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Wednesday, March 25, 1998.







Mr. McDade's Opening Remarks

    Mr. MCDADE. The Committee will come to order.

    We have with us this morning three witnesses representing the subject matter before the Committee. All of you have been here before, I believe. You know that in this Committee, as in so many, we encourage you to file your official statement with the staff and for the record and to proceed extemporaneously to the extent you wish.

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    In that connection, we recognize the Secretary of the Interior. Mr. Secretary, proceed in your own way.

Secretary Babbitt's Opening Remarks

    Secretary BABBITT. Mr. Chairman, Committee members, it is a pleasure to be back. This is the sixth consecutive year I have come here as Secretary. I acknowledge with nostalgia and regret that this will be the last hearing, Mr. Chairman, that you and I will share together. I just want to say that it has been an extraordinary pleasure working with you in a bipartisan atmosphere, dealing with some very complex issues in a very productive way. So I just want to thank you for your attention.

    Mr. MCDADE. Thank you very much. I will miss the functions and the people in the building and a lot of other people around the town.

    Secretary BABBITT. I notice Mr. Fazio is now here and that I guess I could say much of the same of him. It is rumored that this is his last year with this Committee.

    Mr. FAZIO. The filing deadline passed. It is no longer a rumor.

    Secretary BABBITT. Okay. Well, it has been a great pleasure, and your watchdog approach to California issues has been noted throughout the Department, and it has been very productive.

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    I have with me most of my team this morning, including two regional directors. To the extent that you actually want to get into details, I have with me Roger Patterson from Sacramento; and John Keys, the Director of the Northwest Region in Boise.

    This will be John's last appearance as well. This is really kind of auld lang syne or something, because John will be leaving this summer.

    Patty Beneke, the Assistant Secretary for Water and Science; and Eluid Martinez, the Commissioner of Reclamation, are here as well.

    Mr. Chairman, I will be very brief; and then you can get into the substantive witnesses.

    The President's budget request this year for the Bureau of Reclamation in direct funding is $776 million, nearly identical to last year's appropriation. There are, in addition to that, requests of $143 million for the restoration of the Bay-Delta system in California and approximately $40 million appropriated to my office for disbursement toward completion of the Central Utah Project.

    There are, of course, many specific items that need discussing. I will leave that to Mr. Martinez.

    In dam safety, I think we are making real progress. The water reclamation issues, I believe, are progressing very well. So I will confine myself to a brief discussion of the Bay-Delta issues, and then I would like to call your attention to two issues that are on the horizon. They are not reflected in any substantial requests this year. One is a Montana water settlement, and the second is a discussion about the restoration of the Salton Sea out in California.
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    Let's start with CALFED and the Bay-Delta.

    Mr. Chairman, we are on the verge of an historic success in California. This process has been unfolding over the last 5 years, with the assistance of this committee. In essence what has happened is that, for the first time in this century, it looks like we have brought the warring interests in California, north, south, urban, agriculture and environmental, together to see if we can meet the objectives of all the different parties for water supply, flood control, water quality management and environmental restoration.

    The process began with the so-called Bay-Delta Accord in 1994, which set environmental standards for San Francisco Bay and the Delta. It proceeded on this year to the allocation of the so-called B–2 water under the Central Valley Project Improvement Act. It also involves, remarkably enough, a bond issue from the State of California of nearly a billion dollars, which was passed in 1996 by the voters for the purpose of cost sharing 50/50 the restoration requests before this committee.

    Last week, the draft programmatic environmental impact statement for the overall water management plans was issued. Building pyramid fashion on all of these steps, the Accord, the B–2 allocations, the State bond issue, the joint consortium of State and Federal agencies, we now proceed toward what in the minds of some would have been impossible to even conceive of 2 or 3 years ago and that is a final water management plan bringing all of these strands together.
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    Now it is in that context that we are back again this year with the President's request for $143 million which would be disbursed by the Bureau of Reclamation on a cost-sharing basis pursuant to a public process carried out by the CALFED consortium. It is a remarkable, historic convergence of problem solving, of collaboration between State and Federal agencies and 50/50 cost sharing.

    Mr. MCDADE. Mr. Secretary, let me interrupt you because you know we had concerns last time—and Mr. Fazio couldn't have worked harder on this project if the day had been 48 hours instead of 24—but we all had concerns about kind of an open-ended approach to the Bay-Delta in terms of cost. There was some fuzziness about who was going to do what and where the responsibilities were. And we know that this year the budget is increased by almost 70 percent, which is a very large increase.

    Let me ask you in that connection just a couple of questions. What do you anticipate the completion costs to be of this project?

    Secretary BABBITT. Mr. Chairman, the requests that we are making are keyed to the contribution level established by the State bond issue, which is about half of the bond issue; I think about $450 million. That is all driven by an overall program which is now reflected in the draft environmental impact statements. There will be, in future years, additional costs, particularly for water augmentation and water storage.

    This could be a 20 or 30 year program. We are talking here only about a significant start on ecosystem restoration on a cost-share basis.
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    Mr. MCDADE. I am trying to get, as best we can, a ballpark number on the project.

    Secretary BABBITT. Mr. Chairman, for the entire project?

    Mr. MCDADE. Yes.

    Secretary BABBITT. A ballpark number for the entire project, including the water management and storage components in the Bay-Delta, will depend upon which alternative is selected under the environmental impact statement.


    There are three alternatives. One is to essentially stay with the existing configuration, in which case there would be a relatively modest cost. Bear in mind we have a 3-year authorization right now, only 3 years.

    Mr. MCDADE. And you are in the second year of that, right?

    Secretary BABBITT. And we are in the second year, yes.

    But if the third option were chosen, which involves a reconfiguration of the Bay-Delta system, that would undoubtedly give rise to another authorization debate.

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    Mr. MCDADE. As we look at this project, are you able to give me a scenario of potential costs, ballpark figures, depending upon the options that are chosen?

    Secretary BABBITT. For the long term?

    Mr. MCDADE. Well, the short term and the long term.

    Secretary BABBITT. Short term——

    Mr. MCDADE. If we look at the end of your authorization period just as a hypothetical.

    Secretary BABBITT. Yes.

    Mr. MCDADE. And I assume you are not going to complete within that time?

    Secretary BABBITT. Well, again, it depends on which alternative is selected.

    Mr. MCDADE. Well, would you kindly spell it out a little bit for us so that the Committee has a better understanding of what the options are, what kind of financial commitment, depending upon what happens, this committee can look forward to in the future?

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    Secretary BABBITT. Okay. If option one is selected and the 3-year authorization expires, that is the minimal scenario. And those ecosystem improvements stand, you know, in their own context. You could walk away from this at the end of the 3-year authorization and say that the existing water supply system will remain the same.

    Bear in mind that there are expenditures being made under the Central Valley Project Improvement Act as well, which are a separate item in our request. I believe that is an open-ended user contribution process that we can discuss.

    At the other end is the so-called option 3, which would call for the construction of water conveyance facilities from the Sacramento River around the Bay-Delta into the Federal and State conveyance systems. That would surely be a 30-year project with a price tag of several billion dollars.


    Mr. MCDADE. Several billion. Would you anticipate—I know this is a hypothetical—a 50/50 cost-share? How would you see that paid for?

    Secretary BABBITT. I would anticipate that any Federal contribution would be a maximum of 50 percent, but that would require an authorization debate.

    Mr. MCDADE. Yes, I understand.

    Secretary BABBITT. I believe that the cost-sharing concept is really coming home in all of these projects, these restoration projects that we are working on, and that the presumptive figure is 50/50. Just as it has been in many Corps projects, I think it is now becoming the standard.
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    Mr. MCDADE. Are you comfortable that within the chain of decision-making in this process, there is accountability for those who make decisions. I used to have an old saying that you never ask a planner to do something unless he identifies the funding streams. Otherwise, you get 16 volumes of plans; no way to pay for it.

    What about the administration of it? I know last year there was a lot of concern about a kind of an open-ended decision-making process. Is there, in your judgment, a clear-cut line of authority and responsibility?

    Secretary BABBITT. Mr. Chairman, I believe there is a 3-year plan for what it is we expect to do with this restoration process.

    Now what is a little different about this process is that the Interior Department is passing these cost-shared funds through to 10 Federal agencies, four State agencies and some nonprofit groups which are involved in all of this. And it seems to me, if I may, the real issue is, is that process working? I believe it is. It is a highly public process.

    There are two kinds of projects being funded here. One is projects proposed by the lead Federal agencies. Others are projects that come up from all sectors. They are vetted through two public processes. One is the Bay-Delta Advisory Council. The other one is the CALFED Steering Committee. The projects then come for my signature and distribution.

    Mr. MCDADE. I know we talked to the Governor about it at some length with respect to the nonprofits on the State side, and he provided the Committee some information. Do you have a general organizational chart and one that would show a decision-making process—whether it was nonprofit or State agency or a Federal agency—that we might look at for further education? Could you supply that to the Committee?
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    Secretary BABBITT. I would be happy to provide that.

    Mr. MCDADE. That would be very helpful.

    [The information follows:]

     "The Official Committee record contains additional material here."

    Mr. MCDADE. I didn't mean to interrupt you. It is an important subject.

    Secretary BABBITT. These are important issues. Because I view my responsibility, as the disbursing agent, number one, to make sure that the process is appropriate and focused and, secondly, to follow up by auditing and accounting for the funds. I mean, the buck does stop here. We are not expending the money, but we are passing it through. We are making the grants.

    Mr. MCDADE. Yes, you are the pass-through; and a lot of decisions are made downstream from you. I don't know that there is a level of interchange that is comfortable. I mean, there are a lot of decisions to be made, a lot of agencies involved; and I am sure coordination of all of those decisions is very difficult.

    Secretary BABBITT. Well, this is a new way of doing business. There is no question about it. This is a brand new model, and so they are fair questions.
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    Mr. MCDADE. Sure. We want a good model, all of us.

    Secretary BABBITT. Yes. I also have Roger Patterson here. To the extent that you want to follow this up, he is the guy on the subject.

    Mr. MCDADE. We may do that later on, Mr. Secretary. You proceed with your statement, please.


    Secretary BABBITT. Okay. Just very briefly, the Salton Sea issue, I think, merits your attention. We have a very modest request for the Bureau in this year's budget for about a half a million dollars. I think we may seek to modify that slightly if it appears that the authorizing legislation is really moving.

    Now, the Salton Sea issue, in a word, is basically this is a dead sea. It has no outlet. There are two problems on it.

    Mr. MCDADE. By the way, the authorization appears to be kind of fast tracking, doesn't it?

    Secretary BABBITT. Well, that is the intention of the House sponsors, to fast track it, yes.

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    Mr. MCDADE. Okay. Go ahead, Mr. Secretary.

    Secretary BABBITT. The issues are twofold. One is the increasing salinity from evaporation and concentration and, secondly, the fluctuating level of the lake.

    The House proposal that is being fast tracked I think merits some attention. I think we all agree that the important thing is to put together an adequate environmental analysis process, rather than jumping to any conclusion about what needs to be done. There are proposals that range from a fairly modest diking program to connecting this body of water to the Sea of Cortez down in Mexico and actually making it a functional extension of the Gulf of California, the Sea of Cortez.

    Obviously, there are cost implications in all of this; and our proposal is that the Bureau of Reclamation and the local authority, known as the Salton Sea Authority, undertake a rigorous look at all of the alternatives and that they be given the time and the latitude and a modest amount of funding to do that and to make certain that the scientific research about the causes of these wildlife die-offs in the sea are adequately taken care of.

    Now, the House legislation is also written to fast track this process of analysis; and it is our judgment that it is probably unworkable in its current form. It also contains a $300 million advance authorization.

    Mr. MCDADE. What do you mean?

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    Secretary BABBITT. Pardon me?

    Mr. MCDADE. Why did you say it is unworkable?

    Secretary BABBITT. Because it has a fast track mandate to do the analysis. It waives some of the NEPA environmental procedures. It mandates us to be ready with construction design specs on an alternative chosen by us within 12 months, backed up by a $300 million advance authorization.

    Mr. MCDADE. You think that is too much, too soon?

    Secretary BABBITT. Yes.

    Mr. MCDADE. Okay. Go ahead.


    Secretary BABBITT. Okay. Finally, I would like to give you some advance notice on a Montana water settlement that is now in the authorizing process. The budget has a request for the Bureau to continue working on the outline of that settlement.

    It would involve a water supply and water rights settlement for an Indian reservation, water development for rural communities in Montana, and participation in cost sharing by the State of Montana. It would look analogous at least to the so-called Mni Wiconi project, which has been funded year by year by this committee.
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    That would be a new start. It is in the authorizing process. We are working very actively on it, and I just want——

    Mr. MCDADE. What is the level of cost sharing in that project?

    Secretary BABBITT. I am not certain that it has been entirely worked out at this point, because we have said to Montana, we are responsible for the Indian water settlement side of it, and your cost-sharing should be linked to the development of water for rural communities beyond the reservation boundary.

    The authorized amount for the whole Federal participation in the draft legislation is, I think, about $50 million.

    Mr. MCDADE. Okay.

    Secretary BABBITT. Is that about right?

    Ms. BENEKE. I think so.

    Secretary BABBITT. Mr. Chairman, that is all. There are a whole variety of other issues; but in light of time and the other witnesses, I think I would rest my case right there.

    Mr. MCDADE. Thank you. We may be back to you.
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    [The prepared statement of Secretary Babbitt follows:]

    "The Official Committee record contains additional material here."

    Mr. MCDADE. Madam Secretary, we are pleased to have you here; and please proceed in your own fashion.


    Ms. BENEKE. Thank you very much, Mr. Chairman. I am delighted to be here again this year; and I, too, will be very brief.

    My written statement underscores the importance of the California Bay-Delta budget request and also highlights several key aspects of the Bureau's budget.

    In addition, consistent with the Central Utah Project Completion Act, the Secretary has delegated responsibility for that project to my office; and I would be very pleased to answer any questions you might have with respect to the CUP here this morning.

    With that, again, it is a pleasure to be here; and I will pass the baton on to Eluid.

    Mr. MCDADE. We will give you the award for observing the brevity that the House usually doesn't engage in. Thank you, Madam Secretary.
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    [The prepared statement of Ms. Beneke and the Central Utah Project budget justification materials follow:]

    "The Official Committee record contains additional material here."

    Mr. MCDADE. We are delighted to have you back again, and please proceed in your own fashion.


    Mr. MARTINEZ. Before I address the Bureau's budget, I would like to personally extend my appreciation to you and Representative Fazio for your leadership and interest in the Bureau of Reclamation projects and programs over the years.

    Having worked in this arena for almost 30 years and being a State official in charge of water for 4 or 5 of those years, I know that water is paramount to the economy, the environment and the social well-being of the West. Your leadership will be missed, both of you; and I extend my appreciation to you and thank you.

    Mr. MCDADE. Mr. Martinez, we thank you for a 30-year career in public service.

    Mr. MARTINEZ. Thank you.

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    The Bureau of Reclamation is requesting $919 million in its fiscal year 1999 budget, of which $893 million is new budget authority and approximately $26 million is a transfer of unobligated balances from our working capital fund.

    The request includes approximately $776 million for Reclamation's traditional programs. That reflects a decrease of about $8 million from our fiscal year 1998 level. The request includes $143.3 million for the California Bay-Delta Ecosystem Restoration Account, which has been discussed. Before I go on to the specific programs, I would like to touch on some issues that I think might be of interest.


    The Bureau of Reclamation has completed its 5-year Strategic Plan. It has been an interesting exercise by virtue of the fact that the Bureau of Reclamation's mission is evolving, and I know that you have asked some questions about that and that there are some concerns.

