65 years. Where this financial aid is not available to the farmer, irrigation projects are generally figured to include the cost of preparing the land, it being generally conceded that leveling, clearing, and otherwise preparing the land for cultivation is just as much a part of the irrigation project as impounding and bringing the water to the land; that it is essential to the highest success of the project; that it is to the interest alike of the government and of the settler; and that it is the plan that would be pursued by any corporation or individual undertaking the matter as a private business enterprise. The Isabela irrigation project does not embrace the preparation of the land for cultivation but extends only to the point of getting water to the land of the farmer, and it must be borne in mind that to do this every cent of the cost of constructing the dam, distribution canals, and all other parts of the system has had to be borrowed by the Government of Puerto Rico. Under act No. 59 of June 18, 1919, a bond issue of $3,000,000 was authorized and this was later increased by $325,000 by act 61 of July 1923. These bonds were issued in five series as shown below, the interest charges on which are shown opposite the respective series: Under act 52 approved April 28, 1928, a bank loan of $250,000 was authorized as also a transfer of $75,000 from the loan contracted for the urbanization of land reclaimed from the sea, these two amounts to be used for the completion of the original irrigation system, for extending the system to the irrigable lands to the south of the temporary district, and for preliminary surveys and investigations in connection with further extensions of the system. The interest cost of these two loans will amount to $91,062.51 and $7,968.75, respectively. It will be seen therefore that the total amount borrowed by the government for construction purposes has amounted to $3,650,000 and that the cost of this borrowed money will amount to $3,819,028.12, as follows: It is this total cost of $7,469,028.12, plus the cost of operating and maintaining the irrigation and hydroelectric system which must ultimately be covered by the following three sources of revenue: Water levy. Sale of surplus water. This would present no particular difficulty if the revenues to be derived were constant from the commencement of operation—that is, if all the acreage to be included in the irrigation district became subject to the water tax at one time, and if the tax rate would from the commencement be the $17 per acre which is ultimately (from the year 1933) authorized by the law. But this is not the case. In the first place, each landholder is by law entitled to 1 year of free water and as this free period expires at different times in each case, the land becomes subject to the water tax in gradually increasing acreage rather than at any one given time. Further, the tax rate is limited by law to $10 per acre until the year 1933. Further still, it is now contemplated to reduce this to $6 per acre for the year 1929-30 due to the inability of a great many of the landowners to meet the $10 rate because of the small proportion of their land now under cultivation. Also it is estimated that it will not be until the year 1933 that any income can be expected from the sale of surplus water, nor will it be until the year 1931-32 that the income from the sale of electric current will reach the $80,000 per annum which represents the normal capacity of the plant. From the foregoing it will readily be seen that the greatest difficulty, both for the Government and for the landholder, is to survive the first few years of operation. The Government, in making conditions as favorable as possible for the landowner during the early years, increases its own difficulties to the extent of having to borrow money to meet the principal and interest on its irrigation bonds, yet a study of the entire situation shows that about 50 percent of the landowners do need every facilitation possible during the early years if they are to farm successfully under irrigation. On December of last year it was necessary for the irrigation service to borrow $100,000 to meet the principal and interest on its bonds. On June 30 of this year it will be necessary to borrow $101,700 for the following purposes: On December 5 next a loan of $106,000 will be needed to pay the loan of $100,000 made last December, plus interest. Again, inasmuch as the estimated income for next year will only cover the cost of operation and maintenance, it will be necessary to contract a loan on December 31 to cover: Amortization of bonds.. Interest on bonds_. Interest on $250,000 loan__. Interest on $75,000 loan.. $75, 000. 00 73, 125. 00 6, 250.00 1, 195. 31 155, 570. 31 Unless some means of refinancing is devised, the succeeding year will see the need of making additional loans with which to pay these three loans, with their corresponding interest, and so it will continue with a continually increasing burden each year. Your committee realizes the necessity of helping the farmer in every way possible to get a favorable start in the irrigation district, and its work has been directed to this end but at the same time toward a method whereby the overlapping bank loans can be avoided. So long as the revenues cover only the cost of operation and maintenance it is obvious that borrowed money will be required to meet the bond obligations and other interest-bearing indebtedness, but by securing money for this purpose on long terms it will be possible to start the amortization of any new debt at a time when the burden of the present bond issue will have been substantially reduced and when the operating revenues of the system will, by reason of this reduction, begin to show a surplus over total costs. But this will not be sufficient. In addition to the new bond issue which your committee proposes, it will be