Senator MILLIKIN. Do you know anything about those costs? Senator DowNEY. I think those costs are about comparable. We have other units in California, steam plants, and gas plants. Senator MCFARLAND. We expect to have some other evidence on this power situation, Mr. Chairman. Senator MILLIKIN. All right. BENEFITS AND COSTS Mr. LARSON. General-in the preceding analysis a comparison was made of the annual returns or revenues and annual costs of the project based upon the provisions of Senate bill 433 and the reclamation law. The annual returns are associated only with the benefits accruing to the initial purchasers of irrigation water, municipal water, and electric energy who are the direct beneficiaries. Benefits are not limited to direct beneficiaries, however. There are innumerable indirect beneficiaries whose income and livelihood are dependent upon or substantially affected by the production of electric energy and the creation of raw materials on the irrigated lands. Nor are the benefits limited to those arising from electric energy, and irrigation and municipal water. The central Arizona project would be a multiple-purpose development which would also furnish public benefits from flood control, silt control, fish and wildlife, and recreation. The following analysis compares total or national benefits with total or national costs. Benefits from the project have been divided into two categories. The first comprises those tangible benefits upon which monetary values have been placed. The second includes intangible benefits which cannot be evaluated in monetary terms, and a few tangible benefits not evaluated because of the time involved. TANGIBLE, EVALUATED BENEFITS Irrigation benefits are estimated to have an average annual value of $24,300,000. In arriving at this estimate two general types of tangible irrigation benefits from the project have been evaluated. The first is composed of benefits accruing directly to farmers and indirectly to others from the production of a larger volume of agricultural products than would be produced without additional irrigation water. The second is comprised of benefits accruing directly to farmers from the reduced pump lift that would result from elimination of the overdraft of ground water. The sum of tangible benefits accruing to direct and indirect beneficiaries that would result from the production of additional farm products will average $22,800,000 annually. These benefits are calculated as the increase in the gross value of crops at the farm, based on a price level equivalent to that during the years 1939 to 1944. The benefits from savings in the cost of pumping irrigation water will average $1,500,000 annually. Both of these types of benefits are calculated as the difference between the deteriorated conditions that will occur if supplemental water is not forthcoming, and the improved conditions that would accompany the furnishing of additional water. Annual irrigation benefits are the same under Senate bill 433 and reclamation law. These benefits are indicated on the chart titled "Annual irrigation benefits." (The chart referred to follows:) Senator MILLIKIN. I do not quite understand the statement the annual irrigation benefits are the same under S. 433 and the reclamation law. Does it mean the benefits as you have calculated them are in conformity with the reclamation law? Mr. LARSON. The benefits as I have calculated them are on an annual basis. Senator MILLIKIN. Would be in accord? Mr. LARSON. They are the same. Senator MILLIKIN. Proceed. Mr. LARSON. The $24,300,000 of annual irrigation benefits measures the net effects of producing, processing, and handling in commercial channels the greater volume of agricultural products emanating from the project area. It, therefore, measures the net benefits from irrigation. These include such benefits as the stimulation of business activities associated directly and indirectly with this larger volume of production. As an example: The farmers grow more lettuce; the truckers, packers, and railways handle more lettuce; and the business activity of restaurants, retail stores, personal services, and many others improves. All make greater net returns because of the greater volume of lettuce. The converse will occur with a decreased volume of agricultural products. Maintenance and even expansion of public facilities without increasing State and local tax rates would be possible with increased supplemental water, in contrast to the prospective retrenchment that would accompany the reduced agricultural production without it. All bene fits of this type are included in the $24,300,000 of irrigation benefits which are used in the benefit-cost ratio. On the other hand, "gross benefits" from the project might be estimated as including the total additional income to individuals as well as businesses associated directly and indirectly with handling the additional agricultural products. Computed in this manner, "gross benefits" would greatly exceed the farm value of the products. Preliminary investigation suggests such "gross benefits" to be about three times the net benefits included in the benefit-cost ratio. Power benefits resulting from consummation of the central Arizona project would pyramid into a value far above the sale value of the actual energy produced. The nature of the full effect is so devious as to be incapable of measurement. For this reason the computed sales value of the power has been used as representing the minimum benefit. Average annual power returns are measured by the sale of electrical energy at a unit price of 4 mills per kilowatt-hour. Under Senate bill 433, the annual return would aggregate $10,700,000 and under reclamation law, $11,400,000. The difference in these amounts results from using dissimilar production periods. The smaller sum represents the average annual return over an 80-year period, while the larger sum is the average annual return for a 50-year period. In computing these returns, it has been assumed that the accumulative effect of upstream depletions will cause a corresponding gradual reduction in power output. Consequently, the average annual return from energy produced will be less for an 80-year period than for a 50-year period as reflected in the amounts stated above. Silt control benefits are estimated as $1,900,000 annually under either Senate bill 433 or existing reclamation law. This total includes the value of protecting the Boulder Canyon project, the value of this protection being based on the replacement cost of Lake Mead shorage. Senator MILLIKIN. Just a moment, Mr. Larson. In calculating your upstream depletion, are you making allowance for any projected project in addition to the one under consideration? Mr. LARSON. In the upper basin? Senator MILLIKIN. No, in the lower basin. The upper basin is obligated to deliver a