Mr. SELDEN. The incremental method is the method being used under this bill. Is that correct? Mr. HUGHES. Yes. Mr. SELDEN. And you suggest the other method be used? Mr. KUGEL. I don't think we suggested that particular method be incorporated in the bill but this rather generally accepted method would be used. Mr. SELDEN. What method was used in computing the costs on the Falcon Dam? Mr. KUGEL. I don't think they have done that. Mr. SELDEN. This would have to be on a tentative basis. Mr. KUGEL. Yes. Colonel HEWITT. There was no allocation of costs made on the Falcon Dam. Mr. SELDEN. There was not? Colonel HEWITT. There was not. On the same method that we presented for Falcon and carrying it through to Amistad, we would say that our costs over the life of the project without recreation, fish and wildlife, would be about $109,500,000 as compared to the benefits which would be about $110,050,000. If you include fish and wildlife, the cost would be about $110,500,000, and the benefits would be $154,850,000. Those were the justifications given for Falcon under which the Congress decided that no assessment would be made for the water users. Mr. SELDEN. Using the same criteria that you are using on the Amistad Dam and arriving at a cost-benefit ratio of 1.96 to 1, what would be the cost-benefit ratio on the Falcon Dam? Colonel HEWITT. I don't know that I could answer that question. I don't believe we have that figure. If you would like to have it supplied for the record, we will do so. Mr. SELDEN. I would like to have a comparison. Mr. SELDEN. Yes, sir. (The information requested is as follows:) INTERNATIONAL BOUNDARY AND WATER COMMISSION, Hon. ARMISTEAD I. SELDEN, Jr., UNITED STATES AND MEXICO, El Paso, Tex., February 26, 1960. Chairman, Subcommittee on Inter-American Affairs, House of Representatives, Washington, D.C. DEAR MR. SELDEN: I submit herewith, exhibits A and B, data in response to your question during the recent hearings on the Amistad Dam and Reservoir project, namely: "Using the same criteria used for Amistad Dam and arriving at the benefitcost ratio of 1.96:1, what would be the benefit-cost ratio for Falcon Dam?" Following the criteria used for the Amistad project, the total of the annual benefits of the Falcon project accruing to the United States from flood control, power, and conservation, were compared with the total costs to this country for Falcon Dam, power facilities, and related works, including land acquisition and relocation costs. The data were compiled: (a) Insofar as possible on the basis of the original preliminary 1947 estimates contained in the "Hearings before the Subcommittee on Appropriations, House of Representatives, 79th Congress, 2d Session, on the Department of State Appropriation Bill for 1947"; and (b) on the basis of the current estimates as of 1960. The results are as follows: 51563-60-10 Falcon project: (a) On basis of original preliminary 1947 estimates_. (b) On basis of current 1960 estimates____ U.S. benefitcost ratio 7.7:1 10.2:1 I shall be pleased to furnish any additional data or information you may desire. Sincerely, L. H. HEWITT, Commissioner. EXHIBIT A Question: Using same criteria used for Amistad Dam and arriving at benefitcost ratio of 1.96:1 what would be the benefit-cost ratio for Falcon Dam? FALCON PROJECT, U.S. COSTS AND BENEFITS Annual costs: Basis A-Original preliminary estimates, 1947 Amortization of capital costs ($23,800,00012)—50 years at 3 percent_ Operation and maintenance_. Depreciation reserve, depreciable items_. Total annual costs_ Annual benefits: Power___ Flood control___ Conservation (increased yield of 333,000 acre-feet, at $22 per acre-foot__‒‒. Total annual benefits_. Benefit-cost ratio: 8,363,500÷÷÷1,086,738_. 7.7:1 1 Cost of $23,800,000 reflects results of a preliminary estimate which was made prior to completion of surveys and design studies and prior to joint estimate and division of cost with Mexico in 1949, reference minute 192, International Boundary and Water Commission. 