of RAC items in the California region. I would be glad to provide you that. I will be glad

to provide you our response to that in writing if I can.
23

Mr. DOOLITTLE. Well, the figure just for the CVP strikes me as about $80 million. Does that ring a bell?

Mr. MARTINEZ. I will be glad to respond to that.

Mr. DOOLITTLE. OK, well, it is my impression it is tens of millions of dollars at a minimum.

Mr. MARTINEZ. That is not my understanding but I will be glad

to——

Mr. DOOLITTLE. All right, then we will wait for the written response. My point is, wouldn’t privatization relieve the Federal Government of millions and millions of dollars worth of liabilities?

Mr. MARTINEZ. Let me answer from this perspective. Leaving

aside whether there is or is not a backlog right now we have a

large infrastructure out west and the Federal Government has a

large responsibility to maintain that infrastructure. That infrastructure is aging and it is going to require more and more Federal

monetary commitments.

So it is in the Federal Government’s best interest to get some

projects in private hands if it can so that others bear the cost. The

issue is going to be if you do transfer that you put in place a provision where the project owners then do not come back to the Federal

Government at some point in the future to seek funding if they are

not able to correct the actions.

So there is benefit in transferring the projects to private hands

if they are going to assume all liability and all financial risks in

the future.

Mr. DOOLITTLE. Well, I was under the impression that the ones

who want to do it have been willing to go for that but this has met

with resistance by the same national climate that opposes the development of more water supplies or opposes doing anything that

is not consistent with their own narrow agenda.

Because I can tell you this. This is the most anti-transfer Administration I think I could say I have ever seen. The Administration’s

actions are so contrary to what it says in public, which is it supports transfers. When you attempt one, it erects every possible barrier to accomplishing it.

Mr. MARTINEZ. Mr. Chairman, I commit to working with other

parts of the Administration to make sure that we bring some of

these to closure.

Mr. DOOLITTLE. Well, let me tell you. I hope they increase your

power and influence, Mr. Martinez, because I do believe if you have

the ability to implement some of these policy directives, you would

produce solutions. I simply express my frustration that it appears

as someone else, I think Mr. Smith, was talking about many of

these decisions being made at a higher level than yours so your

hands are in effect tied.

But I value your good will and practical problem-solving oriented

approach. If you could, Commissioner, I would specifically ask for

information that you can submit supplementary to the hearing, regarding the issue of the Folsom Dam, its construction cost and the

amount returned to the Treasury over the years from the dam.

Let me ask our General Accounting Office and the Congressional

Research Service also to please look into this general subject area

on the issue of the dams and provide the committee with the information that you turn up.
24

And I will be happy, if you want further specificity, to put it in

a letter. It is my belief that in the terms of both the actual costs

recovered from the sale of power and in terms of the avoided costs

and natural disasters these things have paid for themselves many

times over, and I would like to see that documented. I am finished

with my questions and I recognize Mr. Smith.

Mr. ROBERT SMITH. Thank you, Mr. Chairman.

Mr. DOOLITTLE. All right. We thank the first panel and we will

have perhaps further questions. I would ask you to please respond

expeditiously when they are tendered. Thank you. With that we

will excuse you and ask our second panel to come forward.

We have on the second panel James Smith, Executive Director,

Council of Infrastructure Financing Authorities, Mr. Eric L. Flicker, Vice President, American Consulting Engineers Council, Mr.

Thomas F. Donnelly, Executive Vice President, National Water Resources Association, Mr. David C. McCollom, General Manager,

Olivenhain Municipal Water District. Let me ask you, please, to

rise to raise your right hands.[Witnesses sworn.]

Mr. DOOLITTLE. Let the record reflect that each answered in the

affirmative. Well, gentlemen, we are just here together. Let me recognize Mr. Smith if he will begin the panel’s testimony.

STATEMENT OF JAMES N. SMITH, EXECUTIVE DIRECTOR,

COUNCIL OF INFRASTRUCTURE FINANCING AUTHORITIES

Mr. JAMES SMITH. Thank you, Mr. Chairman. I am James Smith,

Executive Director of the Council of Infrastructure Financing Authorities referred to as CIFA. It is a non-profit association representing state and local public financing authorities. Members of

the organization have the capacity to issue debt mostly in terms of

bond indebtedness for infrastructure financing and most administer at least the financial aspects of the State Revolving Loan

Funds for wastewater and drinking water facilities. I am pleased

to be here today to describe that program and its successful operation to the committee at their request.

In 1987 the Clean Water Act was amended to alter the fundamental approach to financing municipal wastewater treatment improvements. The construction grant program, which had provided

grant assistance for municipal wastewater treatment projects, was

transformed into a revolving loan program.

