[House Hearing, 105 Congress] [From the U.S. Government Publishing Office]ENERGY AND WATER DEVELOPMENT APPROPRIATIONS FOR 1998 ======================================================================== HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS FIRST SESSION ________ SUBCOMMITTEE ON ENERGY AND WATER DEVELOPMENT JOSEPH M. McDADE, Pennsylvania, Chairman HAROLD ROGERS, Kentucky VIC FAZIO, California JOE KNOLLENBERG, Michigan PETER J. VISCLOSKY, Indiana RODNEY P. FRELINGHUYSEN, New Jersey CHET EDWARDS, Texas MIKE PARKER, Mississippi ED PASTOR, Arizona SONNY CALLAHAN, Alabama JAY DICKEY, Arkansas NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. James D. Ogsbury, Bob Schmidt, Jeanne Wilson, and Donald M. McKinnon, Staff Assistants ________ PART 3 Page Bureau of Reclamation............................................ 1 Testimony of the Secretary of the Interior....................... 1 Tennessee Valley Authority....................................... 607 Appalachian Regional Commission.................................. 835 ________ Printed for the use of the Committee on Appropriations ________ U.S. GOVERNMENT PRINTING OFFICE 39-555 O WASHINGTON : 1997 ------------------------------------------------------------------------ For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON APPROPRIATIONS BOB LIVINGSTON, Louisiana, Chairman JOSEPH M. McDADE, Pennsylvania DAVID R. OBEY, Wisconsin C. W. BILL YOUNG, Florida SIDNEY R. YATES, Illinois RALPH REGULA, Ohio LOUIS STOKES, Ohio JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania JOHN EDWARD PORTER, Illinois NORMAN D. DICKS, Washington HAROLD ROGERS, Kentucky MARTIN OLAV SABO, Minnesota JOE SKEEN, New Mexico JULIAN C. DIXON, California FRANK R. WOLF, Virginia VIC FAZIO, California TOM DeLAY, Texas W. G. (BILL) HEFNER, North Carolina JIM KOLBE, Arizona STENY H. HOYER, Maryland RON PACKARD, California ALAN B. MOLLOHAN, West Virginia SONNY CALLAHAN, Alabama MARCY KAPTUR, Ohio JAMES T. WALSH, New York DAVID E. SKAGGS, Colorado CHARLES H. TAYLOR, North Carolina NANCY PELOSI, California DAVID L. HOBSON, Ohio PETER J. VISCLOSKY, Indiana ERNEST J. ISTOOK, Jr., Oklahoma THOMAS M. FOGLIETTA, Pennsylvania HENRY BONILLA, Texas ESTEBAN EDWARD TORRES, California JOE KNOLLENBERG, Michigan NITA M. LOWEY, New York DAN MILLER, Florida JOSE E. SERRANO, New York JAY DICKEY, Arkansas ROSA L. DeLAURO, Connecticut JACK KINGSTON, Georgia JAMES P. MORAN, Virginia MIKE PARKER, Mississippi JOHN W. OLVER, Massachusetts RODNEY P. FRELINGHUYSEN, New Jersey ED PASTOR, Arizona ROGER F. WICKER, Mississippi CARRIE P. MEEK, Florida MICHAEL P. FORBES, New York DAVID E. PRICE, North Carolina GEORGE R. NETHERCUTT, Jr., Washington CHET EDWARDS, Texas MARK W. NEUMANN, Wisconsin RANDY ``DUKE'' CUNNINGHAM, California TODD TIAHRT, Kansas ZACH WAMP, Tennessee TOM LATHAM, Iowa ANNE M. NORTHUP, Kentucky ROBERT B. ADERHOLT, Alabama James W. Dyer, Clerk and Staff Director ENERGY AND WATER DEVELOPMENT APPROPRIATIONS FOR 1998 ---------- Wednesday, March 5, 1997. DEPARTMENT OF THE INTERIOR BUREAU OF RECLAMATION WITNESSES HON. BRUCE BABBITT, SECRETARY, DEPARTMENT OF THE INTERIOR PATRICIA J. BENEKE, ASSISTANT SECRETARY FOR WATER AND SCIENCE, DEPARTMENT OF THE INTERIOR ELUID L. MARTINEZ, COMMISSIONER, BUREAU OF RECLAMATION MARY ANN LAWLER, DIRECTOR OF BUDGET, DEPARTMENT OF THE INTERIOR Mr. McDade's Opening Remarks Mr. McDade. The meeting will come to order. We are very pleased this morning to have Secretary of the Interior Bruce Babbitt with us, accompanied by some folks from his agency; and, of course, Commissioner Martinez, we are delighted to have you here representing the Bureau's activities. May I suggest to you, Mr. Secretary, that, as usual, you file your detailed statement with the committee; and we will assiduously study it. And if you can informalize your remarks and proceed in an informal fashion, we would appreciate it. Secretary Babbitt's Opening Remarks Secretary Babbitt. Mr. Chairman, I will do just that. It is a pleasure to be back and to testify before this subcommittee under your chairmanship. I have been coming before this subcommittee in various capacities for nearly 20 years now, and I have learned a number of things. One is that this committee expects the Secretary of the Interior to be brief and succinct and then to pass the testimonial burden on to the people who really know what is going on. I do that with great confidence today because Patty Beneke, the Assistant Secretary for Water and Science, is here to my left and Eluid Martinez, who has done a truly outstanding job at the Bureau of Reclamation, is to her immediate left. I am absolutely confident of their capacity to carry the burden of explaining what we are doing. I also have a number of other Bureau of Reclamation people here today, including Mr. Keys, the Regional Director from the Pacific Northwest; and Roger Patterson, the Regional Director from California. The Bureau is doing an outstanding job. I just would point to one example. The recent floods in the West absolutely devastated the Central Valley of California and parts of Oregon and Washington as well. I think everyone in California took note of the way in which the Bureau of Reclamation responded by operating the water system in the Central Valley to minimize flood damage and to protect the levees, the urban areas and the farmlands. They really performed in magnificent fashion. Mr. Chairman, the Bureau continues along a track of reinventing itself in accordance with the demands of the times. It is a smaller bureau. We have reduced the staff of this organization by 20 percent over the last 4 years. At the same time, the Bureau is gradually evolving from a construction company to a water management organization charged with managing these enormous river basin systems that have been built over the last 50 years. You will see that reflected in the budget. There is emphasis on the management and the reuse of water. There is significant emphasis on dam safety. That reflects the fact that much of our infrastructure is now a half-century old and more, and it is critically important to maintain the highest levels of technical and safety standards out in these basins. There is a great deal going on in the Colorado River basin that I will flag for the attention of the committee. We have had negotiations under way now in all seven basin States in the Colorado River system, attempting to move toward more reuse of water; toward transferring through voluntary market transfers water from agricultural to urban uses in southern California; and to settle a series of issues between Arizona and Nevada. I think we are making outstanding progress. Mr. Keys is here from the Pacific Northwest, where the Bureau is a major participant in the ongoing reconfiguration of the Columbia River system. Ms. Beneke has been the lead player in an ongoing set of interstate negotiations on the Platte River basin involving Colorado and Nebraska. Mr. McDade. She is ready for a diplomatic career at any time she wants to, I am sure. Secretary Babbitt. Anybody who can settle these water wars is fully qualified to go to the Middle East or Bosnia. Mr. McDade. Just about anyplace. california bay-delta ecosystem restoration Secretary Babbitt. Absolutely. No question about that. Mr. Chairman, I would like to touch on one issue and then sort of pass the baton. The major new request in the Reclamation budget this year relates to California. What I would like do is very briefly summarize how it is that we happen to have this request in the President's budget. The Central Valley Project, which is the core water system in California was constructed back in the 1930s. The major components of that project are now a half-century old, and extend the entire length of California, from Shasta Dam up on the Oregon border all the way down to water transfer facilities which take water from the Bay-Delta system outside of San Francisco and actually move that water clear down to San Diego on the Mexican border. Now, when that project was built and conceived in the 1930s, there were maybe a quarter of the number of people in California that there are today. As that system has aged and as California's population has skyrocketed to more than 30 million people, the system is faltering. It really is not up to meeting the demands of agricultural areas that produce half the produce grown in the United States, and a population of 30 million people. The stress is showing up in potential water shortages in the urban areas, uncertain supplies for agriculture, and a big ecological crisis in the San Francisco Bay and the surrounding delta system, which is becoming quite urgent. The levee system was constructed below all of these great dams, which are in the foothills of the Sierra Nevada. The levee systems are plainly inadequate to what we now know about the hydrologic and flood cycles in that part of the West. Now, against that background, when I came to office in 1993, I sent Ms. Beneke's predecessor--her name was Betsy Reike--to California. I said, your job is to pitch your tent and to bring the warring factions together and see if we can get started on a new chapter of California history. Mr. McDade. Did you give her combat pay when she went up there, Mr. Secretary? Secretary Babbitt. Mr. Chairman, I will tell you one thing. She came back two years later and tendered her resignation. But, prior to tendering her resignation, she produced an agreement known as the Bay-Delta Accord, which is now the basis of everything that is happening in California. She actually succeeded in bringing all these folks together and laying the groundwork for reconfiguring all of this stuff against modern reality. Now, out of the Bay-Delta Accord we established a group called CALFED, which, again, is an amazing organization. This group includes the Federal agencies and the California players. They are meeting regularly now, planning the restoration of this Bay-Delta system. The next thing that happened, quite extraordinary, occurred last November when the people of California voted overwhelmingly for a bond issue of $1 billion--to be precise, $995 million--to get at this restoration. They did that because we advised them that the days of a hundred cents on the dollar coming from Washington were over; and if they were serious about reconfiguring this water system, they were going to have to put up approximately half the money. And that is just what they did in November. Now, finally, last year this Congress, at about the same time, passed the California Bay-Delta Environmental Enhancement and Water Security Act, authorizing the expenditure of up to $143 million per year against this matching commitment from the State of California. That is the background to the request for $143 million which would be devoted to preparatory work for the Bay-Delta reconfiguration. It would be used principally for land acquisition, habitat improvement, a variety of issues relating to protection of the migratory fish populations, and work on the levee systems and floodways. Mr. Chairman, I think I will stop there. I am prepared to answer questions about--let's see--Central Arizona projects on my far left, a premier Bureau of Reclamation issue known as the Sterling Forest in New Jersey on my right; and, Mr. Dickey, well, he is from Arkansas, so I will be especially attentive to whatever request he makes, Mr. Chairman. Mr. McDade. Indeed. [The prepared statement of Mr. Babbitt follows:] [Pages 5 - 10--The official Committee record contains additional material here.] Mr. McDade. Mr. Commissioner--excuse me, Ms. Beneke, we appreciate very much your attendance; and we would be delighted to have your statement. If you would again file it, the detailed statement, and inform us as you wish, we would be grateful. Assistant Secretary Beneke's Opening Remarks Ms. Beneke. I will be very pleased to. I just want to express that I am very pleased to be here this morning before the subcommittee again this year to testify on the President's fiscal year 1998 budget submission for the Bureau of Reclamation. In helping to formulate the budget of the Department, one of my highest priorities was ensuring adequate funding for operation and maintenance of our facilities and for our continuing program relating to dam safety work. I think our budget also reflects a commitment to the types of geographically based projects that the Secretary refers to, such as the California Bay-Delta work that we are doing; and he also referred to my efforts, along with many other folks, in the Platte River, which have been challenging. In addition, by statute, the work on completing the Central Utah project has been vested in the Office of the Secretary. That responsibility has been delegated directly to my office. I am here today to answer any questions you may have with respect to the Central Utah project or other questions relating to the Bureau's budget. Again, thank you very much. I am delighted to be here. Mr. McDade. We are very pleased to have you. Thank you for being here. [The prepared statement of Ms. Beneke and the Central Utah Project budget justification material follow:] [Pages 12 - 23--The official Committee record contains additional material here.] Mr. McDade. Mr. Commissioner, would you like to file your statement for the record? Proceed as you wish, please. Commissioner Martinez's Opening Remarks Mr. Martinez. Mr. Chairman, first of all, I appreciate the opportunity to be here today and the opportunity I had to discuss these issues with you a couple of days ago. Mr. McDade. I enjoyed learning, among other things, that you are an artist. Mr. Martinez. I have been involved in the area of water administration for almost 30 years. I think what I would like to leave with you this morning is that the Bureau of Reclamation has a major impact on the western United States. We developed projects in the early 1900s that basically enabled the West to be settled, from a water delivery standpoint. Today, our projects deliver water to more than 31 million people in the West for municipal and industrial uses; and we irrigate some 10 million acres of land, impacting about 140,000 contractors. So the decisions that are made with respect to Bureau of Reclamation activities have a major impact in the West. The mission of this agency has evolved from constructing facilities to managing water. And having been in this business long enough, that is where the complications arise. It is always easier to develop than it is to manage, especially when you have a limited resource. We are now moving into the arena and we are facing issues and complexities that, when you have a limited resource, get somewhat emotional; but we have to deal with those issues. Our infrastructure is aging. We have to continue to maintain it adequately. Most of these facilities are reaching 40, 50 years in age and we have to make sure that they are adequately maintained. Our budget reflects that need. I am concerned about dam safety. I think in a lot of areas our dams hold back the waters that are now threatening inundation of parts of the American West. I want to make sure that those structures are adequately maintained and if, in fact, a problem arises we respond to those concerns. Our budget reflects our needs in terms of maintaining that infrastructure from a dam safety standpoint. Our documents detail our request, but I will highlight some specific requests that might be of interest. They include $61 million for the Central Arizona Project; and, as we discussed, there is some concern with respect to the amount of money that is being requested. We do request $6 million for the continuation of our efforts on the Animas-La Plata project. With respect to wastewater reuse and reclamation projects, our budget includes $32 million for ongoing projects, specifically in California. And, as we discussed, Congress authorized 16 new projects for which funding is not included in our budget request. This is primarily because that legislation was enacted too late in our budget formulation process last year. We are working on a white paper to address how we will engage and recommend to Congress how these projects should be funded. We have engaged with water users out West, specifically the project sponsors, and will be providing that information to you as we formulate our 1999 budget. We will address the needs of those projects at that time. With respect to dam safety, at the time I became Commissioner I convened an outside group of experts to look at our dam safety program to make sure that if we had weaknesses, we identified them, and if strengths existed, we would try to reinforce those strengths. That report is completed and we will be transmitting it to Congress. I am glad to say that the outside group of experts found our program to be efficient and effective. The issue of funding for continued maintenance on these structures was discussed and we will be transmitting that report to Congress. With respect to the amount of money that we are requesting for our agency administration and policy formulation, that is basically flat. We are asking for $48 million for fiscal year 1998, compared to $48 million for 1996 and $46 million for 1997. The last thing I would like to draw to your attention is the fact that Reclamation has been effective, I believe, in reducing our workforce and making our efforts more efficient. We have reduced FTEs by 1,400 in the last 5 years. That is the conclusion of my summary statement, Mr. Chairman. I appreciate the opportunity, and I will be happy to respond to any questions. Mr. McDade. We are delighted to have you here, and I am sure we will have some questions for you. [The prepared statement of Mr. Martinez and the Bureau of Reclamation justification material follow:] [Pages 26 - 471--The official Committee record contains additional material here.] california bay-delta ecosystem restoration Mr. McDade. Mr. Secretary, let me direct my first inquiry to you, if I may. We were somewhat taken aback with respect to the California Bay-Delta ecosystem project, a single page of justification for $143 million. As I am sure you know, there is no detail provided in the justification sheets as to how that money would be expended. So we are kind of sitting here, from our perspective, looking at what is asked for to be a kind of blank check, because we do not know where the money is going to go. Do you have any additional information you can provide the committee about where that $143 million would be spent and how it would be spent? Secretary Babbitt. Mr. Chairman, we do; and I would be happy to provide that to the committee. Let me just say that the reason we have been a little bit slow is because this new way of doing business, the CALFED process, is pretty cumbersome. It requires unanimity among about six Federal agencies and half a dozen State agencies. Mr. McDade. How many people in that process, Mr. Secretary? Secretary Babbitt. How many people? Mr. McDade. Yes, how many individuals in the CALFED process? You make it sound like a mini-U.N. and we know how hard they are to deal with, and I would not be surprised to hear that it is. How many people have to sign off before you get a decision? Secretary Babbitt. Well, on the Federal side I believe there are four principal agencies the Environmental Protection Agency, the Department of Commerce, and there are also four Interior agencies. I must tell you, sometimes the hardest part is getting agreement among the Interior agencies. I preside over sort of a confederation of independent players--including the Bureau of Reclamation, Fish and Wildlife Service, Geological Survey, and Bureau of Land Management. Who else is involved out there? The Corps of Engineers and the Department of Agriculture are the other major Federal players. Mr. McDade. And all with the veto power, if they don't agree, is that back to the drawing board? Secretary Babbitt. Well, nobody has a veto power; but we have agreed from the very beginning that we should proceed by consensus, and it is actually working. We have really been very successful. It does tend to move things slowly. Now, we will have the staff provide you a significant amount of detail. The whole wrap-up for fiscal year 1998, both for the California agencies and the Federal agencies, will be available by June 1st. Is that right, Patty? She says, July. They just slipped us a month between the first and second drafts of my testimony. Mr. McDade. And I would not be surprised, experience would tell you, if it slips another month. Secretary Babbitt. Mr. Chairman, it ain't slipping no more on my watch, because I understand that unless we have this material sitting before this subcommittee in time for you to deliberate that we cannot expect to get a positive response. Mr. McDade. If it is July, you know, the appropriation season. If we are lucky around here it would be the May, June time frame. That is traditionally when we try to get it done and then get it over to the Senate by July so they can act by September. So I think that is something you need to take into consideration. I don't know how you can move all the opinions you have to move more concisely and more expeditiously; but I think if it comes in July we will probably have marked up, Mr. Secretary. Secretary Babbitt. Mr. Chairman, I understand your concern. We do have a CALFED proposal, which I would like to submit for the record, and we will have the back-up material by June 1st. [The information follows:] [Pages 474 - 492--The official Committee record contains additional material here.] Mr. McDade. Are there as many as 10 Federal agencies involved is this? You mentioned a couple of them. Are there as many as 10 involved? This is what we have heard from some sources, that there may be 10 Federal agencies involved. This is on the Federal side of this process. Maybe Ms. Beneke would like to respond. Secretary Babbitt. Mr. Chairman, that is pretty close, actually, if you include the four big players from Interior. There are four or five other Federal agencies--EPA, National Marine Fisheries, the Corps of Engineers. The Department of Agriculture is a player, too. Mr. McDade. And another concern we have is that you intend to pass the $140-some million to those agencies, as we understand it. Secretary Babbitt. That is correct. transfer of bay-delta funding Mr. McDade. It may be wrong, because the justification is not totally clear to me, that you intend to pass through money, which is kind of the reverse of the normal process where the agencies all come up individually and describe their level of work effort to the committee and what money they need to carry it out. You are going to do that? Is that your plan? Secretary Babbitt. Mr. Chairman, we evolved this model on the other side of the Interior budget in the Florida Everglades, where money destined for other agencies is appropriated to the National Park Service. The reason we did that is to keep really careful accountability for the effort. It has worked very well in Florida. The Bureau of Reclamation is the 800-pound gorilla in the Central Valley of California; and it is our belief, based on our experience in Florida, that we actually run a tighter ship by disbursing the money from what would be, in the private sector, a project manager. Mr. McDade. Well, will you know in that same time frame what kind of money you expect to disburse to the 10 Federal agencies--if there are 10? Secretary Babbitt. Absolutely. The major ones are, in fact, in the document that I have submitted for the record. Mr. McDade. Okay. We need the same kind of detail, as you know, Mr. Secretary, in order to make appropriate judgments with respect to the money we are going to appropriate--the tax money we are going to appropriate for the project. Secretary Babbitt. Mr. Chairman, I appreciate your concerns and will respond. bay-delta cost sharing agreement Mr. McDade. Let me bring another one to you now. The budget states that Federal funds are available after a cost-sharing agreement with the State is signed. What is the operative date for that? Secretary Babbitt. The target date for the cost-sharing agreement is the beginning of the coming fiscal year. Mr. McDade. Which is? Secretary Babbitt. October 1st. Mr. McDade. Well---- Secretary Babbitt. Now, I think we can---- Mr. McDade. Again, it is going to be an impediment to us, respecting the fact that we are supposed to have a cost-sharing agreement before the project begins. Secretary Babbitt. Mr. Chairman, I believe we can be responsive to that. Mr. McDade. Let me underline these things to you, because they are important. Secretary Babbitt. Absolutely. Mr. McDade. You know, it is a very large amount of money. There are a lot of open questions, and we recognize the difficulties that you face in negotiating this kind of difficult problem with a lot of different people and lot of different agencies. From our perspective, we need to get some additional details from you. Is there anything that you can tell us about what that cost-sharing agreement is going to look like? Secretary Babbitt. Mr. Chairman, I can. The operative framework has been that we should shoot for cost sharing which is in the 50/50 range, but there is nothing magic about that percentage. The statute does not have a cost sharing ratio in it. Mr. McDade. No specific number in it. Secretary Babbitt. It is not specifically required. Our position has been that there should be a presumptive 50/50 cost sharing between the public agencies, not counting the private sector funds that will go into it. Mr. McDade. Well, California is way out front with about a billion dollars. Secretary Babbitt. They certainly are. Mr. McDade. Another 3 years would be about, let's say, $430 million. Secretary Babbitt. Well, Mr. Chairman, about half of California's billion is earmarked specifically within the area of this project. Their bill also includes some projects, particularly in southern California, that are not in the ambit of this particular project. Mr. McDade. Does the agreement require approval by the legislature as well as the governor or does the governor have the authority to sign off on it? Secretary Babbitt. I believe the governor now has authority. It will require a programmatic environmental impact statement for many of the expenditures. That environmental impact statement is now underway. The expenditures that we have identified in this request are ones that all parties agree would be made under any of the alternatives in the programmatic environmental impact statement. That impact statement is required both under Federal and State law. Mr. McDade. You feel you have a pretty good handle in terms of this agreement that you have been negotiating? Secretary Babbitt. Yes, I think that is an important distinction. This project has been under way now conceptually for the entire 4-year period that I have been here. The nature of this beast makes it a little cumbersome, but the great strength of this is reflected in the cost sharing and in the unanimity of support that we have in California. Mr. McDade. What have they done in California about appropriating--actually appropriating their part of the money? Secretary Babbitt. Mr. Chairman, I cannot answer that. But the bond issue has been approved. It is only a question now of drawing down the funds, is my understanding. But I would be happy to provide a written answer to that. Mr. McDade. We would appreciate it; and we want to just, you know, once again express concern that we see this thing coming together. We need to know that California has not just done the bond issue but is appropriating the dollars to meet their match as we go along. [The information follows:] California Appropriations With passage of Proposition 204, the State of California is authorized to provide $60 million, immediately without the need for further legislative action, for non-flow related ecosystem restoration projects, known as Category III projects. Those funds are currently available. When CALFED completes the programmatic EIS/EIR process, currently scheduled for late 1998, an additional $390 million will be available for ecosystem restoration projects. In addition to those funding sources, Proposition 204 also authorized $170 million in funds for watershed management, conjunctive use projects, agricultural drainage management, water recycling, water conservation, water transfers, and other projects which are directly related to the CALFED Bay-Delta Program. While CALFED does not have direct control over these funds, member State agencies do control them. The Secretary of Resources, through the Water Policy Council has indicated that CALFED will exert a large influence over the disposition of those funds, thereby directing a large portion towards CALFED Bay-Delta Program elements. Secretary Babbitt. Mr. Chairman, I have just been informed by the people with the facts--this is always the case--that the cost-sharing agreement will be done in August rather than October. Mr. McDade. Done in August. Secretary Babbitt. Yes. bay-delta spending Mr. McDade. This is probably a number cruncher question-- assuming you got the $143 million, how much would you actually anticipate spending and how much carrying over into the next fiscal year? Secretary Babbitt. We would anticipate spending that in 1998. Mr. McDade. All of it, Mr. Secretary? Secretary Babbitt. That is correct. Mr. McDade. Because you are obligating it, you mean? Secretary Babbitt. That is correct. Mr. McDade. But how much would you expend? The best estimate that I know---- Secretary Babbitt. $50 million. Mr. McDade. About $50 million of the total? Secretary Babbitt. Yes, we would commit the rest, according to the outline that is in the document that I have just offered. Mr. McDade. I think the budget assumes $50 million of outlay, does it not? So you are constrained by that number, as I understand it. I hear from number crunchers all the time. We would be delighted to hear from you. Secretary Babbitt. Mary Ann, would you like to respond? Ms. Lawler. Certainly. We intend to obligate the money, which means sign the contracts. The outlays occur when the payment goes out after the work is done. Mr. McDade. You intend to commit, if it goes your way and everything dishes out, the entire amount of the project or $143 million? Ms. Lawler. We would hope to obligate the entire amount for the project. $50 million in outlays is associated with that the first year, the actual payments to the contractors. Mr. McDade. But you hope to obligate all the money by what date? Ms. Lawler. By the end of the fiscal year. Mr. McDade. The October date again? Or is that the August date? Secretary Babbitt. That would be by October of 1998. Ms. Lawler. We will not have the money until it is appropriated. animas-la plata projects Mr. McDade. Let's talk a little bit, if we can, Mr. Secretary, about the Animas-La Plata project, which is one we hear a lot about--you hear a lot about. As I understand, there is $6 million in the budget request for the project. And you indicate there is a process ongoing led by Governor Romer of Colorado, and that will play a great part in the decision that may come down from the Department about how to handle this project. Secretary Babbitt. Mr. Chairman, that is essentially correct. This project has been discussed from time immemorial, and it has only gotten more controversial and more divisive. I talked with Governor Romer last summer, and he suggested that we try. We had had a previous consensus-building process in Colorado that we ran in 1994, and it worked out very well. We solved some really contentious issues together by bringing everybody into the Governor's office. Mr. McDade. Would you kind of flush out who is in that process? Who are the parties? Secretary Babbitt. The chair of the group is Gail Schoettler, who is the Lieutenant Governor of Colorado. The principal parties to it are the agriculture and irrigation districts in southern Colorado, who would be beneficiaries; the two Ute tribes who are involved; the various environmental groups; Colorado State agencies; the Environmental Protection Agency, which has a major statutory role in this; and then the usual collection of Interior agencies, with me kind of holding the reins, trying to keep them moving the same way. In this case, Interior agencies are principally Reclamation and the Fish and Wildlife Service. Mr. McDade. Again, the usual complex negotiations that are in this project, as so many water projects, that you have to face. Do you have an idea--can you enlighten us as to the time frame with respect to this one? When do you expect the process to conclude? Secretary Babbitt. The stated time frame when the Governor and I convened this group last fall was that we would finish up by March or no later than April. The pace of these discussions is pretty intense right now, and I think that we are either going to find something everybody can live with by sometime in April or, basically, I don't think it will go anywhere. Mr. McDade. We are going to have to change a lot of minds up on the Hill if it is going to go anywhere, as you know. Secretary Babbitt. I understand. indian trust responsibilities Mr. McDade. Let me ask you this question about our trust responsibilities with respect to Indians. I know that that is a major concern here, and it is a major concern of yours. What are the range of options, bearing in mind this is a trust responsibility we have to present to the Indian tribes? Secretary Babbitt. I think the particular tribes here are an interesting example of our trust responsibility. There are about four options. I will state the full range without endorsing or commenting on any of them. Mr. McDade. Yes. Secretary Babbitt. The first one would be to cashier all of this and let everybody go back to court, because the courts are the ultimate guarantor of Indian reserve water rights claims. The second alternative would be to build the project in its original proposed form. The third way to do it would be to find some modified structural approach still involving these inter-basin water transfers. The fourth way to do it would be to go back to the ground out there and see if it were possible to buy, retire or transfer existing water rights to the tribes through a new distribution system in satisfaction of their rights. I guess the fifth one would be to cash out the tribes, simply to say, will you take money for water? Now, having said that, I don't want to comment on any of them. I