2 Reference p. 396 of "Hearings Before the Subcommittee of the Committee on Appropriations," House of Representatives, 79th Cong., 2d sess., on the Department of State appropriation bill for 1947. For the purpose 3 Conservation net benefits were not set forth in the original estimates. of this table, the net benefits were estimated from operation studies made based upon (a) the maximum total irrigated area of 508,000 acres in the United States below Falcon site before the dam, and assumption of 600,000 acres after Falcon, reference p. 392 of same 1947 hearings, and (b) net value of $22 per acre-foot according to determination by U.S. Department of Agriculture in 1956. EXHIBIT B Basis B-Current (1960) estimates Estimated annual costs: Amortization ($36,800,0001)-50 years, at 21⁄2 percent. Operation and maintenance_. Depreciation reserve, depreciable items____ 6 Conservation (increased yield of 510,000 acre-feet at $22 per acre-foot). Total estimated annual benefits_____ 10.2:1 Benefit-cost ratio: $17,117,000÷÷1,675,000-- Estimated total cost of Falcon Dam, powerplant, and appurtenant facilities, as of February 1960. Final cost of land acquisition has not been determined. 2 Experienced average annual costs of operation and maintenance of Falcon Dam and powerplant, 1955-59. Amount required to accumulate cost of depreciable items and accessory equipment in 30 years at 2 percent interest. Average annual gross revenue to United States from sale of Falcon power, calendar years 1955-59. 5 Average annual damages prevented in the United States by Falcon Dam based upon present developments in the lower Rio Grande Valley below the dam. Determined from operation studies using 508,000 acres irrigated below Falcon site before the dam, and 750,000 acres as reported in 1960 with the dam in operation. Net value of $22 per acre-foot according to determination in 1958 by U.S. Department of Agriculture. Mr. FISHER. You recognize, of course, in this case, Mr. Hughes, that we are operating under the treaty, the international treaty, which calls first for flood control. In other words, it is essentially and basically and primarily a flood control project and, of course, the incremental method that is incorporated in the bill is legal. In other words, it is a matter of decision for Congress to make. Mr. HUGHES. It certainly is. Mr. FISHER. Do you agree also that there is considerable precedent over the country for this incremental method in other projects that have been authorized by the Congress in the past? Mr. HUGHES. I think there is some precedent. I am not sure where the weight of precedent is. I think at the moment, at least Mr. KUGEL. I think in recent years the separable cost remaining benefits method has been more commonly used. Mr. FISHER. I have been told this incremental method is not an uncommon thing at all; that this being primarily a flood control project, by virtue of the treaty, I think, it puts it in a little different category. Mr. SELDEN. Do you have any questions, Mr. Burleson ? Mr. BURLESON. No. Mr. FASCELL. I am trying to get the point of the whole discussion. On either conservation is not repayable. Flood control is inherent in the project. The only differential would be, in actual cash for power, when you are talking about 6.5 and 2.3, is that correct, based on the figures that Mr. Hewitt gave us? Mr. KUGEL. Congressman, I think irrigation and water supply, the conservation allocation, in one case would be $23.7 million against $12.1 million in the other case. Flood control would not be repayable in either case. On the $23.7 million versus $12.1 million for water supply, we are proposing the former. Mr. FASCELL. Under the bill though Mr. KUGEL. There is no difference. If the water supply is not to be reimbursable, it doesn't Mr. FASCELL. The purpose of the legislation for providing the incremental method is to make the difference in the hydroelectric power from 6.5 to 2.3 for the computation of benefit ratio. That is the only value it would have in the way the present legislation is written. Mr. HUGHES. I think that is correct. Colonel HEWITT. I might make one clarifying statement there. The actual cost of installing the power facilities which will go into the dam amounts to $2,289,000. Mr. HUGHES. Without regard to the basic cost of the structure? Colonel HEWITT. That is the cost of the Mr. HUGHES. Of the power facilities. Colonel HEWITT. Yes. Mr. HUGHES. I think the issue here is pretty clear, Mr. Chairman. I don't know if there is point in belaboring it. The real question is to what extent should collateral purposes share in the basic structure as to the cost. Congressman Fisher has indicated some reasons he feels that they should to a minimum extent if at all. Mr. FASCELL. The point is, unless you amend the bill, it is practically a moot question. Mr. HUGHES. There is $4 million Mr. SELDEN. They are discussing it based on their recommended amendments. Mr. FASCELL. I follow you. Mr. HUGHES. The 4 million remains a consideration at least. Mr. FASCELL. I am not shoving off $4 million. Mr. HUGHES. We would be