Under the loan program, capital grants are now made to each

state. They are matched by a state contribution of 20 percent, and

they provide a source of low-cost borrowing for localities to finance

their wastewater treatment needs with 20-year loans to municipalities and communities.

Managed as a revolving loan fund, with the retainment of principal and interest returning to the fund to be lent again, Congress

envisioned a loan fund that could effectively operate in perpetuity,

providing low-cost financing well into the next century.

In addition, Congress provided one other unique feature which

has proven to greatly enhance the growth and lending capacity of

the funds, that is, the capacity to leverage the dollars in the fund

by borrowing in the municipal tax-exempt market. This capability

to leverage the funds is one of the most innovative and successful

features of the SRF.
25

About one-half of the states have used this funding device to increase their lending capacity, and a number of other states, while

not directly leveraging the Federal dollars, combine the SRF fund

with other state funds which are leveraged in the bond market,

also increasing the overall pool for lending. Some states leverage

their funds at ratios as high as 4:1. I mention this because it is an

example of the flexibility and ingenuity that can be demonstrated

in the management of these loan funds.

Together, the Clean Water SRF lending pool, according to recent EPA data, has grown to approximately $22 billion. Through state

match, fund leveraging and the return flow of interest and principal back to the fund, the Federal capital contribution of approximately $11 billion has been more than doubled.

Over 4,400 low-interest loans have been made; 1,000 just in the

last year. The average rate, the lending rate, for these loans which

I mentioned are 20-year loans is roughly about 3 percent and so

far I am very pleased to say that in the experience of the program

there has not yet been a default.

SRFs are a true success story. Loan repayments are approaching $1 billion a year, returning to the fund to be relent again. Does the

SRF loan prototype have potential for application to other types of

infrastructure investments? Well, obviously, as a loan program, the

SRF is most adaptable to those types of financings with a revenue

stream for repayment, such as a public utility.

Congress, in last year’s reauthorization of the Safe Drinking

Water Act, created a State Revolving Loan Fund to finance needed

public drinking water supply improvements. Here I might just parenthetically add that EPA has restricted the use of those funds for

funding any kind of reservoir or dam facility even though it may

be associated with water supply. I think this reflects a colossal misunderstanding of how water is supplied, domestic water is supplied, particularly in the west.

The loan fund concept is being advanced for other areas as well.

The State Infrastructure Banks created by the National Highway

Designation Act of 1995, initiates a system of loan project financing

that can be a revolving loan system.

In closing, I am not closely familiar with the project cost allocation and repayment requirements of the Bureau of Reclamation’s

water projects, so I am not prepared to provide an opinion on the

adaptability of the loan funds, especially with its leverage capacity,

to those types of projects.

However, I am willing to provide the committee and its staff with

any additional information you may wish on the SRF operations,

or answer any of your questions. Thank you.

[Statement of Mr. Smith may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Mr. Flicker, you are recognized for

your testimony.

STATEMENT OF ERIC L. FLICKER, VICE PRESIDENT,

AMERICAN CONSULTING ENGINEERS COUNCIL

Mr. FLICKER. Good afternoon, Mr. Chairman, and thank you for

inviting me to testify before the Water and Power Subcommittee.

I am Eric Flicker, Vice President of Pennoni Associates, Inc., and

also a Vice President for the American Consulting Engineers Coun-
26

cil, or ACEC, a trade association representing approximately 5,000

engineering firms.

Each year, our member firms design over $100 billion in completed public and private infrastructure projects. Our firms are

overwhelmingly small business with 80 percent of our members

employing 30 people or less. Nevertheless, ACEC member firms

have worked in nearly every country in the world.

I will first touch on the infrastructure crisis that our country

faces. The United States faces a critical challenge to provide sufficient infrastructure investment to meet the ever increasing demand placed upon our roads, water and solid waste systems, ports,

and other public works. Today, all we must do is look around and

we will see evidence of neglect all around us, particularly in the

area of water pollution and the availability of a ready supply of

clean drinking water.

Why is infrastructure important? Both the quality of life our citizens enjoy and our nation’s overall competitiveness are at stake.

We know, for example, that countries that invest a higher percent

of GDP in public works than the United States enjoy a higher productivity growth.

Truly the value of infrastructure is not the jobs that construct it,

but in the way the completed infrastructure underpins the quality

of life of a region. Just ask those who have suffered a natural disaster if infrastructure is important. The arguments for infrastructure impact directly on the issue before this committee, providing

for the water resource needs of our western states.

