Lumber Power
SPOKANE Transportation
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"Hub of the Inland Empire"
Mining Light Metals St
RECD.
I 1967
AgricultureSPOKANE CHAMBER of COMMERCE
Riv - Telephone MAdison 44 393
SPOKANE, WASHINGTON 99201
December 7, 1967
MEMO to NRA DIRECTORS
Hi, Fellows:
While in Honolulu I mentioned the address Charlie Hodde, Chairman of the Pacific Northwest River Basins Commission, made at Ephrata to our State Association. Senator Jackson also alluded to Hodde's address in his remarks at Honolulu. While Charles would be the first to admit there are lots of bugs in his suggested financing pro-posal for reclamation .... at least it is a fresh approach.
The pertinent remarks start on the middle of Page 4. Why not take a few minutes to read them? Charlie may have come up with an idea that may provide an answer to reclamation financing.
WILL D. ALTON, President Vice Presidents: THOMAS R. Anicisox
Sincerely yours,
U 7 --(4/
L. 1.Markham Director
LESTER J. PAFF, Treasurer
ROBERT M.
LORIN W. MARKHAM, General Manager
ADDRESS FOR PRESENTATION BEFORE THE ANNUAL MEETING OF THE
WASHINGTON STATE RECLAMATION ASSOCIATION Ephrata, Washington
October 26, 1967
by Charles W. Hodde, Chairman Pacific Northwest River Basins Commission
The Pacific Northwest River Basins Commission is the first of several regional water and related land planning organizations being estab-lished to foster, coordinate and review plans seeking the optimum benefits from conservation, development and utilization of the water and related land resources of the United States. This Northwest water commission is respon-sible for these objectives in an area including all of the state of Washington; all of Oregon except that area draining into California along the southern boundary; all Idaho except that drained by the Bear River; and that part of Wyoming and Montana draining into the Columbia River system.
The Commission was established on March 6, 1967, under the terms of the Water Resources Planning Act of 1965, pursuant to the request of the Governors of the states of Idaho, Montana, Oregon, Washington and Wyoming. Members of the Commission represent the five states requesting its organization, eight federal departments having definite interest in water and related land planning in the area, and a member representing the United States-Canadian Columbia River Treaty. The fifteenth member of the
Commission is appointed by the President of the United States to act as Chairman of the Commission and coordinator of the federal members of the Commission. The Chairman is the principal executive officer of the
Commission. A Vice Chairman is selected by the state members from their membership. The Vice Chairman is the chairman and coordinator of the state members and has certain executive duties relating to concurrence in selecting personnel and consulting with the Chairman regarding other operational decisions regarding staff and Commission operation.
The Commission maintains a small staff of professionals. Staff costs are paid, one-half by the combined state contributions and one-half by the federal government.
The Commission utilizes a number of committees composed of federal and state agency employees. Committees originating over the past twenty years as work groups under sponsorship of the Columbia Basin Inter-Agency Committee are being continued. The Commission expects to accom-plish many of its objectives through such continuing committees as well as through special committees.
The Commission has accepted responsibility for the coordination and guidance of three major water planning studies now under way in the region. Concurrently with these studies the Commission is proceeding with its major responsibility set forth in the Law and Executive Order under which it is established. This charge is to produce and establish a method for keeping up-to-date, a comprehensive, coordinated, joint plan for federal, state, interstate, local and non-governmental development of water and related land resources.
Work Programs and Studies Now Under Way
1. The Columbia-North Pacific Framework Study. An interagency study involving funding from federal and state sources, being coordinated by a technical staff of assigned agency personnel, chaired by a Commission staff member, due to finish its report in 1970, which will detail the resources of the region by location and predict the needs and methods of satisfying the needs at selected points in time -- generally 1980, 2000 and 2020.
2. The Willamette Basin Study. A detailed study of the Willamette and tributary drainage due to be completed in 1969, covering for the smaller area the same subject matter involved in the Columbia-North Pacific study, but developed in more detail and including identification of projects desig-nating those needed within the next ten to fifteen years.
3. The Puget Sound and Adjacent Waters Study. The Puget study has the same objectives for the Puget Sound region that the Willamette has for its region. It is also due for completion in 1969.