would say what I have said to the tribes, that I believe they are entitled to wet water, if that is their desire; and they seem to say, we don't want money; we want water. Mr. McDade. Is it the Department's unequivocal position that if all parties, including the Indians, don't reach a unanimous agreement, the Department will not support the project? Secretary Babbitt. Mr. Chairman, we have not taken that position. I have come up here for 4 years and said that my job, as I perceive it at this time, is to follow the will of this Congress, number one; number two, to search relentlessly for consensus; and, number three, to say to the Indians, I respect and support your desire to get wet water out of the other end of this process. Now that leaves a wide range of possibilities; and, obviously, it will be a call by the Administration, not by me personally. Mr. McDade. Okay, well, we will watch it together with you, and I appreciate your answers. I am delighted to yield to Mr. Fazio at this time. Mr. Fazio's Opening Remarks Mr. Fazio. I thank you, Mr. Chairman. animas-la plata project As you know, this has been a real problem for this committee. In fact, it became one of the major problems we had on the Floor last year with this bill. I know your desire is to make this as easy a process as possible, and so I thought I would see if I could refine the Secretary's answer a little further in this regard. I know the proponents believe that you have indicated in the past that you think, in order to get out of the box that we are all in, a structural solution is going to be required. I think they believe they heard that in a conversation they had with you last year. I wonder if you still think at the end of the day, when all of these negotiations have, hopefully, arrived at some conclusion before we have to go to mark up or certainly to the Floor, that you think that that will be a component of the solution. I realize that we are all in this together, and we have been there for a long time, and we would like to get out. I know there are people who think that their best position is to come to no resolution; and that then, ultimately, since this climbs on the environmental taxpayer hit list every year, now at the top, it is inevitably going to die; and there is no reason to compromise, no reason to reach any agreement or even to find a structural solution when we can simply cash out the tribe's rights. Would you try to refine a little more carefully what they think you said? Secretary Babbitt. I think it is very important, the he said, she said, they said. Mr. Fazio. In this case, it is you. Secretary Babbitt. That discussion derives out of a meeting that I had with all of the native American groups at the Colorado River water users in Las Vegas just before Christmas. Now what I intended to say and what I believe I said was I respect and advocate your desire to have wet water on the land. I do not believe that that absolutely requires a structural solution. There are some other alternatives, the kind of nonstructural transfer and augmentation arrangements that you are familiar with in California. Those alternatives have not achieved any kind of consensus, but they are available in theory. I mean, they are there, and I have not lined up behind any of those alternatives or certainly did not intend to do so, and I don't think I have. Mr. Fazio. Well, I guess the real equality point is whether these negotiations will come to any resolution. I think that the people who are negotiating would feel that they might be on a more level playing field with each other if there was a clear commitment from the administration that we are going to respond to the 1986 and 1988 enactments that guarantee these tribes their water rights. And you have indicated that you think wet water is a component, so you are talking about delivering water, not cash in lieu of water rights? Secretary Babbitt. Yes, I think we have to respect the tribes's desires. Mr. Fazio. And it may be required to build some sort of conveyance to get them wet water, whether or not we call it the Animas-La Plata? Secretary Babbitt. Well, the real question is whether you can provide wet water without an upstream, inter-basin transfer from the Animas River to the La Plata River. I believe there are scenarios in which that can be done. I am not endorsing those, but I acknowledge that they exist. Mr. Fazio. Okay. Thank you, Mr. Chairman. Mr. McDade. Gentleman from New Jersey. Mr. Frelinghuysen's Opening Remarks Mr. Frelinghuysen. Thank you, Mr. Chairman. The Secretary's presence today has jump-started the building staff. We have a new clock on the wall. Yesterday, the clock was paralyzed at 9:00. Secretary Babbitt. Maybe you could move it forward today. Mr. Frelinghuysen. We could. I will do my best to do that right now. sterling forest Leaving the water wars and rights issue for a few minutes, and you were good enough to embrace it in your opening comments, I would like to talk about and get your reaction to a number of land preservation and watershed protection issues in the Northeast. At the top of the list is the Sterling Forest area in both New York and New Jersey. Congress provided $9 million to begin the process of purchasing that very important piece of watershed protection property. Can you tell me how we are proceeding in the second phase of that appropriation? Secretary Babbitt. Congressman, the President's budget request includes $8.5 million, which is the second and final installment of the $17 million Federal commitment which is embodied in the Omnibus Parks Bill from last year. We obviously support that and believe that this is coming to a happy conclusion with roughly equal support from both New York and New Jersey. Mr. Frelinghuysen. It will be a happy solution. I was just wondering if you could comment on how fast this acquisition can be accomplished; and, hopefully, we will provide the resources--certainly on this committee we will be working towards that goal, but do you see any stumbling blocks along the way? Secretary Babbitt. Congressman, I do not. There is a negotiated agreement in place, and I believe that it can be closed at the purchase price of approximately $52 million. I am not entirely up to date on the intricacies of the New York commitment, but I believe it is there. And, obviously, the Federal contribution is contingent upon closing at the agreed- upon purchase price. Mr. Frelinghuysen. We thank you for that information and your continued support of that moving ahead with that purchase and those dollars. About 2 years ago, you were good enough to visit the Great Swamp Wildlife Refuge in my district in northern New Jersey. I understand that the Watershed Association has invited you back for a return visit sometime this fall. I hope that you will favorably consider their request. land aquisition priorities I just wanted to ask a question relative to your budget submittal for land acquisition. Can you tell the committee or can you provide the committee at some point with the methodology in terms of how you chose which land acquisition projects were to be included in your budget proposal? Secretary Babbitt. I would be happy to do that. There are three separate sets, and they are prioritized internally according to criteria which I can provide you--the Bureau Land Management, Park Service and, in this case, Fish and Wildlife Service. Mr. Frelinghuysen. Thank you. [The information follows:] Methodology for Prioritizing Land Acquisition Projects The National Park Service, the Fish and Wildlife Service, and the Bureau of Land Management each have their own methods for selecting the land acquisition projects for which funds will be requested. In particular, the Fish and Wildlife Service (FWS) maintains a data base known as the Land Acquisition Priority System (LAPS) whose purpose is to provide a biological basis for ranking projects and directing acquisition efforts toward those projects having the highest overall national value. Projects are nominated for inclusion on the list of potential acquisitions according to a broader set of FWS goals, and then are ranked using biological criteria. The six FWS categories that are used to provide a biological basis for ranking projects are Endangered Species, Migratory Bird, wetlands, nationally significant wildlife habitat, biodiversity and fishery resources. Each of these categories has a distinctive set of criteria that provides every project with a score within a list. Then common factors such as degree of threat, multiple FWS goals and objectives, public use, and operation and maintenance needs are applied to all projects. The highest ranking projects on the LAPS list provide the basis for developing the budget list which is submitted through the Department of Congress. national fish and wildlife foundation Mr. Frelinghuysen. Lastly, within the subject area of today's hearing, relative to the National Fish and Wildlife Foundation, what is your budget request for the Fish and Wildlife Foundation? What do you plan to use those dollars for? Can you just make some general comments about the benefits of that investment? Secretary Babbitt. I believe the request in the Bureau of Reclamation budget is $1.5 million--and I believe that is about the same level as last year. Now there are roughly similar amounts in our budget on the other side from the Fish and Wildlife Service. Actually, it is $5 million from the Fish and Wildlife Service. This money, I believe, is one of the best ideas that has ever come out of this Congress, because the National Fish and Wildlife Foundation is now operating on an annual budget of about $40 million. They have several other sources of Federal appropriations, maybe including Agriculture's budget. I am just not sure. It can't be more than $10 million in Federal approptiations, and they are running on a $40 million budget right now. Mr. Frelinghuysen. It is pretty remarkable. I want to thank you for your participation, for the committee's information and enlightenment. If you could provide a record of the list of projects the Department and Fish and Wildlife Foundation have worked on over the last 3 years, I think the committee members would find how amazing it is that a relatively small investment has reaped incredible benefits--if you would be kind enough to provide that. Secretary Babbitt. I would be happy to. [The information follows:] [Pages 502 - 533--The official Committee record contains additional material here.] Mr. McDade. Thank you. The Chair recognizes the gentleman from Arizona. Mr. Pastor's Opening Remarks Mr. Pastor. Thank you, Mr. Chairman. Good morning Mr. Secretary, Ms. Beneke and Commissioner Martinez. tres rios wetland restoration project Going back to the water issues, Commissioner Martinez in his testimony talked about projects that deal with reclaimed wastewater. In Arizona, we had authorized the Tres Rios wetland restoration project that is outside of Phoenix; and we are ready to move forward with the project in Phoenix and other communities. I was wondering, does the Bureau anticipate continuing this effort in the project in fiscal year 1998? Mr. Martinez. Mr. Chairman, Mr. Pastor was in Phoenix just a month ago. I committed to continue to work with the City of Phoenix. As you are aware, the issue there is that Congress appropriated money for us to allow to continue working with Phoenix. But, in the language, the attorneys tell me there is a little quirk. The language says, the Bureau of Reclamation shall work with Phoenix in constructing the project. Our attorneys interpret that to mean that that language requires a repayment on the part of Phoenix. The language for the other waste water use projects does not use the language ``the Bureau shall construct''. It says, the Bureau shall participate in construction, which allows a grant to occur. So, we have to work through that language. Once that language is corrected, we will work through that process. We have committed to work with the city on building the project. Mr. Pastor. Do you have any recommendations for me in how we could take that particular language and assure that we go forward with the project? Do we need to amend? Mr. Martinez. Yes. My understanding was that the representatives of the city were going to meet with our attorneys here in Washington to see if we could come up with some resolution on that. Mr. Pastor. Thank you. central arizona project Another issue that you spoke about this morning was the Central Arizona project. We have been involved with lawsuits concerning the construction, the repayment, maintenance and operation, etc. I know that there have been attempts to, hopefully, bring some settlement to it. What is the latest progress in the discussions with the CAWCD and the Department of Interior to come to some kind of settlement over those lawsuits? Secretary Babbitt. Congressman, there is a very tangled web here, because the settlement of those claims has inevitably broadened into a discussion of related issues such as the role of the tribes in the policy setting and the board of the Central Arizona Water Conservancy District. We have had discussions with the State, and the CAWCD board. I guess I am always optimistic but in this case, I cannot cite any new facts that suggest that we are close. The litigation is continuing; and I believe the discovery schedule now calls for document closure in the spring and the closure of discovery this summer for trial this fall. The reason I lay that out is because we find again and again and again that, once the discovery has been done, all parties tend to be more realistic about their positions, so that may provide an opening. It is going to be linked to this issue of the role of the Indian beneficiaries in governance, and we have not resolved that. Mr. Pastor. I know several years ago the native Americans complained that they were not part of the process, and we talked about possible inclusion. But one of the barriers, I guess, that was always presented to me was that the members of the district are elected and they could not place native Americans on the board, etc. And I wonder, is that still a problem that you are encountering? Secretary Babbitt. Well, it certainly is the case that, were a settlement process to conclude that the tribes should be represented on the board of CAWCD, that that would require a statutory change from Arizona legislature. Mr. Pastor. I see. In the fiscal year 1997 appropriations conference report, there are certain Bureau programs for specified reduction or termination. Other than those specified in the fiscal year 1997 Appropriations Act, were there any programs or projects canceled or delayed? Secretary Babbitt. Let me take a first crack at that, and then I will refer it to the Commissioner and Ms. Beneke. We have had some choppy water over the language in the 1997 appropriations bill, because some of the language which cut out particular appropriations conflicts with other Federal statutes and our obligation under general law. I suppose the most important one is the litigation over the siphons. We have an absolute obligation under Federal law to pursue those claims. We must do that. What I hope we can do is get back with the Arizona delegation and work some of those issues out. There are a couple of other ones that relate to contract administration and some other things. We cannot quarrel over these items. We are in this together, and I think we can get them sorted out. Now--so whether or not there are any specific cancellations, I refer you to those who know. Mr. Martinez. I am not aware of any specific cuts, but I will get back to you on that issue. Mr. Pastor. Okay. Thank you very much. I will submit other questions for the record, Mr. Chairman. Thank you very much. [The information follows:] [Page 536--The official Committee record contains additional material here.] Mr. McDade. Thank you. Mr. Secretary, I want to announce to you and your colleagues that Congressman Edwards is not with us this morning because he is attending a memorial service for his colleague from Texas who died. He has a lot of interest in the bill and the subject matter. Were it not for that, the memorial service, he would be here. I am pleased at this time to recognize my friend from Alabama, Mr. Callahan. Mr. Callahan's Opening Remarks Mr. Callahan. Thank you, Mr. Chairman. Just an observation: Most of the requests for these reclamation projects, I guess rightfully so, are west of the Rockies. While I want to do everything I can to facilitate Congressman Fazio and Congressman Pastor and will do that, the observation is that I read in Parade magazine where that area is going to crack and fall off into the Pacific. That is a lot of money to be spending. Mr. Pastor. Would the gentleman yield? That is California that is projected to go in the ocean. Mr. Callahan. I have no questions, Mr. Chairman. Mr. McDade. We are delighted to recognize our friend from Arkansas, who is just back from inspecting disasters in that area. Welcome back. Mr. Dickey's Opening Remarks Mr. Dickey. Thank you, Mr. Chairman; and I want to thank you for the opportunity to be on this subcommittee. It is something that I wanted to happen, and I am thankful that it did. I am also thankful for the Chairman's leadership and how much experience you bring to this process and how much you are going to be leading us in the ways of trying to help people with the little bit of money we have. I am sorry I could not be here yesterday. I would like to assume that you all would like to know something about what is going on in Arkansas. And it is not good, because the tornado-- there was just devastation 20 miles in length. Probably 10 to 11 tornadoes touched down, and we have got now 25 people who have died. The President, Mr. James Lee Witt, the Secretary of Transportation, the director of the SBA all were on the ground. We are going to be spending a lot of money, and I have been asking about where it is coming from, and I am sure it is going to have to come from our committee in some fashion. But I think it is just amazing, the resiliency of the people. I don't think it is just Arkansas. But, as the President said, he saw the light in their eyes, that we will recover. Of course, there are some 25 people who will not have a chance to be back. But I am glad to be back; and I am sorry, after all the work I did to get on this committee, I missed the very first subcommittee meaning. So forgive me for that. Mr. McDade. Well, we can give you an instant replay. Mr. Dickey. All right. irrigation projects in arkansas I think my first question is probably directed to the Commissioner. I am not going to let you off, Mr. Secretary; but I want it start with him. We have had talks with the Corps of Engineers officials about the construction of large irrigation projects in Arkansas to conserve water. The response we get from them is that it is the administration's policy for the Corps not to get involved in this type of construction project. The Congress would have to provide specific tasking and legislation to get the Corps involved. The question is, would the construction of irrigation projects in Arkansas reside within the mission and capabilities of the Bureau of Reclamation? And, if not, why not? Mr. Martinez. Mr. Chairman, Congressman Dickey, there is no question the Bureau of Reclamation has the expertise in these kinds of activities. However, we do not have the authority to spend our appropriations on projects or activities outside of the body of ``Reclamation law.'' Reclamation law has historically limited Reclamation projects to the seventeen Western States. Mr. Dickey. Well, that answers that. You don't care about Alabama and Arkansas? Mr. Martinez. We have worked in the eastern States under reimbursable arrangements with other Federal agencies. We work a lot with FEMA. Mr. Dickey. Well, is there any cooperation that we can get? I mean, do you all loan services and loan expertise? Mr. Martinez. Yes. Like I said, we have worked in other States under cooperative agreement with other agencies; and I would like to visit with you and see what we can do. Mr. Dickey. Good. Thank you, sir. hot springs bath houses Mr. Secretary, this is a stretch now. Do you follow me? I don't want you to bring exception to this too soon. We have 140 degree water that comes out of our thermal baths in Hot Springs, and we have bathhouses that were built at the turn of the century that are deteriorating. Mr. Chairman, this is not within the jurisdiction of this subcommittee, but I just can't help but ask it. The President is from Hot Springs. He grew up in Hot Springs. Can you help? Secretary Babbitt. Mr. Dickey, recognizing the facts that you have just lined up, acknowledging that against that background--I have been to Hot Springs and carefully examined all of this because of the President's personal interest in Hot Springs. I have learned some interesting facts; and I must tell you, your question is not as far afield as you might imply. Number one, Hot Springs is the site of the first and original unit in the National Park System. The mother park of the National Park Service is not Yellowstone, it is Hot Springs. Mr. Dickey. Thank you. Secretary Babbitt. Hot Springs was established in 1832. I have done my homework. Would you like to know more about that? Mr. McDade. How are the baths? Secretary Babbitt. The baths are--well, if you like Hot Springs. In fact, the National Park Service has a significant role in the administration of the park and the protection of this historic district. So I would be happy to follow-up with your specific thoughts. Mr. Dickey. You will be hearing from us. And with regard to that visit, I would like to ask you not to come back for the same purposes you came the last time. Secretary Babbitt. Mr. Dickey, I will try to refrain from coming in the second half of even numbered years. Mr. Dickey. You got the message. Thank you. Thank you, sir. Thank you. programmatic budget structure Mr. McDade. Mr. Commissioner, let me ask you a couple questions, please. We have a new budget form that percolated up to the committee this year. Is that your initiative? Mr. Martinez. No. Mr. McDade. Tell us the history on it, will you? Mr. Martinez. I will not take the credit on that, but I think I will let you know its background. It was initiated by the previous commissioner. As we moved from a construction to a water management agency, it was thought we could restructure our budget in order to give a better picture to the committees as to what our activities are. My understanding is that we have worked with the staffs of the committees and with OMB to come up with the structure; and, hopefully, it will be a structure that will be more responsive and provide more information to the committees. During the transition period it might be more difficult, but that is my understanding of that. Mr. McDade. We will stay in close contact with you if we need additional information, and we hope it moves in the direction that you want it to. bureau of reclamation mission What do you say to people--I will meet a colleague now and again who will say, the Bureau of Reclamation says that its major mission is over; it has done its development; why should it continue to exist? What is your response to that? Mr. Martinez. Well, I will address that from two perspectives. One, we have a large infrastructure out West, a big Federal investment. As long as the Bureau of Reclamation is responsible for maintaining those facilities, we have a charge that we have to undertake. On the other hand, the Bureau of Reclamation is the permittee for water rights under State law for all these projects. It has to carry out its role under State law. Mr. McDade. How many people function in that section in permitting? Mr. Martinez. Well, probably not that many. But what I am trying to get at is that, in most States out West, most of the water that is developed for either agricultural purposes or for municipal and industrial purposes, comes from Bureau of Reclamation projects. So as long as the Bureau of Reclamation holds title to those water rights, we, by necessity, have to be an engaged party in how that water is managed and how that water is used. So in order for this agency to go away, from my perspective, one is, you have got to transfer title to all the facilities and let somebody else be responsible for them and get us out of the ownership of the water rights developed out West and how that should be managed and so forth. Also--and I will be quite frank with you because I think I need to--coming from a State perspective, there are some Federal laws that the Bureau of Reclamation is charged with addressing that might not necessarily be addressed the same way from a State perspective. So as long as there is a Federal interest in these projects and Federal interest in how water is managed, I think you have to have some kind of Federal agency having some oversight. Mr. McDade. Mr. Secretary, do you want to comment on that? Secretary Babbitt. Mr. Chairman, I do. I cut my teeth in public service as the attorney general and the governor of Arizona. Arizona's entire future, and present, for that matter, is linked to the Colorado River. The Colorado River flows through seven States and into Mexico. It is governed by delivery obligations to Mexico, by an act which was signed in 1923, and by an infrastructure system which includes Hoover Dam. One side of Hoover Dam is anchored in Arizona, the other in Nevada. The Dam stores 20 million acre feet of water. Upstream from the Grand Canyon, Glen Canyon dam backs up a lake 200 miles long. It runs through two States. There isn't any way that that river basin could be disaggregated. Believe me, I was a states' rights governor. I would have loved to take the whole system over, but it will never happen. Mr. McDade. I don't think anybody would suggest to separate it. Maybe some do. I don't know. You know the West better than I do. Secretary Babbitt. Well, we are sort of a rebellious lot out there; and I am no stranger to the states' rights sort of theory. I was sort of one of the leading theoreticians of that movement in my earlier days. I still think it is an important concept, but it simply does not lead to disaggregating these enormous river basin systems with all these human, interstate and international implications. Mr. McDade. Suppose you had had a consolidation. Let's speculate. Let's say the Corps of Engineers had some experience in handling water and maintaining levees and dams etc. Did you ever look at that? Would there be any potential savings or is there any efficiencies to be had from a suggestion like that? Secretary Babbitt. Mr. Chairman, in my younger days I used to advocate that all the time, that we merge the Forest Service into the Department of the Interior, so you had one land management agency, and that you merge the Bureau and the Corps of Engineers, sort of put east and west together. I will tell you, in the fullness of my years, I no longer come from the school which says it gets more efficient and better when it gets bigger. I come out on the opposite side of that. I have worked with the Corps of Engineers a lot more intensively than I ever dreamed I would, particularly in Florida where we are working very closely. I have spent a lot of time working in the Forest Service, and I have got to tell you I don't want the Forest Service. I think I am the first Secretary of the Interior in history who has ever said that. I believe that a little bit of competition and having a couple of agencies on the same turf tends to keep them honest; and both benefit from, you know, innovating and using new approaches to things. Mr. McDade. We appreciate your answer. You may very well be right. government performance and results act Mr. Commissioner, you are required under the Government Performance and Results Act of 1993 to develop a strategic plan and to share the results and consult with the Congress. What can we expect to see out of that act? Mr. Martinez. Mr. Chairman, the Strategic Plan is undergoing final review in the Bureau of Reclamation. As a matter of fact, we are going to distribute it amongst employees for input. Our intent is to have that very plan finalized for submission to the Secretary by June 1st. During that time period, we plan to engage our stakeholders and water users out West and the Congress. cost benefit ratios Mr. McDade. Will you indicate to us how many of the projects that you will do have a cost-benefit ratio connected with them? We know it is part of the conversation about the California project that there is not a cost-benefit ratio. Do most of your projects have cost-benefit ratios? Mr. Martinez. If you look at the last few pages the budget justification will deal with those issues. Most of the construction projects have a cost-benefit ratio assigned to them, although some of the ones have been ongoing for so many years, the justification says it has gotten to the point where you cannot calculate it. With respect to expenditures dealing with fish and wildlife and other environmental issues, the justification will say it is difficult on those issues, but will have that on a project by project basis. impact of acts of terrorism Mr. McDade. Okay. Your budget singles out continuing efforts to make sure that acts of terrorism do not in some way impact on the infrastructure of the Bureau and I guess on the facilities that the Department has. What is the total amount of money that you think will be committed to that act? Mr. Martinez. We plan to spend this year around $5 million in fiscal year 1997, and I believe we have asked for an additional $5 million for fiscal year 1998. Like I said, we do have a large infrastructure. Some of these facilities sit upstream from large populated areas and other ones are instrumental in providing hydroelectric power out west. We want to make sure these facilities are safe and sound. Mr. McDade. Can you do that with existing people? Do you have the people on board that have the background and technology requirements to do that, or do you have to go out and hire new people? Mr. Martinez. Our intent is to hire one person that will come in with the expertise to provide us direction. Mr. McDade. Train other individuals? Mr. Martinez. And then utilize as best we can with our existing workforce. Mr. McDade. Is that meant to be a cadre of permanent people? Mr. Martinez. I would hope that would be the case. I mean, this is an issue that is going to be with us. Secretary Babbitt. Mr. Chairman, if I might interrupt, I appreciate your line of questioning on this. I think it is a really serious subject, and I want to say I appreciate your attention to it. We have not paid adequate attention to it. Mr. McDade. Well, I hear about things like Anthrax, et cetera, and you think of the water supplies of major population areas of the West in particular, and you wonder if anybody is looking at that. So I am glad to see that you have taken an initiative and you are trying to keep some kind of interest. Mr. Fazio. calfed process Mr. Fazio. Thank you, Mr. Chairman. And let me first of all properly express my appreciation for the work that all three of you do and Roger Patterson, additionally, in the front row, the regional director of the Bureau who has been such an integral part of making the CALFED process work, and Under Secretary Garamendi, who, as a Californian, still enjoys helping us fight through some of the continuing problems we have with water in California. I was not here to hear your comments. I have read them, and I particularly want it thank you, Mr. Secretary, for the forthright approach you have taken to funding CALFED in this budget and defending that budget, because I think it is a major move forward for California and I think for the Federal interest in the State's water development. And I realize from the Secretary's responses to the chairman that we are going to have to work together to make sure that we can sustain this budget request. There are clearly some very difficult questions that our colleagues are going to ask and need answers to as to how we are going to go about and implement this process, and we are going to be working closely with this committee, Mr. Chairman, to make sure you get the answers you need in time to meet our markup date and obviously our conference at the end of the summer. I wanted to ask particularly if you thought, Mr. Secretary, that we would be at any point perhaps out of sync with the stakeholders, as we call them, with the Bay-Delta Accord, with any of the agencies that are going to be sitting as part of this CALFED process? You have language included this year that says, ``use for purposes that the Secretary finds are of sufficiently high priority to warrant such expenditure.'' In effect, it gives you some discretion. How would the Federal interest be handling some of these tougher issues? How would the various agencies that you represent, let alone some of the others that are not under your purview, implement the Federal interest and the way we go about putting funds to bear on projects? Secretary Babbitt. Mr. Fazio, let me answer that by underlining one other factor here that I think is important, and that is, there is a convergence point here. Precisely because of all of the flooding that took place in California, there is going to be a supplemental coming up very shortly. Mr. Fazio. You anticipated my next question. Secretary Babbitt. Well, it is really relevant, because what we must do is go back out and handle the reconstruction or relocation of those levees in a way that feeds into this. We have got to get those levee systems back up. But it would be a terrible waste--it will have to be up before the next flood system--if we simply go out there and repair them where they are. We are going to have to relocate them all as the entire restoration program plays out. So that provides a lot of impetus to sort of converge and get this stuff settled quickly so that money is used appropriately and so people do not go without protection but it lays and it feeds into this. The way we have designed this appropriation request, the money would be appropriated to the Interior Department. There is a preliminary sort of partitioning of this money in the document, which I will put into the record, showing the apportionment among agencies and how it matches against Proposition 204 money and how it is allocated by function. Now, the important thing, I think, is this