Lack of adequate resources will impact cities, farms, and industry, which will have a tremendous effect on the economic vitality

of the region. Privatization is an important tool. Let me take a moment to talk about it.

As the Federal source of infrastructure funding decreases others

must pick up the slack.

The states, counties and municipalities are now turning to the

private sector to help them achieve their mission of assuring there

is adequate infrastructure to protect the health and safety of their

constituents. Drinking water, wastewater treatment, prisons, highways and airports are all being privatized under a number of

schemes.

In some cases, the asset is actually sold to the private sector. In

most cases, particularly wastewater treatment, the facility is leased

to the private sector for a length of time, which saves considerable

amounts of money for the municipality. In my written statement,

I highlight the tremendous growth of privatization in this country

and particularly in other nations around the world.

The United States is behind a number of developed and developing nations in this area. It is my hope that we will soon catch

up. There are significant funding mechanisms that have potential

to improve this situation. Let me touch on them.

Over the years, well-intentioned regulations have been issued to

protect the public’s interest.

Unfortunately, they are having the opposite effect by limiting the

ability of government to use innovative financing, or partnering

with the private sector, to deliver infrastructure. In my written
27

statement, I highlight four Federal changes that would facilitate

private sector infrastructure investment.

I urge you to work with your colleagues on the Ways and Means

Committee to address these issues. I have shared with you a number of ways to use the private sector to help the government and

this subcommittee achieve their goals of providing for the water resource needs of the nation. The important question to answer now

is how to use the private sector and what is the role of the government in delivering infrastructure.

There may have been a time in this country when the Bureau

of Reclamation needed to do in-house engineering to meet a specific

need. This is no longer the case because it can contract out to the

private sector. Unfortunately, not only does the Bureau of Reclamation maintain a significant in-house capability, it is marketing that

capability in competition with the private sector.

I have attached to my written statement a copy of a marketing

brochure used by the Bureau that has been provided by our Washington State affiliate. ACEC has also received complaints from our

members that the Bureau of Reclamation is competing with them

for design at state, local, and tribal projects. They are not only

competing with us domestically but internationally.

Mr. Chairman, I have included a report in my written statement

that shows that agencies that contract out the majority of their engineering work are the most efficient. The lessons of this study

apply to Federal agencies and to the type of work that the Bureau

of Reclamation is doing. I hope that the relevance of this report to

the issues we are discussing today is clear, the subcommittee can

stretch its project resources further by assuring that the Bureau of

Reclamation contract out to the maximum extent practical.

Even quasi Federal agencies are competing with us. For example,

Bonneville Power Authority has increased the size of its internal

engineering resources and begun marketing them to clients in competition with consulting engineers. Let me conclude, Mr. Chairman,

and members of the subcommittee by saying that ACEC stands

prepared to assist you in achieving your goal of assuring that the

water resource needs of this country are met as efficiently as possible. Again, thank you for this opportunity to testify before the

subcommittee. I look forward to answering your questions.

[Statement of Mr. Flicker may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Mr. Donnelly, you are recognized.

STATEMENT OF THOMAS F. DONNELLY, EXECUTIVE VICE

PRESIDENT, NATIONAL WATER RESOURCES ASSOCIATION

Mr. DONNELLY. Thank you, Mr. Chairman. Before I begin, I have

two statements from member agencies within our association that

I have been asked to submit for the record.

Mr. DOOLITTLE. We will include them in the record.

Mr. DONNELLY. Thank you. In the west water infrastructure

needs continue to exist. However, on the whole they are quite different from those of the past. No one envisions a future infrastructure development program and financing arrangements like the

Reclamation Program. It is time to recognize and address a new

generation of infrastructure development needs and financing realities.
28

Future projects are more likely to feature non-structural solutions, environmental enhancement, proven best management practices, innovative approaches to water quality/quantity problems,

and greater levels of non-Federal financing. Meanwhile, however,

the Bureau of Reclamation must continue to maintain and improve

upon existing projects and programs.

An essential element, which is currently missing from the planning equation, is a basin by basin infrastructure needs assessment.

Such assessment cannot be developed without the active involvement and, perhaps, the leadership of the Western governors, water

resources professionals, and state and local officials.

Over the years, several Federal water projects have been authorized by Congress but remain unfunded. These projects should be

reviewed to determine if they still meet the needs that they were

authorized to address. Additionally, Congress should determine

what projects benefits remain in the Federal interest for funding

purposes.

The Bureau of Reclamation recently published its draft Strategic

Plan. The plan calls for the Bureau to complete construction of all

sixteen water and energy supply projects which are currently under

construction. These projects should be completed as rapidly as possible in an effort to minimize cost and keep faith with the states

and project beneficiaries involved.

