Development of surface water resources (often to provide irrigation, flood control, navigation, hydropower, or drainage for agriculture) has been another major factor in wetland decline. Federal funds spent on developing and managing water resources often lead directly to the loss of wetlands. Typically, rivers are blocked to create reservoirs and in the process inundate wetlands; streams are dredged and channelized for flood control or shipping or for draining croplands; spoil material is used to build levees and dikes in the floodplains along the waterways; water is diverted for small scale hydroelectric or irrigation projects or conserved to aid crop production. Also important are the induced effects as development in surrounding areas becomes technically feasible or the cost of such development is lowered, e.g., by providing irrigation water at less than actual cost.

In the process of developing and managing waterways, historic flooding patterns, downstream flows, the indigenous vegetation, and the aquatic communities are altered or eliminated, and valuable wetland functions are diminished. A number of Federal agencies have water resources development and management responsibilities including: the Army Corps of Engineers, the Bureau of Reclamation, the International Boundary and Water Commission, the Soil Conservation Service and the Agricultural Stabilization and Conservation Service.

Policies governing cost sharing -- the amount that the Federal Government pays toward developing water resources and the amount that is paid by local beneficiaries -- vary widely and inconsistently among purposes, projects, and agencies. Cost sharing differs, for example, for purposes such as flood control (which has been financed largely by the Federal Government) and for hydropower (which is financed by local beneficiaries). Cost sharing also differs according to project. One reason for this is that Congress has included different cost-sharing provisions in the authorizations for different projects. For example, half the initial costs of the Ports of Houston and Portland were shared by local beneficiaries. When it came to deepening the channel in the Delaware River above Philadelphia, however, Congress rejected 50/50 cost sharing in favor of more liberal financing. In some cases, water-using entities have convinced Congress to reduce their share of the cost of a project or to extend the repayment schedule. In other cases, such as with the Central Valley Project in California, the Bureau of Reclamation proposed extending the repayment periods on projects whenever additional project units were added. These measures (whether initiated, accepted, or authorized by Congress) have led to increases in the interest subsidy for some water resource projects. The absence of a consistent fiscal design makes it difficult to provide a concise summary of the subsidies involved in Federal construction and maintenance of water projects. What follows is a very general description of the policies employed by the relevant agencies.

Army Corps of Engineers  

The Corps was initially established over 200 years ago as an Army Engineer organization. It was later assigned responsibility for undertaking internal improvements, such as building canals and improving navigable waterways. Late in the 1800s, the Corps' mission was enlarged to include flood control, and over the next 50 years a series of disastrous floods in the Mississippi Valley resulted in the Corps being given comprehensive Federal flood control responsibilities. During this same period (corresponding to the rise of the Bureau of Reclamation), Corps projects began to include irrigation and electric power benefits.

The Corps' role has expanded even more in the last 50 years as the Corps has been authorized, in conjunction with its basic navigation and flood control projects, to provide for protecting fish and wildlife, recreation facilities, water supply and quality, hydropower and shore protection. Today the Corps maintains and operates hundreds of flood control dams, over 200 major lock and dam facilities for navigation, 25,000 miles of waterways, over 100 commercial ports, and over 416 small boat harbors. These projects account for an enormous amount of infrastructure. However, they occur in or next to inland rivers, lakes, and coastal waters of the United States and their wetlands, and as a result, they have had sizable environmental effects.

The widespread impact of Corps activities is attributed, in part, to the large share of the construction and maintenance costs which was the Federal Government's responsibility under the Flood Control Act of 1936. Between 1936 and the passage of the Water Resources Development Act of 1986 (WRDA-86), cost sharing by local beneficiaries was almost exclusively in the form of contributions of lands, easements, and rights-of-way.1 WRDA-86 dramatically altered the way in which local areas share in the costs of Federal water projects. Water Resource Development Acts were passed in 1988 and 1990, but they did not weaken the landmark cost-sharing and mitigation reforms of WRDA-86.

Water Resources Development Act of 1986 and 1990  

WRDA-86 established new cost-sharing requirements for the planning, construction, and operation and maintenance of projects for navigation, flood control, and other purposes, and also established national and local users fees, guaranteeing that non-Federal interests play an important role in planning, financing, and maintaining water projects.

The non-Federal share of navigation project costs increased dramatically with WRDA-86. During construction of navigation channels, local interests must pay at least 10 percent for projects with depths of less than 20 feet (often projects on the Nation's inland waterways), 25 percent for projects between 20 and 45 feet deep, and 50 percent for projects over 45 feet deep. These percentages are payable in cash, not in kind. In each case, non-Federal sponsors must pay an additional 10 percent cash over a 30 year period with interest. In addition, non-Federal sponsors are required to provide any necessary lands, easements, rights-of-way, relocations, and dredged material disposal areas required for the project. Credit is allowed for the value of these contributions against the additional 10 percent cash requirement. The Federal Government remains responsible for all costs of operation and maintenance of navigation projects maintained to a depth of 45 feet or less. Non-Federal interests are responsible for one-half of the incremental cost required to maintain depths over 45 feet. WRDA-86 also authorized funding of specific modifications to the inland waterway system with one-half of the costs from the Inland Waterways Trust Fund. WRDA-86, as modified by WRDA-90, now provides for the recovery of 100 percent of the eligible operations and maintenance costs assigned to commercial navigation of all harbors and inland harbors within the United States.

For all flood control projects -- reservoirs, levees, floodwalls, and channels -- local interests must contribute at least 25 percent of the project's construction costs and 100 percent of the maintenance costs. The Federal Government will no longer pay all land, construction, and maintenance costs for major reservoirs or all construction costs for local protection projects such as levees, floodwalls, and channel improvements. In-kind contributions by non-Federal sponsors, such as lands, easements, rights-of-way, and relocation costs, count as credit against the 25 percent cost share, but 5 percent of the total project cost must be paid in cash during construction.2 While the legislation did provide for reduction in the otherwise standard cost-sharing requirements for situations where a non-Federal sponsor lacked the ability to pay, there have been few instances where the non-Federal share was reduced. Projects lacking a positive benefit-cost ratio may still proceed, but non-Federal sponsors must pay all costs in excess of benefits. For shoreline protection, the Act requires 35 percent local cost sharing as opposed to the 30-50 percent local cost sharing required prior to passage of the Act.

