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U.S. Federal and Corps of Engineers Water Resources Planning Guidelines

Guidance for the Corps of Engineers' civil works program is provided by the federal Principles and Guidelines for Water and Related Land Resources Implementation Studies, developed by the U.S. Water Resources Council (WRC). This document is also referred to as the Principles and Guidelines, or the P&G. The Corps has incorporated these planning guidelines in its Planning Guidance Notebook, Engineer Regulation (ER) 1105-2-100 (USACE, 2000b). The Corps also publishes many other engineering regulations, several of which affect its inland waterways programs, either as supplements to the P&G or that cover processes beyond the scope of the P&G.

In the committee's examination of the Corps' draft Upper Mississippi-Illinois Waterway System navigation feasibility study, it is appropriate to begin with a review and critique of the P&G, a document that has remained unchanged since 1983. Particular attention is given to the federal objective, environmental quality objectives, advanced analytical methods and datasets, and the treatment of uncertainty in formulating and evaluating project alternatives.

ESTABLISHING THE PRINCIPLES AND GUIDELINES

Efforts to develop criteria to guide the formulation and evaluation of waterways projects extend as far back as 1808, when U.S. Secretary of the Treasury Albert Gallatin published a report identifying opportunities to develop a waterway-based transportation system. The Reclamation Act of 1902 contained guidance for water resources project evaluation, and the Corps used a form of benefit–cost analysis to evaluate basinwide plans prepared in the 1920s and 1930s pursuant to the Rivers and Harbors Act of 1927. In addition to economic objectives, much of the major water legislation of the first four decades of the 20th century also had social objectives.

Congressional policy was established by the 1936 Flood Control Act, which stated that: “the federal government should improve or participate in the improvement of navigable waters or their tributaries, including watersheds thereof, for flood control purposes if the benefits to whomsoever they accrue are in excess of the estimated costs, and if the lives and social security of people are otherwise adversely affected.” This is the original legislation justifying federal



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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway 3 U.S. Federal and Corps of Engineers Water Resources Planning Guidelines Guidance for the Corps of Engineers' civil works program is provided by the federal Principles and Guidelines for Water and Related Land Resources Implementation Studies, developed by the U.S. Water Resources Council (WRC). This document is also referred to as the Principles and Guidelines, or the P&G. The Corps has incorporated these planning guidelines in its Planning Guidance Notebook, Engineer Regulation (ER) 1105-2-100 (USACE, 2000b). The Corps also publishes many other engineering regulations, several of which affect its inland waterways programs, either as supplements to the P&G or that cover processes beyond the scope of the P&G. In the committee's examination of the Corps' draft Upper Mississippi-Illinois Waterway System navigation feasibility study, it is appropriate to begin with a review and critique of the P&G, a document that has remained unchanged since 1983. Particular attention is given to the federal objective, environmental quality objectives, advanced analytical methods and datasets, and the treatment of uncertainty in formulating and evaluating project alternatives. ESTABLISHING THE PRINCIPLES AND GUIDELINES Efforts to develop criteria to guide the formulation and evaluation of waterways projects extend as far back as 1808, when U.S. Secretary of the Treasury Albert Gallatin published a report identifying opportunities to develop a waterway-based transportation system. The Reclamation Act of 1902 contained guidance for water resources project evaluation, and the Corps used a form of benefit–cost analysis to evaluate basinwide plans prepared in the 1920s and 1930s pursuant to the Rivers and Harbors Act of 1927. In addition to economic objectives, much of the major water legislation of the first four decades of the 20th century also had social objectives. Congressional policy was established by the 1936 Flood Control Act, which stated that: “the federal government should improve or participate in the improvement of navigable waters or their tributaries, including watersheds thereof, for flood control purposes if the benefits to whomsoever they accrue are in excess of the estimated costs, and if the lives and social security of people are otherwise adversely affected.” This is the original legislation justifying federal

