12. Repayment contracts should generally be for 50 years, plus a 10-year development period. However, repayment period should always be finally determined by the Congress. 13. Recreational benefits should be used in determining feasibility. 14. Interest rate should be computed on the basis of average interest rates payable by the Treasury on obligations not callable for 15 years. 15. Reports should include all costs which permit realization of benefits. 16. Benefit-cost ratios should be computed on basinwide basis including authorized and existing units. 17. Approve of section 111 of H. R. 12080. 18. Suggest use of sections 205 and 206 of H. R. 12080, with some modifications, in setting up standards. 19. All agencies should use similar standards in setting up costs and benefits. 20. Congress should make it clear that it retains primary responsi bility for authorizing projects and the Bureau of the Budget should not delay submitting reports to Congress. 21. Oppose creation of Coordinator of Water Resources. 22. Oppose creation of an Independent Board of Review. The Arkansas Basin Development Association Inc., the Connecticut River Valley Flood Control Association, H. C. Gee, consulting engineer, submitted comments similar to those made by Water Resources Associated. (The full text of the comments are as follows:) COMPTROLLER GENERAL OF THE UNITED STATES, Hon. JAMES E. MURRAY, Chairman, Committee on Interior and Insular Affairs, United States Senate. DEAR SENATOR MURRAY: Reference is made to your letter dated December 10, 1956, in which you have requested further suggestions relating to policies and criteria in allocation of costs of multiple-purpose water resource projects. Audits by the General Accounting Office for fiscal year 1955 and previous years of the Department of the Interior and Corps of Engineers (Civil Functions) have resulted in reports to the Congress on the important Federal water resource development programs that include power generating and marketing operations. These audits have disclosed that even though projects have been in operation for a number of years, firm cost allocations have been made for very few multiple-purpose projects. Moreover, although the Federal Power Commission has been authorized to approve rate schedules for sale of surplus power by Interior from most propects authorized for construction and operation by the Corps of Engineers, the Commission has been given specific authorization by the Congress to make the allocation of construction costs in very few projects. For those projects on which the Federal Power Commission has not been given specific authorization to make the allocations of costs, a jurisdictional difference has existed between the Corps of Engineers, the constructing agency, and the Department of the Interior, the power marketing agency, as to who has the responsibility to make these allocations. This difference has extended also to the Missouri River main stem projects constructed or under construction by the Corps of Engineers, except the Fort Peck project. The Corps of Engineers has consistently reported to us that a substantial and increasing degree of agreement on cost allocation methods and procedures has been achieved through the combined efforts of the three Federal agencies primarily concerned with the problem and that accordingly the matter of agency responsibility for allocations has become of less importance. The Department of the Interior has reported similar views and has also stated that providing by law for the ultimate responsibility for making the allocations of costs by a single agency will likely raise new problems. The Department has contended that there must remain some area of flexibility related to the peculiar conditions surrounding each project and the market for the power. The Department has also stated that if this is not provided, or if the cost allocations were to be made generally from only the viewpoint of the construction agency, the differences between the allocations of costs to power and the maximum revenues obtainable in the marketing of the power could result in financial deficits or in rates which could price the power out of the market, particularly for the preference consumers. We believe that reaching firm cost allocations for projects placed in operation is one of the important factors needed to provide a fair presentation of the financial results from operations of Federal water resource projects. Some of the projects have been in operation for more than 10 years, and the continued use of nonfirm and unagreed upon construction cost allocations for projects in operation makes financial data on such projects progressively less reliable. The failure to reach firm cost allocations acceptable to both the Corps of Engineers and the Department of the Interior supports our view that the matter requires resolution by the Congress. Interagency agreements are helpful and can minimize areas of difference for projects where policies and practices have not been firmly established by past actions. However, the Wolf Creek, Center Hill, and Dale Hollow projects in the Cumberland River Basin illustrate the difficulties of resolving differences when two agencies remain firmly divided as to fundamental principles. The rate established by the Department of the Interior for power sales from these projects was designed to repay the costs allocated to power determined through use of the