Bureau of Reclamation: Availability of Information on Repayment of Water Project Construction Costs Could Be Better Promoted
Released: 2014-09-09T00:00:00

Letter

Background

Reclamation has carried out its mission to manage, develop, and protect water and related resources in 17 western states since 1902. The agency has led or provided assistance in constructing most of the large dams and water diversion structures in the West for the purpose of developing water supplies for irrigation, as well as for other purposes, including hydroelectric power generation, municipal and industrial water supplies, recreation, flood control, and fish and wildlife enhancement. Reclamation is organized into five regions, with technical and policy support provided by its central office in Denver. Each regional office oversees the water projects located within its regional boundaries (see fig. 1).

The federal statutes authorizing individual water projects and the statutes generally applicable to all water projects—known collectively as reclamation law—govern Reclamation’s water projects. Reclamation law determines how the costs of constructing water projects are allocated and how repayment responsibilities are assigned among the projects’ users. Cost allocation is the process of assigning an equitable share of the total cost to each use in a multipurpose project. Under reclamation law, Reclamation allocates a share of the project’s total construction costs to each of the authorized project purposes based on the proportion of benefits each purpose receives from the project, and the costs allocated to each purpose are deemed to be reimbursable or nonreimbursable. Reimbursable costs are those that are to be repaid by certain water users, including irrigation districts, power, and municipal and industrial water suppliers. Nonreimbursable costs are those that are not repaid by water users and are instead generally borne by the federal government because certain project purposes are viewed by Congress as being national in scope, such as costs allocated to flood control and navigation, fish and wildlife enhancement, and recreation. At the time each water project is authorized and designed, Reclamation estimates the total construction costs and allocates these costs among the project uses. Once project construction is completed, and the actual construction costs are determined, Reclamation performs a final construction cost allocation.

The cost allocation serves as a basis for the repayment terms in water users’ contracts. The amount of reimbursable costs that water users are responsible for repaying is based on the type of project purpose (see fig. 2). Power and municipal and industrial users are responsible for repaying their allocated share of the construction costs, plus the interest that accrues on those costs during construction and the repayment period. For irrigation districts, however, reclamation law does not require the districts to pay interest on the construction costs allocated to irrigation, resulting in federally subsidized financing for irrigation districts responsible for repayment. In addition, irrigation districts may receive the following two types of financial assistance in repaying their allocated construction costs: Irrigation assistance. The amount of construction costs allocated to irrigation that the Secretary of the Interior determines to be above the irrigation districts’ ability to pay for a given project is repaid from other revenue sources, where available. These other revenues are primarily earned from the sale of power generated by the project (or other related projects), or from the sale of municipal and industrial water, among other revenue sources. Ability-to-pay determinations are based on Reclamation’s financial analysis of a given geographic area, and determinations generally occur before construction begins on a project.

Credits. Credits can relieve part or all of irrigation districts’ repayment obligations. Types of credits include congressionally authorized repayment reductions, or “charge-offs,” and construction expenses determined to be nonreimbursable. Charge-offs are credits that are often enacted through legislation in response to special circumstances, such as a determination that the land is unproductive, or the settlement of Indian water rights claims.

To establish an agreement between the federal government and irrigation districts on the delivery of water from a project and to collect payments, Reclamation generally enters into one of the following two types of contracts with irrigation districts:

Repayment contracts: Section 9(d) of the Reclamation Project Act of 1939 authorizes permanent contracts for water delivery with repayment of construction costs allocated to irrigation to be paid in fixed dollar amounts in annual or other regular increments, over a period of up to 40 years, by the irrigation district to Reclamation.

