Statement of Robert Johnson, Commissioner Bureau of Reclamation U.S. Department of the Interior Before the Senate Energy and Natural Resources Committee Subcommittee on Water and Power H.R. 235 April 25, 2007 Mr. Chairman and members of the Subcommittee, I am Robert W. Johnson, Commissioner of the Bureau of Reclamation. For the reasons discussed below, the Department does not support H.R. 235. Reclamation has worked with the Redwood Valley County Water District (District) for over 30 years to fund and build a water distribution system to provide over 1,100 residents and farmers of Redwood Valley, California with a reliable municipal and industrial water supply. Although we recognize the need to develop a workable strategy for ensuring the District is able to repay its loan obligation to Reclamation, because H.R. 235 could provide the District legislative loan forgiveness, Reclamation cannot support the bill. Over 25 years ago, Reclamation executed two 35-year repayment contracts with the District (contract numbers 14-06-200-8423A and 14-06-200-8423A Amendatory) for two Small Reclamation Projects Act (P.L. 94-984) loans totaling $7.3 million. Combining those loans with funding from other sources, the District built an $8.5 million water system project that is still in use today. By 1982, the District's water rate for its customers were above the state average, yet still inadequate to generate revenues for facilities operation and maintenance and repayment of a projected debt of $200,000 per year. That same year the District informed Reclamation of possible repayment problems. Beginning in the late 1980s, the District, congressional representatives, and Reclamation engaged in numerous discussions over the District's inability to make the scheduled loan payments. Subsequent legislation resulted in a postponement of loan interest, but did not produce any positive outcome on the repayment issue. Compounding its fiscal problems, the District does not have a firm and reliable water supply and is currently under a court-ordered moratorium preventing new service connections. This moratorium has greatly hampered the District's ability to repay its two loans. Reclamation cannot support H.R. 235 because the legislation's repayment provision does not establish a date certain for either repayment to begin or to be concluded. The proposed legislation does not provide any assurance that the United States will ever receive payment on the two loans, and essentially could provide loan forgiveness. The renegotiated payment arrangement could further postpone repayment of money owed Reclamation. Reclamation recognizes that a firm and reliable water supply is likely necessary to resolve the District's current financial dilemma, which prevents the District from being able to complete repayment of these two loans. Also, any deferment legislation should include language to ensure that the District first uses proceeds from the sales of such a supply to repay the new obligation used to secure the water supply and second to satisfy the District's repayment obligations to Reclamation. Furthermore, such legislation should include a date certain for repayment of Reclamation loans to begin or to be completed. We support efforts by the District to recover financially and find a solution that will enable it to pay its debts. Any such solution must ensure that the loans made by Reclamation will be wholly repaid. While the Department cannot support H.R. 235, we look forward to working with the District to address the repayment issue. This concludes my prepared remarks. I am pleased to answer any questions.