Summary

The Water and Power Resources Service (WPRS) is responsible for most Federal irrigation projects and charges beneficiaries for the use of water. GAO reviewed several WPRS projects under construction to determine: (1) what charges will be made for the water; (2) to what extent the charges will cover the costs to the Federal Government for providing the water; and (3) whether farmers could pay more for the water without impairing their operations or seriously damaging their profits.

Legislation originally stipulated that the charges for Federal water should return all the costs of building the irrigation projects; however, subsequent laws have not required certain beneficiaries to repay their share in full. WPRS fixes a price for its irrigation water according to the farmer's ability to pay for the water, which is the amount left over from an average farmer's gross income after deducting all production costs. This amount is much less than the Federal Government's cost of producing the water. A GAO economic analysis indicated that charging full cost for the water at a 7.5 percent interest level would be too expensive for farmers to afford Federal water. GAO found that charging a full-cost price without the interest charge, called the interest-subsidy price, would lower the cost of irrigated agriculture and increase yield enough so that farmers could probably increase their net income by buying Federal water.