The federal Bureau of Reclamation, seeking to keep construction going on the largest unit of a massive water project in Utah, made questionable accounting changes and improperly deferred some of the project's costs, according to a General Accounting Office investigation that found the U.S. Treasury will lose at least $100 million as a result.
The GAO report was released yesterday by Sen. Howard M. Metzenbaum (D-Ohio), who charged that the incident was part of a pattern of "costly, illegal decisions" that have resulted in billions of dollars of improper subsidies to the beneficiaries of federal water-diversion projects.
The report and two other GAO documents released by Metzenbaum detail more than $6 billion in indirect subsidies, most of them attributable to interest-free loans and generous repayment schedules.
The reports "offer convincing evidence that the Bureau of Reclamation is more interested in making cozy deals with local interests than protecting all Americans from unjustified, budget-busting subsidies," Metzenbaum said.
In the case of the Central Utah Project, the GAO said the bureau improperly deferred some repayment obligations when it became evident that cost overruns and inflation would force a halt to construction of the project's Bonneville Unit. The unit eventually will trap water in a vast reservoir on the eastern side of the Wasatch Mountains and return it through a tunnel into a twin reservoir on the western side, generating more than 176 megawatts of power in the process.
Under reclamation law, the bureau cannot continue construction of a project unless it has a firm repayment contract. By the late 1970s, however, the initial 1965 contract had been outstripped by the mounting costs of the project.
According to the GAO, bureau officials tried in 1980 to raise the repayment ceiling but were rebuffed by their Interior Department superiors.
In 1981, however, the bureau succeeded with a different tactic. It invoked a separate federal law, the Water Supply Act of 1958, to justify deferring payments for virtually all water intended for municipal and industrial uses. Suddenly, more than $100 million was available for additional construction.
According to the GAO, the bureau's use of the water supply act was illegal, as was another decision to raise the construction ceiling even further by redirecting tax revenues on the project in a way that contradicted the original contract.
Because the costs of providing water under the Water Supply Act bear no interest for up to 10 years, the report said, the Treasury also stands to lose up to $97 million in interest payments.
GAO investigators also questioned the bureau's decision last year to reallocate some of the costs of the Central Utah Project. The change would raise the costs of the project attributable to irrigation from $534 million to $915 million, and lower the costs attributable to power production accordingly.
"This modification will have an impact on repayment," the GAO said, noting that the bureau is still assuming that farmers will be able to repay only $16 million of the irrigation system's cost.
The rest of the money would be repaid by power revenues, but not until after all costs attributable to power development have been repaid. Since irrigation repayments, unlike power development repayments, are interest-free, "the value of the eventual repayment will be substantially less than the value of the government's expenditures," the GAO said.
Metzenbaum said the reports demonstrate a need for a tighter rein on the Bureau of Reclamation.
Bureau officials were not immediately available for comment.