Water service contracts: Section 9(e) of the Reclamation Project Act of 1939 authorizes contracts to furnish water for irrigation purposes for up to 40-year periods. Reclamation generally enters into water service contracts with irrigation districts when construction of the water project has not been completed, final construction costs are uncertain, or the irrigation district does not want a permanent contract, among other reasons. By law, Reclamation must charge rates for water delivered under water service contracts that are at least sufficient to cover an appropriate share of fixed charges the Secretary of the Interior deems proper, taking into consideration the construction costs allocated to irrigation, as well as an appropriate share of annual operation and maintenance costs. A water service contract can contain a provision providing for its renewal—through negotiations between Reclamation and the irrigation district—once the contract’s term ends, or the contract may contain a provision allowing for its conversion to a repayment contract.

Depending on the size of the water project, which varies substantially across projects, Reclamation may have contracts with a number of irrigation districts within that project’s service area. Irrigation districts then enter into separate agreements with landholders to provide project water.geographic area, Reclamation may have only one or two contracts with irrigation districts for that water project, which provides water to a small number of landholders. On the other hand, for water projects covering a larger area, Reclamation may have contracts with multiple irrigation districts servicing hundreds of landholders within a project.

Reclamation Collects Information on Water Project Construction Costs and the Status of Repayment by Irrigation Districts but Could Better Promote the Public Availability of This Information

Reclamation collects data on water project construction costs and the status of repayment by irrigation districts, but it has not publicly reported this information since the 1980s. Reclamation’s regional offices collect repayment data annually for each water project with an outstanding construction cost repayment obligation and then compile them in Statements of Project Construction Cost and Repayment (repayment statements). These repayment statements indicate that $1.6 billion of the $6.4 billion in costs allocated to irrigation was outstanding, as of the end of fiscal year 2012. It is Reclamation policy to make the repayment statements available to the public upon request, but it could better promote to the public that it prepares repayment statements annually and that these statements are available.

Reclamation’s Data Indicate an Outstanding Repayment Obligation of $1.6 Billion Allocated to Irrigation

Reclamation’s data on water project construction cost repayments indicate that, of the $6.4 billion in costs allocated to irrigation as of the end of fiscal year 2012, $1.6 billion remains outstanding. Every fiscal year, Reclamation’s five regional offices collect repayment data and compile them in repayment statements for each water project that has These repayment construction costs with repayments outstanding.statements include data on the total construction costs for the water project; the construction costs allocated to each project purpose, including irrigation; repayment information for costs allocated to each project purpose, including the amount irrigation districts have repaid as of the end of the fiscal year; and any financial assistance granted to irrigation districts.

Reclamation prepared repayment statements for 43 of these 54 projects in fiscal year 2012, which indicate that the total construction cost for these projects was more than $963.3 million, of which at least $350.5 million was allocated to irrigation. Reclamation did not prepare repayment statements for the other 11 projects or otherwise have construction cost and repayment information readily available. Per Reclamation policy, it is optional to prepare repayment statements for water projects where all water users, including irrigation districts, have repaid their construction cost allocations. that the total construction cost for these projects was more than $19.7 billion, of which $6.4 billion was allocated to irrigation (see fig. 3).

According to Reclamation’s repayment statements, as of the end of fiscal year 2012, of the $6.4 billion in construction costs allocated to irrigation, the outstanding repayment obligations totaled $1.6 billion—or 25 percent—after accounting for nearly $4.8 billion in repayments made by irrigation districts, other repayments received, and financial assistance to irrigation (see table 1). Outstanding repayment obligations ranged across Reclamation’s regions, from approximately $91.7 million in the Upper Colorado region to more than $1.0 billion in the Mid-Pacific region (accounting for 64 percent of the total outstanding construction costs allocated to irrigation).

Reclamation’s repayment statements as of the end of fiscal year 2012 further show that, of the $1.6 billion outstanding repayment obligation for irrigation, irrigation districts are expected to repay approximately $1.1 billion through repayment or water service contracts. Of the remaining $490.4 million, approximately $287.4 million is expected to be recovered through other revenue sources, such as the sale of surplus project water for irrigation, and roughly $203.0 million is being repaid, pursuant to federal law, a settlement agreement, and stipulated judgment, by a municipal corporation that operates and maintains the Central Arizona Project. Irrigation districts have repaid nearly $1.4 billion of their allocated costs primarily through repayment or water service contracts as of the end of fiscal year 2012 and, according to Reclamation officials, irrigation districts are generally current in their repayments.Reclamation officials, across the 76 water projects with outstanding repayment obligations, Reclamation holds 72 repayment contracts for irrigation and 304 water service contracts for irrigation. We found that, across Reclamation’s regions, the number of water projects with outstanding repayment obligations as of the end of fiscal year 2012 and the types of contracts vary, as described in table 2.

