WSP02305

• File Number: 8220.106
• Description: Animas-La Plata
• State: CO
• Basin: San Juan/Dolores
• Water Division: 7
• Date: 12/1/1994
• Author: Bookman-Edmonston
• Title: Economic Impact Study - Animas-La Plata and Colorado Ute Water Rights Settlement Act
• Water Supply Pro - Doc Type: Report/Study

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BACKGROUND

PRIOR ECONOMIC STUDIES

As pointed out earlier, the use of economic analysis to support construction of water
resources projects has been a standard practice with Reclamation since 1902. Thus through
the years many economic studies have been performed on ALP addressing direct and
indirect benefits to obtain benefit-cost ratios. Table 2.3 summarizes some of these studies.
The table reveals that the benefit-cost ratio ranges from 1.0:1 (1968) to 1.71:1 (1984) for direct
benefits and costs only and from 1.27:1 (1979) to 2.82:1 (1984) for direct, indirect and
secondary benefits and costs. In all the analyses identified in Table 2.3, the discount rate
used is 3.25 percent, the approved rate for the year of Project authorization.

Several of the early analyses done by Reclamation include the indirect benefits. In 1983, the

U.S. Water Resources Council issued the "Economic and Environmental Principles and

Guidelines for Water and Related Land Resources Implementation Studies." These

Guidelines limit the economic analysis of federally constructed water projects to consider

only the direct net benefits that can be measured and as discussed earlier in this section,

inevitable results in an analysis which omits significant tangible benefits and places an

overly conservative outcome on the analysis.

Bernard E. Anderson, a Professor of Economics at Fort Lewis College, analyzed the benefit-
cost ratio for ALP ir> a report titled "The Animas-La Plata Irrigation Project: A Re-
examination of Regional Benefits and Costs." The focus of this report is on indirect costs
which were not included in Reclamation's 1978 and 1984 analysis. Reclamation only
included indirect costs for irrigation and for negative benefits. The Anderson report
includes the indirect costs to all functions served by the Project. He also includes a benefit
that would be created by the Project from the solution of long-standing Indian water rights
claims is also included. These were determined by analyzing armuallosses in production
converting to dry land farming, losses in land values, and potential litigation costs.
Including these benefits in the analysis, the benefit-cost ratio becomes 2.03:1 for direct and
3.13:1 for indirect.

Vernon E. Lynch, Jr., a Professor of Economics at Fort Lewis College, in 1978 wrote the
paper "Some Observations Regarding Benefit-Cost Ratios for Reclamation Projects: Animas-

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