Congress on May 18, 1938, and was printed as House Document No. 673, Seventyfifth Congress, third session. The report of the Commission has been carefully studied by this Department and has been given consideration by various organizations of western irrigation interests. This Department has considered the recommendation of the Commission and the comments thereon made by various irrigation interests, in the light of the repayment policy established by the Congress when it created the Reclamation Fund and initiated the Federal irrigation program by the act of June 17, 1902 (32 Stat. 388). The product of this departmental consideration is the enclosed draft of proposed legislation which I recommend for prompt and favorable consideration by the Congress.

The bill, if enacted, would provide legislative authority for modifying existing contracts in accordance with an equitable and flexible plan for the repayment of construction charges on United States reclamation projects. The proposed plan provides for variation in the annual payments of construction charges in accordance with variations in the water users' ability to pay, without detriment to the established repayment policy that underlies the existing reclamation laws.

Due to the fact that the existing contracts for repayment of construction charges on United States reclamation projects are of a great variety, having been made under several different acts of Congress, it has been possible to prepare a draft of bill of general application only by resort to relatively technical and complicated language.

In the following paragraphs the salient points of the proposed legislation are explained.

Section 3 would provide for a type of slight modification of existing contracts which is desired on several projects. There are a number of repayment contracts which still call for repayment of construction charges on the basis of definite repayment periods of less than 40 years, although a 40-year period has been recognized as proper since the act of May 25, 1926 (44 Stat. 636). Many of the water users obligated under these contracts need and desire only such modifications of their existing repayment plans as would provide for the payment of the unaccrued balances of their construction charges on the basis of longer definite repayment periods. Section 3 would authorize such modifications, subject to the limitations that any such longer definite period for the payment of the unaccrued construction charges shall not exceed the basis of a 40-year period, and that in no event shall the unexpired part of any such longer period exceed double the number of remaining years in which the unaccrued charges would become due and payable under the existing obligations. For example, if an existing obligation is to pay construction charges, amounting in all to $100, on the basis of a 20-year period with equal annual installments, the charges each year are $5. On the basis of a 40-year period the charges each year would be $2.50. If under the existing obligation the unaccrued charges, including those deferred under moratoria acts, were $25, and if the remainder of the original repayment period as extended by moratoria were 5 years, then under section 3 the longer definite period for payment of the $25 balance could not exceed 10 years.

Section 4 would provide a comprehensive plan for the annual variation of payments of construction charges in response to variations in the water users' ability to pay, a so-called normal and percentages repayment plan. Under a contract entered into pursuant to section 4 the following-described steps would be taken: The unaccrued construction charges on the lands to be covered by the new contract would be merged in a total and general repayment obligation of the organization making the contract. These unaccrued construction charges are payable at present under a variety of forms of obligations. There are still some individual water-right applications and these do not have the same repayment periods, even though they relate to the same project. This is due to the fact that water-right applications may have been made in each year of perhaps a 5- to 20-year period during which the numerous tracts of land on a project were progressively put under irrigation. On other projects where the construction charges are the primary obligation of an irrigation district or other form of water users' organization there may be several contracts with the district or organization bearing different dates. All of such charges covered by a new contract would be merged and the total, general obligation of the contracting organization would be arranged in installments on a schedule determined by the Secretary of the Interior to be an equitable and practicable consolidation of the existing obligations. Determination of this schedule might involve, in some cases, an appropriate rearrangement of charges. If, for example, a district received a moratorium as to 50 percent of the charges due and payable for the year 1936 and received similar relief for the year 1937, the two deferments might be combined in the schedule established under section 4, making up a full installment for one of the years on the schedule.

H. Repts., 76-1, vol. 5-26

In determining a schedule of installments for unaccrued construction charges payable under contracts entered into pursuant to the so-called Fact Finders' Act, act of December 5, 1924 (43 Stat. 672, 701), an amount of gross crop returns, for the purpose of determining the schedule of installments, would be fixed and utilized. For example, if $45 were the unaccrued balance per acre under such a contract, and if $30 per acre were fixed as the gross crop returns per acre for the purpose of the determination, then 5 percent of $30 or $1.50 per acre per annum would be the annual installment, and would be so scheduled over a period of 30 years. Each year the installment of $1.50 per acre would be increased or decreased under the normal and percentages plan.

On projects where existing repayment contracts are in part under the Fact Finders' Act, and in part under other acts of the Federal reclamation laws, the unaccrued charges could be merged into two general obligations, one for each type of contract.

Section 4 (c) would provide for taking each year a census of annual gross crop returns per acre of the area in cultivation, a procedure which is now followed on practically all projects and would provide that the normal returns for each year shall be determined. The normal returns would be determined by averaging the 10 best years out of 13 years, using the year for which the determination is made and the preceding 12 years. The average would be weighted; that is, consideration would be given to annual variations in the areas cultivated. By eliminating the 3 lowest years of the 13-year period the normal returns used in the plan as a basis would not reflect, to the disadvantage of the water users, those years in which because of adverse climatic conditions or market prices the gross crop returns were extremely low.