Reclamation Could Better Promote That Information on Water Project Construction Costs and Repayments Is Publicly Available

Reclamation has not publicly reported the information it collects on water project construction costs and repayment since the 1980s, and we found that Reclamation does not make it readily known to the public that it prepares repayment statements annually or that they are available.Reclamation officials said that the purpose of the repayment statements is generally for internal management use, such as when the agency is preparing for contract negotiations, or to provide information to certain power users on the amounts of irrigation assistance power may be responsible for paying. Reclamation officials told us they had considered publishing the repayment statements on the agency’s website in the mid- 2000s as part of an internal management review, but they decided not to do so. Instead, in 2007, Reclamation developed an internal policy document on the preparation of repayment statements that states that such statements will be provided to any interested party upon request. This policy document is posted on the section of the agency’s website that contains program and administrative policies that apply to Reclamation’s management of its water projects. Information on the availability of the repayment statements is not otherwise posted online or made public.

We interviewed staff from legislative branch agencies and several other individuals knowledgeable about Reclamation water projects who indicated that public availability to the information contained in the repayment statements would be helpful. Some individuals we interviewed were not aware that Reclamation prepares repayment statements annually, or that the agency would make them available upon request. Several individuals we interviewed indicated that making the repayment statements directly accessible on the agency’s website would be helpful and, in some cases, better inform their work. For example, a staff member from the Congressional Research Service said that to be able to respond to congressional committee requests in a timely manner, it would be helpful to have repayment information on the agency’s website, similar to information posted online by Reclamation’s Mid-Pacific regional office on its water rates (which are based in part on construction cost allocation and repayment information) for the Central Valley Project. In addition, some individuals noted that, as Reclamation considers modifying or expanding existing water storage capacity or delivery, Congress and others may want to assess information on how costs were allocated and how funding and repayment arrangements were established in the past to inform potential future funding arrangements. For instance, an environmental consultant told us that having repayment information readily accessible for water projects developed in the past would help inform decisions on future funding arrangements and other policy considerations for federal, state, and other parties considering the expansion of a water project in the Pacific Northwest. A senior Reclamation official we interviewed agreed that increasing public awareness that cost allocation and repayment information is available upon request could better position the public to obtain information that could help inform their decision making on related water project issues. In addition, the official stated that there may be additional opportunities to make the public aware of its policy beyond posting the information on the policy section of its website.

According to the Office of Management and Budget’s open government directive, the federal government should publish information online about what the government is doing to promote transparency, accountability, and informed participation by the public, and federal agencies should proactively use modern technology to disseminate useful information. By further disseminating information to the public that cost allocation and repayment data are available through the repayment statements, Reclamation would promote transparency and potentially increase informed participation by the public.

Early Repayment Authority Is Limited, and Its Use Has Financial and Other Implications

The authority for irrigation districts, or for landholders within those districts, to repay their allocated construction costs early is limited to a small number of districts across Reclamation’s water projects. Based on our analysis, early repayment affects the financial return to the federal government, and it accelerates the elimination of certain restrictions and requirements for landholders that are in place until their repayment obligations are fulfilled, among other things. Reclamation and irrigation district officials told us that early repayment may not appeal to many districts or landholders, but some districts or landholders may be incentivized to seek and exercise the authority to repay early, depending on their particular circumstances.

