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42–742 CC




before the


of the





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Serial No. 105–31

Printed for the use of the Committee on Resources


DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana
JIM SAXTON, New Jersey
JOHN J. DUNCAN, Jr., Tennessee
KEN CALVERT, California
RICHARD W. POMBO, California
LINDA SMITH, Washington
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WALTER B. JONES, Jr., North Carolina
JOHN PETERSON, Pennsylvania
RICK HILL, Montana

EDWARD J. MARKEY, Massachusetts
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
FRANK PALLONE, Jr., New Jersey
CALVIN M. DOOLEY, California
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SAM FARR, California
ADAM SMITH, Washington
WILLIAM D. DELAHUNT, Massachusetts
CHRIS JOHN, Louisiana
RON KIND, Wisconsin

LLOYD A. JONES, Chief of Staff
CHRISTINE KENNEDY, Chief Clerk/Administrator
JOHN LAWRENCE, Democratic Staff Director

Subcommittee on Water and Power Resources
JOHN T. DOOLITTLE, California, Chairman

KEN CALVERT, California
RICHARD W. POMBO, California
LINDA SMITH, Washington
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CALVIN M. DOOLEY, California
SAM FARR, California
ADAM SMITH, Washington
RON KIND, Wisconsin
————— —————
————— —————

ROBERT FABER, Staff Director/Counsel
VALERIE WEST, Professional Staff
STEVE LANICH, Democratic Staff


    Hearing held May 6, 1997
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Statement of Members:
Doolittle, Hon. John T., a U.S. Representative from California; and Chairman, Subcommittee on Water and Power

Statements of witnesses:
Cody, Betsy A., Specialist in Natural Resources Policy, Congressional Research Service
Donnelly, Thomas F., Executive Vice President, National Water Resources Association
Flicker, Eric L., Vice President, American Consulting Engineers Council
Martinez, Hon. Eluid L., Commissioner of Reclamation, Department of the Interior
McCollom, David C., General Manager, Olivenhain Municipal Water District
Rezendes, Victor S., Director, Energy, Resources, and Science Issues, U.S. General Accounting Office
Smith, James N., Executive Director, Council of Infrastructure Financing Authorities

Additional material supplied:
Cody, Betsy A., Specialist in Natural Resources Policy, Congressional Research Service, prepared statement of
Donnelly, Thomas F., Executive Vice President, National Water Resources Association, prepared statement of
Flicker, Eric L., Vice President, American Consulting Engineers Council, prepared statement of
Jamison, Warren L., Manager, Garrison Diversion Conservancy District, prepared statement of
Libeu, Larry, Deputy Assistant General Manager, Eastern Municipal Water District, prepared statement of
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Martinez, Hon. Eluid L., Commissioner of Reclamation, Department of the Interior, prepared statement of
McCollom, David C., General Manager, Olivenhain Municipal Water District, prepared statement of
Rezendes, Victor S., Director, Energy, Resources, and Science Issues, U.S. General Accounting Office, prepared statement of
Smith, James N., Executive Director, Council of Infrastructure Financing Authorities, prepared statement of


TUESDAY, MAY 6, 1997

House of Representatives,
Subcommittee on Water and Power,
Committee on Resources,
Washington, DC.

    The Subcommittee met, pursuant to call, at 2:02 p.m., in room 1324, Longworth House Office Building, Hon. John T. Doolittle (Chairman of the Subcommittee) presiding.


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    Mr. DOOLITTLE. The Subcommittee on Water and Power will come to order. The Subcommittee is meeting today to hear testimony concerning funding options for Bureau of Reclamation projects. I would like to welcome our witnesses here today. Since the beginning of this century the Federal Government has played a major role in the development of water resources in the Western United States.

    The Bureau of Reclamation was created by the Reclamation Act of 1902 to reclaim arid and semiarid lands. Over the past 95 years, the Federal Government has invested more than $16 billion in reclamation projects, 80 percent of which is subject to repayment to the U.S. Treasury.

    The purpose of this hearing is to explore various funding mechanisms available to help finance reclamation projects in the future. The witnesses have been asked to address a wide range of funding options, including traditional repayment programs, modifying the existing Small Loan Program, loan guarantees, grants, revolving funds, and the increased use of private capital.

    Today we stand at a crossroads with two opposing forces in view. There is a need to expand and improve our existing water supply system to meet agricultural, urban, rural, tribal and environmental needs. At the same time, we must find ways in every government program to reduce costs as we move toward a balanced budget.

    The Congress is determined to eliminate the Federal budget deficit, and we must find ways in our area of responsibility to reach that goal. In a recent draft of its Strategic Plan, the Bureau stated generically that ''there is no 'new' water to develop, no new dams to store water for the dry season and little groundwater resources to pump from the earth.''
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    What a tragedy that the Federal Government's primary water supply agency has no greater vision. While it remains to be seen what role the Bureau and the Federal Government should play, we certainly do not, as a nation, lack opportunities to develop new water. There are onstream and offstream reservoirs under construction and available to be built.

    There are groundwater basins in need of recharge to hold water resources. There are emerging technologies that make it economical to recycle our water and to convert ocean water to freshwater. And every year, there are floods throughout the west that currently destroy homes, lives, and the environment and which could be harnessed to meet productive needs.

    The challenge we face today is how to encourage the development and management of water resources in an economically responsible manner. If the purpose of future developments is to meet general public benefits such as environmental enhancement or Indian water settlements or if it is to avoid Federal costs for disaster relief, there is, it seems to me, the need to consider a higher Federal cost-share.

    If the purpose is to meet growing needs for water to support food production or urban needs we can look to the water users to provide a greater portion of the funding. Indeed, as we will hear from some of our witnesses, we can use innovative ways to finance these projects. If we design these programs to maximize the use of the private sector in financing, constructing, and managing future water resource projects, we can greatly reduce the cost and the involvement of the Federal Government in many of these endeavors.

    Historically, the Reclamation Program does not flow from a single organic Federal statute. There have been various acts since the 1902 Reclamation Act which have shaped the program. Since 1939, every project has been individually authorized with its own terms and conditions.
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    Although the authorizing language in each was developed with careful consideration of the project beneficiaries in mind, little was done to step back and look at the overall trend or to anticipate future needs and requests. With this hearing, we are going to begin looking to the future and assessing new options for funding future requests.

    In recent years, the Subcommittee has not considered requests for the traditional multi-purpose projects that deliver irrigation water. Today, the Subcommittee is being asked to authorize rural water supply systems, water delivery systems for Indian reservations, environmental enhancement/mitigation projects for existing Reclamation projects, and water reclamation and reuse facilities.

    I do not believe that the seemingly conflicting goals of enhanced water supply and cost control present insurmountable obstacles. Rather, they represent reasonable parameters and provide attainable goals which should help us develop a blueprint for how the government will participate in meeting these needs.

    New water development has the potential to be used to enhance the water quality and environmental resources in the west. How we go about designing and financing these projects will be a test of the Federal Government's ability to transition to a smarter, more efficient, less costly mode of operation. After the ranking member has a chance to make his statement, I will look forward to hearing from the witnesses. Now let me invite Mr. Pickett, if he would like to make a statement.

    Mr. PICKETT. Mr. Chairman, I do not have an opening statement.
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    Mr. DOOLITTLE. OK. Let me ask our first panel to come forward. If you will come forward and remain standing for just a minute, please. I do want to make this observation. Before we call upon our witnesses, I would like to indicate that since the intent of the hearing is to look at both the historic funding arrangements as well as to consider innovative ways to fund or encourage such projects in the future, we will be hearing from witnesses both inside and outside the Reclamation Program.

    As such, with some of the witnesses we are only looking to them to answer questions limited to private, State and other Federal programs with which they are familiar. We have as witnesses today the Honorable Eluid L. Martinez, Commissioner of Reclamation; Ms. Betsy A. Cody, Specialist in Natural Resources Policy, Congressional Research Service; and Mr. Victor S. Rezendes, Director, Energy, Resources, and Science Issues, U.S. General Accounting Office.

    Would you please raise your hands and take the oath?

    [Witnesses sworn.]

    Mr. DOOLITTLE. Thank you. Each answered in the affirmative. We welcome you here today for your testimony and, Commissioner, we will recognize you and begin this panel.


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    Mr. MARTINEZ. Thank you, Mr. Chairman, members of the Subcommittee, thank you for the invitation to discuss funding and cost-sharing options for the Bureau of Reclamation. Given our mutual interest in reducing costs and balancing the budget, this hearing is timely.

    With your permission I would like to summarize my remarks and have the full text of my prepared statement entered into the hearing record. Since fiscal year 1985 Reclamation's construction budget has declined by more than one-half in real terms. Over the same period, appropriations for operation and maintenance activities have nearly doubled.

    For fiscal 1988 about 60 percent of Reclamation's budget requested is for the completion of ongoing projects and the promotion of an integrated approach to water management. The remaining 40 percent is for operation, maintenance, and rehabilitation of existing infrastructure.

    Now I would like to turn to the specific items mentioned in your letter of information beginning with cost sharing for traditional projects. While Reclamation has not established a hard and fast rule for the required level of cost sharing, in recent years Reclamation has advocated that beneficiaries pay at least 35 percent of the nominal cost for traditional Reclamation projects.

    A portion of the cost sharing can be provided up front in cash or in-kind services. With respect to the Small Reclamation Projects Act Loan Program, loan guarantees, and the rehabilitation and betterment program, Reclamation believes that in this budget climate the private sector may be better equipped than the Federal Government to provide financing for these projects.
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    In 1995 the Administration recommended in the National Performance Review that the Small Reclamation Projects Act Loan Program should be phased out. Since then, Congress has provided only limited funding needed to complete grandfathered projects. As I previously testified, the Administration is opposed to loan guarantees and the authorization of a new comprehensive program.

    However, I do believe that there might be meritorious small reclamation projects and all projects should receive authorization on an individual basis rather than through generic legislation. Reclamation is working hard to cut costs and adapt stringent physical constraints within our budget limitations.

    However, we are prepared to discuss options for the water users and interested organizations and commerce and we intend to continue our dialog to see what, if any, alternatives may exist for this particular program. Except as related to dam safety, Dam Reclamation is no longer seeking congressional appropriations to replace, rehabilitate or renovate facilities related to the reimbursable functions of our projects.

    In the event the water district cannot obtain private financing Reclamation will evaluate its options to address these problems. With respect to dam safety, the Reclamation Safety of Dams Act requires that 15 percent of the costs be reimbursable. Our policies require repayment of dam safety costs allocated to reimbursable project purposes such as irrigation, municipal and industrial uses and hydro power.

    These reimbursable costs are paid by the beneficiaries of the corrective action within 25 years. Last year upon becoming Commissioner I commissioned a peer review team consisting of dam safety professionals from outside the Department of the Interior to review the Department's Dam Safety Program. That team has issued its findings and recommendations and a copy of that report has been provided to Congress.
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    The report basically said in addition to supplementing Federal funds the reimbursable policies of both the Safety of Dams Program and the operation and maintenance programs of Reclamation provide a useful check for the water districts on the amount of money and expenditures that Reclamation has undertaken for these programs.