The cost-sharing provisions of the Act apply to all projects or separable elements of projects whose construction starts after April 30, 1986, except for harbor projects where the applicability date is November 17, 1986. Local interests must also pay a portion of the design studies on the same basis as construction. Moreover, the Act limited the Corps' annual obligation for civil works projects to $1.4 billion in 1987 and $1.8 billion in 1991, and placed controls on cost-overruns.

WRDA-86 also continued the deemphasis on construction of Federal water projects. Although work had continued on previously authorized projects, Congress had not authorized any new starts for Corps water resource projects in the 10 year period 1976-1986.3 With the WRDA-86, Congress went further than this and deauthorized $11.3 billion worth of Corps projects. Although the Act called for the study or construction of 270 new projects, it subjects them to the new cost-sharing rules and to more rigorous mitigation requirements.

New project authorizations and modifications in WRDA-88 and WRDA-90 did not alter the general mitigation and cost-sharing reforms of WRDA-86. However, WRDA-90 contains new provisions that should have an overall positive effect on protection and restoration of wetlands.

WRDA-90 establishes environmental protection as a primary mission of the Corps in planning, constructing, operating and maintaining water resources projects. Further, the Act establishes an interim goal of "no overall net loss of the Nation's remaining wetlands base, as defined by acreage and function, and a long-term goal to increase the quality and quantity of the Nation's wetlands, as defined by acreage and function." In order to implement the no-net-loss goal, the Corps is directed to use all appropriate authorities to restore and create wetlands, and is directed to develop a wetlands action plan, in consultation with the Environmental Protection Agency, the Fish and Wildlife Service, and other appropriate Federal agencies. In addition, WRDA-90 authorizes a wetlands restoration demonstration program to determine the feasibility of wetlands restoration, enhancement, and creation as a means of contributing to the goal of no net loss of wetlands.

The changes mandated and authorities provided for by WRDA-86 and WRDA-90 concerning cost sharing, mitigation and the environmental mission of the Corps should help to protect and restore wetlands and constrain the demand for new projects. It should be noted, however, that the new provisions apply only to projects constructed by the Corps of Engineers, not to those built by other Federal agencies. The principles behind the changes make for good public policy. They should be adopted government-wide.

The Central Valley Improvement Act of 1992 

The Central Valley of California encompasses 21,000 square miles, and is traversed by two great rivers, the Sacramento in the north and San Joaquin in the south. Prior to development, both rivers, inundated with the runoff from the surrounding mountains, overflowed their banks annually, sustaining 4 to 5 million acres of wetlands. To develop the Valley, a massive complex of flood control, drainage, and irrigation facilities was built (Federal, State, and private). The Federal portion, the Central Valley Project (CVP), is the Bureau of Reclamation's largest undertaking and the largest water management system in California. Its facilities include 20 dams and reservoirs, 1437 miles of canals, 51 miles of pipelines, tunnels, conduits, and aqueducts, 192 miles of drains, and 1800 megawatts of electrical generating capacity. The CVP and the ensuing development had devastating consequences for the Valley's wetlands, fisheries, wildlife habitat, and water quality. The Central Valley Project Improvement Act (CVPIA) is a belated attempt to restore the environment in the Valley and effect a more efficient use of project water.

The CVPIA establishes the "protection, restoration, and enhancement of fish, wildlife and associated habitat" as a project purpose, and specifies a list of activities to be undertaken by the Secretary of the Interior within designated time periods to accomplish this objective. The Act dedicates 800,000 acre-feet of water annually for fish and wildlife and habitat restoration (largely fisheries4) and initially, 426,000 acre-feet for refuges and wildlife habitat areas (largely wetlands), the latter growing to 592,000 acre-feet over a decade. These water quantities represent a sizable proportion of project water. Although water allocations to current users will be curtailed, the severity of these reductions can be limited through more efficient management of the system, treatment and reuse of supplies, and identification of additional sources. Under conditions of water scarcity, the Act allows allocations for environmental restoration to be reduced up to 25 percent, but the percentage reduction may not exceed that for agricultural contractors.

The cost of the restoration projects and activities are to be shared by the Federal Government, the State, and the project beneficiaries (water and power users). Water and power users are assessed a series of fees, surcharges, penalties, and increased water rates, the monies to be deposited in the Restoration Fund.5 The Act authorizes $50 million to be appropriated annually from the Restoration Fund,6 $30 million of this to be financed by the mitigation and restoration fees.7

The CVPIA requires reforms in water pricing and marketing. Long-term contracts will only be renewable for up to 25 years, as opposed to the previous 40 years. Renewed contracts will use an increasing block rate structure, with the minimum price for the first block being the cost of service and the price for the last block being at least full cost.8 The CVPIA encourages early renewal of contracts by penalizing users who wait until the date of expiration to renew. Finally, in keeping with the CVPIA's purpose of promoting more efficient use of water, the Act allows water users to sell their water at market value.

The CVPIA will not solve all the wetland problems in the Central Valley. The Act primarily addresses the water needs of publicly owned wetlands. These account for less than one-fourth of the wetlands in the Central Valley. The Act does direct the Secretary to investigate and report to Congress on alternative means of improving the reliability and quality of water supplies for privately owned wetlands.

Wetlands Mitigation  

Mitigation lessens the adverse environmental impacts of development projects. As defined by the Council on Environmental Quality in NEPA regulations (40 CFR 1508.20), mitigation means:

  • avoiding the impact altogether by not taking a certain action or parts of an action;
  • minimizing impacts by limiting the degree or magnitude of the action and its implication;
  • rectifying the impact by repairing, rehabilitating, or restoring the affected environment;
  • reducing or eliminating the impact over time by preservation and maintenance operations during the life of the action; and
  • compensating for the impact by replacing or providing substitute resources or environments.
Mitigation for wetland impacts from Federal water resource projects is addressed by several Federal statutes including the Fish and Wildlife Coordination Act (FWCA) and by the Water Resources Development Acts. The FWCA requires that Federal agencies consult with the U.S. Fish and Wildlife Service and State fish and wildlife agencies concerning the effects on fish and wildlife resources of a Federal water resource development project or non-Federal water development project requiring a permit or license. The FWCA specifies that fish and wildlife conservation shall receive equal consideration with other project purposes. However, action agencies may make determinations that do not result in adoption of the resource agency recommendations. Under the FWCA, the reports and recommendations of the Secretary of the Interior and the head of the State fish and wildlife agency are made a part of any report to Congress on a water resources project.

