LC Ma. 1%/.2: IE 79055 CONGRESSIONAL RESEARCH SERVICE LIBRARY OF CONGRESS Washingfan Hniéérsltv I { 5"“ 12 w as as rm .,.'f'* «'1' ‘. K». 3' :3“ , £3 V! E F xv: <.». . ...' N ;‘‘«\H r E “I if I‘»', ."( . “*’-'-~ " \t' ." \'.": §,__‘ "W :..»‘?E NOV 1 7 19u9 1‘ I'‘:; 1‘ _ '9 L! 1-us‘: x’.-[5 ‘-7. 1» 42;;-"'» ' ‘KR ; xx-..:.s mt Issue Brief J‘ S E L €—‘m‘~_§ E7 :=~1"—‘ ‘‘ 3’ " ‘~'~*~=»¢ W-2-ma :~.«E_§Q. I ‘V v.» ‘H ‘v *3 . . a. 31‘ ..', -3 .‘;- J':‘.‘-’,',*_ 51 .,*‘* .>r“,:~» 1, KL’ . 4_:,.-:{ _, '.«,r_<- ...._......~_.__........._‘._-——--—-—-- 8 nive st “ fl|W||‘Mfisouri 1 010- 03861876 ‘ . . . WATER RESOURCES DEVELOPMENT: COST¥SHARING OPTIONS FOR FEDERAL PROJECTS ISSUE BRIEF NUMBER IB79055 AUTHOR: Viessman, Warren Jr. Senior Specialist, Engineering and Public Works Defloncada, Christine Office of Senior Specialists THE LIBRARY OF CONGRESS CONGRESSIONAL RESEARCH SERVICE MAJOR ISSUES SYSTEM Dam ORIGINATED Q§ __ DATE UPDATED Q_6_;_2_g4§_Q FOR ADDITIONAL INFORMATION CALL 287-5700 0624 CRS- 1 IB79055 UPDATE-06/24/80 ;§SUE Q§FIN;$;0 On June 6, 1978, President Carter announced his Federal Water Policy Initiatives (WPI). Included were recommendations on cost—sharing, a critical . element of 0.5. water policy. iProblem areas addressed were the following: -— Many federal projects are locally sponsored with little state-level input; . -- Cost burdens are unevenly distributed among projects, beneficiaries, agencies, and purposes for both technical (or design) reasons and institutional (legal, public pressure, etc.) reasons. The President proposed that states play a more active role in the selection and development of water projects. The financial responsibility of the states would be increased, having them provide a 10% cash share of allocated implementation costs for vendible water project outputs plus a 5% cash share of the allocated implementation costs of other project purposes. vendible outputs were defined as those project outputs (water supplies and hydroelectric power) for which the federal government receives revenues. A draft bill embodying these elements was circulated for review early in 1979. It met with opposition from some states and. some Members of Congress. A ‘evised version was introduced in the Congress on May 17, 1979 (H.R. H135). While the President's proposal suggests an improvement in the current situation it does little to remove most inconsistencies and adds a few of its own. A simple strategy of removing variances and establishing a uniform cost-sharing base among programs, purposes, and agencies has also been discussed and merits consideration. The problem might also be simplified by decentralization of responsibility for intrastate projects to intrastate regional and local public agencies. Concentrated in such agencies could be full authority to obtain financial resources through: issuance of tax-free revenue bonds, general tax assessments, sale of vendible services, tax assessment of flood control beneficiaries, and loan and/or grant aid from state and federal governments. §AQ1S§B.Q9.EQ-A.1§12...13Q.I.:.IS¥....§..Al.-.311-5.1§. The need for cost sharing reform has long been recognized but most developers and beneficiaries of water programs have strongly resisted comprehensive change. As a result, requirements are inconsistent among programs, purposes and agencies. This disjointed approach favors: structural over nonstructural measures; capital-heavy construction alternatives over more economical solutions (having a higher proportional cost of operation and maintenance); and high levels of vastvater treatment over other alternatives such as control of urban runoff and dispersed sources of pollution. 4 At the outset of the President's water policy study, several cost-sharing Jptions were presented in the Issue and Option Papers published in the July :15, 1977, Federal Register. These are summarized below: 1. The current situation -- The existing non-federal cost-sharing rates would continue without change. This option presumes that the inconsistencies in repayment terms and variations among agency programs and purposes are CBS‘ 2 IB79055 UPDATE-06/2H/80 supported by valid reasons (Section 80C, P.L. 93-251, The Water Resource Development Act of 1974). 2. Cost-sharing floor - Existing cost—sharing arrangements would be ~ modified to achieve greater consistency between agencies and measures providing similar benefits. The cost-sharing floor option has the attraction of providing a vehicle for eliminating incosistencies while moving toward uw options more oriented to "users—pay—the-full-cost." The 1976 recommendations of the Water Resources Council (WRC), based on its "Section 80C study," reflect this philosophy. 