    The Bureau of Reclamation, from my perspective, faced an interesting problem when it went into its 5-year Strategic Plan, because most agencies were not in the process of changing a mission or at least seeking to change a mission. The Bureau of Reclamation has undertaken that change and not without controversy. We solicited substantial input from our stakeholders and from water users out West. We took seriously the comments presented to us by Congress. We have put in place a 5-year plan, although it might not address all the specific concerns of every stakeholder. In this business of water you will never be able to do that. But I think it is a plan that has general acceptance. I travel extensively across the West, and I have heard generally good reactions to that plan.
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    Our annual plan has been presented to Congress, and it outlines how we will implement the 5-year plan and, hopefully, what we are going to be all about in the next few years.


    Another issue that I know is not in my written testimony, but an issue that concerns Congress, is whether Reclamation has identified and will correct all its year 2000 computer problems. We have identified those issues, and I feel confident we will address all of those concerns by mid-1999.

    Mr. MCDADE. Good for you.

    Mr. MARTINEZ. That should not be a problem for the Bureau of Reclamation.

    Mr. MCDADE. How about the Department, Mr. Secretary? How does it look in the Department?

    Secretary BABBITT. Mr. Chairman, OMB ranks the agencies. They have got a little ranking system.

    Mr. MCDADE. OMB does a lot of ranking.

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    Secretary BABBITT. Yes. I guess that is not the final answer, but we are in the top ranking from the OMB watchdogs. There are going to be surprises in this year 2000 problem.

    Our major issue is this: I believe that, internally, we are on top of our systems, but we have got a very substantial interface problem with some of our user groups. The Indian tribes are a good example of that. I am not confident that we have uniform progress on this, and to have the originating system up but not the user systems up is going to have a result that is not good.

    Mr. MCDADE. Flesh that out on the record a little bit, will you? Because we have to really educate a lot of people about the issue. They hear it talked about, but they don't understand some of the Draconian effects that could occur. Would you flesh that out a little bit, using the example, that you just mentioned, if you wish?

    Secretary BABBITT. Well, the user agencies have been all over the map on this. Some, I think, are up-to-date; others aren't. And it applies to all of the Interior agencies.

    But the specific issue that I would emphasize is the Indian nations. Now the importance of that is that is the one area where the Interior Department administers human resource programs, including a general welfare system, and a whole variety of individual entitlement programs. We do not administer them directly. We administer them—

    Mr. MCDADE. Well, it seems to me, from what I have heard over the years, it is even higher than that. You are the trustee for those people; and, you have a more direct responsibility to that group than any in the country, it seems to me. So, I want to hear you tell me what the consequences could be if it isn't fixed and what you are going to do to try to make sure it is fixed.
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    Secretary BABBITT. Okay. The consequences, of course, are the systems might crash and we would not have the capacity to get the information, the checks, the assistance, out to the beneficiaries.

    Mr. MCDADE. The tribal funds, all sorts of——

    Secretary BABBITT. That is correct.

    Mr. MCDADE. And I suppose you would just describe it as cutting the link between the trustee and the people that are supposed to be the beneficiaries?

    Secretary BABBITT. That is correct. And we have been taking extra steps to make this problem known to the tribal governments.

    Now, you know, there may be some things we can do beyond that. I am not entirely clear what they are. But I understand your concern and will go back and have another look at this.

    Mr. MCDADE. Yes, we encourage your attention to it, Mr. Secretary.

    Mr. Martinez, I didn't mean to interrupt you. Go ahead, sir.

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    Mr. MARTINEZ. That is fine.

    Mr. Chairman, approximately 50 percent of Reclamation's 600 dams were constructed between 1900 and 1950; and continued safety performance becomes a great concern with this aging infrastructure. We continue to place high priority on this initiative, and our budget reflects that concern.

    Looking at the specific figures, it will reflect that there is a decrease in our request for dam safety this year, which might, on the face of it, appear to be contradictory; but the reason for that is that we have completed construction on some dams. That is the reason that the budget request is lower.

    The other issue I want to bring to your attention is that the Bureau of Reclamation continues to operate its systems and dams West-wide to minimize the impact of El Nino effects.

    We were instrumental in working with the Corps of Engineers in minimizing damage in California last year, and this year we put in place processes that to date we have not had to use to protect life and property in case of devastating floods out West.


    The specific request for the particular projects are mentioned in our budget, and I won't get into those. But I do want to draw your attention to one program that has generated considerable interest in the Bureau of Reclamation, and that is the Water Reclamation and Reuse Program.
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    Our fiscal year 1999 request of $37 million includes funding for four ongoing projects that were authorized by Congress in 1992 in California, plus funding of minor amounts for Arsenic Wellhead Project in New Mexico, a wastewater reuse study in South Dakota and a comprehensive water reclamation and reuse study in California.

    The 30 some million dollar budget request also includes $1 million for Orange County for a regional water reclamation project in California and includes $6.8 million for research and feasibility studies and to continue or initiate new construction starts.

    The $6.8 million, which is new in the budget, is proposed to be used as follows: $1.1 million for assisting other project sponsors with feasibility studies and to review and prioritize projects for possible funding; $1 million for research and development activities; $4.7 million is for continuation of an existing project and three new projects which I know are of some interest to the folks in this room today.

    We propose to spend $800,000 for continuation of the Tooele project in Utah; $1.3 million for new construction of the North San Diego County Project in California; $1.3 million for new construction of the Long Beach Project in California, and $1.3 million for new construction of the Calleguas Project in California.

    Mr. Chairman, we in Reclamation went through an extensive process of ranking, using a criteria process, for determing those projects that should be recommended for initiation of construction funding, and I can provide that for the record.

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    Mr. MCDADE. Please do so, without objection.

    Mr. MARTINEZ. Yes.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. MARTINEZ. This particular program, as you know, has significant implications in the outyears, in terms of funding. I want to recall that for the four projects in California, plus the 18 new projects that were authorized in 1996 under Title XVI, the outyear Federal commitment approximates $346 million; and I know there is extensive interest out West of other municipalities that are looking at this particular program. So we plan to work with you in addressing the needs of the municipalities and interests out West; but, at the same time, it has potential impacts on the Bureau of Reclamation's budget.

    Mr. Chairman, that generally concludes my comments, other than specific issues dealing with the budget.

    Mr. MCDADE. We thank you, Mr. Martinez, for your usual fine statement.

    [The prepared statement of Mr. Martinez and the Bureau of Reclamation budget justification materials follow:]

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     Office Folios 44 to 609 Insert here


    Mr. MCDADE. Let me just ask a question that seems to be being asked with some frequency now. My memory is that the Bureau of Reclamation goes back to the administration of President Roosevelt, Theodore Roosevelt, in 1900; and its purpose was to assist in the colonization, if you will, the development of the West. Some people think the West is now overdeveloped; and some people say, why do we need the Bureau of Reclamation? What is your answer to that?

    Mr. MARTINEZ. Mr. Chairman, that same question was asked of me by Senator Domenici initially when I came to this office 2 years ago.

    I believe, personally, that there is and will continue to be a need for the Bureau of Reclamation. The Bureau of Reclamation's original mission was to develop irrigation projects and water projects for development of the West, but it also managed those projects and continues to manage them. It wasn't just an agency that built the physical project and walked away. It managed the projects for the purposes that those projects were authorized.

    Over time, Congress has passed laws dealing with environmental issues, that require the Bureau of Reclamation to manage those projects consistent with those laws.

    The Bureau of Reclamation today delivers water to 10 million acres of land in the West and provides municipal and industrial water, to over 30 million people. It is the Country's largest water wholesaler. We generate a lot of electricity.
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    Mr. MCDADE. Excuse me, Mr. Martinez. I recognize that, and the committee is aware of the tremendous impacts that the Bureau has had in the West. But a lot of those impacts date from the huge construction projects—Hoover, Shasta, et cetera—that really did open up the West and created incredible wealth in the country. Those days are over, aren't they?

    Mr. MARTINEZ. The days of building dams——

    Mr. MCDADE. Yes.

    Mr. MARTINEZ [continuing]. For practical purposes, might be over.

    Mr. MCDADE. The water resource system, outside of the maintenance and management of it, is in place. Some people say, for example, if you consolidated, there would be no impact on the mission but a lot of saving to the taxpayers at a time of stress on the budget. Do you agree with that?

    Mr. MARTINEZ. No. Who would you consolidate with?

    Mr. MCDADE. You don't think there would be any savings to be had if that occurred?

    Mr. MARTINEZ. In my personal opinion, the costs would remain the same, if not go up.
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    Mr. MCDADE. Go up. Okay. Would you explain that to me, please?

    Mr. MARTINEZ. Unless the functions and the duties and the responsibilities were to be done away with, you would still have the same charge, the same tasks that have to be performed.

    Mr. MCDADE. When you get up in the morning and look over your domain, what is the first question you ask yourself?

    Mr. MARTINEZ. What am I doing here in Washington?

    Mr. MCDADE. You have got a lot of company in that one.

    We are glad you are here.

    Mr. MARTINEZ. No, seriously——


    Mr. MCDADE. What is the top priority that the Bureau has now?

    Mr. MARTINEZ. The top priority, aside from dealing with these issues of wastewater reuse and helping rural water systems trying to put systems in place to deliver water, is the management of water out West, working with States, with cities, with the counties in trying to manage water, and bringing to the table the Federal perspective on issues.
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    For instance, in my State of New Mexico, we have a Rio Grand compact involving three States. The Bureau of Reclamation continues to be a vital player in how that water is managed and provides resources to help resolve issues.

    On the Platte River, the Bureau of Reclamation can usually work with those States.

    I visited the State engineer of Kansas. They are about ready to enter a lawsuit with Nebraska. His question to me is, what can you bring to the table to try to help Kansas and Nebraska to resolve some of these issues?

    So there is a place out there.

    Mr. MCDADE. There is no argument that there are responsibilities to be carried out. The question is, what is the best way to do it in terms of efficiency for the taxpayers, et cetera?


    For example, the Corps of Engineers comes in here and testifies; and they do very much the same things that you are talking about. Should there be a consolidation between the Bureau and the Corps?

    Mr. MARTINEZ. Mr. Chairman, if you wish to consolidate the Corps of Engineers with the Bureau of Reclamation, I would entertain that.
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    Mr. MCDADE. Were you in the Army? Do you want to reup?

    Mr. MARTINEZ. I believe the two agencies have different roles. Having been in the business of water administration, the first thing I noticed when I came to the Bureau of Reclamation was—I think I expressed this to you—that we had put out a ''Blueprint for Reform'' that says, basically, the Bureau of Reclamation is going to not emphasize construction and go into water management. And I said, good luck. Because it is more difficult than it appears to move from construction to water management.

    I want to leave this thought with you. The Bureau of Reclamation has been in the area of management of water since its inception. This is not a new activity.

    Mr. MCDADE. Indeed.

    Mr. MARTINEZ. What is different today than in the past is that the water resources that the Bureau of Reclamation developed primarily for agricultural purposes are now being viewed as a source of water for other uses, whether those be environmental or municipal and industrial purposes. The role that the Bureau of Reclamation will play in the Federal Government on movement of that water from agricultural purposes to M&I purposes is a role that is evolving, and I think there is a place for the Bureau of Reclamation to serve in that capacity.

    Mr. MCDADE. That connects, doesn't it, to your concept about a new mission?
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    Mr. MARTINEZ. It plays into that.

    Mr. MCDADE. I beg your pardon?

    Mr. MARTINEZ. It plays into that new mission of being a manager of water resources.

    Mr. MCDADE. Yes. I mean, I think even in the reinventing government treatise it is suggested that, without a new mission, the Bureau should be excessed.

    Mr. MARTINEZ. Well, we have a large staff that operates and maintains facilities. In the absence of the Bureau of Reclamation, that staff would have to be put someplace else.

    Mr. MCDADE. We are not arguing about those responsibilities. We are talking about the most efficient way to do something. And a lot of people say that the reason for the so-called new mission is that the old mission is completed. There are ways to consolidate and save a lot of money. Nobody is arguing that.

    Mr. Martinez, let me make it clear to you that you do not do a good job. We think you do an excellent job. We are talking about whether it is time to look at a reorganization, whether it is time to look in new areas.

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    For example, the Committee last year in its report said that the Committee is not indicating its agreement that you can simply create a new mission for yourself, which appears to us up here to be a little bit of what is going on. We further stated in our Committee report that the roles and missions of Federal agencies are established through the legislative process and cannot and should not be changed by the agencies. In other words, you have to get authority from the Congress to begin a new mission.

    It doesn't seem to us that you have had a vetting of that authority. You have a generic statute, but you are really making a transition from what had been a long-time, successful program—which still needs management—into a new area that hasn't really been explained in detail to the committee that has general responsibility, i.e., the authorization committee.

    You don't have specific authorization for the new mission, do you, sir?

    Mr. MARTINEZ. It is my understanding that everything the Bureau of Reclamation does today and continues to do is under authorization that we have from Congress.

    Mr. MCDADE. Your generic authorization?

    Mr. MARTINEZ. Yes, and specific authorizations, like Title XVI programs.

    Mr. MCDADE. Yes. Well, I'll tell you what to do. I don't want to spend an inordinate amount of time on this, but I would appreciate it if you would at this point in the record explain your legal justification and send a note up to the Committee that shows the legislative underpinnings of your mission. Will you?
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    Mr. MARTINEZ. I will do that.

    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. MCDADE. Go ahead, Mr. Secretary.

    Secretary BABBITT. Mr. Chairman, I can't resist. Could I just add a word or two to this? These are important questions, I think.

    When I became Governor of Arizona, I was a hard-charging young Turk; and I looked around and I said, we ought to kick the Bureau of Reclamation out of Arizona. I looked around, and Jerry Brown was Governor of California, and Dick Lamm was Governor of Colorado. We were all hot-blooded, you know, young reinventors; and we said, by golly, we can run the Colorado River system and just discharge the Bureau of Reclamation and take over Hoover Dam, Glen Canyon Dam, Flaming Gorge and do it.

    That conversation lasted for about 6 months. Because my constituents who are sitting here and their predecessors said, are you kidding? Let California have a voice in the operation? We have been fighting, drawing blood in a battle for 50 years. No way.

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    The upper basin came screaming down and said, ''The political power's in the lower basin, but Glen Canyon Dam is ours. It may be located in Arizona, but it belongs to the upper basin.'' These interstate issues are very real.

    Secondly, the Corps of Engineers, Bureau of Reclamation interface is something that ought to be examined. I can tell you that war has been going on for all of this century.

    Mr. MCDADE. We don't want a war. I remember when I was assigned to the Interior Subcommittee 36 years ago, as an Easterner to keep Westerners like you honest.

    Secretary BABBITT. Exactly.

    Mr. MCDADE. The first thing I learned was that if you want to get the attention of a Westerner, you simply say, ''water.''

    Secretary BABBITT. You got it.

    Mr. MCDADE. We know about all of those fights and the Supreme Court arguments, and the record is replete with them. We are really trying to get down to a question not of avoiding responsibility but whether or not there might be a potential, as you just mentioned, to examine this issue—not in a war-like fashion—of whether we can consolidate.

    Every budget that comes up here is under enormous pressure, and I don't know whether there is any potential for huge savings. You would have much of the same responsibility. But maybe there is. Maybe there is some duplication that could be avoided. That is what we are trying to get to.
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    Secretary BABBITT. It is——

    Mr. MCDADE. It is an important question.

    Secretary BABBITT. It is indeed. It is indeed.

    Mr. MCDADE. I appreciate your Western history, and I know a little bit about it, and we appreciate it.

    Mr. Martinez, did you want to finish up?

    Mr. MARTINEZ. No, that is fine. I will provide that information.