The WRDA-86 contains a number of provisions that specifically address wetland protection. Most significant are its mitigation requirements. Prior to passage of the WRDA-86, mitigation policy for wetlands losses resulting specifically from water projects had not been well articulated by Congress, and mitigation occurred irregularly. Now, when proposing a project to Congress, the Corps must develop mitigation plans for every new project or explain why the project will have negligible effects on fish and wildlife. Mitigation costs for new projects are among those to be shared by non-Federal sponsors, and mitigation will have to proceed prior to or concurrently with construction, not afterward. This should slow the loss of wetlands resulting from new Corps projects, especially losses of bottomland hardwoods which are to be mitigated in-kind to the extent possible. To repair past damages to wetlands, the Act establishes a new continuing authority funded at $30 million annually for mitigation. The amount on a single project may not exceed $7.5 million or 10 percent of the project cost. Despite proposals from the State of Florida, no budget request has yet been made to draw on the $30 million authority and no funds have been appropriated by Congress.

Although the WRDA-86 established the importance of mitigation as a concept, it applies only to Corps projects. Further, it lacks specificity regarding what types of mitigation are acceptable and preferable. This lack of specificity is important, because there has been a long-standing disagreement between development-oriented and resource-oriented agencies regarding the Council on Environmental Quality's definition of mitigation.9 The disagreement centers on whether the mitigation actions listed by the CEQ are listed in order of preference. Some agencies (primarily resource agencies) have favored considering the mitigation options sequentially, while others have argued for the greatest flexibility in setting mitigation requirements.

The issue of sequencing was partially resolved in February, 1990, when the Corps of Engineers and the EPA signed a Memorandum of Agreement on mitigation. The MOA establishes policies and procedures to be used by the two agencies in implementing mitigation sequencing under section 404. The issue remains controversial, however, and has attracted congressional attention.

Despite the statutory commitment to mitigation in WRDA-86 and the 1990 MOA between the Corps and EPA, many questions remain regarding mitigation. Should the unit of mitigative compensation be defined in terms of area (i.e., acre for acre) or in terms of environmental functions? If the latter, which functional losses should be mitigated? If mitigation is conducted off-site, how far away is allowable? Should the Federal Government encourage "mitigation banking," a form of off-site mitigation where credits offsetting damage that would result from a project are accrued by restoring or protecting other areas? Who will monitor and assume responsibility for the success of mitigation efforts? How should the Government respond to failed mitigation efforts? Should project sponsors have a continuing obligation to maintain a successful mitigation site, or should their obligation cease once they have complied with the required mitigation conditions? The list is long and challenging.

EPA and the National Academy of Science have reviewed the success of wetland restoration and creation efforts (USEPA 1989 and NAS 1992), and the Corps and EPA are currently conducting a study of the feasibility of developing a mitigation banking system.10 Hopefully, these reports will help to resolve some of the troubling mitigation issues.

Bureau of Reclamation 

The Bureau of Reclamation (Bureau) was created in 1902 to assist in settling the arid west by providing water storage and delivery facilities to irrigate family farms.11 Federal contributions to the development of irrigation systems in the west came largely through interest-free Federal financing of project costs, originally over 10 years, and later extended to longer repayment periods. Additional goals were added to the Bureau's mission over the years, such as providing municipal water supplies, hydroelectric power, flood control, salinity control, recreation, and maintenance of fish and wildlife habitat.

Today, the Bureau supplies about 25 million acre-feet of water for irrigation annually, about three million acre-feet for municipal and industrial uses, and about one million acre-feet for other uses. The construction of 330 dams, reservoirs, and dikes has led to the irrigation of about 4.0 million acres of "full service" lands in the 17 Western States.12 The Bureau also provides supplemental or temporary water supplies to an additional 5.4 million acres. All of this development occurred under specific Congressional authorizations and appropriations, reflecting the desires of the Congress and society at the time.

In 1987, the Bureau of Reclamation reassessed its mission in light of current economic conditions, environmental circumstances, and changing social trends and values. The Bureau's Assessment '87 report concluded that the Bureau had largely fulfilled its original objectives, and announced that the Bureau would shift its focus to more efficient management of the water resources facilities already in place (Bureau of Reclamation 1987).

The largest Federal subsidies associated with Bureau projects pertain to irrigation water. Initially, public land sales were to create a revolving fund for a self-sustaining reclamation program. Irrigation project beneficiaries were to repay project construction costs within 10 years without interest; the funds would then be used again for the next round of projects. Beginning in 1914, Congress began a series of actions extending repayment periods, granting moratoria on repayments, and forgiving payment altogether on lands classified as unproductive.

The financial assistance to irrigation was authorized by Congress and comes largely from two sources: 1) the interest-free repayment of capital costs (a subsidy from taxpayers) and 2) the use of revenues from the sale of hydropower to repay irrigation capital costs in excess of the Bureau's estimate of the irrigators' "ability-to-pay." The level of the interest subsidy has grown over the years, primarily due to Congressional extensions of the repayment period and increases in the cost of borrowing by the Federal government.13 Construction costs are now amortized without interest over repayment periods of 50 years. Estimates of the magnitude of the subsidy differ, but all agree that it is substantial. The interest subsidy is borne by taxpayers in general.

The second important component of federally authorized financial assistance to irrigation ("ability-to-pay" or "payment capacity") is the use of hydropower revenues for repayment of irrigation capital costs over and above irrigators' estimated ability-to-pay. This cross-subsidy from power users has resulted in a greater degree of irrigation development than would otherwise have taken place, and hence, greater associated impacts on wetlands, as well. The mechanics of this arrangement are as follows: The Bureau estimates the irrigators' ability-to-pay by developing a typical farm budget for the project. The income of a typical farm is estimated by taking the expected crop revenues less expenses for seed, equipment, land (exclusive of water costs), hired labor, and an imputed cost for family farm labor. Ability-to-pay is calculated as a percentage of this net income, and the calculated amount is used to establish the water rate. Past practice was to charge 75 percent of payment capacity, but current Bureau policy is to charge 100 percent of the estimated ability-to-pay. Much of the capital cost assignable to irrigators but not collected from them is then charged to users of hydroelectric power.14 On average, the combination of these two components of financial assistance results in irrigators paying 15 percent of capital costs associated with irrigation.