3. Joint venture -—-Fifty percent of the initial capital implementation or financing costs of projects would be provided by the federal government, and the other 50% would be provided by state, interstate, or local governments, or by public nongovernmental entities. T 4. Block grant -- This option would provide block grants to states in place of the present direct federal investments in water-resources programs and projects. Initially, each state would receive annual grant funds equivalent each year to the average annual federal water-resources investment in that state for the past several years. Eventually, grants would be distributed on a formula basis reflecting population, economic and other factors related to investments and expenditures. 5. Pull recovery -- The federal) government would continue to plan, finance, implement, and operate projects and programs as it does today. However, in the case of projects authorized in the future, the cost-sharin terms for each project purpose or service provided by a project would require 100% repayment of all costs involved, including operation, maintenance, and replacement costs (OMB), interest during construction, and interest at the project evaluation rate for all repayment obligation schedules over a period of years. In his June 6 message, the President stated that his proposed cost—sharing reforms would accomplish the following: (1) involve the state more heavily in water project decisions; and (2) eliminate many of the conflicting rules governing cost-sharing for flood control projects —— especially with regard to structural and non—structural flood damage reduction measures. T The President directed WRC to prepare, with respect to the programs of the Bureau of Reclamation, Corps of Engineers, and TVA, necessary rules, procedures, guidelines, or legislation to: -- require that states provide a legally binding commitment to contribute a 10% cash share (in-kind contributions not allowed) of the construction :* costs associated with vendible outputs of water projects within its borders plus 5% of the cost of other project purposes (in-kind contributions not % allowed). Vendible outputs are defined as those of municipal and industrial (H81) water supply, irrigation, and power benefits of projects for which the federal government receives revenues from project beneficiaries under present policies. All other outputs are considered to be nonvendible and subject tif the 5% financing. The state's cash contribution is to be paid concurrently and proportionately with the federal contractual obligation for project‘ construction; -- provide for the sharing of revenus from vendible outputs between the CRS- 3 IB79055 UPDATE-O6/2H/80 federal government and the states in proportion to their respective financial investments; -- make the state financing and cost-sharing requirement mandatory on projects not yet authorized by law, and voluntary on those projects authorized but not yet under construction. For purposes of determining new construction starts, expedited consideration will be given those projects for which the state has voluntarily guaranteed these financing contributions; -- include an annual.projectrby-project "cap" on state contributions of 1/u‘of 1% of the State's general revenues; -» provide that for-multi-state projects, the total states‘ share will be computed by determining contributions from benefitting states; a state refusing to participateecould not "veto" a project because other states can pick up the financing and revenue sharing differences. The 10/5% requirement for state financing would be in addition to existing cost-sharing arrangements. The Soil Conservation Service would be exempt from this requirement. Existing cost-sharing rules would, however, be modified to require, in addition to the financing and cost-sharing requirements covered above, a 20% contribution of allocated costs for either structural or non-structural federal flood damage reduction measures. This would equalize structural (easure cost-sharing with the existing authorized arrangement for don-structural flood control measures. This requirement would apply to the three agencies covered above, plus the Soil Conservation Service. The 20% contribution of allocated costs of flood damage reduction measures could include any combination of cash and in—kind contribution (land, easements, rights-of—way, hold and save harmless, operate and maintain). T By requiring that the states contribute