fixed minimum to the lower basin. Mr. LARSON. At the present time the upper basin is using approximately 2,500,000 acre-feet of water and in this 50-year period that we are contemplating we have made allowances which would in turn reduce the water available at Bridge Canyon. Senator MILLIKIN. Proceed. Mr. LARSON. It also includes the benefits associated with Buttes and Hooker Reservoirs. These benefits were derived from data furnished by the United States engineer office, Los Angeles, Calif. Recreation benefits of $650,000 annually were developed from estimates made by the National Park Service. These benefits would be the same under either Senate bill 433 or the reclamation law. Municipal water supply benefits, like those of power, are so widely distributed that they cannot be fully evaluated. In lieu of a more accurate determination they have been considered as being equal to the estimated revenue derived from the sale of water. Such consideration reflects utmost conservatism. Municipal water supply returns are computed at $530,000 annually. This amount was derived from the application of a unit sales price of $0.15 per 1,000 gallons to 10,800 acre-feet of water delivered an nually to the municipal distribution system of Tucson. Since this operation is assumed to be one of undiminished continuity irrespective of time, the above amount is considered to be applicable under the provisions of either Senate bill 433 or reclamation law. Fish and wildlife benefits total $430,000 annually as computed from basic data supplied by the Arizona Game and Fish Commission. These benefits would be the same under either Senate bill 433 or existing reclamation law. Flood-control benefits are computed at $310,000 annually. Five of the features included in the central Arizona project would provide flood control. Such benefits at Buttes, Charleston, and Hooker Dams, and the Safford Valley improvements were evaluated by the United States engineer office on the basis of 1939 price levels. The benefits determined by that office were subsequently adjusted by the Bureau of Reclamation to reflect the higher price levels that, it is believed, will occur during the repayment period. Flood-control benefits at McDowell Dam were determined on the basis of preliminary studies made by the Bureau of Reclamation. ANNUAL COSTS-NATIONAL BASIS Above, in developing the cost-return ratios, the annual costs were limited to those "repayable from project operations." As a part of the benefit-cost picture, however, all construction costs are amoritized with interest as a measure of the actual national cost, regardless of the legal aspects of reimbursability or interest-free allocations. Senator MILLIKIN. Just one moment, please. I am not quite so sure I understand that paragraph. Would you mind putting it in a little different groove? Mr. LARSON. For example, under the provisions of our existing reclamation law allocations to irrigation are repaid without interest. Allocations to power are paid with interest at 3 percent. Allocations to fish and wildlife and flood control are nonreimburs able. In making a comparison to show the national benefits, we have assumed the entire amount would draw interest at 2 percent.. In other words, it actually would be a cost. Senator MILLIKIN. I understand it. Mr. LARSON. Amortization of all construction costs has been computed on the basis of an assumed national interest cost of 2 percent on unpaid balances. Under Senate bill 433, which provides for an 80-year repayment period, the annual applications to principal would be less than under reclamation law; therefore, the annual costs would be less. Under reclamation law the amortization costs were based on a 50-year period. Operation and maintenance costs have been estimated for each of the various features included in the potential project development. Reserve for replacement is provided in accordance with the estimated requirements for the various features of the project develop ment. Senator MILLIKIN. Let me probe that a little further. In getting at the national cost you are including interest on the reclamation figures, even though that interest is not reimbursable from the landowners. Is that correct? 69212-48-7 Mr. LARSON. That is correct; yes, sir. And also on nonreimbursable features. It is 2 percent on the total capital cost in other words. Senator MILLIKIN. All right. Mr. LARSON. The results are shown in table 13, page 60. or a total of $38,820,000, while under the reclamation law the total would be $39,520,000. Senator MILLIKIN. What is your population in Arizona, Senator? Senator MCFARLAND. Approximately 700,000 at this time. Mr. LARSON. The average annual costs as shown by the table are: Operation and maintenance. Reserve for replacement- Amortization of all project construction costs. $5, 130, 600 1,985, 700 15, 215, 100 or a total of $22,331,400 under Senate bill 433, and under the reclamation law it would be $26,360,300. The ratios are as follows: Under Senate bill 433, the benefits to costs is 1.74 to 1, and under the reclamation law 1.50 to 1. Intangible and unevaluated benefits. In addition to the benefits just indicated, there are many others of an intangible nature and some of such complexity that they have not been evaluated in monetary terms. The serious consequences that would result from a retrenchment in the economy of the area, including a probable enforced migration of many rural and urban families to more substantial places of livelihood would be averted. Instead much additional employment would result, both during construction and as a result of operating the project and project lands. The increased production of electrical energy would encourage industrial expansion far beyond the borders of the project and even beyond the boundaries of Arizona. Increased productive capacity and the wider use of electrical energy for domestic use would improve living standards. Such benefits and many similar ones add to the desirability of the development. In addition the strengthening of a weak unit of our national economy will add to the strength of the whole both in normal times and in emergencies. Senator MILLIKIN. Any questions? Senator DOWNEY. Yes, Mr. Chairman; I have a few questions. I will endeavor to keep them as brief as possible. Then I would like to ask the permission of the chairman to present certain interrogatories to the Bureau on the more technical aspects, and after they are filed to place them in the record. In that way think I could very much shorten the hearing. I Senator MCFARLAND. I would like to have the interrogatories presented promptly and at or before submission to the Bureau. We would like to know what they are, just as I presented them. Senator MILLIKIN. I think, Senator Downey, the interrogatories should be submitted to Senator McFarland, so Arizona will know what |