    Mr. MCDADE. I am delighted to yield to my friend from California.


    Mr. FAZIO. Thank you, Mr. Chairman.

    I would like to welcome everybody, and I would begin my history lesson for the day by reminding everybody about what was termed Jimmy Carter's ''War on the West,'' which was the last time anybody seriously proposed merging the Corps and the Bureau, as I remember. He vetoed a bill or two. He would have really enjoyed the line item veto, but that interlude had not occurred.
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    So Ronald Reagan came riding into office, in part because of the War on the West, and promptly—in effect with one letter—undid the traditional subsidies that really created the Bureau as we knew it up until those days in the early 1980s. The transformation of the Bureau occurred during that era, and I think today it is functioning very differently.

    While the Bureau may not be—and we will get to Animas-LaPlata later—carrying on the same kind of dam-building tradition, it is, I think, important to the way the West works out its issues. Regional problems continue—and we will talk about the Salton Sea, too—to be a very, very high-priority concern for all of us out there, and I think the role that Eluid and his people play has been increasingly important as we sort out who gets the water in the West. And every one of these issues we are going to talk about today essentially involves that debate.

    So, Mr. Chairman, I guess I am a little bit jaded. The ongoing discussion of merger has been around longer than even we have, and I am sure will continue to be. But, ultimately, we have to look to Federal agencies. Certainly I think the Bureau has been doing an excellent job in helping us sort out our dilemmas; but those dilemmas are deeply troublesome, even within a watershed, even within a basin, let alone between them.

    I would simply like to say, having worked with the Bureau directly on this Committee for the last 19 years, how much I appreciate the excellent work that we have had from the Department and from various commissioners and also, frankly, our regional directors.

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    Roger Patterson is here today, and he is doing an outstanding job for the Bureau and the CALFED process, and I think he is typical of the many people who have been part of this institution and who continue to make a real contribution to the public interest.

    So I want to begin by thanking all of you for what you continue to do to help us sort out our problems.

    The one that, of course, is at the top of the Chairman's list is CALFED. I would be interested to hear perhaps from anyone at the table, but Roger as well, as to his evaluation as to how that is going.

    Mr. Chairman, we do have a $440 million authorization which we are whittling down more slowly than we had initially anticipated, having appropriated $85 million instead of $143 million last year. I am assuming we are going to have to stretch that out a year or two in order to get it done; and I think Mr. Ogsbury would appreciate that, given the dilemma this Committee was presented with by the Corps' budget which was reduced so deeply as to be unbelievable.

    I do think we all anticipate further authorization should some of the CALFED issues be resolved and funded at the State level as well. That billion dollar bond act we passed was pretty impressive for cost-sharing purposes. We have another, related one that may be on the ballot this fall. But it all comes down to whether the stakeholders—the various players in the State/Federal picture as well as the interests, the environmentalists, the urban water users and the traditional ag users—are going to agree.
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    I hope Roger can, for the benefit of the Committee, give us perhaps an update, if the members at the table would be forebearing, as to where we are in this process.

    I want to thank the Committee staff, by the way, for its investment in time to try to come to grips with this issue, because it is different than the traditional line item approach we have taken here. I think we are, at the same time, making progress, with the Federal agencies playing a very key role in sorting out how we spend our money.

    Welcome, Roger.


    Mr. PATTERSON. Thank you very much. I appreciate this opportunity.

    CALFED is still a work in progress. I think we all acknowledge that. It has come a long way in the last year. I think the issue of accountability and decision-making, at least to me, is very clear how that is working. It is the most public process that I have been involved in and is moving ahead. Decisions are made, and I think good decisions, on how we are going to spend the money. It is a very deliberate process of sorting out priorities.

    We have filed and started public debate with the draft environmental document. Several months now will be consumed in trying to bring people together around that; and the money continues to flow on the California side, which is important.
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    So I am optimistic. I am encouraged at the way it is going. To take 15 agencies and have them move together as we have is quite an accomplishment, and I feel good about the way that CALFED is going and will go in the future.

    Mr. FAZIO. You might discuss, for the Committee's benefit, some of the dilemmas we are facing right now in terms of: whether we are going to be doing water marketing; whether we are going to have something the Secretary knows well, groundwater management controls; or whether we are going to have new surface water impoundments. We used to call those dams and reservoirs. But, are we going to be doing more storage, whether it is underground or not?

    These are some of the dilemmas. You might give the Committee a brief thumbnail as to where we are in the deliberative process. You might even use the politically incorrect term ''peripheral canal.''

    Mr. PATTERSON. I will be careful on that one.

    We are in the middle of the process. At this point, all of those things are on the table. The document that was put out has everything from more aggressive management on the demand side, conservation, recycling, et cetera, to legitimately looking at additional storage, both surface storage, new reservoirs but particularly additional groundwater storage. I mean, these are all on the table, and they are being hotly debated, and I think that is the way it should be.

    They have been debated for 30 years but never in the fashion that it is now. There is so much riding on the outcome of this discussion, and I think all sides realize that and are going to push hard for their interests. But, ultimately, the success will be in arriving at some place in the middle so that we can resolve some of these problems.
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    Mr. FAZIO. Just for the Chairman's benefit, how do we go about making the decisions as to how the money will be spent? He is concerned, I think, as others would be, that we provide the funds and don't have enough accountability at the level of Federal expenditure.


    Mr. PATTERSON. We will try to get additional information because it is a fairly complicated process. However, by and large, priorities for what are called stressors and the various species are set by a combined government and private sector group. This group is called the Ecosystem Roundtable, a subset of the overall stakeholder group called the Bay-Delta Advisory Council. Through that group, we do the debate on what are the priorities for available funding. A preliminary decision is made on how much might we spend in each of these categories.

    There is a public solicitation process to allow anyone that has a good idea, from the university to a government agency to a nonprofit, to come in, in some fairly high level of detail, describing projects that would meet these goals.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Those are evaluated by the Ecosystem Roundtable. They then come to a group that includes folks——
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    Mr. MCDADE. How many people is that?

    Mr. PATTERSON. I think it is about 20 to 24, something like that.

    Mr. MCDADE. How many represent either the State of California, the Federal Government and how many the nonprofits?

    Mr. PATTERSON. These essentially are all non-State, Federal agency folks. These are all basically from the interest groups. From there, there is a group that we call the integration panel that is made up—and that is where a lot of the technical expertise and program expertise of the agencies comes in.


    The Ecosystem Roundtable recommendations are filtered through another review process—the CALFED Management Team who massages and gets questions answered, then makes a recommendation to the CALFED Policy Team, which is co-chaired by——

    Mr. MCDADE. Who is on that?

    Mr. PATTERSON. Doug Wheeler, who is the Secretary of Resources.

    Mr. MCDADE. I don't need names, but I mean what is the team's composition?
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    Mr. PATTERSON. California Resources——

    Mr. MCDADE. Yes.

    Mr. PATTERSON. California Resources Agency, which is essentially the Department of Interior for the State of California. It is co-chaired on the Federal side by Bob Perciasepe at EPA, and it includes policy level people from all ten of the Federal agencies and all five of the State agencies.

    Those decisions then are made there for ratification by Secretary Babbitt and Secretary Wheeler.

    Mr. MCDADE. Are decisions made by a majority vote? Is that how these things are done?

    Mr. PATTERSON. We have had consensus so far.

    Mr. MCDADE. So you haven't had to have a vote; but, if you did, that is the way it would occur?

    Mr. PATTERSON. We have never laid down that rule.

    Mr. MCDADE. I beg your pardon?

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    Mr. PATTERSON. We have never had to define the rule of whether we are going to vote.

    Mr. MCDADE. So far you are encouraging consensus then?

    Mr. FAZIO. They talk each other into submission.

    Mr. MCDADE. I wouldn't be surprised.

    Mr. PATTERSON. If one of the agencies has a strong objection, we take it seriously and try to work our way through it. So far, we have been able to resolve those. Maybe in the future we will have to refine the rules.

    Mr. MCDADE. Go ahead and just discuss that policy group that you were talking about. Tell us how that is composed, please.

    Mr. PATTERSON. It is made up of membership of the 15 State and Federal agencies, co-chaired by the Secretary of Resources on the State side and Bob Perciasepe from EPA on the Federal side. Those decisions then go to Secretary Wheeler and to Secretary Babbitt for the final sign-off.

    So it takes—you know, it takes 60 days, basically, to go through the public discussion, review and final buy-off. But by the time we have done that, we think we have got a pretty solid program.

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    Mr. FAZIO. There probably are a number of other things we could get into on that subject, but I think at the moment we will move on to some others.


    The Central Valley Project Improvement Act, the so-called Miller-Bradley Act, passed a few years ago; and we have a restoration fund made up of user fees that we basically appropriate here. We had some discordant notes last year when we provided funds in a way that caused some people to think we had lost sight of our purpose. Could you tell us about the budget this year for the CVP restoration fund and reassure anybody who might have any doubt about what our real purpose is?

    Mr. PATTERSON. We have a very strong program this year for the Central Valley Project Improvement Act. We have about $27 million, $28 million in appropriations, another $30 million-plus from the restoration fund, which is water and power surcharges. Then the State of California is putting about $30 million of cost share money. So it is about a $100 million program in fiscal year 1998.

    And we have at least that much in needs. We have been struggling with getting priorities to make sure that we are spending that $100 million on the highest priorities, but there was a lot of debate last year about a so-called water acquisition reserve set-aside.

    We have not moved further with that idea. We continue to think there is some merit there, and we are working with some of the stakeholders to refine that. But we are going to have—we are estimating only about $5 million carryover into 1999, and that is primarily just working money to get us through until the collections will start again in 1999.
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    Mr. FAZIO. The point is, the carryovers will always be spent. It may not be spent quite as rapidly as some would want.

    This, for my colleagues' benefit, is all money that is generated within the State by the beneficiaries, so to speak, even though we do appropriate it. It really has, in effect, relieved this Committee of some of its burden; and I want to make clear that this is not just more Federal taxpayers' dollars flowing into one place.


    On the Salton Sea, Mr. Secretary, you mentioned a concern you have, and I share it: are we talking about getting water from northern California for the Salton Sea or from the adjacent Colorado River Basin States?

    You mentioned the Sea of Cortez. Is that the Gulf of Mexico in some other lexicon? I just wondered.

    You know, it would be divisive in any direction we went for this water; and to do it all in a year seems to me rather optimistic, if not politically opportune.

    Secretary BABBITT. Mr. Fazio, I would say there are two categories of proposals for dealing with the salinity problem and stabilization. The Bureau has actually done some studies, which you may have seen. They are on the modest side. They relate to the concept of diking off portions of the lake. You can actually keep diked areas, where there is some inflow, fresher by pumping the water over the dike into the larger evaporation area of the lake. It is a common, understood technique.
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    There are larger proposals which would have both new freshwater inflow and an outlet, because if you are going to put a lot more water in, you have got to have it flowing out the other end of the lake. And the various proposals have included building a canal southward across the Mexican border into the Sea of Cortez.

    Now, there are two variants. One is the canal would be the outlet and also the intake, and you would pump water because sea water is much less saline than what we have got in the Salton Sea. We circulate the whole thing through.

    The other variant is to bring in water from the Colorado River and then have an outlet into the Sea of Cortez.

    Mr. Chairman, those are large proposals, even by historic standards of reclamation projects.

    Mr. MCDADE. I remember years ago the Department was proposing a saline water project at the end of the Colorado River because they weren't delivering the agreed upon amount to Mexico. That has got to be, what, 15 years ago?

    Secretary BABBITT. Well, that is correct.

    Mr. MCDADE. And I assume we are still in the same situation, without the saline water plant.

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    Secretary BABBITT. Well, we have the plant. We just don't use it.

    Mr. MCDADE. The good news is we have it. The bad news is it isn't working. Is it one of the osmosis plants?

    Secretary BABBITT. It is a reverse osmosis plant, yes.

    Mr. MCDADE. Thank you.

    Mr. FAZIO. This is a long-standing bipartisan concern that our delegation has, but the resolution of it is not going to be just an engineering problem. The politics of allocating Colorado River water at this point have already gotten to be pretty complex.

    I do want to simply state for the record that I share your concern for coming up with an answer under the circumstances. I know it is being driven by events that you know we all understand, but I don't believe it is going to be that simple to do, although I think we do need to press on.

    Commissioner, did you have a point you wanted to make on that?


    Mr. MARTINEZ. On the question of the desalting plant, the plant down in Yuma is in standby operation. It is capable of being put back in operation within one year. It has not been used because of high flows in the Colorado River which have made it unnecessary to use that plant. However, in case it ever is needed, it is capable of being used.
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    Mr. MCDADE. Yes. I know the one that was in San Diego is now in Guantanamo Bay supplying water at the naval base in Gitmo for, I guess, about 30 years now.

    Mr. MARTINEZ. We have put in place a research institute at the Yuma plant that we are using to develop new technologies.

    Mr. MCDADE. In saline water?

    Mr. MARTINEZ. In saline water, yes.

    Mr. MCDADE. I should tell you that years ago I went to San Diego to visit the saline water projects the Department was operating on the West Coast, and I had a very interesting tour with a Ph.D. who was in charge of the research. And on the first day before we got to the first plant, he said to me, ''Congressman, go back to Washington; close these stands.'' I said, ''Close them?'' And he said, ''Yeah. We have learned everything we can in this process. Don't spend any more tax dollars.''

    He was the first person I think I met, maybe then or since, who said don't spend any more money here. He wanted to shift over to a reverse osmosis process. And ultimately the office was closed, as you know.

    Mr. MARTINEZ. Yes.

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    Mr. FAZIO. Let me ask about the Endangered Species Act as we have top level department management here. We had an apparently successful effort to tighten up the time frame that the Fish and Wildlife Service has required for flood protection projects. As you know, we attempted to fix our flood system in California rapidly. The Corps did an excellent job, and Fish and Wildlife apparently contributed to shortening the time frame very dramatically.

    But I would be interested in your overall thoughts about how we continue to do water development and flood protection in California, with the cooperation of this very important agency of your department. We have several fish runs that are threatened, some that are already listed as endangered, such as steelhead salmon runs. Are we coordinating as well as we can with all the other agencies, including, I might add, the National Marine Fisheries Service that has authority to list most of these species? It is obviously a major economic issue for much of the area I represent.

    Secretary BABBITT. Congressman, our experience, I think almost without exception, has been that we can reconcile the demands for municipal, industrial and agricultural water with flows and water quality protections required by the Endangered Species Act if we are inventive enough and smart enough to look at conjunctive use, water efficiency, water conservation, water storage, and market transfers of water. I think we are now crossing that divide. It has been a slow and painful kind of process, because the concepts are new.

    The most striking example of this is the current discussion going on between the Metropolitan Water District in Los Angeles, the City of San Diego and the Imperial Valley Irrigation District about the transfer of agricultural water rights in a market purchase and sale transaction across into the San Diego water market. Those are going to become more and more common. It is just one example of how it is I believe we can reconcile these competing demands.
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    Mr. FAZIO. The Salton Sea is not very far from the Imperial Valley, is it?

    Secretary BABBITT. The Salton Sea borders the Imperial Valley, and we will have an interesting set of consultation issues under the Endangered Species Act there as these transfers go forward, I mean unavoidably. But I am confident it can be worked out.

    Mr. FAZIO. So we are talking about bringing water in on the one hand, and on the other hand, we are talking about exporting water to M&I users either through the MET in Los Angeles or over to San Diego?

    Secretary BABBITT. That is it.

    Mr. FAZIO. That is kind of the typical irony of California, isn't it?

    Secretary BABBITT. It absolutely is.

    Mr. FAZIO. Yes.