Congress should not allow special interests to continue to unnecessarily delay these projects until the cost to complete the projects

has undermined the Federal investment. Congress should take a

more aggressive role to ensure that projects which facilitate the

settlement of longstanding Native American water rights claims

against the Federal Government are funded and completed expeditiously.

There are urgent needs in existing programs that are not being

completely met. These include the Colorado River Salinity Control

Program, annual operation and maintenance, Native American

water rights settlements, rehabilitation and betterment, and the

Small Reclamation Loan Program projects.

Without an adequate annual operation and maintenance budget

the question simply becomes how many balls you can keep in the

air at one time. Given the fact that Bureau of Reclamation project

water users are required by law to reimburses the Federal Government for operation and maintenance expenditures on an annual

basis, there seems to be little justification for annual O&M budgets

that require deferred maintenance to occur and accumulate to a

crisis level.

Generally, throughout the Federal Government, small project

programs provide the most bang for the buck. Nowhere has this

been truer than the Bureau of Reclamation’s Small Reclamation

Projects Program. One comment that Mr. Farr made earlier about

possibly being several defaults. To my understanding, in the Small

Reclamation Program there has not been one default since 1956

since its inception in 1956.

In early 1995 the Administration announced the termination of

several Department of Interior programs, one of which was the

Small Reclamation Program. Rather than accept the Administration’s bad decision NWRA took a more responsible course and developed ideas that culminated with the introduction of H.R. 3041

during the 104th Congress.
29

The changes proposed by H.R. 3041 are contained in my full

statement. Loan guarantees remain an unresolved issue for us. We

have committed to sit down with the proponents of loan guarantees. We would like to get that done in May so that legislation

could be reintroduced and hearings held in June.

We do not have a problem with the concept of loan guarantees.

However, at this time our position remains only to support such

guarantees if they are made to governmental entities with specific

conditions. There is no question that the financing of future project

development will be necessarily different than in the past.

Times have changed and the national goals accomplished

through the Reclamation Program are generally satisfied. A significantly higher percentage of the cost of future development must be

borne by state and local governments and project beneficiaries.

However, other important sources of revenue must continue to be

utilized.

Power revenues in particular must continue to be made available

as a funding source for water resources development. The National

Water Resources Association strongly supports the position that

tidal and operational control should be expeditiously transferred to

Reclamation project beneficiaries where the contracting entity is

willing and able to assume full responsibility for the project.

In order to concentrate on its future goals and objectives the Bureau of Reclamation should be anxious to transfer those projects

that can be operated and maintained more efficiently by local beneficiaries. Congress should take the appropriate steps to facilitate

transfers that make sense from a financial and public policy perspective.

Thank you, Mr. Chairman. At this time I will attempt to try to

answer any questions that the committee might have.

[Statement of Mr. Donnelly may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Mr. McCollom is recognized.

STATEMENT OF DAVID C. McCOLLOM, GENERAL MANAGER,

OLIVENHAIN MUNICIPAL WATER DISTRICT

Mr. MCCOLLOM. Thank you Mr. Chairman and members of the

subcommittee for this opportunity to testify today. My name is

David McCollom. I am the General Manager of the Olivenhain Municipal Water District in Encinitas, California. Our agency serves

in the cities of Encinitas, Carlsbad, San Diego, Solana Beach, San

Marcos, and unincorporated communities of Olivenhain, Leucadia,

Rancho Santa Fe, Fairbanks Ranch and 4S Ranch.

I note with great interest the variety of opinions and issues that

are before the committee today and before the Bureau and I have

to assure you that north San Diego County and the Olivenhain

Water District faces the same kinds of problems as any of the agencies in southern California and for that matter the arid west.

And in California, particularly in my part of California, we have

a more particular problem in terms of the importance source of all

of our water. Our water runs from 500 miles away in the Bay Delta

or from 200 miles away in the Colorado River. And what I would

like to focus on today are ways that we can improve and help our
30

communities and our people with financing options through the Bureau of Reclamation.

I am very glad to hear the expertise of yourself, Chairman Doolittle, and the knowledge that Congressman Farr expressed today.

It shows that perhaps the issue here as Congressman Farr was

mentioning is not a leadership issue as much as urging the subcommittee to put together the directives and the programs that we

need to manage the next generation of water projects.

I heard a lot from the Bureau today with regard to tradition and

I think it is incumbent on all of us to be thinking of tradition. That

is how our country maturated but it is also incumbent to think of

the future and have vision. And somebody had vision when they

built the Grand Coulee Dam. In fact, that vision helped us so much

that probably without the Grand Coulee there would have been insufficient electrical energy to smelt the aluminum that was necessary to defeat Hitler’s Third Reich.