4. Committee Work.
a. Continuing Committees - The Commission expects to work through the following continuing committees which are now established:
(1) (2) (3) (4) (5) (6) (7) (8) (9) Coordinated Planning Economic Studies Fisheries Hydrology Meteorology
Aquatic Plant and Insect Control Power Planning
Water Management Water Supply and Water
b. Special Committees - The Commission has one special committee working on a review of a proposal to develop informa-tion regarding a multipurpose offstream storage reservoir. It is expected that special committees such as this will identify and recommend through the Commission the proper agency or agencies -- state, federal or
private -- that should be funded for detailed study of a project that the special committee finds worthy of detailed investigation.
5. Inventory of All Planning - Past, Present and Proposed - in the Commission's Jurisdiction. This effort is under way and is expected to result in development of a central source of information available to any interested agency or resource-oriented effort.
6. An Information Program. The Commission is initiating a program of information exchange between all interested agencies and the public regarding water planning in the Pacific Northwest.
7. The Long-Range Comprehensive Plan for the Northwest.
All of the above activity will contribute directly to development of a compre-hensive, joint plan for federal, state, interstate, local and non-governmental development of the water and related land of the Northwest.
8. The Commission will identify resource areas and possibilities that should have priority of investigation. It will indicate problems that need research for solution. It expects to provide a forum for public discus-sion of policy questions affecting resource use.
Study of policy questions affecting resource use may well become the most important aspect of Commission operation. It may equally prove to be an area in which it will be impossible for the Commission to establish guidelines. Most present water resource policy is well established, and even though it may not be as logical now as itwas in its origin, there still is a feeling of security in staying with what we are accustomed to.. Never-theless, time is not standing still. It is my opinion that technological changes in the processes of industry and agriculture, as well as changes in social desires and financial organization, are making some of our basic water gospel out of date.
The Washington State Reclamation Association has a definite place in policy determination regarding water planning. Agriculture will probably always be the greatest consumer of water from our rivers, lakes and underground reservoirs. We may very well find it necessary to review such things as the doctrine of appropriation, reservation of waters arising on federal lands, the ownership of water escaping into underground waier tables from surface sources, responsibility for quality of water returning to
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streams from industrial or agricultural uses, controls against pollution of groundwater, and the limitation of delivery of water to a limited acreage for farmers receiving their water from Bureau of Reclamation projects
versus appropriation of water for an unlimited acreage by a user appropri-ating through his own facilities.
Each of these items could be the basis for a presentation to this association. Today I want to speak rather briefly regarding some
personal feelings I have about the last one mentioned.
I believe it is time to recognize that farming technology has changed and an adequate family sized farm has also changed. It does not answer the question to point out that there are many ways in which legal arrangement can be worked out to assemble operating acreages far in excess of the standard 160 acres. I would not want to be understood to mean that there should be no limitation on the acreage that one operator can receive water for. Actually, my greatest concern is that restrictions in the present reclamation law are delaying development of irrigated acreage on a compre-hensive basis and resulting in piecemeal development of small areas in
farms of several thousand acres. This practice may well result in destroying the potential of more land than it waters. Most of these independent develop-ments are oriented to production of special crops with a high gross per acre where economies can be effected through large unit operations to offset sub-stantially higher water costs than is the case on Bureau projects. The sad fact is that these high gross value crops are not in short supply and each development of this nature must decrease the market for the same crops from established projects.
A second very substantial problem is securing approval of the Congress for substantial expenditure of federal funds for reclamation of more land. From every source we understand appropriation of funds for reclamation of more agricultural land will be increasingly difficult.
I should like to suggest consideration of an alternative method for federal support of irrigation. I would not propose any immediate change in the basic reclamation law. If an alternative method were made available, the landowners would then make the choice, as his assent is always necessary when private land is involved. I do not expect my ideas to be accepted with-out debate. I'm sure there are many details that would take the considera-tion of our best talent to resolve. All I suggest is that we get on with the thinking.