    Mr. BABBITT. It absolutely is, although in fact the transfer is really easy to do because the water would never reach the Imperial Valley. It would simply be diverted through the Parker Aqueduct.

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    Mr. FAZIO. Yes. I would like to ask a Colorado question now.

    By the way, Mr. Chairman, we are pleased to have with us Jay Rhodes and Ray Kogovsek, two of our former colleagues today. This has nothing to do with my question, I want to make clear.

    Animas-LaPlata has been before this Committee for years, predating my time here, and I know it will postdate it as well. I am wondering if the Department might give us some sense as to what it might recommend and what it is doing to evaluate the process that the Governor and Lieutenant Governor of Colorado have been engaged in, which is to try to scale back the Animas-LaPlata—the traditional project that we have talked about forever—to something that would either be, as some have termed it, Animas Lite, or something that would reflect the dug-in position of some environmentalists: a simple water rights buy-out plan without any construction. The Committee inevitably has to deal with this, even if you don't ask us to.

    Secretary BABBITT. Sure.

    Mr. FAZIO. This is always fodder for a food fight and we would like to know if the Department would like to participate in it.

    Secretary BABBITT. Well, we are not eager to get into the middle of this, but let me tell you what we have done.

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    Mr. FAZIO. That has been evident over a number of years.

    Secretary BABBITT. About a year and a half ago, I went to Governor Romer because we had had considerable success working with the Governor getting consensus solutions on a whole variety of things. We actually put together a plan for the Platte River, and Governor Romer was in the front of that.

    The final grazing regs were thrashed out with his help in a roundtable in Colorado. With high expectations we said, okay, now having done the impossible in the Platte, let's try Animas-LaPlata.

    Those discussions, as you know, went on for approximately a year searching for a consensus. It didn't happen. I mean, there are limits on what you can do in a consensus process.

    As you described, two alternatives came out of that process. One, settle the Indian water rights by purchase of existing water rights; secondly, the so-called Animas Lite.

    Now, there was language in this Subcommittee's deliberations last year asking the Bureau of Reclamation to study the work product of this Commission. The Commissioner, back in, I believe, November, started that study and said we can do it within 6 months, and I believe he is on track. He can tell you about that, but he is on track to an analysis of Animas Lite and the water purchase alternative, which should be completed within the next couple of months, I think, within the next 60 days.

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    Now, in the meantime, Senator Campbell has introduced a bill which would give us direction from this Congress to proceed with the Animas Lite version. That is where we are.

    Mr. FAZIO. And the Department is doing a study which will be terminated at what point?

    Secretary BABBITT. The Bureau's study of these——

    Mr. FAZIO. The Bureau's study.

    Secretary BABBITT [continuing]. Options should be available—it has to be cleared by OMB, and obviously we don't have control over that. But I believe our study will be sent up to OMB, Eluid, within the next 60 days?

    Mr. MARTINEZ. That is correct. I have reviewed the preliminary draft. The study is looking at some basic questions with respect to both of these proposals—the amount of environmental studies required to advance either proposal, whether either proposal meets the intent of the settlement act, and whether they are feasible.

    I came under some criticism for doing the study of both alternatives, but I realized that there were going to be questions with respect to both alternatives. There are Members of Congress that are supportive of one or the other alternative. And I needed to be prepared to be able to respond to those questions. I believe that report will be completed from the Bureau of Reclamation's perspective in a couple of weeks and will be forwarded for review. I have no control as to how long it will take to go through the review process. But I hope to be prepared to respond to questions at the time that Senator Campbell's bill is debated.
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    Mr. FAZIO. But you wouldn't anticipate making any budget amendment this year? This budget, as you have introduced it, would be, from your standpoint, adequate?

    Mr. MARTINEZ. It is adequate for us to continue the activities that we have got in place. There would be no intent to amend the budget request unless the recently introduced legislation is passed or we receive new direction from Congress.

    Mr. FAZIO. So if Senator Campbell is not successful this year, we should leave the item as is in the bill. Is that your position, simply to guide the ongoing efforts of the Bureau until we do get a resolution?

    Mr. MARTINEZ. I think I would defer to Congress as to what the final language would be but we don't foresee any additional funding unless Congress, were to direct us to initiate construction.

    Mr. FAZIO. Okay. Thank you.

    Mr. MCDADE. The Chair recognizes the gentleman from Alabama.


    Mr. CALLAHAN. I thank you, Mr. Chairman. And I recognize that most of the activity of your agency is directed west of the Mississippi, and that is fine with me. I have long supported that and, thus, when I have problems I always get the support of my friend from California, because my problems are so small compared to his. And I am going to solicit that support, and I am optimistic that I am going to have that support, because the Chairman of the Committee is coming to my district to visit me, and I am going to the gentleman from Michigan's home district to visit him, and I am a next-door neighbor to Visclosky. Chet and I are related by the fact that we were common allies during the Civil War.
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    I have a lot of friends on this committee, and I want to make it simple.


    We have a project. I live on a river in Mobile that has, because of excessive siltation and rainwater runoff, actually been devastated. The city and the state and the county are willing to put up 90 percent of the funds to reclaim that, to make it, once again, a pristine system. However, the Corps has to do it. And, as you know, there are rules and regulations about new starts, especially restrictive when a project is not feasible from an economic point of view. So we need $2 million from the United States of America to match the State, local and county monies to return this body of water to a pristine situation.

    Now, I want to make it simple for you. I think with my allies, and considering the fact that I am supporting all these projects for their districts, the Committee would be responsive to my request. If you will tell me where to put the $2 million request, I will do it, rather than go through this lengthy process of me contacting one of your aides or your aide contacting one of my aides. I want to make it as simple for you as I possibly can.

    Now, where do you want me to put the $2 million request?

    Secretary BABBITT. Mr. Callahan, this may be an historic opportunity for the Bureau of Reclamation to establish a beachhead East of the Mississippi River. So I ask you all to take note.

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    Seriously, I would like to respond, with the leave of the chairman, to you in writing, because if this is, in fact, a restoration-type project, that is the sort of thing that we have been doing in Florida, I think, with great success, and in a variety of other places. Whether or not that money should be appropriated, that is the Committee's decision, and could be profitably expended by the Fish and Wildlife Service or some other agency, I think, depends in large measure on what it is that the restoration is to consist of.

    It may be that if you are looking for a Federal cost share to flow straight through to the agencies, you could appropriate it to me and give it——

    Mr. CALLAHAN. That is what I think would be the simplest thing if we can't get it through the Corps of Engineers because we can't economically justify the project from a commercial point of view.

    Secretary BABBITT. Yes.

    Mr. CALLAHAN. Thus they would have to almost establish it as a new start. But I think that the uniqueness of the State of Alabama putting up 90 percent of the matching monies represents a pilot program that certainly should be investigated as a way to reclaim destroyed estuaries or destroyed rivers such as the Dog River in Mobile.

    Secretary BABBITT. Mr. Callahan, I don't want to get out on a limb with the rest of the Committee here, but you should probably have a look at the precedent created for the Central Utah Project, where the money was——

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    Mr. CALLAHAN. Well, I know that, but I want to tell my staff person or you to tell me where to put it in this bill.

    Secretary BABBITT. Secretary of the Interior.

    Mr. CALLAHAN. Secretary of the Interior? Should I mention specifically what it is for?

    You are not planning on going to South America, are you?

    If you would get with me, prior to the markup of this bill, we could discuss something to give you the discretion to make absolutely certain it is a reclamation project. I realize that there are a lot of more important things like the Jazz Festival in New Orleans, which, incidentally, is on the west side of the Mississippi River. That is all right, too.

    Mr. Secretary, before markup, if you would, please provide me with a suggested route as to where we could put this $2 million.

    Secretary BABBITT. All right.


    Mr. CALLAHAN. Secondly, since we are spending all this money west of the Mississippi, and I totally support that, we do have contractors in Alabama who sometimes supply the needs of some of these water projects. Such as one contractor to the Mni Wiconi pipeline venture, the subject of a letter you received from the entire Alabama delegation. There is an apparent lack of transparency in that contractual arrangement, with the Mni Wiconi people arranging the details of the contract so it could only apply to one piping company. And we think that that should be looked at in great depth by your agency.
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    As you know, we are going through a rescission process now, and I think that you should convey the seriousness of our concerns to the people that are running this project. I am going to be on that Conference Committee and we are going to be looking for all kinds of money to rescind, and we very likely might look at rescinding the third stage of this project if they do not have transparency, which gives an opportunity to all people in America to bid on a pipeline project.

    The United States is going to be responsible for the maintenance of that project, and I think that your agency has the authority to instruct them, number one, to be a little bit more transparent and, number two, to make certain that they are building a system that is not going to require extensive maintenance some time in the future.

    Secretary BABBITT. Mr. Chairman, I have been briefed on this issue and I concur with your suggestions. This project has been delegated out to the Ogalala Sioux under a 638 contract, but I think we retain the responsibility to see that it is done correctly. And it is my understanding that the bid specs include the kind of pipe that you are concerned about, and that we should therefore make certain that those bids are being broadcast and selected on the merits, because your people do qualify.

    Mr. CALLAHAN. Well, just make certain that the Mni Wiconi people understand that, that the project is in jeopardy——

    Secretary BABBITT. Good.

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    Mr. CALLAHAN [continuing]. As a result of that.

    Secretary BABBITT. I hear you clearly.

    Mr. CALLAHAN. Thank you, Mr. Secretary.

    Thank you, Mr. Chairman.

    Mr. MCDADE. The Chair recognizes the gentleman from Indiana.


    Mr. VISCLOSKY. Thank you, Mr. Chairman. I don't think philosophy gets you very far in the United States Congress, but I just enjoy these conversations as someone east of the Mississippi, north of the Mason-Dixon line and with too much water along my lake shore right now. I am just fascinated by these conversations.

    I would, for the record, note that Mr. Pastor and I have had a number of conversations where he has tried to educate me about the value of sunlight and photovoltaic cells, accusing me of not necessarily having a great quantity of sunlight in my district and indicating that he has a lot in his. I have water in mine and apparently many people don't.

    I appreciate the responsibilities that the Bureau does have. And I started my career, Mr. Chairman, on the Interior Committee, and that was an educational experience. Water is something that, as a child and as an adult, I have always just taken for granted. It is something that many times we have had too much of. Obviously, it is of great concern and importance to the people out West.
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    Having said that, I also associate myself with the Chairman's remarks earlier, recognizing that there are responsibilities here. But Mr. Secretary, in your opening statement, the point is made that the history of the Department of Interior has been one of change. So I do think that the Chairman has made a valid point as far as always looking for efficiencies in how government is going to meet these responsibilities.


    The couple of questions that I have regard asset transfers. Over the last few years, there have been efforts in Congress and among water users to initiate title transfers of selected reclamation facilities to local water districts. Assuming that those users are willing to assume title and future responsibility, are there any compelling reasons to retain Federal ownership for those facilities?

    Secretary BABBITT. Congressman, the Bureau has been actively engaged in looking at this issue of title transfer. I believe there are projects that can be transferred, but there are a number of screens, I think, we need to get through. Where there are interstate interests, obviously that is a very different matter and that includes virtually all of the large projects.

    For the smaller projects, I think there are probably three issues that we need to look carefully at. One is whether the people who would operate the project can be relied upon to represent the interests of all the stakeholders, because on any river stream, even intrastate, the operation of a project typically affects downstream and often upstream users, fish and wildlife, municipal users, and seasonal withdrawals.
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    What we found in some of these intrastate cases is that the local irrigation district, the ones seeking title, is one thing. But there will be a lot of other folks showing up saying we oppose that because we are not certain that a single interest can represent the multiplicity of indirect interests. I would include the environmental interests in that.

    Now, lastly, there is the issue of accumulated debt which is still hanging over some of these districts.

    All of that said, we are looking at this on a case-by-case basis. I believe that there are several intrastate transfers that meet those criteria in the pipeline now, and we will continue to look at others. We are not here to justify the status quo.

    Mr. VISCLOSKY. Mr. Secretary, in 1995, the Vice President talked about these types of transfers. You indicate there may be a couple in the pipeline. Does the Department have any specific proposals before Congress at this time?

    Secretary BABBITT. I am not certain that we need congressional approval for all of those transfers. Anybody want to pick that up, Eluid?

    Mr. MARTINEZ. When we have an asset transfer, we need congressional authorization. There are some discussions taking place with some districts out West where the Administration will be in a position to make recommendations on the transfer of some facilities in the near future.

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    The transfers pending before Congress are the highest priority, and we have been trying to work through the issues. Notwithstanding the Bureau's desire to move these initiatives forward, there are a lot of other vested interests that come into play, fish and wildlife, Treasury issues, OMB issues, Forest Service issues and so forth. We continue as the Bureau of Reclamation to try to move these initiatives forward, and I think we are going to be successful.

    Mr. VISCLOSKY. If you could, for the record, provide a list of projects that potentially are in the pipeline, and using the Vice President's Demarcation 95, if that could be the baseline, I would appreciate it very much.

    Secretary BABBITT. Good, good. We will respond.

    Mr. VISCLOSKY. Great. Thank you very much.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Thank you, Mr. Chairman.

    Mr. MCDADE. The gentleman from Michigan, Mr. Knollenberg.


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    Mr. KNOLLENBERG. Mr. Chairman, thank you. Thank you very kindly.

    I am sorry I missed, Mr. Secretary, some of the initial testimony regarding reclamation, but I think you pretty well covered that base.


    I have a topic that relates to a specific problem for those of us from Michigan. I am talking about the entire State. It is the Sleeping Bear Dunes National Lake Shore. It is within the jurisdiction of the Department of Interior and specifically within the National Park Service, as you know. You may not know about the specific national park—perhaps you do—but I would like to give you just a very, very brief history of what happened to over 300 homeowners. Many built their homes up there with their own hands. Some are year round; some are not.

    But in 1970, these 300 or so homeowners were given their eviction notice when the Sleeping Bear Dunes National Lake Shore was created. And in that 28-year time frame, it has been kind of a struggle, maybe a war, between the National Park Service and those homeowners over the terms offered by the National Park Service to the various leaseholders and when they must leave their homes. It varies substantially.

    Now, there are still over 100 homes held by their original owners, who would like to enjoy the possession of their homes for the remainder of their lives. And these leaseholders have been very frustrated because many of the abandoned homes, as those leases come up, are in such a state of disrepair, that they have become havens for folks to just use for their own purposes, for drug use, et cetera. They are an eyesore, in addition. And they have become a hazard to park visitors.
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    As a matter of fact, many of the homes that were removed by the National Park Service were removed in such a manner that suggests almost a callousness, a disregard, by the Park Service.

    I have got a photo that I am going to leave with you—I have others, so it is not the only one—that gives you some indication of the quality of things. Is it upside down? I can't even tell. But these are for you.

    This is a primarily a septic system that you are going to be looking at here. It has fallen into Lake Michigan, and this is where the Park Service failed to return one of the properties to an acceptable state, let alone a natural state.

    What has been very frustrating is that we tried to work with the National Park Service to allow these remaining leaseholders to keep possession of their homes for a fee. They have been willing to pay a fee. These fees would be used to return those abandoned structures to some kind of natural state, and the National Park Service has rejected this proposal out of hand.

    As I say, remember, these leaseholders are the eyes and ears of the lake shore and many of them have been coming there for forty, fifty years, long before the 1970 determination was made.

    There will be a proper time for them to leave, but it doesn't make sense to throw them out when the other abandoned homes continue to remain in their current condition, which is a state of disrepair.
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    Section 327 of the 1998 Interior appropriations bill prohibits the Park Service from evicting leaseholders unless it has sufficient funds to remove the structures from that property within 90 days of the eviction.