    Reclamation is reviewing the findings and recommendations of the peer review team. In the future, Mr. Chairman, I expect to come before Congress to request an increase in the cost ceiling authorized by the Dam Safety Program and will address the issue of cost sharing for dam safety in that context.

    Your letter of invitation also asked me to discuss the Bureau's position regarding appropriate cost sharing for rural water distribution projects. Longstanding Reclamation policy for municipal, rural, and industrial water supply projects requires that non-Federal interests pay, at current interest rates, 100 percent of the cost of the projects.

    Other Federal agencies such as the Department of Agriculture might be a more appropriate agency for the project sponsors to seek for funding. In the past the Administration has supported rural water supply systems where the needs of the Indian communities justified Federal involvement and Reclamation in my opinion should be involved with Federal funding as needed to encourage innovation or otherwise serve a basic national purpose.

    Finally, I would like to discuss water reuse projects. Last year, the Congress in Public Law 104–266 authorized 16 new water reclamation and reuse projects, in addition to the four projects that Reclamation is already funding under the authority of Public Law 102–575. There is a growing demand to devote a greater portion of Reclamation's budget to water reuse projects.
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    With fewer Federal dollars available Reclamation will have to make difficult choices even to fund the most deserving projects. Let me put this in context. Reclamation's overall budget request for fiscal year 1988 is about $764 million. If all authorized wastewater reuse projects were funded at optimum levels in fiscal year 99 Reclamation estimates that $130 million would be required.

    An estimated $550 million would be required to fund all authorized projects to the year 2005. Given these budget realities Reclamation has adopted an internal self-imposed cap of about $30 million annually in its budget request for wastewater reuse projects. I would like to commend the Congress, especially this Subcommittee for taking some important steps in Public Law 104–266 to alleviate some problems, in particular, the feasibility study and financial capability requirements to improve the Federal Government's ability to control expenses and ensure that Federal funds are used appropriately.

    Nevertheless, there is a need to establish criteria and prioritize projects for funding to determine what constitutes a sponsor's financial capability and to develop requirements for feasibility studies. I have appointed a water recycling team and that team has reviewed Reclamation's Program and developed recommendations on how it intends to address these issues.

    Last year the water recycling team held a series of public meetings where individuals presented their ideas. Attendees suggested that Reclamation explore alternative funding mechanisms such as competitive annual grants.

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    Reclamation is hopeful that the team will provide additional insight based on public participation that will be useful to this committee and to Reclamation in our efforts to fund water recycling projects. Mr. Chairman, that concludes my prepared remarks. I would be pleased to answer any questions.

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

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

STATEMENT OF victor s. rezendes, director, energy, resources, and science issues, u.s. general accounting office

    Mr. REZENDES. Thank you, Mr. Chairman. It is a pleasure to be here. I have two basic points I want to make today. One is talk a little bit about the evolution of the Reclamation laws and second, talk a little bit about water project cost recovery. The Federal Government initially got involved with Reclamation with the passage of the Reclamation Act of 1902. Basically that act was to fund irrigation projects in the west but it was also basically a development pact.

    It was intended to settle the West. And right from the outset basically the intent was for the program to be self-sufficient. No appropriation funds were intended to be used pro rata. A revolving fund was set up using moneys from the sale of Federal lands. Once loans were made and paid back, additional loans would be made for additional irrigation projects out of that revolving fund.
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    Also, from the outset, the Federal Government chose to forego any interest on these loans. The notion was they wanted to settle the West and the government felt content with just receiving the payments for principal in lieu of giving up the interest for the farmers to settle the West.

    Early on though it was also very clear that both the cost of farming and the cost of building these water projects was more than anybody expected. Starting in around 1906 came a series of pieces of legislation to provide not only relief to farmers in terms of their ability to pay but also extended over various time periods the requirement on pay back.

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

    Probably 1939 was the most significant year. The Congress fundamentally changed the program. At that point all projects were funded with appropriated funds rather than through the revolving fund. Congress also established multi-purpose projects, basically municipal water, flood control, that sort of thing, and allocated the cost among the project uses so they could all be judged individually in terms of the economic viability. They also changed the payment system for the irrigators by providing for both a variable annual payment based on crop returns as well as providing an interest-free development period of up to 10 years beyond the 40 years already established.

    The last piece of legislation I want to talk about was enacted in 1982 which was the Reclamation Reform Act. That was the first time Congress established the notion of full cost recovery. The legislation required, for specific leased acres, over 960 acres, full recovery of the cost of irrigation. For the first time Congress charged not only the cost of construction but also the operation and maintenance as well as the interest cost for those specific uses.
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    I now want to call your attention to appendix I of my testimony and just talk a little bit about how these costs are defined in terms of reimbursable and nonreimbursable and who pays them. I will quickly walk you through that. Basically you see on the top of that chart it shows reimbursable construction costs. In essence, irrigation pays the cost of construction based on their ability to pay but is relieved of any interest payment. The next is municipal and industrial users. They pay the cost of construction plus interest during construction and interest during the repayment process.

    The last one is general power generation. They pay similar to municipal and industrial users construction plus interest but they also pay a good part of the irrigation costs that the irrigators, the farmers, cannot pay.

    The bottom of the chart shows nonreimbursable costs. Those are pretty much construction costs that are defined as national in scope. They include things like fish and wildlife purposes, recreation and flood control. Historically, the Federal Government has borne the cost of those aspects of projects.

    Through the end of fiscal year 1994, there were 133 projects that had some sort of irrigation involved with them and the total cost was about $22 billion. Of that $22 billion, roughly about 77 percent is in the reimbursable cost category and 23 percent is in the nonreimbursable. That is probably a good place for me to stop and turn it over to Ms. Cody who is going to bring you up to date on the most recent legislation.

    [Statement of Mr. Rezendes may be found at end of hearing.]
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    Mr. DOOLITTLE. Thank you. Ms. Cody, you are recognized.


    Ms. CODY. Thank you. My testimony focuses on repayment obligations established in law for capital projects authorized or modified since 1979. In particular, I will discuss the projects authorized over the last two decades and the breakdown between reimbursable and nonreimbursable costs. There are two points I would like to make before summarizing my analysis.

    First, it appears that projects authorized or modified within the last 18 years that are similar to traditional Reclamation projects have generally followed the typical repayment pattern that GAO has described. Many projects authorized in recent years have had a higher proportion of nonreimbursable costs such as for flood control, fish and wildlife and Indian water right settlement purposes.

    This may raise the question of whether Federal policy has changed regarding reimbursable costs. My review does not find any major alteration in overall policy. However, there are some instances where Congress has departed from past reimbursement procedures, particularly for rural water supply projects.

    Based on information gathered from the Bureau of Reclamation, Congress has authorized at least 55 projects since 1979. I have placed these authorizations in a table accompanying my testimony which you should find on page 7. Of the 55 projects authorized that I analyzed, 24 percent were for the relatively traditional multi-purpose/irrigation projects or project modifications, 7 percent were for rural water supply systems, 36 percent were for reclamation water reuse and recycling, also known as Title XVI projects, 18 percent were for water quality, fish and wildlife, or conservation purposes, and 15 percent were for Indian water rights settlement.
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    The repayment obligations authorized for these projects and modifications vary greatly. They vary depending both on reimbursement provisions established in law and upon the percentage of project costs allocated to non-reimbursable purposes such as flood control, fish and wildlife, Indian water rights.

    For the traditional multi-purpose projects, repayment obligations range from 0 percent non-reimbursable to 100 percent non-reimbursable. The two totally non-reimbursable projects are flood control projects, which under reclamation law are typically non-reimbursable. Outside of these two projects, reimbursement responsibilities ranged from 33 percent to 93 percent with the average being 79 percent reimbursable. This is very close to the 77 percent average reimbursable rate that GAO estimated for the 133 projects it looked at since 1902.

    When the two flood control projects are considered, the average comes to 66 percent, still roughly in the same ballpark. For the rural water supply projects, the non-reimbursable component is higher than typical for traditional reclamation projects. Here the non-reimbursable share ranged from 75 percent to 85 percent with one exception, the Mni Wiconi project in South Dakota.

    In each case here, Congress specified the reimbursement ratio in the authorizing legislation. These projects differ from the more traditional reclamation projects in that they focus on municipal and industrial water supplies for rural areas with specific water quality and quantity concerns.

    For the reclamation water recycling and reuse projects the non-reimbursable component established in law is generally 25 percent. Again, this ratio is similar to the ratio that has evolved over time for the traditional projects. However, the financing arrangements, as have been described by GAO, are quite different. Instead of financing and building the projects up front and requiring repayment of reimbursable costs through contract the Federal Government funds only a portion of project costs with the rest shared by local participants. Essentially the Federal Government funds the 25 percent non-reimbursable share as a grant.
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    For the water quality/fish and wildlife, and conservation projects, the non-reimbursable costs ranged from 35 percent to 100 percent. All of the projects in this category outside of California have been 100 percent non-reimbursable by law. All of the California projects, however, as authorized under CVPIA have a significant reimbursable cost share, some paid by the State, some paid by local project users. I should note, however, that some of these costs may be offset by payments in the CVP Restoration Fund.

    Finally, the Indian water rights settlement projects are all 100 percent non-reimbursable (although, there is local cost-share with some). Unlike other reclamation projects, both new and old, these projects have been authorized as part of settlement agreements between tribes, the Federal Government, and other interested parties. Therefore, they do not really fall within the realm of traditional reclamation law and consequently are not directly comparable to other reclamation projects.

    In conclusion, it appears that projects authorized or modified in the last 18 years have followed a typical repayment pattern, with a few exceptions, most notably three of the four rural water supply projects have a significantly higher non-reimbursable share than has been typical for other industrial and water supply projects attached to the traditional irrigation projects. However, these projects in total represent less than 7 percent of all the projects analyzed since 1979.

    Most of the rest of the projects where the non-reimbursable cost exceeds 50 percent involve project purposes that Congress has declared as non-reimbursable, flood control, fish and wildlife, water quality, and Indian water rights settlement. In other words, the reimbursement provisions generally have not changed, rather, the typically reimbursable functions of these projects as a percent of total project functions, have declined. Thank you.
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    [Statement of Ms. Cody may be found at end of hearing.]

    Mr. DOOLITTLE. Commissioner, in your testimony you state that Reclamation no longer requests congressional appropriations to replace rehabilitative facilities related to reimbursable functions in a project with the exception of dam safety. And yet the government, Reclamation, hold title to these projects. Does that strike you as paradoxical?

    Mr. MARTINEZ. I think on the face of it, it looks like an inconsistency. But we spent about 40 percent of our budget on rehabilitation, maintenance and operation. Reclamation continues to expend moneys to make sure that our facilities are kept up in a good operational status.

