2
The Water Resources Development Act of 1986 and Other Legislative and Administrative Initiatives

Implications of WRDA '86 and Other WRDAs

The Water Resources Development Act of 1986 (WRDA '86) and other "WRDAs" are omnibus water bills which provide congressional authorization for Corps of Engineers projects across the nation. The first WRDA was passed in 1974. Prior to 1974, Congress authorized the Corps' flood damage reduction and navigation enhancement projects in the same bill but under different titles, River and Harbor, and Flood Control Acts, respectively. Since the 1974 bill, WRDAs have been passed in even-numbered years, though not necessarily every even-numbered year (there was no WRDA in 1998, for example). WRDA '86 was significant in that it released several years of pent-up demand and significantly changed the relationship between the Corps and local project interests. In particular, it called for significant changes in water project cost-sharing arrangements, resulting in greater financial and decision making roles for local stakeholders. Its centerpiece was a set of cost-sharing provisions that placed greater economic responsibility on nonfederal interests. This was not the first time Congress mandated cost sharing between the federal government and local sponsors. The 1936 Flood Control Act, for example, required nonfederal sponsors to provide land easements for some flood damage reduction projects, and other cost-sharing arrangements date back even further (e.g., to the 1920s for projects along the Lower Mississippi River). But the cost-sharing regulations in RDA '86 for the first time stipulated actual cash contributions for most types of projects. Prior to WRDA '86, neither flood control costs for reservoirs nor harbor navigation projects had any cost-sharing arrangements; with the passage of WRDA '86, local sponsors had to provide cash contributions for these projects.

Advocates of these new cost-sharing rules promised that the allocation of federal funds to Corps projects would result in more efficient use of tax dollars because water projects would have to meet the test of the market. They reasoned that if a local project sponsor was neither capable nor willing to share the costs of a project, it was not worth building and that only truly good projects would receive local financial backing and be constructed. Advocates also argued that the legislation would spread a limited construction budget across a greater number of projects.

WRDA '86 greatly changed the way new projects would be studied and evaluated and it established a framework that promoted federal-nonfederal partnerships. Local sponsors were given a greater role in project planning and became more cost-conscious. Subsequent federal Water Resource Development



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--> 2 The Water Resources Development Act of 1986 and Other Legislative and Administrative Initiatives Implications of WRDA '86 and Other WRDAs The Water Resources Development Act of 1986 (WRDA '86) and other "WRDAs" are omnibus water bills which provide congressional authorization for Corps of Engineers projects across the nation. The first WRDA was passed in 1974. Prior to 1974, Congress authorized the Corps' flood damage reduction and navigation enhancement projects in the same bill but under different titles, River and Harbor, and Flood Control Acts, respectively. Since the 1974 bill, WRDAs have been passed in even-numbered years, though not necessarily every even-numbered year (there was no WRDA in 1998, for example). WRDA '86 was significant in that it released several years of pent-up demand and significantly changed the relationship between the Corps and local project interests. In particular, it called for significant changes in water project cost-sharing arrangements, resulting in greater financial and decision making roles for local stakeholders. Its centerpiece was a set of cost-sharing provisions that placed greater economic responsibility on nonfederal interests. This was not the first time Congress mandated cost sharing between the federal government and local sponsors. The 1936 Flood Control Act, for example, required nonfederal sponsors to provide land easements for some flood damage reduction projects, and other cost-sharing arrangements date back even further (e.g., to the 1920s for projects along the Lower Mississippi River). But the cost-sharing regulations in RDA '86 for the first time stipulated actual cash contributions for most types of projects. Prior to WRDA '86, neither flood control costs for reservoirs nor harbor navigation projects had any cost-sharing arrangements; with the passage of WRDA '86, local sponsors had to provide cash contributions for these projects. Advocates of these new cost-sharing rules promised that the allocation of federal funds to Corps projects would result in more efficient use of tax dollars because water projects would have to meet the test of the market. They reasoned that if a local project sponsor was neither capable nor willing to share the costs of a project, it was not worth building and that only truly good projects would receive local financial backing and be constructed. Advocates also argued that the legislation would spread a limited construction budget across a greater number of projects. WRDA '86 greatly changed the way new projects would be studied and evaluated and it established a framework that promoted federal-nonfederal partnerships. Local sponsors were given a greater role in project planning and became more cost-conscious. Subsequent federal Water Resource Development

