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The Reclamation Fund

Changes from January 8, 2015 to April 12, 2018

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January 8, 2015Updated April 12, 2018 The Reclamation Fund The Reclamation Act of 1902 authorized the Secretary of the Interior to construct irrigation works in western states andthrough the Reclamation Service (later renamed the Bureau of Reclamation [BOR]). It also established the Reclamation Fund to pay for these projects. The Reclamation Fund was established as a special fund within the U.S. Treasury. (Special funds are fund accounts for receipts and spending with specific taxes or revenues earmarked for a specific purpose. See CRS Report R41328, Federal Trust Funds and the Budget, by Mindy R. Levit, for more information.) The Reclamation Fund purpose.) The fund was designated to receive receipts from the sale of federal landlands in the western United States, as well as other sources. All moneys received from the sale and disposal of public lands in … [the western United States] … shall be, and the same are hereby, reserved set aside, and appropriated as a special fund in the Treasury to be known as the “reclamation fund, ” to be used in the examination and survey for and the construction and maintenance of irrigation works for the storage, diversion, and development of waters for the reclamation of arid and semiarid lands in the said States and Territories, and for the payment of all other expenditures provided for in this Act. The fund was conceived as a revolving fund, with receipts from existing project repayments expected to be sufficient to fund new projects. The 1902 Act made funding from the Reclamation Fund available for the purposes outlined in the legislation without further appropriation by Congress. However, subsequently Congress required appropriations to utilize the funds. Expanded Revenue Sources Receipts accruing to the Reclamation Fund are shown below in Table 1. Originally the Reclamation Fund was expected to be funded by three main revenue sources: public land and timber sales in the western United States, Reclamation Project repayment, and Reclamation Project water contracts and sales. As a result of the aforementioned shortfalls in the fund, over time Congress directed additional receipts toward the Reclamation Fund sources. It was originally conceived as a revolving fund (i.e., a business-like fund). That is, after its initial capitalization by federal appropriations, receipts from existing project repayments were expected to fund new projects. Congress later made substantial changes to the fund, including adding new receipt sources and making it subject to annual appropriations. Early Issues with Reclamation Fund During its early years, the Reclamation Fund was unable to operate as a revolving fund. Due in part to difficulties maintaining the fund’s solvency, Congress provided it with additional funding and made changes to the fund over time. Following its earliest construction projects, the fund received additional amounts from Congress via the Treasury’s General Fund in 1910 ($20 million) and 1931 ($5 million). In an effort to avoid future funding shortfalls, Congress in 1914 limited Reclamation’s ability to carry out the 1902 act to those items for which Congress made annual appropriations to BOR (thereby rescinding its ability to build projects without further appropriation). Despite these changes, the Reclamation Fund was not sufficient to fund many of the large investments in water infrastructure throughout the West that were initiated beginning in the 1930s. Thus, construction of some large projects (e.g., Hoover and Glen Canyon Dams) was funded by the General Fund. New Receipts/Revenue Sources Originally, the Reclamation Fund was expected to be funded by three main revenue sources: public land and timber sales in the western United States, BOR project repayment, and BOR project water contracts and sales (the latter two categories are typically referred to collectively as proprietary receipts). As a result of the aforementioned shortfalls in the fund, over time Congress directed additional receipts toward the Reclamation Fund, in the form of 40% of onshore royalties from mineral and natural resource leasing on public lands (authorized in 1920) and the full amount of Reclamation Projectproject power revenues (authorized in 1938). The latter change, known as the Hayden-O’Mahoney amendment, was enacted to secure power revenues from projects under construction at the time time, such as Grand Coulee Dam and Shasta Dam. Later projects projects, such as the Pick-Sloan Missouri Basin Program and the Central Valley Project, also provided significant hydropower revenues. Several other Reclamation projects, Hydropower revenues from some other projects (e.g., the Boulder Canyon Project, the Colorado River Storage Project, and the Colorado River Basin Project) are deposited into separatetheir own special funds, in accordance with congressional direction. Table 1. Major Sources of Reclamation Fund Revenue Description Public Land Sales 95% of proceeds from public land sales in western states 1902 Reclamation Project Repayments 100% of receipts 1902 Reclamation Project Water Contracts/Sales 100% of proceeds 1902 Reclamation Project Power Revenues 100% of proceeds 1938 Natural Resource/Mineral Royalties 40% of bonuses, royalties, and rentals from onshore public lands 1920 Early Issues with the Reclamation Fund During its early years, the Reclamation Fund was unable to operate as a “revolving” fund. Due in part to difficulties maintaining the fund’s solvency, Congress provided advances and made changes to the fund over time. Following its earliest construction projects, the fund received advances from Congress via the General Fund in 1910 ($20 million) and 1931 ($5 million). In an effort to avoid future funding shortfalls, Congress in 1914 limited Reclamation’s ability to carry out the 