    As I understand the betterment and rehabilitation activity that we are talking about was a separate act. It enabled moneys to be used by districts for projects or for work that was not funded under regular operation and maintenance programs. In the two years that I have been involved with the Bureau of Reclamation I have not had an irrigation district or representative of irrigation districts raise concern to me that they have not been able to address rehabilitation and maintenance on district properties and government properties as a result of the Reclamation not requesting funds for this program.

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

    Mr. DOOLITTLE. You went on to state that in the event private financing could not be obtained, Reclamation will need to evaluate its options, including revision of operating standards. Is that then telling us that it is going to be the Administration's policy to allow the infrastructure to deteriorate to the point that operations would have to be modified rather than to seek the necessary appropriated funds to rehabilitate these facilities?
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    Mr. MARTINEZ. I think we need to put this in context. If what we are talking about is an internal water distribution system within a district facility that delivers water from a canal to another canal and to the extent that that facility might deteriorate because the district is not maintaining that facility then it might be possible that if the district does not obtain financing of some sort and if the Federal Government does not provide financing that water might not be able to become available.

    And in that case the facility might be inoperable. But if we are looking at a facility such as a dam or a structure that has a national interest, I do not think it is in the Federal Government's best interest to let those kind of facilities deteriorate because of a lack of funding. Those are the kind of facilities that we would continue to make sure that they are adequately maintained if it comes to a situation where we had to come to Congress to get authorization. You have to look at the different facilities.

    Mr. DOOLITTLE]. But for the ones you deemed to be the highest priority, you would not let them fall into disrepair but would come and seek appropriate funds if necessary?

    Mr. MARTINEZ. That would be my recommendation.

    Mr. DOOLITTLE. Mr. Flicker on the panel to come will state in his testimony that the Bureau of Reclamation no longer needs to do in-house engineering and in fact it is competing with the private sector to provide those services. Could you comment on that issue?
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    I realize this is not your testimony, but I want to address that question to you, Commissioner. Mr. Flicker is going to testify in the next panel that the Bureau of Reclamation in-house engineers are competing with the private sector to provide those services, apparently now competing both domestically as well as internationally. Could you comment on that?

    Mr. MARTINEZ. That is an issue I am sensitive to. We have engineers in Denver that work on a cost reimbursable basis. They are primarily charged to provide engineering services to regional areas in the Bureau of Reclamation. There are instances where governmental entities such as cities and counties and States ask the Bureau of Reclamation because of their expertise to provide assistance.

    What I have told my engineers is I do not want them competing with the private sector and going out and soliciting business but if we have these entities that come to us and seek assistance and we can work out something that is in their best interest and our best interest we will proceed.

    We have an international arm in the Bureau of Reclamation and we have other countries that seek our assistance in certain areas but I think if you look at our record, and I will be glad to provide you the information, even Reclamation goes out to quite a few private entities seeking engineering services.

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

    Mr. DOOLEY. Thank you, Mr. Chairman. Thank all of you for attending. I guess, Mr. Martinez, just for a little bit of clarification in your statement you talked about how there has been a change in direction and allocation of funds with Reclamation which we all I think are fairly well aware of.
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    You talk about, in one sentence you say that reflects the need to focus on the Federal funding on higher Federal priorities such as addressing adverse impacts of existing projects. You then go on to say Reclamation has organized this program so almost 40 percent of its fiscal year budget request is allocated to operation, maintenance, rehabilitation of the existing structure and the other 60 percent is for completion of ongoing projects and a promotion of an integrated approach to management of water.

    My question is what is the amount of the Bureau's budget that really is being allocated and indeed can you account for that that is allocated for addressing the adverse impacts of existing projects? I guess what I am looking at is environmental enhancement and do you have that figure that it also does not account for the reimbursable funding as we are doing with the CVPIA?

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

    Mr. DOOLEY. What I am a little interested in is we see the mission of the Bureau of Reclamation changing and that it is no longer being directed in terms of construction and new projects which the periods are quite evident even within your testimony is that the issue as it relates to reimbursable or nonreimbursable also appeared to be changing too because the issue of what is reimbursable really often times has been a function of who the primary beneficiary was and assuming that if the environmental enhancement would be more allocated as a side benefit are we seeing a change in a reduction in what we are expecting from reimbursable contributions that reflect what appears to be a traditional nonreimbursable function of the Bureau?
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    Mr. MARTINEZ. To the extent that our budget is increasing for addressing environmental issues, restoration issues and wetlands and to the extent that our budget has increased for operation and maintenance at facilities where there are nonreimbursable purposes then we would begin heading down the road toward situations where you would get less reimbursement for expenditures in our budget.

    Mr. DOOLITTLE. Mr. Thornberry is recognized.

    Mr. THORNBERRY. Thank you, Mr. Chairman, and I appreciate your efforts and the interest in trying to update and modernize funding of Bureau of Reclamation projects. I listened to the testimony and cannot help but think the issues are not strictly funding issues because as you are well aware some of the difficulties that we have experienced in just trying to modernize and put some flexibility into the Bureau and getting them to follow the law are not funding issues but seemingly just common sense issues.

    I will not go into the details of what we have been trying to do. We talked to Commissioner Martinez about that before when he has been before this Subcommittee. It is not getting better. I think we can also see as evidence going back several years to Vice President Gore's reinventing government proposal where title transfers were part of what he suggested and encouraged.

    It does seem like if we could have title transfers it could free up resources and maybe look at other projects or more maintenance of existing projects. And as I understand it there has not been a single title transfer occurred since he first made that proposal. So from our perspective I think it is rather discouraging as to the Bureau's attitude toward putting more flexibility and modernization into the way that projects are funded or for that matter the operation and maintenance and rehabilitation of existing projects. It has been extremely difficult.
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    I am going to ask Commissioner Martinez, are you going to have any title transfers this year? Where do we stand with that?

    Mr. MARTINEZ. I think I testified last time that from my perspective I think we need to bring some of these to closure. I continue to work with the Administration to make sure we bring some of these to closure and I am hopeful that we will have some this session.

    Mr. DOOLEY. I think the difficulty, Mr. Chairman, as you know, is that in some of the negotiations so far have been drug out for years and in others there are just unbearable conditions that get put on by the Administration which has the effect that none occur.

    And so it is unfortunate. I think this is an area where the Federal Government could do more on behalf of the taxpayers and the people that are served but we seem to have a difficult time getting there and I certainly want to continue working with you to help move it along.

    Mr. DOOLITTLE. Mr. Farr is recognized.

    Mr. FARR. Thank you very much, Mr. Chairman. I want to first of all thank you for having the hearing. I think this is one that this Congress needs to really focus on. It is kind of a misnomer that the Bureau of Reclamation reclaims all this water because my idea of reclaim is reuse and I think we ought to put more emphasis on it.
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    I am a little bit disturbed because I am not sure which way your testimony wants to lead us. At one point you point out that you commend Congress for cutting out the small loan program and on the other part of your paper you say that there is a growing demand to devote a greater portion of the Reclamation budget to water reuse projects.

    How can we meet the demand which I think is an appropriate one, to use essentially very expensive water that we are cleaning up; sewage water that we are treating and move that treated water from dumping it in rivers and oceans to moving it to Reclamation. As you know, the area I represent in Salinas Valley has been a very successful project thanks to the Department, and frankly, thanks to the Department being able to grant the last large loan.

    These projects are going to be opening in the latter part of this year and it will be the largest amount of agricultural land in the United States that is being irrigated by reclaimed water. The point is that I do not find in the Bureau's new strategic plan under the reinventing government initiative any language regarding new projects which the Bureau intends to undertake regarding reuse of reclaimed water.

    And I would like to see us put more emphasis on that. Mr. Garamendi, when he was here on the CVPIA oversight hearing, discussed water that we needed in the Pajaro Valley. They have been on the list to get CVP water for a long, long time. They are not able to get it. And the question was how do you resolve this problem because you can't just drop that ball.

    So my point of interest here is to see what we can do to expedite the stand to get some moneys to those communities who really want to go to effective reuse for Reclamation projects.
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    Mr. MARTINEZ. Mr. Chairman, my personal perspective is that reclamation and reuse of these water resources is a good way to create for lack of a better word new water supply. What I am trying to point out here is that Reclamation has a budget to work with, $764 million, with competing interest.

    To the extent that we would aggressively fund wastewater reuse projects it indicates that in the next year we will need $130 million. The question is where are we going to get the $130 million? If we turn to our $764 million budget, this will impact our ability to continue to construct the projects that have been authorized.

    It will further complicate our ability to maintain and operate our system. The question is, if we are going to move forward on some of these initiatives how are we going to fund them?

    Mr. FARR. Well, exactly. The loan program seems to me a way to work that. I understand it was very cumbersome. It was too long. It took years and years to qualify for the loan and some of the loans were not paid back but if indeed when you say that reuse is the newest source of water and it is a high priority for you then why isn't there an emphasis in moving that priority into the fiscal arena as well?

    Mr. MARTINEZ. I think my testimony in the past has indicated that it is my belief that the Small Projects Reclamation Loan Act as it currently exists has outlived its usefulness. I think that perhaps there might be a reformulation, from my personal perspective, a reformalization of that program that might allow Reclamation to fulfill its mission and I will continue to engage other parts of the Administration to try and see if we can move forward in that initiative.
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    Mr. FARR. We need some leadership here. That is what I am asking. Where is the leadership to say that what you just stated, that this is the best new source of water. It might be it is all paid for because it is already in—you know, it is being collected and delivered to the households and businesses and it is being delivered back to its treatment plant.

    It is just a matter of upgrading those treatment plants and getting the distribution system in. It seems to me a very cost effective way of gaining new water and environmentally without any problems. But where is the leadership from the Bureau of Reclamation saying that this is going to be one of our agendas?

    Mr. MARTINEZ. We are taking an aggressive approach to try and move these projects forward. The bottom line is that the demand for these programs is expensive. The Federal commitment on the four projects that have been authorized already and where construction is taking place in California requires a Federal commitment of over $300 million.

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

    Mr. MARTINEZ. They were grants.

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

    Mr. MARTINEZ. Yes, the loan but these are—and I am talking about the wastewater reuse projects in California are grants. Over $300 million.
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    Mr. FARR. And yet, excuse me, it turns out that your paper says you do not support the loan program, you are glad it is phased out and you would like to encourage the grants. See, I do not see where the leadership is coming from to try to get to move in that direction.

    Mr. DOOLITTLE. Mrs. Chenoweth is recognized.

    Mrs. CHENOWETH. Thank you, Mr. Chairman. Mr. Martinez, the Chairman in his opening remarks made reference to the recent draft as a strategic plan of the Bureau of Reclamation and I studied that plan also and I was pleased to see that the Chairman pointed out the fact the Bureau has said there is no new water and yet just two pages away you talk about acquiring more water especially for conservation practices in the movement of fish especially in the west. Where do you intend to get that water?

    Mr. MARTINEZ. If I might try to put it in context. I think the GPRA plan basically says that we need to turn our attention away from the concept that we are going to provide new water resources by building water projects, building new dams, new reservoirs for two practical reasons. One is the expense of these projects, and second of all is the mood of the country.