Early Repayment Authority Is Limited to a Small Number of Irrigation Districts

The authority for irrigation districts, or for landholders within those districts, to repay their allocated water project construction costs early— that is, repay outstanding repayment obligations, either through lump-sum or accelerated payments, in advance of the date specified in the districts’ contracts—is limited. Unless expressly authorized in their contracts or by statute, irrigation districts and landholders are not authorized to repay their construction cost obligations early. According to Reclamation data, of the estimated 585 irrigation districts that had repayment or water service contracts with Reclamation, as of December 2013, 87 districts— or about 15 percent—had authority for the district, or for landholders within the district, to repay their construction cost obligations early. Of those 87 irrigation districts, 69 districts exercised their authority and repaid early, or had some landholders who repaid early, as of December 2013, with early repayments totaling more than $238.9 million, according to Reclamation data.

Contractual authority for early repayment is limited because only a small number of contracts that predate the Reclamation Reform Act of 1982— which prohibited new contracts after October 12, 1982, from authorizing early repayment—contain terms expressly authorizing early repayment.Reclamation data indicate that of the 87 irrigation districts with early repayment authority, 55 districts had contracts that authorized landholders to repay their outstanding construction cost obligations early; these districts are located largely in the Pacific Northwest region. Some or all landholders within 39 of those 55 irrigation districts exercised this contractual authority and made early repayments totaling approximately $18.7 million as of December 2013,app. IV). according to Reclamation data (see In addition, we identified seven statutes enacted since 2000 that authorize some irrigation districts—or, in some cases, landholders within those districts—to repay their construction cost obligations early. Specifically, we identified 32 irrigation districts that sought and received statutory authority for early repayment by the district or landholders.analysis of Reclamation data shows that, of those 32 irrigation districts with statutory authority, 30 districts repaid early or had some landholders within the district who repaid early, with their early repayments totaling $220.2 million, as of December 2013 (see app. IV). Twenty-two irrigation districts that receive water from the Central Valley Project and received statutory authority in 2009 comprised most of those early repayments, totaling nearly $200.1 million.

Early Repayment Affects the Financial Return to the Federal Government and Accelerates the Elimination of Certain Restrictions and Requirements for Landholders

Early repayment affects the financial return to the federal government and accelerates the elimination of certain restrictions and requirements for landholders that are in place until their repayment obligations are fulfilled. While only a limited number of irrigation districts and landholders have early repayment authority, there has been consideration in Congress of expanding early repayment authority more broadly, such as to all irrigation districts. Reclamation documents and officials we interviewed indicated that the agency has and would likely continue to support additional authorization for early repayment, so long as the financial return to the federal government was not negatively affected, but that the unique aspects of most water projects support authorizing early repayment on a case-by-case basis.

Reclamation officials and irrigation district officials told us that early repayment may not appeal to many districts or landholders, given that their repayments are otherwise due in fixed, interest-free amounts spread over many years. In addition, some noted, the districts or landholders may not be in a financial position to repay their outstanding repayment obligations on a lump-sum or accelerated basis. On the other hand, as described above, of the 87 irrigation districts that had early repayment authority, most of the districts, or at least some of the landholders within those districts, exercised such authority and repaid their obligations early. Based on our analysis, we found that early repayment more quickly eliminates certain restrictions and requirements for a landholder, which may provide an incentive for the landholder or the district to seek and exercise early repayment authority, depending on their circumstances. Specifically, we found that early repayment has various implications for the federal government, irrigation districts, and landholders, as follows.

Early Repayment Affects the Financial Return to the Federal Government

Early repayment affects the financial return to the federal government, largely depending on whether a discount may be authorized, such as calculating the present value of the outstanding repayment obligation to determine the amount to be repaid early, and the size of that discount. If no discounts are authorized, any repayments that occur earlier than the due date specified in the contract would be worth more to the government because irrigation districts’ repayments do not bear interest. By receiving lump-sum or accelerated payments early for the outstanding repayment obligations, the government avoids the loss in value that would otherwise occur with repayments made over time. For example, if in 2014 an irrigation district were to make a lump-sum payment of $100,000 that would otherwise be due in annual installments through 2030 (e.g., about $5,882 per year for 17 years), the government would receive that money sooner. Looked at another way, if the irrigation district were to continue making annual repayments over time, rather than repay early, the value to the government of $100,000 paid in full after annual installments ending in 2030 would be approximately $74,220 in 2014 dollars. Reclamation officials told us that in most instances where irrigation districts or landholders exercised their authority to repay early, the early repayment amounts reflected their outstanding repayment obligations, and the agency did not apply any discounts.