So we never know what these projects may end up doing. The

fact of the matter is that we at some point in time in this country’s

history decided to settle the arid west and make more water available and we did that and that is certainly extremely good. But the

job is not over. The job is far from over and we heard about the

environmental problems that we have.

And the programs that I am going to briefly give you an overview

on today help cure a lot of those problems and also set the stage

for more innovative public and private partnering that really gets

us outside the box of having government do for us but puts government in a position of helping the people help themselves while the

people pay for the projects.

I think this is necessary for the Bureau to change to this kind

of a role. I do not think the Bureau should be going out of business.

They should be taking a very forward looking position with regard

to getting outside the box, outside I guess the current buzz word

is the paradigm of traditional government.

First of all, we are here to discuss the loan guarantee proposal.

Congressman Duke Cunningham has introduced legislation that is

pending before this committee. The legislation is called H.R. 134

and it would demonstrate by the Olivenhain Water Storage Project

the loan guarantee program of which we speak and the one we are

interested in working with the Bureau of Reclamation on.

These loan guarantee programs could be very, very helpful in the

future for the EPA which we are estimating that the Safe Drinking

Water Act is going to require $200 billion in the next 20 years. In

Olivenhain our price of wholesale water has gone up 55 percent in

the last five years. That is well over $250 per acre foot increase in

price that our customers have to pay.

It is very difficult for local agencies to meet these increasing financial challenges. In addition, I named cities that we serve in and

cities have terrific financial pressures today. A loan guarantee

would help the cities avoid layering of traditional municipal debt

which eventually as the municipal debt layers and layers and layers lead the risk factor goes up. The rating agencies rate the interest rates higher and higher.

It would keep low interest rates for other forms of infrastructure

and public service projects like schools, police, fire, and some of
31

those programs that are not entrepreneur and enterprise programs

that ought to be run more like a private entity. We have a product

to sell. We ought to be managing our water resources like a company that is selling the product reserving the elected officials to

maintain the public trust for the benefit of the people.

So our loan guarantee program would go a long way toward

leveraging money from the Federal Government, allow the Federal

Government to maintain a balanced budget and improve the level

of service to our customers, the quality of life, and assure good

quality of life in the future.

Additionally, we are here to talk about Title XVI Program for

water reclamation. I just wanted to reiterate some of the things

that I heard. The issue of environment. The Secretary of the Interior has a responsibility to control and operate the Colorado River.

100 percent of Olivenhain’s water is currently coming from the Colorado River.

We are willing to make a substantial investment in water reclamation programs that will recycle Colorado River water. As Congressman Farr said it is already paid for and the sewer plants have

treated it. We ought to be reusing that resource. There is a new

source of water in the west. The new source of water is reclaimed

water and it ought to be used as many times as possible.

You may have heard there are not customers for reclaimed water

in the west. That is not correct. It is pretty difficult to get started

in this business because it starts slowly but there are customers

out there. Olivenhain has six golf courses and hundreds and hundreds of acres of greenbelt that reuse water to be used to offset the

cost of new infrastructure to deliver scarce resources from the Colorado River.

And this infrastructure is partially in the ground now. We can

put it to good use immediately and we urge your support on both

of these bills. And if I may, I will be glad to answer any questions.

I hope we can stimulate a little bit of conversation like we had in

the previous panel. Thank you.

[Statement of Mr. McCollom may be found at end of hearing.]

Mr. DOOLITTLE. Thank you. Let’s begin with you. When you do

reclaim water don’t you tend to have a separate distribution for

that?

Mr. MCCOLLOM. Yes, you do, and that is why we are here asking

for Federal help. It is a separate distribution system and some day

we may not have separate distribution systems but for now it can

be most economically handled that way but the separate distribution systems are really the problem. The problem is at the treatment plant it is getting the water out to the customers.

Mr. DOOLITTLE. So when you build these distribution systems

they all line up at the treatment plants, is that where they begin?

Mr. MCCOLLOM. These distribution systems need to connect with

treatment plants. In our particular case in the case of the north

San Diego County project much of the infrastructure is in place.

We need the connecting pipelines to the treatment plant to transfer

this water and so what we are looking for is some seed money to

take care of that.

Once the project is operative and selling water it will become an

enterprise of the various agencies, Olivenhain included, and then
32

we will be self-funding. And so a short-term investment by the Federal Government turns into a long-term benefit for the community.

Mr. DOOLITTLE. I am trying to envision how this would work. If

you got six golf courses then there would be a pipeline built between the treatment plant and each of the six golf courses or any

other additional customers, is that right?

