```

[Senate Hearing 110-488]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-488
 
                  AGING WATER RESOURCE INFRASTRUCTURE

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON WATER AND POWER

                                 of the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

 RECEIVE TESTIMONY ON THE INCREASING NUMBER OF ISSUES ASSOCIATED WITH 
AGING WATER RESOURCE INFRASTRUCTURE THAT IS OPERATED AND MAINTAINED, OR 
           OWNED, BY THE UNITED STATES BUREAU OF RECLAMATION

                               __________

                             APRIL 17, 2008

                       Printed for the use of the
               Committee on Energy and Natural Resources

                     U.S. GOVERNMENT PRINTING OFFICE
44-318 PDF                 WASHINGTON DC:  2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel
                                 ------                                

                    Subcommittee on Water and Power

                  TIM JOHNSON, South Dakota, Chairman

BYRON L. DORGAN, North Dakota        BOB CORKER, Tennessee
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
JON TESTER, Montana                  JIM BUNNING, Kentucky

   Jeff Bingaman and Pete V. Domenici are Ex Officio Members of the 
                              Subcommittee

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Barrasso, Hon. John, U.S. Senator From Wyoming...................     5
Craig, Hon. Larry E., U.S. Senator From Idaho....................     5
Cutler, Todd, Mayor, City of Fernley, NV.........................    19
Donnelly, Thomas F., Executive Vice President, National Water 
  Resources Association, Arlington, VA...........................    21
Johnson, Robert W., Commissioner, Bureau of Reclamation, 
  Department of the Interior.....................................     8
Johnson, Hon. Tim, U.S. Senator From South Dakota................     1
McGinnis, Charles I., Major General (Retired), U.S. Army, 
  Representing the National Research Council.....................    29
Reed, Wesley Randal, Co-Chair, St. Mary Rehabilitation Working 
  Group, Chinook, MT.............................................    35
Reid, Hon. Harry, U.S. Senator From Nevada.......................     2
Salazar, Hon. Ken, U.S. Senator From Colorado....................     6
Tester, Hon. Jon, U.S. Senator From Montana......................     4
Willardson, Tony, Deputy Director, Western States Water Council, 
  Midvale, UT....................................................    24

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    49

                              Appendix II

Additional material submitted for the record.....................    53

                  AGING WATER RESOURCE INFRASTRUCTURE

                              ----------                              

                        THURSDAY, APRIL 17, 2008

                               U.S. Senate,
                   Subcommittee on Water and Power,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Tim Johnson 
presiding.

OPENING STATEMENT OF HON. TIM JOHNSON, U.S. SENATOR FROM SOUTH 
                             DAKOTA

    Senator Johnson. The hearing will come to order.
    It is a pleasure to welcome everyone here today. This 
hearing is being conducted as part of the subcommittee's 
responsibility for oversight of the Bureau of Reclamation. With 
each passing year, Congress is being asked to address an 
increasing number of problems associated with the condition of 
infrastructure owned by the Federal Government as part of the 
Reclamation program. For that reason, it is time to assess 
whether the BOR has in place a coordinated effort to help 
sustain the viability of this infrastructure or whether it will 
simply walk away from this important Federal investment which 
helped bring economic activity to much of the arid West.
    BOR estimates that it owns 471 dams and dikes, 348 
reservoirs, 300-plus conveyance and distribution systems, and a 
total water storage capacity of 245 million acre-feet. Much of 
this infrastructure is 50 to 100 years old.
    Today, we want to gain a better understanding of the issues 
associated with this aging infrastructure. Specifically, the 
committee wants to better understand how BOR is managing its 
inventory, including ongoing efforts to evaluate the condition 
of these assets, the range of authorized programs available to 
assist in maintaining this infrastructure, and the relative 
responsibility of BOR and its contractors in this effort. 
Finally, the subcommittee needs to focus on any and all issues 
having to do with public safety.
    This last point is an important one which deserves more 
scrutiny. The failure to adequately anticipate and respond to 
deficient infrastructure conditions can seriously impact the 
lives and property of those in close proximity to BOR's 
infrastructure. Earlier this year, the Truckee Canal, owned by 
BOR and operated by the Truckee-Carson Irrigation District, 
experienced a failure which flooded about 600 homes in Fernley, 
Nevada. The long-term costs of this incident are still being 
sorted out, but an obvious question is whether an up-front 
investment in inspection and maintenance could have avoided 
much larger costs associated with the canal's failure. If so, 
that is a lesson which must not be ignored as it applies 
elsewhere.
    We have an impressive set of witnesses today. Welcome to 
each of you and thank you for your willingness to provide your 
insights to the subcommittee.
    We are privileged today to have with us Majority Leader 
Harry Reid to make a statement on a subject that is obviously 
of great interest to Nevada. I understand that he is pressed 
for time, so if there is no objection, I will give Senator Reid 
the opportunity to make his statement preceding other members 
of the subcommittee.

          STATEMENT OF HON. HARRY REID, U.S. SENATOR 
                          FROM NEVADA

    Senator Reid. Mr. Chairman, thank you very much. I 
appreciate your statement, and I appreciate Senator Tester and 
Senator Barrasso allowing me to proceed prior to their making 
statements.
    Mr. Chairman, we have with us today a number of Nevadans. 
Bob Johnson with roots in Lovelock, Nevada, a resident for a 
long time of Boulder City, Nevada, is going to be with us. Todd 
Cutler, the Mayor of Fernley, Nevada is also with us. I 
appreciate their coming all the way back here to--of course, 
Bob is here all the time, but I appreciate Todd driving all the 
way.
    I do have a few things going here. I am trying to finish 
our bill. I would say to you I think now there is a unanimous 
consent agreement that will finish what we are working on by 
4:30 or so today. So we will begin tomorrow with no votes.
    Anyway, Commissioner Johnson, thank you for being here, and 
Mayor Cutler, thank you for being here.
    Early in the morning on January 5 of this year, residents 
of Fernley, Nevada--Fernley was a little community that we used 
to go to all the time campaigning, but when we campaigned here 
in early years, nobody lived there. But it was close to Reno 
and we were able to do that. Now it is not known how many 
people are there, but I would say 25,000 for sure and it is 
growing every day. There are a lot of things happening in 
Fernley, and we have had problems with the canal in years past, 
but in the past it did not really matter because no lived 
there.
    But on January 5 of this year, residents awoke to a 
freezing flood that destroyed or damaged as many as 600 homes. 
We were very fortunate no one died. After a few hours and up to 
8 feet of water, we were able to assess preliminarily the 
problems there. The flood happened because of the Truckee 
Canal, a facility owned by the Bureau of Reclamation, had 
failed.
    Shortly after the flood, a matter of days, I took a 
helicopter ride to survey the damage to the neighborhoods. Of 
course, I was disturbed by what I saw. Water is a destroyer. It 
has such power. This was not just an unfortunate disaster. It 
was unexpected in the minds of some, but expected because the 
canal has failed before, as I mentioned. This was the ninth 
time the Truckee Canal had failed. It is also the second time 
it failed because of rodents burrowing into the canal's 
embankments.
    The Truckee Canal is more than 100 years old. The first 
Bureau of Reclamation ever in the history of this country was 
there, the Newlands Project. The purpose of it was to make the 
desert blossom like a rose, and it did that. But as we have 
learned, it created some problems, and we are here today just 
to talk about some of that.
    Like most of Reclamation's facilities, the Federal 
Government owns this, but a local water district operates it. 
The Truckee Canal failure also represents the tremendous danger 
of failing to properly maintain such facilities. Everyone in 
our country, in the State of Nevada, and residents of Fernley 
should be able to live without fear that their community could 
be flooded at any time. People should not have to worry that 
the Government is letting aging water infrastructure crumble to 
save money in the short term. Additionally, families near 
Federal water projects should be informed regularly about the 
condition of these projects and any imminent threats for 
collapse or flooding.
    The Bureau of Reclamation is, of course, an agency that we 
in Nevada love. The Bureau of Reclamation is famous for a lot 
of things, but of course, what we are most proud of and I think 
everyone should be proud of is the Boulder Hoover Dam. So we 
know the good that the Bureau of Reclamation has done and will 
continue to do.
    But the Bureau of Reclamation needs some help, and that is 
what this legislation is all about. We want the Bureau of 
Reclamation to be proactive and we are providing resources in 
this legislation to allow them, to cause them to do more 
inspections of these canals, these levees, and other things 
under their responsibility. Prevention is better than any cure, 
and that is what this legislation is all about, to give the 
resources and direction to inspect and maintain aging water 
facilities to the Bureau of Reclamation. This legislation, the 
Aging Water Infrastructure Maintenance Act, would also direct 
the Bureau to develop standards for aging water facilities so 
they do not fall into a state of disrepair.
    One of the programs we should all be proud of is the dam 
safety programs that the Bureau has, and they have done some 
remarkably good work to take care of the dams under their 
responsibility.
    So I join Senators Bingaman, Salazar, and Tester in 
introducing this bill because we all have witnessed the rapidly 
deteriorating water structures in western States. In some 
cases, communities have no choice but to rely on these aging 
facilities even if funding is not available to properly 
maintain them. They are trapped. But compared to the tremendous 
costs of recovering from catastrophes like the Fernley flood, 
it is much less expensive to keep Federal water facilities in 
good condition.
    Since 1988, the Bureau has been out of the construction 
business and has been working to get out of the operations and 
maintenance business. But the Bureau cannot completely abandon 
its legacy, the 178 major water projects it has designed and 
built. Our legislation allows Reclamation to push forward with 
this mission, continue to deliver water to communities and 
farmers, and also ensure that the 673 facilities that make up 
Reclamation's water projects are in good condition.
    Let me say to all you people from the States that have a 
lot of green things, we in Nevada do not, and that is why I am 
trying to stop from coughing. Hay fever this time of the year 
is very difficult for some of us.
    Many of the 673 facilities that make up Reclamation's water 
projects are in good condition. That is why I indicated we want 
to make sure they stay that way. But many of these facilities 
are more than 50 years old. Some facilities are 90, and as I 
have indicated, with the Newlands Project, more than 100 years 
old. They require close attention regardless of who operates 
them, and sometimes they may require costs of repairs to make 
sure they safely serve the people that rely so heavily upon 
them.
    It is clear that the Bureau must improve its practices, and 
I would like to recognize that they have taken on their own 
some important initial steps. The Bureau recently began 
surveying some of the roughly 8,000 miles of canals it owns. 
This is a good step in the right direction. It is appropriate 
for the owner of these facilities to take action after the 
Fernley situation.
    So this legislation will make sure that the Bureau's 
inspections are complete and performed regularly.
    I would also like to recognize the Bureau's rapid response 
to the canal's failure. Reclamation staff worked hard, together 
with local officials, to stop the flooding and to repair the 
canal. I think the Bureau understands how important the Truckee 
Canal is to Fernley, but they need the resources and authority 
to better maintain that facility and others. I am confident 
better stewardship of such facilities can protect communities 
and save us from costly disasters in the long run.
    Again, Mr. Chairman, thank you very much for holding this 
hearing and I am hopeful and confident that we can work 
together to make prevention a priority when it comes to our 
Nation's aging water infrastructure.
    Senator Johnson. Senator Reid, thank you again for 
providing your views on the aging infrastructure issue. We look 
forward to taking a closer look at the legislation you 
mentioned.
    Senator Reid. Could I be excused, Mr. Chairman?
    Senator Johnson. You may be excused.
    Senator Corker.
    Senator Corker. I want to thank Senator Reid for coming, 
and since we have four stacked votes at 3 o'clock and I know 
that we have witnesses, just like the one we just had that have 
a lot of personal experience, Mr. Chairman, my statement, if it 
is OK, I would like to have entered into the record. From my 
standpoint, I would just prefer to move along because of the 
scheduling issues we have.
    Senator Johnson. We can now hear from other Senators if 
they would like to make an opening statement. While we do that, 
let us also have our first witness come up and take a seat at 
the witness table. I encourage you all to be brief.
    Senator Tester.

          STATEMENT OF HON. JON TESTER, U.S. SENATOR 
                          FROM MONTANA

    Senator Tester. Thank you, Mr. Chairman. I appreciate 
Senator Corker's remarks. I will be very, very brief.
    I want to welcome Randy Reed, who is Co-Chair of the St. 
Mary's Rehabilitation Working Group, one of our witnesses here 
today. Randy is a fellow farmer from north central Montana and 
I really appreciate the time he has taken not only in working 
on the St. Mary's Rehabilitation project--and the time has been 
extensive--but also to come here to tell us about the kind of 
challenges he faces.
    I will just say this. I think this is a matter of 
priorities, and I can tell you that the water infrastructure in 
my neck of the woods in the State of Montana, I think in the 
West overall, as Senator Reid pointed out, is worn out. Some of 
it is beyond repair. We need to really make this a priority for 
this country or we are going to be in trouble for generations 
to come from an economic standpoint and a crop production 
standpoint.
    With that, Mr. Chairman, I would just ask that my entire 
statement be a part of the record.
    Senator Johnson. It will.
    Senator Johnson. Senator Barrasso.

         STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR 
                          FROM WYOMING

    Senator Barrasso. Thank you very much, Mr. Chairman. I 
appreciate all of you being here today.
    I too will be brief, Mr. Chairman, but I would like to have 
all of my remarks introduced as part of the record because, Mr. 
Chairman, earlier today I introduced a bill called the Water 
Essential Storage to Enhance Regions in Need Act, and if you 
kind of go through all of that, that is called the WESTERN Act, 
S. 2873. This legislation provides an enhanced appeals process 
where States would have a number of opportunities, Mr. 
Chairman, to challenge the Army Corps, whereas Wyoming where 
water is vital, our experience has been that the Army Corps has 
repeatedly either disagreed or altered our purpose of need of 
important water projects for the State. So I am bringing this 
legislation to give the States more opportunity and more 
authority in dealing with things that we certainly in the West 
know are critical to our State's future.
    So with that, thank you, Mr. Chairman.
    Senator Johnson. Senator Craig.

        STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR 
                           FROM IDAHO

    Senator Craig. Mr. Chairman, let me give you a brief 
experience that I think will indicate why I and others in the 
West, like Senator Tester and Senator Barrasso, have already 
talked about the need for this kind of legislation.
    Above Boise is a very large Reclamation project, three 
large reservoirs, three dams that irrigate the Boise Valley and 
one of the most fertile agricultural valleys in the country. It 
is an aging Reclamation project.
    A couple of years ago, it was important to replace the head 
gates at Arrow Rock Dam, and I set about trying to figure out, 
with the irrigation district, how to get that done. What I 
found out was the Bureau of Reclamation had no capacity to deal 
with it anymore. Water users were going to be asked to pay up 
front for the whole project, in many cases resulting in 
assessments that would be three to four times the amount of the 
assessment already being paid by the irrigators and the users 
of that water.
    What did I do? I had to write special legislation specific 
to a project, and I did so and spread it over a 15-year period.
    We need some kind of program in place that will take care 
of these kinds of projects and needs. Passing special 
legislation for each and every project out in the West that is 
aging and in need of repair just simply does not make good 
legislative or policy sense.
    I think what Senator Reid and my colleague from Wyoming are 
talking about relates in how we get this back under control in 
a way that is realistic for the users, and certainly for that 
agencies involved, it becomes critically important.
    Because we had power involved in this, I had to deal with 
the Federal Energy Regulatory Commission on and on. It became 
very complicated. We got it done, but it took several years to 
do it at a time when it should have been on a list. There 
should be priorities and we should be moving ahead with the 
appropriate funding to meet these kinds of needs.
    Thank you.
    Senator Johnson. Senator Salazar.

          STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR 
                         FROM COLORADO

    Senator Salazar. Thank you very much, Chairman Johnson. It 
is, indeed, a pleasure and a heart-felt sense of gratitude to 
see you at the helm steering the committee here on the 
Subcommittee on Water and Power.
    I know we are short on time and so I will submit my entire 
statement for the record. I will only have two quick comments.
    First, I am proud to be a cosponsor of the legislation with 
Senator Reid and Senator Tester of Senate 2842, the Aging Water 
Infrastructure and Maintenance Act. I hope that we are able to 
move forward with that issue because the aging infrastructure 
needs of the Bureau of Reclamation I think are apparent to all 
of us who come from the West and we know that water is, in 
fact, the lifeblood of our communities.
    Secondly, in my written statement there is significant 
reference to the Leadville mine drainage tunnel. It is an issue 
which the Bureau of Reclamation and I have been working on and 
I am meeting later on in the day with Secretary Kempthorne and 
I think Commissioner Johnson and others to try to address that 
issue.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Salazar follows:]

      Prepared Statement of Hon. Ken Salazar, U.S. Senato, From CO

    Thank you Chairman Bingaman and Ranking Member Domenici for holding 
today's hearing on the Bureau of Reclamation's aging water 
infrastructure. Most of the large water infrastructure in the Western 
states was constructed by the Bureau in the first half of the last 
century. Many of these projects were engineering feats in their day--
and the creative vision and able execution of these dams, canals, 
drains, and siphons were unquestionably critical to the growth of the 
West. But today, much of this infrastructure is 50 to 100 years old, 
and is living on borrowed time.
    Over $20 billion in federal funds was used to construct the 
Bureau's major water infrastructure projects and the Congressional 
Research Service has estimated that the replacement cost to be over 
$100 billion. While programs exist to deal with the maintenance of some 
of the Bureau's major dams, the condition of other Bureau-legacy 
projects often goes overlooked. In many cases, the Bureau long ago 
turned over operation and maintenance of non-dam projects to local 
water authorities. Today these local authorities face daunting 
rehabilitation or replacement costs.
    In southwest Colorado, the Bureau's Jackson Gulch Dam and 
accompanying Mancos Project canal system are an archetypal example of 
these challenges. These structures provide supplemental agricultural 
water for about 8,650 irrigated acres and a domestic water supply for 
the Mesa Verde National Park. The Mancos Project also delivers water to 
the more than 500 members of the Mancos Rural Water Company, the Town 
of Mancos and at least 237 agricultural businesses. Since its 
construction nearly 60 years ago, the Mancos Project has been 
maintained by the Mancos Water Conservancy District and inspected by 
the Bureau, but has outlived its expected life and is now badly in need 
of rehabilitation. Repairing it is well beyond the financial means of 
the local authorities. If the canal system were to suffer a 
catastrophic failure, it could result in Mesa Verde National Park being 
without water during the peak of their visitation and fire season, the 
Town of Mancos suffering a severe municipal water shortage, and the 
possible loss of approximately $1.5 million of annual crop production.
    Rehabilitating these pieces of water infrastructure is a sound 
investment. Last July this committee held a hearing on my bill, S. 
1477, Jackson Gulch Rehabilitation Act of 2007, which would authorize 
$6.4 million, subject to appropriations, to pay an 80 percent federal 
cost-share for rehabilitation of the Jackson Gulch Canal system and 
related infrastructure. I am hopeful that we can move forward with this 
legislation and other worthy bills that will ensure that the rural 
communities that depend on this infrastructure will receive the water 
they need to thrive.
    The deterioration of another piece of Reclamation infrastructure, 
the Leadville Mine Drainage Tunnel, or LMDT, has received enormous 
attention in central Colorado recently. Just over 2 miles long, this 
tunnel was constructed during the 1940s and 1950s by the United States 
Department of the Interior's Bureau of Mines to drain flooded mines in 
the Leadville mining district of Lake County in central Colorado. In 
1959, the Bureau of Reclamation took full custody of and responsibility 
for the LMDT to obtain water rights and under the condition that the 
Bureau would not spend its own funds to maintain or repair the Tunnel. 
In the early 1990s, however, litigation compelled the Bureau to take 
responsibility for the quality of the water discharged by the Tunnel.
    In 1995, however, a major collapse of a segment of the tunnel was 
detected. Since that time, mine water has pooled behind the blockage. 
Today the Environmental Protection Agency estimates that close to one 
billion gallons of water contaminated with toxic levels of cadmium, 
zinc, and manganese, has collected. The citizens of Leadville, Lake 
County, and the area downstream of the LMDT are deeply worried that the 
building pressure from this voluminous quantity of water will cause the 
blockage to burst and flood the town, resulting in a public health and 
environmental disaster. This winter's heavy snowfall has some concerned 
that spring snowmelt will further balloon the quantity of toxic water 
and exacerbate the risk.
    To be sure, the circumstances surrounding the LMDT are unique. That 
notwithstanding, the situation is yet another reminder of the 
potentially dire consequences that communities face in coping with 
aging federal water infrastructure. The Bureau and EPA must continue to 
work together to find a long-term solution that will provide a 
permanent fix for the LMDT.
    Reclamation's challenges are also a touchstone for the larger scope 
of problems that western communities--and frankly, communities across 
the country--face from deteriorating water infrastructure. My home town 
of Alamosa recently lived a nightmare: a salmonella outbreak 
contaminated the city's water system. City officials reported a total 
of 326 cases, with 90 confirmed, and 13 people hospitalized, including 
two infants who had to be transferred to Denver Children's Hospital. 
The entire 49 miles of the water system had to be flushed with 
concentrated chlorine solution and the city's 10,000 residents went 
more than two weeks without potable water. The cost of fixing the 
problem is nearly $500,000--not to mention the economic blight to local 
businesses and the untold psychological distress suffered by residents. 
A preliminary investigation suggests that the cause of the widespread 
outbreak is directly related to the inadequacies of the town's aged 
water infrastructure, especially an outmoded ground-level water storage 
facility. Clean, reliable sources of water simply cannot be taken for 
granted.
    We must do everything we can to address the deteriorating condition 
of water infrastructure across the West and throughout the nation. 
Today we are shining a needed spotlight on the Bureau's legacy 
infrastructure. I am proud to be an original co-sponsor, with Chairman 
Bingaman and Sen. Tester, of Leader Reid's bill S. 2842, the Aging 
Water Infrastructure and Maintenance Act, which will create a formal 
inspection and comprehensive review program for the Bureau's canals, 
levees, and other non-dam infrastructure. I hope this hearing will 
heighten awareness of these critical issues and I look forward to 
hearing the testimony of our panel today.
    Thank you, Mr. Chairman.

    Senator Johnson. Our first witness will provide the 
Administration's views. We have with us Commissioner Bob 
Johnson of the Bureau of Reclamation. Welcome and thank you for 
being here, Commissioner Johnson.
    Before starting, I would like to quickly note that the 
subcommittee has received additional written testimony on the 
subject of today's hearing. That testimony, as well as the 
written submission of all today's witnesses, will be made part 
of the official hearing record.
    Mr. Johnson, please go ahead and summarize your written 
testimony. Following that, we will have a question and answer 
period.

 STATEMENT OF HON. ROBERT W. JOHNSON, COMMISSIONER, BUREAU OF 
            RECLAMATION, DEPARTMENT OF THE INTERIOR

    Mr. Johnson. Thank you, Mr. Chairman and members of the 
subcommittee. I am pleased to be here and provide some 
perspective on the issue of Reclamation's aging infrastructure 
and I will try to be brief.
    Operating water facilities, whether they are aging or newly 
complete, brings with it many unknowns and engineering 
challenges. A recent example of these challenges is the one 
that Senator Reid just talked about, the Truckee Main Canal and 
the failure that occurred on January 5 causing damage to 590 
homes in the Fernley, Nevada area.
    It is important to recognize the extent of damage caused by 
the failure. Reclamation is sincerely concerned about the 
impact on property owners. Reclamation, the Truckee-Carson 
Irrigation District, the city of Fernley, and others were able 
to collectively respond to the failure and address, as best 
possible, the immediate needs of homeowners.
    In addition to assisting the homeowners, we assembled the 
expertise necessary to evaluate the conditions under which the 
flows might safely be resumed and developed a flow regime under 
which the district could resume restricted and safe diversions 
within 11 weeks. The limited diversions are now occurring 
through the Truckee Main Canal.
    In the aftermath of events of the Truckee Main Canal, 
Reclamation has initiated a new effort where growth has 
occurred around canals and where similar conditions may exist 
that could pose similar risks to life or property. We intend to 
work with our operating partners to select representative canal 
reaches in urbanized areas within each of our five regions for 
special reviews to be conducted this year. We believe this is a 
first step in identifying any program changes that may be 
necessary to address concerns about growth near Reclamation 
canals.
    Reclamation has two existing programs in place to ensure 
the safe operation and maintenance of our infrastructure. 
First, we have a Safety of Dams program which vigorously 
inspects Reclamation dams and on defined schedules and 
identifies actions necessary to ensure continued safe operation 
of our dams. Our Safety of Dams program currently has six 
corrective actions ongoing throughout the West. Our funding 
request for this program in fiscal year 2009 is $91 million, 
which was $15 million more than was requested in the 
President's 2008 budget.
    The second program is part of our oversight of constructed 
assets. We initiated a facility review program in 1948 to 
assess the condition of assets constructed by Reclamation and 
operated and maintained by our non-Federal operating partners. 
These activities continue today and in concert with a 
preventive maintenance philosophy have successfully extended 
the service life of many of the water and power facilities that 
Reclamation owns.