is being done by consensus among what used to be known as Club Fed. Before it became CALFED, it was just the Federal agencies. We have operated on a rule of consensus, and it is remarkable it is actually working. Mr. Fazio. Well, I think it is important for the chairman and other members of the committee to know that to make that consensus work, the Federal agencies have to be parts of it, we have to sign off on it, and therefore I think the Federal interest in how we go about not only appropriating but obligating and outlaying the money is all going to be maintained, and there will be opportunities obviously for compromise and cooperation but also for the Secretary and others to say the Federal interest is not being upheld here and therefore we would withhold. So I want my colleagues to realize that we are not simply giving the Californians a lot of money to play with. I think this is a process that really will involve ongoing involvement of not only your agencies but Corps of Engineers, now NMFS, a number of other players who bring not only money but expertise to the table, and I think that should be somewhat reassuring to people who are perhaps concerned that there is not enough Federal control of the dollars that we put up. california floods The floods, as you mention, have impacted us all, and I want to thank the Bureau for the help it has provided in the short term even to the point of helping farmers pump out their flooded fields, something that has gotten you and Mr. Patterson some kudos out there. I am wondering if you could explain to us how you feel the Department's operations through the Bureau have fared during this flooding. I mean, we have obviously seen a tremendous trade-off behind dams in terms of water supply, irrigation for environmental enhancements, and the need at the same time to protect life and limb by holding back floodwater. We have got the constant trade-off. I wonder if you would comment as to how you believe the Bureau has performed. Secretary Babbitt. Well, in my introductory remarks I touched on it very briefly. I think the employees in California did a genuinely outstanding job. Now, the Bureau operates, obviously, pursuant to an operations plan which addresses the costs and benefits, the risks, in a classic ongoing trade-off. What you really want to do is have the dams full for the coming irrigation season. You want to fill the dams up, looking over your shoulder at the sky, and draw them down so that there is enough storage left if you have a bad season. It is a very complex, basin-wide, modeled program. It worked very, very well. An extraordinary amount of water came down, and we really did take the crest off all of those floods very effectively. We learned a lot, I think, as did the Corps of Engineers, who is also a player here, particularly in the downstream levees; we learned a lot about the design of levee systems. We had just a few years ago redesigned some of these levee systems along the Sacramento River to provide wider space in the flood plain and to provide floodways or actual bypasses in selected areas outside the main river channel. What we learned is, these things really work and that in many, if not most, areas, the most important thing we can do in the near term is, as part of this, to move the levees back and provide more channel space. When these levees were designed, the hydrologists thought a 100-year storm was a lot smaller than what we now seem to have every 5 or 10 years. Mr. McDade. Would it be on the adjacent land, most of those levees? Secretary Babbitt. Yes, correct. Mr. McDade. No land acquisition problem? Mr. Fazio. In some cases we will have to make purchases. Secretary Babbitt. I'm sorry, I didn't understand your question. Yes, there will be land acquisition. Mr. Fazio. In fact, that may become the major cost with the so-called meander belt approach, and that is at least easement, if not land acquisition. Secretary Babbitt. It is a major cost on the front end certainly. Because a lot of this work has already been done we can specify what it is we need in those floodplains. Mr. Fazio. There are certain areas that are particularly, I think, conducive to this approach, and we can talk about those. Is it your opinion that if we are to change the way we manage these reservoirs to make flood control more important than perhaps it was in the original enactment to the authorization, that it would require an Act of Congress to reconfigure the benefits behind these reservoirs, water supply versus flood reservation? Secretary Babbitt. Mr. Fazio, I am no expert on the law, but I don't think that is going to require much statutory change. I think we have got the leeway. Mr. Fazio. Do you think this is something you and the Corps can negotiate without coming to Congress? Secretary Babbitt. In terms of the operation of the system, yes, I do. You may be ready to sandbag me with some statute I have never heard. Mr. Fazio. No, I won't. But I would appreciate if you would respond for the record and perhaps respond to this. Mr. Martinez. There are some reservoirs out west under specific legislation that set forth how much flood pools shall be in the reservoir by congressional authorization, but for the most part we have flexibility. Mr. Fazio. Could you submit for the record the status that we have in each one of our Bureau-Corps projects, because I think these issues are going to come to the Floor and we all will need to know the specific answer here. [The information follows:] Status of Bureau-Corps Projects The Central Valley Project is authorized for flood control purposes. Reclamation believes it has the operational flexibility to manage CVP facilities to minimize flood damage. Reclamation utilized this flexibility in the spring of 1997 to successfully avoid more damage in the CVP operating area. flooding and the endangered species act Mr. Fazio. Could I ask Patty Beneke perhaps a question related to the Endangered Species Act. We have had a lot of rhetoric--she is ready for this; I am not sandbagging here-- about the Endangered Species Act becoming an issue that may be causing some hesitancy in terms of levees. The giant garter snake listing that comes to mind is perhaps one of the factors that come into play here. Would you speak to the issue of how the Bureau and other wildlife-related agencies are handling the ESA in the emergency flood fighting environment and, in addition, when we talk about repair at any point of a flood control system. Ms. Beneke. Well, as I understand it, the acting head of the Fish and Wildlife Service has put out a policy specifically addressing the issue that you raise, and that is that in these emergency flood response situations we are doing everything that we can to ensure that there are no problems in terms of Endangered Species Act compliance standing in the way of our Bureaus taking the steps they need to take to address the emergency situation. I also am aware of your concerns and questions with respect to the giant garter snake. I have lodged an inquiry with the folks, the Biological Resources Division of the USGS, and am expecting to get a report from them on the work they will have done in this area. I would be pleased to share it with you and see if there is further work that we need to do in that area. Mr. Fazio. I appreciate that. Let me just be a little more explicit though. We still have mitigation requirements, I am told, even if we waive in the short term requirements of ESA in a flood fighting environment; is that correct? Or are there no further mitigation requirements that might cause an agency to be somewhat reticent? Secretary Babbitt. Mr. Fazio, we have thrashed this out endlessly, and I have been keelhauled by the California delegation regularly. Mr. Fazio. Most of us were keelhauled first and then passed it on to you. Secretary Babbitt. I think we are now clear that if it is about the emergency repair of existing levees to get through this flood season, the answer is, go out and repair them, period. Mr. Fazio. And don't worry about having someone come and post a notice on your door next spring saying that, by the way, you have got to mitigate what you did last winter when you were fighting floods? Secretary Babbitt. No, they don't even have to call us. All they do is go out and repair the levee. Mr. Fazio. Now, if somebody next August was traveling along and noticed a boil that needed repair for purposes of making sure the system was ready for the next winter, what would the situation be? Secretary Babbitt. Well, I think my instructions to my faithful employees would be that August is still a part of this flood season, and if it is repairing levees, that comes within the policy. I think the policy says within 6 months. Mr. Fazio. In other words, if you are repairing the flood system, we do not have a lot of time to go through hoops? Secretary Babbitt. Yes. And I think the flood season is basically limited by the snow on the crest of the Sierra Nevada. Mr. Fazio. This year it should last year round. So if we see flow in the Sierra, the ESA is waived and you are going to declare your candidacy again. Thank you, I appreciate that. We may have really something out of this session, and that may be very useful. I have been so pleased with your response there that I think I will put the rest of my questions in the record before we set some more precedent. There are a number of other issues, as you can imagine, and I will not take the time of my colleagues here, and since Mr. Knollenberg may have some questions anyway, I want to thank you for the way you have worked with our delegation on a daily basis to struggle with all these issues that are of little value to most of our colleagues here. Thank you. And, Commissioner, thank you very much for your help, particularly on the issues related to water storage and ways that may play into the delta solutions that you alluded to earlier. Commissioner Martinez has been very helpful in looking at some off-stream storage in the Sacramento Valley which we hope may some day contribute to our delta solution. Thank you all. Mr. McDade. The gentleman from Michigan is recognized. Mr. Knollenberg's Opening Remarks Mr. Knollenberg. I am just about on time, aren't I? This is the morning when I had three of these hearings, and I am sorry I was absent for the bigger part of this one. And I thank you, Mr. Chairman, for recognizing me for just a minute or two. I think most of my questions were answered last year. You know, we had a dialogue, you and I, that went into the whole business of the variety of Federal agencies that are ostensibly all doing the same thing, and you were quick to recount some history and give me some facts about things going back to the early 1900s. I think Teddy Roosevelt was a part of that. So I have been through, to name just a few of those agencies, Bureau of Reclamation, Corps of Engineers, Bureau of Land Management, U.S. Fish and Wildlife Service, Bureau of Indian Affairs, Forest Service, USDA, Department of Energy--and it goes on--U.S. Geological Survey--better mention them all-- Power Marketing Administration, National Park Service, National Biological Service. All of those, it seems to me, in some ways must stumble over each other. But you were good enough to give me much background and history, and of course, to not certify but certainly I think to say in pretty concrete terms they are all necessary, and we will keep observing and watching. I think most of the problems that confront this committee in regard to your area of oversight and involvement tend to be in the West, and I believe that Mr. Fazio and some others have already maybe covered most of that, so I am going to at this point just thank you for being here again and refer back to the chairman. Mr. Chairman. Mr. McDade. Joe, we are delighted you found time to come in. We know you had a busy day, and we are glad you are here. The gentleman from Arizona. Mr. Pastor. No more questions. Mr. McDade. The gentleman from New Jersey. Mr. Frelinghuysen. Just a couple of brief questions. I know you want to get on, Mr. Chairman. taxpayer hostility A couple of years ago you expressed some concern about in some parts of your operation some general hostility on the part of some of the taxpayers, and I just wondered whether there has been an improvement. I know we invoke such words as ``stakeholders,'' things of this nature, but in reality are your employees in parts of the country being better treated, and what have you done to make sure that they are perhaps greeted with more civility, acceptance, respect? If you don't mind making some brief comment on that issue, I think it is important. I was shocked to hear some of the things that you relayed to us. Secretary Babbitt. Congressman Frelinghuysen, I appreciate that question, and I am pleased to tell you that I think we are making a lot of progress. The problems out West are in some measure understandable, and it is not the first time this has happened. There has been a long history of feeling in the West that too much of their future was being decided in Washington as a result of the predominant Federal landowning and water-managing presence through all of the Federal agencies. What I have tried to do over the last 4 years is to say let's not quarrel about abstractions, about who owns title to the land, because the American people, I think, every time this comes up have resoundingly said we believe that our land under the stewardship of the National Park Service, the Forest Service, the BLM, is part of our national heritage. So let's talk instead about how we make decisions out there, because I understand your concerns about the day-to-day management of these lands and the need for local communities to feel that they have a role in it. And that is why this word ``stakeholder'' has become so important, because we have set up a remarkable number of these groups where we said to our land managers, you have got to create a table and you have got to get resource extraction industries, the environmentalists, and the local officials together; and if you can collectively find a consensus solution, we will sign off. And not 100 percent. I think the concept is here to stay, and it is working in a large number of different situations--grazing in Colorado, forest management in other Western states, recreational issues in gateway communities outside national parks, game management in some of the national parks--a whole variety of different issues. computer modifications for year 2000 Mr. Frelinghuysen. Lastly, unrelated, I have asked this of the committees I serve: Have you budgeted in the costs of whatever you have in terms of your computers' recalibration that relates to the year 2000? It appears, at least from comments I read in the newspaper, some departments are totally out to lunch on this issue and others are really up to speed. I just wondered if you had measured the costs associated with this situation. Secretary Babbitt. We are, in fact, working very intensively on this. I don't know whether we have a cost estimate, but we are pursuing it relentlessly. Mr. Frelinghuysen. If you would be good enough to share with the committee at the appropriate time what the costs might be. Secretary Babbitt. Sure, I will. Mr. Frelinghuysen. Thank you very much, Mr. Chairman. [The information follows:] Department of the Interior Year 2000 Costs Since early 1996, the Department of the Interior has been proceeding in a systematic and comprehensive way to identify and correct problems associated with the Year 2000 issue. The Awareness Phase, during which information was provided to all levels of Department management on the nature of the problem and potential approaches to its correction, has been completed. The Assessment Phase, which is providing a better estimate of the tasks ahead, is scheduled to be completed in June. The current estimate of the cost for correcting Year 2000 problems in the Department is $25 million over the next four years (FY 1997 to FY 2000), but this estimate will change as we complete the Assessment Phase. At this time the Department intends to meet its Year 2000 costs through the use of available resources and, if necessary, future budget requests. Mr. McDade. The gentleman from Arkansas. Mr. Dickey. No, thank you. Mr. McDade. Thank you. Mr. Secretary, we have some additional--you won't be surprised to hear--some detailed questions that we will submit to you to request your answers for the record. If you have any additional need to elaborate on the questions, feel free to contact us. Thank you all for your appearances here. We look forward to working with you. Secretary Babbitt. Mr. Chairman, thank you very much. [Pages 550 - 606--The official Committee record contains additional material here.] Thursday, March 6, 1997. TENNESSEE VALLEY AUTHORITY WITNESSES CRAVEN CROWELL, CHAIRMAN JOHNNY H. HAYES, DIRECTOR WILLIAM H. KENNOY, DIRECTOR Opening Comments of Chairman McDade Mr. McDade. The committee will come to order. We are very pleased to have TVA with us this morning and in particular to see Chairman Crowell here. You have been making some headlines, and we want you to know that we are grateful for the courage you are showing in difficult times and for the leadership you are showing in trying to deal with this enormous problem we have involving the Federal budget. So I want to commend you for your activities and that of your associates. We appreciate what you are doing. Mr. Crowell. I appreciate that very much, Mr. Chairman. Mr. McDade. It is our pleasure. May I say to you, sir, we will proceed informally. We would be pleased if you would file your statement for the record so that we can have an opportunity to read it closely and then if you would summarize and proceed in your own way. Tell us what you want us to hear. Mr. Crowell. I must say, Mr. Chairman, that--you mention about making headlines--we certainly were pleased that Peyton Manning decided to stay at UT yesterday, because that certainly has created more interest in that than it has in our proposal the last few days. So everybody back home is excited about that. Mr. McDade. You ought to fill the stadium, too. Mr. Crowell. We thought we maybe could take credit for it as an economic development opportunity for Tennessee. Mr. McDade. I think it might be. Opening Statement of Chairman Crowell Mr. Crowell. Thank you very much, Mr. Chairman, for those kind remarks. My colleagues, Johnny Hayes and Bill Kennoy, and I are pleased, as always, to appear before this subcommittee. This is the first time we have been before you as Chairman; but, as you know, we have been before the committee each year to present our budget request for next year. We certainly look forward to working with the staff and members of this committee. As you requested, I have complete testimony I would like to submit for the record. Then I will take a few minutes, as you suggested in a way to expedite the proceedings, to summarize. Mr. McDade. Proceed in any way you wish, and your testimony will be filed. Mr. Crowell. Great, thank you. Thank you. Before I discuss TVA's appropriated programs, I would like to just take a brief moment to update the committee on the status of TVA's power system. Mr. Chairman, in fiscal year 1996, TVA earned revenues of $5.7 billion from the sale of electricity. This was an all-time record for revenue, as well as all-time record for generation. Overall, TVA's power system is performing better than at any time since the 1960s. This fiscal year, for the first time in 35 years, we will not increase our debt; and we are currently developing a plan to reduce the debt. In preparation for deregulation, we have cut costs, become more efficient and improved our productivity. Now, in our appropriated programs, we are proposing a budget of $106 million for fiscal year 1998. This is the same level as fiscal year 1997, and it breaks down as follows: $81.5 million is for TVA stewardship of dams, navigation channels and public lands in the Tennessee River Basin. This recommends an increase of $8.3 million for this category from fiscal year 1997. Now, I might mention that almost the entire requested increase in this particular category is for resurfacing the bridge over Pickwick Dam where the bridge deck has deteriorated and created a safety concern for us there. $7.9 million is for Land Between the Lakes National Recreation Area. This represents a $1.9 million increase for infrastructure repairs and maintenance, including repair and paving of major roadways. $6.6 million is to begin engineering and relocation planning to replace the failing navigation lock at Chickamauga Dam, directly upriver from Chattanooga. Since the lock was built, deterioration of the lock has caused serious operational problems; and each year the risk of lock failure increases. We estimate a life expectancy of only 8 years for the lock. $6 million is for the Environmental Research Center in Muscle Shoals, Alabama. The ERC is in the second year of a transition to self-sufficiency. The $6 million requested will permit it to continue on our plan submitted last year to becoming a self-supporting business. Finally, $4 million is for economic development, which is also in the midst of a transition away from Federal dollars. The $4 million proposed in this budget would complete the phaseout program by 1999, 1 year earlier and $12 million less than the plan submitted to this committee last year. Mr. Chairman, that is our appropriations request for fiscal year 1998. As you know, as you have mentioned in your opening comments, we have proposed a plan to make fiscal year 1998 the last year that TVA receives Federal appropriations. This proposal would help TVA focus on our core business of generating and selling electricity. As I mentioned earlier, TVA's 1996 fiscal year power sales were $5.7 billion, or 98.2 percent of our total budget at TVA. On the other hand, our appropriated funding is 1.8 percent of our budget. The proposal would also eliminate once and for all the misimpression that the TVA power system is subsidized by tax dollars. This is the doorway that some have used to criticize us, and we would certainly like to close it. There are still many details to be worked out in this proposal, and a task force headed by Kate Jackson, the Executive Vice President in charge of TVA's resource group, has begun working out those details. Now, in order for our proposal to succeed, we will need your assistance in several areas. First, TVA and the Army Corps of Engineers are jointly studying ways that our respective operations of the Tennessee and Cumberland River systems could be integrated and improved. Your support of this study is critical to the success of our proposal. Second, we need your assistance in implementing the task force recommendations for the future of the Land Between the Lakes. Third, it is important that we obtain language in the appropriations bill to permit us to transfer funds from one year to the next. We would need this authority to give the task force maximum flexibility in developing options. Fourth, the total funding for this year's budget request is needed to give the task force time to study options and recommend what implementation, if any, is needed. Finally, we need your support for our task force's work in gathering input from the communities and from the various other constituency groups in our area. It is our desire that everyone understand the steps that we are taking and supports the changes that will be required to implement them. We are asking for your active support in resolving the issues I have described. What we are proposing is certainly consistent with TVA's history. Many times in the past, TVA has created innovative programs that matured and were eventually transferred to other entities. TVA's appropriated programs include some of our Federal government's greatest success stories. Now, we are studying how these success stories can best be managed in the 21st century. With your help, we can impact spare funding of TVA's appropriated programs and begin a new era for TVA. I want to thank you for this opportunity to present our budget request, Mr. Chairman; and we are certainly available here for questioning as long as the committee wishes us to be here. Mr. McDade. We thank you for a fine statement which hit a lot of high points that we are very interested in hearing. [The prepared statement of Mr. Crowell and the TVA budget justification materials follow:] [Pages 610 - 712--The official Committee record contains additional material here.] elimination of appropriated programs Mr. McDade. My first question is, can you give the committee some kind of a feel, Mr. Chairman, for the kind of reactions that you have received from the various TVA stakeholder groups? Mr. Crowell. Well, as you can imagine, there has been quite a bit of reaction to this proposal. Mr. McDade. I have seen a good bit of it in the press. Mr. Crowell. That is right. So have I, as a matter of fact. And sometimes for the first time, I see us in the press. To answer your question this way, many of the constituent groups do not have enough information yet or do not really see how this is going to be implemented at this point because the task force has not made any recommendations yet. Some of the anxiety by the constituencies is that they just don't know what it means to them now, but they certainly expect some impact. I have received very strong support from the business communities in the Tennessee Valley; and certainly one group that has supported this proposal is our Retirees Association, which is made up of the people who have retired from TVA, some nearly 20,000 members. They are the people who spent their careers at TVA, and they think the proposal deserves merit and we should take a good hard look at it. So it has been mixed--to answer your question, it has been mixed, but I feel like it is going to take a little time before people really understand the impact. Mr. McDade. Interesting response from your former employees. Mr. Crowell. Yes, it is. tva task force Mr. McDade. You mentioned the task force; and, of course, we are very much interested in its efforts to study the future of appropriated TVA activities. Will you identify for us, please, its membership and elaborate on what its activities have been to date? Mr. Crowell. Right now, the person that is the chairman of the committee and its 19 members, Kate Jackson. We started out with 17 members. We added two members from Alabama to make sure we had every area covered. They are made up of TVA professionals who are on the committee and chaired by the person responsible for the appropriated programs. The committee has not produced a request for any additional funding or anything at this point, but we certainly expect the committee to be very active in the near future and involving our constituency. That is one of the things that we have asked the group to do, is to make sure that there is a public process so people can have a say; and this, hopefully, will alleviate some concerns out there. Mr. McDade. I would think so. Have you got both public power and investor-owned utilities on the committee? Mr. Crowell. No, we do not. Mr. McDade. Is there some reason that we should not have such a group like that as part of this panel? Mr. Crowell. I am not sure how that would function. To me, this is a business decision that needs to be made---- Mr. McDade. An internal business decision. Mr. Crowell [continuing]. An internal business decision. Because we are the ones most familiar with the programs. And I would think if you had outside groups, then you end up with people having their own agenda to work on, and what I am interested in is making sure that TVA's agenda is put forward. I have said this before time and time again, that we certainly need the help of Congress, certainly need the help of this committee; and I would want to keep this committee fully informed as we go along because that is important to the process. But outside groups, when you start putting them on a task force like this, then you get all kinds of interests that maybe are not consistent. Mr. McDade. And your primary focus is the internal organization and how you reach a business decision. Mr. Crowell. Absolutely. Mr. McDade. And from that perspective, you are bringing in your own stockholders, so to speak, and the people who are in the organization to make that decision. Mr. Crowell. The people that know the most about them, yes. Mr. McDade. I do want to say to you, as I had the pleasure talking with you the other day, we do want to stay very much in conversation with you as we go through this process. I want to take just a second to welcome Mike Parker to the committee from the great State of Mississippi. Mike is a valued member of the committee; and we welcome you here, my friend. Mr. Parker. Thank you, Mr. Chairman. elimination of appropriated programs Mr. McDade. Mr. Chairman, for each of the four principal appropriated programs--and I am referring to stewardship, Land Between the Lakes, etc.--please discuss, will you, the latest thinking that exists within your organization as to their ultimate disposition. Are they being considered for termination? For transfer? What kinds of options are you looking at within your own organization with respect to those particular activities? Mr. Crowell. Mr. Chairman, we have been very careful as a board here to ask the task force to take a look at all options, to give them the time to do that and to ask them to get public involvement and make sure that everybody is kept advised of it. This board will make the decisions ultimately on what we think should be recommended to this committee or to others, but we have tried very hard to not prejudge decisions that they can make because, otherwise, we start taking things off the table that they might or might not consider. So, to answer your question, we certainly would like for the task force process to continue in a way which everybody who is involved feels like they had a say in it before we make decisions as to what we ultimately do. Mr. McDade. Those issues are wide open? Mr. Crowell. Those issues are wide open, yes, sir. Mr. McDade. Is the task force also considering the disposition of physical assets that were purchased or supported with Federal taxpayer dollars? Mr. Crowell. Yes, they will consider all of that. We have given them no instructions otherwise. Mr. McDade. Is there a future role, in the opinion of TVA, for appropriated dollars from the Congress of the United States? Mr. Crowell. What we are trying to do is get in a position here in preparation for deregulation to not have any tax dollars converted to TVA, so the proposal at this point is based on having no tax dollars at TVA. Mr. McDade. That is a key question for you, isn't it? Mr. Crowell. Yes, it is. power program Mr. McDade. That segues into a question I want to ask you. You mention you just want to concentrate on your core activities, generating and selling electricity. There is a GAO report, which I am sure you have seen, that says that there is not sufficient financial stability within TVA to compete in a deregulated industry. Do you think that is an accurate assessment of where you are? Mr. Crowell. No, I do not; and the facts would support my conclusion that that is not a valid comment. Of course, we are familiar with the GAO report; and we have comments to make on it. But if you look at our cost-producing power, we are competitive in our area with all the surrounding utilities; and we are certainly in better shape than most of the other utilities in other parts of the country. So just from a cost standpoint and cost of producing electricity, in fact we have been ranked among the dozen or so top utilities in the country from a standpoint of independent sources. Mr. McDade. And, based on sources we discussed yesterday, it sure looks like you are competitive. Mr. Crowell. Yes, we are very competitive. I think if you looked at some utilities in your home state you might want to have TVA power there, Mr. Chairman. Mr. McDade. We might invite you in. There are investor-owned utilities who argue that TVA appropriations indirectly subsidize the power program. Hydropower producers who are private, for example, may have to absorb, they claim, more than their share of reservoir shoreline and dam maintenance as a condition of their FERC license. Some other utilities argue that they have to provide that economic development services without any taxpayers assistance; and indeed we see utilities, as you know, being good public citizens all over the country. What about those arguments, Mr. Chairman? Would you respond to them, please? Mr. Crowell. Well, I will respond this way, Mr. Chairman. I am very familiar with those arguments. They are made on a regular basis. And our proposal, as I said in my summary of the testimony, is targeted toward eliminating those arguments in the future because there would not be any tax funds coming in. Mr. McDade. Excuse me. I have to interrupt you. I have to go vote. I think we are down to two minutes. Have you voted, Mike? Mr. Parker. No. Mr. McDade. We have two minutes. We will be back in two minutes. Mr. Crowell. Okay. Thank you. [Recess.] Mr. Frelinghuysen [presiding]. Chairman Crowell, if we can begin again. Congressman McDade has gone to vote. Mr. Fazio, would you like to make any opening comments? Opening Remarks of Mr. Fazio Mr. Fazio. Thank you, Mr. Chairman. I really don't have any great comments to make except to say that--I think it has probably been stated so far, but if it hasn't been, let me say, with the new team here, perhaps we are going to look at TVA and ARC a little more closely than was the case in the past. We obviously had strong supporters of both agencies in prior time frames, and that is all well and good. In fact, I must say I think change can be healthy. Just from the very objective standpoint of attempting to review the agency's budget, I guess one of the questions I would ask, and I direct to you, is why should the TVA be treated differently than perhaps power marketing administrations--which we deal with before this committee-- which have a different background and history but which, for many members, might seem on the surface to be analogous to TVA? Mr. Crowell. To answer that, you have to look at the TVA Act and the responsibility given to TVA by the Congress and our mission. We have the responsibility for the fifth largest river system in the country. We