a more substantial portion of project costs, greater care in setting priorities could result and the projects selected might have more expansive benefits and not be as provincial in purpose. On the other side of the coin is the possibility that if non-federal cost shares become dominant, the national interest will not be well served. There is little dispute with the basic philosophy of the President's proposal, which calls for: (1) the states to play a more dominant role in the planning, financing, and operation of federal and federally assisted water projects and programs; (2) reconciliation of conflicting rules governing various forms of cost-sharing’ on similar programs; and (3) beneficiaries of projects to assume more of the burden of costs. It is argued, however, that these basic objectives cannot be effectively met by the methods proposed. A politically feasible approach which will directly address the issues, inconsistencies, and inequities that have evolved over the years is sought. v Criticism of the President's cost-sharing policies has surfaced because of: the proposed front-end financing by states -- many states contend that 10% is too steep; there is argument with the types of project outputs viewed )Y the Administration as vendible; the failure to address directly the problems with current practices; and the belief by some states that the proposals would not increase their role in decision-making processes. To accommodate the opposition, the Administration reconsidered products defined as vendible, deleting navigaticn and recreation from this category. Water quality is also exempt. In fact, only Corps of Engineers, Bureau of Reclamation, TVA, and some Soil Conservation Service programs are addressed. cns- 4 113790 55 UPDATE--0 6/2a/30 Flood control projects, however, would still require a state and local inpt of 25% of allocated costs (5% for financing and 20% as reimbursement). This requirement has also been singled out as objectionable by many states. The issue of how states should share costs for projects of multi-state dimensions ~ presents another problem that has not been adequately resolved. The President's cost-sharing proposals, although suggesting greater Jwnconsistency than the current situation, for the most part do not eliminate ‘r the wide variation in cost-sharing levels (185 different provisions) among purposes, programs, and agencies; rather, they superimpose an additional 5 or 10% charge upon present costesharing arrangements. The legislation proposed by the Administration does make a significant contribution, however, in recognition of a sound basis for cost-sharing -- that is, the outputs produced rather than the measures used. Another important conceptual contribution in the President's proposal is the idea of revenue sharing with states. In the past, although the states (or non-federal interests) have paid about 30% of allocated project costs they could not share in the revenues derived from the projects. frhe proposed legislation does not recognize the reimbursed shares retained under the existing rules and recognizes only the financial contribution associated with the new front-end requirements. The addition of 10% minimum front-end financing for each vendible output and a proportionate revenue sharing provision is apparently intended to address the long—standing federal argument that cost-sharing should be an effective instrument in the selection of efficient projects. The present situation is far different, however, since federal financing and the varyina partial non-federal reimbursement is on very favorable terms for non-federal participants. The proposed joint federal/non-federal financing, planning, and revenue sharing on a 90/10 basis could be useful as an efficiency tool in project selection, however, and could be a start toward more careful project selection. While there are provisions to guard against stiff cost-sharing requirements where larger projects are involved, it is not clear whether these are sufficient. The condition that the state contribution must be cash and legally committed may be difficult for some states to accommodate. Problems could occur due to the amount of funds required, and the state's inability to time its commitment in light of budgeting cycles, prohibitions on state debt obligation, and possible uncertainty of revenues to cover anticipated costs. Although the cost-sharing requirement are not applicable to projects already authorized, it was noted that expedited consideration would be given those projects for which a state voluntarily