    West-wide, Reclamation currently estimates that 
approximately $3.2 billion will be required to rehabilitate, 
replace, and modify Reclamation assets under major 
rehabilitation and replacement programs in the future. I have 
to emphasize that is a rough estimate. It could vary. This 
rough estimate includes approximately $600 million for work 
that would be done under our Safety of Dams program, 
anticipated work on our power and water reserved works of about 
$1.6 billion, and about $1 billion for transferred works 
operated by our partners.
    Much of these estimates can be financed directly by our 
water and power customers and through our Safety of Dams 
program. However, for some of our partners, the cost share 
requirements associated with the review and repair activities 
are simply beyond the means of the beneficiaries to pay.
    Title II of the Twenty-First Century Water Works Act 
authorized loan guarantees for eligible projects. Currently, 
Reclamation continues to work on developing proposed rules for 
implementing that program.
    Sound and reliable infrastructure is the core of 
Reclamation's mission. With the support of Congress, our 
customers, and other stakeholders, Reclamation will continue to 
work to ensure the integrity and reliability of Federal water 
and power assets.
    This concludes my oral statement, Mr. Chairman. I would be 
glad to answer questions.
    [The prepared statement of Mr. Johnson follows:]

   Prepared Statement of Robert W. Johnson, Commissioner, Bureau of 
                Reclamation, Department of the Interior

    Mr. Chairman and members of the subcommittee, I am Robert W. 
Johnson, Commissioner of the Bureau of Reclamation. I am pleased to 
provide the Department of the Interior's perspective on Reclamation's 
asset management strategy as it relates to our aging water and power 
infrastructure. I will also discuss some of the reinvestment needs we 
have identified.
    Before I start, I would like to note that I have been a Reclamation 
employee for over 30 years, and am well aware of the challenges we face 
as a result of our aging infrastructure. Operating water facilities, 
whether aging or newly complete, brings with it many unknowns and 
engineering challenges. A recent example of these challenges is 
provided in the case of the Truckee Main Canal (TMC), near Fernley, 
Nevada. Early on the morning of January 5, 2008, a portion of the 
Truckee Canal embankment failed resulting in uncontrolled water 
releases into residential areas of the City, causing varying damage to 
590 homes. The canal, operated and maintained by the Truckee-Carson 
Irrigation District under a contract with Reclamation, provides water 
to agricultural and wetland uses in the Fernley and Fallon, Nevada 
areas. At the location of the breach, the canal, built a hundred years 
ago, has earthen embankments and is unlined.
    After the breach, the District shut down the canal and placed a 
temporary earthen plug into the breach site to stem flows into the 
City. Concurrently with designing a permanent repair for the breach, 
Reclamation initiated several studies and investigations with the 
purpose of determining likely contributing factors to the failure, the 
condition of the remainder of the 31-mile long canal, the risks 
associated with resuming flows in the canal through the reach above the 
City, and the conditions under which deliveries might be resumed. The 
inspection of the remainder of the canal was conducted by teams, 
including members from the City, the District and the Corps of 
Engineers. A team of independent experts determined that the most 
likely contributing factor to the failure was rodent activity.
    During March, staged diversions into the canal were resumed 
beginning at 20% of the maximum canal flow with ramping allowed up to 
45% of the maximum flow. Flows above 20% of the maximum are authorized 
only if the District meets specific requirements, such as development 
of emergency action, maintenance and facility improvement plans. Flows 
above 33% are allowed only after a special rodent control program has 
been carried out. Flows may not exceed approximately 45% of the maximum 
flow until a permanent fix is in place, such as an impermeable barrier 
on the city side of the canal protecting the City of Fernley. The 
staged flow restrictions are the direct result of the studies and 
investigations undertaken by Reclamation--designed to determine under 
what circumstances diversions could be resumed under safe and reliable 
conditions.
    It is important to recognize the extent of the damage caused by the 
failure, but it is also important to recognize that Reclamation was 
able to assemble the expertise necessary to evaluate the conditions 
under which flows might safely be resumed and develop a flow regime 
under which the District could resume restricted diversions within 
eleven weeks. It took an intensive, concerted effort by Reclamation and 
the District to achieve this result. The Reclamation contribution 
involved staff from the area and regional offices, together with staff 
in Reclamation's Technical Service Center.
    The TMC is over 100 years old. Given that Reclamation's first 
projects were started over 100 years ago, our employees and managing 
partners have done an incredible job of safely maintaining and 
protecting our infrastructure. In the aftermath of events on the TMC, 
Reclamation has initiated a new effort to ascertain where growth has 
occurred around canals, and where a similar condition may exist that 
could pose a threat to life or property. We intend to work with our 
operating partners to select representative canal reaches in urbanized 
areas within each of our five regions for special reviews to be 
conducted this year. This process will afford the opportunity to engage 
interested operating partners in the topics of asset management and 
addressing our aging infrastructure.
    While Reclamation's reach across the West is widespread, our 
employees take the safety of our facilities and the protection of our 
customers and surrounding communities very seriously. And, as a result, 
the vast majority of our infrastructure is in good working order. I am 
very proud of our record.
    In fiscal year 2009, Reclamation's Dam Safety Program plans to have 
corrective actions underway at six facilities across the west, and is 
requesting an increase of over $15 million above the amount 
appropriated in fiscal 2008 in the Dam Safety Program. Reclamation has 
also requested funds to study the need for potential corrective actions 
at other facilities.
    Reclamation's mission is to ``manage, develop, and protect water 
and related resources in an environmentally and economically sound 
manner in the interest of the American public.'' We are the Nation's 
largest wholesale water supplier, and the 348 reservoirs we administer 
have a total storage capacity of 245 million acre-feet of water. We 
bring water to more than 31 million customers and provide 20 percent of 
western farmers with water to irrigate 10 million acres of farmland. 
Reclamation is also the Nation's second largest producer of 
hydroelectric power, generating more than 40 billion kilowatt-hours of 
energy each year--equivalent to the energy provided by 80 million 
barrels of crude oil. In the 100 years since Reclamation's creation, 
the Federal government has invested almost $21 billion in original 
development costs for our facilities. The current cost to replace these 
assets would be many times that original development cost.
    Reclamation's core mission has remained constant since its 
inception, but the way we accomplish that mission has evolved. Today, 
we focus primarily on managing and maintaining our facilities to ensure 
their safe and effective operation while continuing to deliver water 
and power. In terms of actual operation and maintenance, Reclamation 
operates about one-third of its facilities, and the other two-thirds 
(primarily single-purpose irrigation facilities) are operated and 
maintained by non-Federal operating entities (e.g., water/power 
districts formed under state laws to provide service to a particular 
area or set of customers).
    Most of Reclamation's major dams, reservoirs, hydroelectric plants, 
and irrigation systems are 50 or more years old. A central point we 
would like to make is that a facility's age by itself is not the sole 
determinant of its viability--rather, facility condition is the central 
factor in predicting the long-term functionality and maintenance need 
of Reclamation assets. As part of Reclamation's oversight of 
constructed assets, we initiated a Facility Review Program in 1948 to 
assess the condition of assets constructed by Reclamation and operated 
and maintained by our non-Federal operating partners. These activities 
continue today and, in concert with a preventive maintenance philosophy 
and related oversight initiatives, have successfully extended the 
service life of many of our water and power facilities beyond original 
expectations. Reclamation has recently been taking steps to more 
accurately represent its inventory of assets in the Federal Real 
Property Profile (FRPP).
    Nevertheless, the aging of our infrastructure constantly presents 
new maintenance, replacement, and modification requirements. Similar to 
other agencies with aging infrastructure, Reclamation has a fiduciary 
duty to maintain services to its customers in a cost efficient manner 
and to meet other expectations, particularly environmental and 
endangered species management. While Reclamation and over 350 operating 
partners have for many years operated and maintained the 
infrastructure, the very nature of the aging process will inevitably 
lead to increased pressure on budgets and user rates to keep 
infrastructure service and reliability commensurate with past levels. 
As such, Reclamation and the operating entities anticipate a steady 
increase in infrastructure repair needs that will continue to grow over 
time. As part of Reclamation's asset management strategy, regular 
operation and maintenance activities under appropriated dollars will be 
managed in concert with other programs and activities addressed in our 
strategy to improve efficiency and effectiveness in funding 
rehabilitation and replacement needs.
    Improved technology will also offset many of these costs, as will 
innovative construction processes like the one occurring on the Joint 
Federal Project at Folsom Dam near Sacramento. Together with the United 
States Army Corps of Engineers, Reclamation is undertaking an historic 
effort to jointly construct features that will address both safety of 
dams concerns, as well as expand flood protection for the City of 
Sacramento. Separately, these two projects would cost over $2 billion 
and would take 15 years to complete, but by working together to design 
and construct features consistent with these two distinct activities, 
Reclamation and the Corps estimate that the joint project should cost 
half that much and be completed in half the time. Project construction 
is planned to proceed in phases by Reclamation and the Corps.
    Procedurally, Reclamation's Facility Maintenance and Rehabilitation 
Program identifies, schedules and prioritizes necessary rehabilitation 
work at reserved works. To fulfill these responsibilities, Reclamation 
provides designs and studies, purchases equipment and services, and 
provides the resources to support the overall maintenance and 
rehabilitation program. Project beneficiaries advance funds for annual 
O&M work performed by Reclamation.
    However, for many other facilities, rehabilitation and replacement 
needs may exceed available resources and could potentially increase the 
risk of service interruption or failure, as occurred early this year on 
the Truckee Main Canal. To fund this work, in cases where operating 
partners cover a portion of the O&M costs for reserved works, or the 
entire O&M costs on transferred works, the use of the entity's reserve 
fund is one of the first places we look for funding. However, these 
funds may not be contractually required nor sufficient to meet the 
amount needed for major rehabilitation and replacement work. Thus, 
long-term financing must often be obtained to fund such work, and 
arrangements are made with operating entities depending on the 
circumstances of a given project.
    West-wide, Reclamation currently estimates that approximately $3 
billion will be required to rehabilitate, replace, and modify 
Reclamation assets under major rehabilitation and replacement programs 
in the future. This figure was derived from a very rough, field-level 
estimate of conceivable needs, and includes work under our Safety of 
Dams program, anticipated work on our water and power reserved works, 
and preliminary estimates for transferred works operated by our 
customers. From a programmatic perspective, much of this data is 
insufficiently reliable to serve as a basis for budgeting or long-term 
planning decisions. A substantial part of projected needs will be 
financed directly by our water and power customers and the sale of 
hydroelectricity. Some funds may need to come from appropriations, but 
the magnitude and timing of such funding needs is unknown. As noted 
above, those entities which contractually operate transferred works are 
also required to fund operation, maintenance, rehabilitation, and 
replacement work at their cost, and this amounts to at least $800 
million of the $3 billion estimate.
    One of the challenges we face is the varying economic strength of 
our operating partners. For some of these partners, the cost-share 
requirements associated with the review and repair activities are 
simply beyond the means of the beneficiaries. The Administration has 
and will continue to be opposed to projects that are authorized without 
adequate cost controls and built-in accountabilities to ensure that the 
Federal government is not subject to undue costs. While circumstances 
for each project in need of review, rehabilitation or repair may be 
different, in order for projects to be sustainable, the non-Federal 
sponsors must be responsible for a fair share of project costs and, for 
facilities that are being operated and maintained by non-Federal 
entities, these entities must be accountable for maintaining the 
assets.
    Title II of the Twenty-First Century Water Works Act (P.L. 109-451) 
authorized loan guarantees for eligible projects. Currently, 
Reclamation is working on the proposed rules for implementing this 
program.
    Sound and reliable infrastructure is the core of Reclamation's 
mission. With the support of Congress, our customers, and other 
stakeholders, Reclamation will continue to assure the integrity and 
reliability of Federal water and power assets.
    This concludes my written statement. I would be pleased to answer 
any questions.

    Senator Johnson. Mr. Johnson, BOR has informed the 
residents of Fernley, Nevada on how to file a claim against the 
United States under the Federal Tort Claims Act. It, therefore, 
seems reasonable to assume that the Federal Government, as 
owner of the Truckee Canal, may be liable for some of the 
damages caused by its failure. Your testimony talks about BOR's 
maintenance and rehabilitation program, but it is unclear 
whether this program applies to those facilities operated and 
maintained by local water users, the so-called ``transferred 
works.'' Obviously, BOR has a strong interest in ensuring those 
facilities are adequately maintained.
    What are the standards and guidelines that apply to ensure 
that these ``transferred works'' are maintain in an adequate 
condition?
    Mr. Johnson. Senator, we do have operation and maintenance 
overview guidelines that lay out standards for maintaining 
transferred works infrastructure. There are three specific sets 
of guidelines that we use. One is a joint Corps of Engineers/
Reclamation manual on engineering practice. It is Report No. 57 
entitled ``Management, Operation, and Maintenance of Irrigation 
and Drainage Systems'' that was put together in 1991. The 
second is we have a comprehensive set of review of maintenance 
field examination guidelines that we use in the review of the 
maintenance program that we have. Then we also have a set of 
standard operating procedures that are established for each of 
our projects that our customers use in the management of those 
facilities. So those are the formal guidelines that Reclamation 
has in place to deal with reviewing maintenance.
    Senator Johnson. Was BOR aware, through any regular 
inspections, that there were deficiencies in the condition of 
the Truckee Canal?
    Mr. Johnson. We did a maintenance review on the Truckee 
Canal in calendar year 2006, and in looking at that maintenance 
review, we identified no deficiencies associated with the reach 
of the canal where we have failure. There were areas that were 
identified in that review, but none on that section of the 
canal. So I guess the short answer would be no, we were not 
aware. At least, the report does not indicate that we 
identified any concerns there.
    Senator Johnson. As I understand it, BOR takes the position 
that project contractors are financially responsible for a pro-
rata portion of the operation and maintenance costs associated 
with project facilities and that such costs must be paid in the 
year in which they are incurred. It is unclear, though, to what 
extent major rehabilitation projects and replacement of project 
works are the responsibility of project contractors and the 
requisite repayment period that applies.
    Can you clarify the relative responsibilities of BOR and 
its contractors with respect to the financial aspects of major 
rehabilitation and replacement of project works?
    Mr. Johnson. As a general rule, on projects that are 
transferred to other entities for operation and maintenance, 
the cost of that operation and maintenance--and I use that term 
pretty broadly because when we say operation and maintenance, 
we mean that also includes the replacement of facilities as 
replacement and improvements are needed. But in most cases, the 
arrangements that we have call for those costs to be the 
responsibility of the water users or the entity that is 
performing the operation on the facility.
    There are some cases where there are multi-purpose 
features, some of which have Federal roles or involvement, like 
a flood control or a recreation facility where we have some 
costs that are allocated to those purposes, and under those 
circumstances, the United States would pay an allocated share 
of any costs associated with operation and maintenance, 
including any rehabilitation and betterment costs.
    But for the most part, they are treated as reimbursable. 
They are treated as O&M costs, and under our law and policy, 
they are generally required to be repaid in the year that the 
costs are incurred.
    Senator Johnson. My time has expired.
    Senator Corker.
    Senator Corker. Mr. Chairman, I know that again we have a 
number of witnesses and we have committee members that are 
actually from the western part of our country that are involved 
in bills. I am going to defer to them, and if we have time, I 
will ask my questions afterwards. But I know these gentlemen 
have specific interests they would like to talk to the 
Honorable Mr. Johnson about.
    Senator Johnson. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman.
    Thank you for being here. I appreciate your statement.
    Just a couple questions and if you do not know the answer, 
that is fine. But I think Reclamation has estimated rebuilding 
the St. Mary's project, which is, I am sure you are aware of, 
about $130 million. That is correct?
    Mr. Johnson. Yes, sir.
    Senator Tester. It has been the administration's position 
that this cost should be wholly covered by non-Federal 
partners. Is that correct? What I am talking about is the 
information I got is the Administration wants the farmers to 
pay for the project.
    Mr. Johnson. We have done a lot of studies. In fact, that 
project is the first project I visited when I became 
Commissioner of Reclamation. It is an example of the projects 
that I talked about in my testimony. We do have some projects 
like I think the St. Mary's project and the Milk River project 
where there are rehabilitation and betterment needs that exceed 
the ability of the water users to pay those costs.
    Unfortunately, under the legal framework that we have, 
those are O&M costs and they are required to be repaid in the 
year that they are incurred. So the answer is yes, we have 
looked to the water users to pay that, and the answer is also 
yes, that is a very tall order for the water users----
    Senator Tester. So what you are saying is it is required by 
statute that they pay for it? Is it required by rules that the 
BOR has adopted?
    Mr. Johnson. I think both.
    Senator Tester. All right, that is fine.
    I will ask some of these questions to Randy Reed when he 
testifies because he is on the ground.
    But it would indicate to me that this project is, if my 
memory serves me right, right at 100 years old. It was put in 
about 100 years ago, almost to the year, as I recall. There has 
been some maintenance on it, but after 100 years, the thing is 
worn out. Hell, it was probably worn out 40 years ago, if truth 
be known.
    Who is responsible to plan for this kind of stuff? Is it 
the irrigators' responsibility to plan to set aside $130 
million for something like this, or is this a lack of planning 
on the BOR's part?
    Mr. Johnson. You know, it varies. I mean, if you look at 
our projects west-wide, we have partnered with a lot of our 
entities on modifying and improving those projects over time. 
In areas where we have a lot of urban growth that has occurred, 
a lot of economic development that has occurred, we can sit 
down and jointly plan, and the local entities have the 
financial wherewithal and they have been able to pretty much do 
it on their own.
    Senator Tester. This is not one of those areas.
    Mr. Johnson. Right, and this is not one of those areas.
    We have worked with the district to do some planning. We 
have developed the cost estimate that you have talked about. We 
have allocated some money to do the studies. But the problem 
that we have always come up against is the inability of the 
district to pay.
    Senator Tester. To cut right to the chase, what do I need 
to do to allow you to pick up a substantial portion of the 
rehabilitation?
    Mr. Johnson. There would have to be, I think, legislation 
giving us the authority and making it non-reimbursable and also 
then the appropriations to carry it out.
    Senator Tester. Would you support that? Would you support a 
piece of legislation like that?
    Mr. Johnson. I would have to look at the specific 
legislation. I am really not in a position to take any views on 
legislation or prospective legislation today.
    Senator Tester. But if I were to have one of my staff 
members work with one of your staff members and we were able to 
come up with something that would allow the BOR to pay a 
substantial part of this, you would take a look at it, because 
from a fairness standpoint, as you said earlier, this is 
something that probably should be done.
    Mr. Johnson. We would be more than happy to work with you.
    Senator Tester. Good. Last question and I will make this 
very, very quick. You mentioned Reclamation will need about $3 
billion to rehabilitate your assets. What is the timeframe on 
that?
    Mr. Johnson. That would be extended over a fairly long 
period of time. We do not have any specific schedule for when 
that might occur.
    Senator Tester. Any idea? Are we talking 5 years, 10 years, 
20 years?
    Mr. Johnson. Probably more like 20 years. That is probably 
over an extended period.
    Senator Tester. Your budget this year was decreased by 20 
percent. Can you even meet the needs for this 1 year with that 
budget decrease?
    Mr. Johnson. Some of that can be funded outside of Federal 
appropriations. There is a pretty good chunk of that 
maintenance and betterment that would be funded by our power 
revenues where we have revolving funds that have power revenues 
come into them. I do not have the numbers broken down. We think 
probably somewhere around $600 million of that, I think as I 
mentioned, is under the Safety of Dams program. We probably 
have adequate funding levels currently under our Safety of Dams 
program to address that over time. So I think we do have 
adequate funding there.
    We probably do have adequate funding from non-appropriated 
sources to address our powerplants and the aging infrastructure 
and replacement of facilities that will have to occur there.
    Where we get into these issues is projects that are similar 
to St. Mary's where we do not have adequate funding and where 
we have some of the financial repayment issues that make it 
difficult to move ahead.
    Senator Tester. Thanks, Bob.
    Thanks, Mr. Chairman.
    Senator Johnson. Senator Corker, a follow-up question.
    Senator Corker. I just want to follow up--a point of 
personal privilege here--on Senator Tester's comments because I 
think he has hit at the essence of what the rest of us that are 
not affected, if you will, in the Senate will have to weigh. I 
mean, he obviously wants to work with you and your staff on a 
bill to cause the Federal Government to pay for this. Those of 
us who do not have a parochial interest then have to make the--
I notice he is laughing heavily. I hope the camera will catch 
that.
    Senator Tester. We all eat.
    Senator Corker. The fact is then there is a value decision, 
and that is, what is the appropriate role of the Federal 
Government in this? You did not want to answer as to whether 
you would support his legislation or not, very wisely.
    But what would be the kind of things you would weigh to 
keep us from moving--we keep talking about moral hazards right 
now as it relates to economic stimulus and that kind of thing. 
But to keep it in the middle of the road, what kind of things 
would you weigh as to what role the Federal Government should 
play in these projects that they are addressing? I mean, 
obviously, there are other groups around the country that have 
similar arrangements that then might be here doing the same 
thing. Is that correct?
    Mr. Johnson. I suppose that it is possible. That is a tough 
question especially as it relates to the Reclamation program 
because historically Reclamation's purpose was to help develop 
the western United States, the 17 western States. We did a 
pretty good job of that. We built about $22 billion in 
facilities over 100 years that are probably worth $90 billion 
or $100 billion today. We still own most of those facilities. 
In most cases, we have had a lot of economic growth and good 
economies, and those projects have been able to sustain 
themselves without a lot of Federal assistance.
    There is this small group of projects--I do not think there 
is a whole lot of them out there--like St. Mary's that are 
agricultural oriented projects who have limited abilities to 
pay, but there are local economies that are dependent on those 
projects. The irrigation component and the farming component is 
a very significant thing for that local economy that relies on 
that water supply and those projects.
    Now, what role should the Government have in coming in and 
maintaining those projects and bearing the cost of maintaining 
those projects on a long-term basis is a complicated question. 
There are those who would say, well, there ought to be some 
fairly strict economic criteria, and if they cannot pay, they 
cannot pay, and it is not worth spending the money for them. 
But, gee whiz, there is a significant investment there. There 
is a pretty valuable facility there, and there is a rural 
economy that is an important way of life for a lot of people. 
So how does that play into the decision-making? I am rambling a 
little bit, but I think it is a complicated question.
    Senator Corker. For those of us who are outside of this 
particular area and that are not directly affected, I hope that 
you will provide guidance and counseling to all of us to help 
us value this appropriately.
    Thank you, Mr. Chairman.
    Senator Johnson. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    Mr. Johnson, to allow you to ramble a little bit more if 
you would like, certainly in Wyoming there is the Bureau of 
Reclamation's Midvale Irrigation District in Riverton, Wyoming. 
The State has been studying this and found about $100 million 
in maintenance repairs that are going to be needed. The State 
only spends about a tenth of that amount each year on repairs 
to all districts. You know what the repairs are: the canals, 
the sub-canals, things that divert the needed water to farmers 
and to ranchers.
    It is a well-run irrigation district. They are doing their 
best. The assessments people are paying are already there and 
high, but still $100 million in repairs is needed. The district 
cannot afford it. The State cannot afford it. I am not sure 
where the money is coming from.
    In your comments--and I was taking notes--I think you said 
you were going to have this special review of facilities near 
urban areas. As I look at Montana and South Dakota and Idaho 
and Wyoming, we wondered if you had misspoken and you meant 
rural areas when you said that. But I would be interested in 
your comments both in terms of the focus on urban areas and 
what we can do at a place like what we are dealing with in 
Wyoming.
    Mr. Johnson. The existing operation and maintenance review 
program that we have would still apply, and that would apply in 
rural areas.
    You know, I think part of the thinking that we have had is 
the standard for operation and maintenance may be different in 
an area that is urbanized than the standard of operation and 
maintenance that you might have in a rural area. Let me explain 
that.
    In Truckee-Carson Canal, that canal is 100 years old. When 
it was originally built, it ran through the desert and maybe a 
few alfalfa fields. If the canal failed, it did not have a 
significant impact. You went and fixed the canal and you put 
the water back in, and it was not much of an issue. But now, 
within just the last 10 years, we have had all this growth on 
that canal, and now if that canal fails, it has a real 
significant impact on property.
    So we may have a different standard that is required for 
canals that are in urban areas. So we are trying to take a 
fresh look at that. Where we do have canals in urban areas, is 
there a higher standard of maintenance? What are the safety/
property concerns that we have below those canals? So that is 
what I am referring to.
    We are certainly not abandoning the review of maintenance 
that we have for our existing canals that are in rural areas 
and agricultural areas.
    Senator Barrasso. Does it appear to you that we really are 
reaching a major funding shortfall looking at this into the 
future?
    Mr. Johnson. There is certainly a significant number of 
facilities that are in need of repair, and there is I think 
funding limitations in some of these areas, and I think St. 
Mary's is probably the best example. But there are a lot of 
areas where we are doing really good. I mean, where we have 
these affluent areas and we have power revenues to use, we are 
doing a pretty good job of maintaining the infrastructure, and 
there are funding sources there to deal with those issues. It 
is these other more rural types of projects that were built 
years ago where I think we really have the issue.
