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EXHIBIT B

Basis B-Current (1960) estimates

Estimated annual costs:

Amortization ($36,800,000 1)-50 years, at 2% percent..
Operation and maintenance__

Depreciation reserve, depreciable items___

Total estimated annual costs.

Estimated annual benefits:

Power___

Flood control_.

6

Conservation (increased yield of 510,000 acre-feet at $22 per

acre-foot)

Total estimated annual benefits___.

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10.2:1

Benefit-cost ratio: $17,117,000÷÷1,675,000__

1 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.

3 Amount required to accumulate cost of depreciable items and accessory equipment in 30 years at 2 percent interest.

4 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.

6 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.

Mr. SELDEN. Could I ask you a question at this point, Congressman Kilgore, since you have brought up the subject of the suits that are now pending? In your opinion, what effect, if any, will those suits have on the operation of the Amistad Dam?

Mr. KILGORE. Depending upon the nature in which the legislation is drawn, it could have no effect or it could have a very considerable effect.

If the legislation here is drawn somewhat on the principle in which the Falcon authorization is drawn, I think it would have none, because Falcon was built and has been in operation while this situation with respect to water rights pertained. If, on the other hand, there were written into this legislation a requirement for repayment, I think necessarily there is no one now who could sign a contract for repayment with any knowledge of what his rights to water may be. He has his own claims, which claims are now in court. He has considerable hope. To be able, though, to contract, he would, of course, have to have a right which he knows to be legally definable.

If the legislation were drawn in such a manner that the right to use of that storage could be in effect bought by someone with color of claim to water, then I think the situation would evidently be chaotic because you would then open up to a promoter the opportunity to come in and purport to buy storage in this structure and thereby to divert water, you tie up, I think a far more difficult legal issue in the pending litigation and probably force the active opposition of hundreds of thousands of people to that type of legislation.

If the situation with respect to the litigation develops in such a manner that the riparian owner has a right to divert his share of the ordinary flow of the river, as is now the position of the Supreme Court, then I know of no way in which his water can be impounded, or he could be charged for the diversion of it because he has under present decisions the right to that water being flowed past his property at all times and the right to divert his fair share of it.

Mr. FASCELL. In other words, your position is then that the U.S. Government technically, because of the situation of Falcon, is rendering a service, but can't make a charge for it, legally?

Mr. KILGORE. That certainly is true.

Mr. FASCELL. Anything else would amount to condemnation for which the title owner would be entitled to some type of reimbursement from the Government?

Mr. KILGORE. That is true. There is certainly a very strong legal position, that before you could impound that riparian water you would have to go in and condemn the property right that each landowner has in that riparian water, the United States would, before it has a right to impound it.

If the impounding of it then will require charge to that riparian before it is released

Mr. FASCELL. That also brings up a very interesting converse proposition which is, then if the Government is going to build and impound, it must get releases from all of those who have any color of title. This legislation doesn't contemplate that and it wasn't done at Falcon. That raises an interesting legal point. How did we do it? Mr. KILGORE. At Falcon? Under the circumstances of no payment requirement

Mr. FASCELL. Consent is assumed?

Mr. KILGORE. Under the treaty provision which gives to the State of Texas the privilege to request the release of waters, such waters as may be impounded in Falcon, which perhaps would have been riparian water, may be released upon application of the board of water engineers to the Boundary Commission, the riparian then has his recourse in his request for releases, if in fact there are riparian waters impounded.

Of course, that issue is one of the issues which of necessity must be tried out in the litigation that is now underway. To indicate the extensiveness of it, I think the court costs exceed well over a million dollars.

Mr. FASCELL. What you are saying in effect is that under the present setup, the riparian owner can get some water by virtue of a procedure which has been set up and to which he has not actually complained, therefore there is no claim against the United States. I don't know that that necessarily follows.

Mr. KILGORE. The United States has disclaimed any authority by which it impounds waters and retains those waters against a request from the State of Texas. The United States disclaims any obligation to the owner by saying, "Under the treaty the release of those waters is wholly within the province of the State of Texas.'

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Mr. FASCELL. That gets back to this other discussion that we had earlier in connection with the operation of Amistad by the Commission, and that is whether or not it would be mandatory or discretionary, Mr. Hughes, without any conditions. I didn't understand that was the case.

Mr. KILGORE. You did understand from Colonel Hewitt's testimony in the operation to this point the waters had been released upon the request of the State of Texas?

Mr. FASCELL. Yes.

Mr. KILGORE. I think if you create a situation which is different from that, you then put the United States in the position of defending against the claim.

Mr. FASCELL. That was the point I was making. I had understood earlier there was some reservation as to the mandatory nature of the release of the waters.

Mr. KILGORE. In addition to the treaty obligation, there is a valid reason that the United States does not want to assume that obligation. Mr. FASCELL. Because of the fact when you construct the structure you are impounding. Whether you do it with consent or without consent is a pure legality.

Mr. KILGORE. What you have here is a situation in which you have a severe flood problem and the treaty of the United States with Mexico to build this structure does dictate that despite these other problems, the legal problems arising out of water rights, that the structure proceed and be built rather than waiting for whatever period of time would be required while these very knotty problems are sought to be ironed out.

Mr. FASCELL. I want to get more basic, as I become familiar with this problem, and that is whether or not in this legal position there is a recognition of a public right in the U.S. Government to any of the waters.

Mr. KILGORE. Somebody else might answer that better than I could.

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