    The purpose of this was to ensure that there was not going to be an increase in the number of abandoned structures that currently litter the lake shore. The claim is made, by the way, by the Park Service that they have the money, but they aren't spending it, and I refer back to an item from sometime back about the $580,000 per unit cost of some construction on employee housing I have to say this, Vic, in California's Yosemite National Park.

    I don't know if that is where the money went, but it isn't going for the purpose of bringing those buildings back into a state where at least it looks natural or it is protected in some way.


    I joined with other Members of Congress, particularly Michigan Members, in writing a letter to Director Stanton. I have a copy of that letter as well. I believe that the letter gives Mr. Stanton until the 31st of March, which comes up very quickly, to respond to our concern. So he still has some time. But it is rapidly diminishing. And I would appreciate it if you would impress upon Mr. Stanton the significance of this, and really all we want to do is to assure that the people, the residents who live there, that if there are going to be abandoned homes, they aren't abandoned very long; that there is a 90-day closure on that problem.

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    The crime rate has picked up. And I think the pictures tell a story that I couldn't begin to tell about the condition of things.

    So what we are really trying to do is to get the Park Service to acknowledge that either they have the money or they don't, and then if they don't, I am not suggesting we take it from Yosemite, but I am suggesting that we look into the matter and, with your help, perhaps we can come to a solution. But we would like to work out a compromise that is good for the people up there, for the Department, and for the lake shore, so that we have a scenic beach area. And it is a beautiful area.

    So I am just imploring you, if you will, to look into it, and urge his response by the 31st of March, so that we can help remedy the problem and give our homeowners up there some indication of where they are in the scheme of this thing.

    And I have no questions, but if you have some significant comments you would like to make, I would be happy to hear from you.

    Secretary BABBITT. Congressman, I don't know whether they are significant or not, but I would like to respond. This is obviously a very valid concern that you have. I am not familiar with the details, but I will avow to you that you will receive a response from Mr. Stanton by the end of the month, and it will be a response which will have been reviewed by me personally. If you have any problems with it, I would invite you to call me on April 1st.

    Mr. KNOLLENBERG. I will. Thank you, Mr. Secretary.

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    Secretary BABBITT. Sure.

    Mr. KNOLLENBERG. I appreciate that.

    Mr. MCDADE. It is April 2.

    Mr. KNOLLENBERG. It is April 2. I think we have to do it, but thank you, Mr. Secretary. I would appreciate you looking into that.

    Thank you, Mr. Chairman.

    Mr. MCDADE. I am pleased to recognize at this time the gentleman from Arizona, Mr. Pastor.


    Mr. PASTOR. Thank you, Mr. Chairman.

    Mr. Secretary, Madam Secretary, Commissioner, good morning and welcome.

    First of all, Mr. Chairman, I would like to thank the Commissioner and the personnel of the Bureau of Reclamation for the promptness and attention they have given to many concerns we have had in Arizona. I know that in Yuma County we are dealing with sediment in the Colorado River and with land exchanges, and I know that we continue to work with you in trying to resolve the issue of the Central Arizona Project water settlement distribution. I would like to thank you for the attention that you have given in assisting us to solve those problems.
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    Mr. Secretary, the expectation on the Salton Sea is that the water will be coming from northern California, and the salinity will be removed, I suppose, with the plant in Yuma so we can return it back to the Salton Sea. So maybe we can work it out in a win/win situation.

    Mr. Chairman, most of my questions will be submitted for the record dealing with CAP and the other issues that we have in Arizona, but I would like to ask one question.

    [Mr. Pastor's questions and answers for the record follows:]

    "The Official Committee record contains additional material here."

    Mr. MCDADE. Without objection, they will be received.


    Mr. PASTOR. Thank you, Mr. Chairman. We have a project that is unique in terms of its objective and also unique in terms of a partnership between various parties in a metropolitan area in western Maricopa County. You have the City of Phoenix, you have Glendale, all the cities that are co-partners with the Corps of Engineers, Bureau of Reclamation and EPA. So we are trying to bring together a partnership, and it is very interesting because we are trying to restore a habitat out in the Gila Salt River and we are using reclaimed waste water.

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    Again, how do you deal with the resources that you have—in this case wastewater—so that we can restore the habitat and bring it to a positive use?

    Under the authority provided in 1992, Mr. Commissioner, the Bureau is participating with the City of Phoenix and EPA in the construction of a cost-shared research demonstration project, which thus far is showing that constructed wetland technology is feasible in the arid Southwest. The Bureau has budgeted $400,000 to continue engineering and environmental analysis of the project, an amount that is far below the $1.5 million needed to keep this important project on schedule.

    My question is, Mr. Commissioner: What level of funding is necessary to match the commitment of the project's local sponsor and keep the project on schedule during fiscal year 1999?

    Mr. MARTINEZ. Mr. Chairman, Representative Pastor, our $400,000 budget request was formulated to continue the normal operations of the project. Since we put our budget proposal together, I am advised that three issues have arisen that warrant the expenditure of an additional $1.1 million by the Federal Government. We have some problems dealing with the details of mosquito habitat, muskrat infestation and reconfiguration of the site. Since our budget formulation, these issues have come up, and if we are going to move that project forward, we would probably need some additional resources.

    Mr. PASTOR. Thank you, Mr. Commissioner.

    Thank you, Mr. Secretary, Madam Secretary.
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    Mr. Chairman, those are my questions. Thank you.

    Mr. MCDADE. We thank the gentleman from Arizona. We appreciate his questioning.

    That concludes the formal part of the hearing. We have a series of questions we will present you for detailed answers for the record. We thank you all for your attendance. We enjoyed the opportunity to hear your testimony.

    Secretary BABBITT. Mr. Chairman, thank you.

    Mr. MCDADE. We thank you again, Mr. Secretary. The committee stands in recess until 10:00 tomorrow morning.

    [The questions and answers follows:]

    "The Official Committee record contains additional material here."

Thursday, March 26, 1998.



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Mr. McDade's Opening Remarks

    Mr. MCDADE. The committee will come to order.

    We are pleased this morning to have in front of us the Appalachian Regional Commission, and we are doubly pleased to have our colleague, Alan Mollohan from West Virginia, who does such a superb job here in Washington. I understand you brought somebody that you would like to present to the Committee, and the gentleman from West Virginia is recognized for such time as he deems necessary.

Mr. Mollohan's Opening Remarks

    Mr. MOLLOHAN. Thank you, Mr. Chairman. I appreciate the compliment, but it is doubly high praise coming from you, who are so distinguished.

    Mr. Chairman, Mr. Fazio, Mr. Edwards, good morning. Thank you for the opportunity to appear here today with West Virginia's distinguished Governor, Cecil Underwood. It is good to be here.

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    As I hope all of you know, we have a very high regard for this subcommittee. As I know the Chairman and the Ranking Member know, I have a very high regard for this subcommittee. And we respect the work each of you does in finding and funding creative strategies to meet our Nation's energy and water development needs. Without exception, you have been responsive to the needs of our State, especially in regards to helping us enhance the quality and usefulness of our water resources. Your concern for, and confidence in, our future is greatly appreciated by me and I know by our special guest, Governor Underwood.

    Again, my thanks for your past support, and I look forward to working with this subcommittee and each of you throughout the year's appropriations cycle.

    Mr. Chairman, Mr. Fazio, my purpose in being here today is not connected with any individual project, but it is connected to an organization that has played an absolutely vital role in the development of the Appalachian region and is crucial to its future progress.

    I would like to pause to acknowledge the arrival of my chairman, Mr. Rogers, who is very supportive of the Appalachian Regional Commission, as is the chairman of this subcommittee.

    That organization, of course, is the Appalachian Regional Commission, and this morning I have the honor and pleasure of introducing to you one of the ARC's leading supporters, the Governor of West Virginia, the Honorable Cecil Underwood. As you are about to learn, Governor Underwood's support for the ARC is based upon his long involvement in economic development in West Virginia from public and private sector perspectives.

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    I know you will be favorably impressed by his analysis of how the Commission has improved the economy and quality of life of West Virginia and its companion ARC States. And I think you will be further impressed by how he has used the ARC program to promote partnerships among different levels of government, as well as in the private and nonprofit sectors.

    Appalachian States have made historic advances, thanks to the Commission's role in infusing new technologies, establishing basic services, building transportation corridors and offering skills training. Clearly, this is a Federal-State partnership that works, and I appreciate very much how Governor Underwood has worked it as a partnership at the State level.

    When it comes to getting ARC funding priorities, he has cast a wide net, seeking a broad range of input and soliciting the views of constituencies across the State, and in the end making sound judgments based on the needs and the opportunities at hand. That inclusive approach to ARC funding by the governor serves West Virginia well, it serves the region well, and ultimately it serves the country well.

    I believe this subcommittee will appreciate the observations of Governor Underwood, a man who has devoted many years of his life and service to the people of West Virginia as a State legislator and then as a minority leader in the forties and fifties; as the youngest governor in the State's history when he was first elected in 1956; as a high school and college teacher; as president of Bethany College; as president of the Software Valley Foundation, a very important movement in our State; and in a host of private sector and educational capacities, Mr. Chairman.

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    Mr. Chairman, Mr. Fazio, members of the committee, I am pleased to introduce to you a strong and knowledgeable advocate of the Appalachian Regional Commission, West Virginia Governor Cecil Underwood.

    Mr. MCDADE. Alan, we thank you very much for taking the time. It means a great deal to us that you would come over to introduce the governor. We appreciate very much your putting your seal of approval on the program and what the governor is doing.

    We know you are a bipartisan group here and we are delighted, Governor, to have you here this morning. We are honored by your presence. The degree of public service you have rendered is awesome and we all appreciate it. Governor, you may proceed as you wish.

    Mr. MOLLOHAN. I am going to leave this in very capable hands, Mr. Chairman.

    Mr. MCDADE. Thank you for being here.


    Governor UNDERWOOD. Thank you, Mr. Chairman, members of the Committee. I am very honored to be here today, and I am certainly honored to be presented so eloquently by Congressman Mollohan. He and I and his father before him have been long-time friends and have worked together on many, many projects. I am particularly impressed with his knowledge of economic development and in the field of technology.

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    He mentioned Software Valley. Senator Byrd and I and a dozen other people created Software Valley in 1985, in an effort to develop high technology in West Virginia, and Congressman Mollohan has taken some of the activities we started and has developed a very significant high tech consortium in his district, and it is one of our fastest growing activities in the State.

    I have an interesting history with the Commission. In a very hot, steamy August afternoon in 1959, three Governors met in a hotel in Annapolis, Maryland. Governor Tawes had been elected Governor of Maryland in 1958, Bert Combs was in his last year as Governor of Kentucky, and I was midway through my first term. The advantage I have of being around so long from a political standpoint, the political opponents I couldn't defeat, I have outlived.

    Governor Tawes said, ''I committed myself to helping the high unemployment in the three mining counties of western Maryland during the campaign, and I want the two of you, who have the same problems, to see what we can come up with in the way of a creative approach to the high unemployment in the coal fields of Appalachia.'' This giant stride of full mechanization took place in the middle of my term, and in a little over a year, 25 percent of the work force of our entire State was displaced. That is not an easy thing to deal with when one is governor because the governor is the focal point.

    And so we came up with the idea of a regional compact, and it didn't come into fruition until a few years later, when President Johnson proposed the creation of the Appalachian Regional Commission. But during the last two years of my term we had a number of meetings, working with the Appalachian governors, trying to come up with some sort of a cooperative arrangement. That is where it was born, and so I have followed it with great interest through all of the years since that time.
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    I am here today on behalf of Governor Pataki of New York, who is the co-chair of the Commission this year. He was unable to come, and I am delighted to participate in this hearing. And I certainly appreciate the capable work of our Federal co-chairman, Dr. Jesse White, who is here with me today and will be testifying more in detail as soon as I complete my presentation.

    All of the governors support President Clinton's fiscal year '99 budget in which he proposes $67 million for the Appalachian Regional Commission, and the support is unanimous from the nine Republican and four Democratic governors because we recognize the importance of this program for our people.

    Since ARC's inception, the employment across the region has increased by 48 percent, and this is a significant development. My own State last year was number one in the Nation in the creation of new jobs in relation to our size. We had announced last year the creation of 9,613 new jobs, and that is an all-time record for our State. And we have set a goal of a thousand jobs a month for '98. I am happy to tell you that, with a few days left to go in March, we are at 2,800 jobs since the beginning of the new year.

    These are very diversified geographically, they are diversified economically, they are not clustered, as we used to be in the coal industry. Half of the jobs last year were expansion of existing businesses and industries already in the State. I give the ARC a major credit for this kind of development because, with the investments in the infrastructure and particularly in the highways, we have made our State, as the rest of the region, very accessible. Since 1988 in the region, we have had over 1 million new jobs. The goal of the governors is to get the unemployment rate across Appalachia below the national level, if that is possible.
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    I mentioned retention and expansion as being as important to us as finding new jobs and new industries, to bring to the State. For that reason, the ARC leadership has placed major emphasis on training and education programs. We are linked heavily to technology because technology provides us the roadbed for the information superhighway, just as the Appalachian corridors provide us with the roadbeds for the earthly highways. The technology gives us an electronic proximity that pulls us together as we never have been before.

    The mountainous terrain of Appalachia historically has kept us very isolated with a lot of provincialism. I see that fading in the 40 years between my terms. It is just a 180 degree difference. We can now think as a State, whereas before we thought of very small regions. Even with as much progress as we have made, we still have too many pockets of illiteracy, too many pockets of high school dropouts, too many pockets of poverty, and for that reason the governors have allocated consistently, 30 percent of the total allocation to the States, to address the most distressed areas.

    When I go back home tonight, I am going to McDowell County in our State for the annual Chamber of Commerce dinner, and that is probably the most depressed county in the State. It has lost 30 percent of its population in 40 years. There is high unemployment, and I am going to spend a couple of days there in the next few weeks trying to see how we can find things to initiate new activity.

    Just two days ago I was very happy to participate in a very important announcement of a new water system for an entire county like McDowell County, which was one of the coal counties. This will be the 155th infrastructure project for which we have used ARC for seed money. ARC has spent $36.4 million in infrastructure during the last—well, during its existence. The Boone County project requested $1 million of ARC funds, to be used as seed money. Although the commitment for it hasn't been approved yet, we were able to develop a $28 million project serving an entire county, much of which did not have a water system. The systems that were in place in public service districts were inadequate and in need of replacement and they had no hope of replacing them.
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    But by using $1 million of ARC money, some abandoned mines funds that were available, some small city block grants, and we used a mitigation fund in the State, and although this is not a flood-prone area, we used some flood money the governor has available, and the West Virginia American Water Company stepped up and committed itself to $16 million for this project. So we have under construction now a $28 million project that will serve 82 percent of the entire county and will serve over 21,000 residents, and many of them did not have water before. When completed, it will be 71 miles of water pipe.

    It has another important promise for the future. Going through that county is Appalachian Corridor D, going south from Charleston to the Kentucky border and crossing at Williamson in the direction of Pikeville. As the highway was completed mile by mile, growth and development flourished along its way, but that kind of growth and development can't flourish unless the infrastructure is there.

    So with the addition of this county, we are moving south with infrastructure, with water service that will make it possible for a very underdeveloped area to grow over the next several years. We hope eventually to take the water system all the way to Williamson, using the right-of-way of the Appalachian corridor as the route for the development.

    We know and we appreciate the fact that the President and the Congress are moving now with making the corridors a priority for completion in the new ISTEA reauthorization, and all the governors are very pleased with this development. In the Appalachian regional budget this year we have not asked for highway funds because they have become a priority on their own.