    But if there are other forces to create additional water supply, wastewater reuse would be one source, water marketing would be another, water conservation or the improved management of water resources would be another. So in summary where we are headed is to make better use of the resource that we have developed to provide the needs out west rather than creating a new water supply project.
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    Out west there is a tremendous amount of water underground that is saline. To the extent that we take the leadership in reclaiming saline water in a cost effective way it would be providing new resources. Wastewater reuse we just finished talking about. But those are expensive projects and my testimony indicates that with the Bureau of Reclamation's existing budget there is not enough money to fund all projects.

    On the 16 projects that have been authorized for construction for the next few years, they require almost half a billion dollars. I support these projects but I cannot support them at the expense of moving money from one part of my budget to another part because I got a commitment, other commitments, I have to live with.

    Mrs. CHENOWETH. In your draft strategic plan you talk about acquisition or leasing of water rights and ways to improve environmental conditions and I found that beginning on page—you also discuss it on page 2 of your testimony. How do you intend to finance this kind of acquisition and when and where did the Congress give the authority or confer the authorization to the Bureau for this kind of acquisition whether it be leasing of water rights or selling of storage rights?

    And then the second part of my question—the first part, where is the money going to come from, secondly, did Congress defer that on your Department? And, thirdly, isn't a storage right a contract obligation rather than a right that was somehow acquired by the Bureau to be able to sell or rent?

    Mr. MARTINEZ. The authorization to use those kind of moneys would have to come from Congress. In the absence of a new allocation to the Bureau of Reclamation for those purposes, we would have to look within our existing resources and make recommendations as to how to best utilize those resources.
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    And if the national priority to purchase water to address certain environmental concerns outweighs the use of the money for other purposes, we would be making those kind of recommendations to the Congress.

    With respect to the acquisition of water the one that comes to mind is the Thunder River Basin where based on the biological opinion issued by the National Marine Fisheries Service Reclamation is charged with acquiring water. We are acquiring it from willing sellers under Idaho law for the purpose of addressing fish concerns. We have requested the appropriations in our budget and Congress has seen fit to appropriate the money to us.

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

    Mr. DOOLITTLE. Commissioner, how many in-house engineers does the Bureau employ?

    Mr. MARTINEZ. I would be glad to provide that information to you but I would probably say that the Bureau of Reclamation is primarily an engineering organization.

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

    Mr. MARTINEZ. Well, we have a large infrastructure out west and it is imperatively important that we maintain an expertise, an engineering expertise, to maintain that infrastructure. So one of the things that I did when I became Commissioner is I created an in-house task force, to look at how we were going to be able to maintain an engineering capability to make sure that our facilities remained adequately maintained and sound replacements were made from an engineering standpoint. And we are not going to lose that expertise.
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    Mr. DOOLITTLE. So where there is a trend toward privatization going on all around the world, why couldn't you maintain that expertise largely through contracting out and terminating the in-house engineers that you have, retaining a few who you need to supervise the work of the contractor? I do not know how many hundreds you have but you have a lot, I presume.

    Mr. MARTINEZ. Let me try to answer it from this perspective, Mr. Chairman. The Bureau of Reclamation at the height of its dam building in the 1960's had, I understand, about 35,000 employees. We have cut back in the last two years approximately 20 percent of our employees and we are reducing the number of engineers. We are hoping to maintain an adequate work force to address our needs. And we are down to about 6,000 employees now.

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

    Mr. MARTINEZ. About 6,000 now.

    Mr. DOOLITTLE. And what percentage of those, and I realize you can submit the precise number for the record, but what you get, what percentage of the remaining employees are engineers?

    Mr. MARTINEZ. I would venture to say—I would be happy to provide the information to you but in terms of overall percentages we probably have less engineers percentage wise now than we did back then but I will provide that information to you.
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    Mr. DOOLITTLE. What about the idea of contracting out to the private engineering firms that have demonstrated an ability now to design big complex projects like we used to build and hopefully will build in the future?

    Mr. MARTINEZ. I will provide you the information but I believe, like I said, we are contracting out but it would still be my recommendation and I think it would be remiss as long as the Federal Government holds title to some of these facilities, especially facilities such as the dam on the Columbia River, Grand Coulee Dam, and Hoover Dam and these large dams that it is imperative that we maintain in-house expertise to address those issues.

    Mr. DOOLITTLE. Well, couldn't you maintain in-house expertise and simultaneously accelerate the amount of work going out to the private companies? Are we so lean in the Bureau of Reclamation that we are not capable of further reducing in-house engineers without damaging the minimum level of necessary expertise?

    Mr. MARTINEZ. If what you are asking me is should the Bureau of Reclamation operate with entirely outside consultants I think that my advise to this commission, to the Administration would be, no, we need to maintain some in-house expertise.

    Mr. DOOLITTLE. Just so we have a meeting of the mind—if the private sector can do it, and if by definition they can do it less expensively than the government, do you really need to have in-house engineers beyond the minimum necessary to supervise the work of the private contractors?

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    Mr. MARTINEZ. I see your objective and I believe that the record will reflect that we have reduced our in-house engineers. We do contract but we need to have a balance and I will revisit that and I do believe that we ought to be as cost efficient as possible but we need to make sure that we protect the Federal Government's interest in doing that.

    Mr. DOOLITTLE. I still do not feel like you have given me a direct answer to that question. I am not trying to badger you to say something you do not want to say, but—well, maybe you do not want to say it. To me, the answer should clearly be, yes, we can make further reductions. Now is that not the case in your mind?

    Mr. MARTINEZ. Mr. Chairman, I would have to look because we have reduced substantially in the last two years. What I do not want to do is leave you with an impression that I can reduce much further than that. I need to go back and revisit that and find that information because of the 2,000 positions that we have lost in the last two years, the majority of those have been highly technical engineering positions.

    I do not think I can tell you that I am going to reduce my staff by another 2,000 engineers. I might not have that flexibility but I can provide that information.

    Mr. DOOLITTLE. I agree with you. I think we have suffered a tragic loss in expertise out of the Bureau of Reclamation, but it must be very demoralizing for these highly trained engineers to find themselves being converted into an environmental restoration agency instead of a water management agency, which is what the law intended and I believe intends them to be. Mr. Farr is recognized.

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    Mr. FARR. Thank you, Mr. Chairman. I would like to follow up with a question for Mr. Rezendes. If we are going to have a fixed budget for the Bureau of Reclamation in this downsizing era, if indeed there is an agenda out there that, we need to find some capital funds for moving into the new reuse issues. I guess the question then comes to where you can cut the Bureau's budget.

    And it seems to me we have gone through a process here, that is the same in the military, where we went to the BRAC Commission to suggest to Congress what bases ought to be closed; and it was a recognition that we really did not need all that Federal real estate for the mission.

    I come from a State where you have a California State water canal and you have a Federal canal, two canals running right next to each other, one run by one government and one run by the State. The price of water is different in each canal. It begins to appear that maybe we have reached a time of maturity in this country where a lot of those projects that we run at the Federal level be run by the States or by a consortium of States.

    Should we consider the unloading of some of those projects to a local level and then reserve whatever savings we get then to move into these new agenda items?

    Mr. MARTINEZ. We have not specifically looked at that. I can tell you the cost effectiveness of what the implication of that would be but I think that certainly is an option, I think you put your finger on it. I think a decision has to be made here in the Congress as to what the missions and the roles or responsibilities of the Bureau of Reclamation and which business you want to be in at the Federal level.
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    And once you decide that then it is easy for GAO and other people to come in and then tell you how best that could be played out through either the State level or contracting out or various other kinds of options.

    Mr. FARR. Well, I have a vested interest in this law because my great-great uncle was Senator Newlands who wrote the new Reclamation Act, but on the other hand we are in a different era now where we have different sources of water and we need to practice water conservation.

    I live in a coastal area that gets no water except for what comes out of the sky and if we get a dry year we live with it and we have learned to—we have a water bank for every community that essentially you are given an allocation of water. In that community that is all they get. If they want to build water-intensive projects and use up their water allocation that is it, but once they have reached that limit they cannot get any more water so people have become very conscientious about water and I think we probably done a better conservation job than anywhere in the United States.

    And we have allowed with that savings to provide for growth. It just seems to me that we need to in the 1990's to relook at the way we govern water and suggest that perhaps there is some governance at the local level that could be more progressive than at the Federal level and be more cost effective.

    And I would think that your agency, the general county agency, ought to be coming to this Congress and making some of those recommendations.
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    Mr. DOOLITTLE. Mrs. Chenoweth.

    Mrs. CHENOWETH. Thank you, Mr. Chairman. I am interested, Mr. Martinez, in your telling us how the Bureau intends to address the continuing O&M backlog at many of our projects. I know in Idaho we have a backlog of operation and maintenance. With the financial picture that you have presented and so forth could you please let us know when you are going to bring that up to date?

    Mr. MARTINEZ. It is my understanding that the Bureau of Reclamation is addressing operation and maintenance in all facilities to the point where we do not have any unsafe projects. Now there are some needs out there that need to be addressed and we have identified those needs and we will seek funding to address those needs over the next few years.

    In California, we will be seeking funding over the next few years to complete those items on our RACS lists. But I do not want to leave you with the impression that we have unsafe facilities. We are adequately addressing the maintenance of our facilities to make sure that they are in safe condition.

    And I have told my management team that I place great emphasis on that and in the last two budgets we put more money into that area because I am concerned as you are concerned about those facilities.

    Mrs. CHENOWETH. Thank you, Mr. Martinez. With regard to your answer on a previous question where I asked where did the Congress confer the power to the agency to move water or managed water for environmental purposes, I believe that your answer was because the money has been appropriated for that purpose, is that correct?
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    Mr. MARTINEZ. Well, we have several Federal laws, and I will be more than glad to provide the information, but with respect to the appropriations our budget document specifies and documents how those moneys will be used.

    And I am assuming that when Congress appropriates our money for our budget it appropriates under the conditions that we have requested for.

    Mrs. CHENOWETH. I wonder, Mr. Chairman, if it would be all right with you if we can ask for a copy of that for this 1997–98 year.

    Mr. MARTINEZ. Yes, we can provide it.

    Mrs. CHENOWETH. How much of a percentage of your budget has been allocated in that document for acquisition of water in one form or another either rental or leasing or purchased?

    Mr. MARTINEZ. I am advised that it is under 1 percent but we will provide you that information.

    Mrs. CHENOWETH. Thank you. And then we also ran out of time last time when I asked you how is it possible to sell storage rights as a water right? Since it is a contract it is a concept in contract and it was never a condition of the bargain that storage rights could be sold and it tortures the whole concept of contracting.

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    Mr. MARTINEZ. Well, I am not prepared—I am not familiar enough with the concept to answer that question but I will get an answer to it.

    Mrs. CHENOWETH. Would you, please? Mr. Leshy has been very aggressive in pushing for the sale of storage rights and storage rights are much like a building that you drive your car into to rent that space. The Bureau does not own the car when it is driven out. It does not even own the car when it is in the space and so we are very concerned. This is an issue that I am watching very, very carefully.