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--> Acts further encouraged local interests to become more active stakeholders. As a result, nonfederal sponsors, having made substantial investments in project studies, have tended to become impatient with the Corps' planning process. Cost-Sharing Provisions of WRDA '86 WRDA '86 initiated the sharing of construction costs of virtually all types of civil works projects. The cost-sharing requirements for the nonfederal sponsors developed in WRDA '86 are summarized in Table 2.1, and an example of the implications of these new arrangements is provided in Box 2.1, which compares cost-sharing arrangements before and after WRDA '86. Changes initiated by WRDA '96 are not included in either. The committee was especially interested in determining if these cost-sharing criteria contained any biases against nonstructural flood damage reduction projects. As described in Box 2.1, the committee found that no such biases were intended to result from the WRDA '86 cost-sharing criteria. Table 2.1 lists cost-sharing criteria for structural and nonstructural projects; the distinction between the two is important. In Corps terminology, a nonstructural project is one that does not store or divert flood flows away from an inhabited area, whereas a structural project uses dams or levees to keep flood waters away from buildings and other infrastructure. A nonstructural project might include raising buildings above the high-water mark, relocating a community, or taking some other action that does not alter high flows. A structural project includes any structure designed to keep water away from an inhabited area. Broadening the Scope of Corps Water Planning Since the mid-1980s, legislation has expanded the types of studies and projects the Corps is allowed to undertake, especially when environmental outputs are a main objective. In WRDA '96, many programs authorized between WRDA '86 and WRDA '92 were enlarged and broadened. Several of the major changes are summarized in Table 2.2. In addition, many new environmental programs and projects were authorized in WRDA '96 (Table 2.3). It should be noted that no further congressional authorization is generally needed to implement the recommendations, although modifications to broaden or increase the appropriations ceilings specified are likely to be necessary. The basic difference in the traditional study-to-construction process is that no further authorization is required for those programs authorized for construction. These tables suggest that the Corps is looking for innovative, cost-effective and technically sound solutions to a variety of water-related environmental problems. Risk and Uncertainty Issues Treatment of risk and uncertainty in the planning of Corps of Engineers projects has been among the organization's critical planning issues in the 1990s. The