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    Traditionally our policy has made it possible for us to take a small percentage of the highway funds to develop individual projects to meet specific local needs, such as access to an industrial development site or access to hospitals, health care sites, something of that kind locally. We hope that we will be able to continue that flexibility even with the new funding approach.

    I think that ARC is a model partnership. The Federal Government provides substantial financial assistance but the States, through their governors, work as partners, and it takes unanimous approval both at the State level and the Federal level for a project to become a reality. So for that reason I think it is an ideal kind of working relationship between the Federal Government and the State. I think it is good government, it is good philosophy, and it doesn't build up a huge bureaucracy. The administration of the funds is a very small percentage of the amount actually budgeted; most of the money is invested in growth.

    The governors had been somewhat concerned about the President's proposal to create the Delta Regional Commission as an expansion or a part of ARC, and we were concerned about this move that might diffuse the efforts and weaken our structure, and the governors wrote to President Clinton. He has responded and has asked Dr. White to work on a new proposal, using the ARC as the model, but creating a separate commission. We certainly couldn't be opposed to that because we have been so successful in our own right, and it is my understanding it will have a different funding route and will not be in competition before your Subcommittee for ARC funds.

    With that, I certainly express my appreciation to you for providing the time. I am honored to share in your meeting this morning, and to appear here with Dr. White.

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    [The prepared statement of Governor Underwood follows:]

    "The Official Committee record contains additional material here."


    Mr. MCDADE. Governor, we thank you for a truly eloquent and illuminating statement about the history of ARC in your area. I was very impressed. I never knew the origins of the concept of the Commission, and to hear about you and your colleagues meeting over at Annapolis—what was the year, again?

    Governor UNDERWOOD. 1959, and I give great credit to Governor Bert Combs. He had four years of experience in going through the same problems I had, but he really did a super job. He also was the architect of the Appalachian Regional Hospital chain. United Mine Workers, under John L. Lewis's leadership, created 10 hospitals in three States to serve the miners of Appalachia. But then when the Depression in the coal fields hit, they had to jettison the hospitals or else they were going to break the union.

    Governor Combs created a nonprofit corporation and gave strong leadership to it during those years, and I have been on that board for 20-some years, and we have gone from a struggling, almost bankrupt organization now to one of the strong models of health care in rural America and a much more stable financial structure. It was Governor Combs who, using essentially the same approach, developed the Appalachian Commission.

    Mr. MCDADE. Governor, I think we are all at this table in this room because we want to make it a better country and a better world, and certainly you and your colleagues have done that.
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    Mr. ROGERS. Would the chairman yield briefly?

    Mr. MCDADE. I am delighted to yield to my friend from Kentucky.

    Mr. ROGERS. I do not want to take time from the others here, but I did want to quickly sketch what you said about Governor Combs. He was the first Kentucky governor in many, many years from the eastern mountain part of the State where I am from, and he had during his term started in the eastern part of the State essentially what ARC now is doing there. And out of that, I think, grew his motivation to join with you and others in trying to do an Appalachian-wide copy of what he had been trying to do in that small part of Appalachia.

    Anyway, I wanted to add my thanks to you for all the work you have done in founding this organization and working so assiduously over the years, both as governor and when you were out of the office, to make the ARC the success that it certainly is.

    Mr. MCDADE. Thank you. We are pleased now to recognize the Federal Co-Chairman of the Commission, Dr. White. Dr. White, you are most welcome. As you know, we encourage you to file your official statement with the Committee for the record and to proceed extemporaneously as you wish. You may proceed in your own way.

Dr. White's Opening Remarks

    Dr. WHITE. Thank you very much, Mr. Chairman and members of the Committee. It is always a pleasure to appear before you. You are our great friends and we appreciate everything you have done for us. We want to say a particular word of thanks to you, Mr. Chairman, for your 36 years of service in the Congress and how much we are going to miss you.
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    Mr. MCDADE. Thank you.

    Dr. WHITE. I feel like I am in the presence of the living history of the ARC. I think we are going to need to get the governor to come give a history lesson to the staff up there. I am sitting here learning myself. It is a great honor to be with Cecil Underwood. He has been a living witness in his own State from pre-ARC West Virginia and what has happened in West Virginia for 30 years, and I can't imagine any testimony more eloquent than that he has just given.

    I would also like to introduce to the Committee someone most of you know, Tom Hunter, sitting to my right, who is the executive director of the commission. As you all know, we are a Federal-State partnership, and that is actually reflected in the administrative structure of the commission, in that Tom and his staff, some 50 strong, are actually funded half with Federal dollars and half with State dollars. So Tom is working for me and 13 governors, which may explain his advancing gray hair on some occasions.

    I will just very briefly go over the contours of the budget, Mr. Chairman, if I may, as set forth in detail in the budget and in my statement. As Governor Underwood mentioned, we are requesting $67 million from this Committee this year for our nonhighway work, which includes our area development, support for local development districts, research and technical assistance, and administrative expenses both for the Federal office and half of the expenses of the Commission staff.

    For the first time, the administration is not requesting money from this Committee for our highway system but is instead, as a part of the proposal in the so-called NEXTEA legislation, requesting that our highways be funded out of the Highway Trust Fund. The President's proposal is for $2.19 billion over the life of NEXTEA. As you know, the Senate has already acted and come up with the same number, and Wednesday the House Transportation and Infrastructure Committee marked up its bill and earmarked $2.25 billion for the Appalachian Development Highway System.
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    So there seems to be a strong consensus, both from the executive branch and both houses of Congress so far, to shift our funding into the Highway Trust Fund, which would be a more stable and predictable and larger source of funding. As you know, our system is about 79 percent complete, either open to traffic or under construction, and the interstate system is about 99 percent complete. So we are still lagging behind, and we very much welcome this new effort to advance completion of the system.

    Highways, of course, have always been at the core of the ARC's approach to economic development. Governor Underwood mentioned the isolation of the region. Our 3,025-mile highway system has been designed to open up the mountains and open up the region to the rest of the American economy by connecting our communities to the interstate grid, because the interstates had by and large bypassed many of our communities.

    The economic impact of our corridor system is undeniable. Every study we have done has shown strong job growth. In fact, Rodney Slater and I drove Corridor G from Charleston to Williamson a couple years ago, and it was truly amazing to see the economic development that had occurred. It was also amazing when the road played out and we got back on the winding mountain road, how difficult it was to finally get on to Williamson.

    Probably the most objective study of the impact of our highway system so far was the National Science Foundation study in 1993, which examined 27 years of impact and compared the 110 counties in ARC which had a corridor with those that did not, and found that income grew 69 percent faster, earnings 49 percent faster, and population 6 percent faster than those counties that did not have a corridor.
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    We have just launched and are about, I guess, halfway through a major new study of 12 of our corridors that are at least 75 percent complete, to examine the economic impact along those corridors. Of interest to this Committee today would be, we are going to look at economic growth in Kentucky along corridors B, F, I and J and in West Virginia, Governor, D, E, L and Q, and in Pennsylvania, Mr. Chairman, P and T. We will be sharing the results of that study with the Committee as soon as it is available.

    Last year we did for the first time, I guess, in five or 6 years, I guess '92 was the last formal cost-to-complete, we did a formal cost-to-complete study of the system and found that the remaining miles of our system would cost about $8.5 billion, the Federal share of that, $6.8 billion. There is about $600 million already in the States, so the remaining Federal share would be about $6.2 billion to complete our system. So as you can see, under the NEXTEA proposal, we end up with about $2.2 billion. We can complete another third of our system.

    Unfortunately, we are at the point now where because of inflation, and the terrain we are going through, the remaining miles are some of the most expensive to build, and in fact the average cost per mile for the remaining 21 percent is about $11 million a mile. So even though the funding request now is through the Highway Trust Fund, I want to keep this Committee fully informed, as I know you are interested in our highway system and how it is proceeding and what the results are.

    The area development, the nonhighway work, as the governor so eloquently pointed out, is the necessary handmaiden of the highways, because if you don't work on the other elements of economic development, it may not occur. We work in of course a broad range of community and economic development activities, and we are requesting $67 million to continue that work.
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    Just a few key points in that request. We plan to continue setting aside 30 percent of that money, off the top, to work in our 97 distressed counties. As I have said before, this is an impressive act that the commission takes every year, because four of our States have no distressed counties, and they actually stand aside and give up some money to work in our neediest counties, and there has never been a negative vote on the Commission to make that special allocation.

    I think even more impressive is when you run the numbers, we actually spend about 36 percent of our money in the distressed counties, because States actually pony up extra money in the States that have distressed counties, so the Commission makes a determined effort to target our resources almost 40 percent, in fact, to one-fourth of the counties where the need is the greatest.

    We are continuing to work on the five goals in our strategic plan. Those are: a trained and educated work force; an adequate physical infrastructure; leadership and civic capacity; dynamic entrepreneurial economies at the local level; and health care. We are making substantial progress, we think, in those five areas.

    I wanted to share with the Committee an inspector general report which came out last year which was reassuring to us. Our inspector general was interested in looking at our industrial parks, because every time a project comes along, there is a projected number of jobs that is going to come in that industrial park. We were curious to see if it lived up to the billing, you know, if they were inflating or if we were actually getting those numbers of jobs.

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    Our inspector general looked at 105 projects from 1987 to 1993, and actually found there were twice as many jobs created as were projected in the project applications. And in 65 percent of the projects there was a substantially larger number of jobs created, and I think in only about 10 percent of the projects did they fall short, so we were real encouraged by that.

    Mr. MCDADE. You may be the only entity in government that has gotten a good report from an IG, so we congratulate you.

    Dr. WHITE. We were reassured Mr. Chairman, thank you.

    We have also finished three years' work on our regional initiatives in the area of export trade, leadership development and telecommunications. We feel like those regional initiatives have left footprints in the sand of Appalachia. We have gotten some exciting programming going in the areas and we are seeing some real results. We have this year launched, as you know, a three-year initiative in entrepreneurship, which is something I am particularly committed to—the idea of moving our communities to a more entrepreneurial model of economic development, not always looking to the outside for investment or the outside for jobs, but trying to create the infrastructure for small business creation and growth in our communities.

    We spent a year developing this initiative. Again, the vote was unanimous between the 13 States and me, and we are identifying what we call the five pillars of an entrepreneurial economy to work on. Those are the access to financial capital, particularly risk and venture capital; technical assistance for small business start-ups and expansion; a technology transfer—that is, capturing innovation that may be occurring in our colleges and labs in our communities and commercializing that innovation for small business creation; getting more entrepreneurial education in our public schools; and, finally, creating networks of the services for entrepreneurs so it is easier for entrepreneurs to access the services available. We will keep the Committee informed of this initiative. As I say, we are in the first year of it right now.
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    I would like to say a special word about the role of our 69 local development districts, which are really the kind of third leg on our intergovernmental stool. They are storm troopers on the ground level, often the ones that develop the projects, and our LDDs are essential to our work. They have an association that has grown since I have been here. They do a lot of training. They help implement our strategic plan. They will be instrumental in us trying to conform with the GPRA requirements as they gather data about our outcome measures. We have recommended a slight increase of support to the LDDs this year, and I think they are certainly entitled to that.

    A word about the Delta Regional Commission that the Governor mentioned. As you know, the President originally, or in the budget, requested $26 million to create a mirror image commission to the ARC to serve the lower river Mississippi Delta. This region is 219 counties that were identified in 1988 by the Congress when it set up the Lower Mississippi Delta Study Commission that was chaired by then-Governor Bill Clinton. The idea was to create in parts of those 7 States, 219 counties and parishes, a regional commission that would operate like the ARC, this kind of intensive care model to get this region up and running.

    This is a region that, except for the terrain, in 1998 looks a lot like Appalachia looked in 1965. Whereas a quarter of our counties are distressed, half of those Delta counties are distressed. Black poverty in the Delta is 10 percentage points higher than the inner cities, some 44 percent, and I could go on and on and on. The Administration felt that our intensive care model that worked well in Appalachia could work well in the Delta.

    The governors expressed to the President concern about the two commissions being linked. We have tried to address those concerns in a proposal that in essence would allow the ARC for 12 to 18 months to sort of incubate the Delta Regional Commission, since we have the experience in that sort of work, to get it up and running, and then it would spin off and become a self-standing commission, unconnected to the ARC, with its own Federal Co-Chairman, its own set of governors.
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    In addition, the President plans to submit an amendment to his budget that would shift funding for the Delta Regional Commission from this Subcommittee to the Agriculture Subcommittee, because the distress, really one of the reasons for the distress in the Delta is a legacy of agricultural mechanization and so forth. That would also relieve some concerns about competition in the same subcommittee for funding from these two commissions. So in essence, we would be proposing, Mr. Chairman, to sort of remove the issue from your subcommittee with the formal amendment to the budget.

    Let me just end by citing for the Committee some of the accomplishments of the ARC in 1997, of which we are very proud. Projects in which ARC money was a key component gave water and sewer systems to some 26,000 households. It provided infrastructure to industrial parks that created or retained some 32,000 jobs. It provided funding to business development programs that created another 6,600 jobs.

    About 5,000 people participated in ARC-funded leadership programs. Some 74,000 students and trainees were involved in ARC-funded education and skills programs, and 39 new miles of our Appalachian Development Highway System were opened to traffic. So we are very proud of our accomplishments and we are pleased for this Committee's support.

    Again, I am honored to be here with my State partner, Governor Underwood, and I would be pleased to answer any questions you might have.

    [The prepared statement of Dr. White and the ARC budget justification materials follow:]
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    "The Official Committee record contains additional material here."


    Mr. MCDADE. Doctor, we thank you for a very fine statement. Let me say that we are glad to hear that the Delta Regional Commission is going to be a separate commission rather than linked to the ARC. We think using your expertise to get it up and running is a good idea. It would be efficient for the taxpayers and efficient for achieving the objective.


    You are beginning to talk about reauthorization. You have a bill submitted, don't you, from the Administration, to reauthorize the Commission?

    Dr. WHITE. Yes, sir. That is now in the authorizing committee.

    Mr. MCDADE. It is filed in the committee?

    Dr. WHITE. Yes, sir, that is correct.

    Mr. MCDADE. Are there any substantial changes in the model or is it pretty much a continuation of what you are doing?

    Dr. WHITE. Pretty much a continuation of the way we operated in the past. I don't think any substantial changes over our current legislation are in that bill, except that we have put language in that bill that reinforces the targeting of our resources to distressed counties and away from the attainment counties.
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    Mr. MCDADE. I am led to believe it is contemplated to be a 5-year authorization. Is that about the term of it?

    Dr. WHITE. That is correct, yes, sir.

    Mr. MCDADE. Would both of you like to comment on that? Is that a useful way to go at it, or do you have a different opinion? Should it be longer, shorter, or is five years enough?

    Dr. WHITE. I think we would be delighted to have 5 years. We of course have not been reauthorized since 1982, and 5 years would give us a chance to take a little longer perspective, and we would be very pleased with that.


    Mr. MCDADE. Well, you know, I have an old saying that nothing succeeds like success, and when I look at the record of the Commission, it is impressive. You have cut poverty substantially and infant mortality by about two-thirds. Outmigration has stopped. As you mentioned, Governor, some people say that is a reason to stop the Commission, not to congratulate the Commission and keep its work going. Would you comment on that for me, Governor?

    Governor UNDERWOOD. I think the longer reauthorization period, it is important to the States because it gives us stability and makes it possible to do longer range planning. I tend now, based on my experience in the private sector, to put a great deal more emphasis on strategic planning, and we want to get so far this year, and if we know that this source of finance will be there, then we can develop our State resources and attract private—I am a very strong advocate of bringing the private sector and private dollars in to go with these government dollars and we are being very successful in that approach. So if we have that assurance, it makes it possible to think in the future, much more than the normal political environment.
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    Mr. MCDADE. Thank you, Governor. Doctor, you mentioned the targeted counties. How many of them are there?

