QUESTION: To what government agency does the Reagan budget assign a proportionately larger increase than the 18 percent growth proposed for the Department of Defense? The answer is the Bureau of Reclamation, which is slated for a 23 percent increase. This is not good news. Rather it is merely news of a decision to proceed with a very wasteful federal subsidy, but one that has great political resonance in the West. The budget figure itself represents a triumph of politics over budget-cutting principle.

The Bureau of Reclamation builds irrigation projects under a 1902 law designed to encourage small family farmers to settle the then empty and arid West. The law formally restricts the provision of federally subsidized water to farms of 160 acres or less, but for decades that limitation has been ignored. A hugely disproportionate share of the program's benefits go to corporations running farms as large as 20,000 acres.

Another requirement honored only in the breach is that users of the water repay the cost of the project. A recent General Accounting Office study of six of these "full repayment" plans found that the taxpayer subsidy in fact ranged from 92 to 98 percent. In a not unusual South Dakota project, for example, users will pay $3.10 per acre-foot of water that costs $131.50. In California's Westlands reclamation district--where the average farm is 2,400 acres and produces annual profits of almost half a million dollars--the federal government is providing water under a decades-long, inflation-free contract for about $10 per acre-foot. In neighboring areas water on the free market can cost 100 times that amount.

You might think that now that the West includes many of the fastest-growing parts of the country, a program designed to lure settlers would have outlived its purpose--and you would be right. The provision of an arid land's most valuable resource at a fraction of its real value not only milks the taxpayer of billions of dollars, but encourages flagrant waste of both water and money. Projects that flood as much good agricultural land as they irrigate would never be built if the money had to come from local funds. And today's flagrantly wasteful irrigation techniques would have long since gone the way of the gas guzzler if farmers were paying anything close to the real cost of their water.

Early last year Interior Secretary James Watt had some encouraging words to say about the need to stop reclamation ripoffs. But there was no follow- up to the tough rhetoric. The administration's "reform" bill--supported last week by the western- dominated House Interior Committee--proposed that the land limitation for federal subsidy be raised from 160 to 960 acres per farm. But while pricing reform languishes, and cuts in some other programs reach the crisis level, reclamation projects will get a healthy boost next year.