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway water resources projects if benefits exceed costs. However, Congress stopped short of directing the administration to develop methods for implementing this policy. Following the demise of the National Resources Planning Board, President Roosevelt established the Federal Interagency River Basin Committee (FIARBC) in 1943. One of its tasks was the development of Proposed Practices for Economic Analysis of River Basin Projects, originally issued in 1950 and revised in 1958. The Kennedy Administration, acting on a 1960 recommendation of the Senate Select Committee on Water Resources, further revised guidance for water project planning and evaluation by preparing Policies, Standards and Procedures in the Formulation, Evaluation, and Review of Plans for Use and Development of Water and Related Land Resources, published in 1962 as Senate Document 97, 87th Congress, Second Session. The Water Resources Planning Act of 1965 implemented a number of recommendations of the Senate Select Committee, including establishment of the Water Resources Council (WRC), a Cabinet-level council of the secretaries of all federal departments involved in water management. One of the charges to the WRC was to promulgate principles and standards for water projects. That was done when the WRC published the Principles and Standards for Planning Water and Related Land Resources September 10, 1973, often referred to as the Principles and Standards, or the P&S (US WRC, 1973). The Principles and Standards departed from prior policy by establishing a multiple-objective planning framework. Previous policy directed federal agencies to evaluate all inputs and outputs of projects in economic terms to the extent possible and to describe nonmonetary effects as “intangible” benefits and costs. With the publication of the P&S as federal regulations, the WRC established national economic development (NED) and environmental quality (EQ) accounts as co-equal objectives of federal water projects. Federal water management agencies also were directed by the P&S to evaluate beneficial and adverse effects of projects on regional economic development (RED) and other social effects (OSE). President Carter's administration further modified the P&S to require greater attention to environmental effects of water projects. By making water projects more difficult to justify, President Carter alienated a number of western interests. When the Reagan Administration came to office in 1981, the Water Resources Council and its P&S had become prime political targets. The WRC's budget was zero-funded by the Reagan administration and the WRC convened in 1983 only long enough to repeal the Principles and Standards, replacing it with the Principles and Guidelines (US WRC, 1983). There was more to that change than simply a modification of the title. A major change was that the Principles and Standards were reduced to the level of guidance, no longer having the legal standing and enforceability of federal regulations. The Federal Objective Another modification that appears to represent a significant change from the Principles and Standards to the Principles and Guidelines was the shift in the status of the environmental quality (EQ) objective. In the P&S, NED and EQ were given equal weighting as federal objectives. By contrast, the P&G specified a single objective that stated that water resources projects

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway are “to contribute to NED consistent with protecting the Nation's environment, pursuant to national environmental statues, applicable executive orders, and other Federal planning requirements” (US WRC, 1983). One interpretation of this change is that while the P&S treated the environmental quality account with equal importance to the NED account, under the P&G, environmental quality was relegated to a constraint on the alternative that maximizes contributions to the NED objective. Under the P&S, federal agencies were required to evaluate proposed projects using four separate accounts: (1) National Economic Development, (2) Environmental Quality, (3) Regional Economic Development, and (4) Other Social Effects. The Principles and Guidelines directed the Corps to include among alternative plans, one that maximizes NED consistent with environmental constraints, and others that reduce NED benefits in order to address other federal, state, local, and international concerns. Of the four accounts established by Principles and Standards, only the NED alternative is required by Principles and Guidelines. One or more of the other three accounts are necessary only if they “will have a material bearing on decisionmaking” or if required by law. These changes may be more apparent than real for at least two reasons. First, it was never clear to water resources project planners how NED and EQ were to be made coequal in planning under P&S. Contributions to the two objectives were measured by very different kinds of metrics, and no set of weights that makes x number of habitat units equal to y million $ has yet been established. These types of decisions are thus judgments within the discretion of the Corps, its constituents, the public, and the Congress. Second, the Principles and Guidelines did not limit planning strictly to the maximization of NED. In the section on "Alternative Plans," the P&G state (US WRC, 1983): In addition to a plan which reasonably maximizes contributions to NED, other plans may be formulated which reduce net NED benefits in order to further address other Federal, State, local and national concerns not fully addressed by the NED plan. These additional plans should be formulated in order to allow the decisionmaker the opportunity to judge whether these beneficial effects outweigh the corresponding NED losses. This guidance would appear to provide the Corps considerable flexibility in formulating alternatives, not only to promote national economic development but to address environmental issues, as well. Although all federal agencies that use the P&G (in addition to the Corps, these agencies are the Bureau of Reclamation, the Natural Resources Conservation Service, and the Tennessee Valley Authority) are directed to formulate an alternative that reasonably maximizes NED, there is no apparent limit on the extent to which the Corps can go in formulating and evaluating other alternatives to improve environmental quality. How the Corps of Engineers chooses to interpret and apply this guidance to particular projects can have a profound effect on how alternatives are formulated and evaluated, but the P&G are not overly restrictive.