happier with $11 million for water conservation also. Mr. KILGORE. Mr. Hughes, I think it is probably true that in many reclamation projects that the cost allocated to conservation and to irrigation includes the diversion works, the field irrigation works, and drainage works. Actually, what you would call it would be a turnkey project. STATEMENT OF HON. JOE M. KILGORE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS Mr. KILGORE. I think it is worthy to point out here that the entire distribution system and the drainage system and diversion system is already constructed, has been constructed without any Federal funds. The only instance in which Federal funds have been involved has been in the instance of two projects now underway and two in the process of authorization and funding for rehabilitation. And, in each of those four instances the entire amount will be repayable. So that there is the contribution of local interests at this point for that entire part of the project. What I would like to ask you about just briefly: I take it from the comment you made on No. 4 that there is no objection on the part of the Bureau of the Budget for the application of what you might call the profit in the power end of the structure being made to offset whatever portion of conservation costs for irrigation purposes may remain. Mr. HUGHES. That is correct. Mr. KILGORE. That is in accordance with your policy? Mr. HUGHES. That is correct. Mr. KILGORE. I don't know if the matter is part of your consideration, but I think the record reflects and it is certainly true that one reason requiring the building of considerable conservation storage in this structure is that of protecting what already exists in the way of the ability to conserve U.S. waters, which ability could very easily be diminished by the building of conservation storage for Mexico, but none for the United States. So that there really is a negative possibility to the irrigator-diverters by the failure to build conservation storage. It is necessitated by a circumstance which would take away from them something that they now have. I know of no way to crank that into an ordinary formula. I am sure that the Bureau of the Budget recognizes some of the mechanical difficulties that are incumbent in a situation such as this involving international waters and a treaty provision with respect to the rights for control of water and diversion of water. Without belaboring the record at this point, there is as a part of the title to some of the lands abutting the Rio Grande a riparian right initially granted by the King of Spain and held by the Texas Supreme Court to be part of the title of land, which gives to the owner of that riparian land the right to divert his share of whatever may be the ordinary flow of the river. Evidently the difficulties in computing what may be his share and what the ordinary flow of the river is, is a part of the litigation that is presently pending and in active trial. I think it would be obviously almost an impossible matter to require a contract from such a riparian owner to pay for the cost of a right which the Supreme Court has held is a part of his title to the land now, his right to divert that water. I wonder if those things came into the Bureau of the Budget's consideration of this problem? Mr. HUGHES. I was not personally familiar with this title situation. I don't know the extent to which we were aware of it as an institution. There are inevitably in almost all of these types of projects special situations which create greater or lesser problems in distributing the costs or allocating the costs of benefits to users. These various considerations can be put forward very forcefully, as you have, with respect to a particular project. It is this fact really which leads us to propose not always successfully, that we try and adhere at least to certain generally accepted criteria for the allocation of benefits, which as we see it, strengthens the hand not only of the Bureau of the Budget and the executive branch of the Government, but also the Congress, in dealing with some of these admittedly very difficult kinds of situations. I have no doubt that in the kind of a situation that you describe the complexities of developing an adequate formula might be greater than in many circumstances. It seems to me, though, with due consideration of the titular rights of these landowners to the water, a formula could be developed, a means could be developed either on a rate basis or contract basis of dealing with the problem. |