also are the largest generator of electricity. We are an asset for the government. So if you look at the basic mission, there is nothing else like us in the country; and we cannot be compared directly with any other public power entity just simply based on responsibilities given to us by Congress. Mr. Fazio. So the history is what created a separate entity? Mr. Crowell. Yes. Mr. Fazio. And we ought to revere and, of course, appreciate that history, given the background, the relative success you have had in economic development and power generation in the region. Mr. Crowell. Yes. We would like to see that happen, Congressman; but it doesn't happen as often as we would like, obviously. competition in the electricity industry Mr. Fazio. Well, apparently, there has been a good deal of contention these days that goes to, really, the question of competition. Mr. Crowell. Yes. Mr. Fazio. You are providing competition to other utilities, some stockholder-owned utilities in the region. Why has TVA become a competitor and why have some of those you compete with in the region become less supportive than maybe historically was the case? Mr. Crowell. Let me say this: We do not compete with other utilities now, because we are not permitted by law to do so. We have a territorial restriction that restricts us inside our service area. We do serve some 14 utilities with an interchange agreement. We buy from them and they buy power from us. But that was all part of the 1959 amendment to the TVA Act; and we are not in direct competition with customers of other utilities. Mr. Fazio. Have you been thinking of making acquisitions that bring about a competitive atmosphere? What are the issues that have brought other utilities into the discussion? Mr. Crowell. I think the issues that really have brought other utilities into it is really the issue of deregulation where territorial restrictions do not make any sense. So then what do you do with TVA when you have no territorial restrictions? It is the anticipation of deregulation and competition that has the private power companies somewhat concerned about us. It is not the reality of the time today, but it is the expectation I think that is of concern to them. Mr. Fazio. Would TVA be seeking a carve-out in any national effort, maybe one that Mr. Schaefer over on the Commerce Committee would pursue, that would provide for us a national framework of deregulation? Mr. Crowell. Yes, we need to look at that from this standpoint. The TVA is an asset for the nation. It belongs to the government of the United States, and it deserves to be successful in the future. So whatever we need to do and is consistent with deregulation to be successful is what we think we ought to be permitted to do. You have a very large asset in the Tennessee Valley that can help the country and help the region in the future. Deregulation is going to change some things, but the changes that occur should be consistent with permitting TVA to be successful. Mr. Fazio. When you say permitting TVA to be successful, what would your desire be in terms of your ability under this new deregulatory atmosphere to pursue other opportunities? Mr. Crowell. What we need to be able to do, obviously, is to sell the power we generate and---- Mr. Fazio. To wherever and whoever? Mr. Crowell. To whatever the Congress decides is appropriate for us. Because the Congress will be the ultimate decision-maker in the process. But if you have a situation that develops in which our customers can be taken by other utilities and you start losing customers, then you start losing revenue and you start losing your ability to succeed. So it really boils down to a matter of being able to sell our power that we generate every day to produce revenue as necessary to keep us a financially sound company. Mr. Fazio. So you would argue that the taxpayers of the U.S., the original investor of the TVA, would suffer if people could come into your area but you could not go into theirs? Mr. Crowell. Absolutely. Mr. Fazio. So TVA is expecting the deregulatory approach to provide a kind of reciprocity? Mr. Crowell. Something that permits us to sell the power. Absolutely. Mr. Fazio. What kind of atmosphere exists, do you think, among those few cognoscente in the Congress who have looked at this issue, which we don't all understand? Mr. Rogers. The what? Mr. Fazio. The smart guys. Mr. Crowell. Well, I am pleased that your comment that we all don't understand--because I am in that category, too. It is because there is a very dynamic process that is taking place, as you know; and it is yet to be determined how it is all going to come out. I do think what is sort of driving all of this for the private power companies, quite frankly, is the anticipation that somehow they will be disadvantaged, because TVA is a very well-run organization and has very low cost. But I think it is more of a defensive posture at this point, not knowing what the outcome is going to be but expecting the outcome to be damaging to them, I would suppose. Mr. Fazio. Well, I would think they would assume that a subsidized rate of power that you would be able to make would be always very, very competitive with whatever they may be able to make, given their costs and what they would be able to charge. What is interesting, we spent some time answering questions about subsidies that we allegedly have; but nobody ever spends any time talking about the subsidies of the private power companies, which are very large. I think it is just a matter of posturing, and I would certainly expect in deregulation that there is a place for TVA and there is a place for TVA to be successful consistent with the comfort of the private power companies. I think we need to find that place. I think we need to get to a place where everybody realizes there is a comfort level that everybody can enjoy. I think, right now, the dynamics of it are creating an atmosphere where there is distrust and concern in competing with TVA. This will be my last question, and I may be taking too much time, but please tell the committee where your most efficient systems lie, what the percentage of the power you generate is, and identify some of the least cost beneficial. I guess I am looking for the distinction between the hydro facilities and nuclear facilities and an analysis of what TVA brings to the table, so to speak. Mr. Crowell. Okay, I can do that. The hydro facility is, obviously, our lowest cost producer of electricity. We think we do a good job for them but primarily because we get free fuel, because the water is free as a power source. Twenty percent of our power comes from the nuclear program, which also is a very inexpensive form of electricity. However, the capital investment is what really causes the concern with the nuclear. We have too much money tied up in the nuclear program, which makes it difficult for us in the long term to continue to lower our costs. But the majority of our generation is from fossil power; and we have some very, very efficient plants there that score very high nationally when compared to others. But about 70 percent--a little less than 70 percent comes from fossil production. Mr. Fazio. So if we wanted to, theoretically, sell assets of TVA--and I am not advocating to dismember TVA--it would be in the fossil plants and in the hydro projects; and the government might well be left with nuclear plants because there is no market for that. Mr. Crowell. Absolutely. We could sell the hydro and fossil plants very easily, and then Congress would be left with ownership of--the country would be left with ownership of the nuclear plants which have a lot of imbedded costs down there associated with them. That is a very accurate statement. Mr. Fazio. Thank you. Opening Remarks of Mr. Rogers Mr. Rogers. Now, the Cumberland River and the dams of the Corps of Engineers on that river in Kentucky and in Tennessee form a major part of my district and the central part of the economy of all of southern Kentucky. And I read in the newspaper that you were talking about taking over those dams. That is the first I knew about it. Tell me about that proposal. cumberland river system Mr. Crowell. Okay. We are not talking about taking over the dams. We are talking about operating the generating facilities and the dams along the Cumberland River. There are nine dams on the Cumberland River. But the whole idea behind TVA getting involved really came from the Department of Army. There was a 1990 study done by the Department of Army---- Mr. Rogers. My question is, why did I read this in the newspaper for the first time? You did not understand my question, did you? Mr. Crowell. I understood your question. The point is that we made a proposal on two occasions that was consistent with-- it was not our idea to start with. The idea came up from the Department of Army. Mr. Rogers. My question is, why did I read this in the newspaper? Mr. Crowell. I don't know how to answer that question, Congressman. I don't control the newspapers. Mr. Rogers. Why didn't you tell me first and all of us in the Congress? To my knowledge, you didn't brief a single Member of Congress on this grab of a river in my district. Mr. Crowell. It came from Department of the Army, Congressman. The original proposal came from there, not from us. That report has been around for some seven or eight years. This is not a new subject to the Department of Army. Mr. Rogers. Well, as far as I am concerned, it is an old subject and it is over with. Maybe next time you will learn to talk with the Members of Congress that control the fate of flood control in these parts of our states. There is more here involved than electricity. There is flood control, and there is recreation, and there is tourism, and there is economic development. Keep your hands off my river. That is all I have. Mr. McDade [presiding]. Are you sure you don't want to add anything? Mr. Rogers. That is all. joint tva/corps study Mr. McDade. Mr. Chairman, let me go back to some of these questions we were asking you before. Do you anticipate the joint study that we were talking about will fully evaluate the benefits of having the Corps assume control of the power assets of the Tennessee River? Do you have any preliminary thoughts with respect to that option? Mr. Crowell. No. We have been asked by the President in his budget to conduct a joint study. Again, we should let the study go forward and not prejudge anything or take anything off the table. We have had a meeting with the Department of Army already to look at this, and we have been involved in exchange of information. Mr. McDade. It is wide open as far as you are concerned? Mr. Crowell. It is wide open, yes. bonus awards Mr. McDade. We have had critics tell us there are excessive bonuses awarded in TVA. How many bonuses did you award to employees in 1996? Mr. Crowell. Let me, first of all, say the board does not get any bonuses. We do not. There is sometimes confusion about that. Our salary is controlled by Congress, and we do not get any bonuses. We do have a policy at TVA that pays every employee from top to bottom what we consider to be the market conditions, the market demands for those particular positions. So we do have a bonus plan in some and some other compensation available to us in order to meet the market conditions. I would be very happy, if you would like, Mr. Chairman, to supply that for the record. Mr. McDade. Yes, we will have to have it. [The information follows:] TVA's 200 executives earned salaries/wages during FY 1996 ranging from $97,504 to $262,000. This compensation consisted of base salaries ranging from $97,504 to $115,000 and individual payments ranging from zero to $147,000. TVA conducts industry analyses and surveys to determine the market-based salaries/wages for top managers and executives. TVA is committed to attracting and retaining top industry personnel and its compensation plans are designed around this objective. Payments as part of the TVA-wide Performance Incentive Plan were made to non-management and managers below the senior level based on the accomplishment of TVA-wide goals. Payments to officers and senior management were based upon each individual's performance and their contribution to meeting their respective part of the TVA-wide goals. All TVA employees are paid on a bi-weekly basis for base salary and overtime. Bonus payments are made at the end of the fiscal year after TVA-wide performance and individual performance is evaluated. Such payments usually occur in the November to December time frame. Mr. McDade. You know, critics have told us that one percent of the people who work for you got most of the bonuses. Is that pretty much accurate? Mr. Crowell. No, sir. We give bonuses to almost every employee. Mr. McDade. It is not just top managers? Mr. Crowell. Not the top managers. Mr. McDade. And how do you select the people who are going to get bonuses? Mr. Crowell. We have performance goals each year, and the payouts are based on performance of those goals, and all of our employees participate in that process. But there is a different compensation package for the executives. I don't want the committee to misunderstand what I am saying. We do give performance incentives to all our employees who are there, but the executives are on a different program than regular employees. Mr. McDade. I guess it ranges from $27,000 to a high of $147,000. Mr. Crowell. Keep in mind that we have a nuclear chief there that gets one of the largest bonuses. We simply cannot go out and recruit somebody to run the nuclear program on $115,000 a year. Although that is a lot of money, it is not enough to compete in the marketplace for somebody to run five nuclear plants. Mr. McDade. I like your suggestion about detailing it in the record for us, and furnish it to the committee and the membership of the committee well before markup so we can take a look at that. Mr. Crowell. I would certainly be happy to do that. As I say, we make it public every year that they are awarded. It is public record, and we make it public and would be happy to supply that to you. Mr. McDade. Some people are suggesting that you should not award bonuses until the debt gets reduced. Do you have any thought about reducing debts as a precondition to awarding bonuses? Mr. Crowell. I would hate to be in that position, because we have a very sophisticated and very large system to operate, irrespective of the size of the debt; and I don't think we should throw operational excellence out the window in order to hamstring our executives based on that debt. The debt was created over a number of years. But as a board, we have got to make sure that we fulfill our responsibility to operate that system in a sound manner; and we need help to do that. Mr. McDade. You are looking at efficiency, rather than the reduction of the debt, in the operational program? Mr. Crowell. We should look at everything, the operational program should be looked at first. chinese conference Mr. McDade. We also heard from some critics about the conference that was held in Beijing with the Chinese. Were power dollars used or appropriated funds from Congress; and, if so, how many? Mr. Crowell. No power dollars were used, but we did this as a joint--we co-hosted that with the State of Tennessee, and Governor Sunquist co-hosted it with us and was there in Beijing. We had 65 companies that went with us on that trip. We think it was a very big economic development opportunity for those companies. We got great feedback from the companies that went, and we certainly thought it was money well spent to try to create economic development opportunities in the valley. Mr. McDade. Could you be kind enough to elaborate a little bit on the specific benefits that accrued from the conference? What would you advise me to tell a critic who asks me, ``What is TVA doing over in Beijing spending my tax dollars?'' Mr. Crowell. Sure, I would be happy to respond to that. Here is what I have told people. I have been asked by the media and others in the past. The TVA nameplate is very important in China and opens a lot of doors for us. The process of doing a conference was quite appealing to, as I said, to the State of Tennessee because the governor co-hosted the conference. The nine States paid money to finance the conference, along with TVA; and the whole purpose was to use that opportunity to get the business leaders and the companies in the Tennessee Valley who want to do business with China to get them in the door, so to speak, with some of the Chinese officials and business leaders so they could have an opportunity to not only do business with the Chinese but to buy goods and services from the Chinese to be sold back in the valley or back in the perspective businesses where the people came from. What I might mention is we have three very large banks in the Tennessee Valley headquarters. All three of them sent representatives on this. So it was viewed by the people who went as a very significant event. We had Saturn people. We had Westinghouse people. It was really very well attended by a very large group of people. Federal Express. These companies saw enough value that they paid the way for these people to go over and participate. Mr. McDade. Potentially quite a market. Mr. Crowell. Yes, it is. Mr. McDade. Are you statutorily barred from any speculative interests in China? Mr. Crowell. We do not plan to do any, so I don't know if we are barred or not. Mr. McDade. Is it statutorily prohibited or not, do you know? Could you furnish that for the record? Mr. Crowell. We don't plan to do that, but we would certainly supply it for the record. [The information follows:] The services being performed by TVA for the Chinese are consistent with TVA's statutory purposes as provided in the TVA Act. These activities are intended to help provide Tennessee Valley businesses with opportunities for growth and foster economic development in the Valley region. In addition, TVA's activities in China will increase the knowledge and experience of TVA personnel and help fully utilize the resources and expertise which TVA has developed. There is no legal prohibition on the activities TVA is conducting in China. Also, TVA is not making any capital investments of its funds in China. TVA has signed Memoranda of Understanding with the Chinese Ministry of Electric Power, the Ministry of Water Resources, and the Lishui Hydro & Power Corp., under which TVA may provide consulting, training, and technical services to the Chinese in such areas as electric power production and river basin/water resource management. TVA is having discussions with the Chinese regarding specific activities in which it can assist in these areas, such as in reviewing a master plan for development of the Han River and providing technical information regarding modernization of hydroelectric plants. TVA will consider involvement in other projects where its expertise can be of benefit and appropriately utilized. If any of the projects being considered by TVA are implemented, we expect that TVA's costs to perform them would be fully recovered. Mr. McDade. There are some reports that appeared in the press--and, as you said, you got a lot of press--that you agreed to develop hydro power in China and train Chinese managers at hydro plants in the United States. Is that true? Mr. Crowell. We signed a memorandum of understanding with the Water Resources Ministry to provide training for people and to become involved in the planning phases along two of the rivers in China. This was part of the outcome of the conference that we had. And we have had some Chinese come to Tennessee since then to be trained on the integrated resource management of the river system like the Tennessee River and have been very successful with that program. But there has been no proposal of us building anything over there. It has been a consulting---- Mr. McDade. At this point, it is training? Mr. Crowell. Training-consulting arrangement, yes, sir. Mr. McDade. How many people have you put through the training exercises? Is there a number that you can give us? Mr. Crowell. Yes. The last group had 30 engineers in it, and that was in January. Mr. McDade. Who is bearing the cost? Mr. Crowell. Chinese are paying for the cost. Mr. McDade. So zero cost to TVA? Mr. Crowell. Yes. Mr. McDade. Okay. That is helpful. I am going to yield at this time to my friend Mr. Fazio. Mr. Fazio. I have taken my time, Mr. Chairman; so I guess we can go to Mr. Visclosky. Mr. McDade. The gentleman from Indiana. Opening Remarks of Mr. Visclosky Mr. Visclosky. Mr. Chairman, thank you very much. Mr. Chairman, am I correct in understanding that you have recommended that we discontinue direct appropriations after fiscal year 1998? elimination of tva appropriations Mr. Crowell. Yes, that is correct. Mr. Visclosky. Would that be for the power and nonpower programs? Is there a combination of our appropriations that go to both of these? Mr. Crowell. No. The appropriations is $106 million being appropriated by this committee. The power program, the $5.7 billion is not appropriated by this committee. It comes from the power sales of the TVA. Mr. Visclosky. So the $106 million would be considered nonpower related? Mr. Crowell. That is--the amount we are talking about is $106 million. tva task force Mr. Visclosky. And there is also a task force that has now been created to study how the responsibilities---- Mr. Crowell. The task force has been created to determine how to implement the proposal and what needs to be done to implement it, and that is why the task force was formed. It is the implementation phase of it. Our goal is to eliminate all tax funds to TVA appropriated programs. Mr. Visclosky. After 1998, after the next fiscal year. Mr. Crowell. Now that you mention it, I might say at this point that I have been receiving some feedback that perhaps that goal is too ambitious. And I don't know that yet. I am not here to say that it is too ambitious. I am just simply saying that I received feedback that it was too ambitious, and that working with the committee over the next few months we can determine whether or not it is too ambitious. elimination of tva appropriations Mr. Visclosky. Mr. Chairman, I assume that is a pretty serious statement for you to have made, whether it should be exactly a $106 million reduction or $100 million or $90 million. You must have had something to base that on. My question would be, what is your position before us today as to how this should be handled? I understand you have a task force but something must have led you to that original conclusion in the first place. Mr. Crowell. The original conclusion to make a proposal was certainly worked out very carefully over several weeks, perhaps a few months with OMB. There were a lot of discussions with OMB about it. So it was not something that we proposed without consultation with OMB about. We have made it very clear from the very beginning that we cannot do this without the assistance of Congress. It is not something that we can unilaterally do. We wanted to get a project proposal before Congress and before the different constituent groups in the Tennessee Valley and then, through that process, the task force determine whether or not it is, in fact, a doable proposal. I certainly feel confident that we can do it, and it was something we gave a lot of thought to before we recommended it. fiscal year 1998 budget request Mr. Visclosky. Mr. Chairman, I would assume, although it would not have to hold true in each instance, that if you are looking to phase out an appropriation over the next 18 months, that the appropriation for the coming year would not necessarily have to be equal to the one in the current fiscal year. While the mix is changed between the four major categories, I find it interesting that somehow the budget request still came out to be exactly the $106 million current level--that if we are looking to go from the $106 million in 1997 to zero in 1999 that it is still $106 million in 1998. Even though the mix within that changed: each one of the figures in stewardship in land and water; Land Between the Lakes; economic development; and Environmental Research Center, are all different numbers. They happen to each add up to $106 million. There is no room for a reduction here in 1998? Mr. Crowell. The one reason we are not proposing a reduction is what we are talking about doing here involves some very sophisticated activities by TVA. Certainly flood control, navigation and dam safety and management of the reservoir system is a very sophisticated, very complicated matter; but we felt like we needed to keep the funding level the same--although it is not the same, because there is some reduction because we added some activities to it in our request that would give us the time necessary to make the adjustments and do them in an orderly manner, not get ourselves in a situation by which the public health could be at risk by coming down too fast. Mr. Visclosky. We did not come down at all. Mr. Crowell. That is right. Mr. Visclosky. So you do not feel there is any room in your budget to come down at all in 1998? Mr. Crowell. There is always room to do something, as you know; and that is why we are here presenting our budget to the committee. But it has been my experience in time past that the committee has the final decision on what gets marked up. I am just simply trying to make the case to you today that we are trying to eliminate all Federal funding, all tax funds to TVA. We need your assistance on it, and we think keeping the same level is certainly a reasonable request. Mr. Visclosky. If we had to make a reduction you would not have a position today at the hearing where those reductions might be able to take place? Mr. Crowell. I would hate to be put in that position, Congressman, at this point. competitiveness of tva Mr. Visclosky. Mr. Chairman, one last question if I could. Apparently, there is a GAO report that indicates that TVA does not have sufficient financial stability to compete in a deregulated industry. Would you agree with that assertion or not? Would you comment? Mr. Crowell. That came up earlier, and we certainly disagree with that. We are very competitive now. We are a very low-cost producer of electricity if you look at our costs compared to other utilities and other communities in the country. So we certainly take exception to that in the GAO report. Mr. Visclosky. Mr. Chairman, thank you very much for the time. Mr. McDade. You bet. The gentleman from Michigan. Opening Remarks of Mr. Knollenberg Mr. Knollenberg. Thank you, Mr. Chairman. Chairman Crowell and panel, good to see you this morning. A year ago, I think, when you testified before this subcommittee, you were saying some things on which you have apparently changed direction. I remember that you said something like the TVA operates more efficiently than other people do, and I suspect you were referring to some of the other agencies. And you went on to caution Congress and this subcommittee to make sure that we are getting the most efficient operation that we can get. Then I think, finally, you said that TVA is the best. And you probably heard this from someone previously, and I am assuming from some more recent remarks that TVA has become apparently less able to deliver on those excellent standards in dam management. Is TVA still the best, as you said on the 28th of March of 1996? And, if so, would you still caution Congress in the fashion that you did the last time? Mr. Crowell. No. I believe we still are the best. The proposal that we have before the committee has nothing to do with performance of TVA, it has to do with the deregulations coming into the electric utility business, positions TVA for the future, dealing with the uncertainties of deregulation. It is a strategy to get us---- Mr. Knollenberg. Pardon me. You went out of the business of stewardship. I think that is the direction you want, isn't it? Mr. Crowell. I don't think we can necessarily get out of the business of stewardship, but that someone else could perform those duties for TVA. I mean, from the standpoint of changing the TVA Act, we cannot do that, obviously. But sometimes when we make a proposal, well, let's eliminate tax funds, we are saying we are not doing a good job. That is not the issue at all in my mind by any stretch of the imagination. We think we are the best and still doing the best, but I think there is a larger issue here that we are dealing with and not just dealing with specifics on how we operate the dam. tva debt Mr. Knollenberg. Let me talk about some debt-related matters, and let me just clarify a couple things, and you can respond very quickly I think. What is the total debt of TVA? Mr. Crowell. Just a little over $27 billion. Mr. Knollenberg. How much is owed the Federal government for the initial installment--initial investment? Mr. Crowell. We are paying $60 million on that, and I think it is a little over a billion dollars. Mr. Knollenberg. Total is a billion? Mr. Crowell. Yes. Mr. Knollenberg. I heard it was higher, as high as three or four billion. Mr. Crowell. Why don't you let me check the record and make sure it is accurate? Mr. Knollenberg. But maybe I misunderstood what you were saying. I was talking about the original investment of TVA which we are paying down. But $3.2 billion is owed to the Federal financing bank. So if we subtract these numbers, we come up with what is owed to the bondholders, which is approximately what? Mr. Crowell. $27 billion, because the $3.2 billion for the Federal funding is included in the number. Mr. Knollenberg. It would be about $23 billion, then? Mr. Crowell. If you deduct that from our number, you get what is on the public bond market. Mr. Knollenberg. About $23 billion then, isn't it? Mr. Crowell. On the public bond market, right. air support Mr. Knollenberg. We heard about the TVA Air Force--I don't want to classify it as an air force. Including helicopters, you have 11 planes, fixed wings and otherwise. And, of course, we all heard the story about the Citation Ultra, Citation 5, which costs in the range of what? Mr. Crowell. I don't remember the exact figure, but it is substantial. Mr. Knollenberg. I can tell you it is substantial. It is probably in the range of $5 million. That is a pretty hefty chunk of money to be spent for what? I guess that is my question. What are you going to use it for if you get it? Mr. Crowell. We have not gotten it yet. What we have right now, we are flying a turboprop King aircraft. Mr. Knollenberg. That lease will continue, is that right? Mr. Crowell. I believe so, yes. But you have to keep in mind the helicopters we have are used for flying power lines, and that is part of every operational business. We have eight or nine helicopters, and we certainly need those on a day-to- day basis. We only have one character that is an executive aircraft. Mr. Knollenberg. How many times a year do you fly that executive aircraft, the one you have now, the King Air, which is considerably less expensive than the Citation 5? Mr. Crowell. I don't know. I can get that for the record. I don't know off the top of my head. [The information follows:] The TVA King Air 350 leased in FY 1995 flew 220 hours; 372 hours in FY 1996. TVA owns and operates one single-engine plane for photography and eight helicopters primarily engaged in transmission line patrol/construction and spraying (two other inoperable helicopters are used for parts). One helicopter is estimated at $1.3 million. The estimated value of the remaining operable aircraft is from $150,000 to $700,000 each. Mr. Knollenberg. The reason I bring the question up is that if a company can't get a minimum 400 to 600 hours a year from its average corporate aircraft, then it is probably wasting its money. They have to hire a pilot along with that. Do you have your own pilots? Mr. Crowell. Yes, we have pilots. Mr. Knollenberg. Are these private pilots? Mr. Crowell. These are TVA employees. If they are not flying King Air, they are flying the helicopters to look at the power lines to make sure they are operating. Mr. Knollenberg. So they are multi-licensed? They can fly helicopters and the Citation? Mr. Crowell. I don't think we have anybody--we have not taken any of those pilots and put them in any sort of Citation training, because I don't have that aircraft. Mr. Knollenberg. How many helicopters do you have? Mr. Crowell. I think nine. Mr. Knollenberg. You have got nine helicopters. You have got a fixed-wing aircraft. You have two fixed wing? Mr. Crowell. There is a fixed wing that does some other chores that are not involved in carrying people from one place to the other. tva police Mr. Knollenberg. I understand also that there is--and I will use the words that were presented to me--a TVA horse cavalry. I don't know if you would call it that or not, but it was an expenditure that caught my attention--involving several horses, trailers, riding equipment and what have you. And I suspect there is reason for them. Tell me what it is. Mr. Crowell. We have what we call the TVA police at TVA which guards our property. We have some 265,000 acres of property, plus 170,000 acres of Land Between the Lakes, so we have a lot of buildings that need security. We have TVA police that do that. We patrol the recreation areas at reservoirs, and we do have a mounted patrol that is parts of that. Mr. Knollenberg. Is this a brand new thing? Mr. Crowell. No. It came in existence within the past year or so as a way to help patrol some of our reservoirs. Mr. Knollenberg. What were you doing before? Mr. Crowell. Just doing it in cars, which we still do. Mr. Knollenberg. Is this cheaper? Mr. Crowell. We believe it is cheaper. It is certainly cost effective. The officers who ride the horses also patrol in cars certain times of the year, so we do not need extra people to do this. Mr. Knollenberg. I think there are some questions raised about that. air support I will come right back just for a moment to this plane situation. Will you keep the King Air if you get the Citation? Mr. Crowell. I would expect so, yes. Mr. Knollenberg. What are you going to do with that plane? If you are keeping them both, what is the reason for the additional one? Mr. Crowell. Let me answer it this way. We are a $5.7 billion operation. We are the largest utility in the country. There is no utility I am aware of that does not have a fleet of aircraft to get around to see their customers and to perform