Some modifications to the repayment provisions in Reclamation law were made in the Reclamation Reform Act of 1982. This act provides that "full cost" charges be paid for water delivered to that portion of landholding in excess of 960 acres.15 This measure was designed primarily to reduce the interest and ability-to-pay subsidies to large farming operations as an alternative to making them strictly ineligible to receive project water.

Subsidies have been provided for other project uses, as well, leading to more reservoir construction and regional development than would have occurred in the absence of such subsidies. Subsidies to other project uses include: (1) utilization of interest rates for repayment of hydropower and municipal and industrial water costs that are fixed by statute and are sometimes below the government long-term borrowing rates in existence at the time project facilities are constructed; (2) recreational uses provided with no local cost sharing or cost sharing only up to 50 percent of the separable costs of recreational facilities; and (3) water flows provided for fish and wildlife with no non-Federal cost sharing.

Other Federal water programs providing subsidies to irrigation may have had some effect on wetlands, as well. One example is the Federal program to pay from $1.5 billion to $4.0 billion to control salinity in the Lower Colorado River Basin. Project beneficiaries will cover less than 6 percent of this expense. Irrigators contribute about 37 percent of the salinity. In the absence of the program, it might have been necessary for the Federal Government to retire certain irrigation lands in the Colorado River Basin. (Alternatively, since next to households irrigation is the principal beneficiary of the salinity control program, lack of the Federal subsidies might have led farm operators to reduce the level of irrigation.) However, the extent to which a reduced level of irrigation would have reduced wetland losses is unknown.

A second example unfolding in the arid west is the issue of contaminated irrigation return flows. Depending upon Congressional action, there could be a large amount of public funds required to clean up drain water contaminated with selenium, other heavy metals, and concentrated elements leached from the soil by irrigation water.

An example of a Bureau project particularly relevant to wetlands is the Central Valley Project in California. In the CVP a number of practices evolved that extended repayment periods beyond that of other projects and increased the interest subsidy from the 58-66 percent embodied in law to over 94 percent (Wahl 1989). See the section entitled "Federal Programs and Projects" in Chapter 11 for details.

Subsidized water has allowed irrigated lands to compete with other land uses. Many projects have been located where costs were greater than benefits. Dams have been placed where rivers would otherwise have remained in their natural state, significantly modifying the landscape of the west. The loss from inundation, though substantial, is far less significant than the myriad downstream effects on wetlands, floodplains, water quality and species diversity. Now additional costs arise in efforts to deal with some of the previously ignored impacts of projects such as seismic vulnerability, salinity, facility aging, and water contamination.

Besides these environmental consequences, low-cost water has provided little incentive for careful use. In a 1988 study, USDA found that 38 percent of the land receiving federally subsidized irrigation water is devoted to crops that are in oversupply (Moore and McGuckin 1988). California, with the greatest number of acres under Federal irrigation, had the largest proportion of irrigated land (43 percent) planted in surplus crops. In 1986, $379 million in crop support payments were paid to federally irrigated farms, and $127 million in 1987. By statute and against the wishes of the Administration, crop subsidy payments continue to be included among the economic benefits of proposed water projects, seriously distorting the decision process.16 

International Boundary and Water Commission  

The International Boundary Commission, operating within the Department of State, was created by treaty between the United States and Mexico in 1889. It was renamed the International Boundary and Water Commission (IBWC) in 1944, and charged with regulating boundary waters and planning projects cooperatively with Mexico. The IBWC manages the Rio Grande River from El Paso, Texas to the mouth of the River. It carries out projects for irrigation, salinity control, sewage disposal, and flood control. To enter into an agreement with the Mexican Commissioner, the U.S. Commissioner must have specific authorization in an existing treaty or an act of Congress. Costs are shared by the two countries.

IBWC projects can have significant effects on riparian wetlands. For example, the Rio Grande Channelization Project, completed by the IBWC in 1943, destroyed riparian wetlands along the 100 mile reach of the Rio Grande from Caballo Dam to the Texas State line. Maintenance now includes mowing of the river bank, levee slopes, and floodplain. Built mainly for flood control, the project destroyed between 12,000 and 20,000 acres of riparian wetlands while allowing urban development in the floodplain, development that must now be protected at Federal expense. Subsidies arise because the local beneficiaries pay nothing towards flood control and maintenance costs. The principles in the Water Resources Development Act have not yet been applied to IBWC projects.

Soil Conservation Service Small Watershed Projects (PL-566)  

The PL-566 watershed program was authorized in 1953, and is administered by the Soil Conservation Service (SCS). The program provides technical and financial assistance (cost sharing) to local sponsors to develop and implement watershed plans for watershed protection, flood prevention, both agricultural and nonagricultural water management, and groundwater recharge. SCS projects are heavily subsidized, being developed largely with Federal funds and limited local financial contributions.17

Included in agricultural water management are irrigation, rural water supplies, agricultural drainage, and measures for water conservation and water quality. Included in nonagricultural water management are activities for fish and wildlife and public, water-based recreation. Practices normally included in project plans are land treatment, nonstructural measures, and structural measures. Structural measures can include flood water retarding structures and channel work.

The program bridges the gap between the on-farm conservation practices installed by individual landowners and the large projects installed on the major rivers by the Corps of Engineers and the Bureau of Reclamation. The Corps is chiefly responsible for large scale projects, while SCS undertakes smaller-scale projects.18

In the early years of the program the major thrust was to assist in installing measures for watershed protection, flood damage reduction, and agricultural drainage. Improving agricultural productivity on existing lands and creating incentives for agricultural expansion have been among the principal goals of the program. Historically, this goal was accomplished mainly by building drainage channels. Projects for agricultural drainage are no longer a priority, and the program is currently being directed toward water quality improvement. Drainage is still a legitimate project purpose, and some drainage projects are still authorized, but in the last few years, over half of the channelization work planned for existing projects has been eliminated.