Each year the contracting organization would be required to pay as construction charges the amount of the installment for the particular year as stated on the schedule of installments determined under section 4 (b), increased or decreased in accordance with the normal and percentages plan. The amount of any such increase or decrease would be determined as follows: The percent of the normal returns for the year involved by which the annual returns of that year are greater or less than the normal returns would be determined, and for each percent that the annual returns are greater or less than the normal returns there would be a 2-percent increase or decrease in the installment for that year. For purposes of illustration, if the normal returns for a project contract unit in the year 1944 should be $30 and the annual crop returns of that year should be $20, then the annual returns being 33% percent less than the normal returns there would be a 66% percent reduction in the installment of the organization's obligation scheduled for the year. If the organization's installment for 1944 were $45,000, under the normal and percentages plan only $15,000 would be required to be paid as construction charges for that year. Under the provisions of section 4 (e) the unaccrued balance of the installment, that is $30,000, would be included in those subsequent installments of the organization's obligation to which the amount could be added equitably, or would be established as an installment or parts of installments of years subsequent to the last year for which an installment was provided on the schedule fixed under section 4 (b). However, by reason of express limitation in section 4 (e) an installment could not thereunder be revised to or established in an amount exceeding the largest installment determined under section 4 (b). In a year when the crop returns were in excess of the normal returns for such year the amount of the installment would be increased under this same procedure. There would be contract provisions for offsetting increases and decreases in the installments.

Section 4 (g) would require payment of an additional charge of 3 percent per annum on the balance of the organization's obligation which has not, by the last year for which an installment was scheduled under section 4 (b), accrued under the normal and percentage plan. The payment of this additional charge would offset any detriment to the reclamation fund in the event that, under the normal and percentages plan, installments are decreased more than they are increased. Section 5 would authorize the Secretary of the Interior, in his discretion, to require that contracts entered into pursuant to the new legislation provide for collection and payment of construction charges on dates substantially contemporaneous with the dates when water users receive their crop returns. Such provisions are necessary to the most effective functioning of any repayment plan. Some existing repayment contracts permit a considerable lag between the time when crop returns are received and the time when construction charges must be paid. In order to prevent inequitable pyramiding of installments when the rearrangement of dates becomes effective, the Secretary would be permitted to provide necessary deferments.

Under section 6 provision would be made for proper accounting, for protection of the irrigation works and the farm lands in the project, and for penalties on delinquencies.

Such

The repayment problems in connection with some projects are unique. projects may need specialized amendatory contracts and authority to negotiate them would be granted by section 7. This section expressly provides, however, that the Secretary of the Interior shall not execute any such special contract unless and until approval of the proposed contract has been given by act of Congress.

Classification and reclassification of farm lands on the projects is a matter that has been of concern for several years. The Commission created by the act of August 21, 1937, recommended careful consideration of this subject. The landclassification problems that merit consideration are rooted in a variety of factual situations. Therefore, the most feasible method of handling such problems is to provide for classifications and reclassifications on projects where such work apparently is justified and to have reports and recommendations, based on such work, made to the Congress. The water users' organizations should bear half the cost of such work, and the other half should be borne by the United States. No adjustment of any repayment contract should be made by reason of any such classification or reclassification except pursuant to an act of Congress. Section 8, providing for the classifications and reclassifications, has been drafted accordingly.

Section 9 relates to the construction of new projects, new divisions of projects, and new supplemental works on projects. The provisions of this section would require, as a condition precedent to the authorization of any such construction or to the expenditure of moneys therefor, findings by the Secretary of the Interior as to any appropriate allocations of the estimated costs to irrigation, power, and miscellaneous purposes and a report thereon submitted by him to the President and the Congress. Such allocations of flood control or navigation as the Secretary of the Interior might find to be proper, on consultation with the Chief of Engineers and the Secretary of War, would be permitted. Any such construction would be deemed authorized by this section only if the total amount of the allocations made for the above-mentioned purposes were equal to the estimated cost of construction. The provisions of this section are substantially in accordance with recent special acts of Congress relating to multiple-purpose projects constructed by the Bureau of Reclamation and would give effect to sound public policy. They recognize the widespread and multiple benefits derived from construction under the reclamation program and provide for an equitable and more widespread distribution of the costs of those benefits.

Section 9 would provide also for return to the United States of the costs allocated by the Secretary of the Interior to irrigation, power, and miscellaneous purposes. The contracts covering return of the costs allocated to irrigation could be made, in general, on either of the alternative plans provided in sections 3 and 4 for existing projects.

