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Statement of John W. Keys, III, Commissioner
Bureau of Reclamation
U.S. Department of the Interior
Before the
Energy and Natural Resources Committee
Subcommittee on Water and Power
U.S. Senate
on
Title XVI Water Reclamation and Reuse Program

February 28, 2006

Mr. Chairman and Members of the Subcommittee, I am John Keys, Commissioner of the Bureau of Reclamation. I am pleased to appear today to talk about Reclamation's Title XVI water recycling and reuse activities, including the history of Title XVI and the current status of authorized projects. I will also outline Reclamation's proposal to refocus Title XVI in the context of Reclamation's broader mission as the leading water resource agency in the West

Background

Beyond demonstrating then-new technology in the program's early years, Title XVI has not been producing the benefits that taxpayers, Congress, the Administration, and potential project sponsors deserve. To understand why, let me start with a brief overview of Title XVI's history. In 1992, Congress enacted the Reclamation Projects Authorization and Adjustment Act (Public Law 102-575).

Title XVI of this Act, the Wastewater and Groundwater Study and Facilities Act, authorized the Secretary of the Interior to participate in the planning, design, and construction of five water reclamation and reuse projects. The Secretary was also authorized to develop a program that would identify other water recycling opportunities throughout the 17 Western states, and to conduct appraisal-level and feasibility-level studies to determine if those opportunities are worthy of implementation. Finally, Title XVI authorized the Secretary to conduct research and construct demonstration facilities. Despite the authorization to conduct appraisal investigations and feasibility studies, Title XVI project sponsors have sought project authorizations from Congress before completion of such studies. Title XVI projects have therefore been authorized in an ad hoc manner, without consistent criteria to determine whether they are technically and fiscally sound and would help fulfill the Administration's goals. The failure to apply these tests to Title XVI projects is inconsistent with the scrutiny and analysis that should apply to every water management infrastructure decision we make.

In 1996, Congress enacted Public Law 104-266, the Reclamation Recycling and Water Conservation Act. This law amended Title XVI of Public Law 102-575 and authorized the Secretary to participate in the planning, design, and construction of 18 additional projects, including two desalination research and development projects. Since 1996, additional Title XVI amendments and other pieces of legislation have been enacted and now there are 32 projects authorized for construction in nine states. In addition to significantly increasing the number of authorized construction projects, the Reclamation Recycling and Water Conservation Act of 1996 also placed several important limitations on Reclamation's involvement in water recycling projects. First, the maximum Federal cost share for new projects or projects that have yet to receive funding was limited to the lesser of 25 percent of total project costs or $20 million. Four of the five projects that were authorized in 1992 and that had already received Federal funding were limited to the amounts specified in Reclamation's Fiscal Year 1997 budget justifications, which in each case was substantially higher than $20 million.

Second, the legislation originally stipulated that no Federal funding may be appropriated on an authorized project for construction activities until the Secretary or the non-Federal project sponsor completes a feasibility study, the Secretary has determined that the non-Federal project sponsor is financially capable of funding the non-Federal share of the project costs, and a cost-share agreement with the non-Federal project sponsor is in place.

Despite these stipulations, since 1994 construction projects have generally been initiated by Congress. The principle exception to this occurred in FY 2000, when Reclamation evaluated and ranked unfunded authorized projects for the purpose of prioritizing available construction funding for four new starts. Reclamation has not used a competitive process to allocate funds since FY 2000. Instead the Administration has confined its funding requests to previously budgeted projects. Of the 32 specific projects authorized to date, 21 have received funding. Of these, nine have been included in the President's budget request. Including anticipated expenditures during FY 2006, approximately $325 million will have been expended by Reclamation on these authorized projects by the end of the current fiscal year. Three of the projects have been funded to the full extent of their authorization. Two more should be fully funded in 2006.

The remaining projects are currently in various stages of planning or construction. Thirteen of the 21 projects are currently producing and delivering reclaimed water. According to the project sponsors, approximately 118,000 acre-feet of reclaimed water were put to beneficial use in FY 2005. The sponsors indicate that further construction this year should result in an increase of about 42,000 acre-feet in the amount of reclaimed water delivered for a total annual yield of about 160,000 acre-feet in FY 2006.

Based on current project plans, more than $340 million in post-FY 2006 Federal funding could be required to complete the maximum Federal cost share for those projects that have already received financial assistance. More than half of this amount, or approximately $182 million, would go to just three projects that were authorized prior to the 1996 Title XVI amendments limiting the Federal cost-share to $20 million per project. By the end of FY 2006, collectively, these three projects alone will have received approximately $138.5 million.

