Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

The Honorable John W. Keys

Statement of Commissioner John Keys

Bureau of Reclamation

U.S. Department of the Interior

Before the

Subcommittee on Water and Power

Committee on Energy and Natural Resources

U.S. Senate

 

March 30, 2006

 

My name is John Keys, and I am Commissioner of the U.S. Bureau of Reclamation.  I am pleased to provide the Administration’s views on H.R. 3812, a bill to authorize the Secretary of the Interior to prepare a feasibility study for the Mokelumne River Regional Water Storage and Conjunctive Use Project (known as the MORE Water Project), San Joaquin County, California.       The Administration cannot support this bill because it is premature, and given scarce Federal budgetary resources, an expansion of the Federal role in the Mokelumne River cannot be justified. 

           

Specifically, this bill would authorize the Secretary to study the feasibility of constructing a project to provide additional water supply and improve water management reliability through the development of new water storage and conjunctive use programs.  The bill would authorize an appropriation of $3,300,000 for the Federal cost share of the study, with the proviso that the Federal share shall not exceed 50 percent of the total cost of the study.  Clearly there are many water supply issues in the San Joaquin Valley and in San Joaquin County in particular.  I am proud of the work our people in the Mid-Pacific Region have done to understand the issues, the local interests and the role Reclamation might play in solving problems.

 

I would like to provide some background relative to current investigations of Mokelumne River water supplies and planning investigation costs.  In Fiscal Year 2005, Congress appropriated $300,000 for the initiation of an appraisal investigation of the Mokelumne River Regional Water Storage and Conjunctive Use Project.  The Appraisal Report is in draft form at this time.  It is our hope to have it completed soon.

 

HR 3812 directs the Secretary, not later than 2 years from date of enactment, to complete a feasibility study and provide copies to the Committee on Resources of the House of Representatives and to the Committee on Energy and Natural Resources of the Senate.  Feasibility studies, which integrate National Environmental Policy Act compliance documentation, and are completed in conformance with the Principles and Guidelines for such studies, require a minimum of 3 years to complete.  The Administration recommends the bill be amended to extend the study period to a minimum of 3 years for completing the feasibility study and to providing the copies to the appropriate Congressional committees. 

 

The Mokelumne River is tributary to the Sacramento-San Joaquin Delta.  There is no clear justification for expanding federal involvement into the Mokelumne River.  .  Although this broad area is impacted by the Central Valley Project  and CALFED, the Mokelumne River does not have a  Bureau of Reclamation water project. 

 

It is premature to authorize a feasibility study before the appraisal study has been completed and reviewed.  Moreover, this study would compete for funding with other currently authorized projects, including several authorized storage feasibility studies authorized under CALFED.  I should also note that Reclamation did not seek funding for this project in the President’s Fiscal Year 2006 or 2007 budgets. 

 

The Administration appreciates local efforts to address future water issues.  However, in light of the concerns expressed above, we cannot support this bill authorizing Reclamation participation in a feasibility study.  That concludes my prepared remarks.  I would be pleased to answer any questions.

 

Statement of John Keys, III

Commissioner of Reclamation

U.S. Department of the Interior

Before the

Subcommittee on Water and Power

Committee on Energy and Natural Resources

United States Senate

On

S 1962

To Revise Certain Repayment Contracts with Irrigation Districts

 in Nebraska and Kansas

 

March 30, 2006

 

 

Madam. Chairman and Members of the Subcommittee, I am John Keys, Commissioner of the Bureau of Reclamation.  I am pleased to be here today to give the Administration’s view on S 1962, a bill to revise certain repayment contracts of four irrigation districts that are part of the Pick-Sloan Missouri Basin Program.

 

The Irrigation Projects Reauthorization Council (IPRC) represents four member irrigation districts in support of this legislation.  The districts—the Kansas Bostwick Irrigation District No. 2 and the Webster Irrigation District No. 4, both in Kansas, and the Bostwick Irrigation District in Nebraska and the Frenchman-Cambridge Irrigation District (also in Nebraska), are served by Reclamation projects built as part of the Pick-Sloan Missouri Basin Program.  Webster Irrigation District No. 4 is located in the Solomon River basin; the others are in the Republican River basin, both tributaries to the Kansas River. 

 

The districts recently renewed their contracts with Reclamation.  The contract renewal addressed repayment of a portion of the water supply works construction cost over a 40 year term.  Webster Irrigation District No. 4 renewed its contract in 2002; the others renewed their contracts in 2000.  However, each District’s repayment of the distribution works construction cost obligation remained unchanged during contract renewal.  Thus, the remaining term for repayment of the distribution works is, in each case, significantly less than that remaining for the water supply works.  Under Reclamation law, the irrigation districts repay irrigation capital costs without interest charges.

