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<br />. <br /> <br />ABILITY TO PAY DETERMINA TrONS AND RELATED CONTRACT TERMS <br /> <br />, <br /> <br />In order to ease the financial burden of irrigating arid lands, the Service limits its <br />water charges to irrigators to an amount based on payment capacity or "ability to <br />.- <br />pay". The computation of ability to pay is based on estimated budgets for <br />representative farms in the service area. These budgets take into consideration <br />economic factors such as (1) representative cropping patterns, (2) farm size for the <br />service area, (3) yield values, (~) gross sales, (5) farm expenses, (6) labor costs, and <br />(7) a family living allowance which consists of a return on capital and allowances <br />for the operator's labor and management. Until recently, after computing net farm <br />income from the above data, a further deduction of up to 25 percent could be <br />allowed for contingencies. The result after the contingency allowance deduction <br />determines the irrigators' "ability to pay" for water. <br /> <br />The President's water policy message of June 6, 1973, stated that he would direct <br /> <br /> <br />the Secretary of Interior to improve the implementation of irrigation repayment <br /> <br />and water service contract procedures under existing Service authorities. <br /> <br />One of the actions taken to implement this directive was a memorandum dated <br /> <br /> <br />December 29, 1973, from the Commissioner instructing Regional Directors to use <br /> <br /> <br />the following procedures in negotiating new, amendatory, or temporary irrigation <br /> <br /> <br />water service contracts: <br /> <br />1. Water service contracts should provide for recalculation and renegotia- <br /> <br />tion of water rates every 5 years based on ability to pay, <br /> <br />26 <br />