Neither detailed project specifics nor feasibility analysis are currently available for most of the 11 projects that have yet to receive Federal funding assistance. Some of those projects are no longer being pursued by the project sponsors at this time; however, each of the unfunded projects has a Federal cost-share ceiling of $20 million or 25%, whichever is less.

PART Review

In 2004, Reclamation worked with the Office of Management and Budget (OMB) to evaluate the Title XVI program using OMB's Program Assessment Rating Tool (PART), which overall was found to be Moderately Effective. The PART highlighted many of the problems and challenges we are discussing today.

While the program is effective at obligating funds, and has helped to make new supplies of water available, two main problems can be inferred from the assessment: 1) it is difficult to assess progress, because the program's goals and timelines are unclear, mostly due to the large extent of local control; and 2) there is insufficient Reclamation involvement and oversight early in the project development process, leading to a proliferation of projects, many of which may have planning deficiencies or be inconsistent with the program's goals. Finally, a recent review of this PART concluded that its goals of promoting water reuse and recycling are consistent with the Water 2025 program's goals of diversifying water supplies, with the aim of proactively addressing water-related crises in the Reclamation states.

Proposed Reforms

Mr. Chairman, as population growth and diverse demands for water stress already limited supplies, Reclamation stakeholders throughout the West want Reclamation to address shortages and help avert conflicts. Title XVI projects have demonstrated that water recycling can be a viable water supply alternative in water short urban areas of the West. However, Title XVI has outgrown its original purpose  demonstrating new technology. Fundamental reform is needed to ensure that the program produces results for the current needs of the West.

First, we believe that before projects are authorized for construction their appraisal and feasibility studies should be completed, reviewed, and approved by Reclamation and the Office of Management and Budget and submitted to Congress. As we have often said, this is not current practice. As a result, Congress is asked to authorize projects without the benefit of adequate analysis that a feasibility study can and should provide at early stages of project screening. This information is essential to making informed decisions and establishing funding priorities.

Second, we believe that project sponsors should understand the explicit criteria by which they, Reclamation, and Congress can measure the merit of their proposals. Some of these criteria could determine threshold eligibility in the earliest stages of project planning. For example, does the project qualify for funding under some other Federal program? Does the project sponsor have a comprehensive water conservation program? Is the project located where it could help Reclamation carry out its core mission? Can the project proponent show that it can and will pay its share of study and, ultimately, construction and Operations and Maintenance costs? Beyond threshold eligibility criteria, we think that as projects progress through appraisal and, if warranted, feasibility study phases, they should be rated against several ranking criteria that would help Congress and the Administration prioritize projects. For example, would the project actually alleviate water conflict? Would it add or diversify water supply in one of the "hot spot" areas that are also the focus of the Water 2025 program? Can it be brought on-line within a reasonable timeframe?

Solving the problem of how to justify select projects for construction authorization does not address what should be done with projects that have already been authorized for construction. These currently authorized projects fall into at least three categories: projects that have received Federal construction funds; projects that have not yet received funding but whose project sponsors remain interested in pursuing them, and projects that our best information indicates are no longer being pursued by project sponsors.

We believe that eligibility criteria similar to what we suggest for use in pre-authorization studies and appraisals should also be legislated for projects that have not yet initiated construction. Additionally, we would like to explore with this Committee solutions to the problem of obsolete authorizations (authorizations to fund projects that the sponsors are no longer pursuing). The Administration is currently developing a legislative proposal to bring such reforms to Title XVI. The proposal aims to create a framework under which Title XVI projects will be screened to ensure they complement Reclamation's mission, rather than diminishing Reclamation's ongoing core programs.

Reclamation's desire to make project funding more competitive is shared by both non-Federal entities and a growing number in Congress; introducing more competition to the process should ultimately result in more on-the-ground benefits where they are most needed, and in better use of taxpayer funds. To make this a reality, Reclamation is considering different models for a project evaluation process to form the heart of Title XVI reform; among the options we are considering is the process contained in S. 895, the Rural Water Supply Act reported by this Committee and approved by the U.S. Senate unanimously in 2005. We are committed to working with this Committee on this critical effort. If Title XVI is to have a future, it must be adapted so that Congress, the Administration, and the American people can screen and prioritize projects to ensure that they serve Reclamation's core mission, target resources where they can have the greatest impact, and meet the needs of all American taxpayers.

That concludes my testimony. I am pleased to answer any questions.