1902 act to those items for which Congress made annual appropriations to Reclamation (thereby rescinding Reclamation’s ability to build projects without further appropriation). Despite these changes, the Reclamation Fund was not sufficient to fund many of the large investments in water infrastructure throughout the West that were initiated beginning in the 1930s. Thus, construction of some large projects (e.g., Hoover and Glen Canyon dams) was funded by the Treasury’s General Fund. Year Authorized Source www.crs.gov | 7-5700 The Reclamation Fund Recent Trends Understanding “Surplus” Fund Balances After the early financial issues between the Reclamation Fund’s establishment in 1902 and the supplemental funding from the General Fund in the 1930s, the fund maintained a relatively stable balance through the early 1990s. Beginning in the mid-1990s, the fund’s balance began to increase significantly as revenues from power sales and natural resource royalties significantly exceeded appropriations from the fund. For every year since FY1994, receipts going into the Reclamation Fund have exceeded appropriations made from it by more than $100 million, and in some years receipts have exceeded appropriations by more than $1 billion. The exception to this trend was FY2009, when the American Recovery and Reinvestment Act (P.L. 111-5) appropriated funding for Reclamation from the Reclamation Fund. Trends in the fund credits and appropriations are shown below in Figure 1. Similar to other special funds that are subject to appropriation, the Reclamation Fund is an accounting mechanism within the larger federal budget, and it is important to note that the fund’s apparent “surplus” does not represent real resources available for spending. Instead, it reflects the status of the intended uses of the fund compared to actual appropriations. It shows that in recent years, receipts credited to the fund have significantly outstripped its expenditures. Some point out that this runs contrary to the congressional intent of the Reclamation Act of 1902 and subsequent acts affecting the Reclamation Fund. However, Congress’s direction that the fund’s expenditures be subject to annual appropriations means that the final say on the fund’s expenditures rests with congressional appropriators. That is, Congress may at any time choose to increase or decrease appropriations from the fund to match incoming receipts, and/or dedicate these funds to other purposes. Figure 1. Reclamation Fund Receipts and Appropriations, FY1990-FY2012 Recent Proposals Some have proposed increasing appropriations from the Reclamation Fund, either by funding new projects or as a supplement to ongoing authorized expenditures. Such a change could take one or more forms, each of which may have associated budget scoring impacts. For instance, Congress could increase appropriations from the Reclamation Fund in annual discretionary appropriations, but such an increase would have to compete with other appropriations (including General Fund appropriations) subject to congressional 302 (b) allocations. Congress could also dedicate a stream of revenue from the Reclamation Fund for a subset of specific projects and make it available, with or without further appropriations (i.e., discretionary funding or mandatory funding). Congressional PAYGO requirements might necessitate offsets in spending corresponding to some of these changes. Source: CRS, with Bureau of Reclamation data. Appropriations. The largest recipient of the fund’s appropriations is Reclamation’s Water and Related Resources Account, which funds operations and maintenance and construction of qualifying Reclamation projects (other projects are funded by the General Fund, or individual project funds). These appropriations have been declining in real terms in recent years. Receipts. Natural resource royalties and hydropower revenues are the largest sources of receipts accruing to the fund and are the primary reason for the fund’s recent imbalance between receipts and appropriations. From FY1990 to FY2011, an average of 87% of the Reclamation Fund’s receipts came from these two sources. Data on the source (by state) of the natural resource receipts going into the Reclamation Fund indicated that from FY2006 to FY2011, an average of 93% of these receipts came from five western states: Wyoming, New Mexico, Colorado, California, and Utah. Two states, Wyoming and New Mexico, accounted for about 64% of these receipts. Congress in 2009 enacted changes to the Reclamation Fund. Title X of the Omnibus Lands Act (P.L. 111-11) redirected $120 million per year of Reclamation Fund receipts for FY2020-FY2034 toward Indian water rights settlement projects, without further appropriation. In the 113th Congress, the Authorized Rural Water Projects Completion Act (S. 715) proposed to direct funds that would otherwise be credited to the Reclamation Fund to a set of newly established accounts for water projects, including new accounts for rural water projects, Indian irrigation projects, and other purposes. This proposal would have directed the status quo approach, in which these funds would have been subject to appropriations (i.e., appropriated as discretionary funds). However some have advocated for making this funding available for expenditure without further appropriations (i.e., mandatory funds). To date, these proposals have not been enacted. Charles V. Stern, cstern@crs.loc.gov, 7-7786 www.crs.gov | 7-5700 IF10042 Major sources of receipts credited to the Reclamation Fund are shown below in Table 1. Table 1. Major Reclamation Fund Revenue Sources Year Authorized Source Description Public Land and Timber Sales 95% of proceeds from sales in western states 1902 BOR Project Repayments and Water Contracts/Sales 100% of receipts/proceeds 1902 BOR Project Power Revenues 100% of proceeds 1938 Federal Public Lands Natural Resource Royalties 40% of bonuses, royalties, and rentals from onshore public lands (excluding