Rural Water Projects

The Lewis and Clark Rural Water Project is intended to help overcome problems with inadequate water supplies and poor water quality in cities and rural areas in parts of South Dakota, Iowa, and Minnesota. The cost of the project is pegged at $282.9 million. Although a specific cost estimate for the projects was developed, no definitive estimate of the value of its benefits was developed. This report provides an economic evaluation focusing on the direct economic benefits that would accrue from building such a system. GAO answers the following questions: What benefits would derive from the Lewis and Clark project? Who would receive those benefits? How are those benefits valued?

GAO noted that: (1) the potential benefits from the Lewis and Clark project generally fall into three categories: (a) societal benefits; (b) economic benefits; and (c) fiscal benefits; (2) local water users such as households and businesses would be the major beneficiaries of the Lewis and Clark project; (3) they would benefit from lower water-related expenditures and costs as well as higher income because of increases in local economic activity and transfers of economic activity into the Lewis and Clark service area from outside the region; (4) these transfers could include moving slaughterhouses or food processing plants from other states or counties; (5) concerning fiscal benefits, local and state governments would be the principal recipients of any net increases in sales and income tax revenues that would result from increases in economic activity; (6) counties and school districts could benefit if there were increases in taxes; (7) conversely, the federal government would realize little fiscal benefit from the Lewis and Clark project; (8) however, the federal government could realize nonfinancial benefits by making progress toward the objectives of improving the lifestyle of rural residents, investing in the development of the infrastructure of rural America, and ensuring compliance with federal drinking water standards; (9) the benefits from municipal and industrial water projects are difficult to value; (10) at the national level, there would be little change in net economic activity, but transfers of economic activity into the Lewis and Clark service area could result in increased regional economic activity; (11) for a given water district, the cost of its reasonable alternative to constructing a particular water project, such as drilling additional water wells or replacing a water treatment plant, can produce an approximation of the value of the project's economic benefits so long as the alternative yields the same quantity and quality of water; (12) for the water districts that would be served by the Lewis and Clark project, GAO estimated that the sum of the alternative costs that would be avoided if the Lewis and Clark project was built to be between about $71 million and $81 million in 1998 dollars; and (13) these figures should be considered the minimum value of the economic benefits to the area served because few of the alternatives would produce the same quality of water as the Lewis and Clark project and because two of the water districts in the area that have reasonable alternatives to the project did not estimate the cost of their alternatives.