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then have been placed. In 1882 the city undertook the distribution of water. Thereafter both the Federal and city governments made occasional contributions to the expansion of the system,

The supply facilities have remained under Federal jurisdiction and the distribution facilities are under the District government. The expenses of both are borne entirely from water revenues-annual appropriations being made from the water fund on the basis of the District's annual budget estimates. Financial control and therefore the financial worries rest with the city government.

Last year over 30,000,000,000 gallons of water was sold. Also, last year over 11,000,000,000 gallons was given away.

Free water, therefore, amounted to more than one-third of the revenue-producing water. This was used by the Federal and District governments and by churches and charities.

We ask first, then, that the water system be credited with the full value of Federal and District use. This step has the approval of the Bureau of the Budget and the Commissioners.

For 30 years all operating expenses of the water system have been paid from water revenues. This means that private and commercial consumers have paid the direct cost of producing all water used by these governmental agencies.

During the early development of the water system both the United States and the District of Columbia made substantial investments in the water plant. Together these have amounted to about $21,000,000.

Private consumers, however, have invested more than $26,000,000 in the system.

The past practice of making occasional investments in plant and then taking it out in services forever is poor business and can only promote confusion in water financing. If revenue is derived for all services rendered, the water system can continue to be entirely selfsupporting, can ultimately pay for all new plant required and can do this at low rates.

The last major increase in water-supply facilities' was completed about 20 years ago. Since then the population dependent on the system has more than doubled. This has increased from about 450,000 to over 1,000,000 persons.

That, I might add, includes Arlington County as well as the District of Columbia.

Such spare capacity as did exist in many features of the system before the war has been used up in meeting the 51 percent population increase which has occurred since 1937. Our present load is still at an all-time winter high, more than a year after the war.

In 1940 the Congress directed that further expansion of the system be studied. The results of these studies are contained in this report, House Document 480, Seventy-ninth Congress, which shows the needs to the year 2000.

I have a copy here which I would like to place in the record.
Senator Cain. We will accept it, just by the title, however.

(The document above referred to, H. Doc. 480, 79th Cong., 2d sess., dated February 19, 1946, entitled : “Adequate Future Water Supply for the District of Columbia and Metropolitan Area,” was filed for the information of the committee.)

Mr. AULD. That estimate was made in the latter part of 1943, when the Engineering News Index was about 290. Today that index is 391. So, perhaps, 10 more millions of dollars would be required for this program, if recent prices prevail throughout the next 50 years.

This is considered to be the most comprehensive and detailed study ever made on a water system of this size. Based on these findings a construction program has been developed which must be followed if an adequate water supply is to be maintained.

As part of that report, there is the construction program, setting forth by years the projects which we believe will be required as the demand increases.

You will note they have been separated between supply and distribution projects, and extend through the year 1990 in that schedule.

In point of cost, about 90 percent of that work will need to be done between now and 1960.

Mr. BATEs. Ninety percent within the next 13 years?

Mr. Auld. Yes. We base that upon the anticipated population increases.

Many of the recommended works must be started now simply to catch up with the city's growth which has already occurred.

We are solvent today, but beyond this point we cannot go. Our 1948 estimates contemplate the starting of several of the most urgently needed construction projects. A deficit of $1,516,000 will result even after sale of our remaining investments.

I would like to say that though we have not made any investments in 3 years, in about the seven preceding years we were able to invest about $1,800,000 of our water revenues which were not then immediately required.

That is, we will now have to sell them even, and after the sale of those, we will have a deficit of $1,500,000 in 1918.

Mr. Bates. What is the total you have now in reserve funds for capital expenditures?

Mr. Auld. We actually have our entire investment intact. That is, none of it has been sold-$1,836,000.

However, that is partly obligated by appropriations now in effect for the fiscal year 1947.

Mr. Bates. So you actually have $1,836,000 set aside in reserve to start your program for 1961, is that right?

Mr. Auld. That is approximately it, sir. It will not all be by 1961.

Mr. BATEs. You said 90 percent of it.
Mr. AULD. Yes, sir.
Mr. Bates. That is pretty close.
Mr. AULD. Yes, sir.

Mr. Bates. I notice here the revenues for 1916, you had about $3,400,000, and then your outlay for the same year was $3,300,000, which gives you a little over $100,000 excess revenues.

How do you expect to build up a capital structure to permit you to carry on this on the basis of the present water rates unless you either increase the rates or find some way to increase your revenue?

Mr. AULD. That, sir, I will treat now.

Mr. BATES. All right. Fine.

Mr. AULD. We, of course, are proposing that both the Federal and the District government pay the cost of the water they consume.

Mr. Bates. I presume all of the water revenue is used for water purposes?

Mr. AULD. Yes, sir.
Mr. BATEs. None of it is diverted to any other purpose, is it?
Mr. AULD. No, sir. By law, we may not divert it.

Mr. Bates. We have that law in many other States, but that law is not complied with.

Mr. AULD. We comply with it. Mr. BATES. Thank you. Mr. Auld. Since we have a long-term program, I would like to deal with the anticipation of the next 15 years.

Our present income sources, for example, will yield about $3,650,000 a year during the next 15 years. Our fixed costs will average about $2,700,000, leaving $950,000 a year for construction, Federal and District payment will yield about another $950,000 yearly. The construction program will require an average of about $3,400,000 per year. This is $1,500,000 a year more than income.

We propose that this deficit be made up by loans from the Federal Treasury which we would take at interest.

Mr. Bates. In other words, what you want to do is finance this by issuing serial loans, and paying them off over a period of 10 years or 15 years or 20 years, instead of paying them from revenue as you go along?