    Senator Barrasso. Thank you and I would hope you would take 
a look at this WESTERN Act that I have introduced today to see 
if there are some ways to give the States a little more control 
and input into decisions that people who live there think are 
in the best interest of the State and our local economies. 
Thank you.
    Thank you, Mr. Chairman.
    Senator Johnson. Senator Craig.
    Senator Craig. Mr. Chairman, if I could ramble for a few 
moments. I was just visiting with Senator Corker. The South is 
beginning to experience a lack of water infrastructure that is 
producing some real complications. They may some day be looking 
for a need for additional off-main stem storage.
    What Senator Tester and what Senator Barrasso are talking 
about, and what I have experienced in Idaho does bring up what 
is a realistic need that we cannot effectively address inside 
the current policy structure.
    Bob Johnson just gave us a brief outline of what the Bureau 
did in its job profile for the last 100 years, and what it 
created was phenomenal wealth in the West in most areas. Many 
of these projects today are very wealthy, be they urban or 
rural. They have a different capacity today to do things that 
they did not have 100 or 50 or 80 years ago.
    I have spent a good deal of time in the last several years, 
Chairman Johnson, looking at the need in the West particularly 
through a 501(c)(3) not-for-profit entity in Idaho called the 
Center for the New West. Out of that, we have drawn some 
interesting conclusions, and that is there is a need for policy 
change here. Although it ought not be absolute because, 
frankly, we just do not have that much money compared to the 
needs of the system for updating and/or expanding. We are going 
to want to expand in certain areas with the urbanization, the 
growth, and the populating of the West.
    But the reality is the West is a much richer place today 
than it was, and so we should not ask the taxpayer in Tennessee 
to bear the burden of all of Montana's bill or Idaho's bill or 
anybody else's for that matter.
    These projects also have a fine reputation of paying 
themselves out. They pay their bills and they pay them on time. 
What we have learned and believe is that there is a way of 
creating a leveraging system, both private and public, that 
gets us our money often times out of the marketplace that works 
in a way that you can get long-term financing at a level that 
an irrigation district or a water district can afford. But we 
have not put the structure in place, and we ought to be doing 
it sooner rather than later.
    Why I say that, we did it in the energy bill. I did it 
early on working with Wall Street in a couple of other 
projects. But there is a way today, to gain the guarantee of 
Government by up-fronting the costs of some of the guarantee or 
the risk. For instance, if the project were to go down, we 
would take that to the marketplace and sell it for low-interest 
money. This would give an irrigation district more flexibility.
    More importantly, you do not have to come back here and do 
what I did for Arrow Rock. You do not have to come back here 
and write specific legislation for a specific project. It is 
time we think modern. The Federal Government should not be the 
payor into an area today exclusively that is very wealthy or, 
generally speaking, wealthy. It all varies and we could write 
it in different categories, but there is a different model that 
we ought to be looking at today to finance the water needs of 
the West than the old model.
    The old model did a phenomenal job. It created wealth 
beyond our wildest imaginations. Now that that wealth is there, 
let us leverage it by using Government and the private sector 
to get us our needs. We still need the Bureau. We need the 
assessment. We need the measurement. We need to make the 
determinations, both public and private, of what is necessary.
    It is something I will be working on when I leave, but it 
is something that we ought to be collectively thinking about 
because I think we are all nibbling around the edges. If we are 
going to sit here in a $500 billion or $600 billion deficit 
budget and think we are going to start adding tens of billions 
of dollars a year to the Bureau and get these projects done, 
think again. The vast majority is not with us, and by that I 
mean the collective majority of the Congress. But it can be, if 
we work it right and leverage the marketplace. I think that is 
where we have got to go and what we have to think about.
    I only offer that as a suggestion because then it gets to 
our problems in Montana, Idaho, Wyoming, and the West, where we 
will need this sooner rather than later.
    Thank you, Mr. Chairman.
    Bob, thank you.
    Senator Johnson. Senator Corker, do you have any closing 
remarks?
    Senator Corker. With all the wisdom that has been shared by 
my colleagues on this, I will close. I think we actually have 
some solutions that may work in a more universal way, and I 
look forward to talking with them outside of this panel 
regarding that.
    But thank you for your testimony and thank you, Mr. 
Chairman, for this first panel.
    Senator Johnson. Commissioner Johnson, you are excused.
    On our second panel, we have Mayor Todd Cutler of Fernley, 
Nevada; Major General Charles McGinnis representing the 
National Research Council of the National Academies; Thomas 
Donnelly with the National Water Resources Association; Randy 
Reed with the St. Mary's Rehabilitation Working Group of 
Montana; and Tony Willardson representing the Western States 
Water Council.
    Mayor Cutler, please start by summarizing your testimony. 
We will then proceed down the table for each of you to give 
your statements. We will then proceed with questions from 
members of the subcommittee. Mayor Cutler?

      STATEMENT OF TODD CUTLER, MAYOR, CITY OF FERNLEY, NV

    Mr. Cutler. Mr. Chairman, members of the subcommittee, 
thank you. I feel very privileged and honored to be here to 
share the experience of our community. On January 5, we endured 
something that we would not ever want to happen to anyone, and 
like I said, I feel very fortunate to be here, to come and 
discuss and share with you what has transpired.
    I am the Mayor of the city of Fernley, which is 
approximately 30 miles east of Reno on Interstate 80. Our 
community has the Truckee Canal running through it. This 
Truckee Canal is a very important facility to our community, 
especially in its past, as our community used to be a farming/
ranching community that has quickly changed over the last 10 
years. We had, approximately 10 years ago, 6,000 to 7,000 
people, and now we have over 20,000. The Truckee Canal, which 
is over 100 years old, has been feeding our community and is 
very important.
    It is interesting. I will share with you what transpired on 
January 5. The devastation that occurred from this canal was 
tremendous to our community. Yet, we understand the importance 
of the canal. It helps us with the recharge of our water supply 
and we know that if we are going to continue to grow, water is 
everything we must have. So the primary water source for our 
community and others in the desert communities of Nevada rely 
on it. Yet, on January 5, at approximately 4:30 in the morning, 
the canal had a breach, and that had water pouring through an 
area which used to be farming.
    This canal failure, which is the ninth that has occurred 
within our community, previously, as actually Senator Reid 
spoke about, the devastation was not there because it was 
farming area. You would fix the canal and we would move 
forward. This time what laid in the path of the water was 600 
homes, some of which had severe damage. Up toward about 200 had 
very severe damage, displacing over 100 families and causing us 
great harm. So in the area, approximately 585 to 600 homes were 
damaged, 200 of which were severe.
    Yet, we consider ourselves very fortunate because we did 
not have loss of life, which to me is absolutely amazing 
because this water came running through people's homes and 
settled, as a matter of fact, up to 8 feet deep. The efforts of 
our local community, our State, the support of the Federal 
delegation and also with the declaration of emergency from 
FEMA, we have had support. Yet, what we are finding, as we get 
further and further away from the episode January 5, is the 
recovery effort is enduring and very tough to handle.
    We did not lose life, but we truly lost our livelihood. The 
failure of this canal, this Federal facility, created 
devastation for many of our families, some that just cannot 
recover from it. Our residents are looking for support. Our 
residents are looking for the Federal Government to help 
compensate them.
    We have seen several lawsuits occur, and I anticipate, 
based on what is happening with some that are struggling to 
recover, that the lawsuits will actually grow. The people of 
our community will be expecting someone to take blame. It is 
interesting. When this first occurred, I said, we do not need 
to lay blame. We need to determine how we can move forward and 
move ahead and recover from this situation. Yet, with up to 
$100,000 of damage for some and not having enough money to 
recover, there are some homeowners that are attempting to do 
the work themselves. Yet, they are out of work now and 
struggling to make their payments. So they might just lose 
their home from foreclosure because they were trying to take 
care of their home.
    We have seen FEMA and our local government and our State 
come up with $1.5 million-plus to support our community, and it 
is just not enough. The damage of our city and our homeowners 
is up in the millions, maybe reaching up toward $50 million.
    I wholeheartedly support the legislation introduced by the 
Senate Majority Leader, Senator Reid, the Aging Water 
Infrastructure and Maintenance Act, and I would hope that this 
would move forward. Thank you.
    [The prepared statement of Mr. Cutler follows:]

         Prepared Statement of Todd Cutler, Mayor, Fernley, NV

    Mr. Chairman, Members of the Subcommittee, thank you for the 
opportunity to appear before you to discuss the impacts of a failed 
Bureau of Reclamation facility that has dramatically impacted the 
community I represent. I am Todd Cutler, Mayor of the City of Fernley, 
Nevada.
    Our City is located 32 miles east of Reno, Nevada along Interstate 
80. Our booming community has also grown up next to the Truckee Canal 
which runs along the west and south side of Fernley. Constructed in 
1906 as part of the Newlands Reclamation Project and as one of BOR's 
first projects, the Truckee Canal is the primary water source to the 
desert cities and towns of northern Nevada. These communities along 
with our City rely on the canal's water for irrigation and recharge of 
our ground water resources. However, on January 5th of this year, the 
canal that we and others have relied on for current and future water 
resources quickly turned on us.
    At 4:00 am on January 5th, the northern bank of the Truckee Canal 
failed, sending a wall of water rushing through our community. Our 
families were awakened on that cold morning by these waters; it filled 
their homes and quickly destroying what lied in its path. Approximately 
585 homes were impacted from the water that flowed from the canal, and 
approximately 200 homes sustained substantial damage. Many of our homes 
sat in water of levels up to eight feet deep for several days.
    We consider ourselves fortunate to have only suffered property 
loss. We were very lucky, not a single life was lost during this 
disaster. The evacuation efforts began immediately and were quite 
efficient. I can't say enough about the efforts of our local citizens, 
our County and State emergency partners and the help that we received 
from FEMA. President Bush signed the disaster declaration for the 
Fernley area on January 8th. The people of Fernley are thankful for 
everyone's efforts and are resilient, hard working, and dedicated to 
our community. Now we still face perhaps the biggest challenge of this 
disaster and that is how to repair these homes, replace lost property, 
and fully restore our City.
    Though we may not have lost life, the effected residents lost much 
of their livelihood. Thousands of man-hours have been expended by our 
citizens and volunteers from across the State, our citizens still face 
the daunting challenge of how to pay for the losses they suffered. 
While FEMA was on the ground within hours of the flood, they only have 
so many tools at their disposal. Their primary purpose is to get people 
into temporary housing and to keep them fed and safe. FEMA assistance 
does not repair or replace homes.
    Our residents will be looking to the federal government to fully 
compensate them for their losses. Many law suits have already been 
filed against TCID, Fernley, Lyon County and others for recovery of 
losses due to the canal breach has been named in some of those suits. 
One of my biggest fears is that lawsuits will do nothing more than tear 
our community apart. We need the Truckee Canal to provide water; and we 
need TCID to continue delivering water to our community. Lawsuits will 
do nothing more than line the pockets of lawyers, perhaps bankrupt 
TCID, and take years to resolve. We are working hard with the Nevada 
Congressional Delegation to find a solution to these issues. Not only 
are we facing perhaps $55 million in damages to homes and property, we 
need to insure the Truckee Canal continues to supply water but not fail 
in the future.
    This is not the first time the Truckee Canal has failed. The canal 
has failed eight times in its history due to both natural occurrences 
such as ice jams, but also due to structural failures. Given the age 
and track record of this federal facility, my community remains highly 
skeptical about the safety of the canal and many worry that the canal 
will fail again. As far as the investigators can tell, piping due to 
rodent activity is the most likely cause of the Truckee Canal failure. 
The millions of dollars of FEMA, State, and local funds spent on the 
disaster recovery in Fernley would have been better spent on 
maintaining the Truckee Canal.
    I whole heartedly support the legislation introduced by Senate 
Majority Leader Reid, known as the ``Aging Water Infrastructure and 
Maintenance Act''. Had this legislation been in place prior to January 
5th of this year, my community would not be facing the challenge of 
getting people back in their homes and we would not be knocking on the 
doors of Congress to pay for damages in excess of $50 million dollars. 
It is my belief that the Federal Government must bear some of the 
burden of inspecting and repairing these major facilities if they are 
going to maintain ownership of them. One recommendation I would have 
for the Subcommittee is to review the insurance requirements of the 
operators of these Federal facilities. Fernley needs this canal to 
continue to be an integral part of our community and our future. More 
importantly, we need to assure our residents that the safety of the 
canal is a priority. This safety can only be achieved by the regular 
inspections and maintenance of the canal.
    Thank you for your time and I am happy to answer any questions you 
might have.

    Senator Johnson. Thank you.
    Mr. Donnelly.

  STATEMENT OF THOMAS F. DONNELLY, EXECUTIVE VICE PRESIDENT, 
      NATIONAL WATER RESOURCES ASSOCIATION, ARLINGTON, VA

    Mr. Donnelly. Thank you, Mr. Chairman, and I will be very 
brief.
    Under the best of circumstances, in the next 10 to 20 
years, water managers throughout the western United States are 
going to be stressed to meet the needs of their growing service 
area. We cannot afford to have the existing infrastructure that 
we have in place fail because of lack of rehabilitation and 
modernization of those facilities.
    We believe that there are two things that really need to be 
done right now.
    First, we need to determine what the scope of the problem 
is west-wide, and I think Senator Reid's legislation goes to 
that problem. I am not sure what the dollar number required to 
do that job and do it adequately to meet your needs is, but we 
would be happy to work with you and the Bureau to ascertain 
that.
    The second issue, which all of you have touched upon, is 
the financing. What we have found are the projects in need or 
that will need rehabilitation and modernization sort of fall 
into three categories.
    One category we do not even have to worry about. That is 
the category of projects that have vendible outputs, whether it 
is power or domestic water supply. They can take care of their 
modernization and rehabilitation needs.
    On the other side of the spectrum are the projects like St. 
Mary's. They do not have the financial resources to take care 
of their modernization needs. It is important to note that 
these are still Federal assets and the Federal Government has a 
responsibility to address those assets.
    The group in the middle is a little bit easier for the 
Congress to deal with because these are projects that can repay 
the costs, but they cannot pay it in 1 year. That is the only 
option right now under the Bureau's existing programs. They 
would need reasonable terms and conditions over 10-20 years to 
pay back those costs, but they have the ability to do that. So 
what Congress has to take a look at is developing mechanisms 
for the Bureau of Reclamation to offer to their customers to 
pay back those costs over time.
    I agree with a lot of what Senator Craig said on financing. 
We do need to look at innovative financing. Regardless of the 
private sector, I do not think the St. Mary's project falls 
into that category whatsoever.
    But I would be happy to work with this committee and the 
Bureau to try to address these needs.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Donnelly follows:]

  Prepared Statement of Thomas F. Donnelly, Executive Vice President, 
          National Water Resources Association, Arlington, VA

    Mr. Chairman, members of the Committee, my name is Thomas F. 
Donnelly and I am the Executive Vice President of the National Water 
Resources Association. On behalf of the membership of the Association, 
it is my privilege to present testimony on the issue of the Bureau of 
Reclamation's aging infrastructure.
    The National Water Resources Association (NWRA) is a nonprofit 
federation of associations and individuals dedicated to the 
conservation, enhancement, and efficient management of our Nation's 
most precious natural resource, WATER. The NWRA is the oldest and most 
active national association concerned with water resources policy and 
development. Its strength is a reflection of the tremendous 
``grassroots'' participation it has generated on virtually every 
national issue affecting western water conservation, management, and 
development.
    In the next decade, we believe, that one of the most critical 
problems facing the Bureau of Reclamation and many water districts 
throughout the West is maintaining the existing water and power 
infrastructure at peak operational efficiency. Many projects have met 
or exceeded their design life and are in need of modernization and/or 
rehabilitation. This is not to say that these projects cannot 
efficiently provide benefits well into the foreseeable future. However, 
modernization and rehabilitation of these important facilities will be 
required.
    Currently, the U. S. Bureau of Reclamation (USBR) does not have a 
program which enables water users to modernize or rehabilitate their 
projects and payoff those costs over time under reasonable terms and 
conditions. Such works are considered operation and maintenance and 
consequently the costs must be paid back in the year that they occur. 
The Bureau understands the problem but has not been able to develop a 
program to address the problem that is acceptable to the Office of 
Management and Budget. This is a problem that, if not addressed 
immediately, will result in severe consequences sooner rather than 
later.
    Neither the Bureau of Reclamation nor the membership of the 
National Water Resources Association has an accurate grasp of the scope 
of the problem West-wide. Therefore, we recommend that the first step 
in addressing this issue should be an accurate assessment of the scope 
of the problem.
    From a funding and repayment perspective, the projects can 
essentially be divided into three rather distinct categories; 1.) those 
multi-purpose projects with a vendible output such as power or 
municipal water supply whose operating revenues adequately allow for 
future rehabilitation and modernization, 2.) those multi-purpose 
projects with operating revenues sufficient to repay the cost of major 
rehabilitation and modernization over time given reasonable terms and 
conditions, and 3.) those single purpose irrigation projects whose 
initial construction was heavily underwritten by the federal government 
and whose beneficiaries do not possess the financial resources to repay 
the costs of modernization and rehabilitation.
    For the purposes of this hearing we need only to consider those 
projects falling into category 2 and 3.

                    PROJECTS WITH REPAYMENT CAPACITY

    For the second category of projects (with repayment capacity over 
time), the solution is simply a program of funding that allows the 
beneficiaries to repay the modernization and rehabilitation cost over a 
reasonable period of time under fiscally sound terms and conditions. As 
stated earlier, the Bureau of Reclamation does not currently have a 
program which facilitates the timely modernization, rehabilitation or 
replacement of its existing infrastructure.
    An example of a project that falls into this category and needs 
immediate assistance is the Minidoka/Burley Project in Idaho.
    Over the past four years, we have engaged in discussions with 
Bureau's representatives concerning this problem. Unfortunately, the 
Bureau of Reclamation is tremendously restrained with what it can offer 
as a solution by the Administration's Office of Management and Budget 
and consequently, unable to think ``outside the box.'' In the 109th 
Congress Reclamation successfully promoted loan guarantee legislation 
which was signed into law by President Bush. In some instances, loan 
guarantees could work, but loan guarantees do not offer a comprehensive 
solution. Ironically, now the Office of Management and Budget has 
cooled to the concept of loan guarantees and has stymied Reclamation's 
effort to promulgate regulations to implement this legislation which 
the President enthusiastically signed.
    We believe there are a number of potential solutions, some using 
existing authority and others requiring new program authorization. 
Modernization and or rehabilitation of these projects could be 
accomplished through various means: project specific authorization 
(amendment of original authorization or new authorization) and 
appropriations, a congressionally authorized U. S. Bureau of 
Reclamation modernization and rehabilitation program (PL 81-335), 
infrastructure revolving fund or use of the Reclamation Fund. A 
restructuring of the Reclamation Fund, established under Section 1 of 
the Reclamation Act of 1902 (32 Stat.388; 43 U.S.C. Sec. 391), is an 
example of a potential solution using existing authority. The ``Fund'' 
currently has approximately $6-7.0 billion in it. In reality, it was 
envisioned to address both new project construction and the 
modernization and rehabilitation of the existing infrastructure.

                  PROJECTS WITHOUT REPAYMENT CAPACITY

    The second category of projects poses a much more difficult set of 
public and fiscal policy questions for Congress and the Administration.
    Many of the early projects authorized and built under the 
Reclamation Act were single purpose irrigation projects. They were 
built in an effort to develop regional agricultural economies in order 
to facilitate a national policy goal of the orderly development of 
Western lands. Regional economies have developed around these projects. 
In many instances, project benefits have been expanded to include 
municipal and rural water supply, environmental mitigation and Native 
American water rights settlements. Despite the economic development, 
project beneficiaries of these single-purpose projects do not possess 
the repayment capacity to repay the cost of major modernization or 
rehabilitation.
    The St. Mary Diversion project in north central Montana is a 
classic example of this second category of projects. The project was 
authorized and built under the Reclamation Act of 1902 to provide a 
stable source of water for irrigation of the lower Milk River Valley 
and settlers moved to the valley on that promise.
    The USBR currently estimates that rehabilitation of the St. Mary 
Diversion facilities will cost approximately $130 million. The State of 
Montana and the local beneficiaries would be pressed to pay even a 
quarter of the estimated costs. While the State of Montana has 
committed $10 million toward the cost of rehabilitating the project, it 
is hard to imagine why the state would invest much more in a purely 
federal asset. Therefore, the necessary rehabilitation costs will 
require a substantial federal re-financing of the project.
    Conversely, the cost of letting the project further deteriorate 
would be enormous. A sudden failure would result in enormous 
environmental damage on the Blackfoot Indian Reservation, economically 
devastate local communities and businesses and undermine the Fort 
Belknap Water Rights Compact. It is likely that the State of Montana 
and the agricultural economy in the northern tier states would also be 
adversely impacted.
    It is important not to lose sight of the fact that these projects 
are still federally owned facilities with the underlying responsibility 
of the federal government to operate and maintain them at peak 
efficiency.

                                SUMMARY

    The water supply and power infrastructure built over the last 
century by the Bureau of Reclamation remains vitally important to the 
West and the Nation as a whole. Reclamation projects authorized by 
Congress provide numerous and substantial benefits for the entire 
United States. Among these benefits are: (1) flood prevention and 
protection totaling in the tens of billions of dollars; (2) generation 
of substantial amounts of hydroelectric energy using water as a 
renewable no-cost fuel source; (3) delivery of irrigation water to 
hundreds of thousands of acres of farmland in semiarid and arid regions 
that has increased and stabilized agricultural production in those 
regions; (4) water-based outdoor recreation facilities that provide 
recreation for millions of visitors annually; (5) municipal and rural 
domestic water supplies for over 30 million people; (6) recharge of 
underground aquifers and water supplies; (7) fish and wildlife habitat 
including new fisheries, wildlife management areas, and hundreds of 
thousands of acres of habitat and marshes throughout project 
distribution systems and facilities; and (8) major surface water 
transportation.
    We simply cannot let this amazing legacy crumble and deteriorate. 
The membership of the National Water Resources Association pledges its 
support and assistance to the Committee as it seeks solutions to this 
important problem. In addition, we commend the Chairman and the 
Committee for their recognition of the aging infrastructure problem and 
timely attention to finding a solution.

    Senator Johnson. Mr. Willardson.

 STATEMENT OF TONY WILLARDSON, DEPUTY DIRECTOR, WESTERN STATES 
                   WATER COUNCIL, MIDVALE, UT

    Mr. Willardson. Mr. Chairman and members of the committee, 
my name is Tony Willardson. I am the Deputy Director of the 
Western States Water Council. Our members are appointed by the 
Governors and we represent 18 States. We are closely associated 
with the Western Governors Association and I am also testifying 
on their behalf.
    In June 2006, the Governors adopted a report called Water 
Needs and Strategies for a Sustainable Future. A section of 
that report deals with infrastructure and our future needs. As 
part of that report, we supported the action that the committee 
has taken in the Congress in passing the Rural Water Supply 
Act. We look forward to working with Reclamation in 
implementing that act, which includes an assessment of 
infrastructure needs for rural communities.
    We have also addressed as part of that report increasing 
appropriations from the Reclamation fund for authorized Bureau 
of Reclamation projects and purposes and to help meet western 
water supply needs to maintain and replace past projects and to 
build new capacity as necessary to meet the future demands of 
growth and environmental protection.
    Early last month, the council was here in DC and we held a 
workshop on water infrastructure, which included Reclamation, 
the Corps, EPA, the States, local entities, as well as private 
investment banks. Some of the recommendations that came out of 
that meeting are still being vetted by the council and have not 
yet been adopted by the Governors.
    I would mention, though, that one important aspect of that 
deals with providing adequate resources for basic data 
collection and the science that is needed to evaluate past and 
future infrastructure needs. We testified last December in 
support of the Secure Water Act that is before the subcommittee 
and the committee.
    Also, getting to infrastructure, not long ago the American 
Society of Civil Engineers testified before the Senate Budget 
Committee that the present needs through 2010 are an estimated 
$1.6 trillion for all of our infrastructure to bring it up to 
good working order. They do a report card. The last one gave 
our country's infrastructure a D.
    The value of the Reclamation projects and our water 
resources infrastructure cannot be overestimated, particularly 
in the West, given the drought that we suffered from over the 
past several years. These are key infrastructure investments 
for our Nation's continued prosperity and for environmental 
improvements. More storage will be needed in the future as part 
of an integrated water resources strategy that relies on a mix 
of supplies.
    But the first step is to preserve and protect the 
infrastructure that we already have. We need to leave a firm 
foundation for future generations, just as we enjoy the 
foresight of earlier generations in building these projects. 
Reclamation is facing the need to spend hundreds of millions of 
dollars for operation and maintenance expenses, ordinary and 
extraordinary maintenance, dam safety, project rehabilitation, 
and to improve delivery systems.