    I hope we do not have to resolve this issue in the courts because, Mr. Martinez, I very sincerely believe that you do exude leadership and I have not been entirely pleased with the philosophy and the direction of the Bureau but I believe you are a very, very capable man. And to that end I want to congratulate you. Thank you.

    Mr. MARTINEZ. Thank you. In New Mexico where I am from, we do not have any storage right conflicts so I am not familiar with that but I will find out about that and visit with you.

    Mr. DOOLITTLE. Mr. Smith is recognized.

    Mr. ROBERT SMITH. Thank you, Mr. Chairman. I apologize for being late and to the other members as well. Thank you very much for holding this hearing and I am pleased to be able to say hello again to Mr. Martinez who has been to Oregon and is very familiar with an issue that I want to raise with him today which has to do exactly with the climate of irrigation projects which is in northern California and southern Oregon which has been, Mr. Chairman, under great debate of late with respect to the questions of increased demand of water between the BIA and the environmentalists, Fish and Wildlife, and of course the concern by those who irrigate in the climate's region of about 12,000 families, by the way, who take their living from the project which was completed in '95 by the Bureau of Reclamation and probably is the most efficient use of water, everyone agrees, maybe in the nation.
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    It is an immense effort and one that everybody I think agrees is an engineering wonder. Of late, however, as I say, under the increased competition for water there has been increased concerns that water that comes through that region be identified for other purposes than irrigation.

    And, Mr. Martinez, though I might add, Mr. Chairman, two to four decisions have been made on the distribution of water which really is in the area of the Bureau of Reclamation by the Bureau of Reclamation. Normally it is done at a local level by those people that are in charge. Recently, however, in the last year and a half or two years the decisions have been seized from the Bureau of Reclamation and are now being made in Washington, D.C., by the Department of Interior.

    Now that creates a whole different cast on the decisionmaking process and the question I am about to ask Mr. Martinez may be involved with decisions that he had nothing to say about because he was not consulted. And they go like this. Mr. Martinez, let me review again, the question I have of you some time ago regarding the reimbursable cost to the climate project and we went through that and I would ask you if you have it to further identify those costs that are reimbursable or non-reimbursable to water users simply because there is great concern.

    For instance, I have before me here the previous five-year repayment history of the climate project which indicates an item called investigation cost—I think it means fish cost from $189,000 in September to $3.797 million in 1995. That is so far as I can understand it the reimbursable cost which means water users have to pay for it.

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    The question is should the water users pay for a public interest item like the advancement of fish or should they only be paying for project direct costs for approving the project?

    Mr. MARTINEZ. I am aware that the costs for that project have gone up and I am aware that the irrigators are concerned about the portion that they have to pay. I will be glad to look at that and then visit with you. That is sort of an issue that also is tied in with this facility transfer issue and the cost studies.

    Mr. ROBERT SMITH. Well, let me ask one other point, as you well know about, but, for instance, as short a time ago as three years—I may want to correct that. Yes, a short a time ago as three years the districts were about to repay the total cost of the Reclamation project, Mr. Chairman, that started in 1995. Irrigators must pay, as you know, for all of these costs over a period of time.

    Since that time there have been loaded up on the district enough questionable payments to indenture the district for 20 years and at the same time that the irrigators were never asked whether they supported or opposed these additional charges. And so that brings the next question. If I might ask unanimous consent to continue, Mr. Chairman.

    Mr. DOOLITTLE. Just reasonably follow the redlight. There are not too many of us here so please just go ahead.

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

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    Mr. DOOLITTLE. Just quickly.

    Mr. ROBERT SMITH. Thank you, Mr. Chairman. The question that follows again, Mr. Martinez, is I want to ask you indeed in the future if there is a reimbursable cost that you have identified for the irrigation district would you consult with the irrigation district prior to the time you went forward with that sort of an endeavor?

    Mr. MARTINEZ. I can commit to you that from the Bureau of Reclamation's perspective we will do that. But I think that what you have hit is a very interesting issue and the issue is this. As the Bureau of Reclamation is charged with relooking at how it should operate its projects to meet either Indian trust responsibilities or environmental issues.

    And to the extent that it undertakes expenses and studies is it proper to charge the irrigators for those studies or should that be a national expenditure and that is what you are asking really. And at this point in time the irrigators are being asked to pay a certain percentage of it and they have a concern. And I know what your concern is and I will follow up on that.

    Mr. ROBERT SMITH. And I will take that with anybody. If we are pursuing an endangered species that is a nationwide problem brought on by an act of Congress. If we are pursuing the Bureau of Indian Affairs rights that is again a national problem. It has nothing to do with the Bureau of Reclamation project in the climate project. I would yield back, Mr. Chairman, and wait for another round. I had one more question.

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

    Mr. ROBERT SMITH. Thank you very much. I thank the members of the committee for indulging me here. Mr. Martinez, you may know, I know you know, there is a water supply initiative that is being proposed which I welcome, that everybody does, the satisfaction of the climate project issue can be solved with either increased storage or groundwater or both. We need 70,000 to 100,000 acre feet of water that satisfies the Endangered Species Act, that satisfies the tribes, and it would protect water coming from—for irrigators.

    In the water supply initiative do you have money in your budget to begin either pumping water or determining the aquifer for trying to find a method to put more water in that river below Iron Gate going into California which would really support the full system immensely?

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

    Mr. ROBERT SMITH. Thank you, gentlemen.

    Mr. DOOLITTLE. Commissioner, following up on the question Mr. Smith raised with you, does it seem strange to you, it seems strange to me, that for fully reimbursable costs for operation and maintenance the Federal Government is not undertaking these obligations on the one hand and yet on the other hand they are more than happy to mandate costs on the irrigators, etc., for environmental purposes? What an upside down world we live in. Doesn't that seem strange to you?
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    Mr. MARTINEZ. In that context it does seem strange to me. And I have been trying to come to grasps with that issue and I guess the issue is that we could put before the Congress a budget request for instead of $764 million—$864 for an additional rate program for efficiency. They do occur out there.

    Even though they are reimbursable we still would need the appropriation and I think that is the crux of the question. That is based on the limited resources that we have and the competing mass we have put together, our budget proposal we think best meets the needs that exist out there.

    Mr. DOOLITTLE. Mr. Martinez, I hold you in high regard, so I apologize that sometimes my questions seem hostile, because really they are not directed at you personally. You are in the position you are in and you are defending the Administration of which you are a part.

    But this philosophy of smaller is better reminds me of a bygone era, namely, the Jimmy Carter-Jerry Brown era and I find it very frustrating to sit here and to maintain that we do not need to develop new sources of water. In one of the counties I represent, and one I used to represent, they are busily overdrafting their groundwater basins just so we can make sure we are in tune to the so-called national climate that I believe you mentioned which I think there is no national climate at all opposed to dam building.

    It is a tiny minority which has incredible clout with the public officials and with the media. I think the national climate would support having ample supplies of clean water. When I witness this overdraft of the groundwater, we are ruining our aquifer in San Joaquin County because of the overdrafting.
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    But that is OK because it fits in with the environmental agenda and dams do not anymore. Let me ask one of the three of you if you could comment. Don't these multi-purpose dams that we have pay for themselves many times over? Could someone comment upon that?

    I know that it has to be addressed dam by dam but I have been told, for example, the Folsom Dam completed, I believe, in 1955 or thereabouts has paid for itself two or three times over. Could one of you comment upon that?

    Mr. MARTINEZ. Let me just answer from a general perspective. To the extent that the Bureau of Reclamation projects in my opinion, personal opinion, have opened the west to development that have prevented flooding in certain areas, they have paid for themselves. Now whether that is good or bad can be debated.

    Mr. ROBERT SMITH. Well, I am not going to debate. I think it is good, don't you?

    Mr. MARTINEZ. But we have an infrastructure and a develop list that has basically come about because of water development projects.

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

    Mr. MARTINEZ. I personally believe it is good.

    Mr. DOOLITTLE. Does the Clinton Administration think it is good?
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    Mr. MARTINEZ. But now that we have completed that task we are turning our attention to other issues and that is what the mirror of this discussion is.

    Mr. DOOLITTLE. Well, I am not going to argue with you about it. I would ask the question, why are we turning our attention to other issues? It seems to me that as the population continues to grow, the demands on the limited resource, unless we develop more of it, are going to get more intense. So, we ought to be responding.

    I am in favor of water conservation like everybody else but to pretend that that is going to be the main source of our future water supplies is absurd because we are not going to be willing to live with the restrictions that go along with extreme conservation measures.

    All right, let me ask you this. We have talked about transfers. Have we had any transfers under the Clinton Administration since their policy on transfers was announced?

    Mr. MARTINEZ. Facility transfers?

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

    Mr. MARTINEZ. Yes, we have had the transfers on the lower Rio Grande project and the project in New Mexico but I believe the legislation most probably passed before the Clinton Administration.

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    Mr. DOOLITTLE. Those were the ones that were in the pipeline before the reinventing government policy came along, weren't they?

    Mr. MARTINEZ. That is my understanding.

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

    Mr. MARTINEZ. No.

    Mr. DOOLITTLE. And I am trying to transfer one little isolated unit of the Central Valley project and the Clinton Administration opposes it.

    Mr. MARTINEZ. We are working toward making sure that we get some on board. Hopefully we will be successful this session.

    Mr. DOOLITTLE. I see my time is up, but if Mr. Smith, who is the only one who could possibly object, will indulge me. What is the present backlog of operation and maintenance for the Bureau of Reclamation?

    Mr. MARTINEZ. I do not have that and I do not believe we have any eminent backlog but there is a list of RAC items in the California region. I would be glad to provide you that. I will be glad to provide you our response to that in writing if I can.

    Mr. DOOLITTLE. Well, the figure just for the CVP strikes me as about $80 million. Does that ring a bell?
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    Mr. MARTINEZ. I will be glad to respond to that.

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

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

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

    Mr. MARTINEZ. Let me answer from this perspective. Leaving aside whether there is or is not a backlog right now we have a large infrastructure out west and the Federal Government has a large responsibility to maintain that infrastructure. That infrastructure is aging and it is going to require more and more Federal monetary commitments.

    So it is in the Federal Government's best interest to get some projects in private hands if it can so that others bear the cost. The issue is going to be if you do transfer that you put in place a provision where the project owners then do not come back to the Federal Government at some point in the future to seek funding if they are not able to correct the actions.

    So there is benefit in transferring the projects to private hands if they are going to assume all liability and all financial risks in the future.
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    Mr. DOOLITTLE. Well, I was under the impression that the ones who want to do it have been willing to go for that but this has met with resistance by the same national climate that opposes the development of more water supplies or opposes doing anything that is not consistent with their own narrow agenda.

    Because I can tell you this. This is the most anti-transfer Administration I think I could say I have ever seen. The Administration's actions are so contrary to what it says in public, which is it supports transfers. When you attempt one, it erects every possible barrier to accomplishing it.