necessary that the net income of the Irrigation Service be increased by additional revenues from the year 1934-35 in the amounts shown below: $29,800 per year for the 17 years from 1934-35 to 1950-51, inclusive. $15,000 per year for the 7 years from 1935-36 to 1941-42, inclusive. This makes a total additional revenue of $621,600 over a period of 17 years which, if not derived through increased water assessments or from other means, would represent a deficit to the Service even after taking into consideration the new bond issue which your committee proposes. This new bond issue is in the amount of $1,250,000 to be issued in series as shown below and the proceeds of which must be available on the dates indicated: The $750,000 of the first series is to take care of deficiency loans to January 1, 1930, and of bond requirements, as follows: July 1, 1929. Do. Do. Do. Dec. 5, 1929. Do.. Jan. 1, 1930. Do. Do. Do... Do.. Total deficiencies to Jan. 1, 1930. Notes outstanding on Jan. 1, 1930: Bonds interest to be paid July 1, 1930. Deficiency resulting in the year Bond interest on $750,000 of new issue (6 months). Total required for the first series of new bond issue. Interest on $75,000 loan (see p. 6). Principal, $100,000 loan (see p. 6). Principal on bonds (see p. 6). Interest for 6 months on loan of Interest for 27 days on loan of $106,000 The amounts required for the year 1930-31 are calculated as follows: There are attached hereto detailed financial statements of the Isabela Irrigation Service which your committee has prepared in order to show the estimated results of each year, which forms the basis of the recommendations made herein. Unless the increased revenue is provided as mentioned previously, amortization of the new bonds could not commence until the year 1972 when the present outstanding bonds will have been fully redeemed and this would entail such an enormous interest cost between the date of the new issue and the year 1972 that the service would never work out of its indebtedness. Summarizing, the recommendation of your committee is that the irrigation law be so amended as to fix the tax rates for water at $6 per acre for the fiscal year 1929-30, $12 per acre for 1930-31, $13 per acre for 1931-32, $15 for 1932-33, $17 for 1933-34, and for future years whatever rate wull be necessary to cover the total annual requirements of the irrigation service after deducting the revenues derived from sources other than the water levies. A draft of the law embracing the foregoing amendments is enclosed under separate cover as is also a draft of the law to authorize the issuance of the new irrigation bonds, the redemption plan for which is as follows: The economic success of the Isabela irrigation project is directly dependent upon the collection of its revenues. This, of course, is true of any enterprise but in the present case the necessity for full and timely collections is emphasized because of the reduction in acreage from the 15,000 originally estimated as the area on which a revenue yield would be obtainable, and the fact that by far the greater part of the service's obligations are to bondholders and must be met at certain stipulated intervals if public credit is to be maintained. The collection of the water levies is in the hands of the Honorable the Treasurer of Puerto Rico; collections for electric current and for excess water are entrusted to the irrigation service itself. It is the opinion of your committee that an aggressive policy will need to be adopted and maintained by both agencies and that, in the case of electric current sold to the municipalities, retentions of amounts 'accruing to the service should be made by the treasurer of Puerto Rico from the property taxes or any other amounts collected in behalf of those municipalities. The financial statements mentioned on page 9, and which form a part of this report, are as follows: 1. Statement of estimated net income and receipts. 2. Statement of redemption of bonds and notes payable. 3. Comparison of total net receipts and total debt requirements. The first statement presents in separate columns the estimated operating revenue to be derived from the three sources of water levies, electric current, and sale of surplus water. From the total of these is deducted the estimated expenses of operation, leaving the net operating revenue. There is then shown, as receipts, the proceeds of the bank loans to be contracted between now and December 31, and the proceeds of the bond issue to be floated. This borrowed money added to the net operating revenue gives a total net income which is shown in the last column. The figures in this last column are repeated in the first money column of statement No. 3. Statement No. 2 shows by semesters the requirements in both principal and interest of the present outstanding bond issue, of the new bond issue proposed by your committee, and of the notes payable which are to be paid from the proceeds of the new issue on January 1, 1930. These elements of principal and interest are totalized by fiscal years and carried to a grand total in the last column headed "Total required." The figures in the last column of this statement No. 2 are repeated in the second money column of statement No. 3. Statement No. 3 gives in its first and second columns the total net receipts as compared with the total requirements for the repayment of borrowed funds, the difference between the two representing the deficiencies by years, which explains the necessity for the additional revenue mentioned on page 7 of this report. Very respectfully, F. G. HOLCOMB, Chairman. GUILLERMO ESTEVES, Member. RAMÓN ANESES, Member. Statement of estimated net income and receipts of Isabela Irrigation Service Total. 8, 608, 820 828, 750 3, 490, 000 12, 927, 570 4, 180, 000 8, 747, 570 8, 457, 700. 38 10, 205, 270. 38 Months Amount Months Amount Months Amount Months Amount Months Amount |