    We need to find solutions related to this challenge and to 
form partnerships to do that and working relationships with 
traditional water users and partnerships that include 
transparent decisionmaking. I have participated in Managing for 
Excellence Workshops of the Bureau, and one thing that was 
heard loud and clear, I think, from project sponsors is that 
they want to be partners and just not paying customers. They 
want to be involved in the evaluation, the design, and the 
selection of alternatives as we look at rehabilitation. There 
are opportunities in the future, I think, where we can work 
together, where maybe can change some of the authorized project 
purposes or the way that these projects are constructed to 
deliver new services.
    We need to realize that many of these projects also deliver 
water under numerous interstate compacts in the West and also 
under international treaties and tribal water rights 
agreements. We need to ensure that these United States 
interests are protected and that these obligations are 
fulfilled.
    Now, Congress has to make this a budget priority. At 
present, the unobligated balance in the Reclamation fund is 
estimated at the end of this year to be over $9 billion. 
Reclamation's budget for rehabilitation is more in the 
neighborhood of $183 million I think was the request this year, 
and about $200 million 2 years ago. We are going in the wrong 
direction there. We have got to look to the future and spend 
more money and at all levels. The State and local entities 
realize that and are spending a lot of money to maintain their 
own infrastructure and look to the future.
    There are other needs which we need to address, and we are 
grateful for the opportunity to talk about this and the 
subcommittee's hearing on these needs and would be happy to 
answer any questions. I will leave my testimony there.
    [The prepared statement of Mr. Willardson follows:]

Prepared Statement of Tony Willardson, Deputy Director, Western States 
                       Water Council, Midvale, UT

    Dear Mr. Chairman and Members of the Subcommittee: My name is Tony 
Willardson. I am Deputy Director of the Western States Water Council, 
and a member of the Western States Water Council, an organization of 
eighteen western states. Our members are appointed by their respective 
governors, and include senior state water managers and administrators. 
We are also closely associated with the Western Governors' Association 
(WGA), and I am testifying on their behalf. Water resources 
infrastructure investments and financing those investments are an 
important topic for the Governors and the Council. In April 2005, the 
Council addressed the full Committee as part of a Water Conference on 
various related topics, including the future role of the Bureau of 
Reclamation.
    Our June 2006 report, Water Needs and Strategies for a Sustainable 
Future, highlighted support for two infrastructure related items within 
the jurisdiction of this Committee: (1) the Rural Water Supply Act 
since enacted into law; and (2) appropriations from annual receipts `` 
. . . accruing to the Reclamation Fund for authorized Bureau of 
Reclamation projects and purposes, to help meet western water supply 
needs, especially for rural communities, to maintain and replace past 
projects, and to build new capacity necessary to meet demands related 
to growth and environmental protection.'' We look forward to working 
with Reclamation under the Rural Water Supply Act to assess related 
infrastructure needs. I will say more about the Reclamation Fund later.
    The Water Report also directed the Council to hold a series of 
symposia designed to ``(a) bring stakeholders together to try and find 
ways to meet our growing western water, wastewater, watershed 
protection and restoration, and public safety-related infrastructure 
funding needs; (b) find ways to quantify, evaluate and prioritize 
funding those needs; and (c) highlight the benefits of integrated 
watershed, riverbasin, regional and interstate planning and 
management.''
    Last month, the WGA and WSWC joined the Interstate Council on Water 
Policy and the Association of State and Interstate Water Pollution 
Control Administrators to cosponsor a ``Water Infrastructure 
Workshop.'' To the extent the findings and recommendations from that 
discussion were consistent with our past positions and testimony, they 
have been incorporated into today's testimony. One recommendation which 
we whole-heartedly endorse is the need for the President and the 
Congress to provide adequate resources for the collection of basic 
water data to provide the science necessary to evaluate present and 
future water infrastructure needs. Last December, the Council testified 
in support of the SECURE Water Act before the full Committee. Other 
workshop suggestions will be considered, but have yet to be vetted by 
the WSWC and approved by the Governors.
    Various estimates of our Nation's total infrastructure needs have 
been made. The American Society of Civil Engineers (ASCE) testified 
before the Senate Banking Committee last month that ``aging and 
overburdened infrastructure threatens the economy and quality of life 
in every state, city, and town in the nation.'' ASCE's 2005 report card 
for America's Infrastructure presented an overall grade of ``D'' and 
ASCE estimates it would take ``an investment of $1.6 trillion by 2010 
to bring the nation's existing infrastructure into good working 
order.''
    The Bureau of Reclamation operates hundreds of dams and reservoirs 
in the West supplying water and power to millions of people, irrigating 
millions of acres for food and fiber, providing flood control and 
recreation, and maintaining instream flows for fish and wildlife 
habitat, including anadromous and threatened and endangered aquatic 
species. The value of federal Reclamation projects can not be 
overstated, particularly in assisting western communities to endure 
extended drought that continues to afflict parts of the West. Two of 
Reclamation's express ``mission goals'' are: (1) managing, developing 
and protecting water and related resources to meet the needs of current 
and future generations; and (2) operating and maintaining facilities 
safely, reliably, and efficiently to protect the public investment.
    These investments are key to our Nation's continued economic 
prosperity and further environmental improvements. The West faces a 
continuing need for storage in Reclamation projects, and in the future 
more storage will need to be considered as part of an integrated water 
resources strategy that relies on a mix of water supplies. It is 
essential that we preserve and protect our existing water 
infrastructure, if we are to maintain past gains in environmental 
quality and our present and future quality of life. In general, we are 
not yet in a crisis, but face a chronic problem that will only get 
worse without aggressive, affirmative action. If we are to leave a firm 
water infrastructure foundation for future generations, we will need to 
increase spending for project repairs, replacement and new 
construction. Their water future is in our hands. Our decisions, 
actions or inaction, will affect not only our quality of life, but 
theirs. Similarly, we enjoy the foresight of earlier generations.
    Reclamation faces many serious challenges to balance and provide 
for a new mix of resource needs in the West due to population growth 
and changing values. While traditional agricultural demands continue to 
dominate water use in the West, environmental uses have become more 
important to the public, while municipal and industrial development is 
demanding more and more high quality water. Climate uncertainty 
increases the challenge. In the future, there will be even greater 
demands placed on the West's limited water resources and Reclamation's 
aging projects, many of which are well beyond their designed life. We 
must preserve our existing storage capacity, and consider additional 
water storage alternatives, again as part of an integrated water 
resources planning strategy.
    In the West, we all have an important interest in federal 
Reclamation project rehabilitation, and the solutions to problems 
related to aging infrastructure will require the formation of true 
partnerships. In the foreseeable future, Reclamation faces the need to 
spend hundreds of millions of dollars for general operation and 
maintenance expenses, extraordinary maintenance, dam safety, project 
rehabilitation and betterment, and water delivery system improvements. 
The Council and the Governors recognize the need to work together as 
federal-state-local partners to address this challenge. Reclamation's 
mission goals cover a number of long-term goals that include ensuring 
effective operations of facilities; and operating, maintaining and 
rehabilitating facilities to ensure reliability and cost-effectiveness. 
The Bureau's strategy for accomplishing these goals lists several 
guiding principles that involve a continuing and close working 
relationship with traditional water users, while using partnerships to 
create sustainable solutions and leverage limited resources. 
Transparent decisionmaking is one important principle that can not be 
over emphasized. States and local districts want to be ``partners'' not 
just ``paying customers.'' They need to be actively involved in the 
evaluation, design and selection of alternatives.
    Moreover, project modifications, reoperations and reauthorization 
should be considered, as necessary and appropriate, to look at current 
water problems and opportunities to increase project water yields to 
make more water available for new and expanded uses and increase water 
use efficiency. Reclamation facilities also play a key role in storing, 
managing and delivering water under numerous interstate compacts and 
international treaties and tribal water right settlements. These 
facilities must be maintained and operated so as to insure that U.S. 
interests are protected, and U.S. obligations fulfilled.
    The Administration and the Congress must make this a budget 
priority. How should Reclamation programs and projects be funded? 
Created by the Reclamation Act of 1902, the Reclamation Fund was 
envisioned as the means to finance western water and power projects 
with revenues from western resources. Its receipts are derived from 
water and power sales, project repayments, certain receipts from public 
land sales, leases and rentals in the 17 western states, as well as 
certain oil and mineral-related royalties. It is a special fund within 
the U.S. Treasury that is only available for expenditure pursuant to 
annual appropriation acts.
    With growing receipts, in part due to high energy prices, and 
declining federal expenditures for Reclamation purposes, the 
unobligated balance gets larger and larger (and otherwise reduces the 
need for federal borrowing proportionally), with the money actually 
spent elsewhere for other purposes. Receipts in the past were 
insufficient for the construction of major federal projects such as 
Grand Coulee and Hoover Dams, which required the appropriation of 
general Treasury funds, but today it appears that the Reclamation Fund 
balance is more than sufficient to pay for Reclamation's water 
resources programs at current levels.
    The Congress, concerned with budget scoring problems, rejected the 
Administration's FY 2006 request to allow Reclamation to spend certain 
revenues from water and power receipts in the Reclamation Fund for 
project operation and maintenance expenses without further 
appropriation. At present, Reclamation Fund receipts, including energy-
related revenue from federal lands, exceed appropriations by roughly $1 
billion annually. The WGA and the Council strongly believe the 
Administration should request and the Congress should appropriate more 
of this money for Reclamation project operation, maintenance, 
rehabilitation and replacements--as well as to `` . . . build new 
capacity necessary to meet demands related to growth and environmental 
protection,'' in close consultation with western states. (Water Report 
3B, p. 15)
    The President's FY 2009 budget request for Reclamation's Water and 
Related Resources account totals just over $779 million, compared to 
actual FY 2008 appropriations of over $949 million--continuing a 
general downward trend. Current program and financing figures and 
estimates of new budgetary authority (gross) for obligation for FY 2009 
is $1.053 billion, down from $1.113 billion for FY 2008 and $1.074 
billion in FY 2007. Total gross outlays would be $1.077 billion, 
compared to an estimated $1.435 billion in FY 2008 and just over $1 
billion in FY 2007. Reclamation's facility maintenance and 
rehabilitation figure for FY 2009 is $183 million, compared to $195 
million for FY 2008, and $201 million for FY 2007. Obviously, spending 
on Reclamation infrastructure is going in the wrong direction.
    Meanwhile, the unobligated balance in the Reclamation Fund 
continues to grow. The actual balance at the end of FY 2007 was $6.567 
billion--and the estimated balance at the end of FY 2008 is $7.612 
billion--with an estimated balance at the end of FY 2009 of $9.232 
billion. (By way of comparison, the Administration estimated that the 
fund at the end of FY 2006 would be $5.905 billion, but the actual 
balance was $5.671 billion). The actual balance at the end of FY 2004 
was $3.877 billion. Between the end of FY 2004 and the end of FY 2009, 
the unobligated balance will have grown by $5.36 billion, if current FY 
2009 estimates are correct.
    Next, federal loan guarantees authorized by Congress should allow 
the Bureau of Reclamation to provide the means for the repayment of 
state and local bonds for the rehabilitation and construction of 
projects. The WSWC has in the past also supported a similar insurance 
fund, as well as the use of tax-exempt bonds to finance water resources 
needs. Tax credit bonds are another potential tool. State and local 
agencies finance the majority of their own water needs, but federal 
assistance has and will continue to be important.
    Interior's Water 2025 Initiative is an example of Reclamation's 
efforts to address water resources challenges in the West before 
conflicts reach a critical impasse. The success in leveraging federal, 
state and local resources through its Challenge Grants is an example of 
what can be accomplished if we are willing to work together. It is 
apparent that matching non-federal support could easily be found for 
$100 million in federal money, although this program alone is 
insufficient to provide meaningful support for water infrastructure 
needs in the western United States.
    It is time to focus federal financial resources intended to aid in 
western water development to help Reclamation and state and local 
agencies meet the future challenges of continuing to supply adequate 
water of suitable quality in the face of growing municipal and 
industrial demands and federal requirements to protect public health 
and the environment. Federal infrastructure investments are justified 
in order to maintain our Nation's economic and environmental vitality, 
to assist state and local entities meet federally mandated standards, 
and to aid economically stressed communities.
    Water has always been a valuable commodity in the West, and it is 
now increasingly so. We should all expect to pay more for water and 
water-related goods and services in the future as individuals and as 
governments to invest more in our water resources infrastructure. 
Regional projects offer potential savings due to economies of scale, 
but ``exburbanization'' including the development of whole subdivisions 
in rural areas with each homeowner relying on their own well and septic 
system are creating new stresses. Federal, state and local water and 
land management and planning agencies need to work together on a 
watershed and river basin scale to find solutions. More research is 
needed into water supply alternatives, asset management tools, risk 
assessment and acceptable risks, etc.
    Current challenges may provide an opportunity to look beyond 
existing ownership and partnership arrangements, as well as authorized 
project purposes and benefits. Appropriate public-private partnerships 
should be considered where they have the potential to accelerate high 
priority projects, fast track financing or provide incentives to 
maximize performance. However, such contracts require clearly defined 
responsibilities and performance requirements.
    In the future, as we address the growing water needs in the West 
for many purposes, different agencies and stakeholders may have to come 
together and pool their available financial and other resources in new 
project specific partnerships, as well as nonstructural agreements, in 
order to overcome the challenges and obstacles we face in resolving our 
aging infrastructure problems and insuring the West and the Nation has 
an adequate water supply.
    On behalf of the Western Governors' Association and Western States 
Water Council, our members and member states, we appreciate the 
opportunity to testify and I would be happy to answer any questions. 
Thank you.

    Senator Johnson. Thank you.
    Major General Charles McGinnis.

STATEMENT OF CHARLES I. McGINNIS, MAJOR GENERAL (RETIRED), U.S. 
        ARMY, REPRESENTING THE NATIONAL RESEARCH COUNCIL

    Mr. McGinnis. Thank you, Mr. Chairman, members of the 
committee. My name is Charles McGinnis. I am a retired major 
general in the United States Army and former Director of Civil 
Works for the Army Corps of Engineers.
    My purpose in being here is not covered by that, however. 
It is because I was a member of the National Research Council 
committee that authored the report Managing Construction and 
Infrastructure in the 21st Century Bureau of Reclamation.
    That report was very comprehensive. However, it was 
published in the year 2006. So we have gone a couple of years 
and there have been a number of changes since that time.
    One of the major changes that, frankly, comes as a very 
positive thing in our view is the way in which Commissioners 
Keys and Johnson have mobilized the entire Reclamation staff to 
address the findings of recommendations of our report. This 
morning I heard over on the House side that they feel they are 
about 50 percent finished with doing the things that our 
committee strongly recommended that they do.
    Listening to Senator Craig talk, I think it is strong 
support for our assessment that Reclamation has a huge mix of 
projects, stakeholders, statutory authorities, and statutory 
mandates. This complicates their work enormously, and anything 
the Congress can do to help provide some uniformity I am sure 
would be appreciated.
    It has also been mentioned but I would reiterate that 
Reclamation's resources have been declining over time, and that 
is at a time when the needs that they must address, the 
obligations imposed upon them, have been increasing. We have 
already talked about the age of their facilities. I think it 
goes without saying that with that age comes an increasing 
requirement for maintenance activity.
    Our committee issued some findings and came to some 
conclusions and made some recommendations and suggestions 
pretty much as follows.
    Reclamation needs to establish some clear policies as 
required for uniformity of actions and uniformity of customer 
treatment. These policies were largely abandoned in the middle 
1990s, and work is going on now to restore them, but that work 
needs to continue and even accelerate.
    There needs to be a rebalancing of central policy control 
versus decentralized program execution. Decentralization was 
the buzz word of the 1990s, and we think the pendulum swung a 
bit too far.
    Reclamation needs to more thoroughly and constructively 
engage and communicate with all of its stakeholders. We have 
seen strong evidence that this Managing for Excellence program 
is moving rapidly and effectively toward doing that.
    Two of Reclamation's five regions have prepared 5- and 10-
year look-ahead programs for management of their maintenance. 
We think these programs are excellent and we would hope that 
the other three regions could develop programs as good.
    We think Reclamation needs to seek realistic financing for 
mission-mandated activity. There has been a lot of discussion 
of financing, and I think that that is appropriate.
    The final one that has not come up yet this afternoon. 
Reclamation has done a wonderful job of benchmarking its 
hydropower production activity. They need to do as good a job 
in benchmarking their water management activities.
    Summarizing, Reclamation needs support to bring resource 
allocations into balance with mission expectations. Future 
activities require changes in their organization, personnel 
education and training, policies, even corporate culture, but 
while doing this, they must retain the knowledge, the skills, 
and the abilities needed for execution of that basic historic 
mission of delivering water and power. Reclamation needs these 
resources to remain an informed buyer of contract services. 
Improvement is required in response to modern mandates of 
environmental mitigation and improvement, stakeholder 
communication and involvement, stakeholder conflict resolution, 
security, and emergency reaction.
    The changes suggested are substantial. They will take time 
and they will cost a considerable amount of money. We feel that 
Reclamation is off to a great start. We implore the committee 
to assist them in maintaining that momentum.
    [The prepared statement of Mr. McGinnis follows:]

  Prepared Statement of Charles I. McGinnis, Major General (Retired), 
         U.S. Army, Representing the National Research Council

    Good afternoon, Mr. Chairman and members of the Committee. My name 
is Charles I. McGinnis. I am a retired Major General and former 
director of civil works for the U.S. Army Corps of Engineers. I served 
on the National Research Council Committee which authored the report, 
Managing Construction and Infrastructure in the 21st Century Bureau of 
Reclamation. The National Research Council is the operating arm of the 
National Academy of Sciences, National Academy of Engineering, and the 
Institute of Medicine of the National Academies, and its goal is to 
provide elected leaders, policy makers, and the public with expert 
advice based on sound scientific evidence.
    I appreciate the opportunity to be here to discuss our report, 
which was published in 2006. The report contained recommendations on a 
broad range of issues, including organizational structure, policy 
development, project management, acquisition and contracting, and 
stakeholder relationships. Today I will focus on those issues and 
recommendations that pertain to the management, operation, and 
maintenance of Reclamation's aging infrastructure, and provide a brief 
summary of the Bureau's response to the report. My written testimony, 
which has been submitted for the record, includes an appendix with 
additional information from the study.

                            STUDY BACKGROUND

    The study committee was asked by the Department of the Interior to 
advise Reclamation and the department on the ``appropriate 
organizational, management, and resource configurations to meet its 
construction, maintenance, and infrastructure requirements for its 
missions of the 21st century.'' The committee was comprised of 12 
experts from the public and private sectors and academia. We met as a 
whole four times from February to August 2005 and conducted small-group 
site visits to offices and projects in each of the five Reclamation 
regions. We received briefings from and had discussions with 
Reclamation representatives, Reclamation's customers and other 
stakeholders, and representatives of organizations with missions 
similar to Reclamation's, including the U.S. Army Corps of Engineers, 
the Tennessee Valley Authority, and the California Department of Water 
Resources.

                        ASSET MANAGEMENT ISSUES

    Since its establishment in 1902, Reclamation has constructed more 
than 500 dams and hydropower plants, and more than 300 related 
structures including pumping plants, fish protection facilities, and 
buildings. At this time, however, relatively few large new projects are 
planned. As a consequence, Reclamation's focus and workload have 
shifted from building new facilities to operating, maintaining, 
repairing, and modernizing existing ones, and to evaluating dam safety, 
providing for dam security, and addressing environmental issues.
    This transition brings with it significant changes in the workload 
and in the responsibilities, duties, and activities of the workforce. 
Reclamation's current work is dominated by two categories of tasks: (1) 
the operation, maintenance and rehabilitation of existing structures 
and systems; and (2) the creation and brokering of agreements among a 
variety of groups and interests affected by the management of water 
resources.
    Although its activities have changed, Reclamation's mission 
continues to be the effective management of power and water resources 
in ways that protect the health, safety, and welfare of the American 
public and are environmentally and economically sound. Achieving these 
objectives will depend on Reclamation's ability to effectively manage a 
number of constraints and realities. These include:

   Aging infrastructure. Many of Reclamation's dams, power 
        plants, and related infrastructure are more than 50 years old, 
        and some are almost 100 years old. Most embody out-of-date 
        design, engineering practices, and materials. Their age 
        increases their maintenance requirements as the structures and 
        equipment reach or pass their design lifetimes, and wear out 
        through daily use.
   Transferred works. Some facilities are owned by Reclamation 
        but operated and maintained by users such as water districts. 
        These ``transferred works'' are generally irrigation-system-
        related facilities, including smaller dams, dikes, pumping 
        plants, and canals. The resources and sophistication of the 
        water districts that operate and maintain transferred works 
        vary. Although some districts are willing and able to perform a 
        larger role, others have fewer resources. Some water customers 
        already find full payment for operation and maintenance 
        activities difficult, and major repairs and modernization 
        needs, if included in the operations and maintenance budget, 
        impose an even greater financial burden that cannot be met 
        under the current repayment requirements.
   Increasing competition for declining resources. Although 
        water availability is declining in many parts of the West, 
        existing water users continue to demand reliable systems to 
        provide as much water as they have used historically. 
        Additional demands are posed by environmental requirements and 
        by increases in population and industry.
   Increased regulatory requirements. Water rights regulations, 
        Endangered Species Act (ESA) requirements, environmental impact 
        assessment (EIA) requirements, and expectations for increased 
        openness and public involvement in decision making place 
        additional demands on Reclamation's project managers, 
        operators, and decision makers.
   Security. Security reviews and ongoing security management 
        add to the workload at many of the larger facilities, including 
        those facilities designated national critical infrastructure.

    Considering these trends and changes, the study committee made 
recommendations for Reclamation to develop the appropriate 
organizational, managerial, and resource configurations to meet its 
construction, maintenance, and infrastructure requirements for its 
missions of the twenty-first century. I should point out that our 
recommendations were purposely general in nature as the study committee 
believed that the specifics could be best developed internally where 
more detailed knowledge resides.

                     PLANNING FOR ASSET SUSTAINMENT

    The Bureau of Reclamation has a decentralized management structure 
in which each of its five regions is responsible for sustaining a 
significant portfolio of facilities. The regions have different 
organizational structures, capabilities, and workloads. The regions 
also have ongoing but different procedures and methods for tracking the 
maintenance workload and backlog of needs. In power facilities, 
computerized maintenance management systems are used. Critical 
maintenance problems receive immediate attention. Less-than-critical 
needs are prioritized and scheduled as funds become available. At water 
management assets, needs beyond the scope of normal day-to-day 
maintenance are tracked through the dam safety information system 
(DSIS) and replacement, addition, and exceptional maintenance (RAX) 
lists. The RAX lists are also used to prioritize maintenance needs and 
funds through the budget formulation process. Budget proposals 
originate at the area offices, and are then refined and consolidated at 
the regional and headquarters levels.
    The committee observed inconsistencies in the way these processes 
operate and in how the beneficiaries (primarily water districts) are 
engaged in decision making and review. Some beneficiaries noted that 
the rules seem to differ within regions and across regions with respect 
to who must pay, how much must be paid, and how design and construction 
activities are carried out. The quality and consistency of assessment 
and planning documents, except those associated with the larger power 
facilities, also vary from region to region.
    As the owner of facilities, Reclamation headquarters has the 
responsibility to ensure that its facilities are planned, designed, 
constructed, and managed with a level of quality that is consistent 
throughout the Bureau. To demonstrate consistency, Reclamation needs 
clear, detailed policy directives and standards to enable each of the 
regions to implement a uniform, structured approach.
    Effective planning is the key to the effective operation and 
maintenance of Reclamation facilities. The committee observed that, in 
general, the regions will need to evaluate their asset inventory and 
manage their assets more aggressively over the life cycle and engage in 
constructive relationships with customers and stakeholders.
    In two regions, the committee observed effective processes for 
planning and executing facility operations and maintenance. The core of 
these processes consists of 5-and 10-year plans developed to identify 
out-year funding requirements and to ensure that stakeholders are 
informed well in advance of future funding requirements, especially for 
refurbishment.
    The operations and maintenance burden for an aging infrastructure 
will increase, and the financial resources available to Reclamation, 
its customers, and contractors may not be able to keep up with the 
increased demand. A number of water districts pointed out to the 
committee the difficulties resulting from the requirement to reimburse 
expenditures for operation and maintenance activities within the fiscal 
year in which they were expended. This is a particular difficulty for 
some water districts that do not have enough control over cash flow and 
other factors to do this when operation and maintenance costs increase. 
Better long-term planning should allow these districts to anticipate 
such needs. Long-term sustainment will require more innovation and 
greater efficiency in order to get the job done.
    The committee recommended that all regions develop and use 5-and 
10-year plans as a stakeholder communications tool and as a roadmap for 
meeting future requirements. The comprehensive operations and 
maintenance plans should also serve as the basis for financial 
management and the development of fair and affordable repayment 
schedules. The committee also recommended that Reclamation should 
include its customers in their efforts to address economic constraints 
by seeking repayment procedures that ease borrowing requirements and 
extend repayment periods.