If early repayment authority provides a discount toward the outstanding repayment obligation, however, the value of the return to the government is reduced compared with repayment of the full outstanding amount. In recent years, a few statutes have granted certain irrigation districts a discount. For example, legislation enacted in 2009 required certain Central Valley Project irrigation districts to repay their outstanding repayment obligations early, at a discount of half the 20-year Treasury rate. This discount was intended to offset the irrigation districts’ borrowing costs in obtaining loans to facilitate their early repayments, according to an attorney who represented the districts. In this example, the discount may have incentivized the irrigation districts to repay early, but it also reduced the financial return to the federal government compared with early repayment without a discount. Specifically, Reclamation data indicate that, if no discount had been applied, the early return to the government would have been $236.7 million, rather than the $200.1 million that was repaid based on the discount.such a discount had not been provided, fewer irrigation districts may have exercised their early repayment authority, and a larger discount would have resulted in a smaller return to the government.

On the other hand, if Based on past early repayments, some irrigation districts and landholders may be motivated to repay early without a discount, but Reclamation officials told us that they believe some kind of discount would be needed to incentivize many irrigation districts to consider early repayment, were it to be authorized. Under certain scenarios, authorizing a discount could result in early repayment ultimately being worth much less to the federal government compared with repayment of the full outstanding amount. For example, in 2012, the Congressional Budget Office analyzed proposed legislation that would have expanded early repayment authority to all irrigation districts in the Central Valley Project. according to that analysis, the proposed legislation would have permitted early repayments at levels approximating the present value, by applying the 20-year Treasury rate, of the irrigation districts’ outstanding repayment obligations. The Congressional Budget Office estimated that if this legislation were enacted and early repayment authority were exercised by the majority of those irrigation districts, it would result in a net loss of $176 million to the government over the long-term.

Early Repayment Eliminates Acreage and Pricing Limitations for Landholders

Congressional Budget Office, “Cost Estimate: H.R. 1837 Sacramento-San Joaquin Valley Water Reliability Act” (Washington, D.C.: Feb. 27, 2012). ownership limits and are charged full-cost water rates on land irrigated in excess of the amount subject to the pricing limitations. Full-cost water rates include interest charges on the landholders’ remaining allocated portion of construction costs and can be substantially higher than the subsidized rates charged for acres under the statutory pricing limitations. For instance, officials in one irrigation district told us their full-cost water rates were roughly double and, in another district, about 30 times higher than the subsidized rates. Once irrigation districts or landholders have repaid their construction cost obligations in full— whether early, or as scheduled by the terms of their contract—the landholders are no longer subject to these acreage and pricing limitations. As a result, landholders may be able to receive project water, to the extent it is available, on additional land or at a subsidized rate once they have fulfilled their repayment obligations.

Reclamation officials told us that any foregone income in future years from full-cost water rates would reduce the return to the federal government associated with early repayment. According to Reclamation officials, the agency collected approximately $146.8 million from January 1988 through December 2013 in full-cost water rates from landholders who were irrigating land in excess of the amount subject to the statutory pricing limitations. Thus, if early repayment authority were exercised by those landholders, then the loss of full-cost water rate revenue in future years would at least partially offset the return to the government from early repayments. In addition, Reclamation officials and others we interviewed stated that early repayment would allow for the possibility of larger entities receiving project water at subsidized rates on larger landholdings sooner than intended under reclamation law—one of Reclamation’s early goals in developing water projects throughout the western United States was to promote farming opportunities for small, family-owned operations. Other irrigation district officials told us, however, that even though their districts had landholders with excess acres who may be interested in early repayment, the elimination of acreage and pricing limitations would not likely serve as an incentive for the districts as a whole to repay early. For example, one official stated that her district would have to finance a loan to make early repayments on a lump-sum or accelerated basis, which did not make sense compared with making annual, interest-free repayments under the terms of the contract.

