claimed land. Secondary benefits usually are not susceptible of exact measurement, but should be presented as precisely as possible, as additional justification for the project. Intangible benefits, such as prevention of loss of life, should, of course, also be presented as part of the project justification.

Measurement of costs.-All costs and detriments which would result from the construction of a project should be taken into account in the evaluation. The project costs should include all monetary outlays made or goods and services contributed or provided by various interests in connection with the project, such as initial investment costs, replacements, additions, or modifications, and operation and maintenance costs. They should also include any costs of the project incurred to prevent or mitigate damages to existing fish and wildlife, recreational or other resources. Any associated costs, over and above project costs, necessary to make the benefits of the project available for use or sale, and any induced costs, such as uncompensated adverse effects of the project, should also be recognized in the project evaluation.

Comparison of benefits and costs. It is our view that project reports in support of authorization of water resources projects should be required to show a comparison of benefits and costs, and that, as a general principle, the identifiable benefits, estimated on a sound basis, should exceed the costs of the project. This general principle should apply to all types of water resources projects. However, current evaluation concepts place too much emphasis upon the benefit-cost ratio as a basis for project justification, to the exclusion of other equally important considerations involving broad social values. Consequently, we believe that evaluation policies and procedures should be devised to insure that all factors relating to the evaluation of a project are fully disclosed, thereby providing a sound basis for congressional exercise of the judgment which is necessary in the selection of these public undertakings.

In keeping with this general principle, we believe that the benefitcost ratio, which presents only one set of facts regarding a project, should be calculated on the basis of primary benefits and direct project costs, and that the evaluation period should be limited to not more than 50 years. In addition, secondary benefits and intangible values should be separately but fully appraised and discussed in the project report. It should be recognized that in some circumstances these other benefits and intangible values would warrant favorable consideration of the project, even though the benefit-cost ratio, based on primary benefits and costs, is less than unity. Information on secondary benefits and any related costs may also be of assistance in determining an appropriate basis for local or regional cost sharing on the project.

We would also like to emphasize that application of standards for project justification will generally reveal only a part of the picture regarding a proposed development. The determination of whether a project should be authorized by the Congress will require careful judgment in the light of overall needs for water resources development, the national and regional economic effects of the project, and the relative urgency of other program objectives of the Federal Government.

Scope of development.-No project should be authorized until a complete report on the project has been presented to the Congress.

The project report should present all the pertinent facts and information regarding the project, and should make comparisons with appropriate alternative means of accomplishing the purposes of the project. The report should clearly indicate whether the benefits added by each purpose or separate segment of the project will at least equal the added costs of its inclusion, and whether each segment of the project, as well as the entire project, is more economical than any alternative means, either public or private, for accomplishing the same purpose that could be expected to develop in the absence of the project.

In making comparisons with alternative developments, taxes and interest costs should be treated on a comparable basis. For this purpose costs of a Federal project should be regarded as including the full normal taxes, including Federal, State, or local, which the project would bear if constructed by private taxpaying participants. Interest costs of both the Federal project and the most likely alternative development should be computed on the basis of the average rate of interest payable by the Treasury on its long-term marketable obligations.

Allocation of costs.-The method used in allocating the costs of a project among its several purposes has an important bearing on the evaluation of the project and also on the sharing of the costs among the various beneficiaries. While the Bureau believes that uniform standards should be used by all agencies in allocating the costs of a multiple-purpose project, we recognize that at times the absence of necessary data or peculiar circumstances require some flexibility in determining the cost allocation. As a general principle, the costs of multiple-purpose projects should be allocated among the project purposes in such a manner that each purpose bears its own share of the costs and shares equitably in the savings resulting from being part of a multiple-purpose project.

Authorization.-Because the selection of projects to best conserve and develop our valuable water resources requires the exercise of careful judgment, and because this judgment must reflect the interests of the Nation as a whole, we believe that each major water resources project should be separately authorized by the Congress. Large replacement projects, particularly those involving a change in scope or function, should also be separately authorized by the Congress. Smaller projects should be administratively authorized as now provided in basic legislation for the Army Corps of Engineers, the Interior Bureau of Reclamation, and the Department of Agriculture watershed protection program.