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--> Box 2.1 The Effects of Cost-Sharing Arrangements on Flood Damage Reduction Alternatives The committee reviewed the changes in cost-sharing criteria contained in WRDA '86 with an eye toward understanding any biases that might exist either in favor of or against nonstructural projects. The committee was particularly interested in examining the argument that because nonfederal sponsors were required to provide lands, easements, rights of way, relocations, and disposal areas (LERRDs) for nonstructural projects, they would tend to reject nonstructural, land-intensive alternatives. The structural-nonstructural dichotomy is somewhat misleading. Nonstructural alternatives may include large amounts of structural modifications to properties at risk. The term "structural" usually refers to projects that include dams, dikes, levees, and diversions to modify the flow of flood waters. "Nonstructural" usually refers to projects that involve modifications to properties to reduce their susceptibility to flood damage, but a nonstructural alternative may result in a substantial cost to modify residential, commercial, industrial, or publicly owned structures. Relocation or flood-proofing of housing and buildings at risk to floods would be considered a nonstructural option involving costs to move or flood-proof large numbers of structures. The following table provides an example of nonfederal shares of costs for flood damage reduction projects with various mixes of land and construction costs. The figures for LERRDs and construction costs are based upon WRDA '86, which established the following cost-sharing criteria: for structural projects, the local sponsor is responsible for LERRDs plus a minimum 5 percent cash contribution, ranging from a minimum of 25 percent to a maximum of 50 percent of total costs; in nonstructural projects, the local sponsor is responsible for 25 percent of total project costs. In searching for possible biases contained within cost-sharing requirements, five hypothetical flood damage reduction projects are described, all costing $80 million. They range from a project with a high amount of construction costs and low land acquisition costs (Project A: $75 million construction, $5 million LERRDs), to a project with low construction costs and high land acquisition costs (Project E: $15 million construction, $65 million LERRDs). With the passage of WRDA '86, the nonfederal share of nonstructural projects was set at 25 percent ($20 million in each of the table's nonstructural projects). The nonfederal share of structural projects ranged between a minimum of 25 percent (Project A) and a maximum of 50% (Projects D and E). In the example of post-WRDA '86 Projects A and B, the local sponsor would be indifferent toward a structural vs. nonstructural project (both at 25 percent of total cost, or $20 million). However, as LERRDs increase, the nonstructural projects are more economically attractive to the local sponsor; they are capped at 25 percent, whereas the share for structural projects ranges up to 50 percent All other things (than the cost-sharing requirements) being equal, local sponsors will favor nonstructural alternatives in more land-intensive projects. The issues related to selection of a preferred project alternative are very complicated and deserve greater attention by the Corps. Cost-sharing considerations, though important, are not the sole criteria upon which project selection is based Benefit-cost analysis has always been complex and controversial, and the Corps may have inherent institutional biases as an engineering organization that favors structural alternatives.

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--> Based upon the cost-sharing criteria within WRDA '86, it is clearly not intended that the nonfederal share of a nonstructural alternative be more expensive than the structural option of comparable total costs. There was a change in the cost-sharing formula of flood damage reduction projects authorized after WRDA '96: the local sponsor's share of the cost of nonstructural projects was raised from 25 percent to 35 percent, and the minimum share of a structural project has also been raised from 25 percent to 35 percent. The upshot is that in many projects the cost to the local sponsor of a nonstructural and structural project will be identical. A nonstructural project will represent the cheaper option only when it has a large portion of costs in LERRDs. Although biases for structural projects may exist within the Corps (or with the local sponsor), they do not appear to be inherent in cost-sharing arrangements. Cost-Sharing Arrangements for Hypothetical Structural and Nonstructural Flood Damage Reduction Projects, 1986-1996 (all values in millions of dollars)     Nonfederal Share Project Cost Structural Nonstructural Project A LERRDs 5 5 5 Construction 75 15 15 Total 80 20 20 Project B LERRDs 15 15 15 Construction 65 5 5 Total 80 20 20 Project C LERRDs 30 30 20 Construction 50 4 0 Total 80 34 20 Project D LERRDs 40 36 20 Construction 40 4 0 Total 80 40 20 Project E LERRDs 65 36 20 Construction 15 4 0 Total 80 40 20 NOTES: Prior to WRDA '86, structural nonfederal cost sharing consists of LERRDs only with the maximum contribution of 50% of total costs. Between WRDA '86 and WRDA '96, structural, nonfederal cost sharing consists of LERRDs and a minimum 5% cash contribution. The range of the total nonfederal share is between 25% and 50%. Prior to WRDA '86 (commencing with the Flood Control Act of 1974), the nonstructural, nonfederal cost sharing consists of 20% (whether LERRDs or cash). Between WRDA '86 and WRDA '96, nonstructural, nonfederal cost sharing consists of 25% (whether LERRDs or cash).