                    BENCHMARKING AND BEST PRACTICES

    The committee observed extensive efforts and success in 
benchmarking Reclamation's hydropower activities; however, there 
appears to be little effort to benchmark the operations and maintenance 
of water distribution facilities. In the committee's opinion, 
benchmarking can help improve the efficiency of Reclamation's water 
management and distribution activities as well as those of the water 
contractors responsible for transferred works.
    In the case of the larger hydroelectric generating facilities, 
Reclamation uses an independent benchmarking process to determine how 
its facilities compare to others in terms of costs, reliability, 
efficiency, and overall maintenance. Such reviews are conducted on an 
annual basis, and the reports provide useful information to facility 
managers.
    Similar efforts should be made to establish metrics and measure the 
performance of Reclamation's water management assets. Reclamation 
regional offices reported the use of some review tools, including 
annual, periodic, and comprehensive facility reviews, value engineering 
reviews, and peer review of endangered species recovery programs. The 
committee was also informed that there are several forums within 
Reclamation to identify best practices for asset management. However, 
there seem to be wide differences in the application and dissemination 
of review tools and best practices across the bureau.
    The committee recommended that benchmarking of water distribution 
and irrigation activities by Reclamation and its contractors should be 
a regular part of their ongoing activities.

                     BUREAU OF RECLAMATION RESPONSE

    An important element in the committee's ability to complete its 
assigned tasks was the support and participation of the bureau. The 
study committee appreciated the cooperation and support of former 
Commissioner John Keys III and all of the Reclamation officials who 
assisted the committee in the review. Before completing our work, we 
became aware that the commissioner had directed the development of a 
detailed response to its recommendations. The NRC committee applauded 
this rapid and enthusiastic response. We were not in a position to 
provide a detailed analysis at that time, but it appears that 
Reclamation's response, Managing for Excellence, sets forth a plan to 
address all of the issues identified in the study. Many of the study 
committee's recommendations will require further analysis by 
Reclamation personnel, and changes that implement these initiatives may 
take several years. As noted in the NRC report, Reclamation should seek 
independent reviews of its assessments and organizational changes. 
Nevertheless, it appeared that the Bureau had made a good start in 
implementing the committee's recommendations.

                                APPENDIX

    The report Managing Construction and Infrastructure in the 21st 
Century Bureau of Reclamation contains additional observations and 
recommendations, as summarized below.

                        ORGANIZATIONAL STRUCTURE

    The study committee recognizes that organizations can and do take 
on a variety of forms with varying degrees of success. Some will 
function successfully despite their form, while others will falter even 
as they deploy the best of theoretical forms. The internal culture and 
history of an organization play a significant role in determining the 
appropriate structure and the ultimate outcome. We believe that the 
organizational structure of Reclamation is basically appropriate for 
its customer-driven mission to deliver power and water. Nevertheless, 
we also believe that there are opportunities to improve the 
construction and management of its facilities and infrastructure, as 
well as the management, development, and protection of water and 
related resources in an environmentally sound manner in the interest of 
the American public.

            CENTRALIZED POLICY AND DECENTRALIZED OPERATIONS

    To optimize the benefits of decentralization, Reclamation should 
promulgate policy guidance, directives, standards, and how-to documents 
that are consistent with the current workload. The commissioner should 
expedite the preparation of such documents, their distribution, and 
instructions for their consistent implementation. Reclamation's 
operations should remain decentralized and guided and restrained by 
policy but empowered at each level by authority commensurate with 
assigned responsibility to respond to customer and stakeholder needs. 
Policies, procedures, and standards should be developed centrally and 
implemented locally. The design groups in area and project offices 
should be consolidated in regional offices or regional technical groups 
to provide a critical mass that will allow optimizing technical 
competencies and providing efficient service. Technical skills in the 
area offices should focus on data collection, facility inspection and 
evaluation, and routine operations and maintenance (O&M).

   TECHNICAL SERVICE CENTER AND RECLAMATION LABORATORY AND RESEARCH 
                               ACTIVITIES

    The commissioner should undertake an in-depth review and analysis 
of the TSC to identify the needed core technical competencies, the 
number of technical personnel, and how the TSC should be structured for 
maximum efficiency to support the high-level and complex technical 
needs of Reclamation and its customers. The proper size and composition 
of the TSC are dependent on multiple factors, some interrelated:

   Forecast workload,
   Type of work anticipated,
   Definition of activities deemed to be inherently 
        governmental,
   Situations where outsourcing may not be practical,
   Particular expertise needed to fulfill the government's 
        oversight and liability roles,
   Personnel turnover factors that could affect the retention 
        of expertise, and
   Needs for maintaining institutional capability.

    This assessment and analysis should be undertaken by Reclamation's 
management and reviewed by an independent panel of experts, including 
stakeholders.
    The workforce should be sized to maintain the critical core 
competencies and technical leadership, and to increase outsourcing of 
much of the engineering and laboratory testing work. Alternative means 
should be developed for funding the staff and operating costs necessary 
for maintaining core TSC competencies, thereby reducing the proportion 
of engineering service costs reimbursable by customers.
    Reclamation's Research Office and TSC laboratory facilities should 
be analyzed from the standpoint of which specific research and testing 
capabilities are required now and anticipated for the future; which of 
them can be found in other government organizations, academic 
institutions, or the private sector; which physical components should 
be retained; and which kinds of staffing are necessary. The assessment 
should also recognize that too much reliance on outside organizations 
can deplete an effective engineering capability that, once lost, is not 
likely to be regained. In making this assessment Reclamation should 
take into account duplication of facilities at other government 
agencies, opportunities for collaboration, and the possibility for 
broader application of numerical modeling of complex problems and 
systems. Considering that many of the same factors that influence the 
optimum size and configuration of the TSC engineering services also 
apply to the research activities and laboratories, Reclamation should 
consider coordinating the reviews of these two functions.

                              OUTSOURCING

    Reclamation should establish an agency-wide policy on the 
appropriate types and proportions of work to be outsourced to the 
private sector. O&M and other functions at Reclamation-owned 
facilities, including field data collection, drilling operations, 
routine engineering, and environmental studies, should be more 
aggressively outsourced where objectively determined to be feasible and 
economically beneficial.

                           PROJECT MANAGEMENT

    Reclamation should establish a comprehensive set of directives for 
structured project management process for managing projects and 
stakeholder engagement from inception through completion and the 
beginning of O&M. Reclamation should also give high priority to 
completing and publishing cost estimating directives and resist 
pressures to submit projects to Congress with incomplete project 
planning. Cost estimates that are submitted should be supported by a 
design concept and planning, environmental assessment, and design 
development documents that are sufficiently complete to support the 
estimates.
    Reclamation should establish a structured project review process to 
ensure effective review and oversight from inception through completion 
of construction and the beginning of O&M. The level of review should be 
consistent with the cost and inherent risk of the project and include 
the direct participation of the commissioner or his or her designated 
representative in oversight of large or high-risk projects. The 
criteria for review procedures, processes, documentation, and 
expectations at each phase of the project need to be developed and 
applied to all projects, including those approved at the regional 
level.
    A training program that incorporates current project management and 
stakeholder engagement tools should be developed and required for all 
personnel with project management responsibilities. In addition, 
project managers should have professional certification and experience 
commensurate with their responsibilities.

                      ACQUISITION AND CONTRACTING

    Reclamation should establish a procedure and a central repository 
for examples of contracting approaches and templates that could be 
applied to the wide array of contracts in use. This repository should 
be continually maintained and upgraded to allow staff to access lessons 
learned from use of these instruments.

              RELATIONSHIPS WITH SPONSORS AND STAKEHOLDERS

    Making information readily available about processes and practices, 
both in general and for specific projects and activities, should be a 
Reclamation priority. Successful practices, such as those used in the 
Lower Colorado Dams Office, should be analyzed and the lessons learned 
should be transferred, where practical, throughout the bureau.

                     WORKFORCE AND HUMAN RESOURCES

    Reclamation should do an analysis of the competencies required for 
its personnel to oversee and provide contract administration for 
outsourced activities. Training programs should ensure that those 
undertaking the functions of the contracting officer's technical 
representative are equipped to provide the appropriate oversight to 
ensure that Reclamation needs continue to be met as mission execution 
is transferred.
    In light of the large number of retirements projected over the next 
few years and the potential loss of institutional memory inherent in 
these retirements, a formal review should be conducted to determine 
what level of core capability should be maintained to ensure that 
Reclamation remains an effective and informed buyer of contracted 
services. Reclamation should recruit, train, and nurture personnel who 
have the skills needed to manage processes involving technical 
capabilities as well as communications and collaborative processes. 
Collaborative competencies should be systematically related to job 
categories and the processes of hiring, training, evaluating the 
performance of, and promoting employees. Reclamation should facilitate 
development of the skills needed for succeeding at socially and 
politically complex tasks by adapting and adopting a small-wins 
approach to organizing employee efforts and taking advantage of the 
opportunities to celebrate and build on successes.

    Senator Johnson. Thank you.
    Mr. Reed.

      STATEMENT OF WESLEY RANDAL REED, CO-CHAIR, ST. MARY 
           REHABILITATION WORKING GROUP, CHINOOK, MT

    Mr. Reed. Mr. Chairman and distinguished members of the 
committee, my name is Randy Reed. I am a fourth generation 
agricultural producer and I serve as Co-chair of the St. Mary's 
Rehabilitation Working Group with Montana's Lieutenant Governor 
John Bohlinger. I would like to thank the committee for the 
opportunity to provide testimony concerning the critical issue 
of the Bureau of Reclamation's aging water resource 
infrastructure. The example I bring before the committee is the 
Milk River Project and the associated St. Mary's Conveyance 
Works.
    The crisis we are facing today is the potential loss of the 
St. Mary's Conveyance Works. After over 90 years of service, 
many components of the system have exceeded their 50-year 
design life and are in critical need of repair or replacement. 
Engineering investigations, an increase in the frequency and 
cost of extraordinary maintenance needs, and recurrent delivery 
interruptions indicate the system is on the verge of collapse.
    In an average year, approximately 70 to 90 percent of the 
water diverted from the Milk River for municipal and 
agricultural uses comes out of the St. Mary's Basin. Without 
this imported water, the Milk River would run dry 6 out of 10 
years. The stable supply of water provided by the system 
secures the backbone of the regional agricultural economy.
    For the last 7 years, I have worked with the State of 
Montana and the stakeholders in the Milk River Basin to engage 
the Bureau of Reclamation to develop a solution for 
rehabilitating the St. Mary's Diversion and Conveyance Works 
before the system suffers catastrophic failure. However, rather 
than taking a leadership role, Reclamation officials have 
deferred to pressure from the Office of Management and Budget 
and initially resisted our efforts. Even today, they are 
playing a passive role in the rehabilitation of one of the 
Nation's original reclamation projects.
    I believe the Bureau of Reclamation must be given the 
ability to develop new tools for addressing the challenges 
presented by the aging water resource infrastructure. One of 
our challenges we face in the Milk River Basin is how the 
Bureau of Reclamation views capital expenditures for the 
rehabilitation of projects. According to a 2006 engineering 
study undertaken by the State of Montana, the cost to 
rehabilitate and replace the St. Mary's Diversion and 
Conveyance Works is estimated to be $130 million to $140 
million. Reclamation considers such work to be part of 
operation and maintenance and requires the costs be paid back 
in the year that they are incurred.
    This presents an insurmountable financial obstacle to 
irrigators in the Milk River Project. Irrigators in our project 
would benefit from the development of a program that enables 
water users to modernize or rehabilitate the projects and pay 
off those costs over time with reasonable terms and conditions. 
Another option would be to encourage partnerships of Federal 
agencies with complementary resources and interests.
    As originally authorized, the St. Mary's Diversion and 
Conveyance Works are operated for the single purpose of 
irrigation. As such, nearly 100 percent of the costs of 
rehabilitation and replacement of the system must be borne by 
small irrigators like me within the irrigation districts 
holding water delivery contracts.
    Today the beneficiaries extend far beyond this original 
intent. The Bureau of Reclamation's 2005 current use benefits 
analysis showed large public benefits accrue from the existence 
of the St. Mary's system. In addition to providing water for 
irrigated agriculture, the system also provides water to 
communities and industry, water for Bowdoin National Wildlife 
Refuge, and water that supports a wealth of recreational 
opportunities in north central Montana.
    The system is also an integral part of a federally reserved 
water rights settlement with the Blackfeet Tribe and the Fort 
Belknap Indian Community and the implementation of the 1909 
Boundary Waters Treaty between the United States and Canada.
    Amending the original authorization of the Milk River 
Project and the St. Mary's Diversion and Conveyance Works to 
reflect the extensive public benefits that they provide would 
relieve irrigators of the burden of subsidizing the Federal 
Government for the benefits enjoyed by others.
    Failure of the St. Mary's Diversion and Conveyance Works 
would economically devastate the communities and businesses 
along the Hi-Line and likely have economic repercussions across 
the State. Aging infrastructure threatens my family's future, 
the future of the Milk River Basin, and the future of farm-
based economies across the West.
    I urge the committee to remember that many of these 
Reclamation projects are Federal assets owned and operated by 
the Federal Government. Investment in these projects will 
preserve our Nation's ability to conserve, enhance, and 
efficiently manage our most precious natural resource, water.
    I would like to thank the chairman and the committee for 
recognizing the aging infrastructure problem and the timely 
attention to finding a solution. Again, I appreciate this 
opportunity to testify. Thank you.
    [The prepared statement of Mr. Reed follows:]

     Prepared Statement of Wesley Randal Reed, Co-Chair, St. Mary 
               Rehabilitation Working Group, Chinook, MT

    Mr. Chairman, distinguished members of the Committee, my name is 
Randy Reed. I am a fourth generation agricultural producer from 
northern Montana and serve as Co-Chair of the St. Mary Rehabilitation 
Working Group with Montana Lt. Governor John Bohlinger. I would like to 
thank the Committee for the opportunity to provide testimony concerning 
the critical issue of the Bureau of Reclamation's aging water resource 
infrastructure. The example I bring before the Committee is the Milk 
River Project and the associated St. Mary Diversion and Conveyance 
Works.
    In 1903, Congress authorized construction of the Milk River Project 
as one of the first five reclamation projects built under the 
Reclamation Act of 1902. Development of the Milk River Project required 
construction of the St. Mary Diversion & Conveyance Works to divert and 
transport water from the St. Mary River Basin to the Milk River Basin.
    The crisis we are facing today is the potential loss of the St. 
Mary Diversion & Conveyance Works. After over 90 years of service, many 
components of the system have exceeded their 50-year design life, and 
are in critical need of repair or replacement. Engineering 
investigations, an increase in the frequency and cost of extra-ordinary 
maintenance needs, and recurrent delivery interruptions indicate the 
system is on the verge of collapse.
    In an average year approximately 70% to 90% of the water diverted 
from the Milk River for municipal and agricultural use originates in 
the St. Mary River Basin. Without this imported water, the Milk River 
would run dry six out of ten years. The stable supply of water provided 
by the system secures the ``backbone'' of the region's agricultural 
economy
    For the last 7 years I have worked with the State of Montana and 
stakeholders in the Milk River Basin to engage the Bureau of 
Reclamation to develop a solution for rehabilitating the St. Mary 
Diversion and Conveyance Works before the system suffers catastrophic 
failure. However, rather than taking a leadership role, Reclamation 
officials have deferred to pressure by the Office of Management and 
Budget and initially resisted our efforts. Even today, they are playing 
a passive role in the rehabilitation of one of the nation's original 
reclamation projects.
    Reclamation's position is confusing to contract holders and basin 
residents who do not understand why the federal agency that owns and 
operates the facilities is not leading the rehabilitation effort. Not 
only is it confusing for the owner/operator not to be fully engaged in 
the process, it has been detrimental to the overall effort.
    Reclamation appears to be paralyzed in the face of the tidal wave 
of aging infrastructure issues they face across the West. It appears 
that without direction from Congress, the Department of Interior will 
not allow Reclamation to actively participate with project irrigators 
and the State of Montana to rehabilitate the St. Mary system. Through 
inaction at the federal level, the federal government is missing an 
opportunity to work with stakeholders and the State of Montana to find 
a workable solution for ensuring the continued viability of the Milk 
River Project. This federal inertia may also impact the federal 
government's ability to settle federal reserved water rights claims 
with the Blackfeet Tribe and Ft. Belknap Indian Community and 
jeopardize the ability of the United States to access water from the 
St. Mary River under terms of the 1909 Boundary Waters Treaty. 
Certainly, lack of leadership by federal agencies is a threat to my 
business and has forced me to get out and lead.
    I believe that the Bureau of Reclamation must be given the ability 
to develop new tools for addressing the challenges presented by aging 
water resources infrastructure. One challenge we face in the Milk River 
Basin is how the Bureau of Reclamation views capital expenditures for 
rehabilitation projects. According to a 2006 engineering study 
undertaken by the state of Montana the cost to rehabilitate and replace 
the St. Mary Diversion & Conveyance Works is estimated at $130 million 
to $140 million. Reclamation considers such work to be part of 
operation and maintenance and requires the cost to be paid back in the 
year they are incurred. This presents an insurmountable financial 
obstacle to irrigators in the Milk River Project. Irrigators within our 
Project would benefit from the development of a program that enables 
water users to modernize or rehabilitate their projects and payoff 
those costs over time under reasonable terms and conditions. Another 
option would be to encourage partnerships of federal agencies with 
complementary resources and interests.
    As originally authorized, the St. Mary Diversion & Conveyance Works 
are operated for the single purpose of irrigation. As such, nearly 100% 
of the cost to rehabilitate and replace the system must be borne by 
small irrigators, like me, within the irrigation districts holding 
water delivery contracts. Today the beneficiaries extend far beyond 
this original intent. The Bureau of Reclamation's 2005 ``Current Use 
Benefits Analysis'' showed large public benefits accrue from the 
existence of the St. Mary system. In addition to providing water for 
irrigated agriculture, the system provides water to communities and 
industry, water to the Bowdoin National Wildlife Refuge, and water that 
supports a wealth of recreational opportunities in north-central 
Montana. The system is also integral to settlement of federal reserved 
water rights with the Blackfeet Tribe and Ft. Belknap Indian Community, 
and implementation of the 1909 Boundary Waters Treaty. Amending the 
original authorization for the Milk River Project and St. Mary 
Diversion and Conveyance Works to reflect the extensive public benefits 
they provide would relieve irrigators of the burden of subsidizing the 
federal government for the benefits enjoyed by others.
    My great grandfather homesteaded in the Milk River Valley and was 
among the founders supporting construction of the Milk River Project 
and St. Mary Diversion & Conveyance Works at the turn of the 20th 
century. Irrigation allowed my great grandfather to settle in Northern 
Montana and endure. Today, my family benefits from these same water 
resource facilities and we are able to raise irrigated certified seed 
potatoes, alfalfa hay and malt barley. We also rely on the project for 
our drinking water and enjoy the many recreational opportunities 
supported by the water system.
    Failure of the St. Mary Diversion & Conveyance Works would 
economically devastate communities and businesses along the Hi-Line and 
likely have economic repercussions across the state. Aging 
infrastructure threatens my family's future, the future of the Milk 
River Basin, and the future of farm-based economies across the West.
    I urge the Committee to remember that many of these Reclamation 
projects are federal assets owned and operated by the federal 
government. Investment in these projects will preserve our Nation's 
ability to conserve, enhance, and efficiently manage our most precious 
natural resource, WATER!
    I would like to thank the Chairman, and the Committee for their 
recognition of the aging infrastructure problem and timely attention to 
finding a solution. Again, I appreciate this opportunity to testify.

                         Supplemental Statement

                              INTRODUCTION

    A century ago local and national leaders developed a vision to 
build an economy along the Hi-Line of north central Montana. 
Implementation of this vision required construction of the St. Mary 
Diversion & Conveyance Works to divert and transport water from the St. 
Mary River Basin to the Milk River Basin. Water imported from the St. 
Mary River provides supplemental water to the Bureau of Reclamation's 
Milk River Project.
    Today this marvel of ingenuity and early 20th Century engineering 
is the keystone to the economic vitality of Montana's Hi-Line region. 
In addition to fulfilling the original intent of providing water for 
large-scale irrigated agriculture along the Milk River, the system also 
provides water to communities and industry, water to Bowdoin National 
Wildlife Refuge, and water that supports recreational opportunities for 
fishing and hunting along 650 miles of river and at two major 
reservoirs in north-central Montana. In short, the St. Mary Diversion & 
Conveyance Works is truly ``the lifeline of the Hi-Line''. The system 
is also integral to settlement of federal reserved water rights with 
the Blackfeet Tribe and Ft. Belknap Indian Community, and 
implementation of the 1909 Boundary Waters Treaty between the United 
States and Canada.
    However, after 90 years of service, many components of the system 
have exceeded their 50-year design life, and are in critical need of 
repair or replacement. Engineering investigations, an increase in the 
frequency and cost of extra-ordinary maintenance needs, and recurrent 
delivery interruptions indicate the system is on the verge of collapse.
    In an average year approximately 70% of the water diverted from the 
Milk River for municipal and agricultural use originates in the St. 
Mary River Basin. Without this imported water, the Milk River would run 
dry six out of ten years. The stable supply of water provided by the 
system secures the ``backbone'' of the region's agricultural economy. 
Failure of the St. Mary Diversion & Conveyance Works would economically 
devastate communities and businesses along the Hi-Line, and likely have 
economic repercussions across the state. Failure of the canal, siphons, 
or drop structures may also result in environmental damage on the 
Blackfeet Reservation and in southern Alberta. Loss of the system would 
also curtail the United States ability to access its share of water 
from the St. Mary River in accordance with the Boundary Waters Treaty 
of 1909.

                               BACKGROUND

    On March 14, 1903, Secretary of Interior Ethan Allen Hitchcock 
authorized construction of the Milk River Project (Project) as one of 
the first five reclamation projects built by the newly created 
Reclamation Service (now Bureau of Reclamation) under the Reclamation 
Act of 1902. The Project's objective was to provide a stable source of 
water for irrigation of the lower Milk River valley, and settlers moved 
to the valley on that promise. Early settlers had learned that natural 
flows in the Milk River did not provide a reliable water source for 
irrigation in the downstream end of the watershed. Consequently, a plan 
to divert water from the St. Mary River to augment flows in the Milk 
River was a key component of the Milk River Project. In 1905, Secretary 
Hitchcock authorized construction of the St. Mary Diversion & 
Conveyance Works to provide supplemental water to the Milk River 
Project. Construction of the diversion dam and canal began on July 27, 
1906. Diversion and delivery of supplemental water to the Milk River 
Project started in 1916.
    The St. Mary Diversion & Conveyance Works are located entirely on 
the Blackfeet Reservation in Glacier County, Montana. The system 
annually diverts approximately 160,000 acre-feet of water from the St. 
Mary River east of Glacier National Park to the North Fork of the Milk 
River via a 90-year old, 29-mile long facility. Separate components 
include:

   Sherburne Reservoir--located on Swiftcurrent Creek just 
        outside the eastern boundary of Glacier National Park;
   Swiftcurrent Creek Dike;
   Diversion dam and canal headgates on the St. Mary River;
   St. Mary River Siphon--Two 7.5 ft (dia.), 3,200 foot long 
        riveted steel barrels with a combined discharge capacity of 850 
        cubic feet per second (cfs);
   Hall Coulee Siphon--Two 6.5 ft (dia.), 1,405 foot long 
        riveted steel barrels;
   Check and wasteway structures--most are currently 
        inoperable;
   Five hydraulic drop structures--combined vertical drop of 
        214 ft; and
   Approximately 29 miles of single bank, unlined, earthen 
        canal.

    The system is owned by the U.S. Government and is operated and 
maintained by the U.S. Bureau of Reclamation (Reclamation) with funds 
paid by holders of water delivery contracts in the Milk River Basin.
    The St. Mary Diversion & Conveyance Works are approaching 100 years 
old, and are still dependent on the same basic infrastructure built by 
the Reclamation Service in the early 1900's. Continued degradation of 
the system has resulted in a loss of capacity from 850 cubic feet per 
second (cfs), to 670 cfs. The steel siphons are plagued with slope 
stability problems and leaks, and the concrete in the hydraulic drop 
structures is severely deteriorating. Landslides along the canal and 
deteriorated condition of the structures make the canal unreliable as a 
water source.
    Failure of a hydraulic drop structure in 2002 resulted in the canal 
being shut down for approximately 2 months during the irrigation 
season. On July 21, 2004, Reclamation was forced to shut down the canal 
for a week to repair a leak in the left barrel of the St. Mary River 
Siphon. The leak was attributed to a failed weld associated with repair 
work completed in 2001. Within 3 days of starting water deliveries in 
March 2005, Reclamation was once again forced to shut down the system 
for another repair on the left siphon barrel.
    Operation of the St. Mary Diversion & Conveyance Facilities has had 
a series of negative environmental impacts on the Blackfeet 
Reservation. Operation of the system has led to flooding and erosion 
below the confluence of Swiftcurrent and Boulder Creeks, and the 
formation of a delta into Lower St. Mary Lake. As currently designed, 
the outlet works on Sherburne Dam are incapable of passing low flows 
during the winter months. As a result, Swiftcurrent Creek dries up and 
important wintering habitat for the threatened bull trout (Salvelinus 
confluentus) is lost. In addition, the St. Mary diversion dam and canal 
headgates are having a negative impact on Blackfeet Tribal fishery 
resources. The diversion dam acts as a barrier to fish moving upstream 
and a large number of fish become entrained in the canal through the 
headgates during the irrigation season.