Mr. MCCOLLOM. That is essentially correct.

Mr. DOOLITTLE. And so then you are involved in tearing up the

streets, because you have a completely separate pipeline, right?

Mr. MCCOLLOM. In our particular case we have already laid close

to eight miles from pipeline. A goodly portion of it has been laid

in developing communities in preparation and so while yes, there

is the drawback of having to rip up streets in some cases to make

the full connection to the system our district and many of the districts in north San Diego County as well as others under the Title

XVI Program have been planning for this for a long time. This is

not something that just arose quickly and it is very thoroughly

planned in most communities.

Regrettably, any kind of infrastructure improvements or additions require some inconvenience to the general public but in our

communities people are very anxious to see this kind of inconvenience and very, very supportive of water reclamation and the need

to recycle.

Mr. DOOLITTLE. Just out of curiosity, what is the diameter of

these pipes that are attaching to the water treatment plant?

Mr. MCCOLLOM. In our particular project most of the pipelines

would not exceed 21 to 24 inches and the majority of them would

be in the 10 and 12 inch category. Most of the—we have part of

our 71⁄2 mile system is as large as 18 inches for a short ways.

Mr. DOOLITTLE. This water is treated to secondary standards?

Mr. MCCOLLOM. It would be treated to secondary standards, yes.

Mr. DOOLITTLE. And if it were to be drinking water under the

current rules it would have to be tertiary standards?

Mr. MCCOLLOM. It would have to go to some sort of tertiary

standard. And in addition, I might add some might argue that the

secondary standards are actually tertiary standards and we did put

it through a final filtration so it would be a very advanced secondary. When I say that to a point of a confusion between tertiary

in terms of what is consumable.

Mr. DOOLITTLE. And the reason that you are doing it as a separate system is just the concern over the public reaction mainly to

intermingling that with the existing water supply?

Mr. MCCOLLOM. Public reaction and the ability to create a product competitively that can be used for alternative uses and so perhaps the expense isn’t necessary in terms of what has to be done

at a treatment plant.

Mr. DOOLITTLE. OK, because it is just for irrigation so you do not

have to——

Mr. MCCOLLOM. That is correct. I would envision throughout the

west that there would always be parallel systems in the future just

like there are grades of gasoline but the ability to make this water

drinkable and put it into the total system is actually here and the

city of San Diego to the south of us has done considerable work toward this and I believe we will see that as a reality very shortly
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and that will also be very significant in terms of the benefits and

the impacts that it will have on the arid west and recycling water.

Mr. DOOLITTLE. Is San Diego devoid of aquifers?

Mr. MCCOLLOM. San Diego County is for all intents and purposes

devoid of aquifers. There are very small local pockets. In fact, in

our district we had been working on the San Dieguito Basin but

it presents a very small pocket. It is a very low quality water. Historically we have had tremendous amounts of natural occurring

salt in the water and so our aquifers are very poor.

And so we do not have the benefit to be able to inject treated

groundwater in and pumping it out later. We have to do everything

on the surface but that may be seen as an advantage in the case

of our Title XVI project because we are going to be delivering from

the plant to the customer and with the exception of the small

amount of storage that has to be built in the form of tanks this is

a much more direct use and could be managed and controlled much

more thoroughly than a groundwater recharge program. And we

may do some groundwater recharge on the side, Mr. Chairman, but

it is not really a great resource that we can depend upon.

Mr. DOOLITTLE. Mr. Flicker, you have heard my exchange with

the Commissioner about the in-house engineers and I think it is

true he has lost a lot of expertise which I think anybody committed

to the traditional function of the Bureau would regret. Nevertheless, do you have an impression as to the number of in-house engineers the Bureau retains at this time?

Mr. FLICKER. I do not.

Mr. DOOLITTLE. I thought your suggestion there was interesting.

Of course we will have to be careful or they will cut that back and

we will have them going to the Americorps or some other Clinton

Administration social program but I think if it could be used to

stretch the dollar and enable them to do their operation and maintenance backlog and to help develop some of these water projects

can be a very good thing including the reclamations and interesting

technology coming out of line beginning to expand.

You mentioned in your testimony, you gave us those four things

that you thought were very useful. One of the impediments you

said was the limitations on private activity bonds which are contained in the ’86 Tax Act. And I want to ask Mr. Smith probably

about these—let’s see, you called them SRFs which actually stands

for State Revolving Loan Fund, right?

Mr. JAMES SMITH. Correct.

Mr. DOOLITTLE. And are those private activity bonds, funds, are

those covered by that cap, do you know?

