Estimate of total demand for domestic quality water from wells and surface sources, San Jacinto River Basin

STATEMENT OF JOHN P. OWEN, ECONOMIC CONSULTANT, IN BEHALF OF THE FAYETTECOLORADO COUNTIES RIVER ASSOCIATION

I have been requested by the Fayette-Colorado Counties River Association, as a consulting economist and in a private capacity, to review and objectively evaluate from an economic standpoint the "Plan for Development for Columbus Bend Project, Texas." The plan, which was prepared by the Bureau of Reclamation with the assistance of the National Park Service and the Bureau of Sport Fisheries and Wildlife, all of the U.S. Department of Interior, proposes the construction of a multiple-purpose dam on the Colorado River at Columbus Bend. The project is proposed to be constructed by the Bureau of Reclamation, but an agreement has been negotiated between the Bureau of Reclamation and the Lower Colorado River Authority under which the project will be turned over, maintained, and operated by the latter agency.

A review and evaluation of the economic feasibility of a multiple-purpose dam is material and relevant to this hearing because the Congress of the United States has laid down broad economic criteria in the Flood Control Act of 1936, the Reclamation Project Act of 1939, and subsequent legislation by which the economic feasibility of multiple-purpose dams is to be determined. The sense of this legislation is that the economic benefits of a water development project should exceed its economic costs if a project is to receive congressional approval and an appropriation of the public funds necessary to its construction.

A review and evaluation of the economic feasibility of a multiple-purpose dam is also material and relevant to this hearing because in the State of Texas the question of economic feasibility bears specifically upon at least three of the statutory criteria that the State board of water engineers must give consideration in the determination of the statutory feasibility of water projects under article 7472e, section 4, enacted by the Legislature of the State of Texas: (1) the public interest to be served by the project; (2) the integration of such Federal project with other water conservation activities; and (3) the protection of the State's interests in Texas water resources.

In reviewing and evaluating the economic feasibility of the Columbus Bend project attention will be devoted to the analysis of benefits and costs of that project as provided by the "Plan of Development" and supporting volume I of III, containing appendixes A, B, C, E, F, G, H, and I. Attention in this review and evaluation will be directed toward (1) the postulation of the basic economie principles involved in the determination of the economic feasibility of multiplepurpose dams; (2) the examination of the basic investigative and analytical methodology and assumptions employed by the Bureau of Reclamation in its "Plan of Development-Columbus Bend Project"; and (3) an evaluation of the degree of the conformance of the Bureau's assumptions and methodology with sound principles of economic feasibility analysis. Time has not permitted the development of an alternative benefit-cost analysis. If time had permitted, the costs of such a study would have been prohibitive for small private interests to bear.

The procedure followed initially in this opposition brief is to lay down the most important principles of economic feasibility analysis and to review and evaluate the "Plan of Development" in their light.

I

Economic principle.—A completely thorough feasibility analysis should provide for a comparison of all relevant benefits and costs, including primary and secondary, tangible and intangible, private and public benefits and costs.

Comment. The benefit-cost (economic feasibility) analysis contained in the "Plan of Development" provides only for a comparison of direct or primary benefits and costs. (See p. a.) The analysis is, therefore, incomplete.

Annual irrigation benefits of $6.255,320 (see p. 80), however, include both indirect and public benefits but estimates of negative indirect benefits could not be found.

The exclusion of any consideration of intangible benefits in this project is of signal importance because many families are being required involuntarily to abandon at least temporarily their chosen mode of livelihood and to leave permanently their family homestead, to which they may have been attached for several generations.

The exclusion of any consideration of negative indirect benefits could be of serious consequence. Such negative indirect benefits would flow from the decline of agricultural production in the area as the result of the inundation of produc

tive crop and grazing land. Agricultural processing and marketing industries in the area would suffer a reduction in net profits, as well as local suppliers of the displaced farmers, such as farm implement, trucks, automobile, feed, hardware, food and other dry goods dealers. Of course, negative indirect benefits should be offset against any positive indirect benefits.

Negative public benefit would also be incurred, such as a decline in economic growth in the agricultural (the key sector) and related sectors of the regional economy and in the economic costs involved in relocating farmers whose lands would be inundated by the proposed reservoir.

II

Economic principle.-A benefit-cost (B-C) ratio of unity (1/1) is the measure of acceptance of minimum economic feasibility of a project among Federal agencies. Private authorities and governmental investigative committees have recommended that a substantially higher ratio be demonstrated before a project is approved.

Comment.-The Task Force on Water Resources and Power of the second Hoover Commission stated, for example, that projects should be considered economically justified only when direct benefits exceeded aggregate costs by a substantial proportion. Adm. Ben Moreel, a qualified expert, lays down a stringent standard for the justification of water development projects. In his book, "Our Nation's Water Resources," published by the University of Chicago in 1956, Admiral Moreel writes: "A project should be considered to be economically justified only where it is shown that the direct benefits to be realized from the project exceed in a substantial proportion the aggregate costs of the project" (p. 209).

III

Economic principle.-There is little relationship between a benefit-cost ratio of 1 to 1 in the public sector of the economy and what constitutes minimum economic feasibility in the private sector of the economy.