guaranteed these added financing and cost-sharing contributions. This suggests that states sincerely interested in water development will be accommodated. There exists the possibility, however, that poorer states could not comply with this ideal, thus placing them at a competitive disadvantage. Legal and institutional aspects of cost-sharing deserve as much attention as rate structure, consistency, and other factors, and these issues, it is charged, have not been given much consideration. Practical assessment an collection procedures and mechanisms for identifying principal beneficiaries are presumably to be carefully assessed and full cognizance given to federal laws and regulations, state statutes, and financial constraints. Moreoever, ’iv most cost-sharing policies for specific purposes were developed to achieve various national goals or objectives. It follows, therefore, that a cRs— 5 1379055 UPDATE-05/2n/no prerequisite for change in these policies might be a reexamination of the motivating ideals. Solution of the cost—sharing nproblem might be simplified by decentralization of responsibility for intrastate projects to intrastate regional and local public agencies. Concentrated in such agencies could be full authority to obtain financial resources through: issuance of tax-free revenue bonds, general tax assessments, sale of vendible services, tax assessment of flood control beneficiaries, and loan and/or grant aid from state and federal governments. Proposals for joint “front—end“ financing of projects with state governments in the amount of 10% for non-vendible services, with retention of existing sharing of allocated costs, as specified in the proposed legislation, are complex. If affirmative state action on projects is desired, it might be approached in a simpler way. In view of the national interest in sound water resources development, the federal government could put up the funds for construction of water projects under the policy set forth in the Water Supply Act of 1958, Title II of P.L. 85-500, approved July 3, 1958. Legislation would be required to extend this concept to an agreed upon level of recovery of vendible and non-vendible project outputs at the project discount rate (or at some fixed rate that reflects federal cost of borrowing). Using this approach, states could provide assurances for repayment and could also be guarantors of local governments relative to such outputs as water supply on which user charges are expected. In this manner ztates could more actively exert their constitutional responsibility in the planning, development, and management of the nation's water resources. Another approach to achieving a greater balance between national and state interests in water resorces development would require enabling authority tot share costs and revenues in proportion ’to financial investment within an acceptable range, say 10 to 50% non-federal financing on the basis of project outputs. The federal government and the states could jointly plan, finance, manage, and cost and revenue share the development of water projects and programs with due consideration for constitutional and established divisions of responsibilities. states would have incentives to" support efficient projects on the basis of their financial risks and the opportunity to share in the revenues from vendible outputs. This alternative would require extensive legislation, however. = Finally, a simple strategy of superseding all existing cost-sharing requirements and the establishment of a uniform cost-sharing floor for each project purpose could provide a foundation upon which ultimately could be built a strong joint—venture program. A2tizifie§-2:_rhe-2§th-§2ngre§§ On Mar. 28 and 29, 1979, hearings were conducted by the Subcommittee on Water Resources of the House Committee on Public Works and Transportation concerning costrsharing proposals. some significant questions, raised are ‘ummarized below: -- Can a state legislature during one session forecast and commit the funds of a future legislature for frontrend cost-sharing? - night crucial projects exceed a state's budget if proposed cost-sharing ratios are implemented? CRS- 6 4 IB79055 UPDATE-06/2H/80 - How can interstate benefits be determined and apportioned? would there be a need for interstate compacts? - How would cost-sharing proposals be implemented? would a retroactive policy adversely affect state laws? LE§l§L£Il9! H.R. 2636 (Downey) Amends the Federal Water Pollution Control Act by providing operatic and maintenance funds for waste treatment works. Introduced Mar. 6, 