Cost sharing. The determination of reasonable cost-sharing standards presents a complicated and controversial problem. Present Federal water-resources programs vary widely in their requirements for cost sharing. However, large investments in water resources developments will be necessary over a number of years to keep abreast of the rapid economic growth of the Nation. It should be recognized that to meet these needs will require the combined efforts of State and local groups, private interests, and the Federal Government. In view of the continuing heavy burden on the Federal Government for our national security and the competing needs of other national program objectives, we believe that there should be a reexamination of the statutory basis for Federal responsibility in water resources developments. It seems to us that the importance to the Nation of water

resources developments makes it imperative to have a clearer and more consistent statutory basis for promoting the full cooperation of State, local, and private interests, as well as the Federal Government, in the development of these resources. Such new legislation should seek to remove inconsistencies in present law which result in conflicts and inequities. It should provide a uniform policy for determining the Federal responsibility whichever program or Federal agency is involved. It should recognize that in some water-resources projects State or local groups can best meet the needs, but that in other projects the national interest is paramount and the responsibility should rest with the Federal Government, with appropriate sharing of the cost by identifiable beneficiaries.

In line with this general principle and with the recommendations of the Advisory Committee on Water Resources Policy, we think that the Federal Government should assume the cost of that part of projects where benefits are national and widespread, and beneficiaries are not readily identifiable. But where benefits are primarily local, and the beneficiaries are readily identifiable, non-Federal interests should bear substantial portions of the construction costs of the project as well as the replacement, maintenance, and operation costs. In the case of vendable services, such as power and municipal water supply, the users of the service should pay the full costs allocated to this purpose. We also believe that non-Federal construction of water resources projects should be encouraged by providing for Federal contributions for those costs of projects which would have been nonreimbursable had the projects been federally constructed.

While we recognize that it is probably not possible to develop completely uniform cost-sharing standards applicable to all of the various purposes of water resources development, we believe that such standards can be developed within each of the several fields of water resources activities. For example, uniform requirements could be established for local cost sharing on all flood control undertakings under all programs, on a realistic basis commensurate with the local benefits received. Uniform repayment requirements for all land reclamation undertakings, both for drainage and irrigation, could be devised. For recreation and fish and wildlife, provision could be made for appropriate recognition on a uniform basis of the national interest in such undertakings as well as provision for local contributions toward such facilities where these are of less than national interest, in line with the benefits received.

The above comments and suggestions present generally our views on the major aspects of overall evaluation and authorization of waterresources projects. We should like to emphasize, however, the view of the Bureau of the Budget that the standards for evaluation of projects and the procedural requirements for projects reports should have as their chief objective the disclosure of all the pertinent facts and circumstances which are necessary in deciding whether a particular development is in the best interest of the Nation. The President, in determining his recommendations to the Congress, should have all the facts before him. And the Congress, which has the responsibility for making the final decision as to whether or not a project should be au thorized, should have all the information necessary to reach a sound conclusion.

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If we can be of any further service in connection with the study being undertaken by the Senate committees, please do not hesitate to call upon us.

Sincerely yours,

ROBERT E. MERRIAM,
Assistant Director.

FEDERAL POWER COMMISSION COMMENTS ON SENATE RESOLUTION 281, A RESOLUTION RELATIVE TO THE CONSERVATION AND DEVELOPMENT OF LAND AND WATER RESOURCES

The principal objectives of Senate Resolution 281 are stated in section 6 which directs the Senate Committee on Interior and Insular Affairs and the Senate Committee on Public Works, jointly, "to study in consultation with other appropriate committees and executive agencies, and to design and formalize a comprehensive and particularized set of standards and overall criteria for the evaluation of all proposed projects for the conservation and development of land and water resources," with particular attention to the factors set out in section 4 of the resolution, viz, "all potential utilizations, costs, allocations, payout, and benefits, both direct and indirect." Pursuant to this section of the resolution the chairman of the Senate Committee on Interior and Insular Affairs requested the comments of the Federal Power Commission in this matter by letters dated August 14 and 17, 1956.