Mr. JAMES SMITH. No, sir, they are not. At the present time because under the wastewater SRF only the public entity can access

the fund so there is no limitations under the private activity bond

rules. With the new drinking water program, however, for the first

time the privatizer may access this revolving loan fund and in

doing that they will if there are bonds that are issued in conjunction with that they will become private activity bonds. If more than

10 percent of the use of bond proceeds goes to the privatizer.

Mr. DOOLITTLE. Therefore, they come under the caps, you mean?

Mr. JAMES SMITH. They would come under the caps, that is right,

sir.
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Mr. DOOLITTLE. Well, it would seem if we are serious about privatization that those caps should be removed or altered.

Mr. JAMES SMITH. We would certainly support that and there is

legislation before the Ways and Means Committee to consider that

and expand the cap availability. It is something though that requires a revenue offset and that has always been a difficult situation.

Mr. DOOLITTLE. And the purpose of the cap is what, to make sure

we do not have too much infrastructure?

Mr. JAMES SMITH. The purpose of the cap originally was to limit

the access of the private sector to tax exempt proceeds on the assumption that there should not be—these preferred interest rates

should not be available to the private sector. They were intended

for the public sector.

Mr. DOOLITTLE. Yes, the view being that the public sector is

going to be the one that met these needs but now we are in a new

era where it may be the private sector.

Mr. JAMES SMITH. That is true.

Mr. DOOLITTLE. Let’s see now. Mr. Flicker, in your testimony you indicated that $137 billion worth of infrastructure in just wastewater treatment was going to be needed here between now and the

year 2012?

Mr. FLICKER. Yes, that was based EPA’s 1992 needs survey.

Mr. DOOLITTLE. Right, and that is just the sewage treatment facilities.

Mr. FLICKER. That is correct.

Mr. DOOLITTLE. And you pointed out that it has been at about $2 billion per year for the last ten years. Then you gave us this

chart. Let me ask you what happened between 1982 and it looks

like 1984 was the zenith of it and it began to decline after that.

What was that?

Mr. FLICKER. We do not have a copy of the chart in front of us.

I apologize.

Mr. DOOLITTLE. It says Federal investment in infrastructure as

percent of GDP and this little peak I think—our consultant is

bringing it to you but it went up. Something good must have happened.

Mr. FLICKER. I cannot explain that. We will get back with some

explanation.

Mr. DOOLITTLE. But since that point it has been quiet and then

declining rather precipitously. You testified, Mr. Smith, and I did

not quite catch everything you said but it sounded like the EPA restricted on its own the application of the SRF Program to anything

that might involve dams, is that right?

Mr. JAMES SMITH. That is right, Mr. Chairman. In the implementation of the new drinking water State Revolving Loan Fund they

specifically restricted the use of those loan funds for anything that

would involve the construction or dam or reservoir storage.

Mr. DOOLITTLE. Was there anything in the authorizing statute or

the appropriation that granted them the authority to do that or did

they have some authority?

Mr. JAMES SMITH. There is no restriction whatsoever in the authorizing legislation nor is there in the appropriation. It was purely

on their own volition.
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Mr. DOOLITTLE. And when was that done?

Mr. JAMES SMITH. That was done about three months ago.

Mr. DOOLITTLE. Would you please provide the subcommittee with

the documentation for that?

Mr. JAMES SMITH. I will indeed.

Mr. DOOLITTLE. Because that is something we ought to follow up

on with the oversight powers that we have now in Congress. Has

the engineering community ever thought of trying to challenge

that?

Mr. JAMES SMITH. Some of the states have suggested a challenge

to it and there may be the possibility of actually a court case on

it although I am not familiar specifically with what is happening

on that issue. The engineering community I do not believe has considered it although you may know better than I.

Mr. FLICKER. Not that I am aware of.

Mr. DOOLITTLE. Well, I want to encourage you gentlemen. As you

are aware, where the agencies do these things it is usuallly by an

executive order, some agency rule or something. We now have the

ability to overturn that by majority vote in both houses and then

the President of course can veto it and then we are back at the

two-thirds situation.

But this is a whole new area that is now going to be thoroughly

tested and explored so as you become aware, as I am sure you will

since you work in the intricacies of these areas where actions are

being taken like that and you think something like the dam and

reservoir regulation suggests, I would appreciate hearing about it.

Mr. JAMES SMITH. Very well.

Mr. DOOLITTLE. That will allow us to elevate the issue. Mr. Donnelly, you talked about supporting privatization efforts where the

recipients are willing to assume full responsibility. What is your

impression of the record of the Clinton Administration on this

issue?