certain responsibilities that they need to perform. If anything, we are behind everybody else in the aircraft we do have. These aircraft are--the one aircraft we use to fly passengers is very important to our work to get around to see our customers. We have a very large service area. Mr. Knollenberg. Is it possibly in anticipation of your widening circle of customers that you are anticipating the need for greater air utilization? Mr. Crowell. No. Mr. Knollenberg. Nothing to do with the future? Mr. Crowell. That has never come up, no. Mr. Knollenberg. All right. I believe that takes care of my questions. I just note that there seems to have been a dramatic turnaround in your attitude in just the past year, and it is interesting that there is such a contrast, such a dramatic shift in thinking during that short period of time. So it caught most of us by surprise; and it, obviously, must have, at some point, occurred to you that it would surprise the Members of Congress who have oversight on this and heard what you told us last year and what you are telling us this year. So I marvel at how quickly that changed within your perspective. Mr. Crowell. I certainly would apologize for surprising any Member of Congress. That certainly is not in our interest to do that, certainly something we do not want to do. You have to look--when you start looking at change, there is dramatic change occurring in the electric utility industry that is moving very fast. If you see in your own home states what is going on with wheeling, what is going on with FERC regulation power marketers. There is a dynamic change occurring in the electric power industry in this country; and we have to be flexible enough to change and to change quickly if we mean to succeed in the long term. And I have always looked at change as an opportunity, not change as a problem. To me, it is an opportunity. So you are going to see not only us changing very quickly but the private companies in your district changing very quickly, too, to meet the conditions. A lot of it is really sort of an acceptance of realities to what is going on out in there that does not have anything to do with what we are driving but what is being driven by the industry. Mr. Knollenberg. I thank you for your comments. Mr. Chairman, I yield back. Mr. McDade. Before I yield to the gentleman from Texas, I want to acknowledge the presence in the room of our colleague, Congressman Zach Wamp, who has obviously a very deep interest in the proceedings; and we welcome you, Zach. Mr. Wamp. Thank you, Mr. Chairman. Mr. McDade. I now yield to the gentleman from Texas. Opening Remarks of Mr. Edwards Mr. Edwards. Thank you, Mr. Chairman. Because of the interest of other colleagues, I will only ask one question and submit any others for the record with your approval, Mr. Chairman. competitive advantages of tva As a person who is attending his first meeting regarding the TVA, Mr. Chairman, I would like to ask you, when you say you are a low-cost producer of electricity compared to investor-owned utilities, are you comparing apples to apples? Have you factored in other disadvantages where it deals with local property taxes or other regulatory costs that investor- owned utilities have to incur? Is that statement still true after factoring in all of those considerations? Mr. Crowell. Yes. What I was referring to was, we are at about four cents. We sell power for about four cents, and there are some utilities around us that are a little higher. Some are a little lower, and certainly there are others in the country that are higher. I am talking about the cost of what we sell power for with all costs included in it. Mr. Edwards. When you say all costs, you do have a number of advantages that an investor-owned utility does not have. The point I am getting to is, if you were in my shoes trying to objectively determine how well you are doing your job, how efficiently you are producing energy, would you not want to consider certain cost advantages you have to make that determination? Mr. Crowell. What we found among the people that buy power, certainly 14 utilities that buy electricity from us on a regular basis, they are just interested in what the bottom line cost is, and that is what I was referring to. Now, the issue that comes up from time to time with the private power companies about so-called subsidies at TVA, I disagree with many of the assertions that are made by them because they also have advantages. But what I was trying to refer to when I said we are very competitive was the cost we could sell you if you were a customer based on what somebody else could sell it for. Mr. Edwards. Thank you. Thank you, Mr. Chairman. Mr. McDade. I recognize the gentleman from New Jersey. Opening Remarks of Mr. Frelinghuysen Mr. Frelinghuysen. Thank you, Mr. Chairman. Chairman Crowell, why do we need to wait until 1999 to implement this program? Why can't we do it by the end of the fiscal year? elimination of tva appropriations Mr. Crowell. As I said earlier, this is a very sophisticated system that we operate for flood control and for navigation and for dam safety and for recreational purposes and for everything else that goes on on the Tennessee River. I certainly would not advise anyone to try to make changes that are dramatic, like the ones that are being proposed in too short a time frame. Mr. Frelinghuysen. But it is true that Congress has been trying to move you in that direction for a number of years in this committee. Mr. Crowell. Yes. Mr. Frelinghuysen. So it may be a sophisticated situation but, in reality, the handwriting has been on the wall that we have been pushing towards the elimination of the subsidy for some time. Isn't that correct? Mr. Crowell. Our proposal is reasonable. I just--I could not sit here and advise this committee that we could do this sooner than what we are proposing. In fact, as I said earlier, I am getting some feedback that it is perhaps too ambitious to do it in one year. So I certainly could not advise the committee to---- Mr. Frelinghuysen. I am sure you are getting some feedback, and I can understand that. With your way of looking at it, removal of this subsidy will eliminate the possibility of your having to come before this committee again. So if there is heat in the kitchen, maybe the best way to get the heat turned off is for you to eliminate this subsidy sooner rather than later. Mr. Crowell. Congressman, I am not sure I should touch that. I am just simply saying that I couldn't--I would not feel comfortable recommending that we cut off too soon because of the impact---- Mr. Frelinghuysen. Does this truly mean the elimination of programs, as your pamphlet says, or do you mean transferring these functions to other areas of the Federal government? Mr. Crowell. Well, in---- Mr. Frelinghuysen. Because a lot of what we are interested in here and what you are touting in this program is smaller and smarter government. What are we doing here? Are we transferring or are we actually eliminating? Mr. Crowell. To answer your question, I know we are trying to do both. I never said--and I certainly hope I was not misunderstood--that we were going to save exactly $106 million by doing this. Because, obviously, a lot of these activities need to be continued because of the responsibility that the country has to the fifth largest river system that we have. I do believe and I am firmly convinced that we can save a substantial amount of money but certainly not the whole $106 million. Mr. Frelinghuysen. But the number one priority you list here--by your own admission, the reason you are taking this action--the number one priority, and I quote, is to ``take strong action to reduce the size of government as expressed by congressional leadership.'' So I think you are indicating that as you are moving ahead with this proposal, you want to do it in two years. Some of us would like to see it done in one year. You want to actually reduce the size of government, not necessarily transfer functions to other agencies and therefore add to their budgets. Mr. Crowell. I certainly appreciate your encouragement that you have been consistently giving us over the past couple years about trying to eliminate the funds that come to us from this committee; and the only thing that I am saying, I would not feel comfortable. Mr. Frelinghuysen. Let me give you another area of encouragement. recruitment of industry Recently, I learned that the TVA is running television advertisements and even approaching companies in the Northeast--in my area, the Chairman's area--to relocate to the Tennessee Valley to take advantage of cheap power. One such company is Accupower located in Union County, New Jersey. It employees over 500 people. What business does the TVA have in approaching companies and urging them to relocate to your region when the American taxpayer is subsidizing the TVA? Mr. Crowell. I am not familiar with that. Are you familiar with that? Mr. Hayes. I am not familiar with that. Mr. Crowell. I am not familiar with that case at all. Mr. Frelinghuysen. I will enter that question into the record. Because I find it, quite honestly, offensive no matter who is doing this soliciting in my backyard. It is somewhat akin to Mr. Rogers' question. I am angry at the thought that somebody is out there using a subsidized power base to pull businesses out of the Northeast when we have enough problem with unemployment. Mr. Crowell. I would like to, Mr. Chairman, if I could, supply a good answer to that question for the record. Mr. McDade. You can provide it. Mr. Crowell. I am not familiar with it personally at this point. Mr. McDade. Take a good, hard look. We would be delighted to have a complete answer for the record. Mr. Crowell. Okay, great. [The information follows:] TVA has not recruited Accupower of Union County, New Jersey. TVA assists the Tennessee Valley Industrial Development Association (TVIDA), a group sponsored by distributors of TVA power through their regional industrial development associations. Neither TVA or TVIDA has any record of an inquiry or contact with Accupower of Union County, New Jersey. The Tennessee Valley Industrial Development Association does purchase advertising in regional, national and international trade journals and publications. These ads are intended to inform readers of the benefits and advantages enjoyed by firms located in the Tennessee Valley. Mr. Frelinghuysen. Do I have a little more time? Mr. McDade. Yes, go ahead. tva debt Mr. Frelinghuysen. The TVA's debt is nearly $28 billion. Is it true that residential rates for customers of the TVA distribution utilities have remained about a third below the national average? Mr. Crowell. That sounds accurate, but---- rates Mr. Frelinghuysen. Well, I think you know where I am going with this line of questioning. Is it true that wholesale prices for TVA electricity are about half the national average? Mr. Crowell. I would have to check. I don't think it is quite that much. Mr. Frelinghuysen. You are the chairman, by your own admission, of the nation's largest electric utility; and surely you must know where you stand relative to other competitors in the marketplace. Mr. Crowell. I do know that we are among the lowest in the country. We are in the top twelve in the country from the lowest producers--lowest-cost producer of electricity. But I am just not sure that I can answer your question about where--you know, at some 50 percent level or whatever. I do know we are a low-cost producer. Mr. Frelinghuysen. If you could, answer for the record at some point in time where you stand relative to wholesale prices and redemption rates for your customers as opposed to people I represent. Mr. Crowell. Okay. I will be pleased to do so. [The information follows:] The Edison Electric Institute publishes the national average price of electricity for residential consumers. In 1995, that average was 8.38 cents/kWh. The average price paid by residential consumers of TVA power for 1995 was 5.94 cents/ kWh, or about 70% of the national average. There is no equivalent statistic for wholesale prices since wholesale arrangements vary widely. However, TVA conducts a survey of 58 utilities offering similar arrangements as TVA's wholesale product. The average wholesale price of those utilities was 4.40 cents/kWh in 1995. TVA's average wholesale price for that period was 4.27 cents/kWh. Mr. Frelinghuysen. And let me just ask a general question. Why hasn't the Authority, the TVA, permitted rate increases to help contain the growth of debt in the last ten years? Your debt has increased considerably, and the people that I represent get nailed every year with increases, and you tout in your materials here that you have not had a rate increase for ten years. The taxpayers that I represent have rate increases just about every time they pay their bills. Can you tell me why you haven't permitted rate increases, and are you planning in any way to announce a rate adjustment or increase, given some of the things that you are laying out here in terms of taking on new responsibilities? Mr. Crowell. Let me start this way. We felt that, economic development, supply and low-cost power for our region was the number one priority that we had, and so we have not raised rates to pay on the debt because we have been able to manage the debt very effectively and give low-cost interest. Our interest is somewhere around 7 and a half percent on average, which is very good. We felt like the economic development aspect of our mission was more important at this particular point in time than to raise rates to pay on the debt because we were being competitive otherwise. If we were in a competitive situation, our strategy might, in fact, have been different. As far as any rate increases are concerned, we have not undertaken our business planning for next year yet, so we don't know what the rate situation is going to be like next year because we have not gone through that process, and we will be going through that process in the spring and summer. Mr. Frelinghuysen. With the Chair's permission, the gentleman from Kentucky wanted me to yield. Mr. Rogers. Briefly yield. Mr. Frelinghuysen. Yes, please. joint tva/corps study Mr. Rogers. And I will be brief. Do I understand that the TVA and the Corps have been directed by OMB to conduct a study of your proposal to take over the Cumberland River facilities? Mr. Crowell. The OMB has directed us to conduct a joint study, but as I recall from the language, it directs us to look at better coordination between the two rivers, it doesn't--I don't believe it is specific on what OMB wants us to do. Mr. Rogers. Are you going to conduct that study? Mr. Crowell. Yes, we have to do it. Mr. Rogers. How are you going to pay for it? Mr. Crowell. We are going to have to pay for it with the money already in the budget. We are not proposing any additional funds to pay for it. If there is any reprogramming, if it becomes necessary to pay for it, we certainly will advise the committee in advance. Mr. Rogers. You are going to let us know that you are going to reprogram some money? You will let us know about that? Mr. Crowell. Absolutely. Absolutely. Mr. Rogers. Mighty kind of you. I appreciate that very much. Mr. Crowell. The staff is very insistent that we keep them fully advised of reprogramming. We understand why, and we certainly have been cooperative, I believe, Mr. Chairman, in the past in making sure that we supply that information. We would not expect to change that. Mr. Rogers. Mighty kind. Mighty kind of you. Now, are you going to do this study with your own money, or are you going to ask us to reprogram some of your money? Mr. Crowell. I don't know at this point because we don't have a budget that has been submitted to us by the task force yet. We certainly expect to get that. Certainly the study will cost money. We are convinced at this point that we have adequate funding to conduct the study, and, as I said, if any reprogramming is necessary, we will notify the committee in advance. Mr. Rogers. Will you be doing that study on your part with public funds, appropriated funds, or otherwise? Mr. Crowell. In this case we would anticipate doing it with appropriated funds, which is the same funds the Corps would use to do it. Mr. Rogers. If you propose to use appropriated funds for this purpose, would you advise this committee well in advance of that plan? Mr. Crowell. Absolutely. Absolutely. Mr. Rogers. Now, the Corps would have to reprogram their portion, would they not, of that study? Mr. Crowell. I am not familiar with that, how they plan to finance the study, Congressman. So I just don't know. Mr. Rogers. Thank you. Mr. McDade. The gentleman from New Jersey's time has expired. Mr. Frelinghuysen. Thank you, Mr. Chairman. Mr. McDade. The gentleman from Mississippi is recognized. Opening Remarks of Mr. Parker Mr. Parker. Thank you, Mr. Chairman. Welcome, gentlemen. I am new to the committee, and I keep hearing this figure of $106 million. Now, I think the average person who listened to this discussion that we have had this morning would come to the conclusion that $106 million is all the money that you get from the Federal Government, and I don't think that is quite the truth. I would think that there is some more out there that maybe is not appropriated in exactly the same way. Do you get more money from the Federal Government than the $106 million? Mr. Crowell. The $106 million is all we get. Mr. Parker. You get no more, no other money? Mr. Crowell. All the other revenue we have is generated through the sale of power to our customers in the service area. There is no other funding stream other than sale of power and the $106 million we get from Congress. Mr. Parker. I am going to have some questions submitted to you; then I would like an answer to some things. Mr. Crowell. Okay. Sure. Certainly. tva debt Mr. Parker. You have got a debt out there of $27 billion. You have got total revenue of how much, Mr. Chairman? Mr. Crowell. $5.7 billion. Mr. Parker. You know, we are talking about big business here. Would that be a normal debt ratio for a major business out there to have $27 billion worth of debts with income of $5.7 billion? Mr. Crowell. You have to look at how TVA can obtain money for capital. If you are a private power company, you would sell stock to raise money and you would borrow money to raise capital. In our case, we cannot sell equity in the corporation, so the only funds available to us for capital are through bond issues, not through the sale of stock. But if you look at the amount of stock outstanding and the debt that is incurred by some of our neighbors, you will find that that is how you can really compare apples to apples, is look at the total of the two. bond ratings Mr. Parker. Well, let's talk about apples to apples. Moody's Investor Service gives you an AAA rating as far as your bonds. Mr. Crowell. Yes. Mr. Parker. If you did not have the U.S. Government backing those bonds, what kind of rating do you think you would get? Mr. Crowell. Well, first of all, the Federal Government does not back the bonds. But I certainly--in the spirit of trying to respond to your question, certainly will tell you that being owned by the Federal Government is an advantage to us, obviously. I mean, it certainly is helpful, and I mean, I would not be candid if I didn't tell you that, if I told you otherwise. Mr. Parker. I think it is everything. My personal view is, I don't think it gives you an advantage; I think it is everything. I mean, you could not operate the way that you operate if you did not have the backing of the Federal Government. Mr. Crowell. Congressman, sometimes people ask me, they say, why is the Government in the power business? Why does the Government own the big utility, to start with, like TVA? What I try to say is that is reality, the Government does own us, the Government does have a large power company. We could look back and say, maybe we should have done something differently in 1933. In my position here, I am trying to deal with reality and trying to prepare TVA to be successful in the long term and remain a valuable asset to the Government, because the Government does own TVA at this point. electric industry competition Mr. Parker. Mr. Chairman, what I have found in business is, what I own I can sell. Now, my view is that this reorganization--and this will be my last question--is happening so that you get rid of some of the responsibilities that you have been assigned. The power generation was not in your original charter, but it is something that has come about. It seems to me that you want to be competitive but you want to restrict your competition. Now, am I looking at that right? Mr. Crowell. Let me tell you the way I am looking at it. Mr. Parker. Because I would like to know. I mean, you keep telling this committee how competitive you are and how well you run this place and how proud you are of TVA and how you can provide services on an open market. I mean, you compare yourself to everybody in the country. But it seems to me that if that is the case, I want you to do that. I want you to compete. I want you to get out there and mix it up and let the consumer be the one to really benefit from this. It just seems to me that you want the advantages but you don't want to compete in the real marketplace. I would like a response. Mr. Crowell. Let me tell you as to where I am coming from, and I think I can speak for my two colleagues here, that we view ourselves as temporary stewards of TVA for a certain period of time that we have been asked to serve, and what we are trying to do is make TVA successful for the future and make it something that you and other Members of the Congress can be proud of since it is owned by the Federal Government. We are down there doing our very best every day to try to make TVA succeed. We know we have a large debt, and we know we have other things that need to be dealt with, but what is depriving us is the effort to be a good steward of the corporation. Our salary does not change at all based on our performance, but we are there trying to be good stewards every day, and we are trying to make TVA successful. And what I am trying to say to the committee is, we need help from Congress to make sure TVA remains an asset to the Government for the long term. Mr. Parker. You have not answered my question. I want to know, what about competition? What about you getting out and competing? It seems to me you want to protect yourself where you are providing this power. I want you to compete. Why do you need that protection if you are doing such a good job? Mr. Crowell. We would not even be having this discussion if deregulation of the utility industry was not imminent. That is what is driving all this. It is not something we went out and asked for, but we are trying to react and respond appropriately to deregulation. That is why we are having this conversation. If we were back in the old way where everybody had their own service territory and deregulation and monopolies existed with defined regions to serve customers, this discussion would not be necessary, we would not be proposing a lot of these things. Mr. Parker. So, you don't want a defined region; you want to be able to compete in the open market everywhere. Mr. Crowell. If the utility companies can come in and take the customers of TVA and we were not able to replace those customers, we end up in financial distress over the long term and cannot be successful. Mr. Parker. But what you want to do ultimately--maybe I am putting words in your mouth--you want to compete on the open market. You have a free market that you want to compete in, and anybody can compete with you, and you can compete with anybody else; is that correct? Mr. Crowell. We are not saying that at this point because we don't know how deregulation is going to unfold and how this is all going to happen. I have not found anybody else that I know of who knows how deregulation is going to impact their own companies if they are private companies at this point. But we know impacts are going to be there, and we need to remain flexible. What we need to do to remain flexible is continue to do a good job and try to maintain the costs we have. Mr. Parker. Thank you, Mr. Chairman. elimination of appropriated programs Mr. McDade. There is a lot of confusion on this side of the dais on the elimination of the Federal funds, and there have been several questions put to you about what the real savings are. I mean, I know you look at that fund and you take it down to zero and you can calculate it that way, but you are going to be transferring other obligations. What is the real net savings of the elimination of that appropriation, and what might you be transferring? Please put numbers on it. We would like to know the numbers. Mr. Crowell. I just don't know at this point. It is something-- Mr. McDade. You don't know the net savings? Mr. Crowell. No, I do not. Mr. McDade. Do you have an estimate? Mr. Crowell. No, I do not. Mr. McDade. What kind of transfers are you contemplating as a business practice? Mr. Crowell. We don't know at this point until the task force takes a look at it. But there are obviously some entities out there that can do the job and are very limited, like the Corps of Engineers. Mr. McDade. Some of the things that you want to do, some of those actions might be quite clear, I would assume. Mr. Crowell. Yes, I understand what you are saying, Mr. Chairman. If I start saying here is what we need to do, do this and this, we don't need to get a task force to go out and get public input to make sure we are doing it right. If I sit down and tell the public, here's how I want to do this, then I am going to get a reaction from the public by saying, you did not give us a chance to see if there is a better way to do it or another alternative that we have. So I am trying deliberately to keep the process open. Mr. McDade. Tell me when that number will be nailed down. Mr. Crowell. It will be between now and September. Mr. McDade. Between now and September? Mr. Crowell. Yes, sir. Mr. McDade. I am delighted to recognize my friend from Arkansas. And let me advise the committee that we have two votes coming, a fifteen-minute and a five-minute vote, and we are about at the ten-minute mark. So after we have recognized Mr. Dickey, we will adjourn and go and vote. Opening Remarks of Mr. Dickey Mr. Dickey. I appreciate you recognizing me, but that is all I want. Thank you. Mr. McDade. Thank you. Enough said. The committee will stand in recess for ten minutes. [Recess.] Mr. Frelinghuysen [presiding]. I would like to begin the hearing again. The Chair recognizes the gentleman from Alabama for some questioning. Opening Remarks of Mr. Callahan Mr. Callahan. Thank you, Mr. Chairman. And I apologize for not being here Mr. Chairman, for part of the hearing; and if I am repetitious, forgive me. I have two areas of concern. One of them regards the fencing problems that you have experienced and the suit that TVA lost. Mr. Crowell. Yes. tva fence Mr. Callahan. We would like for you to explain what you are going to do in the future to make certain that you do not violate the boundaries of the law as I see it, which prevents you from extending services outside certain designated areas. Mr. Crowell. The lawsuit that you are speaking about, we obviously did not take any actions that we thought were illegal or inappropriate. The judge did rule against us in that, but we felt that we had good sound policy to undertake the contract that we did in that particular circumstance. We obviously sought advice from our counsel before we entered into that contract, to start with, so that was a ruling that went against us. To answer your question, we certainly seek legal advice before we take any actions at all to make sure that we are doing the proper things. Mr. Callahan. Well, while I have tremendous respect for the legal profession, I am not a lawyer. I don't apologize for that fact. I have said it publicly in the past: having met some lawyers since I have grown to adulthood, had I known how little sense it took to get one of those degrees, I would have gone ahead and got me one. I don't mean that as a blanket statement on the legal profession. My son-in-law is a lawyer now, and since he has presented me with a granddaughter, I have a great respect for the legal profession. But I am concerned. I know that the law tells you where your boundaries are, and I know that it does not take a legal mind to look at a map and to look at the fencing restrictions that you have. And I guess what I want is your assurance that you do not intend to violate the boundaries of the restrictions you have. Mr. Crowell. You have my assurance of that, Congressman. Mr. Callahan. Well, that is good. Secondly, I know that Congressman Rogers talked about his river in Kentucky, and I think that he has established an area that he is interested in, and certainly I do not think that you are going to do too much now as a result of Congressman Rogers' statements without notifying him. environmental research center And we all have to carve out niches. I don't want to run the TVA; I am not qualified. I do not want to. TVA contributes greatly to the power needs of a lot of people in Alabama, though none in my district. But still I want to represent those people who are served by the TVA. Mr. Crowell. Certainly. Mr. Callahan. But in your statement you mentioned the Environmental Research Center, and I am just going to have to adopt that as a little project of my own. It is a very minor part of your operations. But the proposal that is under consideration now for the Environmental Research Center seems unique. Do you want to explain to me briefly what you are doing with the environmental research center and explain how this is not in competition with the free enterprise system or the academic system of the United States. Mr. Crowell. Certainly, I would be happy to comment on that. First of all, let me just note that the Environmental Research Center phaseout was not part of the current proposal that we have before the committee on phasing out the entire appropriated programs. This is something we proposed a couple of years ago to do, and we are on track to make it self- supporting, and we are about 60 percent of the way there now. Now, to answer your question about competing with others, this is a unique facility that offers services to others that are not readily available among private companies, and there is not the expertise there to do some of the things that we do. Last year we did about $11 million worth of work for other Government agencies, and they have come to us because there is no other realistic way to get the work done. So I don't see a circumstance here in which we are going to be competing with private enterprise because some of the services do not exist elsewhere. Mr. Callahan. Well, don't universities and private research centers already do some of the things that are being proposed by the Environmental Research Center? And doesn't the University of North Alabama or some entity within the educational world already do that? Aren't some private companies already doing some of this? Mr. Crowell. Take an example of wetlands research which universities and others do work on, which we do at the Environmental Research Center, there is a difference in the way we do it than anybody else. Nobody else offers the integrated approach we do to wetlands management when it comes to specifically designing a wetlands for a specific industry. There is no other place, that I am aware of, where somebody can get that kind of expertise. There is wetlands research, obviously, at other places, but there is a uniqueness about the Environmental Research Center in this particular area. There are some other areas that are the same way, but that is one example. In trying to be responsive to your question, we don't see other organizations providing the same kind of research that we do at the ERC, although there may be some in the same category. Mr. Callahan. There could be. Correct me since I am such a novice on this subcommittee but weren't you designed to provide power for rural areas? Isn't that your primary charge? Is that what you are supposed to do? Mr. Crowell. Our primary charge was to be a resource development agency for a certain part of the country, which is the Tennessee Valley, and that involves not only power production but it involves navigation, flood control, and at the time we were created, we took over some of the Department of Army functions in Muscle Shoals, Alabama. That is how we came to have the Environmental Research Center to start with, because that whole facility, the reservation in Muscle Shoals, was previously owned and operated by Department of Army. Mr. Callahan. Well, now you are asking for $6 million this year to enhance the Environmental Research Center, and then you are going to spin it off into a private subsidiary or a private organization. But if you spend $6 million on top of the accumulated millions of dollars that you spent establishing this, and then you spin it off into a private company without affording everyone the opportunity to bid on it, then it creates heartburn for some of us in government. And I just want to tell you that I would like for you to keep me posted on the direction you take. I don't want to read in the newspaper what you did; I would like to know what you are going to do, and I want to ensure that private industry has the same opportunity to bid on this asset if it is going to be sold rather than spun off with some favoritism or priority going to some agency or some quasi- agency that may be proposed or that may have already been proposed. So I am concerned about that, and I would appreciate you keeping me posted in advance on any change or any contractual arrangement you are going to make with respect to an asset that the United States has paid for. We have paid with taxpayers' money a great many millions of dollars to create, and now it appears--and keep in mind that it just appears--that there could be some favoritism shown with respect to spinning off to a potential profit-making company. It appears as if you are selling an asset of the United States without the worry of competitive bidding or without giving the opportunity for others to take a look at it in advance. Mr. Crowell. Sir, certainly your comments are noted by us, and we certainly will keep you informed. And I might even suggest that, as a first thing, that we arrange a briefing for your staff on what is exactly going on there and what we are doing as just an initial approach, and we can do that relatively quickly, I believe; and then certainly I will be available personally to talk to you about anything we do at ERC. Mr. Callahan. Thank you, Mr. Chairman. land between the lakes Mr. McDade [presiding]. Mr. Chairman, let me direct your attention to one of your great assets, the Land Between the Lakes. It is now about 34 years old since it was established as a demonstration project. What have we learned at Land Between the Lakes and its demonstration that we have not learned in other areas? Mr. Crowell. What we have learned in Land Between the Lakes is how you can take a recreation area and have multiple constituencies that are able to take advantage of the opportunities of Land Between the Lakes. We manage it in a different way than most other entities of government that have that kind of responsibility do. But I might make a point here---- Mr. McDade. Please. Mr. Crowell. I am sorry. Go ahead, Mr. Chairman. Mr. McDade. Go ahead. Mr. Crowell. I might make a point that the original mandate to TVA-owned Land Between the Lakes was for us to turn it over to someone else after 10 years, and we did not do that. This proposal to do it is certainly consistent with the original mandate. Mr. McDade. Have you had an opportunity to look at whom you would give it to? Have you talked about it? Mr. Crowell. The task force will be looking at that to determine what recommendations will be made. Mr. McDade. Same task force? Mr. Crowell. Same task force as the others, yes. Mr. McDade. How do you calculate visitor days? Do you do it the same way as Park Service, Forest Service, Corps of Engineers et cetera? Do you use the same calculation for visitor days? Mr. Crowell. Bill has been our lead on Land Between the Lakes, Mr. Chairman. Mr. Kennoy. We have about 2 million visitors a year, and that is done by counting the cars and multiplying that by 2.6, and that is the way, as I understand it, that other recreational areas do count the visitors. Mr. McDade. So you think it is consistent with all other federal park procedures? Mr. Kennoy. Yes, I do. Mr. McDade. Okay. Would you put into the record for us, please, a 5-year sweep of the visitor days? Mr. Crowell. Certainly, I would be happy to do so, Mr. Chairman. [The information follows:] LBL records annual visits rather than visitor days. LBL's visitation is shown below. ------------------------------------------------------------------------ visits ------------------------------------- 3 people/vehicle Calendar year (Sept.