incremental method of cost allocation and a 2-percent interest rate. The Department of the Interior procedures result in a determination of a total Federal investment in the projects at June 30, 1956, of $155,691,000, including interest on construction, and an allocation to power of construction costs of $102,446,800. The corps, however, uses the separable costs-remaining benefits method of cost allocation and a 2.5-percent interest rate for the three Cumberland projects which results in a determination of a total Federal investment of $157,779,161, including interest on construction, and an allocation of construction costs to power of $114,083,000. Until full agreement between the agencies is reached on cost allocations, and the rate schedules related to such fully agreed upon cost allocations, the firm amount of the Federal power investment in the Cumberland projects to be repaid by power and the current status of the repayment will remain in doubt. To resolve the matter of reaching firm cost allocations, we believe that the Congress could take one of the following alternative courses of action: 1. Establish policies and criteria for making the cost allocations, and designating specifically the agency to make the allocation where one agency constructs the project and another agency markets a product of the project. In this case the Congress may want a firmcost allocation report submitted to it for review, and such report also to include the views of the interested agency not having the responsibility for the cost allocation. The Congress may want to define the role of the Federal Power Commission in these allocations. 2. Establish policies and criteria for making the cost allocations and designating the Federal Power Commission to make the firm-cost allocation, wherever power is a purpose in the project. In the Columbia River Basin, the Federal Power Commission has been specifically designated by the Congress to make the allocations on the Bonneville Dam, McNary Dam, and lower Snake River projects. The Commission also was designated to make the allocation of the Fort Peck project. 3. Establish policies and criteria for making the cost allocations and requiring the constructing agency, the power marketing agency, and the Federal Power Commission jointly to submit appropriate reports on allocations of costs to the Congress, or its designated committees, to approve an allocation. Under either alternative, we believe that the Congress should require that the cost allocations or the report on proposed cost allocation, be made and submitted about the time the project is substantially completed and placed in operation. Policies and criteria used for cost allocations and related matters have not been uniform between the agencies having water resource development responsibilities. Notwithstanding the efforts in recent years of the Inter-Agency Committee on Water Resources (and its predecessor, Federal Inter-Agency River Basin Committee), the Presidential Advisory Committee on Water Resources Policy, and the Bureau of the Budget to formulate mutually acceptable principles and procedures, we believe that the Congress should provide the basic framework of policies and criteria. Among the factors in which the congressional intent may be expressed are: 1. Benefits and costs to be considered in the benefit-cost analysis for the evaluation of projects and in the allocation formula. Under this factor the Congress may want to consider the degree to which secondary benefits and indirect costs are to be included in determining the total benefits and total costs. 2. Costs to be included for purposes of allocation and to be repaid by beneficiaries; that is, whether interest on the Federal investment, costs of other Federal agencies applicable to the project, and similar costs not paid directly by the constructing agency are to be classified and recorded as costs of the projects. 3. Number of years to be used as the basis for realization of project benefits and repayment of reimbursable project costs. 4. Rate of interest and method of computation. 5. Costs applicable to other purposes to be repaid by power revenues. 6. The purposes to which costs are to be allocated and the criteria for allocation. We agree that some flexibility is needed in applying fixed policies and criteria to the peculiar conditions that may surround particular projects. However, we believe that this flexibility can be provided through permitting deviations by the proposing agency from the congressional established policies and criteria, but with full explanation on these deviations and the specific reasons in the project plan and other reports submitted to the Congress for authorization or initial appropriation of funds for construction of the project. We are happy to be afforded the opportunity to present the additional suggestions in this matter to your committee. However, we believe that resolving the matter of cost allocations is but one part of the problem in establishing adequate financial administration of the Federal power operations. We shall be happy to discuss these matters further with you or your committee staff should you so desire. Sincerely yours, EXECUTIVE OFFICE OF THE PRESIDENT, Hon. JAMES E. MURRAY, BUREAU OF THE BUDGET, Washington 25, D. C., November 23, 1956. Chairman, Committee on Interior and Insular Affairs, MY DEAR MR. CHAIRMAN: This is in reply to your letters of July 31, and August 17, 