 

As discussed above, currently each of these districts’ contracts has two different repayment periods: a water supply works repayment term which extends until 2040 or 2042 (40 years from when the respective district’s contract was renewed) and a distribution works repayment period which extends 40 years from their first payment for the distribution works (to sometime between 2009 and 2015 depending on the particular district).  This legislation would allow the repayment periods for the distribution works to be extended to match the repayment period for the water supply works, and allow for equal annual payments over that period.  Additionally, reserve fund payments were slated to increase significantly in about 5 years, following scheduled completion of repayment of the distribution works construction costs obligation.  Anticipating that this time horizon is too short for the districts to ensure financial recovery sufficient to make the increased reserve fund payments, this bill delays these increases for an additional 10 years.

 

Drought conditions in southwest Nebraska and northwest Kansas have significantly impacted inflows to reservoirs providing a water supply to Kansas Bostwick Irrigation District, Bostwick Irrigation District in Nebraska, Frenchman-Cambridge Irrigation District and Webster Irrigation District.  Annual inflow into reservoirs providing these districts’ water supplies has reached new historical lows in the last three years.  Four of the five canals in the Bostwick Irrigation District in Nebraska did not divert water the past two years.  The Kansas Bostwick Irrigation District has not delivered a substantial amount of water to acres above Lovewell Reservoir the past two years.  Three of the four canals in the Frenchman-Cambridge Irrigation District have not diverted any water the past three years.  The Webster Irrigation District did not divert water into Osborne Canal this past year.

 

Despite the declining water supply available to these Projects, the districts’ contracts require that they pay a portion of annual operation and maintenance costs for the water supply works and repay construction cost obligations to the United States.  This payment obligation to Reclamation is in addition to the districts’ responsibility for 100 percent of the operation and maintenance costs of the distribution works and those water supply works that have been transferred to the districts.  Even with no water or a diminished supply, the need for maintenance of these facilities continues.

 

The districts assess their irrigators in order to pay the districts’ annual expenses and repayment obligations.  These irrigators have received a diminished or no supply in recent years.  For the last couple of years most of these districts have sought and been granted annual deferments to their payments under Reclamation law (the Act of September 21, 1959, 73 Stat. 584).  In order to grant a deferment, Reclamation requires a determination that payment of the installments will cause an undue burden on the water users and that there is no alternative source of funds available to pay the installments.  When an annual payment is deferred, it is rescheduled to be repaid as quickly as possible within the remaining term of the contract.  The deferments have helped the districts to weather the drought in the short run, but have also caused the annual distribution works payments to be substantially larger over their remaining repayment period, because deferments do not extend the total time period allowed for repayment.

 

For example, Kansas-Bostwick Irrigation District #2 would, after execution of the annual deferment currently being processed, have annual distribution works payments of $421,353 due through 2015, with annual water supply works payments of $21,841 through 2015, increasing to $96, 512 for 2016 and 2017, then decreasing to $85,591 from 2018 through 2040.  This results in an annual repayment total for this district of $443,194 through 2015 when the distribution works are scheduled to pay out in the absence of this legislation.  If S 1962 becomes law, the district will have consistent annual payments of $188,387 from 2006 through 2040, thus providing relief to help the district through the current financial crisis. 

 

The total repayment obligation for the distribution works and water supply works for all four districts together is $12,442,447.  This legislation does not change the dollar amount of this repayment obligation.  However, because Reclamation law provides that irrigators do not pay interest on capital costs, this bill would reduce the present value of expected Treasury receipts.  The difference between the present value of the payout stream of the contracts as they currently exist and as they would be amended by this bill is $1,620,637.  This assumes that, in the absence of this legislation, the districts would pay the minimum payments due on time over the life of these contracts. 

 

The IPRC and the participating districts have done an exemplary job of communicating with Reclamation as they sought this legislation.  They contacted us in early 2005 to explore what opportunities were available to them under existing law to address their financial concerns.  Other than the deferments discussed above, none existed.  Reclamation also very much appreciates the manner by which IPRC has kept us informed and worked with us to identify issues.  They addressed the possible effect to power repayments through “aid to irrigation” early on by working closely with Midwest Electric Consumers Association and with Reclamation. It is our understanding that “aid to irrigation” is not affected by this legislation.

 

The legislation would provide needed financial relief to the districts by rescheduling their financial obligations to the United States.  Extension of the repayment period will not be a permanent solution to the water scarcity facing these districts.  However, taking this action will provide needed relief for the districts and increase the likelihood that they will be able to attain long-term financial viability and fulfill their repayment obligation to the United States.  Therefore, the Department supports this legislation.

 

I am happy to respond to any questions. 

 

Statement of John Keys, III

Commissioner, Bureau of Reclamation

Before the

Subcommittee on Water and Power

Committee on Energy and Natural Resources

United States Senate

On

S 2205

Addressing

Conveyance of Certain Parcels of Land Acquired for the Blunt Reservoir and Pierre Canal to the State of South Dakota for the Purpose of Mitigating Lost Wildlife Habitat

March 30, 2006

 

 

Madam Chairman and Members of the Subcommittee, I am John Keys, Commissioner of the Bureau of Reclamation.  Thank you for the opportunity to testify on S 2205.

