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<br />APPENDIX I <br /> <br />APPENDIX I <br /> <br />Use of ad valorem tax revenues <br />to increase M&I repayment <br />obligation was improper <br /> <br />The Bureau also decided to use ad valorem tax revenues only <br />for M&I repayment. According to the 1964 definite plan report, <br />on which the 1965 repayment contract was based, repayment of <br />irrigation costs would include $38 million in future ad valorem <br />tax revenues. But in 1982, at the district's request, the Bureau <br />reallocated this $38 million toward M&I repayment to increase the <br />repayment ceiling to $150.4 million. We believe this action was <br />legally improper, since the existing contract dedicates the $38 <br />million to irrigation repayment. <br /> <br />Effects of actions to <br />continue construction <br /> <br />As a result of these actions: <br /> <br />--The Bureau was able to suspend negotiations for a new <br />contract and continue construction beyond the <br />legitimate M&I repayment obligation of $112.4 million <br />(including the $10 million added by the district in <br />1981). We estimate that as of January 31, 1985, the <br />Bureau had spent $213 million on M&I construction-- <br />$101 million in excess of the proper ceiling. Of <br />this amount, $38 million can be attributed to the <br />reassignment of the ad valorem tax intended for <br />irrigation and $63 million to misapplication of the <br />Water Supply Act. <br /> <br />--The government will probably lose interest on M&I <br />repayment. The 1965 repayment contract, in <br />accordance with the 1956 authorizing legislation, <br />begins charging interest on the M&I repayment <br />obligation as soon as any supply of water becomes <br />available for delivery. However, under the Water <br />supply Act, costs for deferred water supply bear no <br />interest for up to 10 years, or until this water is <br />first delivered, if sooner. According to the <br />regional Repayment Branch Chief, the Bonneville <br />unit's deferred M&I water could be interest free for <br />up to 10 years. Our letter to the Assistant <br />secretary asked that this issue be clarified. If the <br />interest free period is applied, we project a <br />potential loss to the Treasury of $8 million to $97 <br />million in interest over 1 to 10 years of deferral. <br /> <br />i <br /> <br />~; <br />It <br />~ <br />.~ <br /> <br />,. <br /> <br />7 <br />