I think it should be recognized that interest-free money repayable in the 60th year is a much larger contribution from the federal treasury than repayment of the original investment in facilities when such repayment is delayed until. the same date. In other words, if we reversed the process
and charged interest to the water user and retired the original investment from the federal treasury in 50 or 60 years, there would be no present burden on the treasury, as financing could be accomplished through sale of securities. The next logical step in the process of reasoning out a better approach is to guarantee payment of the interest during the term of the investment and guarantee the payment of the principal at that time in case of a default on the part of the project. Under such a situation, the development of supplemental irrigation as opposed to the reclamation of now uncultivated desert areas, could proceed on a separate basis under which the public interest would remain a factor in approval of these pro-posed developments, but its cost in public funds considerably minimized. Most states have laws under which municipal districts (usually including state irrigation districts) can issue what amounts to revenue bonds with a lien on the land in the district as security for this debt. In the case of some utility districts, this lien extends only to revenues and not to title in the property of the utility or the customer. This provision has pro and con arguments that could be the basis of a separate discussion from my present effort, but I should like to point out that use of such a system would prevent the situation that caused the failure of several irrigation districts in the past, where the erosion of the revenue source occurred through individual bankruptcy and eventual overloading of the last faith-ful acre with operation and debt service requirements.
It is my opinion that revenue bonds with an unqualified guarantee of interest payments with principal payment guaranteed in 50 years and callable without penalty after 15 years, with no more than 10% callable in any one year, would sell at a very favorable interest rate. A state-chartered municipal corporation's revenue would be free of federal taxes, as would the interest received by the bond purchaser. Revenue bonds of Washington Public Utility Districts, based on power revenues, with no lien on the
physical facilities of the district, are selling at lower interest rates than long-term U.S.Treasury issues. The necessity of marketing securities on the open market would limit the use of such a law to projects with a reason-able chance of success.
In suggesting such a substitution of a government guarantee of interest and principal in place of grants through interest-free money and power contributions, I believe we could inject a cost-control factor into evaluation of irrigation proposals that will not operate in the political atmos-phere of a basin account procedure staking all future development on contri-butions from power revenues.
Inasmuch as this procedure is only suggested for improvement of agricultural land already privately owned, I would not apply the 160-acre limitation. I would rather favor delivery of water for all land owned by a single owner at the time of first application for a study of feasibility, or
in the case of subsequent purchasers desiring to combine two or more initial ownerships, a limit equal to one and one-half times the average ownership in the project. Such a provision would allow the limitation to automatically adjust to accepted farming practices as technical and social changes occur in the farm economy of the region involved.
It is my thought that the public interest in development of an adequate agricultural base and the desirability of avoiding piecemeal development by private interests that may very well preclude larger and more desirable projects at a later date, would justify some further contri-bution from the federal treasury than the possible future payment of interest or principal on defaulting projects.
I would suggest this be through federal financing of initial feasibility studies and free supervisory engineering review and service
prior to, during and following construction. The requirement of constant review, intensified in case of delinquency in meeting payments due and necessary to guarantee adequate maintenance would be the guarantee to the federal treasury that intentional default would not be used as a method of
private enrichment.
I would suggest further that in such projects as require the con-struction of multiple benefit storage reservoirs, such reservoirs be constructed and owned by the federal government, rather than the irrigation district, and charges for water be closely related to government interest costs on that portion of the cost attributable to storage for irrigation not required for other benefits. I would not expect such necessary storage projects to get capital returned from irrigation water sales, but rather from the indirect revenue increases to the federal treasury from generated economic activity.
There are several ways in which a guarantee fund may be operated to implement these suggestions. Probably the most effective is the pattern used in the case of the Washington State Ferry System. A guarantee fund is established through which flows substantially more money than is reasonably going to be necessary for payments from the fund. If power revenues were to provide the guarantee, development of one million acres, with the debt
guaranteed in this manner, would probably not require the maintenance of a guarantee fund of more than one percent or about five million dollars. It is not my idea that the guarantee fund would ever be called on to pay principal amounts unless there were a disaster liquidation of a substantial share of a district, such as could occur in a major flood or other natural disaster. It is possible that some interest charges would be charged against the fund if a crop failure occurred in several successive years, but this is hardly ever the case with irrigated crops.
I'm sure the logical question is whether the farmer under such a system that furnishes little other than cheaper credit and a guarantee against default of central system obligations can operate at the annual costs that
would result. I would first say that this is no magic formula that will make feasible every fancied project in the West. Indeed, the basic merit I claim for the suggestion is that it will introduce a reasonable amount of support of irrigation to the extent it is in the national interest,while still applying a feasibility factor measured economically, as is usually the case in private enterprise development. Established farmers will usually be able to finance their own farm distribution facilities, especially if district obligations are against revenues only and not a lien on the farms. There are a great many acres -- at least two million -- in the Pacific Northwest now farmed that would be greatly benefited by supplemental water over rainfall. Much of this can be provided central water delivery service from existing reservoirs with an additional investment of $200 to $500 per acre.