    Mr. MARTINEZ. Mr. Chairman, I commit to working with other parts of the Administration to make sure that we bring some of these to closure.

    Mr. DOOLITTLE. Well, let me tell you. I hope they increase your power and influence, Mr. Martinez, because I do believe if you have the ability to implement some of these policy directives, you would produce solutions. I simply express my frustration that it appears as someone else, I think Mr. Smith, was talking about many of these decisions being made at a higher level than yours so your hands are in effect tied.

    But I value your good will and practical problem-solving oriented approach. If you could, Commissioner, I would specifically ask for information that you can submit supplementary to the hearing, regarding the issue of the Folsom Dam, its construction cost and the amount returned to the Treasury over the years from the dam.

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    Let me ask our General Accounting Office and the Congressional Research Service also to please look into this general subject area on the issue of the dams and provide the committee with the information that you turn up.

    And I will be happy, if you want further specificity, to put it in a letter. It is my belief that in the terms of both the actual costs recovered from the sale of power and in terms of the avoided costs and natural disasters these things have paid for themselves many times over, and I would like to see that documented. I am finished with my questions and I recognize Mr. Smith.

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

    Mr. DOOLITTLE. All right. We thank the first panel and we will have perhaps further questions. I would ask you to please respond expeditiously when they are tendered. Thank you. With that we will excuse you and ask our second panel to come forward.

    We have on the second panel James Smith, Executive Director, Council of Infrastructure Financing Authorities, Mr. Eric L. Flicker, Vice President, American Consulting Engineers Council, Mr. Thomas F. Donnelly, Executive Vice President, National Water Resources Association, Mr. David C. McCollom, General Manager, Olivenhain Municipal Water District. Let me ask you, please, to rise to raise your right hands.
[Witnesses sworn.]

    Mr. DOOLITTLE. Let the record reflect that each answered in the affirmative. Well, gentlemen, we are just here together. Let me recognize Mr. Smith if he will begin the panel's testimony.
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    Mr. JAMES SMITH. Thank you, Mr. Chairman. I am James Smith, Executive Director of the Council of Infrastructure Financing Authorities referred to as CIFA. It is a non-profit association representing state and local public financing authorities. Members of the organization have the capacity to issue debt mostly in terms of bond indebtedness for infrastructure financing and most administer at least the financial aspects of the State Revolving Loan Funds for wastewater and drinking water facilities. I am pleased to be here today to describe that program and its successful operation to the committee at their request.

    In 1987 the Clean Water Act was amended to alter the fundamental approach to financing municipal wastewater treatment improvements. The construction grant program, which had provided grant assistance for municipal wastewater treatment projects, was transformed into a revolving loan program.

    Under the loan program, capital grants are now made to each state. They are matched by a state contribution of 20 percent, and they provide a source of low-cost borrowing for localities to finance their wastewater treatment needs with 20-year loans to municipalities and communities.

    Managed as a revolving loan fund, with the retainment of principal and interest returning to the fund to be lent again, Congress envisioned a loan fund that could effectively operate in perpetuity, providing low-cost financing well into the next century.
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    In addition, Congress provided one other unique feature which has proven to greatly enhance the growth and lending capacity of the funds, that is, the capacity to leverage the dollars in the fund by borrowing in the municipal tax-exempt market. This capability to leverage the funds is one of the most innovative and successful features of the SRF.

    About one-half of the states have used this funding device to increase their lending capacity, and a number of other states, while not directly leveraging the Federal dollars, combine the SRF fund with other state funds which are leveraged in the bond market, also increasing the overall pool for lending. Some states leverage their funds at ratios as high as 4:1. I mention this because it is an example of the flexibility and ingenuity that can be demonstrated in the management of these loan funds.

    Together, the Clean Water SRF lending pool, according to recent EPA data, has grown to approximately $22 billion. Through state match, fund leveraging and the return flow of interest and principal back to the fund, the Federal capital contribution of approximately $11 billion has been more than doubled.

    Over 4,400 low-interest loans have been made; 1,000 just in the last year. The average rate, the lending rate, for these loans which I mentioned are 20-year loans is roughly about 3 percent and so far I am very pleased to say that in the experience of the program there has not yet been a default.

    SRFs are a true success story. Loan repayments are approaching $1 billion a year, returning to the fund to be relent again. Does the SRF loan prototype have potential for application to other types of infrastructure investments? Well, obviously, as a loan program, the SRF is most adaptable to those types of financings with a revenue stream for repayment, such as a public utility.
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    Congress, in last year's reauthorization of the Safe Drinking Water Act, created a State Revolving Loan Fund to finance needed public drinking water supply improvements. Here I might just parenthetically add that EPA has restricted the use of those funds for funding any kind of reservoir or dam facility even though it may be associated with water supply. I think this reflects a colossal misunderstanding of how water is supplied, domestic water is supplied, particularly in the west.

    The loan fund concept is being advanced for other areas as well. The State Infrastructure Banks created by the National Highway Designation Act of 1995, initiates a system of loan project financing that can be a revolving loan system.

    In closing, I am not closely familiar with the project cost allocation and repayment requirements of the Bureau of Reclamation's water projects, so I am not prepared to provide an opinion on the adaptability of the loan funds, especially with its leverage capacity, to those types of projects.

    However, I am willing to provide the committee and its staff with any additional information you may wish on the SRF operations, or answer any of your questions. Thank you.

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

    Mr. DOOLITTLE. Thank you. Mr. Flicker, you are recognized for your testimony.
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    Mr. FLICKER. Good afternoon, Mr. Chairman, and thank you for inviting me to testify before the Water and Power Subcommittee. I am Eric Flicker, Vice President of Pennoni Associates, Inc., and also a Vice President for the American Consulting Engineers Council, or ACEC, a trade association representing approximately 5,000 engineering firms.

    Each year, our member firms design over $100 billion in completed public and private infrastructure projects. Our firms are overwhelmingly small business with 80 percent of our members employing 30 people or less. Nevertheless, ACEC member firms have worked in nearly every country in the world.

    I will first touch on the infrastructure crisis that our country faces. The United States faces a critical challenge to provide sufficient infrastructure investment to meet the ever increasing demand placed upon our roads, water and solid waste systems, ports, and other public works. Today, all we must do is look around and we will see evidence of neglect all around us, particularly in the area of water pollution and the availability of a ready supply of clean drinking water.

    Why is infrastructure important? Both the quality of life our citizens enjoy and our nation's overall competitiveness are at stake. We know, for example, that countries that invest a higher percent of GDP in public works than the United States enjoy a higher productivity growth.
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    Truly the value of infrastructure is not the jobs that construct it, but in the way the completed infrastructure underpins the quality of life of a region. Just ask those who have suffered a natural disaster if infrastructure is important. The arguments for infrastructure impact directly on the issue before this committee, providing for the water resource needs of our western states.

    Lack of adequate resources will impact cities, farms, and industry, which will have a tremendous effect on the economic vitality of the region. Privatization is an important tool. Let me take a moment to talk about it.

    As the Federal source of infrastructure funding decreases others must pick up the slack.

    The states, counties and municipalities are now turning to the private sector to help them achieve their mission of assuring there is adequate infrastructure to protect the health and safety of their constituents. Drinking water, wastewater treatment, prisons, highways and airports are all being privatized under a number of schemes.

    In some cases, the asset is actually sold to the private sector. In most cases, particularly wastewater treatment, the facility is leased to the private sector for a length of time, which saves considerable amounts of money for the municipality. In my written statement, I highlight the tremendous growth of privatization in this country and particularly in other nations around the world.

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    The United States is behind a number of developed and developing nations in this area. It is my hope that we will soon catch up. There are significant funding mechanisms that have potential to improve this situation. Let me touch on them.

    Over the years, well-intentioned regulations have been issued to protect the public's interest.

    Unfortunately, they are having the opposite effect by limiting the ability of government to use innovative financing, or partnering with the private sector, to deliver infrastructure. In my written statement, I highlight four Federal changes that would facilitate private sector infrastructure investment.

    I urge you to work with your colleagues on the Ways and Means Committee to address these issues. I have shared with you a number of ways to use the private sector to help the government and this subcommittee achieve their goals of providing for the water resource needs of the nation. The important question to answer now is how to use the private sector and what is the role of the government in delivering infrastructure.

    There may have been a time in this country when the Bureau of Reclamation needed to do in-house engineering to meet a specific need. This is no longer the case because it can contract out to the private sector. Unfortunately, not only does the Bureau of Reclamation maintain a significant in-house capability, it is marketing that capability in competition with the private sector.

    I have attached to my written statement a copy of a marketing brochure used by the Bureau that has been provided by our Washington State affiliate. ACEC has also received complaints from our members that the Bureau of Reclamation is competing with them for design at state, local, and tribal projects. They are not only competing with us domestically but internationally.
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    Mr. Chairman, I have included a report in my written statement that shows that agencies that contract out the majority of their engineering work are the most efficient. The lessons of this study apply to Federal agencies and to the type of work that the Bureau of Reclamation is doing. I hope that the relevance of this report to the issues we are discussing today is clear, the subcommittee can stretch its project resources further by assuring that the Bureau of Reclamation contract out to the maximum extent practical.

    Even quasi Federal agencies are competing with us. For example, Bonneville Power Authority has increased the size of its internal engineering resources and begun marketing them to clients in competition with consulting engineers. Let me conclude, Mr. Chairman, and members of the subcommittee by saying that ACEC stands prepared to assist you in achieving your goal of assuring that the water resource needs of this country are met as efficiently as possible. Again, thank you for this opportunity to testify before the subcommittee. I look forward to answering your questions.

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

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


    Mr. DONNELLY. Thank you, Mr. Chairman. Before I begin, I have two statements from member agencies within our association that I have been asked to submit for the record.
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    Mr. DOOLITTLE. We will include them in the record.

    Mr. DONNELLY. Thank you. In the west water infrastructure needs continue to exist. However, on the whole they are quite different from those of the past. No one envisions a future infrastructure development program and financing arrangements like the Reclamation Program. It is time to recognize and address a new generation of infrastructure development needs and financing realities.

    Future projects are more likely to feature non-structural solutions, environmental enhancement, proven best management practices, innovative approaches to water quality/quantity problems, and greater levels of non-Federal financing. Meanwhile, however, the Bureau of Reclamation must continue to maintain and improve upon existing projects and programs.

    An essential element, which is currently missing from the planning equation, is a basin by basin infrastructure needs assessment. Such assessment cannot be developed without the active involvement and, perhaps, the leadership of the Western governors, water resources professionals, and state and local officials.

    Over the years, several Federal water projects have been authorized by Congress but remain unfunded. These projects should be reviewed to determine if they still meet the needs that they were authorized to address. Additionally, Congress should determine what projects benefits remain in the Federal interest for funding purposes.

