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<br />2. Contingency allowances used in the payment capacity computation are <br />unjustified and should no longer be used. <br /> <br />According to this memorandum, these policies apply only to water service <br />contracts, and not to repayment contracts. The potential effect of excluding these <br />provisions from repayment contracts is illustrated by a recent Service analysis of <br />the ability to pay of irrigators who will receive water from the BU. For example, <br />when the Service executed a 50 year repayment contract in 1965 for repayment of <br />this unit's reimbursable costs, it determined that the irrigator's ability to pay <br />during the .50 year contract period would total $16.!,l million. In 1978, when the <br />Service reevaluated this matter, it determined that the irrigators in this service <br />area had the ability to pay a total of $69 million, or an increase of $52.6 million. <br /> <br />Service officials stated that (I) the $69 million is a tentative figure based on a <br />preliminary study, (2) approximately $15 to $25 million is attributable to elimina- <br />tion of the contingency allowance, and (.3) the results of the BU recalculation are <br />not necessarily indicative pf the results that periodic recalculations will yield, as <br />recalculations on other projects actually showed a reduced ability to pay. <br /> <br />Notwithstanding these considerations, we believe the fact that such a dramatic <br /> <br /> <br />increase can occur demonstrates the need to have contractual provisions for <br /> <br /> <br />periodic recalculation and renegotiation of repayment obligations based on pay- <br /> <br /> <br />ment capacity without any allowance for contingencies. <br /> <br />In discussing the above issues with Regional personnel, we were advised that the <br /> <br /> <br />instructions relative to contingency allowances were intended to apply also to <br /> <br />27 <br />