PL-566 has been changing in response to changing national priorities. By 1980, the statutory criteria governing SCS cost sharing for small watershed projects involved stringent environmental constraints. PL-566 was amended in the 1990 FACTA, providing the authority to assist local sponsors in acquiring perpetual conservation easements on wetlands and floodplains for the purposes of water quality improvement, reducing flood damages, and providing habitat for fish and wildlife. None of the $1.3 billion in currently authorized projects have wetlands components, however. In part, this is because SCS has sought 50 percent cost sharing for the purchase of wetland easements, while providing full Federal funding for other kinds of flood prevention measures (e.g., dams, levees). The Administration supports a more flexible cost-sharing procedure for structural measures, allowing less than 100 percent Federal funding, so as to make nonstructural measures financially more competitive.

Due to Administration concerns about the oversupply of many agricultural commodities, the SCS issued a Watershed Planning Guidance Circular in June, 1987 to accompany the existing National Watershed Manual (NWM). The Guidance Circular halted new planning starts for PL-566 projects that would increase crop production. This Guidance Circular was to remain in effect until the NWM was amended to reflect the new policy. The NWM was revised and reissued in March, 1993, and all existing circulars were canceled. The revised NWM does not include the policy embodied in the June, 1987 circular. SCS maintains that current program priorities together with the economic analysis to which PL-566 projects are subject are sufficient to effect the intent of the 1987 Guidance Circular. Without a change in departmental regulations, however, a new SCS Director could quickly reverse policy.

Since 1977, when President Carter issued the Executive Order on Wetland Protection, direct Federal action to drain wetlands has been limited, but "incidental" drainage of wetlands has remained a problem. A channel through a wetland to drain wet cropland, for example, could go forward, and in the process alter the hydrological regime in the wetland, while providing an outlet channel for growers to drain the surrounding wetlands. SCS provides technical assistance only if the loss of wetlands incidental to project purposes is mitigated.

Criticisms about inadequate consultation and review of proposed projects, methods used to justify economic benefits, and mitigation policy have also surfaced in the past in relation to PL-566 projects. One post-construction review found that 2.5 times more acres of wetlands were lost than estimated (Tiner and Finn 1986; Zinni 1986). Opportunities to avoid impacts have often been missed, because the USDA Solicitor has ruled that PL-566 projects are not subject to the early review called for by the Fish and Wildlife Coordination Act, and review under NEPA occurs much later in the process.19 This ruling notwithstanding, the 1993 National Watershed Manual provides that the Fish and Wildlife Service and State game and fish agency will be invited to participate with SCS in making inventories of fish and wildlife resources, formulating alternative plans, and identifying probable impacts of projects on fish and wildlife.

With respect to mitigation, only those recommendations acceptable to local sponsoring agencies and the Secretary of Agriculture are included in projects. Where the Federal share of projects approved by the SCS Administrator is under $5 million and the total capacity of any single structure is less than 2500 acre-feet, congressional review is not required. The SCS wetlands policy (issued in 1982 to implement the Wetlands Executive Order) utilizes an outdated system of wetland classification, and allows wetland alteration without mitigation in certain circumstances for seasonal and semi-permanent wetlands (types 1 and 2).

There is evidence that project benefits have been overestimated in the past. One post-project study by USDA/SCS found that of those projects examined, benefits ranged from 40 to 70 percent of those expected (EcolSciences 1976). The classification of project benefits carries major financial implications for project sponsors. As discussed above, the Federal cost-sharing rate for SCS flood control projects has been 100 percent, while single-purpose projects without flood control benefits, e.g., those involving only agricultural benefits, receive only 50 percent Federal support. SCS regulations allow most of the identifiable benefits of a project to be classified as joint benefits, and the cost-sharing ratio for joint benefits is the arithmetic average of the ratios for individual project purposes. Thus, a project which involved both flood control and agricultural benefits could receive 75 percent Federal financing of the total project costs even though agricultural drainage was the primary purpose.20

Water Conservation Through Vegetation Management  

Phreatophyte control or "vegetation management" in the Southwest refers to the removal of vegetation along waterways to increase water yields for irrigation or municipal use, to reduce the effects of invasive saltcedar (an exotic shrub) on water resources, or in conjunction with the construction and management of flood control projects. Control of the vegetation is effected in several ways, including mowing, burning, bulldozing, cutting, spraying with herbicides, or applying chemicals designed to reduce the amount of water lost through the leaves of riparian wetland plants. With the destruction of the riparian vegetation, however, the benefits of riparian areas are lost, e.g., assimilation of wastes, control of erosion, slowing floodwaters, moderating temperatures, and providing food and habitat for fish and wildlife.

There are conflicting opinions on the merits of vegetation management. Some studies suggest that the water conservation benefits have been overstated and may be nonexistent (Welder 1988).21 Critics of these studies have suggested that ground water pumping in the area may have confounded the results and made it impossible to determine whether water conservation occurs (Weeks 1987).

Western "riparian" wetlands are typically linear, ribbon-like strips of land along freshwater streams or lakes. They occur in the transition zone between arid uplands and rivers, lakes or streams and consist of a large variety of plant communities that support many fish and wildlife species. Although often referred to as bottomlands or floodplains in the East, in the arid West they are adjacent to much drier upland.

Because of the arid climate, western wetlands are usually restricted and small compared to wetlands in less arid climates. But because of their location in an arid environment, acre for acre they are more important than wetlands in regions with greater precipitation.

The Bureau of Reclamation, the Corps, and the International Boundary and Water Commission (IBWC) have all engaged in vegetation management as part of their statutory responsibilities or as operational and maintenance activities for water programs. Removal of plants accompanied most major multipurpose water and flood control projects built and/or operated by these agencies.

For a number of reasons the agencies have reduced their vegetation management activities: the extent of the environmental damage, questionable water conservation benefits, little new construction and what construction there is entails mitigation. Indeed, in recent years, the Bureau's vegetation management projects have focussed on removing saltcedar in an attempt to reestablish native riparian vegetation of higher value to wildlife. The Bureau does not currently manage vegetation for water salvage, but is considering its use in the lower Colorado River region, and is planning on doing more research before deciding on a management strategy. Both the Bureau and the Corps engage in vegetation removal as a standard operating procedure in maintaining the water-transport capacity of floodways. The IBWC continues vegetation removal on a large scale to maintain the border between Mexico and the United States.

On floodways, the Federal Government covers the entire cost of vegetation removal. Cost sharing may be available for vegetation removal projects on private lands through the Agricultural Stabilization and Conservation Service. ASCS has not authorized vegetation removal as a soil and water conservation practice in all States and counties. In States and counties where vegetation removal is authorized, cost sharing varies, but approved projects receive approximately 50 percent funding.