1979. An executive comment was requested of EPA and OMB on Mar. 29, 1979. H.R. 4127 (Udall) The Federal Water Projects Financing Act of 1979. Introduced May 16, 1979: referred to three committees. Referred to Subcommittee on Water Resources Bay 29. Cross reference bills are H.R. #135 and S. 1599. H.R. #135 (Johnson, H. et al.) Provides for financing, cost and revenue sharing of federal water resource development projects. Introduced May 17, 1979; referred to three committees Referred to Subcommittee on water Resources June H. A S. 480 (Randolph) Under Title II of the bill program in which States and recognized Indian tribes would be eligible for financial and program assistance for water management programs. 5. 12fl1 (Domenici et al.) The National water Resources Policy and Development Act of 1979. Introduced may 2a, 1979; referred to Committee on Environment and Public Works. Hearings held July 2H by Subcommittee on Water Resources. Cross reference bill is H.R. 559a. S. 1599 (Gravel) Federal Water Projects Financing Act of 1979. Gives States a greater role in water development and management and in financing federally assisted water projects. Introduced July 30, 1979. S. 16nO (Gravel) Under one of the sections of the bill to amend the Water Research and Development Act of 1978, State or local government agencies or academic entities would be entitled to partake in the matching grant program of their) particular State. CRS- 7 IB79055 UPDATE-06/24/80 U.S. Congress. Senate. Committee on Public Works and Transportation. Subcommittee on Water Resources. Hearing on the cost sharing aspects of the President's water policy initiatives. Hearings, 96th Congress, 1st session. Washington, U.S. Govt. Print. 0ff., Mar. 28 and 29, 1979. 3§2QB£§-ANQ-§Q§.B§§§lQ!AL.2Q§§§§N£§ - U.S. Congress. Senate. Committee on Energy and Natural Resources. An analysis of the President's water policy initiatives. Washington, U.S. Govt. Print. Off., September 1978. (95th Congress, 2d session. Publication no. 95-129) 4---- The water resources policy study: an assessment. Washington, U.S. Govt. Print. Off., June 1978. (95th Congress, 2d session. Publication no. 95-108) 6 0.5. Water Resources Council. Options for cost-sharing: planning cost—sharing for federal and federally assisted water and related land programs. Part 5A, 5B. Washington, U.S. Govt. Print. Off., November 1975. 0.5. Water Resources Council. Water resource policy study. Task Force Reports. Washington, 0.5. Govt. Print. Off., Dec. 6, 1977. QEBQEQLQGY OF EVEflI§ O3/28/79 — 03/29/79 -— Senate Subcommittee on Water Resources held hearings on the President's cost-sharing proposals. North, Ronald M. Formulating a national financing system for water resources. American Society of Civil Engineers Specialty Conference. Houston, Texas. Feb. 26, 1979. Nenir, Charles E. Policies in cost-charing and financing of federal water projects. Texas Department of Water Resources. American Society of Civil Engineering Speciality Conference. Houston, Texas. Teb. 26, 1979. News in brief. Interstate Conference on Water Problems. v. 8, no. 1. St. Paul, Minn. February 1979. Water Information NEWS Service. Carter to send chost-sharing bill to Congress by April 1. v. 3, no. 22. Washington, Mar. 5, 1979. CR5‘ 8 IB79055 UPDATE-O6/’2'-I/80 Sellers,-Jaick.iie and Ronald E. North. Cost charing and implementation of national water resources policy. Water Resources Bulletin. v. 15. February 1979: 189-197. ’ .5. National Water Commission. New directions in 0.5. water policy: summary, conclusions and recommendations. [Washington, for sale by the Supt. of Docs., U.S. Govt. Print. Off., 1973] 197 pt. , L] QF Vi’!;5+$§°*3§§°a.9GT0N1‘ U 513.. W” r".T”“3’ MA ‘I .-Fa. MU Libraries University of Missouri——Columbia Digitization Information for Congressional Research Service Digitization Project Local identifier CRSIB Source information Format Content type Notes Capture information Date captured Scanner manufacturer Scanner model Scanning system software Optical resolution Color settings File types Derivatives — Access copy Compression Editing software Resolution Color File types Notes Book Text Cover has cut—out to show title on title Page Stamped with property stamp for Washington University including deaccession stamp Some have labels on front page Some have black out markings on front page SuDoc numbers handwritten on front page Some items have very light print Some front pages have colored backgrounds Items not added to University of Missouri collection 20l7 April Ricoh MP C4503 600 dpi grayscale tiff Group 4 600 dpi bitonal tiff