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--> Table 2.1 Corps of Engineers Civil Works Projects Cost Sharing Formulas   Federal/Nonfederal Construction Cost Sharing Federal/Nonfederal O&M Project Purpose Pre-WRDA '86 Post-WRDA '86 Pre-WRDA '86 Post-WRDA '86 I. Navigation         Harbor projects   LERRDs Generally 100% nonfederal. LERRs are 100% nonfederal dredged material disposal areas are cost-shared as a GNF. Generally 100%.   General navigation Features 100% federal Nonfederal 10% for depths < 20 ft + 25% for depths >20 ft<45 ft. 50% for depths >45 ft. Generally 100% federal. Generally 100% federal. Inland waterways   LERRDs Varies between 100% federal to 100% nonfederal. Replacement locks generally 100% federal.     Construction 100% federal. 100% federal, of which 50% of the costs of projects authorized to be funded in part of IWWTF is derived through fuel taxes paid into the fund. General 100% federal. Generally 100% federal. II. Flood Control         Structural   LERRDs 100% federal for reservoir projects; 100% nonfederal for local protection projects. 100% nonfederal for all structural projects. 100% federal for reservoir projects; 100% nonfederal for local protection projects. 100% nonfederal for all structural projects Construction Generally 100% federal. Minimum of 25% nonfederal and a maximum of 50% (to include the value of LERRDs). A minimum of 5% of the nonfederal share must be cash. (1) 100% federal for reservoir projects (2) 100% nonfederal for local protection projects. 100% nonfederal for all structural projects.     For projects authorized after WRDA '96, the minimum nonfederal share is 35%.    

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-->   Federal/Nonfederal Construction Cost-Sharing Federal/Nonfederal O&M Project Purpose Pre-WRDA '86 Post-WRDA '86 Pre-WRDA '86 Post-WRDA '86 Nonstructural   LERRDs 100% nonfederal except that it shall not exceed 20% of project costs. 100% nonfederal except that it shall not exceed 25% of project costs (raised to 35% for projects authorized after WRDA '96). 100% nonfederal. 100% nonfederal. Construction 20% nonfederal; the value of LERRDs counts against this percentage. 25% nonfederal (or 35% for projects authorized after WRDA '96). The value of LERRDs counts against this percentage. 100% nonfederal. 100% nonfederal. III. Hurricane and storm damage reduction         Beach-type projects   LERRDs 100% nonfederal. 100% nonfederal. 100% nonfederal. 100% nonfederal. Construction (including periodic nourishment) Generally 50% nonfederal based on recreation cost sharing. 35% nonfederal, including credit for the value of LERRDs. 100% nonfederal. 100% nonfederal. Hurricane walls/levees   LERRDs 100% nonfederal. 100% nonfederal. 100% nonfederal. 100% nonfederal. Construction Generally 35% nonfederal. 35% nonfederal. 100% nonfederal. 100% nonfederal. IV. Improvement of the environment         Project modifications Not generally considered for implementation prior to WRDA'86. 25% nonfederal; additional LERRDs required count toward this percentage. Did not exist. 100% nonfederal. Aquatic ecosystem restoration Not generally considered for implementation prior to WRDA '86. 35% nonfederal; LERRDs count toward this percentage. Did not exist. 100% nonfederal.

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-->   Federal/Nonfederal Construction Cost Sharing Federal/Nonfederal O&M Project Purpose Pre-WRDA '86 Post-WRDA '86 Pre-WRDA '86 Post-WRDA '86 V. Other project purposes         Recreation         Reservoir projects 50% of separable costs nonfederal from 1965 to 1986. 50% of separable costs nonfederal. 100% federal prior to PED in 1965. Thereafter, 100% nonfederal. 100% nonfederal.   Prior to PED in 1965, 100% federal.       Local production projects (flood control) 50% of joint and separable costs nonfederal. 50% of joint and separable costs nonfederal. 100% federal prior to PED in 1965. Thereafter, 100% nonfederal. 100% nonfederal. Navigation projects (Deep Draft, Shallow draft and Inland 50% of joint and separable costs nonfederal. 50% of joint and separable costs nonfederal. 100% federal prior to PED in 1965. Thereafter, 100% nonfederal. 100% nonfederal. Municipal and industrial water supply 100% nonfederal. 100% nonfederal. 100% nonfederal. 100% nonfederal. Agricultural water supply ????? 35% nonfederal. The value of LERRDs counts against that percentage. 100% nonfederal. 100% nonfederal.