Small-Scale Water Diversions  

Small diversion structures capture and divert stream water for crop or pasture irrigation. Built mostly in the west to conserve limited water supplies, they consist of a small dam or dike constructed perpendicular to the stream, and divert water into a series of canals in the adjacent land. Small diversions lower instream water levels and reduce the flow to riparian vegetation. In Nevada, small diversions are thought to cause as much riparian wetland loss as large multipurpose projects. But because many were built over 20 years ago when no records were kept, any precise assessment of their impact is impossible. The Bureau of Land Management and the Forest Service provide easements or special use permits for small diversion projects that cross their lands. The ASCS may contribute funds on a cost-sharing basis. Building a small diversion structure for crop irrigation costs at least $1500 and often more. The percentage paid by the Federal Government varies by county and by the amount of water a project is expected to "conserve." The Federal share can reach 70 percent in some areas. In Nevada, the Federal contribution averages about 50 percent per project, up to a maximum of $3500 annually for a landowner. It is widely believed that the Federal financial incentive has significantly increased the number of small diversions constructed.

USDA Water Conservation Programs  

The Department of Agriculture oversees Federal soil and water conservation policy. The Soil Conservation Service (SCS) generally offers technical assistance and conservation planning to individual growers in the 3000 local SCS conservation districts, although cost sharing is available under some programs. The ASCS offers cost-sharing assistance to growers to implement structural soil and water conservation measures. Conserving water for agriculture, however, can sometimes conflict with wetlands protection. The Conservation Technical Assistance Program, the Resource Conservation and Development Program, the Agricultural Conservation Program, the Great Plains Program, and the Soil and Water Loan Program illustrate the kinds of conflicts that can arise.

Prior to 1980, the SCS Conservation Technical Assistance Program was a large-scale effort providing growers with advice on how to drain wetlands. ASCS funds were often used to implement the proposals. Regulations issued under the 1977 Executive Order on Wetland Protection limited the kinds of assistance that SCS and ASCS could offer to growers. Although the regulations have reduced the threat to wetlands, some drainage continues. For example, drainage of wetlands that occurs as a result of actions whose primary purpose is to provide adequate drainage to existing cropland is allowed, but damages must be mitigated for most wetland types. Additionally, SCS may offer assistance for projects that do not affect wetlands at the time they are constructed but may provide outlets that greatly facilitate wetland drainage in the future. This program was cited as a factor in wetland losses on the Delmarva Peninsula (chapter 15).

The SCS also administers the Resource Conservation and Development Program which offers technical assistance and funds to States, local governments, and nongovernmental bodies for the planning and installation of approved measures for flood prevention and water management, among other things. The program cost $26.3 million in 1985, and was estimated to cost $25 million in 1986. It is not known what proportion of the funds went to water conservation practices or what the specific wetland impacts were.

The Agricultural Conservation Program administered by ASCS shares between 60 and 75 percent of the costs (up to a maximum of $3500) of a variety of conservation practices recommended through the SCS technical assistance program. These include measures such as land leveling, irrigation water recovery systems, and sediment recovery ponds. The bulk of the cost-sharing assistance, however, has gone for terracing systems, waterways, ponds, permanent cover crops, and conservation tillage practices. Annual appropriations have been about $190 million in recent years. The Great Plains Conservation Program administered by SCS similarly funds soil and water conservation activities in the 10 Great Plains States and has run about $21 million annually.

The Farmers Home Administration guarantees and makes loans to growers and local government entities (rural cities, small towns, and water districts) to drill wells, construct ponds, dig ditches, and acquire irrigation equipment. These loans are offered on a first come, first served basis. In 1986, this program involved $21 million in insured loans and $5.7 million in guaranteed loans.

In the past these programs have had very significant effects on the conversion of wetland to cropland. More recently the funds have been used to drain wet cropland or to conserve and manage water for irrigation and other purposes. Even these practices can significantly alter water regimes and affect wetlands, however. Historically, nine out of ten wetlands in the Nebraska Rainwater Basin were filled as a result of these conservation programs. Today in Nebraska, irrigation water recovery pits are still built in wetlands with Federal aid, and because of the lack of specificity in the governing statutes and regulations, a portion of some recovery pits can be expanded for drainage using Federal assistance and funds. In Delmarva, wetlands continue to be converted to sediment retention ponds and duck ponds with Federal assistance. 

Hydroelectric Projects  

Small hydroelectric projects22 threaten riparian wetlands in mountainous States with numerous streams, as well as in other areas. Such impacts have grown with the passage of the Public Utility Regulatory Policies Act (PURPA) of 1978. PURPA was designed to increase energy self-sufficiency. It requires utilities to purchase energy from small hydroelectric operators at the utilities' avoided cost (cost of energy production). By requiring large energy companies to purchase power generated by small hydroelectric projects, PURPA guarantees a market, and thereby reduces the uncertainty and risk associated with the small venture. The guaranteed market increases expected net returns beyond those anticipated in the absence of the program, thereby stimulating project construction. Although specific acreage of wetland habitat lost with small hydro development is unknown, by their very nature the projects require alteration of stream habitat and wetlands. PURPA also offered a 21 percent investment tax credit for Federal taxes, a 5 year depreciation schedule for the cost of capital investments, and loans of up to 90 percent for feasibility studies and up to 75 percent for project costs. With the exception of the buy-back requirement, these incentives have recently been eliminated, however. In addition, the Electric Consumers Protection Act of 1986 denies PURPA benefits unless certain environmental conditions are fulfilled. (See next section for discussion.)

The Federal Energy Regulatory Commission (FERC) regulates all non-Federal hydroelectric projects through a licensing program. FERC has been criticized for failing to develop adequate regulations and comprehensive plans to control the adverse environmental effects of hydroelectric power development and for ignoring the non-development values provided by waterways. Generally, the Commission has continued as a proponent of hydroelectric power despite recent court decisions requiring changes in licensing procedures that would protect other beneficial water uses. This narrow development focus is inconsistent with efforts by other Federal agencies such as the Corps, the Bureau of Reclamation, the Bonneville Power Administration, BLM, the National Marine Fisheries Service, and the Fish and Wildlife Service, which spend millions of dollars each year to ensure the survival of and restore stocks of anadromous and other fish and wetland resources. Despite the Federal priority of conserving fisheries, a priority sanctioned in the Pacific Northwest Electric Power Planning and Conservation Act of 1980 and other legislation, FERC continues to license harmful hydropower projects.