    The Bureau of Reclamation recently published its draft Strategic Plan. The plan calls for the Bureau to complete construction of all sixteen water and energy supply projects which are currently under construction. These projects should be completed as rapidly as possible in an effort to minimize cost and keep faith with the states and project beneficiaries involved.
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    Congress should not allow special interests to continue to unnecessarily delay these projects until the cost to complete the projects has undermined the Federal investment. Congress should take a more aggressive role to ensure that projects which facilitate the settlement of longstanding Native American water rights claims against the Federal Government are funded and completed expeditiously.

    There are urgent needs in existing programs that are not being completely met. These include the Colorado River Salinity Control Program, annual operation and maintenance, Native American water rights settlements, rehabilitation and betterment, and the Small Reclamation Loan Program projects.

    Without an adequate annual operation and maintenance budget the question simply becomes how many balls you can keep in the air at one time. Given the fact that Bureau of Reclamation project water users are required by law to reimburses the Federal Government for operation and maintenance expenditures on an annual basis, there seems to be little justification for annual O&M budgets that require deferred maintenance to occur and accumulate to a crisis level.

    Generally, throughout the Federal Government, small project programs provide the most bang for the buck. Nowhere has this been truer than the Bureau of Reclamation's Small Reclamation Projects Program. One comment that Mr. Farr made earlier about possibly being several defaults. To my understanding, in the Small Reclamation Program there has not been one default since 1956 since its inception in 1956.

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    In early 1995 the Administration announced the termination of several Department of Interior programs, one of which was the Small Reclamation Program. Rather than accept the Administration's bad decision NWRA took a more responsible course and developed ideas that culminated with the introduction of H.R. 3041 during the 104th Congress.

    The changes proposed by H.R. 3041 are contained in my full statement. Loan guarantees remain an unresolved issue for us. We have committed to sit down with the proponents of loan guarantees. We would like to get that done in May so that legislation could be reintroduced and hearings held in June.

    We do not have a problem with the concept of loan guarantees. However, at this time our position remains only to support such guarantees if they are made to governmental entities with specific conditions. There is no question that the financing of future project development will be necessarily different than in the past.

    Times have changed and the national goals accomplished through the Reclamation Program are generally satisfied. A significantly higher percentage of the cost of future development must be borne by state and local governments and project beneficiaries. However, other important sources of revenue must continue to be utilized.

    Power revenues in particular must continue to be made available as a funding source for water resources development. The National Water Resources Association strongly supports the position that tidal and operational control should be expeditiously transferred to Reclamation project beneficiaries where the contracting entity is willing and able to assume full responsibility for the project.
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    In order to concentrate on its future goals and objectives the Bureau of Reclamation should be anxious to transfer those projects that can be operated and maintained more efficiently by local beneficiaries. Congress should take the appropriate steps to facilitate transfers that make sense from a financial and public policy perspective.

    Thank you, Mr. Chairman. At this time I will attempt to try to answer any questions that the committee might have.

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

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


    Mr. MCCOLLOM. Thank you Mr. Chairman and members of the subcommittee for this opportunity to testify today. My name is David McCollom. I am the General Manager of the Olivenhain Municipal Water District in Encinitas, California. Our agency serves in the cities of Encinitas, Carlsbad, San Diego, Solana Beach, San Marcos, and unincorporated communities of Olivenhain, Leucadia, Rancho Santa Fe, Fairbanks Ranch and 4S Ranch.

    I note with great interest the variety of opinions and issues that are before the committee today and before the Bureau and I have to assure you that north San Diego County and the Olivenhain Water District faces the same kinds of problems as any of the agencies in southern California and for that matter the arid west.
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    And in California, particularly in my part of California, we have a more particular problem in terms of the importance source of all of our water. Our water runs from 500 miles away in the Bay Delta or from 200 miles away in the Colorado River. And what I would like to focus on today are ways that we can improve and help our communities and our people with financing options through the Bureau of Reclamation.

    I am very glad to hear the expertise of yourself, Chairman Doolittle, and the knowledge that Congressman Farr expressed today. It shows that perhaps the issue here as Congressman Farr was mentioning is not a leadership issue as much as urging the subcommittee to put together the directives and the programs that we need to manage the next generation of water projects.

    I heard a lot from the Bureau today with regard to tradition and I think it is incumbent on all of us to be thinking of tradition. That is how our country maturated but it is also incumbent to think of the future and have vision. And somebody had vision when they built the Grand Coulee Dam. In fact, that vision helped us so much that probably without the Grand Coulee there would have been insufficient electrical energy to smelt the aluminum that was necessary to defeat Hitler's Third Reich.

    So we never know what these projects may end up doing. The fact of the matter is that we at some point in time in this country's history decided to settle the arid west and make more water available and we did that and that is certainly extremely good. But the job is not over. The job is far from over and we heard about the environmental problems that we have.

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    And the programs that I am going to briefly give you an overview on today help cure a lot of those problems and also set the stage for more innovative public and private partnering that really gets us outside the box of having government do for us but puts government in a position of helping the people help themselves while the people pay for the projects.

    I think this is necessary for the Bureau to change to this kind of a role. I do not think the Bureau should be going out of business. They should be taking a very forward looking position with regard to getting outside the box, outside I guess the current buzz word is the paradigm of traditional government.

    First of all, we are here to discuss the loan guarantee proposal. Congressman Duke Cunningham has introduced legislation that is pending before this committee. The legislation is called H.R. 134 and it would demonstrate by the Olivenhain Water Storage Project the loan guarantee program of which we speak and the one we are interested in working with the Bureau of Reclamation on.

    These loan guarantee programs could be very, very helpful in the future for the EPA which we are estimating that the Safe Drinking Water Act is going to require $200 billion in the next 20 years. In Olivenhain our price of wholesale water has gone up 55 percent in the last five years. That is well over $250 per acre foot increase in price that our customers have to pay.

    It is very difficult for local agencies to meet these increasing financial challenges. In addition, I named cities that we serve in and cities have terrific financial pressures today. A loan guarantee would help the cities avoid layering of traditional municipal debt which eventually as the municipal debt layers and layers and layers lead the risk factor goes up. The rating agencies rate the interest rates higher and higher.
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    It would keep low interest rates for other forms of infrastructure and public service projects like schools, police, fire, and some of those programs that are not entrepreneur and enterprise programs that ought to be run more like a private entity. We have a product to sell. We ought to be managing our water resources like a company that is selling the product reserving the elected officials to maintain the public trust for the benefit of the people.

    So our loan guarantee program would go a long way toward leveraging money from the Federal Government, allow the Federal Government to maintain a balanced budget and improve the level of service to our customers, the quality of life, and assure good quality of life in the future.
    Additionally, we are here to talk about Title XVI Program for water reclamation. I just wanted to reiterate some of the things that I heard. The issue of environment. The Secretary of the Interior has a responsibility to control and operate the Colorado River. 100 percent of Olivenhain's water is currently coming from the Colorado River.

    We are willing to make a substantial investment in water reclamation programs that will recycle Colorado River water. As Congressman Farr said it is already paid for and the sewer plants have treated it. We ought to be reusing that resource. There is a new source of water in the west. The new source of water is reclaimed water and it ought to be used as many times as possible.

    You may have heard there are not customers for reclaimed water in the west. That is not correct. It is pretty difficult to get started in this business because it starts slowly but there are customers out there. Olivenhain has six golf courses and hundreds and hundreds of acres of greenbelt that reuse water to be used to offset the cost of new infrastructure to deliver scarce resources from the Colorado River.
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    And this infrastructure is partially in the ground now. We can put it to good use immediately and we urge your support on both of these bills. And if I may, I will be glad to answer any questions. I hope we can stimulate a little bit of conversation like we had in the previous panel. Thank you.

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

    Mr. DOOLITTLE. Thank you. Let's begin with you. When you do reclaim water don't you tend to have a separate distribution for that?

    Mr. MCCOLLOM. Yes, you do, and that is why we are here asking for Federal help. It is a separate distribution system and some day we may not have separate distribution systems but for now it can be most economically handled that way but the separate distribution systems are really the problem. The problem is at the treatment plant it is getting the water out to the customers.

    Mr. DOOLITTLE. So when you build these distribution systems they all line up at the treatment plants, is that where they begin?

    Mr. MCCOLLOM. These distribution systems need to connect with treatment plants. In our particular case in the case of the north San Diego County project much of the infrastructure is in place. We need the connecting pipelines to the treatment plant to transfer this water and so what we are looking for is some seed money to take care of that.

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    Once the project is operative and selling water it will become an enterprise of the various agencies, Olivenhain included, and then we will be self-funding. And so a short-term investment by the Federal Government turns into a long-term benefit for the community.

    Mr. DOOLITTLE. I am trying to envision how this would work. If you got six golf courses then there would be a pipeline built between the treatment plant and each of the six golf courses or any other additional customers, is that right?

    Mr. MCCOLLOM. That is essentially correct.

    Mr. DOOLITTLE. And so then you are involved in tearing up the streets, because you have a completely separate pipeline, right?

    Mr. MCCOLLOM. In our particular case we have already laid close to eight miles from pipeline. A goodly portion of it has been laid in developing communities in preparation and so while yes, there is the drawback of having to rip up streets in some cases to make the full connection to the system our district and many of the districts in north San Diego County as well as others under the Title XVI Program have been planning for this for a long time. This is not something that just arose quickly and it is very thoroughly planned in most communities.

    Regrettably, any kind of infrastructure improvements or additions require some inconvenience to the general public but in our communities people are very anxious to see this kind of inconvenience and very, very supportive of water reclamation and the need to recycle.
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    Mr. DOOLITTLE. Just out of curiosity, what is the diameter of these pipes that are attaching to the water treatment plant?

    Mr. MCCOLLOM. In our particular project most of the pipelines would not exceed 21 to 24 inches and the majority of them would be in the 10 and 12 inch category. Most of the—we have part of our 7 1/2 mile system is as large as 18 inches for a short ways.

    Mr. DOOLITTLE. This water is treated to secondary standards?

    Mr. MCCOLLOM. It would be treated to secondary standards, yes.

    Mr. DOOLITTLE. And if it were to be drinking water under the current rules it would have to be tertiary standards?

    Mr. MCCOLLOM. It would have to go to some sort of tertiary standard. And in addition, I might add some might argue that the secondary standards are actually tertiary standards and we did put it through a final filtration so it would be a very advanced secondary. When I say that to a point of a confusion between tertiary in terms of what is consumable.

    Mr. DOOLITTLE. And the reason that you are doing it as a separate system is just the concern over the public reaction mainly to intermingling that with the existing water supply?

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    Mr. MCCOLLOM. Public reaction and the ability to create a product competitively that can be used for alternative uses and so perhaps the expense isn't necessary in terms of what has to be done at a treatment plant.

    Mr. DOOLITTLE. OK, because it is just for irrigation so you do not have to——

    Mr. MCCOLLOM. That is correct. I would envision throughout the west that there would always be parallel systems in the future just like there are grades of gasoline but the ability to make this water drinkable and put it into the total system is actually here and the city of San Diego to the south of us has done considerable work toward this and I believe we will see that as a reality very shortly and that will also be very significant in terms of the benefits and the impacts that it will have on the arid west and recycling water.

