COMMITTEE ON APPROPRIATIONS

JAMIE L. WHITTEN, Mississippi, Chairman

FREDERICK G. MOHRMAN, Clerk and Staff Director

ENERGY AND WATER DEVELOPMENT
APPROPRIATIONS FOR FISCAL YEAR 1986

WEDNESDAY, FEBRUARY 20, 1985.

DEPARTMENT OF THE ARMY

ACTING ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS) AND THE CHIEF OF ENGINEERS

WITNESSES

ROBERT K. DAWSON, ACTING ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS)

LT. GEN. E.R. HEIBERG, CHIEF, CORPS OF ENGINEERS

MAJ. GEN. JOHN F. WALL, DIRECTOR OF CIVIL WORKS

DR. BORY STEINBERG, CHIEF, PROGRAMS DIVISION, DIRECTORATE OF CIVIL WORKS

OPENING REMARKS

Mr. BEVILL. The committee will come to order.

We are glad to welcome our Acting Secretary of the Army for Civil Works, Secretary Dawson, along with our friends from the Corps, General Heiberg and General Wall. I would be remiss if I didn't commend our old friend Bory Steinberg, who is so helpful to the Members and staff of the Subcommittee on a day to day basis.

Mr. STEINBERG. Thank you, Mr. Chairman.

Mr. BEVILL. General Wall, we are particularly pleased to have you. In my opinion you are one of the best Directors of Civil Works we have ever had, and we appreciate you and appreciate the good job you are doing, and General Heiberg has been here many times, you are here as the Chief now for the first time, and we appreciate you and the good work you do.

This, you know, is the first hearing this year. We plan to conclude the hearings with the Corps on February 28 and then proceed with the hearings on the Department of Interior, the Department of Energy and certain independent agencies and conclude by hearing Members of Congress and outside witnesses in early April.

I have reviewed the Corps' budget request, which reflects a reduction of $461 million from fiscal year 1985 appropriations. For the third straight year, the request for operation and maintenance is greater than the request for construction. The budget request includes funds to initiate 29 projects, 13 of which have been previously budgeted but not funded.

As you know, last year both bodies approved a number of new construction starts and put them in the continuing resolution, but

they were deleted in Conference, and certainly we are hoping that the authorizing committee can move expeditiously this year.

I know Congressman Bob Roe and Congressman Jim Howard are very anxious to get their authorization bill to the President and signed by the President. We are hoping now that we will see, in this 99th Congress, the authorizations passed so that we can get some of these urgent water projects under construction.

Mr. Secretary, we will hear from you now. If you wish, your prepared statement will be made a part of the record, and you may just summarize it, and then General Heiberg, we will do the same with you, and then we will take up the questions after both of you have given us your summary.

Mr. Secretary, we recognize you.

INTRODUCTION

Mr. DAWSON. Thank you, Mr. Chairman, and I particularly appreciate your warm welcome. I would like to share your sentiments about my colleagues at the table. I think we have an excellent team.

I also appreciate your remarks about the authorization bill and would point out that just this morning the administration has sent to the hill an omnibus bill, which as far as I know is the first time in recent memory, and perhaps ever, that an administration has come forward with an overall omnibus authorization bill, and it is our hope that that will aid in the resolution of these difficult issues by getting the administration involved in an earlier stage of this.

SUMMARY OF MR. DAWSON'S STATEMENT

As you suggested, Mr. Chairman, I will summarize my statement briefly. President Reagan has stated "Providing enough high-quality water promptly to those who need it is a task that has confronted Americans since the earliest days of our national experience." We know that this subcommittee continues its commitment to working with the states, local entities and those private sector interests concerned with water development all across America on this never-ending challenge.

You will spend many hours in the weeks ahead hearing testimony of many such people. It is in the spirit of working with you to rebuild the Federal-state partnership so that we can resume water development efforts to avert water crises in the coming decades that we present our testimony today.

The Department of the Army has done all that it could during the past four years to develop a new means to move forward with the civil works program. For over a decade this program has been in a state of retrenchment as the traditional terms for authorizing and implementing projects apparently lost favor with the American people, and thus with the Congress.

In spite of our efforts to date, we have been unable to convince Congress of the merits and value of a new charter for water resources development and management by the Federal Government in partnership with the states and with local project sponsors, but I believe there have been lessons learned on all sides.

The proposed fiscal year 1986 program of necessity is premised on the enactment of new legislation, and I am hopeful that there will be the will and the wisdom to get the job done.

