Mr. SANBORN. Is this not true, that in the appropriation your project is set up in various ways. I do not say the appropriation is set up that way, but the project is set up that way. So when it is repaid, certain amounts pay off the reclamation part and certain pay off the power and the power revenue is also used to help pay off the reclamation end of it, if necessary. Mr. FERNANDEZ. The irrigation end of it, yes. Mr. SANBORN. That is right. You have interest on the power end of the project. You do not have interest on the other part. Mr. FERNANDEZ. That is correct. Mr. SANBORN. If the irrigation part is supposed to pay its share and power is supposed to pay its share plus interest, and also to help with the payments of the irrigation end, if you take that interest that it is supposed to pay to help pay the construction charges on the irrigation end, you certainly have confused the issue. Mr. FERNANDEZ. No, the payments made on the principal go to the Bureau of Reclamation Fund. So does the interest. Mr. SANBORN. No, the interest does not. Mr. FERNANDEZ. And the interest as part of the revenue is simply applied as a credit to the debt owed by the irrigators, and thereby canceled. The money still remains in the same fund and is still subject to appropriation. Mr. SANBORN. No. You cannot pay interest and pay it as principal, too, and that is what you are trying to do. Mr. FERNANDEZ. We are not paying it as principal, we are simply using the interest to pay something else as subsidy to the irrigators. You are confusing the entire project with a part of the project. The power project is one project in itself, one investment on which interest is required. Mr. SANBORN. I think the two are set up together. I think they are an integral part of the project. One part is a power feature and the other part is an irrigation feature, but they are one project and set up as one project. And that project is supposed to be paid back. One part of it is supposed to be paid back with interest. But by the time it gets back, there is no interest there, because all you get back is the project cost. Mr. BARRETT. Let me ask Mr. Fernandez just one question. If the power investment pays interest into the reclamation fund, as you say, then is it not necessary for the committee on appropriations to appropriate that money out of the reclamation fund to subsidize the irrigation costs? Mr. FERNANDEZ. Under the law as it is interpreted and administered at the present time, that is the effect of it. It has been appropriated for that purpose, to pay the subsidy to the irrigator. Mr. SANBORN. Is there anything said about paying it as a subsidy to irrigation? Mr. FERNANDEZ. Not in that particular language, no. Mr. SANBORN. In no particular language. Mr. ROCKWELL (chairman of the subcommittee). We will stand adjourned now. (Thereupon, at 11:55 a. m., the subcommittee was adjourned, subject to the call of the chairman.) TO AMEND THE RECLAMATION PROJECT ACT OF 1939 MONDAY, APRIL 28, 1947 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON IRRIGATION AND RECLAMATION OF THE COMMITTEE ON PUBLIC LANDS, Washington, D. C. The subcommittee met at 9:30 a. m., pursuant to the call of the chairman, in the committee room of the House Committee on Public Lands, the Honorable Robert F. Rockwell (chairman of the subcommittee) presiding. Mr. ROCKWELL. The committee will come to order. We have to complete these hearings today, so we will start in, even though the full committee is not present. I will ask Mr. Northcutt Ely to take the chair. STATEMENT OF NORTHCUTT ELY, ATTORNEY AT LAW, AMERICAN Mr. ELY. My name is Northcutt Ely. I am an attorney in the American Security Building, Washington, D. C., and appear this morning as special counsel for the Salt River Valley Water Users Association, Phoenix, Ariz., the organization which operates the Salt River project under contract with the United States." We suggest an amendment to H. R. 2873, or whatever bill is reported out by this committee as the result of the present hearings, amending section 9 (c) of the Reclamation Project Act of 1939. The specific amendment we propose is as follows: On page 4, line 5, change the period to a comma and insert "and". On page 4, line 8, change the period to a colon and add: Provided, That nothing in this Act shall be deemed to amend or repeal the provision of the Act approved July 1, 1946 (Public Law No. 478, 79th Cong.), captioned "Utilization of Power Revenues." The provision of the 1946 act referred to in this amendment appears in the Appropriations Act for the Department of the Interior for the fiscal year 1947 and is captioned "Utilization of Power Revenue." [Reading:] No power revenue on any project shall be distributed as profits, before or after retirement of the project debt, and nothing contained in any previous appropriation Act shall be deemed to have authorized such distribution: Provided, That the application of such revenue to the cost of operation, maintenance, and debt service of the irrigation system of the project or to other purposes in aid of such irrigation system shall not be construed to be such a distribution. The effect of that amendment last year, I will refer to in a moment. The intended result of inserting in H. R. 2873 the amendment I have just handed you this morning is to make sure that the provision in the 1946 act, which I have just quoted, is not overridden or modified or amended by the enactment of H. R. 2873, which reenacts section 9 (c) of the reclamation Project Act of 1939. Section 9 (c) as it now appears in the law and as it would be reenacted by this bill, or the other comparable bills pending before the committee, states: Nothing in this subsection shall be applicable to provisions in existing contracts, made pursuant to law, for the use of power and miscellaneous revenues of a project for the benefit of users of water from such project. The provisions of this subsection respecting the terms of sales of electric power and leases of power privileges shall be an addition to and alternative to any authority in existing laws