Early Repayment Eliminates Reporting Requirements for Landholders

Early repayment also eliminates annual reporting requirements for landholders earlier than if repayment was made by the due date specified in the contract. Until their construction cost obligations are repaid, landholders are subject to annual reporting requirements to ensure landholders’ compliance with acreage and pricing limitations. According to irrigation district officials and landholders we interviewed, completing these reports can be difficult and time-consuming for landholders and for districts, which must complete a form for Reclamation summarizing the reports submitted by landholders. For example, one landholder in Oregon said that it repaid its construction cost obligation early, after receiving statutory authority to do so in 2005, in part to eliminate the need to submit the annual reports. On the other hand, some irrigation district officials told us that while the reporting requirements were burdensome, eliminating the reporting requirements would not be a sufficient reason for the district to repay early, if granted the authority, without other incentives.

Early Repayment Potentially Provides Irrigation Districts with Greater Assurance of Project Water in Perpetuity

Early repayment potentially provides irrigation districts with a greater assurance of receiving available project water on a permanent basis. The right to water is generally determined by state law—which varies by state and can be complex—so repayment and water service contracts do not provide a right to water under state law. Under federal reclamation law, however, these contracts give irrigation districts assurance of a specified amount of water from the project’s available water supply, which becomes permanent upon completion of repayment of the construction costs Securing a permanent right to project water in allocated to the districts.a geographic area where water supply is uncertain was a key motivation in the Central Valley Project irrigation districts’ desire to convert their contracts and repay their construction costs early, according to an attorney who represented those districts in pursuing and receiving such authority in 2009. In addition, for irrigation districts that receive and exercise authority to convert their water service contracts to repayment contracts and repay early, the need for Reclamation and the districts to renegotiate water service contracts when they expire is eliminated, according to agency officials. Reclamation officials and the attorney representing the Central Valley Project irrigation districts told us that renegotiating the terms of water service contracts can be time-consuming and unpredictable for landholders and their agricultural businesses and, therefore, repayment contracts may be preferable over water service contracts. On the other hand, the agency’s flexibility for responding to water shortages, drought, and climate change-related issues could be limited as a result of fixing the amount of water an irrigation district receives under a repayment contract in perpetuity, according to a statement made by Reclamation’s Commissioner in 2011.

Conclusions

With population, agricultural production, and development in the West projected to continue to increase, Reclamation may be called upon to modify or expand existing capacity for water storage or delivery. In considering potential new work and affiliated funding arrangements, Congress, as well as water users and the public, may benefit from evaluating information on past water projects. In particular, Congress and others may want to assess information on how costs were allocated and how funding and repayment arrangements were established among various water users in the past. Reclamation compiles such information in the repayment statements it prepares annually for each water project with outstanding repayment obligations. However, Reclamation does not make it readily known to the public that this information is available upon request. By further disseminating information to the public that construction cost and repayment data are available, Reclamation may increase interested parties’ opportunities to obtain cost and repayment information, and Reclamation would promote transparency and potentially increase informed participation by the public. This, in turn, could further enable Congress, water users, and the public to assess past funding arrangements and enhance their ability to make informed decisions for funding potential new work, such as to expand water storage capacity.

Recommendation for Executive Action

Consistent with Reclamation’s policy to make construction cost repayment statements available to the public upon request, and to promote transparency and increase informed participation by Congress, water users, and the public, the Secretary of the Interior should direct Reclamation to better promote to the public that annual statements of project construction cost and repayment are available.