1956, requesting the comments and suggestions of the Bureau of the Budget regarding standards and criteria which should be used in the evaluation of proposed Federal land and water resources projects. The information is requested in connection with the joint study of these matters being undertaken by the Senate Committee on Interior and Insular Affairs and the Committee on Public Works, pursuant to section 6 of Senate Resolution 281, adopted on July 26, 1956. The need for more uniform criteria and standards governing the formulation, evaluation, and undertaking of Federal land and water resources projects has been a matter of concern and study by the Bureau of the Budget for a number of years. Accordingly, we are pleased to have the opportunity to cooperate with the Senate committees in this important task. The Bureau is in full agreement with the objective of the study, namely, that of providing a sound basis for the evaluation of water resources projects. These projects play an important part in the economic and social well-being of the Nation and their selection requires careful consideration. However, such projects are of many different kinds and serve a variety of purposes. Large, multiplepurpose projects involve complicated problems of determining the benefits, assessing the costs and detriments of the project, and allocating the costs equitably among the project purposes. In the evaluation of these diverse undertakings, many factors must be weighed and careful judgment exercised if the projects selected for authorization and construction are to best serve the public interest. In these circumstances, the Bureau of the Budget believes that uniform policies governing the evaluation of water resources projects should be set forth in basic legislation. However, because of the complex factors affecting the determination of desirable projects, we would like to suggest that it would be wise to leave a considerable degree of administrative flexibility in order to apply these policy standards to the specific problems and conditions of each waterresource project. A detailed statutory listing of every conceivable situation to be found in the water-resources field could disrupt sound administration of water-resources programs. It is our view that these more detailed standards and criteria should be developed by the executive branch within the framework of the general policies established by the Congress. Of course, Congress, in the last analysis, must evaluate and pass upon every major proposed water-resource project. Executive branch evaluations and criteria are designed to provide Congress with basic facts and information on which its decisions can be made. The Presidential Advisory Committee on Water Resources Policy had these problems in mind when it recommended the establishment of an Office of Coordinator of Water Resources within the Executive Office of the President, and proposed that the Coordinator take the lead in developing principles, standards, and procedures to be used by the Federal agencies in the planning of water resources projects. The report of the Advisory Committee was transmitted to the Congress by the President on January 17, 1956, and it is expected that specific legislative proposals to implement the organizational recommendations of the Advisory Committee will be transmitted to the Congress early in its next session. It is our hope that the current study by the Senate committees will provide the necessary basis for considering the administration's legislative recommendations as well as for congressional action establishing general evaluation policies. With respect to the principles and standards which should be applied in the evaluation, authorization, and subsequent undertaking of projects, there are a number of interrelated problems. These are primarily concerned with the kinds of benefits and costs which should be considered in project evaluation and the methods of measuring them; the method of allocating costs among the purposes served by a project; and the manner in which the costs should be shared among the various classes of beneficiaries. These several facets of the problem of project justification mutually affect each other. In the following paragraphs, there are presented a number of suggestions regarding principles and standards applicable to these aspects of project justification which we hope will be of help to the Senate committees. Measurement of benefits.-The Bureau believes that general principles regarding the determination and measurement of project benefits should be established by legislation. We believe that detailed standards for their measurement, carrying out the general policy declarations, must, in the final analysis, be administratively determined. As a basic principle, all benefits resulting from the construction of a project, to whomsoever they may accrue, should be taken into account. However, benefits are of several kinds. Primary or direct benefits are those directly resulting from a project, such as reduction in flood damages to a physical structure, or increased production of crops on reclaimed land. Primary benefits should generally be restricted to measurable or identifiable items. Secondary or indirect benefits are those indirectly resulting from the project, such as maintaining production in plants using materials from potentially flood-damaged plants, or increased income in industries processing crops from re |