    Mr. DOOLITTLE. Is San Diego devoid of aquifers?

    Mr. MCCOLLOM. San Diego County is for all intents and purposes devoid of aquifers. There are very small local pockets. In fact, in our district we had been working on the San Dieguito Basin but it presents a very small pocket. It is a very low quality water. Historically we have had tremendous amounts of natural occurring salt in the water and so our aquifers are very poor.

    And so we do not have the benefit to be able to inject treated groundwater in and pumping it out later. We have to do everything on the surface but that may be seen as an advantage in the case of our Title XVI project because we are going to be delivering from the plant to the customer and with the exception of the small amount of storage that has to be built in the form of tanks this is a much more direct use and could be managed and controlled much more thoroughly than a groundwater recharge program. And we may do some groundwater recharge on the side, Mr. Chairman, but it is not really a great resource that we can depend upon.
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    Mr. DOOLITTLE. Mr. Flicker, you have heard my exchange with the Commissioner about the in-house engineers and I think it is true he has lost a lot of expertise which I think anybody committed to the traditional function of the Bureau would regret. Nevertheless, do you have an impression as to the number of in-house engineers the Bureau retains at this time?

    Mr. FLICKER. I do not.

    Mr. DOOLITTLE. I thought your suggestion there was interesting. Of course we will have to be careful or they will cut that back and we will have them going to the Americorps or some other Clinton Administration social program but I think if it could be used to stretch the dollar and enable them to do their operation and maintenance backlog and to help develop some of these water projects can be a very good thing including the reclamations and interesting technology coming out of line beginning to expand.

    You mentioned in your testimony, you gave us those four things that you thought were very useful. One of the impediments you said was the limitations on private activity bonds which are contained in the '86 Tax Act. And I want to ask Mr. Smith probably about these—let's see, you called them SRFs which actually stands for State Revolving Loan Fund, right?

    Mr. JAMES SMITH. Correct.

    Mr. DOOLITTLE. And are those private activity bonds, funds, are those covered by that cap, do you know?
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    Mr. JAMES SMITH. No, sir, they are not. At the present time because under the wastewater SRF only the public entity can access the fund so there is no limitations under the private activity bond rules. With the new drinking water program, however, for the first time the privatizer may access this revolving loan fund and in doing that they will if there are bonds that are issued in conjunction with that they will become private activity bonds. If more than 10 percent of the use of bond proceeds goes to the privatizer.

    Mr. DOOLITTLE. Therefore, they come under the caps, you mean?

    Mr. JAMES SMITH. They would come under the caps, that is right, sir.

    Mr. DOOLITTLE. Well, it would seem if we are serious about privatization that those caps should be removed or altered.

    Mr. JAMES SMITH. We would certainly support that and there is legislation before the Ways and Means Committee to consider that and expand the cap availability. It is something though that requires a revenue offset and that has always been a difficult situation.

    Mr. DOOLITTLE. And the purpose of the cap is what, to make sure we do not have too much infrastructure?

    Mr. JAMES SMITH. The purpose of the cap originally was to limit the access of the private sector to tax exempt proceeds on the assumption that there should not be—these preferred interest rates should not be available to the private sector. They were intended for the public sector.
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    Mr. DOOLITTLE. Yes, the view being that the public sector is going to be the one that met these needs but now we are in a new era where it may be the private sector.

    Mr. JAMES SMITH. That is true.

    Mr. DOOLITTLE. Let's see now. Mr. Flicker, in your testimony you indicated that $137 billion worth of infrastructure in just wastewater treatment was going to be needed here between now and the year 2012?

    Mr. FLICKER. Yes, that was based EPA's 1992 needs survey.

    Mr. DOOLITTLE. Right, and that is just the sewage treatment facilities.

    Mr. FLICKER. That is correct.

    Mr. DOOLITTLE. And you pointed out that it has been at about $2 billion per year for the last ten years. Then you gave us this chart. Let me ask you what happened between 1982 and it looks like 1984 was the zenith of it and it began to decline after that. What was that?

    Mr. FLICKER. We do not have a copy of the chart in front of us. I apologize.
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    Mr. DOOLITTLE. It says Federal investment in infrastructure as percent of GDP and this little peak I think—our consultant is bringing it to you but it went up. Something good must have happened.

    Mr. FLICKER. I cannot explain that. We will get back with some explanation.

    Mr. DOOLITTLE. But since that point it has been quiet and then declining rather precipitously. You testified, Mr. Smith, and I did not quite catch everything you said but it sounded like the EPA restricted on its own the application of the SRF Program to anything that might involve dams, is that right?

    Mr. JAMES SMITH. That is right, Mr. Chairman. In the implementation of the new drinking water State Revolving Loan Fund they specifically restricted the use of those loan funds for anything that would involve the construction or dam or reservoir storage.

    Mr. DOOLITTLE. Was there anything in the authorizing statute or the appropriation that granted them the authority to do that or did they have some authority?

    Mr. JAMES SMITH. There is no restriction whatsoever in the authorizing legislation nor is there in the appropriation. It was purely on their own volition.

    Mr. DOOLITTLE. And when was that done?
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    Mr. JAMES SMITH. That was done about three months ago.

    Mr. DOOLITTLE. Would you please provide the subcommittee with the documentation for that?

    Mr. JAMES SMITH. I will indeed.

    Mr. DOOLITTLE. Because that is something we ought to follow up on with the oversight powers that we have now in Congress. Has the engineering community ever thought of trying to challenge that?

    Mr. JAMES SMITH. Some of the states have suggested a challenge to it and there may be the possibility of actually a court case on it although I am not familiar specifically with what is happening on that issue. The engineering community I do not believe has considered it although you may know better than I.

    Mr. FLICKER. Not that I am aware of.

    Mr. DOOLITTLE. Well, I want to encourage you gentlemen. As you are aware, where the agencies do these things it is usuallly by an executive order, some agency rule or something. We now have the ability to overturn that by majority vote in both houses and then the President of course can veto it and then we are back at the two-thirds situation.

    But this is a whole new area that is now going to be thoroughly tested and explored so as you become aware, as I am sure you will since you work in the intricacies of these areas where actions are being taken like that and you think something like the dam and reservoir regulation suggests, I would appreciate hearing about it.
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    Mr. JAMES SMITH. Very well.

    Mr. DOOLITTLE. That will allow us to elevate the issue. Mr. Donnelly, you talked about supporting privatization efforts where the recipients are willing to assume full responsibility. What is your impression of the record of the Clinton Administration on this issue?

    Mr. DONNELLY. What record? They have not transferred anything that I am aware of. And I agree with Mr. Smith that that is not the Commissioner's fault. Those decisions are being made at a much higher level. I think he is doing everything he can to make the process work.

    Mr. DOOLITTLE. How many such projects are you aware of, roughly, that people would like to have transferred?

    Mr. DONNELLY. I probably could not give you an accurate number west wide or how many projects—initially when we first started the discussion about project transfer a lot of the people that came forward and wanted to get involved in having their projects transferred back to them both title—and for the most part operation and maintenance has been transferred on a number of projects but title transferred to them have second thoughts about it, particularly those that were involved—that were concerned about the liability.

    What we have told our members is if you are concerned about the liability issue, you do not belong in the debate of title transfer. You cannot expect the Federal Government to turn over title and everything to the beneficiaries and then expect the Federal Government to retain the liability for the structure. That is just not the way it goes.
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    We feel that there are a number of projects out there that should be transferred. They make more sense from an efficiency standpoint, from a cost standpoint as far as the Federal Government is concerned. I sense there are probably also projects out there that should not be transferred simply because—for several reasons, because the involve multi-state, multi—the projects like the Hoover Dam, something like that where it is not one state or one water district that is controlling the title to it.

    There are other reasons too. I believe that there are water districts out there that do not have the capability financial or otherwise to continue to operate and maintain those projects in a safe manner.

    Mr. DOOLITTLE. Mr. McCollom, how much do you presently pay per acre-foot of water?

    Mr. MCCOLLOM. Currently our wholesale price for treated potable water is $511 per acre foot.

    Mr. DOOLITTLE. You said that in the last five years that went up by $250?

    Mr. MCCOLLOM. That is correct.

    Mr. DOOLITTLE. How come it went up so much?

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    Mr. MCCOLLOM. Cost of infrastructure, government regulation, costs for meeting service water treatment rules, things of that nature.

    Mr. DOOLITTLE. What is the cost to lay a mile of 12-inch pipeline anyway?

    Mr. MCCOLLOM. Well, a 12-inch pipeline in an extremely general rule of thumb would probably cost about $2 to $2.50 a foot per diameter inch. That is very general. If you have rock or if you have issues such as pumping, pressure reduction, that price would be considerably higher.

    Mr. DOOLITTLE. OK, I will have to work out the numbers on that. So if it is 12-inch pipe——

    Mr. MCCOLLOM. $25 to $40 a linear foot. On average around $32 a linear foot.

    Mr. DOOLITTLE. It does sound pretty expensive.

    Mr. MCCOLLOM. Oh, it is very expensive, yes. Very definitely but these kind of facilities last and today even more so I believe that the facilities we are building today instead of being 25 or 30-year construction projects we are really building for 100 years into the future due to improved engineering techniques and improved construction techniques and improved material.

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    Mr. DOOLITTLE. You mean you only had to dig up the street the first time and the pipe will last 100 years?

    Mr. MCCOLLOM. Well, I started this business 25 years ago. We had to dig up the streets regularly. When I started at the Olivenhain Water District we have a regular leak crew that went around. Today if we have one or two leaks a year it is unusual. These are due to improvements with knowledge of pothotic protection from the oil industry. These are due to improvements of materials for service connections and diligent maintenance. You cannot let your maintenance go to the point where you are just using bubble gum and baling wire.

    But I would like to point out that all these innovations came from private companies and I am a lifelong public servant and very proud of it. I have not had time to invent anything or develop anything. I use public sector knowledge and I put that into good use and so just as the Department of Defense employees do not build airplanes, Boeing and Douglas does, the things that we are proposing here today are really not at all unusual or new. They are just business as usual using ingenuity.

    Mr. DOOLITTLE. Well, I would like to recommend you to the Bureau of Reclamation. Maybe your views on operation and maintenance could have some positive effect.

    Mr. MCCOLLOM. Well, thank you, Mr. Chairman, and if you stay around long enough and I get my dam and lake built perhaps I do want to do a stint in Washington if all the days would be like today but I bet you won't promise that. It was a glorious day today in Washington, D.C.
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    Mr. DOOLITTLE. It is indeed. Well, I think I have concluded my questions. I really appreciate the suggestions you gentlemen have offered. I think there are some very good ones in here and we will look forward to getting any further responses some of which we have talked about for the record.

    And I would like to thank you all for your time and trouble to be here today and we will excuse you and with that the hearing is adjourned.

    [Whereupon, at 4:15 p.m., the subcommittee was adjourned; and the following was submitted for the record:]