The Reclamation Fund

Updated May 21, 2019 The Reclamation Fund The Reclamation Act of 1902 authorized the Secretary of the Interior to construct irrigation works in western states through the Reclamation Service (later renamed the Bureau of Reclamation [BOR or Reclamation]). 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.) The fund was designated to receive receipts from the sale of federal lands in the western United States, as well as other sources. It was originally conceived as a revolving fund (i.e., a businesslike 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. 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 project 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, such as Grand Coulee Dam and Shasta Dam. Later projects, such as the Pick-Sloan Missouri Basin Program and the Central Valley Project, also provided significant hydropower revenues. 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 their own special funds and utilized for project operations and maintenance and other project-related purposes in accordance with congressional direction. 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 FY2018, the average difference between credits and appropriations was $980 million. As of the end of FY2018, the fund’s balance was $16.6 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-FY2018 Source: CRS, based on Bureau of Reclamation data. Note: Balances reflect FY2017-FY2018 balance reconciliation adjustment of $2.1 billion. Appropriations. Most expenditures of Reclamation Fund balances are made through appropriations for Reclamation’s Water and Related Resources account, which funds operations and maintenance and construction costs for designated BOR water projects. (As noted above, some Reclamation projects are funded by the General Fund or by individual project funds.) Appropriations are also 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). From FY2003 to FY2018, average appropriations from the fund have been $1.024 billion. Receipts. Average receipts from FY2003 to FY2018 were approximately $1.785 billion per year. 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 increasing balance. Over the aforementioned period, 90% of the Reclamation Fund’s receipts came from these two sources, including 74% from natural resource royalties. Based on the source (by state) of natural resource royalties credited to the Reclamation Fund, 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. Thus, the fund’s multi-billion-dollar “surplus” balance does not represent real resources available for spending. Instead, it reflects a record of the fund’s authorized uses compared with actual appropriations by Congress. The current surplus reflects the fact that over time, receipts have significantly exceeded appropriations. Some point out that this runs contrary to congressional intent. However, Congress’s direction since 1914 that fund expenditures be subject to annual appropriations means that congressional appropriators have the final say on whether appropriations are set at a level that corresponds with receipts. 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 but has generally chosen not to do so. Some have proposed increasing appropriations from the Reclamation Fund either by funding new projects or as a supplement to ongoing authorized Reclamation 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 the overall level of discretionary appropriations from the Reclamation Fund to match collections, but such an increase would have to occur despite competition with other appropriations accounts (including those from the Treasury’s General Fund) that factor into the congressional budget allocation process. Congress could also dedicate revenue accruing to the Reclamation Fund to a subset of specific projects or to a new account or accounts focusing on specific goals. This could be done via discretionary funding or mandatory funding. In the latter case, congressional PAYGO requirements may necessitate offsets corresponding to these changes. Thus, some have pushed for changes outside of the 10-year scoring window. Congressional Interest Some in Congress have pointed to the discrepancy between Reclamation Fund receipts and appropriations and advocated for newly dedicated funding from the Reclamation Fund. In the 116th Congress, H.R. 2473, the Securing Access for the Central Valley and Enhancing Water Resources Act (SAVE Act), proposes to direct $300 million annually, without further appropriation, from FY2030 to FY2060 that would have otherwise been credited to the Reclamation Fund. This funding is to be made available for (1) authorized surface and groundwater storage projects, (2) authorized water reclamation and reuse projects, and (3) WaterSmart program water efficiency/conservation grants. Each category would receive $100 million per year. Previously enacted legislation has also altered the distribution of funds related to the Reclamation Fund. 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. The FY2020 budget request includes mandatory funding for these projects. (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 6 · UPDATED