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway National Economic Development The NED account reflects benefits and costs of a plan, namely increases in the economic value of goods and services and the opportunity and other costs of resources consumed by the plan. A national accounting viewpoint is to be considered. Any change in one region resulting from an interregional transfer is not to be counted. The Principles and Guidelines contains more specific guidance for estimating beneficial effects of particular kinds of goods and services (inland navigation being the one most relevant to this study). Four categories of navigation benefits are described: cost-reduction benefit—the gain in economic efficiency when traffic uses a waterway with and without the plan with the same origins and destinations and the same mode, shift-of-mode-benefit—the reduction in cost when traffic would move from the same origins and destinations, but with the plan, it would move by waterway instead of the more costly alternative mode, shift-of-origin destination benefit—the reduction in total cost of getting a commodity to its place of use when its origin is shifted from its location without the plan to a new location with the plan, or the change in net revenue to the producer if the destination with the plan is different from the destination without the plan, and new movement benefit—the increase in producer and consumer surplus associated with increased transport of a commodity due solely to reduced transportation cost. Water Resources Project Planning The planning process outlined in the Principles and Guidelines consists of six major steps: Step 1 - Identify problems and opportunities. The first step includes an “early and open” scoping process to identify the types and extent of issues relevant to the study. It is intended to complement the scoping process required under the National Environmental Policy Act (NEPA) process. It should identify the geographic areas likely to be affected by alternative plans. Step 2 - Inventory and forecast conditions. Economic, environmental, and other factors affected by the plan must be forecast over the planning horizon with and without the plan. An inventory of existing conditions should be used as the baseline, and future conditions should reflect national and regional projections of income, output, and other relevant information published by federal agencies (insofar as the agency forecasts are not intended to be projections or if they do not track the observed data since the forecasts were made, the Corps should develop their own forecasts, using methods recommended in Chapter 5 of this report). Step 3 – Formulate alternative plans. Under Section 1.6.2 of the Principles and Guidelines, federal agencies are provided guidance concerning the kinds of alternatives that are to be formulated. Agencies are required to formulate a plan that reasonably maximizes contributions to NED, but other plans may be formulated that reduce NED benefits to address other federal,

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway state, local, and international concerns not captured under the NED objective. The purpose of alternative plans is to aid decision-makers in their judgment as to whether the benefits added by the alternatives exceed reduction in benefits from the NED plan. That section of the Principles and Guidelines is even more specific on how alternatives should be formulated. It states that in formulating alternative plans, an effort is to be made to include only increments that provide NED benefits after accounting for appropriate mitigation costs. Appropriate mitigation of adverse environmental effects, as required by law, is to be included in all alternative plans. Increments that do not provide net NED benefits may be included, except in the NED plan, if they are cost-effective measures for addressing specific concerns. Considerable guidance is provided by the Principles and Guidelines that affect the content of alternative plans and how certain elements of alternatives are to be treated. Two sets of assumptions are listed in the P&G: a without-project condition, and a with-project condition, as listed below (US WRC, 1983, Sec. 2.6.3): Without-project condition: Assume that all reasonably expected nonstructural practices within the discretion of the agency, including helper boats and lock operating policies, are implemented at the appropriate time. Substantial analysis is required to determine the best combination of nonstructural measures to ensure the most effective use of an existing waterway system over time. This analysis should be documented in project reports to assure the reviewer that the best use of existing facilities will be made in the without-project-condition and that the benefits of alternative with-project conditions are correctly stated. The criteria for the best utilization of the system are overall public interest concerns, including economic efficiency, safety, and environmental impact. User charges and/or taxes required by law are part of the without-project condition. Proposed or possible fees, charges, or taxes are not part the without-project condition but should be considered as part of any nonstructural alternatives in the with-project condition. The without-project condition assumes that normal operation and maintenance will be performed on the waterway system over the period of the analysis. In projecting traffic movements on other modes (railroad, highway, pipeline, or other), the without-project condition normally assumes that the alternative modes have sufficient capacity to move traffic at current rates unless there is specific evidence to the contrary. Alternative modes should be analyzed as a basis for identifying the most likely route by which commodities will be transported in the future in the absence of waterway improvement. The without-project condition normally assumes that only waterway investments currently in place or under construction are in place over the period of analysis.