Mr. Auli. Yes, sir. We are asking for 25-year loans which we can pav back

as we go. Mr. Bates. I presume they will be serial payment notes?

Mr. Auld. We do not propose to pay back on each annually, but as we can.

(Diagram, and Predicted Income and Expense, 1948–80, was submitted to the committee for their information).

Mr. Auld. To show the proportion again of income, if we assume that we have revenues from all water produced in the heavy diagonal line, that would be our accumulated income as of any year beginning with 1948.

The brown zone in the lower part represents our fixed costs.

You will see there is a margin between the top of that zone and the heavy line. That is cash that would be available for capital outlay expense. Because we need these things soon, we would go above that income line.

The extent that the green zone goes above that heavy line, is a measlire of our accumulated debt at any time.

We have shown our anticipated interest in yellow.

Based on our cost assumptions, those loans would be paid out in 30 years, by 1978.

Mr. Bates. Did you have in mind setting up, say, a fund from which to make this payment, say 30 years hence, or did you intend to set it up in a sort of serial payment? Getting a certain part of that obligation out, using a certain ratio every year?

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Mr. AULD. No, sir, we do not feel we can afford to put that cash into repayments in the early stages of this. I do not see any possibility that we could make repayments on principal before about 1962.

Mr. BATES. 1970?
Mr. AULD. That is a recollection I would like to refresh from notes.

Mr. Bates. When do you think you would get this whole program into operation so that the supplies would be filtering through?

Mr. Auld. I would say that by 1957 the bulk of our major projects will be under way.

Mr. BATES. Under way. But when will they be completed to a point where some of the water will be coming through the mains?

Mr. Auld. There will be increases in the water with every year's work almost.

Mr. Bates. Then if that is so, why should not the revenues accruing from the use of that water which you have already constructed, help to pay part of the bill?

(Diagram, Program for Financing Future Water System Improvements, submitted to the committee for their information.)

Mr. Auld. There will also be required funds to help defray part of the capital outlay. You will note that the blue columns here are a measure of our anticipated income.

You will note they increase as time goes on. Our expenses have been plotted beside those, and the bases of those blue lines is zero. When the expenses go below that, it is more than we have.

Mr. BATES. How do your rates compare with the border communities in Maryland and Virginia ?

Mr. AULD. Our rates are about 50 percent retail of theirs. I think they charge a little more than $200 for a million gallons, and our retail rate is $96.

Mr. Bates. Have you given consideration to an increase in the water rates to carry this load?

Mr. Auld. We have considered it, yes, but we do not feel it is necessary.

Mr. Bates. In other words, you want to hold off the day of reckoning and let somebody else to come after you pay the bill, is that it!

Mr. AULD. No. I feel that today the prices are still uncertain. If we may look forward to Federal and District payment, the precise amount of those payments may also be in doubt.

My recommendation is that within 2 years, we make a very thorough rate investigation.

Mr. Bates. What you say to us is that your water rates here to the consuming public are only about half of what they pay in Maryland and Virginia; is that right?

Mr. AULD. Yes, sir.

Mr. BATES. Still, you believe, or at least it is shown here by this suggestion you are making, that these payments for major improvements should be delaved until 1970, so that future generations, who have a $260,000,000,000 Federal load to carry, should take care of it also and also assume this burden?

Mr. AULD. Well, sir, we look at it just the other way. These improvements are going to be good for a number of years, and they will benefit future generations.

Mr. BATEs. How do you know at the end of 2000 that we will not have to embark on the same kind of a program as you are now—that you anticipated, say, 50 years ago?

Mr. AULD. The limits of the District of Columbia are fixed, and our assumption of population is such that we believe we will have saturation by 1990. We do not believe there will be more consumers. We think this will take care of the whole program for the probable water requirement.

Mr. BATEs. That leads me to the question about the so-called met ropolitan district. What outside district, outside of the District line, that you now furnish with water is there, and to what extent? What are the revenues from that water that they use?

Mr. Auld. Last year, we sold Maryland $350 worth of water; 5,800,000 gallons. They used to be dependent upon our system to a considerable extent, when they started perhaps 20 years ago to draw from us. Since then, they have independently developed their own supply, and the prospects are that those sources of theirs will be sufficient for their permanent needs.

We do not anticipate that Maryland will need to come to the District for water.

Mr. Bates. What they have done is embark on a program of major capital outlay, improving their great reservoir system, paying twice the amount of money that they would pay the District of Columbia, rather than go in like the District of Columbia; is that it?

Mr. AULD. It would seem that they made some such choice.
Mr. Bates. That is Maryland. What about the other outside areas?

Mr. AULD. Yes, sir. Arlington County draws 100 percent of its supply from our system. And this plan contemplates the saturation of population which will ultimately occur in Arlington.

Mr. SMITH. What did Arlington County pay you last year?

Mr. AULD. Revenue from Arlington County for the 1916 fiscal year was $126,700.

Mr. BATEs. Now, then, to follow that question along, Mr. Smith, I am trying to get down to the basic capital investment here, and what the return is on that capital investment, together with the maintenance cost, in order that Arlington County be provided with water.

What was your original capital investment to extend the mains over there?

Mr. AULD. The county brought their mains to our filter plant. They cross the Potomac River and they secure water at the source of filteration.

Mr. Bares. So you have not built any mains at all?
Mr. Auld. No, sir.
Mr. Talle. At the same rate?

Mr. Auld. They, of course, get a wholesale rate. There is no distribution cost to us for the water they receive.

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