Comprehensive planning, consistent with the provisions of Section 10(a) of the Federal Power Act, could avert some of the resource conflicts and reconcile expensive and contradictory Federal programs, but such planning has not been fully undertaken. The comprehensive planning process would be improved by more active participation of State and Federal resource agencies. For example, the Fish and Wildlife Service submitted the North American Waterfowl Management Plan to FERC, which subsequently accepted it as a section 10(a)(2) comprehensive plan.

The Electric Consumers Protection Act  

The Electric Consumers Protection Act of 1986 (ECPA) alleviated some of the problems associated with inequitable consideration of fish and wildlife and non-power values.

  • First, it requires FERC not only to consider fish and wildlife values, recreation opportunities, and energy conservation equally with hydroelectric power development when new licenses are granted, but to incorporate resource agency recommendations received pursuant to the Fish and Wildlife Coordination Act into its licensing conditions. To reject the recommendations, FERC must publish findings that (1) the recommendations are inconsistent with the purposes of the Federal Power Act and other applicable law and (2) the conditions it sets do comply with the Act and serve to "equitably protect, mitigate damages to, and enhance fish and wildlife."
  • Second, the Act requires FERC to assess fees to cover the cost of fish and wildlife studies and reviews.23 ECPA disallows PURPA benefits at new dams and diversions, unless: the project complies with specific fish and wildlife recommendations; FERC finds that the project will not have substantial, adverse effects on the environment; and the project is not located on a State or national wild and scenic river system or a river designated by a State as having important attributes which may be affected. Few proposed projects meet these criteria.
  • Third, ECPA amendments specifically include fish and wildlife (including related spawning grounds and habitat) in the list of non-developmental values to which FERC must give equal consideration when deciding whether to issue any license.
  • Finally, it required FERC to conduct a study of whether PURPA benefits should be extended to new small hydroelectric projects. FERC completed the study and recommended that PURPA benefits not be denied, because it believed that the environmental safeguards already in the Act were sufficient. (See second bullet above.)
The impact which ECPA has on wetlands and fish and wildlife resources depends on the manner in which FERC implements conservation recommendations. Since the Federal Power Act was passed in 1920, statutory language has escalated, requiring that greater concern be given to wetlands and fish and wildlife protection. By requiring that FERC explain why it is rejecting recommendations to protect these resources, the ECPA puts a greater burden on FERC. This reduces FERC's discretion in overriding environmental and nondevelopment water values in order to produce hydroelectric power. The Fish and Wildlife Service has noted improvements in the responsiveness of FERC to fish and wildlife conservation recommendations since enactment of ECPA. Nonetheless, resource agency recommendations are still only advisory, and should FERC decide that specific measures to protect, mitigate, and enhance wetlands and fish and wildlife are inconsistent with the Federal Power Act, these resources are likely to suffer.

Federal Income Tax Code

The Tax Reform Act of 1986 repealed the investment tax credit that allowed agricultural investors to reduce their tax liabilities by 10 percent of the cost of sprinkler systems and other capital installations. The code now allows accelerated write-offs for certain "depreciable" property such as capital investments in irrigation. These investments are also subsidized by a special provision within Section 179 of the revenue code, which permits taxpayers to deduct as an ordinary business expense the first $10,000 of any investment. Irrigators commonly use accelerated depreciation and section 179 expensing for sizable investments such as sprinkler equipment, water well drilling, and ditch excavation, all of which can have negative effects on wetlands. In addition, certain irrigators may claim a special water depletion allowance. This deduction is available where an underground source is being pumped at an unsustainable rate. It enables an irrigator to compensate for a theoretical decline in property value that is presumed to go with the exhaustion of the water supply.

Collectively, these tax code provisions encourage groundwater overdraft. This is ironic, since one of the major reasons for dam construction in the arid West was to relieve pressure on the aquifers. Development of the surface water supplies was intended to alleviate groundwater depletion.24 Indeed, cheap surface water did replace groundwater in some service areas, but as the aquifers recovered, pumping for irrigation became technically and economically feasible elsewhere.25 Thus, in the absence of any regulation, groundwater depletion continues, although at a reduced rate.


References

Bertoldi, G.L., R.H. Johnston, and K.D. Evanson. 1991. Groundwater in the Central Valley, California -- A Summary Report, USGS professional paper 1401-A. U. S. Geological Survey, Washington, DC.

EcolSciences. 1976. An Assessment of Economic and Environmental Effects of Completed PL-566 Channel Modifications Projects in Worcester and Wicomico Counties, Maryland. USDA-SCS College Park, Maryland, 433 pp.

Moore, M. and C. McGuckin. 1988. Program Crop Production and Federal Irrigation Water in Agricultural Resources: Cropland, Water, and Conservation Situation and Outlook Report, publication no. AR-12. Economic Research Service, U.S. Department of Agriculture, Washington, DC, pp. 39-46.

National Academy of Science. 1992. Restoration of Aquatic Ecosystems. National Academy Press, Washington, DC.

Tiner, R.W., Jr. and J.T. Finn. 1986. Status and Recent Trends of Wetlands in Five Mid-Atlantic States: Delaware, Maryland, Pennsylvania, Virginia, West Virginia. U.S. Fish and Wildlife Service, Newton Corner, Massachusetts and U.S. Environmental Protection Agency, Philadelphia, Pennsylvania, 40 pp.

U.S. Bureau of Reclamation. 1981. Acreage Limitation: Draft Environmental Impact Statement, including the Westwide Report Appendix. Water and Power Resources Service. Denver, Colo.

U.S. Bureau of Reclamation. 1987. Assessment '87...A New Direction for the Bureau of Reclamation. Washington, DC.

U.S. Department of Agriculture. 1987. Farm Drainage in the United States: History, Status, and Prospects. Edited by George A. Pavelis. Economic Research Service. Miscellaneous publication no. 1455. Washington, DC, 170pp.

U.S. Environmental Protection Agency. 1989. Wetland Creation and Restoration: the Status of the Science. Edited by Jon A. Kusler and Mary E. Kentula. Environmental Research Laboratory, Corvalis, Oregon, 600pp.