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway With-project condition: Management of demand by the use of congestion or lockage fees is a nonstructural alternative, which alone or in combination with structural devices may produce an economic optimum in a congested waterway. Influencing marginal waterway users through a congestion fee can increase the benefits of a waterway. Evaluate alternatives that influence demand on the same basis as supplyincreasing (structural) alternatives. Additional nonstructural measures not within the current purview of the operating agency may be considered ‘supply management' measures. One example is traffic management. These supply-increasing (nonstructural) measures can be used alone or in combination with other structural or nonstructural measures. Project alternatives can differ in their timing as well as in their physical characteristics. Consider the optimal timing of projects and of individual project features in project formulation, so as to maximize net benefits over time. Consider improvements in alternative transportation modes as part of the without-project condition only. A change in the waterway system that is currently authorized but not yet under construction may be included if an appropriate share of its associated costs is included in the costs of the alternative under study and its incremental contribution to benefits is explicitly identified. Step 4 – Evaluate alternative plans. The P&G outline a 10-step evaluation procedure for estimating NED benefits of inland navigation projects (Sec. 2.6. The procedure is shown in Figure 3.1 ). Unfortunately, there is only general guidance for forecasting potential waterway traffic and for forecasting modal choice under future costs conditions. The Principles and Guidelines identify other problems that may be encountered in applying the procedure. First. differences in system delays between alternative plans are difficult to estimate, requiring state-of-the-art techniques. Second, the procedure in Figure 3.1 assumes that supply and demand curves are independent of each other when in fact they are not. That interdependence is especially important at high levels of lock congestion. Third, uncertainty arises from several factors, and sensitivity analysis is recommended to evaluate the effects of those uncertainties. Several specific sensitivity analyses are prescribed. One is to assume no growth in tonnage and no change in fleet characteristics after the first 20 years of the projects. Another is to estimate how benefits would be affected if costs were to be fully recovered through user charges. Step 5 - Compare alternative plans. Specific formats are offered to facilitate the display of findings. Step 6 - Select recommended plans. A recommended plan is to be selected after “consideration of the various alternative plans, their effects and public comments.”

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway FIGURE 3.1 The 10 Steps for Evaluating Alternative Plans. SOURCE: US WRC, 1983. CRITIQUE Although the Principles and Guidelines has not been altered since 1983, that document outlines a useful framework for planning inland navigation projects. Despite its general utility, however, the guidance is limited in several ways. First, limitations arise simply because the guidance has not been updated to reflect recent policy changes, such as the inclusion of environmental restoration as a federal purpose. Second, in several places the guidance refers to particular datasets and procedures. Those are now 18 years out-of-date. The P&G contain some short-

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway comings specific to the kind of inland navigation studies that are the subject of this report. Among them are: Inadequate guidance on implementing the federal objective on environmental quality, specifically for projects for which environmental restoration is an authorized purpose; The failure to provide updated guidance on advanced techniques for forecasting commodity flows, predicting modal choice for shipment of commodities, and forecasting waterway traffic with and without planned improvements; and Inadequate guidance on the treatment of uncertainty in project formulation. Stating Environmental Quality Objectives The first limitation is inadequate guidance on implementing operational the federal objective on environmental quality in the setting of the UMR–IWW study. Agencies are directed to formulate an NED plan, including the cost of mitigating adverse environmental effects not accounted for in the NED account. Alternatives are to be formulated to address other specific concerns by adding increments to the NED plan. Taken out of context, such an approach could be interpreted as leaving little room for addressing existing environmental problems including, in this instance, those created by the construction and operations of the existing navigation system. However, the Principles and Guidelines also provide guidance that plans are to be formulated “which reduce net NED benefits in order to further address other federal, state, local, and international concerns not fully addressed by the NED plan.” (US WRC, 1983; 5(b)). The UMR–IWW navigation feasibility study is authorized by the 1970 Flood Control Act (P.L. 91-611). Section 216 of that act states: The Secretary of the Army, acting through the Chief of Engineers, is authorized to review the operation of projects the construction of which has been completed and which were constructed by the Corps of Engineers in the interest of navigation. flood control, water supply, and related purposes, when found advisable due to significantly changed physical or economic conditions, and to report thereon to Congress with recommendations on the advisability of modifying the structures or their operation, and for improving the quality of the environment in the overall public interest. The draft navigation feasibility study appears to have interpreted that authorization narrowly. For example, the purpose in the draft feasibility study fails to mention possible operational changes and immediately zeroes in on capital investments. The draft study also fails to embrace the broader authority to recommend improvements to the quality of the environment, and fails to go beyond simply identifing impacts associated with new facilities and increased traffic that are to be mitigated. In short, the navigation feasibility study focuses narrowly on the federal objective as stated in P&G, which is to contribute to national economic development. consistent with protecting the nation's environment. The feasibility study does not incorporate