Comment.-Otto Eckstein in an unpublished Harvard doctoral dissertation entitled "Benefits-Costs: Studies in the Economics of Public Works Evaluation," points out that it can be mathematically demonstrated that using a 3-percent interest rate to compute average annual equivalent benefits and costs, a benefitcost ratio of 1.4 to 1 would be required to obtain the equivalent of a 6-percent return on a private investment, or if corporate income taxes are added to the 6-percent return, a benefit-cost ratio of 1.8 to 1 would be required (p. 136).

IV

Economic principle.-A project is judged to be economically feasible only when the resulting benefits can be provided at a lower cost by the proposed project than equivalent benefits by any other alternative means.

Comment. In respect to municipal and industrial water supply, the "Plan of Development" does not demonstrate at all conclusively that—

(1) The project can supply water at the point of final consumption by municipal and industrial users at an aggregate cost for the needed quantity that would be lower than the cost of ground water.

(2) The project can supply municipal and industrial water more cheaply than the planned interbasin canal to be constructed under the proposed Texas basins project.

(3) The project can supply municipal and industrial water more cheaply than by the most efficient combination of ground water supply and interbasin canal supply.

The "Plan for Development" states on page 11:

"The area comprising Colorado, Wharton, and Matagorda Counties, downstream from Columbus Bend Reservoir site, includes part of a second major ground water reservoir, the Lissie formation. This ground water source supplies all present municipal and industrial water requirements of the area and irrigation requirements for about 80,000 acres of rice. The Lissie formation appears capable of yielding substantial additional supplies in Wharton County and southeastern Colorado County, substantially smaller supplies in northern Matagorda County (including Bay City) and even smaller quantities in southern Matagorda County.”

The development of ground water supply has several advantages over water supply developed at a damsite:

(1) The supply of ground water can be developed where needed;

(2) The supply of ground water can be developed without heavy capital investment;

(3) The supply of ground water can be developed incrementally as needed; and

(4) The supply of ground water can be phased out if more efficient supplies can be developed.

The point should be made that the Lissie formation, in contrast with the Ogalalla formation, in the high plains, is recharged through the insoak of heavy coastal rains.

In respect to the ability of the proposed interbasin canal to provide a more adequate supply of municipal and industrial water than the proposed Columbus Bend project, allow the plan of development again to speak for itself (p. 78): "The potential Texas basins project, now under investigation by the Bureau of Reclamation, would provide for diversion of waters surplus to the needs of eastern Texas river basins to the Colorado River Basin and other areas of potential water deficiencies. Water supply studies for the project indicate that the Trinity and Neches River Basins and the Texas portion of the Sabine River Basin are capable of providing dependable water supplies substantially greater than estimated long-term municipal, industrial, and irrigation water requirements of those basins and adjoining coastal drainage areas, if sufficient new reservoir capacity is developed. The plan of development being formulated for the Texas basins project would provide for such reservoir development, together with a water supply canal in the coastal area that would extend from the Sabine River to the Rio Grande to transfer surplus water supplies to other areas, such as the Lower Colorado River Basin, that would appear unable to meet all of their potential water requirements from locally available water resources. The investigation and report on the Texas basins project will include full consideration of the possibility of meeting future increases in municipal and industrial water requirements in and adjacent to the Lower Colorado River Basin from such an interbasin water supply canal, thereby permitting use of the Columbus Bend project water supply for irrigation of alluvial lands."

But why, might it be asked, would it even be necessary to develop the Columbus Bend water supply if a far more adequate supply can be developed by the interbasin canal project. As the "Plan for Development" points out: Water supply studies for the (interbasin canal) project indicate that the Trinity and Neches River Basins and the Texas portion of the Sabine River Basin are capable of providing dependable water supplies substantially greater than estimated long-term municipal, industrial, and irrigation water requirements of those basins and adjoining coastal drainage areas, if sufficient new reservoir capacity is developed.

If at some future time, the supply available through the proposed interbasin canal might become inadequate to cover all economic uses (a date not foreseeable by the Bureau of Reclamation as of March 1960), then the Columbus Bend project could be reconsidered on its merits.

A technical note should be added at this point pertaining to the proper evaluation of the water supply of the Columbus Bend project, assuming both it and the proposed interbasin canal project should be developed. The note is this: If the combined supply of water for all uses of the two projects should exceed any economic demand, the value of the last 190,000 acre-feet (the value of the supply from the proposed Columbus Bend project) in excess of economic demand would be zero. If any effective economic demand (at some price above zero) could be generated for the combined water supply of the two proposed projects, the value of 190,000 acre-feet of water in its lowest (marginal) economic use would determine the value of the water supply of the Columbus Bend project rather than the value of that supply in the use to which it was originally put or might be arbitrarily assigned in an economic feasibility study.

The fact is abundantly clear that the interbasin canal project will provide a far more adequate supply of water for municipal, industrial, and irrigation purposes than the Columbus Bend project. Comparative cost data on interbasin canal water were not available at the time of publication of the "Plan for Development-Columbus Bend Project." To quote the plan:

"Texas basins project studies have not progressed to the point where the cost of providing the replacement supply from the coastal water supply can be determined on a firm basis."