|
<br />Historically, the discount rate used by water rJlsourcc ;\genCles In computing oeneIll~cosL
<br />ratios, although subject to annual adjustment by the Water Rcsources Council according to a
<br />formula contained in S. Doc. 97, lags far behind lhe opportunity cost of capital. Today it
<br />stands at an unrealistic 5~ percent. Many water development projects which squeak by with a
<br />benefit-cost ratio of slightly more than 1.0 based on a 51> percent discount rate would carry
<br />b-c ratios of much less 11"n J.O if a more realistic discount rale were required.
<br />
<br />.......,
<br />
<br />What is particularly infuriating to many conservationists an-i economists is the current pro~
<br />cedure which permits Congress to appropriate construction funds today for old projectsj
<br />authorized ycars ago at discount ratcs ridiculousl low b lod3 's standards, without rcquiring
<br />that the projects be leevalU3le using the currenl discount rate. This so-called "grandfather
<br />clause" pc-:m.its the cons~ruetion of many en\'ironm~ntaUy'unsound water re~urcc projects.
<br />Also, since the discount ,.tc is not truly fIXed by law, the Congress, by special arrangement
<br />with the President's Office of Management and Budget (O~I\l), can still authorizc projects
<br />whose b-c ratios are bascd on discount rates far below 51> percent.
<br />
<br />.
<br />
<br />A case in point is the Bureau of Reclamation's O'Neill Unit of the Pick-Sloan Missouri Basin
<br />Program, Nebrasb. JuS! this past September, Congress authorized the O'Neill Unit which,
<br />among other thinfs, will put 3 dam across the Niubrara River, the only remaining scenic ri..;cr
<br />candidate in r\cbraskJ. TotJI eSlimated consfruL'ljon rosl of the projcct. bascd on O\..tob~(
<br />1970 price Ic"ds, is S 104.4 million. The benefit-cost ratio, based 011 Q 3!-~ percent discount
<br />ratio, is 1.53 to 1.0 over a loo.year poriod of analysis. However, by the [Juleau's own
<br />adntission, the b-c ratio, when. recomputed at a discount rate of 5~ percent, is 0.9 to I.O!
<br />Nevertheless, the project has been officially authorized.
<br />
<br />lIer". are some other interesting facts about the O'Neill Project: ..
<br />
<br />The projcct is justificd on 4 main grounds; irri~Jlion, recrealion, fish and "ildlife. and
<br />nood ronlro!. Each of these justifications is shaky. a) Irrigation: The 77,000 acres to bo
<br />. irrir.atcd will be used to grow crops <Ilrcady in sUI1.'lus at a time .,-"hen we ale payinr, in
<br />
<br />. the billions for soil bank and price SUPPOrl pro~rams. Ii) Recreation: The 19.mile
<br />reservoir will inundate the best str~tdl 01 canoeing w::rtcr in Nebraska. The Nebraska
<br />Game and Parks Commission votcd in Jl:lly, )971 10 rcmo\'C its supporl to share th~
<br />reefration cost of the proj"ct. The Merritt Reservoir on J. lrihulary of the Niobrara has
<br />already silt~d up to the cxlcnlthal its rccre:lIiollal value is seriously diminished. c) f;ish
<br />and Wildlife: lhe arcas to be Ilooded and ditched abound with wildhfe ri:;Jlt now.
<br />Most wildlife values of the arca would be doslroyed by the project, including Ole
<br />habitats of several rare bird sp,'cies. The propos,:d cement-lined canal from the lake to
<br />the farmlanil will kill 100-200 doer annually ac<ording to the l'Iebraska Game and Parks
<br />DepJrll1lenl. d) Flood ContlOl: Bonefits from tlood control are highly question,ble
<br />since there is not a single town or community along the river below Ole proposed dam
<br />fOf many miles.
<br />
<br />The Bureau of Reclamation's Teton Dam Project in East.Centralldaho offers another good
<br />example of how water resource planners can manipulate economic benefits to insure a b-c
<br />. ratio 'of grcater than 1.0. The S70-ntillion project, authorized by Congress in 1964, calls for
<br />the construction of a 300-foot high dam on the lower Teton River. Money has been ap'
<br />propriated by Congress and bulldozers are already at 'work.
<br />
<br />~nstruetion of the dam will convert a 17.mile stretch of f"e-flowing white river and canyon
<br />mto'an~ther reservoir. Lost forever will be an important cuUhroatlrout fishery, a critical big
<br />game WInter range, and an excellent place for wrule water noat trips. The area already has an
<br />abundance of reservoirs for recreation.' .'
<br />
<br />By carefully ascribing a variety of dubious benefits to irrigation, nood control, and reerea.tion,
<br />tJ:te Bureau planners arrived at a 1.3 to 1.0 b-c ratio on the first phase of the project using the
<br />dIScount late of 2 7/8 percent, in vogue at the time of initial project planning. Using the 1969
<br />
<br />-9!scount rate of,.:3 1/4 percent (also long since discarded) the b.c ratio is a slim 1.08 to 1.0.
<br />,And when a 5 3/8 percent discount rate is applied, without even increasing the 1968
<br />constructIon cost figures to account for innation, the b-<: ratio drops to a revealing .69to 1.01
<br />But regardless. of the fact that projected costs far outweigh potential benefits, it appears that
<br />Te!,,'!.. I?am _W!l!.!"~ ".onstructe d.
<br />
<br />"" - - - --. ..
<br />------- "-- .-... --.-
<br />
<br />'Olhe.' . QUestionable Dnreau of. Rec1amatio;'- 'projects' i~~lude lhe i,onendously.expensive'
<br />SI'billo~n Central Arizona Prolect and the SI.billion plus Central Utah Project (cost of
<br />B?nnev~lIe UnIt alone,about J 5 percent completed, is estimated at S.5.billion), bOtll of which
<br />WIll seriOUsly overtax the eanylllg capacities of river basins and promote further growth in
<br />areas that are ecolOgically frar.ile.
<br />
<br />5
<br />
<br />,"l '="'
<br />
|