U.S. General Accounting Office. 1981. Federal Charges for Irrigation Projects Reviewed Do Not Cover Costs, Report No. PAD-81-07. Washington, DC.

Wahl, R.W. 1989. Markets for Federal Water: Subsidies, Property Rights, and the Bureau of Reclamation. Resources for the Future, Washington, DC, 326pp.

Ward, J.R., A.E. Kinsinger, and M.E. DuPraw. 1987. Dollars and Sense in Irrigated Agriculture: The Need for a Consistent Tax Policy. Natural Resources Defense Council. New York and Washington, DC, 27pp.

Ward, J.R., F.K. Benfield, and A.E. Kinsinger. 1989. Reaping the Revenue Code: Why We Need Sensible Tax Reform for Sustainable Agriculture. Natural Resources Defense Council. New York, 142pp.

Welder, G.E. 1988. Hydrological Effects of Phreatophyte Control, Acme-Artesia Reach of the Pecos River, New Mexico, 1967-82. U.S. Geological Survey Water Resources Investigations Report 87-4148. Prepared in cooperation with the Pecos River Commission, Albuquerque, New Mexico, December.

Weeks, E.P., H.L. Weaver, G.S. Campbell, and D.D. Tanner. 1987. Water Use by Saltcedar and by Replacement Vegetation in the Pecos River Floodplain between Acme and Artesia, New Mexico. U.S. Geological Survey Professional Paper 491G, 33 pp.

Zinni, W. 1986. Unpublished staff analysis. U.S. Fish and Wildlife Service, Newton Corner, Massachusetts.


Footnotes

1 Exceptions were the reimbursable purposes of recreation (50 percent), hydropower (100 percent) and water supply (100 percent).

2 If the value of in-kind contributions should exceed 25 percent, non-Federal sponsors still owe 5 percent of project costs in cash during construction. If the total exceeds 30 percent, they owe the sum over 30 percent in cash but may pay it over a 15 year period with interest. If the value of in-kind contributions reaches 45 percent of project costs, the non-Federal contribution is capped, but at least 5 percent must be contributed in cash during construction.

3 In real terms, the Corps' budget has declined since 1977, and now more than half goes for operation and maintenance of existing projects rather than new construction.

4 The general goal for fisheries in the CVPIA is a doubling of recent naturally produced populations of anadromous fish in CVP-affected streams and rivers.

5 All water and power users are assessed restoration and mitigation fees: $6 per acre-foot for agriculture; $12 for municipal and industrial users; $25 for water sold for municipal and industrial purposes to a party not currently a CVP customer. Those served by the Friant Division are assessed surcharges over and above the restoration and mitigation fees: $4/acre-foot until Oct. 1, 1997; $5 from Oct. 1, 1997 to Oct. 1, 1999; and $7 thereafter. Water rates are increased when contracts are renewed, and penalties (equal to 50 percent of the mitigation fees) are assessed for not renewing within the next 3-5 years.

6 Annual average, in real terms, at October, 1992 prices.

7 The Act contains a clause encouraging Congress to appropriate the full $50 million (annual average for 1993-1997). If Congress does not appropriate $50 million annually, the Secretary must increase the mitigation fees sufficiently to collect $50 million annually (an increase of $20 million).

8 Cost of service and full cost are terms of art in water law. When CVP contracts first came up for renewal in the mid-1980s, the Bureau of Reclamation substituted cost of service for the historical contract rate. Cost of service rates are an attempt to confront water and power users with the capital costs (exclusive of financing costs) and O&M costs associated with delivering water to them. Full cost includes financing costs, and is an attempt to confront users with the opportunity cost of serving them. Full cost is defined in the Reclamation Reform Act of 1982, §202(3).

9 Briefly, the CEQ's mitigation guidelines call for avoiding the wetland if the proposed project is not water dependent or if alternatives exist. If the project is water dependent and no alternatives exist, minimize the impact by modifying the project. If modification is not possible, rectify the impact by restoring the environment (40 CFR, pt. 1508.20).

10 Interim reports are available from USACE, Water Resources Support Center, Ft. Belvoir, VA. Final report to Congress is anticipated in June, 1994.

11 More accurately, the 1902 Act created the Reclamation Service. The name was changed to the Bureau of Reclamation in 1923.

12 Full service lands are those whose only source of water is Bureau of Reclamation project water.

13 To a lesser degree, subsidies have occurred due to legislative changes granting moratoria on repayment and forgiving some charges.

14 The financial aid from power users covers only a portion of the uncollected capital cost, some capital costs having been forgiven altogether and some being borne by M&I users.

15 The "full cost" formula in the Act is not actual economic cost, but a lesser amount.

16 The Reagan Administration called for greater financial participation on the part of local beneficiaries. The WRDA established upfront financing requirements for non-Federal sponsors of Corps projects. Neither the Bureau nor the SCS were included under WRDA, but the Bureau has been negotiating upfront financing on a project-by-project basis, and the SCS has proposed legislation with financing requirements for its projects identical with the requirements in the WRDA.

17 The Farmers Home Administration through its Watershed and Flood Prevention Loan Program has in the past helped local sponsors provide the local share of costs (not to exceed $10 million in any watershed) for drainage and continues to offer funds for watershed protection works, such as flood prevention and irrigation.

18 Watersheds or subwatersheds of 250,000 acres or less; no structures with more than 25,000 acre-feet of total storage or 12,500 acre-feet of flood detention storage.

19 The review of any required 404 permits also comes late in the process.

20 For further discussion, see the section on benefit-cost analysis in the Delmarva Peninsula chapter.

21 See vegetation management section of Chapter XII.

22 Facilities with a total installed capacity of less than five megawatts.

23 This requirement is clarified in the Energy Policy Act of 1992 which states that "any reasonable and necessary costs incurred by Federal and State fish and wildlife agencies" are to be included in charges paid by licensees.

24 See CVP purposes in House Document No. 191, 73rd Congress, 1933 and House Document No. 416, Central Valley Project Documents, Part 1, Authorizing Documents, 1956.

25 See Bertoldi, et al., 1991 for a discussion of groundwater problems in the Central Valley of California emanating from the hydrologic changes due to 1) development of groundwater for agricultural purposes and subsequent depletion of groundwater and 2) surface water development in relation to groundwater depletion.


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