If allowed to operate in acreage units properly related to the crops being grown, there are many farmers that would be interested under these costs.
The following is a summary of my ideas. Supplemental Irrigation Assistance Program.
In cases where no appreciable percentage of public (federal) lands are included, a project to supply supplemental irrigation water to land
already in cultivation should be given the following federal support:
(I) Upon application of a majority of the landholders in a proposed study area of at least 20,000 acres, the Bureau of Reclamation should proceed to make a survey of water availability and probable cost of construction of facilities on the proposed project. It would report back to the landholders petitioning for the survey at no cost to such petitioners.
(2) If it shall appear to the landholders that the proposed development is feasible and they shall decide to proceed, they shall estab-lish a municipal corporation .under state law for the purpose of constructing and operating facilities to deliver water to the landowners, not including distribution works pertinent only to the distribution of water on the land -after delivery to the land by the corporation. The municipal corporation shall be empowered to issue revenue bonds to finance construction of the physical facilities to be owned by the district.
(3) The federal government shall agree to guarantee the payment of interest on the bonds of the municipal. corporation in the case of failure by reason of the inabiiity of the corporation to secure sufficient revenue for such payment from the water users of the corporation, provided,
(a) the project has been certified by the Bureau of Reclamation, Department of the Interior, as in the public interest;
(b) the total value of private holdings in the district upon completion of the project subject to assessment for operation and maintenance and debt service, is estimated to be equal to 150% of the total estimated cost to the corporation for construction of all needed
facilities, including necessary structures to bring water to the land and works necessary to assure proper drainage after the project is in operation;
(c) the property owned by the municipal corpora-tion is not subject to taxes after construccorpora-tion, levied by a state or local subdivision of the state;
(d) the rate of interest guaranteed shall not exceed five percent per annum;
(e) the municipal corporation contract with the Bureau of Reclamation shall limit water deliveries to each customer to that land titled to the customer prior to the inception of the district, or in the case of new operators or owners, an acreage not larger than one and
one-half times the average ownership in the district;
(f) legislation authorizing the project shall specify what storage facilities and appurtenant works for delivery of water to the district shall be constructed or provided by the federal government as in the public interest or chargeable to non-reimbursable purposes;
(g) capital costs of the district properties shall be prorated to each acre determined to be benefited in accordance with the degree of benefit and provision be made for liquidation of each acre's portion of district facilities capital cost, with a provision permitting an owner to repay those capital costs assigned to his land in which case no further interest or repayment charges shall be made against such land.
(4) The federal treasury will guarantee payment of the principal of bonds issued for capital costs that have been approved by the Bureau of Reclamation, if such payments are not paid prior to the fiftieth anniversary of the issuance of such bonds.
There are hundreds of thousands of acres of good cropland in Washington State that would benefit from irrigation that lie under an elevation of two thousand feet. Land both east and west of Banks Lake is from five hundred to seven hundred feet above that source. There are numerous developments now operating that lift water more than five hundred feet without any federal or state assistance. Given a favorable rate of
interest on irrigation investment and a minimum of restrictions on operation, we would have a lot of farmers ready to go.
-It should be clearly understood that the suggestions I have made stem from my own analysis as an old irrigation farmer, rather than from any connection I have with the River Basins Commission. I have only presented this idea to stimulate discussion of what I consider a pertinent policy
question for the water resource oriented organizations of the Northwest. And now back to the Pacific Northwest River Basins Commission. The task of the Commission is basically to develop the best use of Northwest water in the Northwest. It can only do this with the public represented by its resource oriented agencies as partners in the discussions. We will be keeping you informed of what we believe to be policy questions. We will seek the desires and opinions in each community regarding what is best for that community. We will establish a plan for development for the next fifty years, fully realizing that any plan will change during that time. Therefore, we will also provide for the constant updating of that plan. This will not be a lockstep operation. The Commission can only be the guide. The rank and file of citizens of the Northwest will still have to man the wagon train.