Agency Comments

We provided a draft of this report to the Department of the Interior for review and comment. On August 13, 2014, the department’s audit liaison indicated in an e-mail that the department concurred with the recommendation and did not have any other comments.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of the Interior, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or morriss@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This appendix provides information on the scope of our work and the methodology used for the following objectives: examine (1) the extent to which Reclamation collects and reports information on water project construction costs and the status of repayment by irrigation districts and (2) the extent to which irrigation districts can repay their allocated water project construction costs early and the implications of early repayment.

In conducting our work, we reviewed the Reclamation Act of 1902, the Reclamation Project Act of 1939, the Reclamation Reform Act of 1982, and other relevant laws. We reviewed Reclamation policies and directives and other Reclamation documents on water project construction cost allocation, repayment, and early repayment of construction costs. We also reviewed our July 1996 report on the status of construction cost allocations and repayments. In addition, we conducted interviews with knowledgeable Reclamation officials at the agency’s central office in Denver, Colorado, and all five regional offices (Great Plains, Lower Colorado, Mid-Pacific, Pacific Northwest, and Upper Colorado) about issues related to the status of repayment and early repayment. For our interviews with officials from each of the regional offices, we developed a set list of open-ended questions to obtain information and documentation on information they maintain on water project construction cost allocation and repayment information and the use and availability to the public of this information, as well as the opportunities for and potential implications of early repayment, among other things.

To determine the extent to which Reclamation collects and reports information on water project construction costs and the status of repayment by irrigation districts, we analyzed Reclamation’s Statements of Project Construction Cost and Repayment (repayment statements) for fiscal year 2012, the most current data available at the time of our review. Reclamation provided repayment statements for 76 projects with outstanding repayment obligations with irrigation districts, and provided repayment statements for 43 of 54 projects with irrigation that no longer had outstanding obligations with irrigation districts (Reclamation policy calls for repayment statements to be prepared annually for all water projects with construction cost repayments outstanding. This policy does not apply to water projects where all water users, including irrigation districts, have repaid their construction cost allocations, and per Reclamation policy, preparing repayment statements for these projects is optional). The data contained in repayment statements are generally tied The repayment statements are prepared to audited accounting records.annually by the regional offices for each water project that has construction costs allocated to one or more water users with an outstanding repayment obligation. The repayment statements contain information on total costs for the water project, including construction costs incurred as of the end of the fiscal year; estimated future construction costs, and other costs that Reclamation includes in its repayment analysis for construction costs, such as capitalized operation and maintenance costs; the allocation of construction costs among project purposes, including irrigation; and the status of repayment for costs allocated to each project purpose, including repayment realized, anticipated future repayment, and any financial assistance granted to irrigation districts, such as credits, which relieve water users from a portion of their allocated repayment obligations. To analyze and interpret the data contained in the repayment statements, we relied, in part, on the relevant financial standards section on repayment statements in the Reclamation Manual, which provides guidance on the content and format for repayment statements. When the data in a repayment statement included estimated future construction costs, we subtracted these estimated costs from the projects’ total costs because such costs have not yet been and, in some cases, may never be, incurred. To assess the reliability of Reclamation repayment data, we took steps such as reviewing the guidance for developing repayment statements in the Reclamation Manual; interviewing Reclamation officials from all five regional offices who were involved in preparing the repayment statements, as well as officials from Reclamation’s central finance office in Denver; identifying the sources of data included in the repayment statements and the agency’s review process; and following up with Reclamation officials to obtain clarifying information in instances where we identified discrepancies in the data. On the basis of these steps, we found the repayment statements to be sufficiently reliable for the purposes of this report.

We reviewed information from each of the five regional offices on the number of repayment and water service contracts in their respective regions where irrigation districts were making repayments on their allocated construction cost obligations, as of July 2014, for the Lower Colorado, Mid-Pacific, Pacific Northwest and Upper Colorado regions and, as of November 2013, for the Great Plains region. To assess the reliability of the data provided by the regions concerning the number of contracts of each type, we asked Reclamation officials a standard set of questions concerning the reliability of the data and reviewed corresponding documentation, and we found the data sufficiently reliable for the purposes of our report. We also reviewed Reclamation’s policies and practices on making cost allocation and repayment information— specifically, its repayment statements—available to the public, as well as the Office of Management and Budget’s open government directive and associated documentation related to ensuring the transparency of government information to the public.

