CONTENTS Page Letter from the Secretary of the Interior to the Speaker of the House, June III Report of the regional director, Bureau of Reclamation, December 18, 1953, with substantiating materials and reports of other agencies... COMMENTS FROM THE BUREAU OF THE BUDGET EXECUTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington 25, D. C., June 11, 1954. The honorable the SECRETARY OF THE INTERIOR. MY DEAR MR. SECRETARY: This will acknowledge your letter to the President of June 3, 1954, requesting advice concerning the relationship of your proposed report on the Talent division, Rogue River Basin project, Oregon, to the program of the President. The proposed project is primarily an extension of the works of the private Talent Irrigation District which lies in a locality of small farms with off-farm income playing an important role in the economy. It would provide an adequate water supply for 17,890 acres of irrigable land, of which 9,250 would receive a supplemental supply and 8,640 would be newly irrigated lands and receive a full supply. The plan provides for development of 10,000 kilowatts of nominal prime power. Flood damage to farms as well as industrial, commercial and residential property would be reduced. Existing facilities of the Talent Irrigation District works would be used insofar as possible. Emigrant Reservoir would be enlarged from 8,300 to 45,000 acre-feet capacity. Major new construction would include: the Howard Prairie Dam and Reservoir with a capacity of 60,500 acre-feet, a system of canals and conduits, and the Green Springs 10,000-kilowatt powerplant. The total cost of the project is estimated at $19,894,000, based on January 1953 price levels and is allocated as follows: irrigation $12,440,000, and power, $6,859,000-reimbursable; and flood control, $595,000-nonreimbursable. For purposes of economic analysis the construction cost is adjusted to $20,957,000 by deducting investigation costs made prior to June 30, 1953, and credits for salvage values, and adding interest during construction. Based on amortization over 50 years at 21⁄2 percent, the annual construction cost is estimated to be $738,900. The annual operation, maintenance, and replacement costs, as set forth in the regional director's report, are $85,900) for irrigation and $64,600 for power, resulting in a total annual cost of $889,400. Average annual benefits are estimated at $940,100, of which $702,280 are classified as direct benefits and $237,820 as indirect benefits. The benefit-cost ratios are 1.06 based on total benefits and 0.79 based on direct benefits. The regional director, in his report of December 1953, states that the irrigation water users would be able to make annual payments of $199,000 per year, based on $11.48 per acre for the 9,250 acres of presently irrigated lands and about $10.74 per acre for the 8,640 acres of newly irrigated lands. In addition, the city of Ashland will pay $1,500 annually for alleviating acute shortages in its water supply system in late summer months. After subtracting the irrigation operation, maintenance, and replacement cost of $85,900, a balance of $114,600 would be available to apply on construction costs and bond repayment. The California-Oregon Power Co. is reported to have made an informal offer to purchase the entire plant output at 41⁄2 mills per kilowatt-hour. The Commissioner of Reclamation states that the power would have to be sold at an average rate of 4.76 mills per kilowatt hour, rather than the 4.5 mills estimated in the regional director's report, in order to amortize the power investment, plus interest during construction, in 50 years at 221⁄2 percent interest. In the 50 years required to amortize the power investment, water users would repay $5,730,000 of the irrigation construction costs, $128,000 of outstanding bonds, and $23,980 of interest on bonds. Combined annual power revenues and repayments by water users, totaling $373,442, exclusive of operation and maintenance costs, would retire the balance of $6,861,980 in about 18 additional years, making the total payout period about 68 years. The State of Oregon recommends that the project be approved, and California has no objection. The Department of the Army has no objection although its letter of May 18, 1954, states that on the basis of the benefits that would result from the flood-control storage an amount of $566,000 has been allocated to flood-control features as compared with the Department of the Interior allocation of $595,000. The Department of Commerce assumes that adequate provision is being made to have the Federal water project bear its full share of the necessary highway relocation costs. The Federal Power Commission estimates power benefits above those used in the Interior report. The Department of Health, Education, and Welfare recommends that provision be made to take care of the necessary sewage, sanitary and mosquito control facilities if the reservoirs are built. The Department of Agriculture states that the project costs allocated to irrigation, averaging $708 an acre, seems high in view of the average increase in gross annual income of about $27 per acre, an average net annual income of $12 per acre, or a 1.7 percent return. The Department also points out that the payments made by water users during the first 48 years would amount to a return of only about nine-tenths of 1 percent on the Federal investment and, on a presentworth basis, all repayments toward the irrigation investment by irrigators and from power revenues over the life of the project is equal to about 37 percent of the project costs allocated to irrigation. It also questions the estimates of water losses used in planning the irrigation system and suggests that before construction commences, plans for the project and for the management of the Rogue River National Forest be coordinated. On the basis of the information submitted to us and provided the power can be sold at the contemplated rate of 4.76 mills per kilowatthour, the proposed powerplant would be economically feasible. The irrigation features, however, appear to be very costly when compared with the modest increases in agricultural production and the direct agricultural benefits. Our analysis of the report discloses that while direct annual benefits would average about $21 per acre, the cost per acre would be $31 per acre on the basis of amortization of the irrigation investment in 50 years. This results in a benefit-cost ratio of less than unity. Therefore, it would seem that construction of this project |