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1 [1] (September 30, 2015)

handle is hein.crs/govccyt0001 and id is 1 raw text is: FF. %cc)nSWfasrES $rh& gognko g , q 'M a X 11LULANJILiM, September 30, 2015 Accelerated Repayment of Bureau of Reclamation Construction Costs Title IX of H.R. 2898, the Western Water and American Food Security Act of 2015, includes provisions that would potentially alter construction repayment for Bureau of Reclamation (Reclamation) projects. The potential changes are discussed below. Since the passage of the Reclamation Act of 1902, reclamation law has been based on the concept of project repayment-reimbursement of federal construction costs- by project water and power users. Agreements between the federal government (through Reclamation) and water users for delivering water are generally governed by one of two contract types: water service contracts or repayment contracts. There are 860 such contracts currently in effect in the 17 western states. The terms of repayment and water service contracts differ. Repayment contracts are generally made for terms of 40 years, with capital costs amortized over the long-term period and repaid in annual installments (without interest for irrigation investments and with interest for municipal and industrial [M&I] investments). Costs are repaid annually in fixed amounts to the U.S. Treasury by project beneficiaries (contractors), along with costs for project operations and maintenance. For water service contracts, contractors pay a combined capital repayment and operations and maintenance (O&M) rate for each acre-foot of water actually delivered (i.e., water service). This water service payment is different from repayment contracts in that under repayment contracts, the annual repayment bill is due regardless of how much water is used in a given year. Repayment contracts tend to be the norm outside of California; however, some other projects in these areas have water service contracts. Because the California Central Valley Project (CVP) includes many multipurpose facilities benefiting different contractors that were built over many decades, most CVP contractors operate under water service contracts (and under a law unique to the CVP, water service contracts terms are 25 years, not 40 years). Another early tenet of reclamation law still in existence is a limit on how much land one can irrigate with water provided from federal reclamation projects. The idea behind the limitation was to prevent speculation and monopolies in western land holdings and to promote development and expansion of the American West through establishment of family farms. Over time, several attempts were made to increase the acreage limitation. In 1982, pursuant to the Reclamation Reform Act (RRA; P.L. 97-293), the original acreage limitation of 160 acres was raised to 960 acres. Scholars and others have written extensively on enforcement issues resulting from the 960-acre limit. It has remained, on one hand, an unpopular provision among large landholders who do not want limits on their land, particularly in the Central Valley, where large industrial farms are more common than other areas of the West. On the other hand, it has been a key rallying point for taxpayer groups, environmentalists, and others who have opposed using federally subsidized water to irrigate large swaths of land. Under current law, once a repayment contract is paid out, contractors continue to receive project benefits but are no longer subject to the 960-acre limit or to other provisions of RRA (e.g., full-cost pricing for water under certain circumstances). However, under water service contracts, the acreage limitation and other requirements of reclamation law continue, unless otherwise exempted by law. ~<Alf Title IX of H.R. 2898, as passed by the House, would allow for the conversion of agricultural and municipal water service contracts to repayment contracts to allow for prepayment of allocable construction costs. The bill specifically would authorize prepayment (also referred to as accelerated repayment) of outstanding construction cost obligations through a lump sum or in installments. It would allow repayment contractors to pay, upon request, their remaining construction repayment obligations, either in a single lump sum or over three years (i.e., three equal payments). Under the legislation, contractors would be required to pay the current value of their remaining contract payments, discounted at one-half of the 20-year maturity rate for Treasury securities. The bill reiterates that once contractors have satisfied their repayment obligations, they would no longer be subject to the acreage limitations and full-cost pricing (as well as other associated requirements) of the RRA. The bill would authorize M&I contractors to similarly convert to repayment contractors and/or repay their outstanding balances through prepayment. Congress has previously authorized similar contract conversion and repayment provisions for individual Reclamation project units. For instance, in the San Joaquin River Restoration Settlement Act of 2009 (P.L. 111-11; Title X), Congress authorized contract conversion and prepayment for a subset of CVP contractors in the Friant Division, Hidden Unit, and Buchanan Unit. It has authorized similar accelerated repayment for other individual projects. However, no such authority exists for Reclamation projects in general. 'O 'T