-May) 4 2.6 people/ people/vehicle vehicle (all (June-Aug.) year) ------------------------------------------------------------------------ 1992.............................. 2,312,209 ................. 1993.............................. 2,203,173 ................. 1994.............................. 2,495,159 1,889,736 ------------------------------------------------------------------------ 1995 \1\.......................... ................. 2,049,302 1996.............................. ................. 1,962,745 ------------------------------------------------------------------------ \1\ Note in 1995, the formula for calculating visits was changed based on new LBL visitor Survey data. 1995 visits cannot be compared to previous year's numbers. 1994 visits are shown using the original and new formulas for comparison purposes. Mr. McDade. Last year we appropriated some money for you for Land Between the Lakes, and as we went through the process, the money was cut by $600,000, you will recall. Prior to the cut, TVA said it had all the money it needs to run the organization. Then you got a $600,000 cut in the budget. What did do you to make up for the shortfall? Mr. Kennoy. Some things have been neglected and have been neglected over the years. Mr. McDade. I am talking about one fiscal year now. Mr. Kennoy. Right, it was a shortfall. I did an analysis in June of the infrastructure to see what was really needed down there. That has been completed now, and there is a big shortfall. Today we had an $800,000 loss just due to flooding down there at Land Between the Lakes. Mr. McDade. Disaster flooding? Mr. Kennoy. Yes, sir. Mr. McDade. But I am kind of zeroing in on the fact that you folks said you had plenty of money to run it. You were cut $600,000; you didn't seem to bat an eye; it didn't seem to bother you a bit. I am trying to figure out what you did. Mr. Crowell. I might mention here, Mr. Chairman, that about 36 percent of the revenue at LBL comes through fees and through sources other than the appropriations from Congress, and we were on a path to increase those. So I think the answer to your question is that we felt comfortable we could make up the difference and continue to operate Land Between the Lakes because we were charging fees for other activities. Mr. McDade. Amplify that for the record, would you please? How much did you increase the fees, do you recollect? Mr. Crowell. Not right offhand. I don't think the fees were increased. The revenue from the fees were increased. I would certainly be happy to provide that for the record. [The information follows:] For FY96, revenue was earned in the following categories. Full Service Camping..............................................$1,175 Basic Service Camping............................................. 161 Hunting........................................................... 298 Wildlife Viewing.................................................. 21 Interpretive Facilities........................................... 305 Environmental Ed Resident Cntr.................................... 561 Timber and Open Land Management................................... 812 ----------------------------------------------------------------- ________________________________________________ Total LBL revenue............................................... 3,452 Mr. McDade. Last fall you were reportedly conducting an inventory of infrastructure needs at Land Between the Lakes. Have you completed that inventory yet? Mr. Kennoy. Yes, we have. Mr. McDade. What are the total costs associated with the identified infrastructure needs? Mr. Kennoy. I believe we need about $17 million to restore the roads, the system of trails. Mr. McDade. Now this is exclusive of any flooding or disaster needs? Mr. Kennoy. Yes, that is right. We have 400 miles of road. We have got 221 cemeteries that we have to provide access to at Land Between the Lakes. There are about 30,000--I will furnish you the number of miles of trails we have down there. But it is an enormous area. Mr. McDade. What is the bottom line on infrastructure needs? Mr. Kennoy. We need about $17 million for exterior, and there is another $8 million we need to take a look at how to help the areas provide infrastructure for those cities and communities around it. Mr. McDade. So you think you are down about $25 million; is that right? Mr. Crowell. Actually about $17 million on the interior. But we feel if you really want it to be self-sufficient, we need to have money for infrastructure for the gateway cities and the entryway cities for LBL. Mr. McDade. Is any of that need reflected in the budget for this fiscal year? Mr. Kennoy. We are getting about $1.9 million more than the $6 million we had last year. That is about the average shortfall we had over the last 20 years too. But that will be used to pave the main trails, about 16 miles of main trails, to help some of the infrastructure at the different facilities we have at LBL. Those are the primary things we need to do now. So we will use that $1.9 million dollars to do that initially. Mr. McDade. One of the items that appears in the justification is an apparent increase of 370 percent for personal service contracts in fiscal year 1998. What is all that about? Mr. Kennoy. We have a lot--we do a lot by permanent contracts. We have a contract model that we follow throughout TVA. Mr. McDade. The question is, why this huge increase? Mr. Crowell. I might interject here. We have taken the manpower at LBL down from around 250 down to just over 100 people, FTEs, at Land Between the Lakes. So we have to make up for some of the work load that is involved there, and what we have done is rely more on contractors, as opposed to adding FTEs at Land Between the Lakes. But we have had a fairly dramatic decrease in FTEs at LBL over the past few years. Mr. McDade. Do you know offhand, anybody at the table, what the beginning of the year and end of year employment levels were for fiscal year 1997 and fiscal year 1998? Mr. Kennoy. Right now--I think about 109 employees right now. Mr. McDade. Where were you at the beginning of last year and end of last year? Mr. Kennoy. It was the year before last that we made the big cuts, and that was part of an overall downsizing by TVA. Mr. McDade. I will tell you what I want you to do, please. Furnish to the staff of the committee and insert into the record the total employment at the beginning of the year and total employment at the end of the year for 1996, 1997, and 1998, please. Mr. Crowell. We will be pleased to do so. [The information follows:] ------------------------------------------------------------------------ Beginning End of Fiscal year Budgeted of year year ------------------------------------------------------------------------ 1996................................... 114 \1\ 118 \1\ 110 1997................................... 114 \1\ 109 114 1998................................... 114 114 114 ------------------------------------------------------------------------ \1\ Actual. Note: Budget projections were developed prior to Chairman Crowell's proposal to eliminate federal funding for LBL by 1999. Where possible, vacancies will not be filled; instead work will contracted for the remainder of 1997 and 1998. Mr. McDade. I am delighted to yield to my friend from Kentucky. Mr. Rogers. Briefly, on the Land Between the Lakes, most of it, of course, in Kentucky. There was a proposal that you had for a while to commercially develop a portion of LBL; is that not correct? Mr. Crowell. Yes. Mr. Rogers. You have abandoned that proposal, have you not? Mr. Crowell. Yes, that is correct. Mr. Rogers. And so you will not allow any of LBL to be commercially developed, will you? Mr. Crowell. What do you mean by that? I guess the general answer to your question is, that is correct, we will not. But we do sell soft drinks and supplies, but the development is off the table. Mr. Kennoy. The development should be just to support that on the outside--should be minimal. Mr. Rogers. You are fully appreciative of the fact that the people who formerly lived there, whose land was condemned and taken from them, and who were moved out have a great deal of resentment when you talk about selling that property to commercial interests for commercial development inside what is considered to be---- Mr. Crowell. Right, we got that message, Congressman. Mr. Kennoy. 788 families that were moved, and their interests should be protected. Mr. McDade. Our colleague, Zach Wamp, is here, and he has to chair another committee, so we are going to break precedence. Usually we require a member to wait until all the questions are asked, but because he has this other committee obligation, we are going to yield a minute to Zach. Opening Remarks of Mr. Wamp Mr. Wamp. Thank you Mr. Chairman, very much for your indulgence. As a new member of the full committee, I must say it is an honor to be at this subcommittee. Certainly there are no new members of this full committee on this subcommittee on our side of the aisle; otherwise, I would hope to be sitting here on a more permanent basis. But it is a real privilege to be here. I want to make three quick points because I sat back and forth between the Interior subcommittee this morning and here to address Mr. Visclosky's concern with the $106 million request versus $106 million last year and why the number is inflated in certain areas. Let me make a point that is extremely critical for our national interest. We have two major construction projects in the Tennessee Valley region. One is the Kentucky Lock replacement, which is now a Corps of Engineers project. One is the Chickamauga Lock replacement, which is still a TVA project, it is not yet a Corps project. The funding request for that in last fiscal year was denied; It came away from the conference with a zero. We are now one year behind. It is a major safety and commerce issue on the Tennessee River, the Chickamauga Lock; $6.6 million of this request, this increase, is for that particular issue, replacing the Chickamauga Lock. That is why it is an increase. I would hope that it would not have been an increase, but, frankly, that is part of the increase in this stewardship ticket. I will tell you, there is consensus around the Chickamauga Lock being replaced on the Tennessee River. There is not yet consensus on the chairman's proposal in the Tennessee region, but there is on that. I would also like to ask the chairman to--at least for the record for the Members, to express his desire to refinance that FFB debt and what that would do to the bottom line at the Tennessee Valley Authority, because that is also a significant long-term issue, I think, for Mr. Frelinghuysen's concern about the debt. Then lastly, I would just point out that, as a former member of the Transportation Committee, the State of Tennessee, as with many other southeastern States, is a donor State on transportation issues, and the entire Tennessee Valley region is still 10 percent behind the rest of the nation in the amount of Federal dollars per capita that flow into our region. So before we get into too many parochial battles here, we are way behind, all the way back to the Great Depression, the reason FDR did this. It is not cured yet, and we will take this debate to the Floor and to the full committee, but I want those issues pointed out today as we talk about parochial interest. I don't know, Mr. Frelinghuysen, whether the State of New Jersey is a donor State on transportation, but I know our State sure is. We get back less money than we pay in. Mr. McDade. Let me say to my friend, we recognize your comments. Mr. Wamp. Thank you, Mr. Chairman. Mr. McDade. I recognize the gentleman from California. Mr. Kennoy. Could I clarify one question? Mr. McDade. Yes. Mr. Kennoy. The TVA's request to OMB over the last--in 1996 and 1997 were about $183 million, and the President's budget request to Congress was $134 million. So Congress did fund what we asked for during that period of time. Mr. McDade. We appreciate your suggestion. automobile fleet Mr. Knollenberg. I will be fairly brief. I did raise the question about the air force and the cavalry in the last round. While we are at that, let's take a look at the auto fleet, and I know you have one. Do you have among those automobiles any luxury cars? Mr. Crowell. I do not. I am not aware--when you say ``luxury cars,'' do you mean something like Town Cars or Cadillacs? Mr. Knollenberg. Yes, Mercedes or limos. Mr. Crowell. We have no limos, if that is what you are asking. Mr. Knollenberg. What is the size your auto fleet? Mr. Crowell. I don't know offhand. We supply cars from a motor pool that our employees use when they are on business. So I don't recall right off the top of my head. I am not aware of any luxury cars, period. And I just want to be absolutely sure that there is not something that you would think is a luxury car. I would be happy to look at it. patrol boats Mr. Knollenberg. You have got a navy of some size. I understand that you have some 12 high-tech patrol boats that I have been told are seldom, if ever, put in the water. And I also note that your spokesman, Mr. Francis, Gil Francis, defends this practice of not using this fleet because, as he puts it, the mere presence of these boats has a calming influence. I don't know what the total cost of that combination of those 12 boats is, but it does raise the question if they are not being used, what is the justification for them? And further, the press accounts have indicated that the TVA has said that the boats have been used to protect the President, Vice President, and their families while they are in the area. What other functions aside from being, quote, a calming influence in some fashion--to whom, I am not really sure, but I am just quoting from sources--do these boats have? First of all, what is the cost of the entire---- Mr. Crowell. I don't remember the exact cost. There are 11,000 miles of shoreline that we are responsible for. We are responsible for the safety of people who use those facilities for the boaters, and we are concerned about the number of drownings that occur in our lakes every year, and we work jointly with State agencies to do that. What Mr. Francis was trying to say was that we don't see our role as trying to issue citations all the time to our citizens, we see it as a way to try to make boating more safe and to protect the property and people that use it. He was trying to say we don't see it as a unit that is trying to get more citations issued and therefore success is based on number of citations issued, we want success based on fewer number of boating accidents. Mr. Knollenberg. That was new acquisition, wasn't it? Mr. Crowell. This was part of the TVA that was created by Act of Congress in 1994. Mr. Knollenberg. I understand that, but--by the way, if you lost LBL as part of your oversight responsibility, wouldn't that cut down some of the need? Mr. Crowell. It certainly would, yes. Mr. Knollenberg. You are actually expanding now in this arena that you are proposing to shrink in size. Again, I go back to the statement that says the boats are not being used, they are just a calming influence; they hardly get in the water. Mr. Crowell. They are in the water quite often, I am confident. If you look at TVA, as I said earlier, we are required to protect our property. The security force is used to protecting the property and the public uses it. We can't operate a system like we do without having any protection supplied to the public out there. Mr. Knollenberg. I don't question the need for it. I am just curious why there seems to be a greater need now when in fact your requirement and your oversight responsibilities have been diminished. You know, all of these questions have nothing to do with anything except your debt. I am concerned about that $27 billion and if we are moving in a direction of expending money for the kind of things we have talked about, like the so-called air force and that one plane that seems to be a substantial jump from what you have been used to. And you have got an auto fleet and navy and what have you. It is a concern to me, and I think this committee, that you move in a direction of doing something about lowering the debt. It occurs to me that maybe you are raising some of those debt columns, and that is of major concern to us. That is why those questions are being generated. And they are coming from your own sources, not from anything that we have dug up on our own. They are out there. Mr. Crowell. What I need to really clarify here, which I think is important when you talk about these patrol boats and security, we have undertaken a plan in the creation of these activities. We are looking at contracting out some of the activities. We believe we can save $3 million a year on security at TVA by the way we have reconfigured and the way we are doing this. So this is not an addition to the cost of TVA; this is all a part of the plan to reduce expenditures for security. And I would like to, if I could---- Mr. Knollenberg. This is some of your hometown papers that are talking about that. Mr. Crowell. I understand. And I have seen those stories, but I have never been in a limo when I am up here. A limo to me is something that has more than four doors on it, and that is not what we use. So sometimes there are misunderstandings that somehow there are luxury cars here that do not exist. Mr. Knollenberg. We would appreciate the information I requested. Mr. Chairman, that concludes my questions. Thank you. Mr. Crowell. Yes, certainly. [The information follows:] TVA currently has 1,306 sedans operating; none of these are luxury vehicles. There are 671 sedans assigned to the individuals or organizations who require them for frequent, ongoing business travel. The remaining 635 sedans are assigned to a network of motor pools and are available to all TVA organizations for occasional or short-term travel needs. TVA's sedan fleet has been the subject of a recent internal study; recommendations resulting from this study are expected by the end of March and could reduce the size of the sedan fleet. The boat patrol budget for FY97 is $37,000. Year-to-date (through February 97) expenditure $15,292. Throughout the Tennessee Valley, a total of 24 TVA lakes cover more than 1,000 square miles of water surface and have 11,000 miles of shoreline. As more people use the lakes, there are more lake mishaps, including drownings as well as improper activities. The primary function of the patrol boats is to help improve and promote water safety. Additionally, they are utilized in search and rescue and flooding operations. The patrol boats duties include: 1. Enhance public relations. 2. Provide boater assistance. 3. Advise and protect public users of the Tennessee River and TVA lakes. 4. Protect and inspect TVA properties and natural resources. 5. Enforce federal and state boating laws. TVA boats are strategically located throughout the Tennessee Valley service area to provide more efficient response to normal patrol activities and waterway emergencies. Officers working as boat patrol officers do so as a collateral duty. No additional personnel were employed for the boat patrol operations. Mr. McDade. The gentleman from Indiana. land between the lakes Mr. Visclosky. Thank you, Mr. Chairman. In response earlier to the Chairman's question, about whether or not TVA had ever considered alternative arrangements for the permanent administration of the Land Between the Lakes, what was your answer? Mr. Crowell. We have not done so. Mr. Visclosky. So, in all of that time subsequent to its creation as a temporary demonstration authority, the administration never considered any alternative? Mr. Crowell. No. As I recall, historically what happened in 1964, Land Between the Lakes was created to be put together as a demonstration project for five years and then held by TVA for ten years and then turned over to some other entity. At the end of that ten-year period, the TVA board at the time conducted a study and decided to retain the management and ownership of Land Between the Lakes. That was not a decision that was required by Congress, as I understand it, or by the administration. It was a decision made by TVA. And the only point I was making when I was addressing the Chairman's comments is our proposal to now turn TVA to another entity is not inconsistent at all with the original mandate given to Land Between the Lakes. Mr. Visclosky. The Chairman also asked about the 370 percent increase in the personal service contracts, and your response was essentially that because you have had a significant reduction in your FTEs there is some necessity to enter into these contracts. I am also confused, then, about when the significant reduction in FTEs occurred. And you had indicated you would answer that for the record. You don't have your FTEs with you here? Mr. Crowell. I don't think we have them. Mr. Kennoy. We have 106 people there now. Mr. Crowell. The reduction occurred about two years ago. Mr. Visclosky. So the reduction occurred two years ago. The 370 percent increase is this year, not over two years ago? Mr. Crowell. I am not certain about that. I will have to supply that for the record, if I may. Mr. Visclosky. Well, my understanding is the 370 percent increase in personal service contracts of Land Between the Lakes is an increase for fiscal year 1998 over fiscal year 1997. Mr. Crowell. 1997 and 1998. Mr. McDade. 1997 and the following fiscal year. Mr. Crowell. I am sorry, I don't have an explanation that I can give you right now on that. Mr. Visclosky. And the FTEs were constant, from your testimony here, between fiscal year 1996 and 1997? Mr. Crowell. I believe that is the case. Mr. Visclosky. Okay. Assuming that is the case, then that wouldn't explain why you have a 370 percent increase proposed for next year if your decrease, in fact, took place two years ago. Mr. Crowell. The decrease in Land Between the Lakes next year, almost all of that---- Mr. Visclosky. I am asking about the 370 percent in personal service contracts. Mr. Crowell. I am sorry, Congressman, I can't recall that information out of my head at this point and I just am not able to answer your question. Mr. Kennoy. It would be helpful if I had a dollar amount to compare it to rather than percentage. Mr. Visclosky. I will be happy to give you a dollar amount. My understanding is that your budget for personal service contracts for 1997 is $41,000, if I am correct, and that your estimate for 1998 is $193,000. I might point out, and depending again when you saw your FTE reductions, that your personal service contract amounts in 1996 were $53,000, and in fact for the current fiscal year your personal service contracts went down from the year before, when you are telling me your FTEs collapsed. Certainly they are going up---- Mr. Crowell. I know the FTEs are about the same and I know it is a reduction over 2 years ago, but I just don't know the answer to your question right now about the contractors but I certainly can obtain that information and get it to you promptly. [The information follows:] The increase of $152,000 in TVA's request for LBL will be used for backlogged infrastructure repairs. TVA will contract out most of this work. Some of these contract costs were inadvertently placed in the personal serivces category in the budget rollup. LBL's personal services contracts will be approximately the same as for the previous two years. competitive advantages Mr. Visclosky. If I could ask a couple other questions, Mr. Chairman. Are you exempt from Federal income tax? Mr. Crowell. Yes, we are. Mr. Visclosky. Are you exempt from State income tax? Mr. Crowell. Yes. Mr. Visclosky. Are you exempt from State ad valorem taxes? Mr. Crowell. Yes. Mr. Visclosky. Are you exempt from local ad valorem taxes? Mr. Crowell. Yes. Mr. Visclosky. Do you have access to preference power at prices below market? Mr. Crowell. We are not. Mr. Visclosky. You do not? Mr. Crowell. No. Mr. Visclosky. Okay. Would you argue that these characteristics do not operate to allow you a competitive advantage in a deregulated industry? Mr. Crowell. I can make a very strong argument here on the tax situation from this standpoint. We make tax equivalent payments of 5 percent of our sales, and this past year along with our distributors we paid about 5.7 percent. Mr. Visclosky. To whom? Mr. Crowell. To the States. Mr. Visclosky. What about the Federal Government? Mr. Crowell. Not to the Federal Government. But let me make my point here. The people that hold our bond, for example, pay something like $400 million a year in taxes. We do not have any tax-exempt bonds, whereas private power companies have both State and Federal. The point I was trying to make is simply this, we paid about 5.7 percent this year in tax equivalent payments and the average utility in our area paid about 5 percent of Federal income taxes, so if I think there is any advantage at all, it goes to the private power companies not to us on the taxes required for us to pay, and we paid about 5.7 percent compared to an average of 5 elsewhere. So I don't see that as an advantage to us at all. Mr. Visclosky. Those payments are not made to the Federal Government. Are they made to local agencies of government? Mr. Crowell. That is correct. That is correct. Mr. Visclosky. Local agencies. Mr. Crowell. State governments. The States apportion it out to the local governments. We don't do that. It is paid directly to the States. Mr. Visclosky. Do you know if the States reimburse the locals for their lost ad valorem taxes that you might not be paying or are the States simply distributing what you are paying to the States? Mr. Crowell. They are distributing that. We have no control over what they pay to the States. Mr. Visclosky. I didn't ask you that. Mr. Crowell. I don't know the answer to that. Mr. Visclosky. Could you respond to that in writing for the record? Mr. Crowell. Yes. The States, as I recall, have their own formulas that they set for distributing this revenue, which last year was $250 million in TVA. I am not familiar a lot of times with each State's formula on how they distribute it. But I can certainly get that for the record. [The information follows:] Section 13 of the TVA Act directs TVA to pay five percent of its gross revenue from the sale of power for the preceding fiscal year (excluding sales to federal agencies) to states and counties in which the power operations of the agency are carried on and in which TVA has acquired properties previously subject to state and local taxation. The states' payments are determined as follows: one-half on the basis of the ratio of TVA power revenues attributable to each state to total power revenues to all states, and one-half on the basis of the ratio of book value of power property within each state to total book value of TVA power property. The Act also specifies that the minimum annual payment to each state (including payments to its counties) in which the agency owns and operates power property shall not be less than $10,000. All states, under applicable state laws, redistribute a portion of their TVA tax-equivalent payment to their local governments. The formulas for allocating the payments differ from state to state and are based on individual state statutes. Payments to counties are equivalent to the average annual ad valorem county and district property taxes paid for the two tax years immediately preceeding acquisition on power property purchased and operated by TVA and on the portion of land acquired for reservoir purposes. ---------------------------------------------------------------------------------------------------------------- Fiscal year 1995 Fiscal year 1996 ----------------------------------------------------------------------------------- State Total Payment to Payments to Total Payments to Payments to payments State counties payments State counties ---------------------------------------------------------------------------------------------------------------- Alabama..................... $62,445,162 $62,406,924 $38,238 $63,462,453 $63,462,463 $37,990 Georgia..................... 3,197,459 3,143,294 54,165 3,358,529 3,304,364 54,165 Illinois.................... 227,158 169,148 58,010 224,720 166,710 58,010 Kentucky.................... 14,725,404 14,688,246 37,158 14,705,870 14,668,712 37,158 Mississippi................. 12,308,589 12,275,294 33,295 13,030,184 12,996,896 33,288 North Carolina.............. 850,114 842,902 7,212 839,568 832,356 7,212 South Dakota................ 26,110 7,540 18,570 26,110 7,540 18,570 Tennessee................... 157,385,558 156,115,112 1,270,446 159,484,004 158,214,111 1,269,893 Virginia.................... 557,136 555,845 1,291 546,461 545,170 1,291 ----------------------------------------------------------------------------------- Total................. 