To examine the extent to which irrigation districts can repay their allocated water project construction costs early, and the implications of early repayment, we reviewed applicable laws, policies, and other relevant documents. We also collected data from Reclamation’s regional offices on irrigation districts that have contractual or statutory authority to repay early, districts that have exercised such authority, and the dates and amounts of early repayments through December 2013. To assess the reliability of the data provided by Reclamation concerning early repayment, we asked Reclamation officials a standard set of questions concerning the reliability of the data and reviewed corresponding documentation, and we found the data sufficiently reliable for the purposes of our report. In addition, we conducted legal research to identify statutes that provide irrigation districts with the authority to repay their construction cost obligations early. To help identify the implications of early repayment, we reviewed the Reclamation Reform Act of 1982 and other laws and regulations that establish acreage and pricing limitations and reporting requirements for landholders until their repayment obligations are fulfilled. We also reviewed testimonies and a statement for the record by Reclamation on draft legislation that would have authorized early repayment for additional irrigation districts, and we reviewed Congressional Budget Office cost estimates of various bills since 2005 that proposed expanding early repayment authority to certain irrigation districts.

For both objectives, we conducted interviews with officials from a nonprobability sample of eight irrigation districts and two landholders from five water projects located in California, Nebraska, Oregon, and Wyoming to collect information on the repayment of construction costs and related issues. We selected these irrigation districts and landholders using criteria such as the type of contracts the districts held with Reclamation (repayment or water service contracts), their status of repayment, and whether or not the districts had early repayment authority. We also interviewed a nonprobability sample of nine individuals knowledgeable about Reclamation water projects on the status of repayments, early repayment authority, or both. Using the “snowball sampling” technique, we identified these individuals by asking for referrals to others knowledgeable about Reclamation water projects and their repayment from others whom we had previously interviewed. Specifically, we interviewed staff from the Congressional Research Service and Congressional Budget Office, attorneys who have represented irrigation districts pursuing enactment of legislation authorizing early repayment, an attorney who has represented environmental organizations in litigation concerning Reclamation water projects, an environmental consultant, former congressional staff, and officials from the Family Farm Alliance and Taxpayers for Common Sense.

We conducted this performance audit from June 2013 to September 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Cost Allocation and Repayment Information for 54 Projects for Which Irrigation Districts Have Fulfilled Obligations

The following two tables provide information on construction cost allocations by project purpose (table 3) and repayment status of construction costs allocated to irrigation (table 4) for 54 Bureau of Reclamation water projects for which irrigation districts have fulfilled their repayment obligations, as of the end of fiscal year 2012.

Appendix III: Cost Allocation and Repayment Information for 76 Projects with Ongoing Repayments by Irrigation Districts

The following two tables provide information on construction cost allocations by project purpose (table 5) and repayment status of construction costs allocated to irrigation (table 6) for 76 Bureau of Reclamation water projects with ongoing repayments by irrigation districts, as of the end of fiscal year 2012.

Appendix IV: Irrigation Districts with Contractual or Statutory Authority for Early Repayment of Construction Cost Obligations

The following two tables provide information on irrigation districts with contractual authority for landholders to repay their outstanding construction cost obligations early, and early repayments made (table 7) and irrigation districts with statutory authority for the districts or landholders to repay their outstanding construction cost obligations early, and early repayments made (table 8), as of December 2013.

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Alyssa M. Hundrup (Assistant Director), Josey Ballenger, Marya Link, and Jeanette Soares made key contributions to this report. Stephen Brown, Cindy Gilbert, Paul Kinney, and Alison O’Neill also provided assistance.