FISCAL YEAR 1986 BUDGET

The gross fiscal year 1986 budget request for the civil works program totals $2.338 billion, based on proposed legislation and/or voluntary agreements with local sponsors of new construction projects. We anticipate cash contributions from non-federal project sponsors of new construction projects and receipts from navigation user fees to be $470 million.

The requested Federal appropriations, when enhanced by new non-federal payments, would provide the Corps of Engineers with total new program funding in fiscal year 1986 of $2.808 billion. This amount is adequate to meet all scheduled program requirements and demonstrates that in the area of water resources development and management, it is possible to maintain our level of activity in spite of the necessity to reduce Federal spending.

CONSTRUCTION OF NEW PROJECTS

We continue to strive to reestablish a strong development program with cooperating states and local sponsors. In this budget, we propose to initiate construction of 29 new projects, including six which require construction authorization. While 13 of these projects have been included in previous budgets not acted on by Congress, 15 are additional new construction projects based on newly negotiated financing arrangements.

We believe these projects demonstrate further the willingness and ability of local sponsors to increase their financial participation in new project development when a strong, productive project exists, a project sure to provide a return on their financial investment.

For example, Mr. Chairman, one of our new starts is a flood control project at Chaska, Minnesota that costs some $28 million and has a benefit-cost ratio of 1.2 to 1. For contributing 35 percent of the cost, the City of Chaska gets a return of $1.20 for every 35 cents of investment, a very good return, and a very good deal so long as the benefits are real.

With the subcommittee's approval, we can move out this year to start these benefits flowing. This project is already authorized, and the only remaining hurdle is the green light from you.

Also included is another example of a new project, one for inland navigation at Gallipolis Lock and Dam, which I know the chairman is quite interested in. This project reflects the willingness of the Department of the Army to undertake navigation investments conditioned on a substantial, that is, 70 percent, financing contribution from the waterway beneficiaries to new project construction as well as to ongoing operation and maintenance expenses.

The 29 new projects represent a capital investment of slightly under $1.6 billion. Under the cost sharing arrangements we have negotiated with sponsors and inland navigation user fees, the nonfederal funds would be used to finance almost $900 million, or about 57 percent, of the total implementation costs. Under the old

traditional arrangements, non-federal funds would have been used to finance less than $200 million, or about 12 percent, of project implementation costs.

Mr. Chairman, with the subcommittee's support, this investment could be underway, that is, an investment of over $1 billion could be underway as early as October, and begin to produce benefits within one to two years. We see no reason to deny the project beneficiaries these benefits one day longer than they have already encountered.

COST-SHARING POLICIES FOR NEW PROJECT CONSTRUCTION

Under the legislative proposal that I mentioned previously, which was sent to the Congress this morning, some non-federal contribution would be required for the construction of all Federal water resources projects. The amount of that contribution would be dependent on the ease with which the non-federal sponsor could recover its capital investment through user fees or other benefitbased charges.

The new cost sharing objectives reflected in the Army's legislative proposals are specific to individual project outputs or purposes. We believe that it is essential to maintain consistency in cost sharing by project purpose in the interest of treating all sponsors comparably.

We acknowledge, moreover, that Congress, as the ultimate reviewer of budget and legislative proposals, may want to consider unique circumstances which affect specific projects. In formulating our fiscal year 1986 new starts, Mr. Chairman, we offered flexibility in financing to the sponsors of those projects with less than fully vendible outputs.

This flexibility, underscored in President Reagan's water policy letter of January 24, 1984, to Senator Laxalt responds to the concerns of many members of Congress, Governors and others, as well as our own concern, by providing for reasonable financing arrangements for new projects while seeking consistency in cost sharing by project purpose.

Some members, we are sure, continue to be concerned that the new financing policies might favor wealthier regions and communities. They do not. The policies are tied to the flow of benefits produced by the project, not the wealth of the beneficiaries.

Whenever a project is truly productive in the sense that its benefits exceed its cost, the local sponsor should be able to pay the required cost share as the benefits of the project are accrued. If the sponsor is willing to recover its portion of project costs through benefit-based fees, it can pay the requested share of project cost by capturing a share of the flow of project benefits.

This hypothesis is strongly supported by our experience during the last three years. Out of 40 proposals we have made all over the country, only six local sponsors have rejected our cost sharing proposals. Three of those have made substantial counter-offers, and none were based on a claim of financial inability. We have seen some unwillingness and some preference to wait and see what Congress does. Moreover, we find the wealth of many of our project sponsors to be below the national average, but they are still partici