251,722,690 250,204,305 1,518,385 255,677,899 254,160,322 1,517,577 ---------------------------------------------------------------------------------------------------------------- Mr. Visclosky. I want to know how much of that 5.7 percent you are paying back to whom. Would the TVA be willing to forego these advantages if it were permitted to compete outside its traditional service territory? Mr. Crowell. I have not been able to find all these advantages we are supposed to have. In fact, I remember some allegation we had $1.2 billion in subsidies and there was a cartoonist---- Mr. Visclosky. I pay Federal taxes. I think it is an advantage. Mr. Crowell. There was a cartoonist at a newspaper in Knoxville that did a cartoon of everybody looking for these so- called advantages. If I could find it, I would certainly like to have it. I just have not been able to find it myself. Mr. Visclosky. You would suggest that nonpayment of taxes is not an advantage to you? Mr. Crowell. In lieu of taxes, we are paying tax subsidies to the State government. Mr. Visclosky. The Federal Government, I am saying. Mr. Crowell. I understand that, but it still is an operational advantage for some and a disadvantage for others depending how much taxes they pay. Regardless where the taxes go, that does come out of your revenue. Mr. Visclosky. Thank you, Mr. Chairman. Mr. McDade. The gentleman from New Jersey. salaries and wages Mr. Frelinghuysen. Thank you, Mr. Chairman. For the record, and I know that you offered to provide the Chair with some particular information, I would like the salary and wages figures for you as Chair and your organization, the top 200 salaried executive and management leaders of TVA. Mr. Crowell. Certainly. [The information follows:] TVA's 200 executives earned salaries/wages during FY 1996 ranging from $97,504 to $262,000. This compensation consisted of base salaries ranging from $97,504 to $115,000 and individual payments ranging from zero to $147,000. TVA conducts industry analyses and surveys to determine the market-based salaries/wages for top managers and executives. TVA is committed to attracting and retaining top industry personnel and its compensation plans are designed around this objective. Payments as part of the TVA-wide Performance Incentive Plan were made to non-management and managers below the senior level based on the accomplishment of TVA-wide goals. Payments to officers and senior management were based upon each individual's performance and their contribution to meeting their respective part of the TVA-wide goals. All TVA employees are paid on a bi-weekly basis for base salary and overtime. Bonus payments are made at the end of the fiscal year after TVA-wide performance and individual performance is evaluated. Such payments usually occur in the November to December time frame. bonuses Mr. Frelinghuysen. I would like also with that the list of bonuses for 1995 and 1996. From what I can gather from the materials I have reviewed, while the salaries and wages are published, there does not seem to be any disclosure, unless you have some information to the contrary, as to what the bonuses are for the employees. Would you like to shed a little light on that? First of all, I would like to request that information, and would you shed some light on the whole issue of disclosure? Mr. Crowell. Certainly. What I would like to do is supply you with the newspaper clippings that show that we disclose this information on an annual basis on bonuses and also any other payments paid to employees other than salary. We are required by OMB to make this public anyway and so we do make it public. I would certainly be happy not only to supply you with information you requested but also perhaps give you some flavor of the amounts of attention that is paid to the Tennessee Valley when we do issue these things publicly. Mr. Frelinghuysen. I will take whatever flavors you are prepared to give, and better to have something under your pen than something from the local newspapers. Mr. Frelinghuysen. And for the record, I would like to comment on my good friend from Tennessee's remarks relative to contributions to the bottom line. Just for the record, the State of New Jersey is 49th out of 50 in terms of what we get back from our income tax contributions to Washington. So when I asked the question relative to New Jerseyans and other States and the Northeast subsidizing the TVA, I have in mind quite honestly that most of my constituents are fed up with the situation. industrial rates So getting back to a few other questions. The press has been informed that the TVA provides electricity to some industrial customers at rates as low as one cent per kilowatt- hour. This appears to be an extremely low price even in today's competitive market. Do rates that low exist and does this rate represent the marginal cost of production? Mr. Crowell. The one-cent number I don't understand where that came from. We supply firm power to some of our customers. But depending on the margin that we have in any particular hour, any particular time during the day, there is great fluctuation between interruptible power and firm power, but that just helps our system. As long as we make a margin on it, we are very pleased to sell it, obviously. So I don't know, I am not sure I know exactly where the one cent came from unless some given day interruptible power. Mr. Frelinghuysen. So it is within the realm of possibility that the TVA is providing electricity to some industrial customers at that low rate? Mr. Crowell. I can't believe we sell it at one cent to anybody. Mr. Frelinghuysen. What worries me is we are not getting the information. You seem to be quite conversant on the tax issue, but I am worried that we are not getting the type of specific response like the ones I asked earlier on wholesale prices and the residential rates for customers in your region being a third below the national average. You can't seem to respond to those types of issues but you are quite conversant on the tax components. Mr. Crowell. I try to do my homework and stay conversant on most issues of TVA, although I am not conversant on everything I would like to be conversant on. But it can fluctuate so much that it is not possible for me to give you a good answer to a question about interruptible rates because the prices change on an hourly basis depending on what our generation capacity is at the time and what our demand is, so those prices do change. And so the only thing I am saying to you is I am not aware of any circumstance where we are selling power for a penny kilowatt-hour, but what I am saying is they can fluctuate greatly depending on circumstances. Mr. Frelinghuysen. When you head back, could you look into that matter for me and for the committee? Mr. Crowell. Certainly. [The information follows:] TVA does not sell power for one cent per kilowatt-hour. asset valuation Mr. Frelinghuysen. What is the current book value of TVA's power production assets, including generation and transmission? And how many of those assets are recoverable? How many nuclear plants do you have? Mr. Crowell. We have five. Mr. Frelinghuysen. And in reality you started down the path of having how many? Mr. Crowell. Seventeen originally. Mr. Frelinghuysen. And is it fair to say you started down that path and you did expend some money? Mr. Crowell. Yes. Mr. Frelinghuysen. And how much money was expended where you literally had nothing in the way of any return, and what percentage of the $28 billion of debt can be associated with those types of assets that were never completed? Mr. Crowell. We have five operating units and we have a total investment of just under $20 billion for our nuclear program, so those plants end up being very costly to us and so that is the numbers I think you asked for. Mr. Frelinghuysen. Actually, I asked about you having started down the road looking toward possibly 17 nuclear plants; is that correct? Mr. Crowell. Yes. Mr. Frelinghuysen. And you actually started work. You completed five and you started work on twelve? Mr. Crowell. Some of the plants were never in--active construction was not undertaken on some of the 17, but there was some expenditure of money in planning for some of them. Mr. Frelinghuysen. Well, on how many of the twelve (or 17 other than the 5 that were completed) was construction started? Mr. Kennoy. Those are units instead of plants. Mr. Crowell. About a dozen. Mr. Frelinghuysen. Well, I would like to know how much of the $28 billion is associated with those that never went anywhere. Mr. Crowell. A lot of it, and I will be happy to supply the number to you. This happened in the 1970s. All these decisions were made some twenty years ago. And what I am saying is that, you know, I am not conversant with when some of the plants were terminated. They were terminated before I came to TVA. We can get that information for you, but what we are interested in is trying to operate the five plants that we have. Mr. Frelinghuysen. I think you should be commended for operating five plants successfully. I am interested with the costs associated with the $28 billion of your debt. If you would be good enough to maybe provide those figures. Thank you, Mr. Chairman. [The information follows:] At the end of FY 1996, the book value of TVA's assets totaled $34,029 million, of which $6.293 million was associated with TVA's deferred nuclear units. At the end of FY 1996, TVA's assets and debt were as follows: Millions Total Assets.................................................. $34,029 Deferred Nuclear Units........................................ 6.293 Total Debt Outstanding........................................ 27,727 Construction (work in progress)............................... 744 Mr. McDade. The Chair wants to announce that after we finish the next two Members, we are going to recess for a half hour and this hearing will conclude with the next two Members. We would like to bring the next group in one half hour after we have the recess. This room has to be swept for a classified briefing, and we are going to have to adjourn around 3:00. So I want to recognize my friend from Texas. studies of tva Mr. Edwards. Chairman Crowell, do you know, is any objective group--either GAO or some other entity or someone not associated with TVA or an investor-owned utility--trying to analyze your costs of production, trying to make an equivalent comparison as if you were a privately owned utility? Is anyone trying to put that type of study together, to your knowledge? Mr. Crowell. Well, to my knowledge, GAO has a study that they are doing now on all the public power companies that generate electricity. I don't know where that study is at this point, although I am cooperating with them. There may be one going on that may be directed to some of the things you mentioned. I just don't know. Mr. Edwards. But nothing, to your knowledge, like that has been done in the past? Mr. Crowell. Not that I am aware of. Mr. McDade. The gentleman from Mississippi is recognized. Mr. Parker. Chairman Crowell, I was a funeral director before I came to Congress. One time I had a man die, and the next morning his wife, she was an older woman, she came to make arrangements, and halfway between the arrangements she stopped me and said, you know, Mike, you know, this morning I dropped my teeth in the hen house and they just don't taste right. I am going to tell you, some of your answers do not taste right to me. And let me find $1.2 billion for you, because it really irritates me when I asked you a while ago what kind of subsidies do you get from the Federal Government, and you said $106 million, that is it, nothing else. When my colleague from Indiana asked you about all of these things that you get, whether exemptions from Federal tax, exemptions from ad valorem tax, and you said, well, we give five percent to the State. All of a sudden that five percent was supposed to solve everything. preference power Now, I want to ask you a question: Is it true that there is a practice of the Federal Southeastern Power Marketing Administration to sell power from the facilities that it controls on the Cumberland River system to the TVA at a price well below market value? Is that true or not? Mr. Crowell. Well, we don't set those prices. As you know, we pay whatever we are required to pay. The administration does that. Mr. Parker. I know. But they are required to sell to you below market value. Mr. Crowell. Well, there are some other entities that get at that power, also. [The information follows:] TVA receives and utilizes SEPA power from the Cumberland Projects on behalf of the 160 municipal and cooperative distributors of TVA power which are SEPA preference customers located within the TVA service area. The amount of energy received by TVA each year for the benefit of those customers is limited to the energy that remains from SEPA's Cumberland Projects generation after SEPA's other preference customers first receive their respective fixed allocations, which those other customers may and often do use as peaking power. Consequently, the annual amount of energy received by TVA in this manner from the Cumberland Projects can and does vary significantly from year to year, depending on hydrological conditions. With limited storage at the Cumberland Projects, a large portion of the remaining energy available to TVA must be taken and used when it is available. This could be at virtually any hour of a day and at times during the year, such as spring or fall, when there is less public demand for electricity, which can make the energy provided to TVA less valuable than the peaking power taken and utilized by the other Cumberland customers. In 1997, TVA expects to purchase 405 MW and 2.7 billion kWh from SEPA for $23.7 million. Mr. Parker. That is not the point. When my colleague from Indiana asked you the question, do you receive preference power, you said, no, we do not do that. You get preference power; and let me tell you how much it amounts to: around $93.6 million every year. Now, that is something that somebody in a private power company doesn't get. Private power companies, they pay taxes. You can't have it both ways. You turn around and look at us and you say to us, I hear about all these things. We pay--we are in a situation where we are having to pay. I mean, if you want to talk about the private power companies, they have got it better than we have got. I want to tell you my position. I am going to put you in that position. I want you to be private. If they have got it so good, I want you to be in that system. I am just agreeing with you. I am not disagreeing at all. I want you in the system--you said that they were doing so much better, they had so many more advantages than you. I want you sitting right in the middle of them, and I want you competing in our free enterprise system, and I want you to either rise or fall, according to how well you do business. I have been very much disturbed today over these evasive answers. We got a saying back home, "Pigs get fat, and hogs get slaughtered." And I am almost of the opinion that TVA has gotten mighty hoggish through the last few years. Thank you, Mr. Chairman. Mr. McDade. I thank the gentleman from Mississippi. We are going to, as I indicated, give you a series of additional questions for the record. Give them your undivided attention and full responses. We thank all of you for being here. It has been a good, open hearing, lots of questions back and forth; and we appreciate it. The committee is going to stand in recess until 1:15. [Questions and answers for the record follow:] [Pages 757 - 834--The official Committee record contains additional material here.] Thursday, March 6, 1997. APPALACHIAN REGIONAL COMMISSION WITNESSES HON. KIRK FORDICE, GOVERNOR, STATE OF MISSISSIPPI; STATES' CO-CHAIRMAN HON. JESSE WHITE, FEDERAL CO-CHAIRMAN Mr. McDade. The committee will come to order. We are pleased to have the Appalachian Regional Commission here today and the Federal Co-chairman, Jesse White. Jesse, we are delighted to have you here. Mr. White. Thank you, Mr. Chairman. Mr. McDade. We would like to see you with your Co-chair. You probably want to introduce him. Mr. White. Thank you very much, Mr. Chairman. We are delighted to be here to present the administration's budget for fiscal year 1998. As you know, under our unique structure at the Appalachian Regional Commission there is not only a Federal Co-chairman but there is a States' Co-chairman, which is one of the governors of our thirteen States every year. It is a coincidence that this year we were both Mississippians, so one could accuse us of a cabal here. But the governor for Mississippi, now in his second term, is our States' Co-chairman. With the Chair's indulgence--even though it is customary for the Federal Co-chairman to present the budget first, with your indulgence, the Governor has a flight to catch, and if it would be okay with you, I would like to call on our States' Co- chairman to go first. Mr. McDade. Absolutely. Governor Fordice. I want to thank you, Mr. Chairman, for the opportunity to come here and testify in support of an adequate fiscal year 1998 appropriation for the Appalachian Regional Commission. And we thank you and Mr. Rogers, who is not here I notice, and other members of the subcommittee for your strong support for the commission. I know Mr. Rogers has been a great supporter over the years. Mr. McDade. He would be here, but he has another hearing. Governor Fordice. Yes, sir. We thank you, Mr. Chairman. Your commitment has been largely responsible for the survival of this unique partnership in these fiscally challenging times. I am Kirk Fordice, Governor of the State of Mississippi. I am proud to serve as Appalachian Regional Commission States' Co-chairman, as Jesse White just stated, and to represent the thirteen governors who are members of the Commission. On behalf of these governors, I am pleased to report to you today that a fiscal year 1998 appropriation of $165 million for the Appalachian Regional Commission, with $75 million for non- highway programs and $90 million for highway construction, will enable us to continue progress toward our vision of a self- sufficient Appalachian region, enabling this region to take its place in the mainstream of the American economy. In a sense, my position regarding Appalachian Regional Commission may appear to conflict with my principles. As some of you may know, I am not a big supporter of big Federal spending programs. I fervently believe that the best economic and community development occurs when we keep our money at home and take care of our own needs. Too often, Washington thinks that throwing more money at a problem solves the problem and that those in Washington know better than the local people what is needed to meet a challenge. However, the Appalachian Regional Commission is different. As the Federal Co-chairman has said and as all of you know, the Commission is a true partnership. The governors share authority equally with the Federal Co-chairman, and we share the responsibility as well. The best example of the manner in which we work together is the way we developed our strategic plan for the region. We went into the Region and talked to the people who live in the Appalachian Region. Then we got together--the Federal partners and State partners--and digested the information that had been gleaned, discussed and debated its implications and determined what we needed to do. From that discussion and debate came our five goals and 21 objectives that, if achieved, would transform the Appalachian Region. This was not a plan handed down from Washington but a plan that originated on the grass-roots level. But we did not stop there. To ensure that this plan does not die on a shelf, we now have five task forces, one for each of the goals. These task forces are chaired by a State alternate and consist of Federal, State and local people. The primary responsibility for each task force is to point us in the right direction to achieve our goals. Now, we are developing baseline data and performance measurement procedures to ensure we are accountable to what we say we will do. Again, this is not Washington handing down these procedures. Just last week, our State people met here to work on the performance measurement procedures to prepare them. We know that we must work together--the Federal, State and local officials--to make a difference in the region. The Appalachian Regional Commission has never been about throwing money at a problem. We have never had much money to throw in the first place. The Commission has been about solving problems by building partnerships in the public and private sectors and by being advocates for our region. When local officials develop projects, they try to get as many groups, or partners, involved as possible. On most projects, Appalachian Regional Commission money is only a part of the picture, sometimes a rather small part. Usually, there are funds from other agencies; there are local funds; and, often, there are private funds. Mr. Rogers, before you got here, I was complimenting you on your support of the ARC over the years. I would like to reiterate that. So the ARC money then is the glue, the final piece of the puzzle that allows the project to go forward. And I have personally seen that many times where, with the ARC portion, the projects usually result in private-sector investments, which are many times greater than the public money that is invested, and in the creation of private-sector jobs which return far more in tax dollars than the ARC investment in the first place. I firmly believe that the best social program ever devised by man is a good job; and in this job of being Governor of our State, I spend most of my time outside of the legislative session on just that objective, economic development, and trying to bring more jobs to our state. Give a person a job at a living wage, and most of the other problems will soon fade away. That has been our philosophy in the utilization of ARC money in Mississippi. Allow me to give you some examples of how ARC funds are currently working in some of our twenty-one Appalachian counties in Northeast Mississippi. For instance, Three Rivers Planning and Development District, Inc., through its ARC Revolving Loan Fund, has funded thirty-five loans totaling $2.5 million. These ARC projects have leveraged $8.8 million in private funds and have created 1,223 new jobs and retained twenty-four existing jobs. Of the thirty-five loan projects, eighteen have been new business startups, fourteen existing business expansions, and three are business retentions. A breakdown of the type of businesses financed is as follows: fifteen industrial, three commercial and seventeen service. In Oktibbeha County, the Economic Development Authority is building the infrastructure for a Research and Technology Park, which is one of the prides of our state, by the way. It is located right outside of Mississippi State University, and it is already up and running. This is a $755,000 project. It includes $200,000 in ARC funds, $217,000 in other Federal funds and $338,000 in state and local funds. This project is not finished yet but is already responsible for one-hundred jobs and $8 million in private investment. There are many other examples. This kind of flexibility is one key to the success of ARC. Other governors can tell stories of investment of ARC money based on what they and their local officials decided as well. For example, in Pennsylvania, my colleague and good friend Governor Tom Ridge has invested funds in enterprise development and business incubators. Another colleague in Kentucky, Governor Patton, has invested in education and leadership development and in the basic infrastructure in many of his distressed counties. The key fact is that the governors and their local officials are making the decisions, not folks in Washington, and they are using their ARC funds to leverage private sector investments, Mr. Chairman, and to create private sector jobs to give people a hand up rather than a handout. Nowhere is this more evident than in our Distressed Counties Program, because we recognize that a region is only as strong as its weakest link. We set aside money off the top for our most distressed counties. In these counties, we are providing basic services like running water which many families in these counties have lacked. You know as well as I do, I think, that it is very difficult to create good jobs for people when even the most basic services are lacking. We are giving people in our most severely distressed counties a hand up, and because of this investment, we have lower unemployment and decreased poverty, and the past three years we have reduced the number of distressed counties in Mississippi from twelve to six, and I believe throughout region we have gone from 115 to---- Mr. White. Ninety-four. Governor Fordice. Ninety-four. So we are making progress. We are not yet where we want to be, but we are getting there. As you know, a key element of our plan for achieving economic self-sufficiency for the region is the timely completion of the Appalachian Development Highway System. In Mississippi, our portion of the system is more than seventy percent complete. Corridor V is our primary corridor and, when complete, will open much of northeast Mississippi for new economic development. It will also provide us direct access to Huntsville, Alabama, and to Chattanooga, Tennessee--I am sorry the gentleman from Chattanooga is not here. The regional nature of the highway system is critical. To me, finishing Corridor X in Alabama may be just as important. When both Corridor V in Mississippi and Corridor X in Alabama are completed, they will give us a straight shot between Tupelo, Mississippi, and Birmingham, Alabama, and will be of enormous economic benefit to distressed areas in both states. For all these reasons, Mr. Chairman, my fellow governors and I support the recommendations for a fiscal year 1998 appropriation to the Appalachian Regional Commission of at least $165 million allocated in the manner set forth in the President's budget. This will enable us to make progress in bringing this region to parity of economic opportunity with the rest of the nation. In particular, added funding for area development will enable us to move more quickly to address the basic service needs of our most severely distressed counties, to continue our efforts to bring private sector jobs to our poorest rural areas, and to make all of our citizens self-sufficient. Once again, Mr. Chairman, allow me to thank you for the opportunity to testify and especially for your continued strong support for this unique partnership and for our region. We, the governors of this region, are very grateful, and we will continue to work toward that day when this region enjoys parity of economic opportunity with the rest of the nation and we can state that the region no longer needs special assistance. Thank you, sir. And I would be glad to try to answer any questions. [The prepared statement of Governor Fordice follows:] [Pages 839 - 843--The official Committee record contains additional material here.] Mr. McDade. Governor, thank you for an excellent statement. I talked to Governor Ridge on the telephone this morning. He sends his regards. He said he would be here sitting with you if he were not otherwise occupied. He is a fine gentleman. Let me ask you one question. Some people say there is too much road money and not enough development money. How do you feel about that? Governor Fordice. I think it is a fair balance, Mr. Chairman. As I mentioned before, my primary thing in our state is economic development, and I have seen these ARC funds, as small as they may be, be the key so many times in needed infrastructure to get an industry off the ground. Of course, that industry probably would not be there in the first place if the road net was insufficient. So I think the balance that is being struck in this budget is about right, actually. Mr. McDade. The local initiative, in defining the problem, is a pretty important part of this package, isn't it? Governor Fordice. That is why I am so enthusiastic about it. As I said, I am no fan of big government, but this is not your typical Washington program, it is strictly oriented to the region, and it is bottom up, it is developed from a grass-roots type approach, and I think that is a key to its success. Mr. McDade. Thank you, Governor. We would be glad to hear from Mr. White. You can put your statement in the record if you would and proceed informally. We are delighted to hear from you. Mr. White. Thank you very much, Mr. Chairman. Once again, I am pleased to be here with you. We are, of course, very pleased that somebody from Appalachia is chairing the committee. As I mentioned to you in our ``get acquainted'' meeting, my first trip was to Scranton. You can tell from my accent I don't come from northern Appalachia. And I felt obliged to get up and learn your neck of the woods, which I did, and was just back before Christmas. Of course, Congressman Rogers comes from the real heart of Appalachia--why the ARC was created. We have started a process of trying to carry at least one Commission meeting out into the region every year, and Kentucky was kind enough to host that this year, and we went to the Congressman's hometown of Somerset, had a great meeting. Governor Patton was there, in the Regional Economic Development Center, which was really the vision of Congressman Rogers; and is making a big difference. And then we took a bus tour the next day of some eastern Kentucky, really hard- scrabble areas, and some of our other States really got an insight into what severe underdevelopment was in that part. So, to all of you on the committee, we thank you for your support and are pleased to be here. Let me just start off with the overall numbers of the President's budget submission, which the governor rehearsed in a general way with you. The budget request is for $165 million, which is $5 million below our request last year and $5 million above the actual appropriated amount. Ninety million of this we are asking for our highway program; $66 million we are asking for our area development program, $5.3 million to support our local planning and development districts and for technical assistance and research, and $3.65 million for administration. Let me mention while we are talking about the administration of the Commission, we of course continue to be proud of the fact that the historic administrative overhead of the ARC is between three and four percent of our appropriated dollars. We only have about sixty people under roof in Washington. The states help us a lot with the administration of these programs, and under our roof here there is the Federal staff, which I head, of only ten people, including three in the Inspector General's Office; a State's office funded purely with state money that is a day-to-day presence representing the governors; that is headed by Mike Wenger, who represents the governors on a daily basis. That is paid for, as I say, by state money. Then there is the Commission staff, headed by an executive director, of about fifty people, headed by Tom Hunter, sitting to my right; and they are paid by half the state money and half the Federal money. So poor Tom has to please me and thirteen governors, which is why his hairline is receding probably. But it is a very ingenious model of accountability when you think about it, that this staff in Washington is not only having to please me but having to please the thirteen governors on a daily basis. So Tom is here to answer any questions that might come up about the Commission staff budget. Let me start off with the highways. The highway system of Appalachia of course has always been central to our program. When President Kennedy appointed the President's Appalachian Regional Commission, the so-called PARC Report, in 1963, that report started off with a haunting sentence. It said, ``We find that Appalachia is a region apart, both geographically and statistically.'' It found out really that the interstate system had bypassed the mountains. So Congress, when it enacted the Appalachian Regional Development Act, authorized a 3,025-mile system to basically connect Appalachia into the interstate grid. That highway program has sort of remained at the heart of the ARC strategy in the ARC program. Study after study shows the wisdom of this strategy and the importance of Congress keeping faith with that commitment. In 1993, for example, a study done by the National Science Foundation that looked at twenty-seven years of ARC investment found that in the 110 counties within ARC that have either an Appalachian development corridor or interstate, these counties grew sixty-nine percent faster in terms of income, six percent faster in terms of population, and forty-nine percent faster in terms of earnings than did counties without the highway corridor. Studies done by the ARC consistently have also shown a high correlation between highways and business creation and job development. As a matter of fact, Congressman, we had a meeting in the Commission Tuesday, and we had a presentation that looked just at Kentucky. Ron Eller has broken down Appalachian Kentucky by census tracts, which goes below our normal county analysis in showing the degree of distress, and then he overlaid our highway grid in Kentucky on top of that and the visual correlation is astounding between those areas that are still the most distressed and those do not yet have a corridor. Also, on an anecdotal level, last year, for the first time in the history of the ARC, a Federal highway administrator, Rodney Slater and I, Federal co-chairman, traveled some of our roads. We started in West Virginia, went through Kentucky, went through Ohio, ended up in Pennsylvania. And I will never forget, we were on Corridor--what is the one coming out of Charleston? Is that G? We were coming down G, a wonderful highway, and suddenly the construction ended and we got on a typical mountain winding road, and a big crowd was waiting for lunch. A big crowd was gathering for lunch. It was ten minutes to twelve o'clock. We hit a railroad crossing. Here comes a coal train. So we sat there nervously for about twenty minutes and knew the crowd was waiting for us, and we pulled across the railroad tracks and the guy that was driving said, ``I certainly hope we beat it at the next crossing.'' And it was just lunch, but it dawned on us, what if that were a pregnant mother or a sick farmer trying to get to the hospital? Or think about the economic competitiveness of firms trying to deal with that antiquated system. The interstate system is about ninety-nine percent complete and our system is about seventy-six complete. So we think the sooner we can get this highway system built, the better. As a matter of fact, there is now being developed--the details are not finalized--a proposal for the ISTEA reauthorization, that in addition to the appropriated dollars that would come through this committee, would look for funding out of the highway trust fund that would accelerate the completion of this system over the next five years. The essential handmaiden, of course, of our highway system is what the Governor was talking about, which is our area development program. That PARC Commission report also said that highways are a necessary but not sufficient condition to economic development. Just putting a road through a community that doesn't have basic water and sewer, doesn't have industrial parks, doesn't have training programs, doesn't have an adequate education system, and doesn't have the resources to fund those, doesn't really get you development. You have to work on the community and economic development side of the equation as well, and that is what our area development program works on. About one-third of the appropriated money in the history of the ARC has been spent on the community and economic development work. The way that works is the Commission--me and the Governors--allocates that money on a state-by-state basis every year, and within that allocation, each Governor has wide latitude on how that money is spent. And we now structure those investments around this new strategic plan that the Governor mentioned, which is five goals and twenty-one objectives which the region is working on. Every year a state submits to the Commission a strategy statement which says how during that year they are going to use our money to work on those goals and objectives, and of course it varies from state to state. And just from this year's investment strategy statements, I thought I might just share a few highlights to give you a flavor of the richness of how states use our money. During this year, for example, eight states will invest in various types of enterprise development programs that provide business assistance to new and existing firms that provide targeted industry assistance or establish business incubators or industrial parks. Eight states will concentrate on starting or enhancing local programs to provide leadership development and civic infrastructure. Four states plan to develop televillages in which ARC funds will provide hands-on training on Internet technologies to teachers, businesses, libraries, local governments, and citizens. Four states will emphasize programs to