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--> Table 2.2 WRDA'96 Modification of Prior Environmental Programs Section in WRDA'96 Modified Section     Prior Authorization Overall Description of Currently Authorized Programs Comments 204 1135 WRDA'86 Restoration of Environmental Quality: Program for modification of existing Corps projects. Focus is on environmental improvement. WRDA'96 broadened Section 1135 Demonstration Program. $5 million federal limit per project with $25 million annual limit. Guidance to Field in EC1105-2-214 September 1997. 205 312 WRDA'90 Environmental Dredging: Permits use of O&M funds to remove contaminated sediments outside of the boundaries of and adjacent to the navigation channel to comply with Federal Water Pollution Control Act. Work also allowed in navigable waters of the United States, with 50% cost-sharing. $20 million federal limit per year priority projects identified in modified Section 205. 207 204 WRDA'92 Beneficial Uses of Dredged Material: Authorizes a program for carrying out projects for the protection, restoration, and creation of aquatic and ecologically related habitats including wetlands. Must be linked to dredging. Requires 25% nonfederal cost sharing and 100% nonfederal O&M; $15 million annual limit. 210 103 WRDA'86 Cost Sharing for Environmental Projects: New cost-sharing category: 35% nonfederal share. PGL No. 48, dated July 21, 199_ clarifies cost sharing for environmental projects. It distinguishes between F&WL mitigation and ecosystem restoration when different cost sharing is appropriate. 504 219 WRDA'92 Environmental Infrastructure: 18 projects identified as eligible for Corps assistance for carrying out water-related environmental infrastructure and resource protection and development projects. WRDA'96 mod. authorized construction for six of the projects with varying authorization of appropriations amounts. Some funds have been provided in recent appropriations acts.

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--> Table 2.3 WRDA'96 New Environmental Programs Section in WRDA'96 Description of Authorized Programs Comments 206 Aquatic Ecosystem Restoration: A new continuing authority with approval of projects delegated to the secretary. If it is determined that the project (1) will improve the quality of the environment and is in the public interest and (2) is cost effective. $5 million federal limit per locality; $25 million maximum per FY; $6 million appropriated in FY 1998 (first year). 503 Watershed Management, Restoration, and Development: Section may provide technical, planning and design assistance to non-Federal interests for carrying out watershed management projects to include environmental restoration and demonstration of technologies for nonstructural measures to reduce flooding impacts. $15 million appropriation authorization; Non-Federal share is 50%; 13 project locations identified. 510 Chesapeake Bay Environmental Restoration and Protection Program: Authorizes a pilot program for environmental assistance to nonfederal interest for design and construction of water-related environmental projects. $10 million appropriation authorization; 25% nonfederal share; $1 million appropriated in FY 1998. 511 Research and Development Program to Improve Salmon Survival: Authorizes acceleration of ongoing R&D, especially in the Columbia River basin. $10 million appropriation authorization for salmon R&D. $12 million authorized for "fish-friendly" turbine development efforts. 528 Everglades and South Florida Ecosystem Restoration: Authorizes a community plan for restoring, preserving, and protecting the South Florida ecosystem. Also calls for accelerating project implementation if otherwise authorized or if consistent with Section 528. $75 million appropriation authorization for FY 1997-1999. Individual Federal project limit is $25 million. 50% is nonfederal cost sharing, except as otherwise noted. 539 Restoration Projects for Maryland, Pennsylvania, and West Virginia: Authorizes technical assistance to nonfederal interests for the purpose of abating and mitigating surface water-quality degradation cause by abandoned mines. Two river watersheds were identified. $1.5 million appropriation authorization for each of the two projects; 50% nonfederal cost sharing.