The provisions of sections 10 to 14, inclusive, would permit more economical and orderly construction and operation and maintenance of reclamation projects than is possible under existing laws.

In order to allow time for negotiating and consummating modification of existing contracts, section 17 (a) would permit modification of such contracts under sections 3 and 4 of the legislation for 5 years from the date of enactment. As a temporary measure to permit needed relief pending negotiation of such amendatory contracts, section 17 (b) would extend for 5 years the authority of the Secretary of the Interior which has been granted by the act of May 31, 1939 (Public, No. 97, 76th Cong., 1st sess.), which authorizes further relief to water users on United States and Indian reclamation projects.

The other sections and provisions of the enclosed draft of proposed legislation are clearly self-explanatory. It will be noted that the draft makes no provision for Indian reclamation projects. This omission is because existing acts of Congress, the act of July 1, 1932 (47 Stat. 564), and the act of June 22, 1936 (49 Stat. 1803), are deemed to contain adequate authority for comprehensive consideration and adjustment of the repayment problems on Indian projects. There are at present pending before the Congress several bills that are the product of administrative action taken under the acts referred to above.

The proposed legislation is consonant with the repayment policy that underlies the Federal reclamation program. If enacted, it will provide the flexibility that is necessary in order to vary payments of construction charges so that they can be met regularly and fully from year to year during periods of decline in agricultural income and unsatisfactory conditions of agriculture as well as during periods

of prosperity and good prices for agricultural products. It is a natural result of the legislative and administrative experience accumulated in the 37 years since initiation of the Federal reclamation program in 1902. In accordance with the congressional direction given in the act of August 21, 1937, it would, if enacted, bring the general body of Federal reclamation laws into accord with the presentday conditions and requirements. It is urgently needed, and I recommend strongly that it be enacted.

I am advised by the Bureau of the Budget that the proposed legislation would not be in conflict with the program of the President.

Sincerely yours,

HARRY SLATTERY, Acting Secretary of the Interior.

Reclamation has never been a partisan issue. It was inaugurated as a national policy by the act of June 17, 1902, under the leadership of President Theodore Roosevelt, a Republican, and Representative Francis G. Newlands, later a distinguished Democratic Senator from Nevada. That the Federal Government has continued to recognize its responsibilities in connection with the water and land resources of the West is demonstrated by adherence to the reclamation laws of 1902.

While it is frequently said that reclamation brings irrigated land into competition with nonirrigated farms of other sections of the country, attention may be directed to the fact that the program has far broader significance. For instance, irrigation was practiced in the West long before the Federal reclamation policy was inaugurated and a large part of current activities are devoted to providing supplemental water for vast areas that had been brought into cultivation by individual effort or by private capital.

A word as to the so-called competitive phases of the reclamation picture. Statistics of the Department of Agriculture reveal that the products of more than 50 percent of the acreage of irrigated land in the West are fed to livestock in the immediate areas. Of the remainder the bulk is consumed locally or in the West and can be shipped eastward only when the produce of farms near the large consuming centers is not in season. Distance and high freight rates serve as an effective tariff barrier to competition.

The relatively small volume of products of reclamation projects that finds its way eastward is more than offset by the market that has been developed and stabilized for the products of the farms of the Midwest and South and the manufacturing centers of the country. A survey of incoming shipments to the Boise project area in 1937 reveals that more than 300 carloads of foodstuffs were received from non-Western States as far east as Massachusetts and New York. A check of purchases by individual farmers of this project shows that 75 percent of their income is expended for the purpose of purchasing eastern-manufactured articles and products. This is typical of the market all reclamation projects afford for non-Western products. More than half of construction expenditures on reclamation projects find their way eastward.

Reclamation projects support approximately 200,000 persons on project farms and more than three times that number in cities and towns that have sprung up in the wake of the developments. In all, a million persons in the 15 States in which projects are operating are dependent on the Federal reclamation program.

The demand for irrigated land in the West is greater today than ever. Thousands and thousands of farm families, through no fault

of their own, have been forced to migrate from the drought areas of the Midwest and are seeking security for agricultural pursuits in the West. The Department of Agriculture in 1938 estimated that more than 50,000 families in less than 4 years have moved into 7 far Western States from the drought sections alone, and a later figure from the same source places the number of persons who have moved into the West from that area since 1930 at 400,000.

If all of the land that Federal projects will bring in within the next 10 years was available now it would be inadequate to provide a 40-acre tract for each of these migratory farm families. As a result of the emigration problem, the natural growth of population in the West, and the recognition of the security that comes from irrigation, Federal reclamation must be assisted and encouraged.

Passage of H. R. 6984 will permit the flexibility needed to bring about the orderly amortization of the construction charges, without imposing hardships on the water users during seasons which make otherwise normal payments impossible.

No cost to the Federal Government is involved in this legislation; instead, it is expected to obviate the necessity for requesting blanket moratoria in the future.

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