reduce school drop out and adult literacy rates. Three states will emphasize preschool programs that ensure that children arrive at school ready to learn, and seven states will work toward building the capacity of their training institutions to upgrade work force skills and increase productivity. So a governor can use our money to enhance his or her economic development program. As Governor Fordice said, it can be tailored on a state-by-state basis. And we are seeing, now at the end of the first year of our strategic plan, some impressive results. In fiscal year 1996 under goal 1, which is education and training, our money helped provide educational activities for over forty thousand participants and job skill training to over ten thousand participants. Goal 2 which deals with infrastructure, we saw twenty-six miles of our highway system open. Our grants helped provide water and sewer services to almost 16,000 households, and we helped support the construction of 190 low to moderate income houses. Goal 3, which is leadership and civic capacity, our money helped provide leadership programs to almost 7,500 Appalachian participants. Goal 4, which is creating a dynamic entrepreneurial economy, our programs helped create some 15,600 jobs, retain some 17,600 jobs, and attracted over $1 billion in private investment into our projects. Goal 5, which is health, we placed 146 doctors in medically underserved areas through our J-1 visa program, and we provided health services, dental care to over 9,000 children, primary care to 1,250 children, prenatal care to 1,100 women and other services as well. The Governor mentioned our goals task forces, in each case chaired by a state working on each of our five goals to make sure the Commission maintains progress toward our stated objectives. The Governor also mentioned our distressed counties program. We are proud of our results in that. We have 399 counties in the ARC. Three years ago, when I was sworn in as Federal cochairman, 115 of those counties were described as distressed. These are counties in which the per capita income rate is no more than two-thirds of the national average and the poverty rates and unemployment rates are at least 150 percent of the national average. The Commission, in what I consider an extraordinary act for any political body, votes every year to take a percentage of the money off of the top of the area development allocation and devote to those distressed counties. This year, for example, we are devoting about $16 million just to work in the distressed counties. In taking this vote, four of our states stand aside and actually give up money from their allocation to work on these most distressed areas. And that is one reason we took the bus tour through eastern Kentucky, so that our states that actually give up money can see the need and see how their money is going to help the neediest of the needy. We call this an intensive care model of economic development, and it is interesting to note that in the history of this agency no state has ever voted against that special allocation. I am very proud of that fact at the Commission. And this intensive care model has worked. As the Governor said, we have had a twenty percent reduction in the past years, from 115 to 94. His State cut in half their number of distressed counties, and we hope to continue to make progress in our distressed counties program. This committee and our authorizing committee has encouraged us to do this sort of targeting. That support has helped us carry that policy forward at the Commission and we appreciate your help. It is more important than ever, now. On top of everything else is the welfare reform and the need to create jobs. In 74 of these 94 counties, the percentage of population on welfare is at least twenty-five percent higher than the national average. So we need to create even more jobs in these areas. Let me just end by saying that we have also been working on some regional initiatives for the last three years. We have allocated $16 million to work on initiatives in export promotion among small- and medium-size businesses on leadership and civic development, and on telecommunications. We have funded some 112 projects in these areas. The relationship of these initiatives to the new strategic plan will be reevaluated during this year. But we are also in the process of launching a regional initiative that is close to my heart, which is an initiative in entrepreneurship. I am a firm believer that in rural development we have to get beyond the old industrial recruitment model, the buffalo hunt model--the idea that somebody else has created the jobs and we have to go get them and bring them to our people. Instead we should look at what it takes for our communities to build their businesses at home. All the Fortune 500s started somewhere, and in many cases in garages and often in rural and small town areas. We have not looked enough yet at the infrastructure for small business creation and entrepreneurship in rural America. So we have voted $2.1 million. I am hoping I can convince the table to vote another three or four million to launch a serious initiative in creating entrepreneurial opportunities in Appalachia and we will keep the committee posted on that. Let me close by saying, Mr. Chairman, and members of the committee, that this very special model continues to work. It was described eloquently by the State's cochairman. I just brought along two quotes from our Governors' Quorum Meeting held about a month ago here in Washington, one from a moderate Democrat, Jim Hunt from North Carolina, who said, ``I was here when they tried to kill the Appalachia Regional Commission. Along with a lot of other folks, I fought hard to keep it.'' And by conservative Republican Governor George Allen from Virginia, who said, ``The Appalachian Regional Commission clearly is a model, as I said in my first year or two in this. It is too bad all Federal programs don't run this way. We would have a lot better relationship with the Federal Government if all programs ran the way the Appalachian Regional Commission does.'' And of course Governor Fordice echoed that today. Our support has always been bipartisan, both at the gubernatorial and the congressional level. I think Congress has been brave in maintaining its commitment to this special region of America. We only have sixty Congressmen and twenty-six Senators, but there was a commitment made to bring this region into the mainstream of the American economy so we can be contributors to the national wealth, rather than drains on it, and we plan to keep faith with that commitment, Mr. Chairman, and I hope this committee will look favorably on our budget. Mr. McDade. Thank you for a very detailed and excellent statement. We appreciate it very much. [The prepared statement of Mr. White and the ARC budget justification materials follow:] [Pages 850 - 911--The official Committee record contains additional material here.] Mr. McDade. My colleague, Chairman Rogers, has a speech to make in just a few minutes, so if my friends don't mind, I am going to yield to him. Mr. Rogers. Thank you very much. I wanted to very briefly and quickly commend Jesse White for the great work he is doing at the ARC, and of course Governor Fordice for his work as Chairman of the Governors Group. This organization I think is a model for the way other agencies ought to operate. It is grass-roots driven at the outset, projects work their way up from the grass roots to a regional level, then to the Governor's office, usually, and then on to the national office here, and there are Federal monies, there are state monies, and then there are other types of monies that go into these projects. So we all leverage each other. But the point is it is grass-roots driven and would that other agencies had that kind of mechanism involved. So the Federal dollar that we spend is multiplied many times as it goes to work on a project that is desperately needed in the poverty stricken areas of the country. I am very happy that Jesse brought one of the annual meetings to Somerset, to my hometown. We enjoyed having you there, and you had a chance to see abject poverty in the eastern part of my district, eastern part of the state. A lot of people don't know what poverty is until they have traveled to some of those counties. But you are exactly right on, Jesse; roads are the lifeblood of development in those regions. We have seen it time and again and I think everyone knows that. It is like the Nile in the desert; where that river flows you can begin to see the green develop along its ways. And the key to development in our region is the lifeblood brought by roads. And number two, the nonhighway programs are absolutely essential now that welfare reform is here and we are asking people who were formerly drawing welfare to find a job; that has brought a new urgency to the Appalachian regions. We have almost a desperate situation brewing where we are requiring people to find a job and there aren't any jobs. So the nonhighway portions of your work, I believe, are going to receive additional strain because of welfare reform, and that is urgent. Your reform of ARC enabled us last year to convince a majority in the Congress that this program had been rejuvenated, and I think in fact it has. The refocusing on the more distressed counties, the sort of graduation of certain counties originally in Appalachia that have now found a little bit of prosperity and are beginning to move up, thanks in large measure to ARC, you are graduating into another category, as we should. We should always begin to focus more and more on the counties most desperate in need as our funds dwindle. So I congratulate you on your reform of ARC and your focus of rejuvenating ARC and keeping it in focus, and we are proud of what you are doing. We didn't get enough money to do what needs to be done last year. We haven't for several years. I am hoping, Mr. Chairman, that we can hopefully find a few more dollars because these dollars go so much further than the average dollar does. But we will take what we can get. As one comedian once said, bad breath is better than no breath at all. Mr. Dickey. If you would, don't look this way when you talk. Mr. Rogers. I thank you, Mr. Chairman, for allowing me this time. Mr. McDade. I am pleased to recognize the gentleman from California. Mr. Fazio. Thank you. I am reminded to say, Mr. Rogers, even your best friends won't tell you, and I am about to tell you. I, first of all, want to put on the record that I have supported the ARC from the very first year I came to Congress. That is eighteen now, and seventeen years on this committee. And I have done so in great measure because I respect the Members from the region who have always fought valiantly for the program. In fact, I think I have had to go back to a district that would normally be skeptical of support for any regional development that has a lot of rural poverty in it itself, and certainly we in the nonmetropolitan part of northern California fall in that category, as I am sure many other Members of Congress do in their own states. It is important, and we have to carry a variety of economic development burdens around the country. One of the things that sticks in my craw, and you touched on it with the buffalo hunt model you referred to, was when Wofford College got funded for a football stadium to provide the Carolina Panthers with a practice field in an area where people were fighting tooth and tong to take a team from Houston to Nashville, or from Cleveland to Baltimore, and the NBA franchises go to the highest bidder (including the San Francisco Kings recently to Nashville, although we stopped that). The point is that when we all are contributing financially to economic development, Charlotte, North Carolina, doesn't come high up on my list as a city in decline. It is probably at the other end of the list. How can we allow that kind of judgment call to be made, in a sense undermining broader support for the program? Mr. White. We always need to be extremely vigilant about those sorts of projects that become lightning rods of criticism. That project I am very familiar with. It was fully in the city of Spartanburg, and although that part of-- Charlotte, of course, is not in ARC. Mr. Fazio. I know that, right across the state line: the automobile manufacturer, Spartanburg, South Carolina. Mr. White. It is a fairly prosperous region. Spartanburg County is fairly well off. Spartanburg city is fairly distressed. It has got a high minority population in the center city, had unemployment of about, I have forgotten, fifteen percent. It was very high. This was a high priority of the Republican Governor of the State, and of course we are, have a State-driven model to a large degree. It was to help build a practice field for the college that the Panthers rented during the summer at market rates, and it was--the pledges were to create several hundred jobs for low-income people in inner city Spartanburg. It did attract a lot of attention and it has renewed our vigilance for not only the substance of projects, but the appearance of projects. Mr. Fazio. Well, I would hope we wouldn't make that kind of choice again. I know it is never popular to tell a Governor that he can't use his money as he wishes, but there has to be a broader understanding of the context in which you are all operating, and that kind of decision can poison the well for a lot of people in a lot of places who need the assistance. In that context, I would say concentrating on that 94 or 115 counties is really where I think most of Congress wants you to go. I notice that only twenty percent of the funding, the $66 million, is allocated to those additional distressed counties. I guess that is thirteen of the sixty-six; isn't that correct? If I am wrong, correct me. Mr. White. The percentage allocation off of the top of area development is thirty percent. It was twenty percent and we raised it this year to thirty percent. Mr. Fazio. I would encourage you to keep raising it, because really what we want to concentrate on are those counties and not the rest, because the National Science Foundation study has said that the poverty rate is lower now in the Appalachian regions on the average and that growth and overpopulation is better than in counties in comparable areas. So not all of the Appalachian district is in as much need as this one-third of the counties that are most distressed. I realize you can't operate in a vacuum. They are adjacent to each other and projects do benefit across county lines. But the more you can emphasize the neediest, the more I think you will find support will continue here, not only to keep the Commission alive but to fund the kind of budget you think you need. Mr. Chairman, that is all I have to say. Mr. McDade. The gentleman from Arkansas is recognized. Mr. Dickey. No questions. Mr. McDade. You are my favorite Member. Mr. Dickey. You are my favorite Chairman. Mr. McDade. The gentleman from Texas. Mr. Edwards. Thank you. I will just associate myself with the comments made by Mr. Fazio. With the limited funds, I think it is important to try to focus resources where they are most needed. As a new member of the committee, this sounds like the kind of cooperative grass- roots organization and model that we need more of rather than less of in our government. Thank you, Mr. Chairman. Mr. White. Could I add something, Mr. Chairman, and I wish Mr. Fazio were here to hear this, because it is sort of the other end of the distressed county spectrum. We have also adopted policies that restrict funding at the other end of the spectrum to counties. If, for example, a county has reached the national norm on unemployment, poverty and per capita income, they are not eligible to receive ARC money except for highways, because we have to complete the grid, and our local development planning districts. I think there are about ten counties in that category. If a county is at the national average on unemployment, at the national average on poverty and at least eighty percent of U.S. per capita income, they are only eligible for thirty percent funding on ARC grants. So we have got another twenty- some-odd counties in that category. So we do have these four categories of counties and do try to target our resources to the areas of greatest need. Mr. McDade. Thank you for your testimony. We are going to give you, you won't be surprised to hear, a detailed list of questions for you to answer for the record. Thank you for your testimony. The committee will stand adjourned until Wednesday at ten o'clock. Mr. White. Thank you. [The questions and answers for the record follow:] [Pages 916 - 953--The official Committee record contains additional material here.] W I T N E S S E S ---------- Page Babbitt, Hon. Bruce.............................................. 1 Beneke, P.J...................................................... 1 Crowell, Craven.................................................. 607 Fordice, Kirk.................................................... 835 Hayes, J.H....................................................... 607 Kennoy, W.H...................................................... 607 Lawler M.A....................................................... 1 Martinez, E.L.................................................... 1 White, Jesse..................................................... 835 I N D E X ---------- BUREAU OF RECLAMATION Anadromous Fish Screen Program................................... 590 Animas La-Plata Project............................. 496, 498, 553, 561 Auburn-Folsom South Unit of the Central Valley Project........... 565 Babbitt, Secretary Bruce......................................... 1, 5 Bay-Delta--See California Bay-Delta Ecosystem Restoration Beneke, Assistant Secretary Patricia............................. 11 Bonneville Power Administration.................................. 553 Bostwick Park Project............................................ 571 Brackish Water Reclamation Demonstration Facility................ 598 Brantley Project................................................. 571 Budget Justification for FY 1998 for Bureau of Reclamation....... 32 CALFED--See California Bay-Delta Ecosystem Restoration California Appropriations........................................ 495 California Bay-Delta Ecosystem Restoration.....2, 8, 31, 472, 474, 493, 495, 542, 550, 560 Callahan, Honorable Sonny........................................ 537 Central Valley Project Restoration Fund........................ 30, 579 Central Arizona Project....................................... 534, 536 Central Utah Project.............................................10, 14 Central Valley Project........................................... 567 Chandler Powerplant Electrification.............................. 564 Cheyenne Bottoms Wildlife Area................................... 572 Coho Salmon and Spring Run Chinook Salmon Restoration Projects... 605 Collbran Project................................................. 571 Colorado River Front Work and Levee System....................... 570 Colorado River Basin Salinity Control Project (Title II)......... 571 Columbia Basin Project--Unauthorized Use of Water................ 563 Computer Modifications for Year 2000............................. 548 Concessionaires.................................................. 604 Construction Activities for FY 98................................ 559 Contra Costa Canal Intake at Rock Slough......................... 566 Contract Renewal Negotiations.................................... 587 Cost Benefit Ratios.............................................. 541 CVP, O&M, San Luis Unit.......................................... 589 CVP, American River Division..................................... 589 CVPIA Implementation (General)................................... 592 Del Norte County and Fort Bragg.................................. 602 Delta Division of the Central Valley Project..................... 565 Dickey, Honorable Jay............................................ 537 Efficiency Incentives Program................................. 560, 574 Endangered Species Act........................................... 545 Fazio, Honorable Vic.......................................... 497, 542 Federal Acquisition Reform Act of 1994........................... 500 Fish Screen Projects............................................. 600 Flooding.................................................. 27, 543, 545 Folsom Floodgate................................................. 599 Freeze-Thaw Desalination Project................................. 572 Frelinghuysen, Honorable Rodney................................ 499,547 Gila River Basin................................................. 568 Glenn Colusa Irrigation District's Hamilton City Pumping Plant... 566 Government Performance and Results Act (GPRA)............. 27, 541, 582 Hot Springs Bath Houses.......................................... 538 In Situ Copper Mining Research Project........................... 558 Incremental Funding.............................................. 561 Indian Water Rights Claims....................................... 497 Investigations Completed in FY 97................................ 557 Irrigation Projects in Arkansas.................................. 538 Knollenberg, Honorable Joe....................................... 546 Land Acquisition Methodology..................................... 500 Land Resources Management Program Finances....................... 575 Little Colorado River Settlement Negotiations.................... 536 Mammoth Lakes Water Optimization Study........................... 570 Martinez, Commissioner Eluid..................... 24, 26, 534, 538, 539 McDade, Chairman Joseph...................... 1, 11, 472, 493, 534, 538 Milk River Project............................................... 573 Minidoka Area Projects........................................... 563 Mission of Bureau of Reclamation................................. 539 Mni Wiconi Project............................................... 573 National Fish and Wildlife Foundation.................... 500, 502, 575 Native American Affairs Program.................................. 576 Native Fish Protection Program................................... 569 Negotiation and Administration of Water Marketing................ 577 New Investigations............................................... 556 Newlands Project................................................. 567 Northwest El Paso Wastewater Refuse Project...................... 558 Oregon Stream Restoration Planning............................... 563 Oregon Subbasin Conservation Planning Effort..................... 563 Parker-Davis Project............................................. 570 Partnerships..................................................... 27 Pastor, Honorable Ed............................................. 534 Performance Measurement.......................................... 27 Policy and Administration........................................ 579 Portable Global Positioning System............................... 563 Port Hueneme Brackish Water Project.............................. 558 Power Program Services........................................... 577 Programmatic Budget Structure.................................... 539 Public Relations................................................. 547 Rainwater Basin Area of Nebraska................................. 574 Reclamation Reform Act of 1982................................... 536 Recreation and Fish and Wildlife Program Administration.......... 577 Red Bluff Diversion Dam Research Pumping Plant................... 599 Sacramento Wildlife Refuge Water Supply.......................... 591 Sacramento-San Joaquin Delta..................................... 561 Salmon Recovery Program.......................................... 562 Salmon Stamp Program............................................. 606 San Jose Area Water Reclamation and Reuse Program................ 567 Science and Technology Program................................... 28 Snake River Storage System....................................... 561 Site Security.................................................... 578 Southern Oregon Coastal River Basins Project..................... 563 Sterling Forest.................................................. 499 Terrorism and Sabotage........................................ 541, 558 Training......................................................... 559 Tres Rios Wetlands Restoration Project........................... 534 Trinity River Restoration Act.................................... 602 Tucson Reliability Division...................................... 569 Umatilla Project................................................. 564 Upper John Day River Demonstration Project....................... 562 Upper Salmon River Optimization Study............................ 564 Wallowa River Demonstration Project.............................. 562 Western Water Policy Review...................................... 575 Wetlands Development Program..................................... 578 Winter Run Chinook Salmon Capitve Broodstock Program............. 605 Write-Ins........................................................ 558 Yakima River.................................................. 562, 564 Yakima River Basin Water Enhancement Project..................... 565 Tennessee Valley Authority....................................... 607 Air Support........................................... 726-727, 728 Annealing Program............................................ 810 Answers to Questions from Chairman McDade.................. 757-819 Answers to Questions from Mr. Callahan..................... 829-834 Answers to Questions from Mr. Knollenberg.................. 825-826 Answers to Questions from Mr. Parker....................... 827-828 Answers to Questions from Mr. Rogers....................... 820-824 Appropriated Debt..................................... 767-768, 806 Appropriated Programs................................. 611-612, 758 Appropriations Task Force................................. 757, 758 Asset Valuation........................................... 753, 807 Automated Land Information System............................ 772 Automobile Fleet............................................. 745 Boat Purchases............................................... 773 Bond Ratings.............................................. 735, 807 Bonus Awards................................................. 720 Bonuses................................................... 752, 760 Bristol Virginia Utilities................................... 813 Budget Summary............................................... 612 Mr. Callahan's Opening Remarks............................... 738 Chairman Craven Crowell: Opening Statement...................................... 607-609 Testimony.............................................. 610-617 Chickamauga Lock.......................................... 614, 770 China Programs and International Ventures.................. 762-763 Chinese Conference........................................... 721 Competition in the Electricity Industry...................... 716 Competitive Advantages of TVA.................... 729, 749, 802-803 Competitiveness of TVA....................................... 725 Cost of Service.............................................. 806 Cumberland River System................................... 719, 815 Cumberland River System Study.............................. 820-825 Mr. Dickey's Opening Remarks................................. 738 Duck River Project........................................... 774 Economic Development...................................... 614, 782 Economic Development Contracts............................. 784-788 Mr. Edwards' Opening Remarks................................. 729 Electric Industry Competition................................ 735 Elimination of Appropriated Programs................. 713, 714, 737 Elimination of TVA Appropriations............... 723, 724, 730, 757 Environmental Research Center............... 614, 739, 792-800, 829 Mr. Fazio's Opening Remarks.................................. 716 Fiscal Year 1998 Budget Request.............................. 724 Fiscal Year 1998 Program................................... 618-712 Mr. Frelinghuysen's Opening Remarks.......................... 730 Government Performance and Results Act..................... 816-819 Hazardous Waste.............................................. 772 Hydropower Development....................................... 814 Industrial Rates............................................. 752 Investments.................................................. 767 Joint TVA/Corps Study................................ 720, 733, 760 Mr. Knollenberg's Opening Remarks............................ 725 Land Between the Lakes.............. 613, 740-744, 748-749, 774-781 Chairman McDade: Opening Comments......................................... 607 Closing Statement........................................ 756 Mr. Parker's Opening Remarks................................. 734 Nuclear Waste................................................ 810 Patrol Boats................................................. 746 Pension Plan................................................. 809 Plant Management............................................. 771 Power and Nonpower Proceeds.................................. 764 Power Program............................... 715, 759, 801-802, 815 Power Purchase Agreements.................................... 811 Preference Power............................................. 755 Proposal to End All Federal Funding.......................... 615 Rates..................................................... 732, 805 Recruitment of Industry...................................... 731 Reducing TVA Debt............................................ 825 Regulation................................................... 803 Reservoir Release Improvements............................... 770 Retained Earnings............................................ 806 Mr. Roger's Opening Remarks.................................. 719 Salaries and Wages........................................... 751 Shoreline Management...................................... 771, 773 Stewardship.......................................... 768, 770, 773 Strategic Plan Implementation......................... 847, 851-852 Studies of TVA............................................... 754 Tritium Production........................................... 813 TVA Debt........................................ 726, 732, 735, 808 TVA Fence................................................. 738, 812 TVA Needs.................................................... 615 TVA Police................................................... 728 TVA Task Force............................................ 713, 723 TVA Tax Structure.......................................... 827-828 TVA University............................................... 767 Mr. Visclosky's Opening Remarks.............................. 723 Mr. Wamp's Opening Remarks................................... 744 Water and Land Management.................................. 612-613 Update on Power Program.................................... 610-611 Witnesses.................................................... 607 Appalachian Regional Commission.................................. 835 Answers to Questions from Chairman McDade.................. 916-952 Answers to Questions from Mr. Knollenberg.................. 952-953 ARC's Mission Statement and Goals............................ 948 Area Development........................................... 920-929 Area Development Projects Approved for FY 1996............. 930-937 1998 Budget Request....................................... 836, 844 Budget Summary............................................... 850 Commission Staff...................................... 845, 946-947 Competitive Counties......................... 916, 919-920, 924-925 Mr. Dickey's Remarks....................................... 913-914 Distressed Counties......................... 837, 855-856, 898, 914 Distressed Counties Map, FY 1996............................. 899 Mr. Edwards' Remarks......................................... 914 Entrepreneurship and Regional Initiatives........ 856, 921-922, 924 Mr. Fazio's Remarks........................................ 913-914 Fiscal Year 1997 Allocations................................. 923 Fiscal Year 1998 Program................................... 859-911 Fordice, Kirk, Governor of Mississippi; States' Co-Chairman: Opening Statement...................................... 835-838 Testimony.............................................. 839-843 General Questions.......................................... 916-920 Government Performance and Results Act..................... 948-952 Highway Development........................................ 938-942 Highway Program............................................ 852-855 Highway System Status........................................ 882 Interagency Agreements....................................... 926 ISTEA Reauthorization............................ 846, 852-853, 917 Local Development Districts....................... 857-858, 942-943 Chairman McDade: Opening Statement........................................ 835 Closing Statement........................................ 915 Non-Highway Programs......................................... 855 Regional Initiatives...................................... 848, 924 Revolving Loan Funds....................................... 841-842 Mr. Rogers' Remarks........................................ 912-913 Salaries and Expenses........................................ 858 States' Co-Chairman.......................................... 835 Strategic Plan Implementation......................... 847, 851-852 Targeting of Resources................. 848, 851, 856, 890, 914-915 Tennessee Valley Authority: Memorandum of Understanding Between ARC and TVA....... 926, 953 Approved Projects 1995-1996.............................. 928 White, Jesse L., Jr. Federal Co-Chairman: Opening Statement...................................... 844-849 Testimony.............................................. 850-858 Witnesses.................................................... 835