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--> Corps (and other water resource planners) have recognized for decades the problems associated with uncertainty. Water resource engineers and planning agencies have historically designed dams and other flood damage reduction structures according to a standard "base flood", such as the 100-year flood or the probable maximum flood (PMF). During the 1990s, the Corps began to move away from designing projects around such parameters, and toward the use of risk-based analyses for flood damage reduction. An important policy document in the Corps' move toward the use of risk-based analysis was the Corps' Engineering Regulation, "Risk-Based Analyses for Evaluation of Hydrology/ Hydraulics, Geotechnical Stability, and Economics in Flood Damage Reduction Studies", ER 1105-2-101 (USACE, 1996a). One consideration which led the Corps to embrace the use of risk-based techniques was that the Corps' previous approaches in dealing with risk may have resulted in projects larger than necessary (NRC, 1985). The Corps' Past Treatment of Risk and Uncertainty The Interagency Committee on Water Resources treated risk and uncertainty as components of the discount rate in its Proposed Practices for Economic Analysis of River Basin Projects (1950). It directed that adjustments be made to the discount rate to account for uncertainties that arise between the times when resources are committed to a project and when benefits accrue. The report adopted from the economics literature the classical distinction between two forms of risk. One type, such as droughts and floods, is predictable in that it can be assigned a probability. The other type includes shifts in the economy, technological changes, and other unforeseeable events to which probabilities cannot be assigned using relative frequencies from historical records. Other methods for addressing uncertainty involve the shortening of economic lives of projects, conservative estimates of benefits, and safety margins. That distinction between risk and uncertainty was carried over in the Water Resources Council's Principles and Standards. Risk was characterized as being reasonably predictable on the basis of probabilities assignable to events for which relative frequency information is available. Probabilities are then used to calculate average values of losses from fires, floods, and other uncertain events, thereby establishing certainty equivalents. Uncertainty was characterized by the absence of a basis for assigning probabilities, and the same references to economic and technological change were cited as examples. Treatment of uncertainty was considered a matter of judgment to be discussed in planning reports and incorporated into specific strategies such as flexibility in project designs. Sensitivity analysis was also suggested as an analytical approach to uncertainty. Current Corps Policies Specific guidance for the Corps' use of risk-based analysis is provided in several engineering circulars, regulations, and manuals. Guidelines developed by the

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--> Corps Institute for Water Resources (IWR) offer many examples for each of several project purposes that may be included in the analysis of Corps projects. Risk-based analyses are used to quantify uncertainties in discharge-exceedance probability, stage-discharge, and damage-stage relationships, and to incorporate these into economic and performance analyses of alternatives. The process applies Monte Carlo simulation, a numerical analysis procedure that computes the expected value of damage reduced while explicitly accounting for the uncertainty in basic functions (USACE, 1997a). The Corps' 1996 Engineering Regulation on Risk-Based Analysis, ER 1105-2-101 (USACE, 1996a), mandates two kinds of risk analysis for flood damage reduction studies, one applied to flood events and the other to economic and hydraulic variables. For flood events, regulations state that when standard freeboard (vertical levee height added to the design flood stage level) assumptions or over-engineering standards are applied to project design, performance is to be reported in at least four ways: (1) the annual probability that standards will be exceeded; (2) risks of exceedances over 10-, 20-, and 50- years using the binomial formula; (3) conditional probabilities of non-exceedance of specified events; and (4) percent chance of containing a specified historic event. The regulations also require risk-based analysis for all key economic and hydraulic variables. Whenever possible, probabilities are to be applied to each of the key variables, and benefits and costs, as well as the expected value, are to be estimated on a probability basis. Regulations for analysis of deep draft navigation studies have similar requirements. Risk analysis is to be applied to vessel operating costs, fleet distributions, commodity forecasts, shoaling/sedimentation rates, unit costs of dredging, and unit costs for disposal. Risk analysis must also be applied to commodity forecasts and unplanned closures and estimates of costs due to delays, system capacity, fleet characteristics, foundation conditions, cross-currents in approach channels, filling areas, climatic conditions, competing uses, and high/low flows. In all of these regulations, Corps planners are advised to assign probabilities to each of the listed variables, recalculate all benefits and costs for a large number of combinations of values of those variables, and state those benefits and costs in probability terms. Procedures are suggested for assigning those probabilities in cases where relative frequency data are not available. This approach is generally referred to as Monte Carlo simulation. Use of Risk Analysis The Corps has used RBA techniques for decades, and concepts of risk and risk reduction have long been central to the Corps' flood damage reduction programs. In the early 1990s, the Corps began to pursue expanded applications of RBA techniques. At a Corps-sponsored workshop on Riverine Levee Freeboard in Monticello, MN, in 1991, a basic proposal for the inclusion of risk-based analyses in flood damage reduction studies was offered. Since then, the Corps has steadily