                        LIFELINE OF THE HI-LINE

    The St. Mary Diversion & Conveyance Works are the foundation of 
large-scale irrigated agricultural production in Montana's Milk River 
Basin. The system provides water to irrigate over 110,000 acres through 
contracts with Reclamation. An additional 5,000 acres within the Ft. 
Belknap Indian Irrigation Project (BIA) and 25,000 acres of private 
irrigated land benefit from the supplemental flows. Together these 
farms produce approximately 8.7% of all cattle/calves produced in the 
state, approximately 8.2% of all irrigated hay, and 8.6% of all 
irrigated alfalfa produced in Montana.
    In a normal irrigation season (May through September), 
approximately 70 % of Milk River flow near Havre originates from the 
St. Mary River Basin. In dry years the imported water may account for 
up to 90 % of the Milk River flows past Havre. During the drought of 
2001, 95 % of available water in the Milk River originated in the St. 
Mary River Basin!
    Although the St. Mary Diversion & Conveyance Works were initially 
built to provide supplemental water for irrigated agriculture, the 
beneficiaries extend far beyond this original intent. Reclamation's 
2005 ``Current Use Benefits Analysis'' showed large public benefits 
accrue from the existence of the St. Mary Diversion & Conveyance Works. 
A preliminary economic study commissioned by the State and conducted in 
consultation with Reclamation indicates that 32% of the annual economic 
benefit associated with the supplemental water supplied by the system 
accrues to irrigated agriculture. The remaining 68% accrues to the 
public in the form of municipal, residential and industrial water, 
recreation, fish and wildlife, and extensive riparian areas. Over the 
last 90 years beneficiaries of water imported from the St. Mary River 
have expanded to include the following:

   Reclamation has contracts to deliver 4,664 acre-feet per 
        year of municipal and industrial (M&I) water to the entities 
        shown in Table 2. The communities of Havre, Chinook and Harlem 
        serve approximately 14,000 customers

                                 Table 2
   Municipal and Industrial Water Contracts Associated with Milk River
                                 Project
------------------------------------------------------------------------
                                                                Contract
                                                                 Amount
                            Entity                               (Acre-
                                                                  Feet)
------------------------------------------------------------------------
City of Chinook                                                   700
------------------------------------------------------------------------
City of Harlem                                                    500
------------------------------------------------------------------------
City of Havre                                                   2,800
------------------------------------------------------------------------
Hill County Water Users                                           500
------------------------------------------------------------------------
North Havre County Water District                                 100
------------------------------------------------------------------------
Grand View Cemetery                                                14
------------------------------------------------------------------------
Horizon Hills Golf Course LLC                                      50
------------------------------------------------------------------------

   Bowdoin National Wildlife Refuge located 7 miles east of 
        Malta, contracts with Reclamation for approximately 3,500 acre-
        feet per year of supplemental water from the St. Mary River. 
        This 15,550-acre refuge provides food and habitat for an 
        estimated 100,000 waterfowl each spring and fall.
   Fresno and Nelson Reservoirs were created as storage 
        components within the Milk River Project. Today these 
        reservoirs support tremendous tourism and public year-round 
        recreational benefits including boating, camping, and fishing. 
        According to a 2002 Reclamation study, the Milk River Project 
        provides approximately $15 million per year in recreational 
        benefits to the Milk River Basin.
   The Fort Belknap Water Rights Compact is predicated on the 
        continued viability of the St. Mary Diversion & Conveyance 
        Works to deliver water to the Milk River Basin. The Compact is 
        a delicate negotiated balance of water rights, including the 
        Gros Ventre and Assiniboine Tribes' right to essentially all of 
        the natural flow of the Milk River, subject to the claims of 
        the Blackfeet Nation.
   The State of Montana and Blackfeet Tribe have reached 
        agreement on a water rights compact which includes claims for 
        water from the St. Mary and Milk Rivers. The parties are 
        seeking federal and state ratification of the settlement. 
        Rehabilitation of the St. Mary Diversion & Conveyance Works 
        affords potential benefits to the settlement.
   Implementation of the 1909 Boundary Waters Treaty between 
        the United States and Canada is dependent on the existence of 
        the St. Mary Diversion & Conveyance Works. Without the system, 
        the United States' share of water from the St. Mary River under 
        the 1909 Treaty would be lost to Canada.
   Numerous endangered, threatened, and proposed species with 
        the Milk River Basin, including the Piping Plover (threatened) 
        and Pallid Sturgeon (endangered), benefit from augmented flows 
        in the Milk River.
   Water imported to the Milk River Basin through the St. Mary 
        Diversion & Conveyance Works may prove to be a critical 
        component of U.S. Fish and Wildlife Service recovery efforts 
        for the endangered pallid sturgeon (Scaphirhyncus albus). As 
        the first major tributary entering the Missouri River below Ft. 
        Peck Dam, the turbid water of the Milk River may provide 
        critical pallid sturgeon spawning habitat.

                        WORKING WITH RECLAMATION

    For many years, Milk River irrigators, State of Montana water 
resource staff, and Reclamation staff have been working together on 
water management issues in the Milk River. It was not until the mid-
1990 that the potential catastrophic failure of the St. Mary Diversion 
Facilities was recognized by the State and irrigators as a significant 
risk. At the time, the Chinook Irrigation Division had received a grant 
of $300,000 to improve water use efficiency. However, an emergency 
repair of the St. Mary Siphons arose and the Chinook Division requested 
that the State funds be used to pay for the emergency repair rather 
than on water use efficiency. The funds were transferred and an 
additional $100,000 was added so that the siphons could be repaired and 
returned to use. The following year the same scenario played out where 
districts requested emergency funding for a repair of the St. Mary 
Siphon. This time the State met with irrigators and Reclamation on the 
St. Mary diversion site to discuss the reasons that the emergency 
arose. It was at this on-site meeting that concern over the potential 
catastrophic failure of the system was recognized.
    The State then began to work with Milk River irrigators and 
Reclamation to find solutions so that a major rehabilitation project 
could proceed. Through the Rocky Boy water compact (P.L.106-163), the 
Montana Congressional Delegation was able to gain support for a $3 
million appropriation for Reclamation to conduct the North Central 
Montana Regional Feasibility Study (2004). As part of the study, 
Reclamation examined 18 alternatives to resolve water supply, water use 
and management, and other major water-related issues in north central 
Montana. Reclamation identified rehabilitation of the St. Mary 
Diversion & Conveyance Works as the only feasible alternative that 
would address water supply and related issues in north-central Montana, 
and produce positive economic benefits.
    Reclamation's conclusion supported State and local efforts to find 
a way to rehabilitate the St. Mary Diversion Facilities. However, 
Reclamation rather than taking a leadership position to rehabilitate 
the system, stated publicly that they would not support a 
rehabilitation plan if it involved the use of federal funds. The only 
acceptable approach to the agency was for the irrigators to pay for the 
entire cost. During the initial public meetings announcing the new 
Water 2025 initiative, Commissioner of Reclamation, John Keys made it 
clear to Montana representatives that Reclamation could not support a 
rehabilitation effort that involved federal funding.

         PROTECTING THE MILK RIVER BASIN'S TOMORROW . . . TODAY

    The dilemma of knowing that the entire water supply of the Milk 
River basin was at risk and the only option that Reclamation would 
support would be impossible for the irrigators to support forced the 
State of Montana to act. On November 18, 2003, former Lt. Governor Karl 
Ohs held a forum in Havre, Montana, on the need to rehabilitate the St. 
Mary Diversion & Conveyance Works. An outcome of this meeting was the 
formation of the St. Mary Rehabilitation Working Group. This 15-member 
Working Group represents a broad coalition of basin interests including 
the Milk River Irrigation Districts, the Blackfeet Tribe, the Tribes of 
the Ft. Belknap Indian Community, municipalities, business interests, 
and recreational and fishery interests in the Milk River Basin. The 
Working Group's goals are:

          1) Find a ``workable'' solution for rehabilitating the St. 
        Mary Works before the system suffers catastrophic failure.
          2) Work with the Blackfeet Tribe to address environmental 
        impacts associated with the operation of the St. Mary Works, 
        and provide workable enhancements and mutual benefits from a 
        rehabilitated St. Mary Canal.
          3) Explore options for restoring Fresno Reservoir to its 
        original capacity and reauthorization and funding opportunities 
        to rehabilitate the Basin infrastructure.

    Though Reclamation attends all Working Group meetings, the agency 
has chosen to take a role limited to monitoring the discussion and 
providing technical information. This limited role is confusing to 
basin residents who do not understand why the agency that owns and 
operates the facilities is not at the front leading the discussion. 
Instead, the State of Montana has had to take the leadership role to 
move this project forward. Not only is it confusing for the owner/
operator not to be fully engaged in the process, it is detrimental to 
the overall effort.
    Reclamation appears to be paralyzed in the face of the tidal wave 
of aging infrastructure issues they face across the West. It appears 
that without direction from Congress, the Department of Interior will 
not allow Reclamation to actively participate with project irrigators 
and the State of Montana to rehabilitate the St. Mary system.
    Through inaction at the federal level, the federal government is 
missing an opportunity to work with stakeholders and the State of 
Montana to find a workable solution for ensuring the continued 
viability of the one of the Nation's first reclamation projects. This 
federal inertia may also impact the federal government's ability to 
settle federal reserved water rights claims with the Blackfeet Tribe 
and Ft. Belknap Indian Community and jeopardize the ability of the 
United States to access water from the St. Mary River under terms of 
the 1909 Boundary Waters Treaty.

                        LOCAL AND STATE SUPPORT

    Over the last four years, the State of Montana and St. Mary 
Rehabilitation Working Group have raised substantial non-federal funds 
to initiate the rehabilitation effort. Since 2004, the State has spent 
over $1.6 million on professional engineering services and personnel 
services in support of the project. The 2005 State Legislature 
recognized the importance of this project to Montana by approving $10 
million in bonding authority to serve as seed money for the non-federal 
cost share. In 2007, the State Legislature reconfirmed their commitment 
to the project by approving a $300,000 grant to the Department of 
Natural Resources and Conservation for engineering design and project 
coordination.
    Local contributions have raised approximately $416,632 to support 
the efforts of the St. Mary Rehabilitation Working Group (as of 12/07). 
The eight Irrigation Districts within the Milk River Project have 
assessed themselves to support the rehabilitation effort. Counties, 
communities, recreationists, and private citizens within the Milk River 
Basin have also raised funds. Since 2004, Working Group members have 
donated more than $156,000 (as of 10/07) of in-kind support in the form 
of time and travel to attend meetings and promote the project within 
the basin.

                            FEDERAL SUPPORT

    The Working Group's efforts have also benefited from support 
provided by Montana's Congressional Delegation. Senator Max Baucus 
secured $8.5 million (FY06) from the Senate Transportation Committee. 
These funds are being used to construct a new bridge across the St. 
Mary River and address environmental concerns of the Blackfeet Tribe. 
Senator Conrad Burns secured $500,000 (FY06) for the project from the 
Energy and Water Appropriations Subcommittee of the Senate 
Appropriations Committee. Through the use of cooperative agreements, 
the U.S. Bureau of Reclamation, Blackfeet Tribe, and Montana DNRC used 
these funds on technical and environmental data collection efforts in 
preparation for National Environmental Policy Act compliance 
activities. The Bureau of Reclamation received an additional $500,000 
in FY07 under the continuing funding resolution. Reclamation has used 
these funds to enter into an agreement with the Bureau of Land 
Management to conduct a cadastral survey along the canal route. This 
effort is part of a multiphase endeavor to settle outstanding right-of-
way issues.

                          POTENTIAL SOLUTIONS

    The State of Montana and St. Mary Rehabilitation Working Group have 
put in a tremendous effort to raise non-federal funds to initiate the 
rehabilitation project. To date, State and local funds committed to 
rehabilitation of the St. Mary Diversion and Conveyance Works exceed 
$12.5 million. What is missing at this point is active participation by 
Reclamation to find a workable solution. Even with the grass roots 
support of the basin and the leadership and financial support of the 
State, we cannot succeed without the support of Congress and, in turn, 
Reclamation.
    Bureau of Reclamation must be given the ability to develop new 
tools for addressing the challenges aging water resources 
infrastructure. One challenge we face in the Milk River Basin is how 
the Bureau of Reclamation views capital expenditures for rehabilitation 
projects. According to a 2006 engineering study undertaken by the state 
of Montana the cost to rehabilitate and replace the St. Mary Diversion 
& Conveyance Works is estimated at $130 million to $140 million. The 
Bureau Reclamation considers such work to be part of operation and 
maintenance and requires the cost to be paid back in the year they are 
incurred. This presents an insurmountable financial obstacle to 
irrigators in the Milk River Project. Irrigators within our Project 
would benefit from the development of a program that enables water 
users to modernize or rehabilitate their projects and payoff those 
costs over time under reasonable terms and conditions.
    As originally authorized, the St. Mary Diversion & Conveyance Works 
are operated for the single purpose of irrigation. As such, nearly 100% 
of the cost to rehabilitate and replace the system must be borne by 
small irrigators like me, within the irrigation districts holding water 
delivery contracts. Today the beneficiaries extend far beyond this 
original intent. The Bureau Reclamation's 2005 ``Current Use Benefits 
Analysis'' showed large public benefits accrue from the existence of 
the St. Mary system. In addition to providing water for irrigated 
agriculture, the system provides water to communities and industry, 
water to Bowdoin National Wildlife Refuge, and water that supports a 
wealth of recreational opportunities in north-central Montana. The 
system is also integral to settlement of federal reserved water rights 
with the Blackfeet Tribe and Ft. Belknap Indian Community, and 
implementation of the 1909 Boundary Waters Treaty. Amending the 
original authorization for the Milk River Project and St. Mary 
Diversion and Conveyance Works to reflect the extensive public benefits 
they provide would relieve irrigators of the burden of subsidizing the 
federal government for the benefits enjoyed by others.
    The Working Group and the State are eager and willing to work with 
Reclamation and Congress to find acceptable solutions for federal 
support to the project. We understand that National priorities make it 
extremely difficult to find federal funds for the rehabilitation of the 
St. Mary Diversion Facilities. The tremendous amount of authorized, but 
not completed Reclamation projects also places a heavy burden on the 
agency. It is important to remember that many of these Reclamation 
projects are federal assets owned and operated by the federal 
government. Investment in these projects will preserve our Nation's 
ability to conserve, enhance, and efficiently manage our most precious 
natural resource, WATER! There is not time to simply wait for the 
federal funding environment to change.

Note: The St. Mary Project Glacier County, Montana report, has been 
retained in subcommittee files.

    Senator Johnson. Thank you, Mr. Reed.
    For the information of Senators, we are scheduled to begin 
voting at 3:30.
    Mayor Cutler, in addition to talking about the costs 
involved in addressing the BOR's aging infrastructure, it is 
also important to understand the costs involved if we do not 
address this situation. For that reason, I want to better 
understand the potential Federal costs involved in rebuilding 
your community.
    Has the rebuilding process in Fernley begun? If so, what is 
the source of the funds used for rebuilding? Is insurance 
covering a large amount of losses?
    Mr. Cutler. Mr. Chairman, I will actually start with the 
insurance. Our area is not considered a flood zone area. So the 
majority of our residents do not have flood insurance.
    With that said, it was determined this is not a flood 
because it was not of natural causes. It was a failure in a 
canal, the breach of the canal. So with the flood not coming up 
over the banks, it is a break. So it does not follow those 
guidelines. So, no, insurance is not covering any of the losses 
that have been sustained in our community.
    The rebuilding has begun, and we are very thankful that we 
had the declaration of emergency from the President and we had 
FEMA on the ground very quickly to provide our residents and 
our city some funding. That funding is very minimal and our 
city has borne the great cost to begin the improvements of our 
infrastructure that was damaged and our citizens have begun 
their rebuilding. Several or our citizens are struggling to do 
so based on not having enough funding to meet those needs. They 
are falling well short. FEMA gave up to approximately $28,000 
to the most severe homeowners and residents. Yet some of their 
damage is into the $60,000, $70,000, $80,000 up to $100,000 
worth of damage. So many of them are struggling.
    As a matter of fact, in our local paper the other day, they 
spotlighted a gentleman named Chip Hansen who quit work to try 
to save his home. He did not have the funding to have anybody 
else do the work. So he is doing the work, and he is struggling 
because he now cannot pay his mortgage payment.
    So we are moving forward with the rebuild. It is very 
costly, and we are struggling as a city. Our financial 
situation is in jeopardy based on the costs. As I said, FEMA 
has provided some refund, in a sense, to the costs that we have 
incurred, but also some of the funding that goes to the 
residents we have to, as a city, provide back to them.
    So if we look at the total amount of money from Federal 
dollars, I mean, it could be quite extensive to meet the needs 
of our community. As I stated in the testimony, we are 
estimating up to--now that is just estimates--the $50 million 
range. I do not believe that without support we are going to 
make a full recovery.
    I know we have several lawsuits beginning. As people 
realize that they are not going to be able to fully recover, I 
believe that they will jump in with those lawsuits.
    I hope that answers your question, Mr. Chairman.
    Senator Johnson. Thank you, Mayor Cutler.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    General, thank you for your service and all the witnesses 
for testifying today. Mayor, certainly what happened in your 
city places an exclamation point, on the issue, and I thank you 
for the testimony. I know your citizens appreciate the 
leadership you are providing.
    As it relates to some of the comments Mr. Donnelly made 
about the three different types of issues--there are some where 
there is vendible water, and certainly those particular 
districts are going to do fine. There are some that are sort of 
in the middle area. But as it relates to those who cannot, I 
assume there is still some degree of wealth generated to some 
individuals or companies or people along the paths of those. So 
I assume that in the districts where there is vendible water, 
people are contributing, if you will, to the maintenance and 
upkeep either through the OEM process or hopefully some other 
financial mechanisms that might be made available to make this 
less obtuse, if you will, or less acute.
    What do you do in those areas, though, where in essence the 
utility district or the area that is covered by these 
particular water resources have individuals that are 
benefiting, and yet, by virtue of the fact the whole area 
cannot support it, they are benefiting but not paying? How do 
you help those of us who now value what we ought to do in 
relation to some of these bills?
    Mr. Donnelly. By and large, Senator, the projects that we 
are talking about, like the St. Mary's project, were single 
purpose irrigation projects that were built at the very 
beginning of Reclamation's history. They were the first 
projects that were built.
    Most of them were built in the northern tier States and 
they were very heavily underwritten by the Federal Government. 
But it was a partnership. It was a Federal/non-Federal 
partnership. At that point in our history, the Federal 
Government wanted to settle the West, and they provided the 
projects to bring water to the land for these people, 
understanding that they were not going to have the financial 
resources to repay that. That is why we have the ability to pay 
factor in a lot of the computations for repaying the cost of 
these projects.
    We know that projects like the St. Mary's project will 
never, ever be able to repay the rehabilitation costs. They 
were not able or even required to pay back the initial costs of 
those projects.
    This is still a Federal asset. As long as the Federal 
Government owns that, it is their responsibility to provide the 
money to maintain that in optimum operating condition. I guess 
it would be like me--because of some of the policies at 
Reclamation--for example, O&M has to be paid back in 1 year. It 
is tough for Reclamation to separate what is actual normal O&M 
and what is rehabilitation and betterment, and they have no 
program to address major rehabilitation and betterment.
    Senator Corker. If you do not mind, explain to us who are 
not--the second part is actually a Federal responsibility by 
itself? Is that a Federal responsibility by itself?
    Mr. Donnelly. It certainly depends on the project that we 
are talking about, but this category of projects that we are 
talking about, yes, it is. It would be like me owning a 
condominium and the roof blows off. I mean, I can expect you to 
pay the electricity and the water bill, but if the roof blows 
off, that is my responsibility to put a new roof on there. The 
same situation with these projects. It is the Federal 
responsibility minus the ability to pay of the project 
beneficiaries to rehabilitate this project.
    Senator Corker. Let me ask you. Is that something that is 
gradable, is easily discernible? Because by virtue of the way 
things operate in this body, more and more folks will certainly 
try to ensure that the Federal responsibility is more 
burdensome, if you will. I mean, that is just the way it works 
around here. So how do we understand, if you will, in a 
discernible way which of these projects ought to be, if you 
will, more a Federal issue? There are ability to pay problems. 
How do we discern which ones ought to be self-funded, if you 
will, but freed up to do it over a period of time instead of on 
a 1-year basis?
    Mr. Donnelly. I think that is pretty clear in Reclamation's 
current operating procedures. I think the gray line is what is 
annual operation and maintenance and what is rehabilitation and 
modernization costs. I think that is the determining factor.
    Senator Corker. I know my time is up, and my colleagues 
have good questions. Thank you all for your testimony.
    Mr. Donnelly. Yes, sir.
    Senator Johnson. Senator Tester.
    Senator Tester. Yes, thank you, Mr. Chairman. I just want 
to follow up a little bit on Senator Corker's remarks because 
what I got out of Bob Johnson about rehabilitation--you said 
rehabilitation is the BOR's responsibility. I agree with that, 
by the way. I am not sure that he saw it that way, though.
    Mr. Donnelly. I do not think that he is allowed to agree 
with that.
    Senator Tester. OK. I just wanted to make that clear.
    Mr. Donnelly. You have to remember he can only espouse or 
tell you what OMB will allow him to tell you.
    Senator Tester. I understand and I appreciate your 
perspective.
    Senator Craig, I do appreciate innovation and thinking 
outside the box. Unfortunately, I think a lot of the wealth 
that was accrued in this area is leveraged pretty tight, and I 
does not think anybody--and I will ask Randy Reed this--does 
not think that they should pay some. It is just that their 
ability to pay, you know, has got to be reasonable.
    The other thing is that we have seen what has happened to 
energy and not being energy independent in this country. I 
would sure in hell hate to lose our food independence because 
its ramifications would be unbelievable. So my contention is if 
you eat, you truly do have a stake in this project.
    So, Randy, could you just give us a little better 
understanding about how devastating a failure of the St. Mary's 
project would be to north central Montana? How many acres are 
we talking about? What are we talking about here?
    Mr. Reed. An example would be even in this current year, on 
the Halls-Cooley siphon, contractors were in there through the 
winter and replaced the seals on the steel siphon that goes 
across this massive Cooley. The way the IJC is set up, through 
the month of March, the St. Mary's Basin is shared 50/50 with 
the United States and Canada. Once the irrigation season 
starts, it is 25/75.
    So we watered up. One of the seals blew. The contractors 
did not stick the seal in because this thing is old. I mean, 
this thing has got rivets sticking out of it. So we had to shut 
down for a week/10 days when we could have gotten more water 
out of the St. Mary's Basin because of the 1909 Boundary Waters 
Treaty. We are doing maintenance rather than moving water that 
will grow crops.
    So because of the extremely deferred maintenance, it costs 
the communities wealth. So you are kind of pinned in a catch 
22. You struggle with your ability to pay, but yet the 
project--and Reclamation owns and operates the facility--is 
cheating you water and you need water for consumptive use to 
grow crops.
    Often the water that comes out of this facility is from 
Glacier Park. It is high mountain snow melt. So it is 
consistent. The lower prairie runoff is not consistent. So this 
is really the project's consistent water. Yet it has been 
ignored.
    I mean, there is not even freeboard on the canal. It was 
constructed with horses and they drug--they excavated out the 
bottom of the canal and then drug the soil to the low side of 
the mountain. This thing has one bank. It is not a modern 
canal. It never has been modernized.
    The wasteways and the structure do not function. The Spider 
Lake gates do not function. Several years ago, we had a rain 
event and because there is only one bank, if you get a 
thunderstorm, the water runs down the mountain in the canal, 
breaches the canal, and then you are shut down for weeks at a 
time while you do maintenance on the canal so you can get water 
over to the storage reservoirs to water up to irrigate.
    So you know, it is kind of a catch 22. Your ability to pay 
is based on your ability to grow a crop, and we cannot 
consistently grow crops because the facility cheats us water.
    Senator Tester. Because it is worn out.
    So at this point in time, that is the effect on you as far 
as the system. Even if it does not explode and quit working, it 
is the lack of consistent water that impacts your area 
economically. Very good. Thank you very much.
    My time also has run out. Thank you very much for your 
testimony.
    Senator Johnson. They tell me that the vote has slipped a 
while. But, Senator Craig, will you make a quick----
    Senator Craig. I will do just that. Let me thank all of you 
for your testimony. It is valuable and it is important. I think 
it shows the problem and the diversity of the problem.
    Mr. Donnelly, you are right. There are at least three 
categories and maybe four or five, and we ought to be bright 
enough to figure those out and slot them, if you will, or 
create the appropriate regulation around them that would allow 
us a new and different flexibility in how we deal with these.