 

S 2205 directs the Secretary of the Interior (Secretary) to convey certain parcels of land acquired for the Blunt Reservoir and Pierre Canal – features of the Oahe Irrigation Project in South Dakota – to the State of South Dakota for the purpose of mitigating lost wildlife habitat, or to the original land owners of the acquired lands or their descendants (preferential leaseholders). 

The bill directs that the proceeds of sales of preferential lease lands be deposited as miscellaneous funds in the treasury and that such funds shall be made available, subject to appropriations, to the State for the establishment of a trust fund to pay the county taxes on the lands received by the State Department of Game, Fish, and Parks under the bill. 

The Administration supports the intent of the bill but has some concern with its content, as I will discuss later.

 

The basic concept of S 2205-- to allow original landowners to regain title to lands that Reclamation purchased in anticipation of a project that was never built -- is straightforward and equitable.  Further, the sponsors of S 2205 have addressed, in whole or in part, a number of the technical issues that were raised in the past related to liability, land descriptions, return of land sale proceeds back to the Federal treasury, and reimbursement of Federal implementation costs.  However, the Department still finds that the bill fails to adequately protect taxpayers’ interests for four reasons.  First, the bill directs Reclamation to sell the land to preferential leaseholders for less than fair market value.  Second, it directs Reclamation to convey to the State the non-preferential lease parcels and the preferential lease parcels that current lessees choose not to purchase without compensation for the initial taxpayer investment in those lands.  Third, after conveyance Reclamation would still be responsible for administrative costs associated with the acquisition of those lands, such as curation of project archeological collections.   Finally, the bill provides that parcels may be swapped for other land elsewhere in the State, which may alter the potential environmental mitigation benefits of the land, potentially undermining one of the purposes of the Act.

 


 

Background

As background, Reclamation purchased approximately 19,292 acres of land between 1972 and 1977 in preparation for building the Blunt Reservoir and the Pierre Canal.  In many cases, Reclamation leased the land back to the seller.  Currently, Reclamation is leasing some 13,000 acres of Blunt Reservoir lands to 18 preferential leaseholders and about 1,100 acres of Pierre Canal lands to 11 preferential leaseholders.  Although not reflected in title documents, the sellers expected they would be able to purchase their lands back if they were not needed for the project.

 

Nearly three decades later, construction has not commenced for the Blunt Reservoir, although some earth-moving has been done for the Pierre Canal.  Because it is unlikely this project will be built, Reclamation no longer needs to hold title to the acquired lands.  Under S 2205, the preferential leaseholders (the original landowners or their descendants) would be offered an option to purchase the land they currently lease within 5 years of enactment.  Section 2(d) of the bill provides that the land could be sold to preferential leaseholders for 10% less than fair market value for agricultural purposes of the land.   Purchases would be from the South Dakota Commission of Schools and Public Lands, acting as an agent for the Secretary of the Interior.  If a preferential leaseholder declines to purchase the land, the Commission is to convey the parcel to the South Dakota Department of Game, Fish, and Parks for wildlife habitat mitigation.  Reclamation’s interest in the 5,000 acres currently unleased or leased to parties who are not preferential leaseholders would be conveyed to the State of South Dakota Department of Game, Fish, and Parks to be used in mitigation of wildlife habitat lost as a result of Pick-Sloan development.

 

Valuation and Payment

S 2205 directs that proceeds of sales of land under the Act be deposited as miscellaneous funds in the Treasury and such funds shall be made available, subject to appropriations, to the State for the establishment of a trust fund to pay the county taxes on the lands received by the State Department of Game, Fish, and Parks under the bill.  While this partially addresses the Administration’s previous concerns (stated in testimony provided on S. 1028 in the 107th Congress) about recovering the taxpayer investment in these lands, the Administration remains opposed to the transfer of unleased or non-preferential leased lands to the State without compensation to Treasury.  Furthermore, the Administration believes that all lands conveyed under this bill should be sold for no less than fair market value.  In this situation we agree that equitable considerations support offering preferential leaseholders the right of first refusal to purchase these lands, which their families have been using for many years, at appraised fair market value.  We do not agree with the provisions of the bill effectively subsidizing this sale.  Moreover, we note that the best practice for determining market value and ensuring that the lands are used for their highest and best use is to sell the parcels at an auction, and this would be our preferred way to dispose of Federal lands in situations that do not present the circumstances that exist here. 

 

Constitutional Concern

We have an additional concern about the constitutionality of the bill as currently written. The bill contains mandatory language stating that South Dakota “shall agree to accept” specified lands and “act as an agent for the Secretary.”  Provisions of Federal law that require States to take actions to administer Federal regulatory programs are unconstitutional.  This could be addressed by amending the bill to clarify that South Dakota may voluntarily choose to accept or reject the land conveyance and associated responsibilities.  

 

Conclusion

We appreciate work done by the sponsors to address several technical issues that have been raised in the past.  We look forward to working with the sponsors and the Committee to address any outstanding issues that remain.

 

I would be pleased to answer any questions.