The role of the Federal Power Commission with respect to waterresources development is defined and limited by congressional enactments. The licensing function, which is the Commission's oldest activity, dates back to the Federal Water Power Act of 1920, now part I of the Federal Power Act. Pursuant to that authority, the Commission issues licenses to non-Federal interests, including citizens, corporations, States, and municipalities, authorizing the construction, operation, and maintenance of water-power projects on Government lands and on streams over which the Congress has jurisdiction. It may also issue licenses to such non-Federal interests for the purpose of utilizing the surplus water or water power from a Government dam. Licenses issued under the Federal Power Act are for fixed periods not exceeding 50 years and contain terms which protect both the public interest and the licensees.

Important provisions of the Federal Power Act, which safeguard overall national interests and insure initial consideration of Federal development, are (1) the requirement in section 10 (a) that each project to be licensed shall, in the judgment of the Commission, be best adapted to a comprehensive plan for the development and utilization of the water resources of the river basin for public purposes, and (2) the provision in section 7 (b), that if, "in the judgment of the Commission, the development of any water resources for public purposes should be undertaken by the United States itself," the Commission may not approve any application for "any project affecting such development," but must prepare certain data and submit its findings to Congress with recommendations for Federal development.

Closely allied with the licensing activities are the Commission's studies and investigations of river basins and its power market sur

veys. Under the provisions of the Federal Power Act the Commission is given broad authority to make investigations and collect data concerning utilization of the Nation's water-power resources, and is authorized to cooperate with the executive departments and other agencies of the Federal Government and with State governments in such investigations. The Commission's investigatory authority was broadened by the Flood Control Act of 1938 and subsequent Flood Control and River and Harbor Acts, which provided that power penstocks shall be installed at dams therein authorized when approved by the Secretary of the Army upon recommendations of the Chief of Engineers and the Federal Power Commission.

These river-basin and power-market studies provide a basis for Commission action in the issuances of licenses, and also a basis for advising and making recommendations to the Federal constructing agencies on power matters. Cooperative arrangements have been established with the Corps of Engineers and with the Bureau of Reclamation for furnishing advice and assistance on power matters. This cooperation begins in the early planning stages between the staffs of the Commission's regional offices and the field representatives of the constructing agencies.

As a member of the Interagency Committee on Water Resources, formed in 1954 with Presidential sanction by agreement with the Departments of the Army, Interior, Agriculture, Commerce, Labor, and Health, Education, and Welfare, the Commission cooperates closely with Federal and State agencies in planning the power aspects of sounder and better designed river-development programs. Through its participation in such a joint effort the Commission has made significant contributions toward achieving a better understanding and solution of the power phases of common problems involved in the standardization of practices for the economic analysis of river basin projects.

Thus it is apparent that the Federal Power Commission is an independent agency having primarily licensing and investigatory functions under part I of the Federal Power Act with respect to nonFederal water power developments, but it has no direct statutory responsibility for reports by other agencies to Congress in support of requests for authorization of Federal projects. It does have, however, statutory responsibilities with respect to approving the installation of power penstocks at dams authorized for construction by the Department of the Army and, for certain Federal projects, it has the responsibility for the allocation of costs and the approval of rates for the sale of power. It is, therefore, directly concerned with standards and criteria utilized in support of requests for authorization of projects and it believes that uniform standards and criteria should be followed when considering all aspects of a project, from the preauthorization stage through payout.

In carrying out its responsibilities in regard to Federal waterresources projects the Commission makes analyses and recommendations concerning the economic justification of including power in projects, makes cost allocations, and approves power rates. Its views on each of these subjects and related matters are set forth below.