    I do not disagree. When a project, Mr. Reed, is owned by 
the Government, the Government ought to maintain it. At the 
same time, the ability to maintain it, to go out and get that 
money and then spread it out over a reasonable period of time 
also makes some sense in many of these projects.
    So thank you all very, very much. Mr. Willardson, thank you 
for your comments.
    My only question of you, Mayor Cutler, tell me it was not a 
gopher.
    Mr. Cutler. I will tell you this. BOR had a thorough 
investigation of the----
    Senator Craig. I am sure they did.
    Mr. Cutler [continuing]. Bank, and I actually was asked 
that very early. I was kind of almost embarrassed to say yes to 
that question.
    Senator Craig. It is a serious question when it comes to 
canal maintenance.
    Mr. Cutler. Yes. I think in the end, the damage that the 
gophers are having on the canal and the breakdown was the 
leading cause. We have bumper stickers going around our 
community, Citizens Against the Gophers.
    Senator Craig. It is time you rose up against the gopher. 
Yes.
    Mr. Cutler. There are plans I guess to deal with it. 
Obviously, all these things take a lot of funding.
    Senator Craig. Again, thank you. Sorry about your loss, but 
you are right. Oftentimes people who live around a canal and 
are not in a flood plain do not have flood insurance, and all 
of a sudden, they are flooded. When you get a breach of the 
kind that you had, that is serious business and, obviously, 
devastating to your community. Thank you much.
    Mr. Cutler. Thank you. I appreciate it.
    Senator Craig. Thank you, Mr. Chairman. That is as quick as 
I could possibly make it.
    Senator Johnson. I have no additional questions. Thank you 
again to our panelists. We may have additional questions for 
the record.
    For the information of Senators and their staff, questions 
for the record are due by the close of business tomorrow.
    With that, this hearing is adjourned.
    [Whereupon, at 3:34 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

   Responses of Thomas F. Donnelly to Questions from Senator Johnson
    Reclamation appears to be taking the position that local water and 
power users are responsible for all maintenance, which includes major 
rehabilitation work and replacement of project facilities.
    Question 1. Do NWRA and its members accept Reclamation's position 
on this subject?
    Answer. We do not accept Reclamation's position on this subject. 
These are still federally owned facilities and therefore it is the 
responsibility of the federal government to maintain them in peak 
operational condition.
    Water users, in most cases, are prepared to repay the capital costs 
of needed major rehabilitation and modernization given reasonable terms 
and conditions. However, Reclamation does not offer such a program. 
Currently, major rehabilitation is considered O&M and must be repaid in 
the year that is incurred. If the water users are incapable of paying 
the costs in that year the rehabilitation is deferred indefinitely.
    Question 2. Per your testimony, how might the Reclamation Fund be 
used to address aging infrastructure needs?
    Answer. The Reclamation Fund was established to finance new project 
construction and rehabilitation and modernization of existing projects. 
The Reclamation Fund currently contains in excess of $7 billion. The 
Bureau of Reclamation's annual operating budget is a draw down from the 
fund; however, annual receipts into the fund far exceed Reclamation's 
budget. Congress could, by legislation, direct on a project-by-project 
basis that revenues from the fund be used to finance major 
rehabilitation needs.
    The Rehabilitation and Betterment Loan Program (PL 81-335) could 
also be used to address aging infrastructure needs. At this time, the 
Office of Management and Budget will not allow Reclamation to use this 
program.
    Question 3. You mentioned during the hearing that the water users' 
responsibility for maintenance may be limited to their ``ability to 
pay''. Please explain in detail what you mean by this statement.
    Answer. First let me be clear, I was not suggesting that routine 
annual maintenance be subject to the water users' ``ability to pay''. 
``Ability to pay'' is a complex formula that Reclamation uses to 
determine the amount of capital costs the water users are required to 
repay the federal government. The first projects built by Reclamation 
were single purpose irrigation projects. Many were built in the 
northern tier States where only one growing season was possible. 
Consequently, the capital costs of these early projects were heavily 
underwritten by Congress. However, they represent one of the most 
successful federal/non-federal partnership in our country's history. 
``Ability to pay'' was developed as a recognition that the project 
beneficiaries could never repay the full cost of these projects and 
that Congress never intended full cost repayment.
    These are the very projects that are now the ``tip of the aging 
infrastructure iceberg.'' They pose a vexing public policy question. 
Should the federal government recapitalize these projects or let them 
fail with the knowledge that the communities and regional and local 
economies that are dependent on them would be devastated? My reference 
to ``ability to pay'' during the hearing was in the context that 
Congress must understand that for projects such as the St. Mary's 
Project in Montana and others the water users would never be able to 
repay the major rehabilitation costs in total.
                                 ______
                                 
    Response of Wesley Randal Reed to Question from Senator Johnson
    Question 1. It's my understanding that the 2007 Water Resources 
Development Act contained a provision instructing the Corps of 
Engineers, in consultation with BOR, to rehabilitate the St. Mary's 
facilities. It also authorized $153 million for that effort.
    What has happened since that provision was enacted? Will the Corps 
of Engineers step in to address the problem that has been created due 
to BOR's lack of action?
    Answer. The Honorable Senator Johnson and members of the Committee, 
Thank you for the opportunity to provide your office with additional 
information. Your understanding of the 2007 Water Resources Development 
Act (WRDA) is correct. Section 5103 instructs the Corps of Engineers, 
in consultation with the Bureau of Reclamation to rehabilitate the St. 
Mary's facilities.
    Since passage of WRDA 2007, the Army Corps of Engineers (COE) has 
not taken any concrete steps to implement the provisions in Section 
5103. COE has taken the position that they (COE) will not address the 
St. Mary Project until Congress appropriates funds for the project. COE 
personnel at all levels have told us repeatedly that the St. Mary 
Project is considered an unfunded, low priority project. COE will not 
even begin drafting their internal implementation guidance until the 
project receives a Congressional appropriation.
    Since January 2008, representatives from the State of Montana and 
St. Mary Rehabilitation Working Group (SMRWG) have met several times 
with COE and Bureau of Reclamation (Reclamation). On January 22, 2008, 
representatives from the Montana Department of Natural Resources and 
Conservation (DNRC) traveled to Billings, MT to meet with COE and 
Reclamation. COE representatives included Ms. Kayla Eckart Uptmor, 
Chief of the Planning Branch in the Omaha District Office, and members 
of her staff. Reclamation representatives included Mr. Dan Jewell, 
Manager of Reclamation's MT Area Office and members of his staff.
    On February 5, 2008, we met with Mr. Theodore Brown, Acting Chief, 
Planning & Policy and Regional Integration Team and staff members at 
COE Headquarters in Washington, D.C. on the relevance of the COE and 
their implementation of Section 5103.
    On May 8, 2008, representatives from MT DNRC, Mr. Don Wilson of the 
Blackfeet Tribe, and Mr. Larry Mires, Executive Director of the SMRWG 
met with Mr. Witt Anderson, Chief of Programs with COE's Northwest 
Division Office in Portland, OR. According to Mr. Anderson, the St. 
Mary Project will not be included in COE's budget now or anytime in the 
foreseeable future. Mr. Anderson also indicated that funds Congress 
appropriates to the project must be included in statutory language.
    It is my understanding that Mr. John Paul Woodley, Assistant 
Secretary of the Army--Civil Works and Mr. Robert Johnson, Commissioner 
of Reclamation have met to discuss the project. I also understand that 
Mr. Anderson from COE's Northwest Division Office and Reclamation's 
Great Plains Regional Manager, Mr. Mike Ryan discussed the project at 
an April 30 meeting in Billings, MT. Reclamation and COE 
representatives have toured the project sight on at least two 
occasions.
    As noted in my April 17, 2008, supplemental written testimony, the 
State of Montana authorized $10 million in bonding authority to serve 
as seed money for the non-federal cost share. The State is willing to 
put these funds to immediate use provided they are guaranteed the 
expenditures will be credited towards the non-federal cost share. 
However, COE will not negotiate a cost share agreement until after they 
have completed the implementation guidance which, COE will not address 
until federal funds are appropriated to the project.
    We find ourselves in a situation where the non-federal sponsor is 
willing to immediately expend significant resources up front, but the 
federal agency given responsibility to the address the issue will not 
expend even a limited amount of resources to write the implementation 
guidance and negotiate a cost share agreement. In the meantime, 
Reclamation shut down the canal for a week in April 2008 to fix a new 
leak in the Hall Coulee Siphon.
    On May 8, Mr. Anderson stated that COE will support a ``new start'' 
for the St. Mary Project if, and when, Congress appropriates funds. 
After visits with COE officials, I believe that COE and Reclamation 
will work cooperatively in implementing Section 5103 of WRDA 2007. The 
St. Mary Project provides a unique opportunity for two federal agencies 
with complementary interests and resources to form a partnership with 
the aim of maximizing federal dollars to fix a project owned and 
operated by the federal government.
    Again, thank you for the opportunity to testify before the 
Committee.
                                 ______
                                 
   Responses of Charles I. McGinnis to Questions from Senator Johnson
    Question 1. Based on your own technical expertise and experience, 
what is the design life for Reclamation's infrastructure, and is there 
some point when these facilities simply need to be replaced? How is the 
Corps of Engineers addressing this issue?
    Answer. I cannot speak to Reclamation's policies and actions 
regarding infrastructure design life, or for that matter to that of the 
Corps of Engineers, since I retired from the Corps many years ago. That 
said, it is normal for major structures to be designed with a life 
expectancy in the 50 to 100 year range. Actual useful life may not be 
related to design intentions. Useful life may be limited by material 
deterioration and failure, or functional failure, i.e. the facility 
continues to perform as intended, but the need changes and the facility 
can no longer meet the need. Technical obsolescence can occur, 
especially in electronic, electrical, and mechanical components. The 
life of a facility is highly dependent on the quality of maintenance. 
As a case in point, the Panama Canal is 96 years old, and as a result 
of careful maintenance, it remains dependably operable. Its limitations 
are functional--bigger ships cannot transit the original locks. There 
is no single or simple answer to the question of a point where 
replacement is needed. This decision involves politics, environmental 
concerns, and economics in addition to a technical evaluation. 
Replacement decisions are made on a case by case basis.
    Question 2. Your testimony notes an inconsistency across the BOR 
regional offices in planning work activities that are necessary to 
maintain project facilities.
    Does this observation apply just for the facilities that BOR is 
operating and maintaining--the so-called ``reserved works''--or does 
the inconsistency also apply in how these offices are addressing the 
facilities that are maintained by local entities--the ``transferred 
works''.
    Answer. I believe that an element of inconsistency is evident in 
both reserved and transferred works maintenance planning. As noted in 
Mr. Donnelly's testimony on April 17th, a degree of subjectivity is 
inevitable in determining the nature of maintenance and repair. Is the 
intended work routine operation and maintenance, is it dam safety 
related, or is it major rehabilitation? The extent of federal 
government financing is dependent on this determination. Reclamation 
officials react differently to local user pressure to rule on this 
question. In addition, the strong movement toward decentralization of 
program execution in Reclamation, and the near elimination of central 
policy guidance left field officials with very broad authority to make 
these interpretations. Superior advance planning in two of the five 
regions has resulted in some of this inconsistency, when results are 
compared with the remaining three regions. Organizations such as the 
Family Farm Alliance and the National Water Resources Association have 
interests in several Reclamation regions, so they become aware quickly 
of differences in program execution between the regions.
                                 ______
                                 
       Responses of Bob Johnson to Questions From Senator Johnson
    Question 1a. Given issues of potential liability, BOR has a strong 
interest in ensuring its facilities are adequately maintained.
    What are the standards and guidelines that apply to ensure that 
these ``transferred works'' are maintained in an adequate condition? 
How are contractors held to these standards?
    Answer. The basic requirements for the examination of all water-
related facilities, regardless of transferred works or reserved works, 
is contained in Directive and Standard FAC 01-04 ``Review of Operation 
and Maintenance (RO&M) Program Examination of Associated Facilities 
(Facilities Other Than High-and Significant-Hazard Dams)'' http://
www.usbr.gov/recman/fac/fac01-04.html and FAC 01-07 ``Review/
Examination Program for High-and Significant-Hazard Dams'' http://
www.usbr.gov/recman/fac/fac01-07.pdf. Reclamation has internal 
guidelines on the conduct of the reviews of associated facilities which 
are attached for your information. The best general guide for the 
operation and maintenance of these types of facilities is Management, 
Operation and Maintenance of Irrigation and Drainage Systems, American 
Society of Civil Engineers (ASCE), 1991, ISBN 0-87262-785-3, which 
Reclamation co-sponsored with ASCE to develop.
    Operating entities receive formal reports of the reviews conducted 
and identified recommendations. Those recommendations are entered into 
Reclamation's Dam Safety Information System and then monitored annually 
and followed up on during the next review until they are resolved. 
Recommendations are categorized as to their seriousness. The most 
serious conditions, identified by a Category 1 designation, are 
actively monitored by Reclamation to ensure that the operating entity 
immediately schedules and resolves the issue on a timely basis.
    Question 1b. Has the United States ever been held liable for 
damages caused by a failure of infrastructure owned by the BOR, 
notwithstanding contractual obligations it may have with a water 
district?
    Answer. On June 5, 1976, Reclamation's Teton Dam failed during its 
initial filling. While there was never a final judicial decision, as a 
result of that incident, the Teton Dam Disaster Assistance Act (90 
Stat. 1211) was enacted to provide compensation and settlement of 
claims arising from the failure.
    Question 2. As I understand it, BOR takes the position that project 
contractors are financially responsible for a pro-rata portion of the 
operation and maintenance costs associated with project facilities, and 
that such costs must be paid in the year in which they are incurred. 
It's unclear, though, to what extent major rehabilitation projects and 
replacement of project works are the responsibility of project 
contractors--and the requisite repayment period that applies.
    Can you describe in detail the relative responsibilities of BOR and 
its contractors with respect to the financial aspects of major 
rehabilitation and replacement of project works?
    Answer. With regard to reserved works, Reclamation requires 
beneficiaries to pay an allocated share of the operation, maintenance 
and repair/replacement (OM&R) work performed by Reclamation. 
Reclamation requires that operators of transferred works assume the 
full cost of OM&R of facilities. Reclamation does not consider 
reinvestment in facilities to correct deficiencies stemming from age or 
operation as construction costs. The clearest demarcation of the 
difference between construction costs and operation and maintenance 
costs is found in the litigation U.S. v. Fort Belknap Irrigation 
District, 197 F. Supplement 812, 819 (D. Mont.1961).

          Expenditures are properly chargeable to ``construction'' when 
        they (1) are incurred to construct an irrigation system and put 
        it in condition to furnish and properly distribute water, (2) 
        are made necessary by faulty original construction in violation 
        of contract and statutory requirements, or (3) are for the 
        purpose of increasing the capacity of the original system. On 
        the other hand, expenditures are properly chargeable to 
        ``operation and maintenance'' when they are required to remedy 
        conditions brought about by the use of the completed system or 
        to maintain and operate it efficiently for the end to which it 
        is designed.

    Therefore, this court decision clearly placed major rehabilitation 
and replacement costs in the category of ``operation and maintenance'' 
which, by law and contract, the operating entity of the transferred 
works is obligated to finance.
    Question 3a.In the Rural Water Supply Act of 2006, Congress 
authorized a BOR Loan Guarantee Program to help local entities 
implement maintenance and rehabilitation activities by securing non-
Federal financing with favorable repayment terms. Section 203 of the 
Act directs the Secretary to initiate the program by publishing 
eligibility criteria in the Federal Register.
    BOR believes that non-Federal entities are financially responsible 
for all maintenance associated with project facilities, is that 
correct? Isn't the loan guarantee program an appropriate way for the 
Federal Government to assist them in meeting their contractual 
obligations?
    Answer. Yes, Reclamation believes that non-Federal operating 
entities are responsible for the maintenance (including related 
rehabilitation and replacement work) associated with transferred works, 
as defined by project O&M allocations. The Loan Guarantee Program, as 
authorized by Title II of the Rural Water Supply Act, may be one tool 
among others at Reclamation's disposal to assist operating entities 
with securing long-term private financing to undertake extraordinary 
operation and replacement work.
    Question 3b. Why has the Loan Guarantee Program not been 
implemented if the responsibility for maintaining these facilities 
falls to the contractors?
    Answer. The proposed loan guarantee rule was published in the 
Federal Register on October 6, 2008. The public has 30 days to comment 
on this proposed rule. DOI will respond to public comments in a final 
rule and, where it determines appropriate, revise the rule accordingly. 
The rule will then be reviewed by the Executive Office of the 
President. Once that review has been completed, DOI will publish the 
final rulemaking in the Federal Register.
    Question 3c. Are changes needed to Title II of P.L. 109-451 to 
facilitate the implementation of the loan guarantee program? If so, can 
you provide a drafting service that documents these needed changes from 
the Administration's perspective?
    Answer. The proposed loan guarantee rule was published in the 
Federal Register on October 6, 2008. The public has 30 days to comment 
on this proposed rule. DOI will take comments from the public under 
consideration and, where it determines appropriate, revise the rule 
accordingly. The rule will be reviewed by the Executive Office of the 
President. Once that review is completed, DOI will publish the final 
rulemaking in the Federal Register. The final review will include a 
response to substantive comments submitted by the public. As a 
consequence of the final rule, the Administration does not believe 
statutory changes would be needed.
    Question 4. It seems to me that an opportunity exists when aging 
infrastructure is rehabilitated or replaced. Water conservation and 
efficiency improvements can be incorporated which might help resolve 
water supply or environmental issues that exist in a specific river 
basin.
    Do you agree, and if so, has BOR combined the concepts of 
infrastructure rehabilitation and efficiency improvements in any of its 
maintenance activities?
    Answer. We agree that if such major work is to be undertaken, 
opportunities may exist to achieve multiple objectives. The act of 
replacing or repairing facilities with current technology can often 
result in water conservation through such activities as canal lining, 
telemetry operations, etc. If major rehabilitation or repair work is 
undertaken in conjunction with an expansion of system/facility 
capacity, that additional capacity would be considered construction and 
not operation and maintenance work.

       Responses of Bob Johnson to Questions From Senator Tester
    Question 1. What could be done to allow the Bureau of Reclamation 
to establish a set of project costs, separate from those associated 
with regular operation and maintenance, for large-scale rehabilitation 
and replacement that could be paid back over a number of years and at 
reasonable terms? Would the Bureau of Reclamation be supportive of such 
a change?
    Answer. Reclamation already has authority to provide loans with 
long-term repayment provisions under the Rehabilitation and Betterment 
Act (43 U.S.C. Sec.  504) (``R&B Act''). However, in response to issues 
raised by the Office of Inspector General in the early 1990s regarding 
Reclamation loan programs and other issues, Reclamation stopped 
requesting funding for its loan programs. The merits (costs and 
benefits) of funding that program would need to be assessed by the 
Administration and Congress.
    Question 2. Many of Reclamation's projects were built primarily for 
irrigation purposes, but over their 50-100 year lifetime, a variety of 
other benefits have accrued. Is there a process to redistribute costs 
as the beneficiaries of a project change? Should Reclamation have the 
ability to redistribute costs as the beneficiaries change?
    Answer. There are established economic methods to allocate costs 
based on current benefits. Reclamation has authority and periodically 
revisits the allocation of O&M costs to assure they are equitable 
across authorized project purposes. However, any reallocation of 
construction costs to project purposes not originally included in the 
project authorization or statutorily added later would need to be 
authorized by the Congress pursuant to Reclamation Law. Reallocation of 
construction costs among authorized project purposes is also subject to 
certain limits, imposed in Section 302 of the Department of Energy 
Organization Act (42 U.S.C. Sec.  7152).
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                 Quincy-Columbia Basin Irrigation District,
                                         Quincy, WA, April 9, 2008.
Hon. Maria Cantwell,
U.S. Senate, 825 Jadwin Avenue, 204/204A, Richland, WA.
Re: Request for assistance in submitting testimony for the record--
April 17 oversight hearing, Senate Energy and Natural Resources 
Committee

    Dear Senator Cantwell, The Quincy--Columbia Basin Irrigation 
District in Quincy, Washington respectfully requests your assistance in 
submitting the attached testimony to the Senate Energy and Natural 
Resources Committee for their upcoming April 17 oversight hearing on 
aging federal water management infrastructure in the West. We have also 
attached a briefing paper that summarizes our issue and needs regarding 
the rehabilitation of the West Canal feature of the Columbia Basin 
Project.
    Our Project is aging, and the West Canal is in dire need of major 
rehabilitation construction work. We are willing to pay for this work 
and with the assistance of a loan or loan guarantee program from the 
Bureau of Reclamation (Reclamation), we could accomplish this 
construction project. However, such a program does not exist, even 
though Congress recently passed legislation giving Reclamation 
authority to guarantee loans for such rehabilitation projects at 
federal facilities such as ours. We would like your assistance in 
communicating our concern over the lack of such a program, especially 
in light of the negative impacts to the cost of municipal financing 
(tax-free bonds) due to the mortgage crisis, as well as the immediate 
safety, security, and economic concerns if one of our facilities ever 
did fail.
    The Quincy--Columbia Basin Irrigation District prides itself on 
preventing such catastrophes through maintenance programs that are 
second to none across the West. But the rehabilitation needs of some of 
our aging facilities are beginning to dwarf our budgets and the lack of 
financing tools to assist our efforts is hindering our ability to get 
ahead of these problems. We would like to meet with your District staff 
at their earliest convenience to explain and discuss our issues in 
person prior to this hearing. We understand that Senator Harry Reid, 
the Majority Leader, is very interested in this issue as well due to 
the recent levy failure in Nevada.
    We thank you in advance for helping to submit our testimony at the 
April 17 hearing, and look forward to meeting your staff soon.
            Sincerely,
                                              Darvin Fales,
                                                 Secretary-Manager.

ATTACHMENTS--STATEMENT OF THE QUINCY COLUMBIA BASIN IRRIGATION DISTRICT

    Mr. Chairman, thank you for holding this hearing on the 
increasingly important topic of our aging Federal water infrastructure. 
We appreciate as well, our United States Senator, the Hon. Maria 
Cantwell, for providing the opportunity to submit our testimony to the 
official hearing record.
    Over the past 106-years, the federal Bureau of Reclamation 
(Reclamation) has financed and built some of the largest irrigation and 
multi-purpose water development projects in the world. These projects 
spurred significant economic growth and prosperity in the Western U.S., 
and have well served this Nation through the efficient and effective 
delivery of water and production of fruits, grains, fresh vegetables, 
nuts, and beef and dairy products to feed the citizens of the United 
States and much of the world. These Reclamation projects Westwide 
support water supply, recreation, hydropower production, and fish and 
wildlife habitat, which all contribute to the Western economy and 
quality of life in the region and are even more important today than 
ever before.
    As Reclamation's facilities age, the costs of operating and 
maintaining these projects continue to increase--with a major share of 
these escalating costs borne by only a segment of a project's 
beneficiaries--those holding Reclamation contracts for water.
    In some places in the West, these facilities have already 
outperformed their original life expectancy, and are due for major 
rehabilitation to prepare the way for the next 100-years. Our 
facilities on the Columbia Basin Project in central Washington State 
are no exception. The Quincy--Columbia Basin Irrigation District 
(District) anticipates the need for over $40,000,000 in new investment 
within the next few years just to maintain the efficiency and security 
of our system on the West Canal, a Reclamation facility.
    Such investment is critical to maintaining the reliable water 
deliveries expected of our District, but probably an even more 
important reason for such preventative maintenance is the safety and 
protection of the population and development that has grown up around 
our facilities from the disastrous impacts resulting from a possible 
canal failure. The recent catastrophic failure of the Fernley canal, a 
Reclamation facility in Nevada, is precisely what timely and effective 
rehabilitation is meant to prevent.
    While rehabilitating and upgrading canals may not always prevent 
such a catastrophe from occurring, the risks are drastically 
diminished.
    While there are many challenges associated with accomplishing such 
a large rehabilitation project, the one major barrier our District 
faces is simply one of financing.
    When many of the major Reclamation projects were constructed over a 
half-century ago, Congress understood the need for providing federal 
financial support for the major rehabilitation that would be necessary 
as that infrastructure reached its design and age maximums.
    The Small Reclamation Projects Act of 1956 and the Distribution 
Systems Loan Act of 1955 were meant to support this objective by 
providing a mechanism for long-term financing directly to contracting 
districts (such as ours) to rehabilitate and improve federally-owned 
facilities. There have been no Distribution System Loans since 1991 and 
both programs have been scheduled for termination under Phase II of the 
National Performance Review.
    Without a doubt there remains a federal interest in ensuring the 
timely and safe maintenance and rehabilitation of aging federally-owned 
water facilities in the West. Also, the condition of our Project's 
facilities is of utmost concern to the District and our patrons. 
Millions of dollars have been invested by private property owners over 
the life of the Project on Reclamation's promise of irrigation water 
delivered reliably and on a timely basis. We have a vested interest in 
ensuring Project facilities are and remain in top condition both now 
and into the future based on these investments.