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway operational and environmental alternatives consistent with the project-specific directive from Congress, despite the fact that the Corps appears to have ample latitude to explore alternatives aimed at enhancing environmental resources according to (1) the 1970 Flood Control Act, (2) the Principles and Guidelines, which allow for the formulation of plans that reduce new NED benefits in order to further address other concerns not fully addressed by the NED plan, and Corps planning guidance that allows for the consideration of a National Ecosystem Restoration objective (USACE, 2000a; that guidance, however, was established after the feasibility study was initiated). Even though legislation and planning guidance such as the P&G provides room for the Corps to consider environmental problems and opportunities as part of the navigation feasibility study, alternatives to improve environmental quality were not adequately considered by the Corps. The reasons for this are not clear to this committee. The Secretary of the Army should ensure that the environmental consequences of proposed construction and operating practices be analyzed along with the NED. Environmental improvements—not just the mitigation of incremental environmental damages—should also be examined. Advanced Analytical Methods and Datasets A second limitation of the Principles and Guidelines is the failure to provide updated guidance on advanced techniques for forecasting commodity flows, predicting modal choice for shipment of commodities, and forecasting waterway traffic levels. While the P&G do not prevent the Corps or other federal agencies from using advanced analytical techniques, it fails to offer guidance as to which methods are most appropriate. The UMR–IWW is one of the world's larger and more intensively used navigation systems. It serves a complex agriculturual and industrial region where substantial inter-modal competition exists. Exports from the region are being sold in increasingly globally competitive markets. Estimated costs of proposed lock extensions are in excess of one billion dollars. Use of the best available analytical techniques is justified for a system as large and complex as the UMR–IWW. As Chapter 4 and Chapter 5 will discuss, a regional econometric model for forecasting future market conditions, with linkages to key policy decisions at the national and international level, would provide greater confidence in projections of future demand for transport. The credibility of traffic forecasts would be enhanced by using models that consider explicitly how the cargo could move by alternative modes and that examine geographic areas smaller than a state in order to recognize the diversity in yield, market opportunities, and shipping costs for local areas. Without such methods, developed with the benefit of an open, interdisciplinary, peer-reviewed process, agency staff are left to their own devices to develop ad hoc methods within project budgetary and time constraints. Uncertainty in Formulation and Evaluation of Alternatives A third shortcoming of the P&G is the inadequate guidance on the treatment of uncertainty in the formulation of alternatives. Although the Principles and Guidelines direct agencies

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INLAND NAVIGATION SYSTEM PLANNING: The Upper Mississippi River—Illinois Waterway to give consideration to uncertainty, attention is given primarily to uncertainties in parameter-sused in models for predicting future conditions and for the detailed design of facilities. Chapter 5 of this report describes approaches for addressing uncertainty. Revising the Principles and Guidelines The Principles and Guidelines should be reviewed and updated in order to reflect changes in social values since the early 1980s, as well as advances in analytical techniques and technologies. This recommendation to review and revise the Principles and Guidelines is consistent with the recommendation of a 1999 National Research Council committee charged to, among other things, review the state of the P&G. That committee recommended that the federal Principles and Guidelines “be thoroughly reviewed and modified to incorporate contemporary analytical techniques and changes in public values and federal agency programs ” (NRC, 1999a; see also NRC, 2000). The 1994 federal Interagency Floodplain Management Review Committee (IFMRC) report, also known as the Galloway Report (as the review committee was headed by Dr. Gerald E. Galloway, Jr.), contained a similar recommendation: “Principles and Guidelines should be revised to accommodate the new objectives and to ensure full consideration of nonstructural alternatives” (IFMRC, 1994). In revising the P&G, special attention should be given to: (1) guidance for incorporating concerns about environmental quality into plans for inland navigation systems, regardless of how the EQ objective is stated, (2) more definitive guidance on techniques for forecasting demands for waterway services over extended time horizons, and (3) more appropriate methods for treating uncertainty in large projects that are subject to high levels of uncertainty in future demand. The P&G has provided useful planning guidance since it was approved in 1983, with much of that guidance still relevant and useful today. After 18 years of application, however, the P&G would be improved with a thorough review and the incorporation of modern water resources planning approaches and techniques.