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W-IN-BOR-004-93 United States Department of the Interior OffiCE OF tN5PECl'OR GENERAL Headquarters Audits 1550 Willon Iloul....."'rd 5u;<<401 Arlington, VA 22209 :1 Memorandum JUL I I 1994 To: Assistant Secretary for Water and Science From: Acting Assistant Inspector General for Audits Subject: Audit Report on the Development Status of the Dolores and the Animas-La Plata Projects, Bureau of Reclamation (No. 94-1-884) This report presents the results of our review of certain economic and financial management issues related to development of the Dolores and the Animas-La Plata Projects, . both of which are generally located in southwestern Colorado, Our objective was to determine whether the Bureau of Reclamation (1) complied with Reclamation law and Instructions and adequately protected the Government's interests in allocating and recovering the reimbursable costs of the Dolores Project and (2) provided the Government with an economically and financially feasible means of meeting its water resource commitments in the current formulation of the Animas-La Plata Project. Under the Colorado Ute Indian Water Rights Settlement Act of 1988, the Government is responsible for reserving specific amounts of water from the Dolores and the Animas-La Plata Projects for use by the Colorado Ute Indian Tribes. ~ , .j , ~ ':, , , 1; t [ ;;"'c ~ ,t ':>' , ~ Our review disclosed that the Government's interests were not adequately protected, since neither the Dolores nor the Animas-La Plata Project was economically justified, This condition occurred, in part, because the Bureau included indirect irrigation benefits to justify the development of both projects, a practice that is no longer permitted under current Federal water resource planning and cost allocation crite!ia. Indirect irrigation benefits were included by the Bureau at the time the projects were authorized in 1968 based on the theory that the economies of the projects' areas would indirectly profit from increased crop production. However, the Bureau's economic planning guidelines were subsequently revised in 1983 to preclude the inclusion of indirect benefits because such benefits could not be accurately measured in terms of agricultural production or economic value. When we eliminated indirect benefits from the value of the irrigation components of the Dolores and the Animas-La Plata Projects, the estimated costs of construction were greater than project benefits, which signified that both projects were not economically justified. :) i~ :1 " :-,. i' ) ~_4 } i! .1! ~;) '.-~ )~ " J Our review also disclosed that the financial feasibility of the Dolores and the Animas-La Plata Projects has declined since authorization. Under Reclamation law and policy, the financial feasibility of a project's irrigation component is determined