    One of the brightest moments we have seen in our efforts lately has 
been the passage and signing into law of the Rural Water Supply Act of 
2006. Title II of this Act authorized a loan guarantee program for 
Reclamation to help meet the infrastructure needs of districts such as 
ours. While such a program may not solve every water district's 
infrastructure financing problem, it will prove a very useful tool in 
the continual need to rehabilitate water systems for the future.
    Unfortunately, the Department of the Interior's efforts to 
implement this program have been stymied by the Office of Management 
and Budget, and there is no schedule for bringing this useful tool to 
the districts that need it anytime soon. Clearly, Reclamation believes 
this program would be useful as evidenced by their 2008 budget 
requested $2,000,000 for implementation.
    Our District's hope is that this Committee, which had the foresight 
to develop and move the legislation allowing for the loan guarantee 
authority to become law in the 108th Congress, will continue to insist 
that this critical financing tool be made available by the 
Administration as soon as possible.

                       THE COLUMBIA BASIN PROJECT

    The Columbia Basin Project (CBP) is a multipurpose development 
built by Reclamation utilizing a portion of the water resources of the 
Columbia River and is located in central Washington State. The key 
structure, Grand Coulee Dam, is on the mainstem of the Columbia River 
about 90 miles west of Spokane, Washington. The extensive irrigation 
works extend southward on the Columbia plateau, 125 miles south to the 
vicinity of Pasco, Washington, where the Snake and Columbia Rivers 
join. Principal project features include Grand Coulee Dam, Franklin D. 
Roosevelt Lake, Grand Coulee Powerplant Complex, switchyards, and a 
pump-generating plant. Primary irrigation facilities are the Feeder 
Canal, Banks Lake, the Main, West, and East Low Canals, O'Sullivan Dam, 
Potholes Reservoir, and Potholes Canal. At this time, approximately 
671,000 acres are currently irrigated, and power production facilities 
at Grand Coulee Dam are among the largest in the world, with total name 
plate generating capacity rated at 6,809 megawatts.
    The CBP was authorized for construction by the Rivers and Harbors 
Act approved August 30, 1935, and was reauthorized by The Columbia 
Basin Project Act of March 10, 1943, bringing it under the provisions 
of the Reclamation Project Act of 1939. Construction of Grand Coulee 
Dam commenced in December 1933, and was completed with the last of the 
eighteen 108,000 kilowatt generating units installed in September 1951. 
Irrigation commenced on the CBP in 1948 from the Columbia River pumping 
plant, and in 1950 from the Snake River pumping plant. In the spring of 
1952, irrigation water was delivered through the newly constructed 
facilities at Grand Coulee to the CBP. Construction of major canals, 
re-lift pumping plants and lateral systems progressed on a regular 
schedule until 1984 when Irrigation Block 26, the last full block of 
the first half of the Columbia Basin Project, was developed. The 
orderly and efficient manner that the CBP was built has brought about a 
well-rounded development of the project.

                             THE WEST CANAL

    The West Canal is 88-miles long and was constructed between 1946 
and 1955. In 2006, the District hired Mr. Howard Gunnarson, Consulting 
Engineer, to develop an assessment of the condition of the West Canal. 
(The West Canal Assessment Report is attached to this testimony.) 
Eleven critical action items were identified in the Assessment Report 
(Report) along with cost estimates and a prioritization schedule based 
on the threat to the continued safe and proper operation of the West 
Canal and related structures.
    The canal lining replacement action item has work items falling in 
all three priority levels--High, Medium, and Low. Maintenance items 
were also identified during the assessment and are being dealt with in 
our ongoing maintenance program. The estimated total construction cost 
to remediate all the critical action items identified in the Report is 
about $42,000,000 in 2006 dollars; however, several alternatives are 
also identified in the Report to accomplish some of the work at a 
reduced cost. The Report identifies immediate ``High'' priority items 
estimated to cost $3,400,000, and the District is looking into 
financing options at this time to move this critical work toward 
construction.
    The need for loan guarantee to finance the critical action items 
will provide an opportunity to avoid what happens to the Truckee Carson 
canal in Nevada, (ditch failure flooding a recently developed 
neighboring subdivision), and the consequences of such a disaster.
    Currently, private lands included within the Project are subject to 
assessments to pay for operation, maintenance, and rehabilitation. By 
statute, these costs are payable annually; Reclamation does not provide 
financial assistance to accomplish such work. Operation and maintenance 
funds are provided by the District's patrons through annual 
assessments. However, the large amounts of funding required to 
rehabilitate major project features cannot be assessed at the rate 
required to meet these increasing needs. Long term financing is 
required to accomplish these improvements in a fiscally responsible 
manner that is fair to our patrons.
    As stated previously in this testimony, there are few options to 
finance such large construction projects. Municipal bonds are one 
option, and have been used by other districts in similar situations. 
However the fallout from the current mortgage crisis and impacts to the 
money supply available for such investments has adversely affected the 
availability of affordable capital. It is our understanding that 
traditional Municipal Bond financing instruments are now pricing at 
120%-150% of the Treasury rates. We have found that a federally-
guaranteed loan for up to 90% of the cost of a construction project (as 
authorized by Congress in 2006), would be priced very close to the 
Treasury rate, and provide our District with substantial cost savings 
while assisting our efforts to quickly deal with our aging 
infrastructure needs with very little impact to the Federal budget.

                               CONCLUSION

    The Quincy--Columbia Basin Irrigation District would like to thank 
you, Chairman Bingaman, Ranking Member Domenici, and the Members of 
this Committee for your continued interest in planning for and 
implementing rehabilitation projects that extend the useful lives of 
much of the West's aging federal water management infrastructure. We 
look forward to continuing to work with this Committee and the Bureau 
of Reclamation in implementing the recently authorized loan guarantee 
program and other innovative financing methods the could provide our 
District with the financial tools necessary to accomplish our goals and 
objectives with regard to rehabilitating the West Canal and other 
components of our facilities to meet our water needs well into the 
future.

                             BRIEFING PAPER

    SUBJECT: West Canal Rehabilitation Project

    ISSUE: Lack of federal funding mechanisms for the Quincy--Columbia 
Basin Irrigation District to commence design and construction of major 
rebuilding of the West Canal on the Columbia Basin Project in 
Washington State.

    REQUEST: Congressional oversight and possible legislative direction 
to the Department of the Interior, Bureau of Reclamation, to begin 
formalizing a federal loan guarantee program within Reclamation to 
finance rehabilitation of aging water delivery infrastructure in the 
West.

    ACTION: The Quincy--Columbia Basin Irrigation District is asking 
Congress to:

          1) Insist that federal loan guarantees be made available by 
        the Department and Reclamation as soon as possible; or,
          2) Draft, introduce, and pass legislation directing the 
        Department and Reclamation to provide federal loan guarantees 
        to several high-priority rehabilitation projects, including the 
        West Canal Rehabilitation Project within the District.

    BACKGROUND: Over the past 106-years, the federal Bureau of 
Reclamation (Reclamation) has financed and built some of the largest 
irrigation and multi-purpose water development projects in the world. 
These Reclamation projects Westwide support water supply, recreation, 
hydropower production, and fish and wildlife habitat, which all 
contribute to the Western economy and quality of life in the region and 
are even more important today than ever before. As Reclamation's 
facilities age, the costs of operating and maintaining these projects 
continue to increase--with a major share of these escalating costs 
borne by only a segment of a project's beneficiaries--those holding 
Reclamation contracts for water. In some places in the West, these 
facilities have already outperformed their original life expectancy, 
and are due for major rehabilitation to prepare the way for the next 
100-years. Our facilities on the Columbia Basin Project in central 
Washington State are no exception. The Quincy--Columbia Basin 
Irrigation District (District) anticipates the need for over 
$40,000,000 in new investment within the next few years just to 
maintain the efficiency and security of our system on the West Canal. 
Such investment is critical to maintaining the reliable water 
deliveries expected of our District, but probably an even more 
important reason for such preventative maintenance is the safety and 
protection of the population and development that has grown up around 
our facilities from the disastrous impacts resulting from a possible 
canal failure.
    While there are many challenges associated with accomplishing such 
a large rehabilitation project, the one major barrier our District 
faces is simply one of financing. When many of the major Reclamation 
projects were constructed over a half-century ago, Congress understood 
the need for providing federal financial support for the major 
rehabilitation that would be necessary as that infrastructure reached 
its design and age maximums. Without a doubt, there remains a federal 
interest in ensuring the timely and safe maintenance and rehabilitation 
of aging federally-owned water facilities in the West, yet there are no 
active federal loan programs available to Districts such as ours in 
financing these efforts. Title II of the Rural Water Supply Act of 2006 
authorized a federal loan guarantee program for Reclamation to help 
meet the infrastructure needs of districts such as ours. While such a 
program may not solve every water district's infrastructure financing 
problem, it will prove a very useful tool in the continual need to 
rehabilitate water systems for the future. Given the current pressures 
on the financial industry today due to the mortgage crisis, the market 
for municipal bond financing is tight, and the interest costs have 
risen dramatically. Yet, the Department of the Interior's efforts to 
implement this program have been stymied by the Office of Management 
and Budget, and there is no schedule for bringing this useful tool to 
the districts that need it anytime soon. Clearly, Reclamation believes 
this program would be useful--their 2008 budget requested $2,000,000 
for implementation.

  IMPACTS OF POSSIBLE BREACH OF THE WEST CANAL QUINCY--COLUMBIA BASIN 
                     IRRIGATION DISTRICT QUINCY, WA

   During irrigation season, the West Canal downstream of the 
        Bifurcation contains a total volume of water equal to about 124 
        acre-feet (one acre-foot = 325,851 gallons) per mile to the W20 
        Check, with no wasteways or large turnouts into any lateral 
        systems in that reach.
   The reach from High Hill Check to the W20 Check (subtracting 
        the Soap Lake Siphon) is calculated to contain about 1,250 
        acre-feet during normal operating conditions, with an average 
        velocity of about 5 feet per second.
   In the event of a breach of the West Canal reach through the 
        town of Ephrata, Washington, it is possible that over 1,000 
        acre-feet of water (over 325 million gallons) could flow out of 
        the canal during the first 3 hours of failure.
   It is estimated that the downtown business area of Ephrata,* 
        as well as the High School, could be inundated by up to 4 feet 
        of water as the flow spreads.
---------------------------------------------------------------------------
    * QCBID map has been retained in subcommittee files.
---------------------------------------------------------------------------
   If such a breach occurred, State Route 28 could be closed 
        for up to a week or more; the railroad may be damaged as well, 
        and closed to rail traffic for several days or more.
   If a breach occurred in the vicinity of Soap Lake, the water 
        would flow into Soap Lake, washing sediment into the waterbody 
        and raising water levels over one foot, causing damage to 
        residential areas and raising groundwater levels.
   Any breach of the West Canal would result in curtailed 
        deliveries to over 250,000 irrigated acres, drying up high-
        value crops dependent on irrigation deliveries from the West 
        Canal system and, if out of service for the entire irrigation 
        season, resulting in losses estimated to total in the hundreds 
        of millions of dollars in lost crops and associated processed 
        products.
                                 ______
                                 
               Statement of the Water Resources Coalition

                      I. INTRODUCTION AND SUMMARY

    The Water Resources Coalition (WRC) is pleased to offer this 
statement for the record on the aging water resource infrastructure 
that is operated and maintained, or owned, by the United States Bureau 
of Reclamation (Bureau).
    The Coalition believes that Congress needs to increase federal 
financial support for the Bureau in the next three to five years as the 
agency faces three interrelated infrastructure problems: the level of 
funding provided to the agency under recent federal budgets; a small, 
but measurable, decline of the reliability of the water infrastructure 
facilities and systems under the Bureau's control; and the demonstrated 
need for more money to address the repair of aging facilities.

                       II. INFRASTRUCTURE ISSUES

A. Current Conditions
    The Bureau of Reclamation was created by Congress in 1902. ``The 
Reclamation Act of 1902 set in motion a massive program to provide 
federal financing, construction, and operation of water storage and 
distribution projects to reclaim arid lands in many Western 
States.''\1\
---------------------------------------------------------------------------
    \1\ Orff v. U.S., 545 U.S. 596, 598 (U.S. 2005).
---------------------------------------------------------------------------
    Reclamation operates and maintains 2,122 water and power structures 
in 17 states of the West. Among these facilities are 472 dams, 348 
reservoirs, 58 power plants, and numerous other water delivery 
facilities. This infrastructure provides water to 31 million people and 
to 10 million acres of irrigated farmland, and it generates 44 billion 
kilowatt hours of electricity annually.

          Major [Reclamation] water and power systems are now in place, 
        and relatively few large new projects are anticipated. As a 
        consequence, the bureau's focus and workload have shifted from 
        building infrastructure to operating, maintaining, repairing, 
        and modernizing it.  . . . Reclamation's budget has been level 
        while . . . the cost of maintaining and repairing existing 
        infrastructure is rising, in part owing to aging facilities, 
        normal wear and tear, and increased stakeholder attention to 
        environmental issues.\2\
---------------------------------------------------------------------------
    \2\ NAT'L RESEARCH COUNCIL, MANAGING CONSTRUCTION AND 
INFRASTRUCTURE IN THE 21ST CENTURY BUREAU OF RECLAMATION 1-2 (2006), 
http://nap.edu.

    With the nation's population and accompanying development 
continuing to move into the West, however, the need for new 
infrastructure to deliver greater quantities of water in future cannot 
---------------------------------------------------------------------------
be discounted, according to the National Research Council.

          As growth [in the West] occurs, more land in agricultural use 
        is likely to be used for municipal and industrial development. 
        These changes will spur demand for more water and power 
        resources, and that demand may outstrip the supply. Reclamation 
        will be challenged to find ways to manage water and power so 
        that it can meet future demand.\3\
---------------------------------------------------------------------------
    \3\ Id. at 2.

    The Bureau reported recently that its current infrastructure 
systems are in generally good condition. But it acknowledged that the 
long-term trend shows a slight (but noticeable) decrease in reliability 
of the facilities under its control in the coming year. Indeed, the 
Bureau acknowledges that the agency faces approximately $3 billion 
worth of rehabilitation needs for its aging infrastructure over the 
next 20 years.\4\
---------------------------------------------------------------------------
    \4\ Comm'r Robert W. Johnson, U.S. Bureau of Reclamation, 
Reclamation Stakeholders Meeting, Washington, D.C. (Apr. 11, 2008).
---------------------------------------------------------------------------
    Based on the agency's own internal ``Facility Reliability Rating'' 
system, which measures the percentage of water facilities that are in 
good or fair condition, the Bureau determined in FY 2007 that 99 
percent of all facilities met those criteria. The agency accepted, 
however, that the reliability index may fall below 90 percent in FY 
2009 and following years.\5\
---------------------------------------------------------------------------
    \5\ U.S. BUREAU OF RECLAMATION, BUDGET JUSTIFICATIONS--FY 2009 13 
(2008), http://www.usbr.gov/budget/2009/CONTENTS.pdf. The trend will 
remain at or below 90 percent of all facilities for at least the next 
four years, according to the agency.
---------------------------------------------------------------------------
B. Operation and Maintenance
    Much of the Bureau's current infrastructure is now 50 years old or 
older, and its proper operation and maintenance are the agency's top 
priorities. The administration has proposed $396.3 million in budget 
authority for FY 2009 to ensure that its facilities are operated and 
maintained safely and reliably.\6\ This is a slight increase over the 
$388 million enacted for O&M in FY 2008. The agency also is requesting 
$91.2 million for its dam safety program in FY 2009.
---------------------------------------------------------------------------
    \6\ Hearing Before the H. Subcomm. on Energy and Water Dev. on the 
Bureau of Reclamation Budget for FY 2009, 110th Cong. (2008) (statement 
of Comm'r Robert W. Johnson). http://www.cq.com.
---------------------------------------------------------------------------
    Almost from the beginning, the federal government has wrestled with 
the problem of repairing the Bureau's infrastructure. It soon decided 
to require water users to pay for a portion of the repair and 
maintenance of the facilities.
    In 1949, Congress passed the Rehabilitation and Betterment Act to 
authorize those interests that benefitted from the agency's water 
projects to enter into loan agreements in order to pay the federal 
government a share of the cost of the projects' upkeep. The loans were 
to be repaid ``in installments fixed in accordance with [the local 
beneficiary's] ability to pay.''\7\
---------------------------------------------------------------------------
    \7\ 43 U.S.C. Sec. 504. Congress turned to local cost-sharing 
because the Great Depression and World War II had diverted federal 
appropriations for other, more pressing national needs, which left the 
Bureau's infrastructure in a condition requiring ``extensive 
rehabilitation work.'' See S. Rep. No. 81-501 (1949), as reprinted in 
1949 U.S.C.C.A.N. 2050, 1949 W L 1856.
---------------------------------------------------------------------------
    In addition, the Bureau has an existing program, the Small 
Reclamation Loan Program, that should be examined for use in this area 
based on the role that it has played in almost all of the 17 western 
states.
    The Coalition also is disappointed at the failure of the 
administration to move forward with implementing the Twenty-First 
Century Water Works Act that was contained in title II of the Rural 
Water Supply Act of 2005. This Act provided a valuable tool--loan 
guarantees--that many in the West were looking at with regard to 
addressing their aging infrastructure. We would ask the Committee to 
look into the Administration's failure in this important policy area.
    Federal policy today continues to emphasize the need for local 
interests to assume the largest share of the responsibility for 
maintaining Reclamation infrastructure. The agency prefers that project 
beneficiaries perform the day-to-day O&M, where appropriate and in the 
best interest of the public, through a formal transfer agreement, with 
Reclamation retaining oversight of the program.\8\
---------------------------------------------------------------------------
    \8\  Memorandum from Comm'r Robert W. Johnson, to the Acting Deputy 
Comm'r--Operation, Bureau of Reclamation, on Decision Related to 
Managing for Excellence Teams 26-27, Final Recommendations (Nov. 16, 
2007), http://www.usbr.gov/excellence/Finals/Team 26 27-Decision 
Doc.pdf. Facilities owned by the Bureau but rehabilitated by local 
interests under an agreement with Reclamation are referred to as 
``transferred works.''
---------------------------------------------------------------------------
    Currently, the O&M responsibility of approximately 66 percent of 
project facilities Reclamation-wide, totaling nearly 500 facilities, 
has been transferred to project beneficiaries. In most cases, the 
remaining ``reserved works'' are maintained by Reclamation, with the 
agency's contracting all O&M activities at approximately seven percent 
of the reserved works facilities.\9\
---------------------------------------------------------------------------
    \9\ Id.
---------------------------------------------------------------------------
    Where irrigation is the only authorized purpose, all of the 
project's O&M costs are generally paid by the irrigators. Multipurpose 
projects may have benefits that include hydropower, irrigation, 
municipal and industrial water, flood control, recreation, and fish and 
wildlife, and portions of the O&M costs may be allocated to these 
different purposes. O&M costs allocated to reimbursable purposes are 
the responsibility of the water users and have no relationship to who 
is operating the facilities. If the agency performs the O&M, the 
irrigation beneficiary advances funds to Reclamation for the irrigation 
component of the facility's O&M costs.\10\
---------------------------------------------------------------------------
    \10\ Id.
---------------------------------------------------------------------------
    When Reclamation enters an O&M transfer agreement with a non-
federal body, the O&M cost allocation remains the same and payments are 
exchanged, depending on whether project benefits are ``reimbursable'' 
(irrigation, hydropower, municipal and industrial), or ``non-
reimbursable'' (flood control, multipurpose recreation and fish and 
wildlife).\11\
---------------------------------------------------------------------------
    \11\ Id.
---------------------------------------------------------------------------
               III. INFRASTRUCTURE FUNDING CONSIDERATIONS

    The Reclamation Act also established the ``Reclamation Fund'' to 
finance the construction and maintenance of water resources projects. 
\12\ The Fund originally consisted of money received ``from the sale 
and disposal of public lands'' in the West.\13\
---------------------------------------------------------------------------
    \12\ The Reclamation Fund is a restricted fund into which a 
substantial portion of Reclamation's revenues (mostly repayment of 
capital investment costs, associated interest, and O&M reimbursements 
from water and power users) and receipts from other federal agencies 
(primarily revenues from certain federal mineral royalties and 
hydropower transmission) are deposited. No expenditures are made 
directly from the Reclamation Fund; however, funds are transferred from 
the Reclamation Fund into Reclamation's appropriated expenditure funds 
or to other federal agencies through congressional appropriation acts 
to invest and reinvest in the reclamation of arid lands in the western 
United States. See BUREAU OF RECLAMATION, FINANCIAL STATEMENTS AND 
NOTES, 2007 BUREAU OF RECLAMATION ANNUAL REPORT 130 (2008).
    \13\ 32 Stat. 388; 43 U.S.C. Sec. 391.
---------------------------------------------------------------------------
    Because the Fund operates as a revolving loan fund, all income 
received by the federal government from federally constructed 
irrigation projects is returned to the Fund for reinvestment in 
irrigation projects.\14\ In recent times, however, the Fund has derived 
virtually all of its revenues from the sale of minerals and 
hydropower.\15\
---------------------------------------------------------------------------
    \14\ 43 U.S.C. 391a. A 1931 amendment limits the federal share of 
any single project to a maximum of $5 million. See id.
    \15\ U.S. Bureau of Reclamation, Reclamation Fund (2006), http://
www.usbr.gov/excellence/Sacramento/Reclamation Fund Overview.pdf 
(estimating that 83 percent of Fund revenues are from mineral royalties 
received by the Minerals Management Service and the sale of 
hydropower).
---------------------------------------------------------------------------
    The balance in the Reclamation Fund was $6.5 billion as of 
September 30, 2007. It will reach an estimated $7.6 billion on 
September 30, 2008. The balance is expected to reach $9.2 billion by 
the end of FY 2009--an increase of $2.7 billion (41 percent) in just 
two years. According to the agency, the balance is growing due to an 
increase in receipts from the Minerals Management Service and a 
simultaneous drop in annual congressional appropriations.
    Notwithstanding the Bureau's policy of requiring maintenance costs 
to be absorbed largely by project beneficiaries, we believe the federal 
government needs to ensure that adequate funding is directed toward the 
restoration of the Bureau's infrastructure.
    Therefore the WRC recommends that Congress amend the Reclamation 
Act to authorize an appropriation of $1 billion over four years from 
the Reclamation Fund to be used exclusively to finance the restoration 
of the agency's aging infrastructure.
    Although a 1927 law appears to authorize the Bureau to expend money 
repaid to the Fund without an annual appropriation,\16\ we believe that 
these sums (which the agency estimates as approximately six percent of 
all Fund receipts) are insufficient in the modern era to support an 
aggressive rehabilitation effort. Congress needs to amend the law to 
put the restoration of the agency's infrastructure on a sound, 
sustainable actuarial footing.
---------------------------------------------------------------------------
    \16\ 44 Stat. 957. ``Any moneys which may have been heretofore or 
may be hereafter advanced for operation and maintenance of any project 
or any division of a project shall be covered into the reclamation fund 
and shall be available for expenditure for the purposes for which 
advanced in like manner as if said funds had been specifically 
appropriated for said purposes.'' 43 U.S.C. Sec. 397a (emphases added).
---------------------------------------------------------------------------
                    IV. OTHER BUDGET CONSIDERATIONS

    The administration has proposed a budget of $779.32 million for the 
Bureau's Water and Related Resources program for fiscal year 2009. This 
is a reduction of more than $170 million from the $949.88 million 
enacted by Congress in FY 2008.
    The WRC believes that a minimum of $200 million should be added 
into the FY 2009 Water and Related Resources budget for the Bureau. The 
additional funding should be directed toward the Bureau's drought and 
water conservation programs; the Title XVI Water Reclamation and Reuse 
Program; and its authorized Rural Water Projects and the Colorado River 
Salinity Control Program.
    We believe there should also be a greater emphasis to drought 
preparedness and the expected challenges from climate change with 
regard to the Reclamation program. We see an unmet need for greater 
integrated resource planning and water resource planning in the West.
    The Bureau has played an important role in the development of the 
17 western states over the past one hundred years. We are greatly 
concerned with the $170 million reduction in the FY 2009 Reclamation 
program as proposed by the administration.
    When the Water and Related Resources (construction) account of the 
Bureau is examined, 51 percent of the funding is now for facility 
maintenance and rehabilitation. The Coalition recognizes the importance 
of such investment given the aging of the infrastructure and the harsh 
climatic conditions of the western United States.
    Nevertheless, that funding only leaves about $250 million for the 
construction work in the water and energy component of the program--a 
program with a significant backlog of authorized work that holds the 
potential for meeting critical water needs in the West.
    Finally, it is clear that the Bureau has a wide variety of unmeet 
needs and will need to shepherd its resources and set priorities to 
address the most significant problems. One way to do this is to 
encourage the Bureau to continue to partner with the private sector to 
deliver services to the taxpayers. We would urge the Bureau to follow 
Congress' direction to utilize the extensive capabilities and expertise 
of the private sector for engineering and design services to ensure 
more timely project delivery and better value.

                                    

      

```