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<br />00170 <br /> <br />A special type of repayment eontract is needed for the Fryingpan- <br />Arkansas Project not onlJ' because of its complexity, but to provide an <br />equitable basis for 10ne-terQ operations. The Government vdll actually <br />have triple security for repa)T.lont of the irrigation obligation after <br />the power and municipal costs are repaid. It will then receive revenues <br />from irrigation, pOVler, and r.mnicipal nater and still have features vr.ith <br />long useful lives. <br /> <br />10.(c) Question - Is it not true"thnt the Federal Govornoent and <br />the taxpayers would have to bear a greatly increased cost in meeting <br />interest on this investment under such prolonged defermcnt in starting <br />repayment? <br /> <br />Answer - There is no doubt that prolongatien of repayment also means <br />prolongation of interest cost. ConversGl}y, defonncnt of an investrlent <br />also means loss of benefits. Tho question of interest can becone quite <br />involved. In the case of irrigation investnent, interest is an econonic <br />cost and not a project financial cest because such investnents are <br />interest-free by direction of the Congress. In this respect irrigatien II <br />projects are in the same categery a~ flood contrel projects, or any \' <br />others, constructcd for thc national welfare. However, in order to pre- ! <br />sent as true a picture as PRssible, interest is considered as an expense <br />in the economic analysis. lhat analysis discloses that for the project <br />as a whole, the annual benefits vdll exceed the annual costs. ThUS, <br />although interest is a factor to be considered from the fiational viev~oint <br />it is not of such magnitude that it ir.1pairs the feasibility of the project. <br /> <br />10.Cd) <br />the Federal <br />in starting <br /> <br />Que~tion - What would be thc <br />Government and the taxpayers, <br />repayment? <br /> <br />additional cost of interest to <br />res ul ting from such defeI'lilGnt <br /> <br />Answer - Interest on the unpaid balance of irrigation investment to <br />be repaid by pm1er and municipal r~ter at the rate of 2~ percent annually <br />v~ld amount to C47,913,000 between payout year 1 and the year in vmich <br />repayment is started by those two functions. It should be realized that <br />this total interest cost is offset by benefits which Vlould be foregone <br />\-!i. thout the inVBstl7lent. Derivation of the interest is as follows: <br /> <br />Irrigation plant paid by pO'l:cr revenue: <br />$27,847,000 2 21% for 53 ycnrs _ . . . <br />Irrigation plant paid by municipnl "~tcr: <br />~6,085,ooo G 2}% for 64 years . . . <br /> <br />. . <br /> <br />. ;i36,897,000 <br />. 11,016,000 <br /> <br />. . . <br /> <br />Total. . . . . . . <br /> <br />. .. . . <br /> <br />. . . . . . . (~!17,913,000 <br /> <br />- 12 - <br />