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--> solidified its commitment to the use of RBA techniques through a series of Engineering Circulars (EC) and Engineering Regulations (ER). These expanded applications have proceeded in parallel with encouragement from the Office of Management and Budget (OMB) to adopt risk-based analyses in planning studies. While there have been criticisms of RBA (e.g., difficult to communicate RBA concepts to the public), such criticisms often attend the adoption of new planning approaches, and generally subside as practitioners gain experience with risk-based techniques. Furthermore, the use of previous design standards also had limitations. Contemporary Corps of Engineers practices generally recognize that no structure can provide absolute protection, and that all structures have a point at which they will fail. Risk-based analyses represent a more sophisticated approach than a single standard to cope with uncertainties, and attempt to find appropriate levels at which to design water control structures in different geographical and hydrological settings. A unique case of the application of risk-based techniques was examined in detail by a committee of the National Research Council (NRC, 1995), which was charged to examine flood risk management by the Corps in the American River basin in California. Of particular concern was the estimation of the probability that a flood would exceed a given value at which a protective levee would be overtopped. The city of Sacramento, which lies behind these levees, is considered by many to constitute the greatest potential flood hazard in America. The committee demonstrated that classical statistical approaches to the estimation problem led to biased estimators of exceedance probabilities and estimates of damages. To avoid biases introduced by adjustments to parameter models, the committee recommended that the economic assessment and probability of flooding be based on best estimates of parameters in models with supplementary information about their accuracy derived from Monte Carlo simulations and other methods. The Corps' use of RBA has also attracted congressional attention. Public Law 104-303 (part of WRDA '96), passed on October 12, 1996, directed the U.S. Army to enter into an agreement with the National Academy of Sciences (NAS) to conduct a broader investigation of the Corps' use of RBA in flood damage reduction studies. That investigation is to evaluate the Corps' use of RBA methodology and its implications regarding project formulation, economic justification, value added, and engineering and safety implications. It will also investigate the scientific validity of the Corps' practices. That committee has started its work and is scheduled to complete the study in 2000. Environmental Risk Assessment and Restoration Projects An emerging challenge to Corps planning is the use of environmental risk assessment, especially as it relates to environmental restoration projects. The Corps has a substantial history of evaluating the environmental impacts of water projects. A multiple objective planning model that included environmental quality as well as economic development was set forth by the WRC, which incorporated a more complete version of that model in the P&S. The P&S were influenced by the National Environmental Policy Act (NEPA), and the P&S and NEPA requirements