Mr. DONNELLY. What record? They have not transferred anything that I am aware of. And I agree with Mr. Smith that that

is not the Commissioner’s fault. Those decisions are being made at

a much higher level. I think he is doing everything he can to make

the process work.

Mr. DOOLITTLE. How many such projects are you aware of,

roughly, that people would like to have transferred?

Mr. DONNELLY. I probably could not give you an accurate number

west wide or how many projects—initially when we first started

the discussion about project transfer a lot of the people that came

forward and wanted to get involved in having their projects transferred back to them both title—and for the most part operation and

maintenance has been transferred on a number of projects but title

transferred to them have second thoughts about it, particularly

those that were involved—that were concerned about the liability.

What we have told our members is if you are concerned about

the liability issue, you do not belong in the debate of title transfer.

You cannot expect the Federal Government to turn over title and

everything to the beneficiaries and then expect the Federal Government to retain the liability for the structure. That is just not the

way it goes.
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We feel that there are a number of projects out there that should

be transferred. They make more sense from an efficiency standpoint, from a cost standpoint as far as the Federal Government is

concerned. I sense there are probably also projects out there that

should not be transferred simply because—for several reasons, because the involve multi-state, multi—the projects like the Hoover

Dam, something like that where it is not one state or one water

district that is controlling the title to it.

There are other reasons too. I believe that there are water districts out there that do not have the capability financial or otherwise to continue to operate and maintain those projects in a safe

manner.

Mr. DOOLITTLE. Mr. McCollom, how much do you presently pay

per acre-foot of water?

Mr. MCCOLLOM. Currently our wholesale price for treated pota- ble water is $511 per acre foot.

Mr. DOOLITTLE. You said that in the last five years that went up by $250?

Mr. MCCOLLOM. That is correct.

Mr. DOOLITTLE. How come it went up so much?

Mr. MCCOLLOM. Cost of infrastructure, government regulation,

costs for meeting service water treatment rules, things of that nature.

Mr. DOOLITTLE. What is the cost to lay a mile of 12-inch pipeline

anyway?

Mr. MCCOLLOM. Well, a 12-inch pipeline in an extremely general rule of thumb would probably cost about $2 to $2.50 a foot per diameter inch. That is very general. If you have rock or if you have

issues such as pumping, pressure reduction, that price would be

considerably higher.

Mr. DOOLITTLE. OK, I will have to work out the numbers on that.

So if it is 12-inch pipe——

Mr. MCCOLLOM. $25 to $40 a linear foot. On average around $32

a linear foot.

Mr. DOOLITTLE. It does sound pretty expensive.

Mr. MCCOLLOM. Oh, it is very expensive, yes. Very definitely but

these kind of facilities last and today even more so I believe that

the facilities we are building today instead of being 25 or 30-year

construction projects we are really building for 100 years into the

future due to improved engineering techniques and improved construction techniques and improved material.

Mr. DOOLITTLE. You mean you only had to dig up the street the

first time and the pipe will last 100 years?

Mr. MCCOLLOM. Well, I started this business 25 years ago. We

had to dig up the streets regularly. When I started at the

Olivenhain Water District we have a regular leak crew that went

around. Today if we have one or two leaks a year it is unusual.

These are due to improvements with knowledge of pothotic protection from the oil industry. These are due to improvements of materials for service connections and diligent maintenance. You cannot

let your maintenance go to the point where you are just using bubble gum and baling wire.

But I would like to point out that all these innovations came

from private companies and I am a lifelong public servant and very
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proud of it. I have not had time to invent anything or develop anything. I use public sector knowledge and I put that into good use

and so just as the Department of Defense employees do not build

airplanes, Boeing and Douglas does, the things that we are proposing here today are really not at all unusual or new. They are

just business as usual using ingenuity.

Mr. DOOLITTLE. Well, I would like to recommend you to the Bureau of Reclamation. Maybe your views on operation and maintenance could have some positive effect.

Mr. MCCOLLOM. Well, thank you, Mr. Chairman, and if you stay

around long enough and I get my dam and lake built perhaps I do

want to do a stint in Washington if all the days would be like today

but I bet you won’t promise that. It was a glorious day today in

Washington, D.C.

Mr. DOOLITTLE. It is indeed. Well, I think I have concluded my

questions. I really appreciate the suggestions you gentlemen have

offered. I think there are some very good ones in here and we will

look forward to getting any further responses some of which we

have talked about for the record.

And I would like to thank you all for your time and trouble to

be here today and we will excuse you and with that the hearing

is adjourned.

[Whereupon, at 4:15 p.m., the subcommittee was adjourned; and

the following was submitted for the record:]
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