relating to particular projects. Now, it has been asserted by some agencies of the Federal Government that the effect of the special acts and special contracts controlling the Salt River project is to confer upon the individual water users of that project or the Salt River Valley Water Users Association comprising the users, some sort of a beneficial proprietary interest in the power revenue which entitles this corporation to distribute those revenues as profits either now or at some future time when the Government debt is repaid, and that this pecuniary interest in the power revenues comprises a taxable interest of the association, with the result that, to our surprise, certain agencies of the Federal Government have asserted that the Salt River project has greater interest in the power revenue than we ourselves assert, with consequences that are unfortunate both for the project and for the reclamation program in general. It has been our interpretation of the reclamation laws that they were not intended to permit the application of the power revenue on any project to any private profit of anyone, but that the application of those revenues to the reduction of the cost of water service is the intended result of the reclamation law and does not constitute a distribution or a dividend. Consequently, Congress last year, after considering this matter, enacted the provision of the 1947 appropriation act which I have read, which is intended to put that question at rest. Our purpose in offering the amendment this morning specifically preserving last year's legislation is to make sure that the reenactment of language which refers to special contracts and special statutes is not construed to undo or amend or repeal in any wise the legis lation enacted last year. The Comptroller General of the United States, in a letter to the Appropriations Committee dated February 28, 1947, has ruled that last year's legislation was general and permanent and need not be reinstated in each current appropriation bill. I should like to place in the record, if I may, a letter from Mr. Victor Corbell, a member of the board of governors of the Salt River Valley Water Users' Association and who is chairman of a committee appointed by the National Reclamation Association upon this problem, accompanied by a resolution adopted by the National Reclamation Association at its meeting in Omaha last fall upon this point. (The letter and attachment are as follows:) ROBERT W. SAWYER, PHOENIX, ARIZ., April 23, 1947. President, National Reclamation Association, Bend, Oreg. DEAR MR. SAWYER: Resolution No. 20 passed by the National Reclamation Association at its 1946 convention held at Omaha, Nebr., relating to the utilization of power revenue on reclamation projects, provided for a committee to be appointed by the president of the association to implement the resolution. The committee appointed consisted of Victor Corbell, Phoenix, Ariz., chairman; Hugo Farmer, Yuma, Ariz.; C. A. Anderson, Coolidge, Ariz.; S. T. Harding, Berkeley, Calif.; Frank C. Merriell, Grand Junction, Colo. A meeting of the committee was called by Mr. Corbell, chairman, to meet in Phoenix on April 23. All of the members were present with the exception of Hugo Farmer. This committee, appointed to implement Resolution 20, adopted in 1946 by the National Reclamation Association, recommends that there be included in the Rockwell bill, H. R. 2873, or any other legislation amending section 9 (c) of the Reclamation Project Act of 1939, language preserving the provision of Public Law 478, Seventy-ninth Congress, second session, captioned "Utilization of power revenues." Section 9 (c) contains language preserving such contracts and special statutes. Reenactment of section 9 (c) should not be construed to modify or repeal by implication the language on utilization of power revenues in Public Law 478 nor create the impression that such special statutes or special contracts are to be given any effect or result inconsistent with Public Law 478. The committee expresses the opinion that by virtue of Public Law 478 no income-tax liability, past, present, or future, based on power revenues, can be imposed upon any water uesers' association or other operating agency of any project. The committee recommends that the Secretary of the Interior be requested to adopt this view and to make it known to the Secretary of the Treasury for application in any pending tax case. Respectfully submitted. VICTOR CORBELL, Chairman, Whereas, in Public Law No. 478, Seventy-ninth Congress, second session, it was enacted: "Utilization of power revenues: No power revenues on any project shall be distributed as profits, before or after retirement of the project debt, and nothing contained in any previous appropriation Act shall be deemed to have authorized such distribution: Provided, That the application of such revenues to the cost of operation, maintenance, and debt service of the irrigation system of the project, or to other purposes in aid of such irrigation system, shall not be construed to be such a distribution;" and Whereas the foregoing legislation, as shown by the legislative history thereof, was enacted in response to Resolution 11 of the National Reclamation Association adopted at its Denver meeting in 1945; and Whereas the Senate Appropriations Committee Report, No. 1434, on said amendment stated "It is the intent of the reclamation laws that the power revenues shall be applied for project purposes and not distributed as profits to any individual before or after the United States has been repaid its investment. The application of the power revenues to reduce the cost of water service is one of the uses intended by the Congress of the power produced as an incident to the operation of a reclamation project. No discrimination is intended by the statutes in this respect, between projects operated by the United States, those operated by irrigation districts, and those operated by water users' associations or other types of water users' organizations. The reclamation laws speak throughout of all three types |