GAO Urges Closing Costly Loophole in U.S. Water Law

Congress should close a loophole in the law that regulates use of federally subsidized water supplies, the General Accounting Office said in a report released Sunday. The congressional watchdog agency said that the government is losing millions of dollars in revenue because some farmers are taking advantage of the law to qualify for cheap irrigation rates.

The 1982 Reclamation Reform Act, designed to help states where water is scarce, primarily in the West, allows farms of 960 acres or less to receive water at low, subsidized rates. Some owners of large farms, particularly in California, have circumvented the size limit by reorganizing their holdings into smaller parcels so that they qualify for the cheap water.

“Congressional expectations have not been met,” the report said in recommending that the loophole be closed.

In one case study cited in the report, Alpha Farms, one of California’s leading cotton producers, reorganized its 12,345 acres into separate landholdings through 18 partnerships, 24 corporations and 11 trusts. The GAO said there were indications that the smaller holdings, all in the Central Valley, continued to be operated as one large farm.

In another case, the GAO said, a father, son, daughter and her husband each owned parts of a 4,638-acre farm and applied for the subsidized water as four landholdings of less than 960 acres each.

“However, the family continued to operate the four landholdings as one farm,” the GAO said.

In the sample cases it reviewed, the GAO found that owners or lessees in 1987 paid about $1.3 million less for federal water than they would have paid if their respective multiple landholdings had been considered collectively as large farms subject to the legal size limit.

“Reduced revenues likely will continue to occur annually unless the act is amended,” the GAO said.

Rep. George Miller (D-Martinez), chairman of the House Interior and Insular Affairs subcommittee on water, power and offshore energy resources, blamed the Interior Department for allowing farmers to get around the law.

“Wealthy farmers in California’s Central Valley have subverted the intent of federal water laws and top Interior Department officials, aware of the abuse, declined to take corrective action,” he told the Associated Press.

Steven Goldstein, a spokesman for the Interior Department, said Sunday that Interior officials had not yet seen the report. “However, if Rep. Miller believes the law should be changed, that is certainly within his purview as a member of Congress,” he said. “The secretary has a responsibility to carry out the law as it is written.”

The law does not “preclude multiple landholdings, each of which is within the act’s 960-acre limit, to continue to be operated collectively as one large farm while individually qualifying for federally subsidized water,” the GAO said.

“Some farmers have taken advantage of this loophole by reorganizing their farms into multiple, smaller landholdings to be eligible to receive additional federally subsidized water . . . using various partnerships, corporations, and/or trust arrangements,” the report continued. “For all practical purposes, these smaller landholdings continue to be operated collectively as single large farms, much as they were before being reorganized.”

The GAO emphasized, however, that “these reorganized farms do not violate the act’s language” and that audits “have found and will likely continue to find them to be in compliance with the act’s 960-acre limit.”

The GAO said in its report that the Interior Department “agreed that some farmers have reorganized their farms into smaller holdings to maintain large farming operations while complying with the act’s acreage limit . . . . However, Interior cautioned that it is not convinced that the Congress expected to apply the 960-acre limit to land being operated as one unit.”