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--> for environmental impact statements put the Corps at the forefront of environmental analysis. Reducing uncertainty in ecological analysis continues to be a challenge. Earlier NRC committees have expressed concern that the scale of ecosystems is sufficiently large to make scientifically sound sampling very difficult, and that predictive ecological models need to be improved (NRC, 1993). The American River study committee concluded that ecological analysis was too "embryonic" to evaluate (NRC, 1995). Further discussion of the Corps' environmental restoration programs is included in Chapter 5. Adaptive Environmental Assessment and Management The concept of adaptive management has been promoted as a useful approach to natural resource management (water, forests, wetlands) in contexts with high degrees of uncertainty. Adaptive environmental assessment and management (AEAM) emphasizes the use the results of scientific experiments to help adjust and refine future policy decisions. AEAM is codified in a series of case histories, papers, and books by its advocates and practitioners (Gunderson et al., 1995; Holling, 1978; Lee, 1993; Walters, 1986). Many of the case histories involve large sites and resource extraction (fisheries, timber, water supply, hydroelectric dams), but the same approach also applies to smaller sites and to environmental restoration. AEAM incorporates many elements (modeling, risk analysis) that have a long history in natural resources planning and engineering and, more specifically, in well-developed engineering theories of adaptive control processes (Bellman, 1961; Holling, 1978). The treatment of uncertainty within adaptive planning and management is based upon two key concepts. The first is that projects are viewed as a sequence of experimental designs, with results used in an iterative learning process to improve subsequent designs. The second follows from the first: monitoring, assessment, feedback, and adjustments are integral parts of the process and should be included in program design and funding decisions. Although an attractive approach to coping with the uncertainties in environmental restoration, adaptive management does not provide a framework for guiding investment decisions. When the Corps (or any other public or private investor) considers an expensive ecosystem restoration project in which the outcomes are subject to considerable uncertainty, the range of possible investment outcomes, and the likelihood of each outcome, should be considered. Adaptive management suggests a sequential decision making process in which outcomes from one stage can be used to modify subsequent decisions. However, this does not avoid the necessity of judging whether a project should even be initiated, and, given prior outcomes at any given project stage, whether subsequent investments should be made. Because some restoration projects being considered by the Corps involve large expenditures, is it imperative that the Corps develops investment evaluation methods that explicitly account for uncertainties associated with these projects. Treatment of uncertainties in ecological restoration projects is very different from uncertainties in flood damage reduction projects. Hydrologic uncertainty of

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--> flood events can be represented by probability distributions based on relative frequency of events in historical records. By contrast, there are very few historical records of environmental restoration projects in particular ecological settings. Decision analysis is one approach that offers at least a conceptual framework for such an analysis. Decision trees can be used to map the various pathways to which sequences of decisions and their outcomes could lead. A combination of objective and subjective probabilities of following each path can be assessed. Physical, chemical, biological, and economic consequences are then predictable in quantitative and probabilistic terms, and strategies may be devised to cope with those uncertainties. Applications of this type of decision analysis would require research, development, testing, and evaluation. A critical issue is the process by which subjective probabilities would be assigned. Climate Change The climate change issue strongly relates to risk-based analysis. Extreme climate events and changes in variability can skew the hydrologic parameters upon which Corps projects are based. These changes, in turn, can change the reliability of Corps projects. For example, the degree of protection afforded by a Corps flood damage reduction project can change if flood events occur more or less frequently in the future. While the specter of climate change hangs over many of the Corps' planning and management activities, it is not known how climate might change in the future. The available evidence suggests that 20th century global mean temperature, which has increased between 0.3°C and 0.6°C since the late 19th century (Houghton et al., 1996) is at least as warm as any century since 1400 A.D. The climate record also shows that three years in the 1990s—1990, 1995, and 1997—were warmer than any other year since (at least) 1400 A.D. (Mann et al., 1998). It is difficult to prepare for possible future changes in climate, the direction and magnitude of which are not known. However, the possible consequences of dramatic shifts in climate, especially extreme weather events, suggest that the issue be taken seriously. The Corps has been studying the climate change issue extensively for years and continues to keep current with changes and advances in global warming research (e.g., Stakhiv, 1998). The Corps should remain abreast of research on climate change and variability issues, such as El Niño-Southern Oscillation, and their implications for hydrology and water management. Federal agencies such as the National Oceanic and Atmospheric Administration (NOAA) and the U.S. Geological Survey are among the organizations the Corps can call upon to help stay well informed.