Alaska) 1920 Sources: 43 U.S.C. §391; 43 U.S.C. §392a; 30 U.S.C. §191. Recent Trends After the Reclamation Fund’s early issues with solvency, it maintained a relatively stable balance through the early 1990s. At that point the fund’s balance began to increase as revenues from natural resource royalties significantly exceeded appropriations from the fund. For every year since FY1994, except FY2009 (when the American Recovery and Reinvestment Act [P.L. 111-5] also appropriated funding for Reclamation projects from the fund), receipts going into the Reclamation Fund have exceeded appropriations made from it by more than $100 million. From FY2010 to FY2017, the average difference between credits and appropriations was $1.027 billion. As of the end of FY2017, the fund’s balance was $13.8 billion. Trends in fund credits, appropriations, and balances are shown below in Figure 1. https://crsreports.congress.gov The Reclamation Fund Figure 1. Reclamation Fund Receipts and Appropriations, FY1990-FY2017 appropriations by Congress. The surplus balance tracked for the fund shows that in recent years, receipts credited to the fund have significantly exceeded appropriations made from it. Some point out that this runs contrary to the congressional intent of the Reclamation Act of 1902. However, Congress’s direction since 1914 that fund expenditures be subject to annual appropriations means that the final say on the use of the fund rests with congressional appropriators. That is, Congress may at any time choose to increase or decrease appropriations from the fund to better correlate with incoming receipts and/or other congressional priorities. Recent Proposals Source: CRS, based on Bureau of Reclamation data. Appropriations. Most expenditures of Reclamation Fund balances are made through appropriations to the Bureau of Reclamation’s Water and Related Resources account, which funds operations and maintenance and construction costs for designated BOR water projects. (As noted above, other projects are funded by the General Fund or by individual project funds.) Appropriations also are made for the expenses under Reclamation’s Policy and Administrative account (approximately $60 million/year), and Western Area Power Administration’s construction and maintenance activities (approximately $180 million/year). Since FY2003, average appropriations from the fund have been $1.006 billion. Receipts. Average receipts since FY2000 have been approximately $1.782 billion. Receipts from natural resource royalties and hydropower sales are by far the largest sources of credits to the fund and the primary reason for the fund’s recent balance increase. From FY2003 to FY2017, 91% of the Reclamation Fund’s receipts came from these two sources, including 75% from natural resource royalties. Based on the source (by state) of natural resource royalties credited to the Reclamation Fund from FY2003 to FY2017, CRS estimates that an average of 98% of natural resource royalty receipts came from seven western states: Wyoming (50%), New Mexico (27%), Colorado (7%), Utah (7%), California (3%), Montana (2%), and North Dakota (2%). (Pursuant to statute, natural resource royalties from Alaska are handled separately and do not accrue to the Reclamation Fund.) Understanding “Surplus” Fund Balances Similar to other special funds that are subject to appropriation, the Reclamation Fund is an accounting mechanism within the larger federal budget and the fund’s apparent “surplus” does not represent real resources available for spending. Instead, it reflects the status of the intended uses of the fund compared with actual Some have proposed increasing appropriations from the Reclamation Fund, either by funding new projects or as a supplement to ongoing authorized BOR project expenditures. Such a change could take one or more forms, each of which may have associated budget scoring impacts. For instance, Congress could significantly increase discretionary appropriations from the Reclamation Fund to match collections, but such an increase still would have to compete with other appropriations (including those from the Treasury’s General Fund) as they would be subject to congressional 302(b) allocations. Congress also could dedicate a stream of revenue from the Reclamation Fund for a subset of specific projects or to a new account. This could be done with or without further appropriations (i.e., discretionary funding or mandatory funding). Congressional PAYGO requirements might necessitate offsets in mandatory spending corresponding to these changes. Congressional Interest Some have proposed altering the balance between receipts and appropriations by funding new or ongoing water projects (such as those related to drought) with dedicated funding from the Reclamation Fund. In the 115th Congress, S. 1556, the Authorized Rural Water Project Completion Act, proposes to direct $115 million annually from FY2018 to FY2038 ($2.3 billion total) that otherwise would have been credited to the Reclamation Fund to a set of newly established accounts to fund qualifying BOR rural water projects ($80 million per year) and water rights settlements ($35 million per year). These funds would be available for expenditure by the Secretary of the Interior without further appropriation (i.e., mandatory funds). Congress has previously enacted changes to how the Reclamation Fund may be used in future years. Title X of the Omnibus Public Lands Management Act of 2009 (P.L. 111-11) redirected $120 million per year of Reclamation Fund receipts for FY2020-FY2034 toward qualifying Indian water rights settlement projects, without further appropriations. (For more information, see CRS Report R44148, Indian Water Rights Settlements.) Charles V. Stern, Specialist in Natural Resources Policy https://crsreports.congress.gov IF10042 The Reclamation Fund Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material. https://crsreports.congress.gov | IF10042 · VERSION 5 · UPDATED