    Dr. WHITE. Ninety-seven.

    Mr. MCDADE. Do you have any idea what the unemployment rate would be in those counties?

    Dr. WHITE. We can get that for you.

    Mr. MCDADE. Supply that information about the status of the counties to the Committee. We were very interested and happy to hear the Commission unanimously decided how to deal with that problem.

    Dr. WHITE. I will say this, Mr. Chairman: to be designated as a distressed county, the unemployment has to be at least 150 percent of the national average, so it is that or worse.

    Mr. MCDADE. I thought we ought to have an explanation of that on the record.

    Dr. WHITE. We will be glad to give you a profile of those.
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    [The information follows:]

    Dr. WHITE. An ARC distressed county is defined as a county with a three-year average unemployment rate of 150% of the U.S. rate or higher; a per capita market income that is 67% of the U.S. or lower; and a poverty rate that is 150% of the U.S. rate of higher. A county with twice the U.S. poverty rate can qualify as distressed if either per capita market income or unemployment is measured at the distressed level.

    In Appalachia 97 counties were categorized as distressed in FY97 out of a total of 399 counties. The U.S. unemployment rate for 1993–1995 was 6.2% and the Appalachian distressed county unemployment rate was 9.3% or higher. The unemployment rate in Calhoun County, West Virginia was 21.6% and the rate in Dickerson County, Virginia, was 17.8%.

    The poverty rate for the U.S. was 13.1% in 1990 compared to a rate of 19.7% or higher for distressed counties in Appalachia. The poverty rate for Owsley County, Kentucky, was 52.1% and 41 counties in Appalachia had a poverty rate higher than 30%.

    In 1994 the U.S. per capita market income was $18,021 while the per capita market income for distressed counties in Appalachia was $12,074. McCreary and Owsley Counties in Kentucky had less than $6,000 per capita market income.

    Mr. MCDADE. I am delighted to recognize my friend from California.

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Opening Remarks of Mr. Fazio

    Mr. FAZIO. Thank you, Mr. Chairman. I would like to welcome you, Governor Underwood and Dr. White. Governor Underwood, you are one of those figures in American history that I think we all have come to admire. To have a 40-year hiatus in your service as Governor in West Virginia and be as popular as you are today says a lot about the kind of human being you are.

    Governor UNDERWOOD. Thank you.

    Mr. FAZIO. We are happy to have you represent the governors here today.

    I have probably paid insufficient attention to Appalachia throughout my life, but as a member of this Committee for 19 years, I have had your budget come before us, and have supported the Commission on the floor, under whatever attack may have been forthcoming from one particular point of view or region or another.

    But it is a little difficult for me at times to go home to my constituents and focus on the fact that we have got counties in my part of northern California with 15 to 20 percent unemployment which don't get the kind of attention from the State—let alone the Federal Government—that we provide to the distressed counties in your region. So I am kind of glad it has never come up, because somebody might accuse me of not looking out for my own people.

    But this Committee has always tried, I think, to take a national view and not to take advantage of each other. You know, we had a debate yesterday about the Bureau of Reclamation and whether or not it had a future, and certainly in the western part of the country we hope it does; and, you know, we have taken a few shots at the TVA here in the past; and again, we have certainly had some interesting debate among ourselves on the various power marketing administrations.
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    So there are a lot of regional issues that come before this subcommittee, and I might say parenthetically, I am not greatly relieved you are going over to the Ag Committee for the Delta Commission, since I sit on that subcommittee, and I think their problems are just as great as ours in finding the funds to do what we need to do. But I have a funny feeling with Senator Bumpers and Senator Cochran, you might not do too badly over there, and that might have been a good strategic decision if it hadn't been for the decline of agriculture in that region.

    But I think the point is that we all have to take a hard look at these programs and try to make the best we can of the money we have. I must say I am very pleased the highway bill will take care of your highway needs in the future, but I think what you have left in the budget for economic development is very important, and frankly there isn't a lot of EDA money for the whole country. I don't know how much your States get in addition to what you get for ARC, and that might be good if you could provide it for the record, but it isn't a lot for anybody, I realize.

    [The information follows:]

    Dr. WHITE. The Economic Development Administration spent $43,670,432 in Appalachia during FY 1996, according to the Consolidated Federal Funds Report for FY 1996 (the most current data available for county-by-county analysis). This total includes Economic Development Grants for Public Works and Development Facilities ($25,730,665), Support for Planning Organizations ($2,539,877), Technical Assistance ($1,176,200), Public Works Impact Projects ($116,000), State and Local Economic Development Planning ($269,000) and Special Economic Development and Adjustment Assistance ($13,838,690).
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    And I guess I would be one who has always in the past, Dr. White, wanted to emphasize the counties that have the highest level of distress. I just can't frankly emphasize enough the need to constantly force more of your funding into the places where the obvious need is the greatest, and I hope the Delta Commission would do the same.

    As you have indicated, there are a number of States that don't really have any distressed counties. I have a hard time providing the governors of those States with grant money to go out and spend as they wish, when I realize those other counties continue to get less as a result of that. Could you tell us how much the governors get to independently allocate? What was the amount that the governors were able to allocate on their own?

    Dr. WHITE. The allocation table is right in front of me. In the area of development, the total was about $60 million. Of that, about $35 million was allocated among the States with basically no strings attached.

    Mr. FAZIO. And the governors essentially get to decide where that money goes?

    Dr. WHITE. Right. And then the distressed allocation was almost $14 million, and that could only be spent in the 97 counties. Then we had regional initiative money and so forth. So really, even within the distressed counties, the governors still have a lot to say about how the money is spent. The gubernatorial prerogative is strong, as you know, in our model.
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    I would like to say also, Mr. Fazio, if I could, I told the Chairman how much we are going to miss him, and how much we are going to miss you too, because you have been a faithful supporter of ours and we appreciate it.

    Mr. FAZIO. Thank you. I guess I am concerned—and I won't bring up the Carolina Panthers stadium this year.

    Dr. WHITE. Thank you.

    Mr. FAZIO. But I am concerned we have States that don't have any distressed counties and yet the governors get to make allocations that obviously don't target the areas of greatest poverty. As the authorization moves forward, and maybe even as this committee tries to decide what it can afford, I would really like to focus increasingly on those areas that have the highest rates of poverty.

    I realize that we need to think regionally. We can't just attack a given county. It does have roads in and out of it; it does have adjoining counties that may have greater economic development potential and that might employ people who live in it. I don't want to be a purist, but I think we have to continue to drive the dollars to places where we truly have the kind of poverty in Appalachia that we did 40 years ago when America woke up to it, for example, in your State, Governor, during the Kennedy-Humphrey primary, and in the ensuing 5 or 6 years, when the Great Society programs were put together and this program certainly took off and grew.

    So, you know, I think we do have to kind of remind the Commission of the tightening budget this Committee faces, and the degree to which we all hope our dollars will be spent in places where they will do perhaps the most good to remove a problem 50 years later that we know was hundreds of years in the making.
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    Dr. WHITE. Could I make one comment on that? We have got our distressed counties at one end of the spectrum. I think it is important to say that at the other end of the spectrum we also have criteria for what we call attainment counties, and they are not eligible for any ARC money, except for highways and the local development district, the administration money. I think we have 11 attainment counties. And then we have what we call competitive counties, which are near national averages, that is another 25, and they are eligible only for limited ARC money.

    So we do try to, within our model, be responsive to targeting. Our definition of distress is 150 percent or more of poverty, 150 percent or more of unemployment, and only two-thirds per capita income, so even the counties that are not distressed, a lot of them are pretty close, I mean——

    Mr. FAZIO. And they go back and forth, because we have a couple more counties this year that are distressed than we had when you came before us last year.

    Dr. WHITE. Two more, yes, sir.

    Mr. FAZIO. I think it went from 94 to 97, and that is in the roaring economy where, as you know, the country at large is doing extremely well. What has caused that?

    Mr. HUNTER. One issue I think is important is many of the counties have small populations, so one plant closing for whatever the reason will push it right over the edge. And we do have quite a number of counties right on the cusp of our stick. So it is important, I think, to bear down on those counties to keep them from backsliding if we can.
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    Mr. FAZIO. I know the Committee will want to be supportive, and I think the key here is the degree to which we can make sure these dollars go to the people in the greatest need and that the governors—particularly in the States that don't have any of these counties and even those that do—have perhaps less discretion to spend it in places that might be more politically popular, and might even be more beneficial, shall we say, to the majority, but which don't really in the long run help the people the program is really targeted for. Thank you.

    Mr. MCDADE. The gentleman from Kentucky is recognized.

Opening Remarks of Mr. Rogers

    Mr. ROGERS. Thank you, Mr. Chairman. And let me recognize at the outset, and I will be brief, the dedication that Chairman McDade has given to the ARC, not just since he has been Chairman of this subcommittee but for the many years he served in the Congress. All the way through his career he has been one of the biggest boosters of this outfit that we have had, and we are going to sorely miss his leadership of this subcommittee but also his general goodness in helping this program, among a lot of other things. So there is a big hole that is going to be left on the horizon for us, and I don't know how we are going to find ways to fill that gap.

    Then Vic Fazio also is leaving us, and he has been very understanding and supportive of this distressed region of the country, and I know being from California that is difficult to imagine, but he has been very, very helpful.

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    Mr. FAZIO. We have got to hang together.

    Mr. ROGERS. We have got to hang together, or separately. But we are going to miss Vic, too. He has been a real big help to this program, as we all know, over the many years.

    Like Dr. White and Joe McDade have said, I feel somewhat awed by the presence of Governor Underwood, one of the three founders of this movement back in another era, at a time when the region was beginning or perhaps was well into its dive into the depths. That region of course had ridden the ups and downs of the coal booms and busts for so many years, and finally machinery came along and left us in a permanent bust from which we are still trying to dig our way out.

    But things are beginning to change, not only in West Virginia and Pennsylvania and the other States, but in eastern Kentucky as well. The Census Bureau figures came out just the other day, and I was heartened to see that in the Appalachian counties of Kentucky, most all of them now have reversed the outmigration, and we are beginning to keep more of those high school graduates. And that is going to be like compound interest; that is going to feed on itself as time passes.

    My own home county grew since 1990 by 13 percent; the adjoining county grew by 15 percent. That is phenomenal growth in formerly distressed counties, which no longer are distressed. And the number of counties in my State that are truly distressed is receding even as we speak. Those population figures indicated there were about 9 counties that were still losing some population in the very most remote areas of the mountains or coal fields.
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    But things are beginning to happen and economic growth is occurring, and as the Governor said, with much credit to the programs of the ARC. And I have to say the area development districts, the local development districts, have been one of the most important engines in helping lead that growth and organize that growth and give us some staff people who know what they are doing in areas that previously had no such resources. They continue to be absolutely vital parts of the economic revitalization of that region.


    Certainly in my region, we know that. Yet, Dr. White, you are requesting $1 million less this year than you did last year for the area development programs of the ARC. Why is that?

    Dr. WHITE. We are requesting an amount for that account which we think will be adequate to get the job done. I can't remember exactly where we did the trimming on that. Tom, can you, right offhand?

    Mr. HUNTER. It is $966,000.

    Dr. WHITE. $966,000.

    Mr. ROGERS. Below.

    Dr. WHITE. Below last year. And I ought to have that number, Congressman, but I don't, about where we trimmed that off of.
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    Mr. ROGERS. Well, I will give you time to provide that for the record. I would be interested to know why the request is down for what I think all of us would agree is the core success of the ARC program, the local development district activities and the area development initiatives of the ARC, particularly when you are losing the funding of the highway portion to the ISTEA program. This is the main remnant of ARC, it seems to me. Do you agree with that?

    Dr. WHITE. I do. We will try to provide you a good answer for that.

    [The information follows:]

    Dr. WHITE. ARC's area development request as well as ARC's total funding request of $67 million was decided within the Administration based on the balanced budget agreement, and the President's spending priorities. This necessitated a small decrease in area development funding.

    Mr. ROGERS. I think it would be helpful if we had in the record some of the specific achievements that we can attribute to the ARC in distressed counties. I know that must exist somewhere, in some fashion that would be intelligible to us common folk, and I think it is important that we have that here because that is where the action is. That is where the raison d'etre is for the ARC and I think we ought to have that available to us.

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    Now you are mandated to allocate, under your own rules, 30 percent of your monies for distressed counties. What is the actual percentage of area development funds that go to those distressed counties? Can you tell us that?

    Dr. WHITE. About 36 percent, $16.5 million, but it was about 36 percent of the total area development money, so some States were actually putting in more money than just the distressed county allocation.


    Mr. ROGERS. Well, I noticed the LDD, local development district support, is the same as last year's level. Why the level funding there?

    Mr. WHITE. We actually gave, the Commission gave the LDDs an additional $1.1 million last year from recovered funds, and we put that in the budget this year to be sort of a permanent marker, so they actually are getting $1 million more than last year's budget request. Is that not right, Tom?

    Mr. HUNTER. Yes.


    Mr. ROGERS. I would be interested to know what your request to the OMB was in your budget for the year. Do you have that available?
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    Dr. WHITE. For the LDDs?

    Mr. ROGERS. And the ARC.

    Dr. WHITE. I don't have that with me, but we can certainly provide that.

    Mr. ROGERS. Did you get all you asked for?

    Dr. WHITE. I can't really remember. Probably not. We never do.

    Mr. ROGERS. File that for the record for us, please.

    [The information follows:]

    Dr. WHITE. The Federal Co-Chairman's OMB budget for ARC programs requested $72 million for ARC's non-highway programs including $61.666 million for area development, $5.5 million for LDDs, $900 thousand for technical assistance, and $3.934 million for salaries and expenses (which did not include funding for the Alternate Federal Co-Chairman position).


    I want to talk briefly before closing on the Delta Regional Commission, and like the chairman, I am pleased it will not be in competition with ARC for funding. I think that would have been a mistake, for that to have occurred, and I am pleased that you are going a separate route there. I am somewhat still concerned that we not drain off energy, attention, focus from what you are doing, what you are supposed to be doing with ARC, toward another region which is not your charge.
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    I understand imitation is the best form of flattery, and I think you should be flattered they are looking to this organization as a model for another. It proves what we have all long said, that this is a model for Federal, State, local participation in a project. But nevertheless, one tends to get sidetracked onto things other than what your mission is. Now, do you worry about that?

    Dr. WHITE. Well, we are concerned, obviously, that during this sort of incubation year, that our resources are in no way lessened in terms of what we are here to do, which is to serve Appalachia. The States have requested that I meet with them in the next couple of weeks to talk about how that year would go, and I have agreed to do that. We are looking for a date now.

    We will keep faith with the Committee, Congressman, not to dilute our efforts. We have, in the proposal, funding that would enable us to hire an executive director of the Delta Regional Commission very quickly. In fact, we were even hoping for a November or December hire there, so that that person then would be devoting his or her attention to staffing up for the Delta Regional Commission. So our plan would be to get it up and running very quickly and to make the transfer as soon as possible.

    Mr. ROGERS. How soon could the transfer take place?

    Dr. WHITE. Well, we think in terms of the staffing transfer, it could probably be done in—as soon as the executive director was on board and started hiring staff of his own, so probably a 6-month period. Now under the proposal, I would be the acting Federal Co-Chairman until the President nominated, and the Senate confirmed, a Federal Co-Chairman of the Delta Regional Commission. So that would be dependent on that process, so that could be 9 months, something of that order, which I think is about the average
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time it takes to nominate and confirm somebody.

