Markets for Federal Water: Subsidies, Property Rights, and the Bureau of Reclamation

By Richard W. Wahl | Go to book overview
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significant beneficiary of the salinity control program, especially in the Lower Basin.

The Reclamation Safety of Dams Act, passed in 1978 (92 Stat. 2471; 43 U.S.C. 506), was motivated in part by the failure of Teton Dam in Idaho in 1976. It provides for the Bureau of Reclamation to perform work to preserve the structural safety of bureau dams classified into one of two categories: (1) those being modified because of "new hydrologic or seismic data or changes in state-of-the-art criteria deemed necessary for safety purposes" and (2) those being modified owing to "age and normal deterioration of the structure or from nonperformance of reasonable and normal maintenance of the structure by the operating entity." In the first case, the costs are nonreimbursable; that is, there is a 100 percent subsidy for dam safety modifications in this category. In the second case, costs "will be allocated to the purposes for which the structure was authorized initially to be constructed and will be reimbursable as provided by existing law." The second provision means that, as dams age, they can be replaced with the same subsidy terms used for their original construction, such as the interest subsidy for irrigation. Work falling into the first category clearly receives a much greater degree of subsidy than the second, and it is a question of judgment as to how costs should be allocated between the two categories. The 1978 act authorized a total of $100 million for expenditures falling into either category.

In 1984 the Reclamation Safety of Dams Act Amendments (92 Stat. 1981; 43 U.S.C. 506) raised the cost ceiling by $650 million because the Bureau's 1984 list of dam safety modifications had a total estimated cost of $705 million (see U.S. General Accounting Office, 1986, pp. 21-24). The 1984 act also increased the level of nonfederal cost sharing from 0 percent to 15 percent for modifications in the first category--those deriving from new hydrologic or seismic data or changes in state-of-the-art safety criteria. The repayment period for irrigation was set at fifty years and at a level "capable of being repaid by the irrigation water users." Assuming a long-term government borrowing rate of 9 percent, interest-free repayment of 15 percent of costs over fifty years would provide a subsidy of 97 percent for the dam safety costs in this category that are allocated to irrigation.

Conclusions: Effects of the Irrigation Subsidy

Irrigation subsidies have generally been extended in favor of the water users through a variety of means, such as extension of the repayment period, deferment of repayment, and forgiveness of repayment on problem lands. Thus, a public program of irrigation stands in


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Markets for Federal Water: Subsidies, Property Rights, and the Bureau of Reclamation
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