    We also have in our budget this year, money for the alternate Federal Co-Chairman, which has not been filled at the ARC. If the President so decided, that position could be filled, which would give us a little more fire power in our office. So we will do everything we can to be sure that there is no dilution of effort for Appalachia.

    Mr. ROGERS. Governor Underwood, does that concern you?

    Governor UNDERWOOD. All the governors were concerned. We think this is a vast improvement over the initial proposal, and I am sure that we will all be watching very carefully to make sure that the staff efforts are not diluted.

    Mr. ROGERS. Okay. Well, I rest assured then.


    Now lastly, let me talk to you briefly about the highway situation. Will you still administer the funds for the Appalachian Highway Development System? Now that they have been moved to the trust fund, what role will you have in the administration of those funds?

    Dr. WHITE. The net effect will really be no change over the way we do business now. The way it is proposed is that the ARC will still have control over the Appalachian Development Highway System. It will still be up to the Commission to allocate funds among the States, it will still be up to the governor to sequence the building of the corridors each year within his State. It will still be up to the Commission to designate the corridor routes, it will still be up to the Federal Co-Chairman to sign off on the center line designation. It is our understanding, the way it is written is that there be no change, really, in the way the Commission administers our highway program. I think that is explicitly stated.
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    Mr. ROGERS. Governor, do you have a perspective on that from the governors' point of view, on the change of the Appalachian highway funding source, at least?

    Governor UNDERWOOD. It is my understanding, and I have had several conversations with Senator Byrd, whose leadership we depend on in a very significant way for that program, it is my understanding that what Dr. White has just said is accurate, that it will not change and we will just be blessed with more funds drawn.

    Mr. ROGERS. Well, I thank you for your testimony. And, again, I thank Mr. Hunter, you and Dr. White and the staff for the fine work you are doing over there. You make us all look good by running a good agency that is devoid of fraud or corruption or any of the things we hear about. And Governor, thank you for your dedication to your State and to this region of the country. You are an inspiration to a lot of people.

    Mr. MCDADE. The gentleman from Indiana is recognized.

Opening Remarks of Mr. Visclosky

    Mr. VISCLOSKY. Thank you, Mr. Chairman.


    Dr. White, are there any proposals to expand the number of counties included in the Commission boundaries?
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    Dr. WHITE. There are no proposals from the administration. The Senate, when it passed the highway bill a couple weeks ago, added I think six counties to the ARC. The Commission is prohibited by law from taking any position on the addition of counties, and the administration has not taken any position on the addition of counties.

    I will say for the record that the Congress has been very reluctant to add counties to the Commission. In fact, since our very beginning days only three counties have been added, basically, in the last 30 years. I am not exactly sure if that is the right number of years, but since the early days only three counties have been added, but six were added in the bill in the Senate, the highway bill.

    Mr. VISCLOSKY. Without taking a position, could you characterize those counties, pursuant to your earlier remarks about distressed, competitive, attainment? Using your criteria, how do those six stack up?

    Dr. WHITE. None of them are competitive or attainment. Two are distressed, and four are what we call transitional, that is, they are neither distressed nor economically strong.

    Mr. VISCLOSKY. Where are they?

    Dr. WHITE. There is one county in Alabama, Hale; two counties in Georgia, Elbert and Hart; one county in Mississippi, Yalobusha; two counties in Virginia, I guess those are Montgomery and Rockbridge. And as I say, none of those meet our criteria for economically strong counties. I believe in the House markup two counties were added, and those were the Georgia counties.
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    Mr. VISCLOSKY. And those were the two counties that had also been included in the Senate recommendation?

    Dr. WHITE. Correct.

    Mr. VISCLOSKY. Under your charter, are counties eligible for inclusion absent congressional action?

    Dr. WHITE. No, only Congress can add counties to the commission.


    Mr. VISCLOSKY. Okay. In your testimony, you indicated that last year, you had 32,000 jobs created or retained, 26,000 households with improved water, 72,000 students, trainees, benefiting by education. Were any of these programs solely funded through the ARC?

    Dr. WHITE. Probably not. We seldom fund 100 percent of the project. Our whole sort of thrust is to be supplemental funding to other basic agency programs. Now some of the education and training and some of the leadership projects might have a preponderance of ARC funding. We can go up to 80 percent funding on certain types of projects. But generally the infrastructure projects, the industrial infrastructure projects, we would not have that high a percentage. We would often be partnered with EDA or Rural Development or some other basic agency.
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    Mr. VISCLOSKY. For the record, could you provide a detail of the amount of funding provided through other Federal programs, State and local entities, which contributed to the ARC accomplishments listed in your testimony, since you specifically enumerated those?

    Dr. WHITE. Certainly.


    Mr. VISCLOSKY. In your testimony you also talked about a strategic plan, and Governor, you mentioned the importance of strategic planning as well. That took place in, as I understand it, September of '97, last year. The plan identified specific goals and objectives in five key areas. Were there time goals attached to those, as well?

    Dr. WHITE. In the original strategic plan we talked about sort of a decade time horizon, and we have obviously gotten much more specific in terms of addressing the GPRA [Government Performance and Results Act]. We have kind of retooled that plan to meet the requirements of GPRA, and that is on a year-by-year basis. But the original horizon, the original strategic plan which we did before GPRA mandated that, we sort of did one on our own, it was a decade-long horizon for those goals and objectives.

    Mr. VISCLOSKY. I appreciate the work you have done, as well. Mr. Fazio had earlier mentioned that we had power marketing people in, we had the Reclamation people in, we had a number of other agencies. And I can remember from my staff experience many years ago an agency we dealt with before the Legislative Branch subcommittee that was created for a specific 18-month period of time. And 10 years later, it hadn't promulgated the first rule it was charged with 10 years earlier. And they were still organizing 10 years later.
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    I am not suggesting you are still organizing and that you have not done a lot of good work, but I must tell you I am troubled. With the best of intentions and the best of results, agencies and commissions are created, and have done great work. Problems in many of the distressed counties remain, but we find ourselves pulling offshore and saying, the world evolves, these problems evolve, and you have many other programs out there trying to address these.

    So I don't have distressed counties per se. I have incredibly distressed communities, and they are obviously trying to pull together through all the various Federal programs, as many other people throughout the United States are. And I must tell you I am troubled, 30 and 40 years later, we continue to roll on.

    Thank you very much, Mr. Chairman.

    Mr. ROGERS [presiding]. Mr. Edwards.

Opening Remarks of Mr. Edwards

    Mr. EDWARDS. Thank you, Mr. Chairman. I have no questions. I just want to thank you, Dr. White and you, Governor, for being here. And Governor, a special thanks to you for showing it can be a noble thing to commit a lifetime to public service. And as a Texan I want to say with envy, there was a time in this Congress's history that the Texas delegation was as powerful as the West Virginia delegation is today. Perhaps in my lifetime it might return to some of that. But congratulations to you and your delegation for the great work you do on behalf of the people of your area of this country. Thank you, Mr. Chairman.
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    Mr. ROGERS. Mr. Knollenberg.

    Mr. KNOLLENBERG. Thank you, Mr. Chairman, Governor, Dr. White, Mr. Hunter. I would associate myself with the remarks of Mr. Rogers, when he gave you a salute as being an agency that does its job well. And I know that you have an end game in sight, too. I think it is 2015. Has that changed, or is that still the same? So hopefully you will continue to be the stewards you have been in bringing that about, so thank you for your testimony.


    I just had a question. Mr. Fazio wouldn't bring this up but I will, but not in the sense of turning this into a problem it is not. But on the issue of the football stadium, I suspect that is a blip out there. It seems to me that it is, but there must be criteria that is followed in making a determination as to what does qualify and what doesn't. What criteria is there that you use to properly qualify these projects for inclusion? And perhaps you can reflect on whether that process, that criteria, was used in the stadium controversy?

    Dr. WHITE. I think that controversy probably led us to look a little bit more thoroughly at our policies that particularly relate to tourism development, which that project generally fell into. I mean, the economic development rationale was that that would bring tourism and create jobs in the inner city of Spartanburg, so forth and so on.

    We have taken a pretty hard look at that, and we do require tourism-related projects to meet a fairly high standard of economic development payoff. We in fact encourage tourism, of course. I think is a legitimate economic development strategy for a lot of rural areas that may not have a lot of other things going for them. Of course, that is very legitimate.
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    We encourage our funds now to be used for planning, for development, for marketing and not so much for capital investment. If it is used for capital investment, it has to meet a pretty high level of cost-benefit return. As a matter of fact, just a couple years ago I had to say ''no'' to the Governor of Maryland for a $1 million investment in western Maryland for a multimillion dollar Jack Nicklaus golf course and tourism project, and of course we are in the same party. That was not an easy thing to do.

    So sometimes, you know, it is the few ''yes's'' we make that end up creating controversy that makes the news, and sometimes the ''noes'' we say don't get out in the public. But we do try to be good stewards, and I think that particular controversy over that did have the effect of making us tighten up our policies.


    Mr. KNOLLENBERG. Thank you for that comment, that response. In regard to the issue of distressed counties that has been talked about by a number of my colleagues, I understand that the rule of the distress designation is that a county must have an unemployment and poverty rate of 25 percent greater than the national average. That is kind of an arbitrary number, but it is a number and it is one you deal with. I assume that is the one you use. Now is there other emphasis or other focus or criteria that ARC uses to designate a county, a distressed county?

    Dr. WHITE. Well, the basic criteria is the poverty rate and unemployment rate, at least 150 percent of the national average.
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    Mr. KNOLLENBERG. 150.

    Dr. WHITE. 150 percent, and the market per capita income, two-thirds or less of the national average; poverty and unemployment, 150 percent.

    Mr. KNOLLENBERG. There must be some of these counties that move out of, and some perhaps that move back into, being designated distressed areas. Are they the same counties all the time that kind of blip up and down, in and out of this?

    Dr. WHITE. Quite often they are the ones on the cusp. As a matter of fact, we have had three since last year that dropped back into the distressed category.

    Mr. KNOLLENBERG. Is that caused by this great surge in the economy country-wide? If some counties don't catch up with that surge, do they fall back a bit? Is that part of the reason for that?

    Dr. WHITE. Part of the reason is—yes.

    Mr. KNOLLENBERG. In my State of Michigan, it is the lowest in memory. We can't remember when it was this low.

    Mr. ROGERS. Will the gentleman yield?

    Mr. KNOLLENBERG. I will.
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    Mr. ROGERS. I can give you an example. It is next to my home county, Russell County, Kentucky. That unemployment rate a couple years ago was probably 6 or 7 percent or less; Appalachian County, not a distressed county, graduated because of manufacturing and the like, but these were textile operations.

    Fruit Of The Loom had 5,000 employees in the two counties I am talking about. All of a sudden that factory moved to Mexico, as textiles are doing, and Russell County went from 5 or 6 percent unemployment to something like 31 percent overnight, and distressed, all of a sudden. It will come back, but that is what happens.

    Mr. KNOLLENBERG. In line with that—and I appreciate Mr. Rogers' illustration—things have been going well for a great deal of this country of ours, and perhaps if there wasn't some of that same glue and grease in that area of the country, it does reflect—things may not be any better or worse than they were last year but in terms of national average, they are a little worse and they fall into that gray area. I suspect that might be some of that, would you say?


    Dr. WHITE. Well, it would. I would also like to comment, if I could, and say that to me that reflects the weakness that we find in much of rural America, rural and small town America, of basically being branch plant economies. And that is why I am so committed to this entrepreneurial initiative we have, because branch plant economies are highly vulnerable to these decisions made in Tokyo or Chicago or some place outside the community. A plant closes and all of a sudden the unemployment rate goes from 6 to 30 percent. I think if we can get more entrepreneurship in the communities and more home-grown, locally-owned growing industries and a more diversified economy, these counties will be less vulnerable and you will see less of this up and down phenomenon.
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    Mr. KNOLLENBERG. Is it risk-taking kinds of operations you are suggesting for the counties that fall into that category? What kind of innovations? Let's take the county Mr. Rogers mentioned. What do you do in a situation like that with respect to entrepreneurship?

    Dr. WHITE. Let me just tell you what we did in Knoxville. Now that is a little different because it is a large city. But Levi Strauss closed in Knoxville, and I think they laid off 2,000 workers, and we went in with—and of course the State came in with a—they have a strike team that comes in in situations like that.

    But we came in with a $100,000 grant from the ARC to add to that, to work on two things, one, hard-to-place workers, and, two, to make money available to those displaced workers who were interested in going through an entrepreneurship program and start up their own business. We have been pleasantly staggered at the numbers of Levi Strauss workers who are now wanting to go through that program and start their own businesses. So it seems to me if we can put in place those kind of programs where displaced workers can go and go through an entrepreneurship program, and then have a little seed capital available, they can perhaps become their own businesspeople.

    So one of the five elements of this entrepreneurship initiative is risk and venture capital, another one is technical assistance, so I think that is one of the answers. It is not the only answer.

    Mr. KNOLLENBERG. Are you attracting venture capital from outside of the ARC umbrella?
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    Dr. WHITE. Well, it is very spotty. We have a great deficit of that in Appalachia. Some—Kentucky highlands, for example, in Kentucky—there are a few examples of rural-based venture capital operations that have been successful, but we need to try to replicate that.

    Mr. KNOLLENBERG. Well, thank you very much, I appreciate the testimony.

    Governor, did you have a comment?

    Governor UNDERWOOD. Congressman, we have in West Virginia a tax credit that can be used by corporations who participate in venture capital funds. It has had some abuse and has become controversial, but it is still very important.

    I worked two years with the small business development program in our State, and that has been a tremendous help, providing assistance to start-up companies, but the one missing link is still the need for venture capital to get started. They don't need big money. It is not worth their while to go through a major financing program. We are still looking for some way to create that source of money for a start-up company.

    The Software Valley movement, these were practically all start-ups, and we have had some phenomenal growth starting with one or two people. We had a couple who were graduates of Ohio State University and they started a metals research laboratory, and this was about 20-some years ago, and they really struggled. I was with the small business program at the time, and we got them together with some private individuals who helped them. Fortunately they had a nice uncle that came along.
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    But now they have moved from a basement, a piece of junk equipment that they bought at a sale, that no one thought had any use at all. They now occupy two brand new buildings with state-of-the-art metals technology. It is called Touchstone Laboratory, located up in Wheeling, along the interstate. That convinces me, if we could find that kind of money to get the people started, they are now a national and international laboratory serving people all around the world, and I saw their presentation just last week at a small business conference. They had slides showing the junk equipment and the basement in which they started.

    They are now husband and wife, they weren't then, they were just good classmates, and she has come through a major bout with cancer during that time. She even showed slides in her presentation when she was wearing a wig because of chemotherapy. That is a real inspiration, and I don't know where we find this kind of money but I keep looking for it.

    Mr. KNOLLENBERG. Where did they find it?

    Governor UNDERWOOD. They got it from some metals companies who thought they could see in their research capability things that they could use, and then the uncle who was a doctor came to help on a family basis. I would say a half dozen different sources, and we provided them help from the Small Business Development Program, not cash but free planning and financial advice.

    Mr. ROGERS. Thank you, Governor. Thank you, Mr. Chairman.

    Mr. MCDADE. Thank you. We thank you very much for being here. Governor, we especially appreciate your attendance. We know the duties you have in West Virginia, and it is wonderful to have one of the founding members of the ARC here with us, and we very much appreciate it.
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    Governor UNDERWOOD. Well, I appreciate your kindness, your courtesy, and above all your support of the program over a long period of time.

    Mr. MCDADE. It is going to be around a long time, I think. Doctor, we thank you for your testimony, and at this time the Committee will recess subject to the call of the Chair.

    [Questions and answers for the record follow:]

    "The Official Committee record contains additional material here."