Corps of Engineers Water Resources Infrastructure: Deterioration, Investment, or Divestment? (2013)

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4 Options for Improving Operations, Maintenance, and Rehabilitation of Corps of Engineers Water Resources Infrastructure Historically, construction of new infrastructure has dominated the Corps water resources budget and activities. Today, most of the favorable sites and opportunities for water project construction have been developed. National water needs thus have shifted from new project development to operation, maintenance, and rehabilitation (OMR) of existing infrastructure, as well as restoration of ecosystems associated with existing infrastructure operations. Operation and maintenance are now the largest part of the Corps budget (see Figure 2-1). Major rehabilitation and replacement pro- jects are included in the construction budget, while smaller-scale rehabilita- tion and repair projects are performed under the operation and maintenance budget. The federal Water Resources Development Act (WRDA) process has been developed and honed for new water project authorization. WRDA will continue to be important for new projects, but some reorientation in focus by the Congress and the executive branch will be required to elevate the im- portance of the operations, maintenance, and rehabilitation needs of Corps water resources infrastructure. 84 

Options for Improving Operations, Maintenance, and Rehabilitation 85 The national water infrastructure is largely “built out.” Compared to an earlier era, there are fewer opportunities and only a limited number of undeveloped or appropriate sites for new water resources infrastructure. New water projects will be constructed in the future, but the nation’s wa- ter resources infrastructure needs increasingly are in the areas of existing project operations, maintenance, and rehabilitation. In some instances, full project replacement may be needed. As new construction has de- clined since 1980, so too has the Corps civil works budget and hence funds available for OMR. Trends in funding for the Corps over the past three decades make clear this reality. OPTIONS FOR CORPS OF ENGINEERS WATER RESOURCES INFRASTRUCTURE Without insufficient funding to address its many OMR needs, Corps of Engineers water resources infrastructure is not being adequately maintained and rehabilitated. Its future state thus will depend on actions taken, or not taken, in the near future. There is no single, obvious path forward for alter- native funding mechanisms that might be used to fully maintain and up- grade existing Corps infrastructure. The different parts of the Corps water resources infrastructure—inland navigation, flood risk management, hy- dropower, and ports and harbors—are governed by different laws and have different sources of revenue. Those parts of the Corps mission and infra- structure that are most reliant on federal funding and operation face the greatest challenges, while those areas that employ more extensive public- private partnerships (and entail more limited roles for the Corps, such as dredging) enjoy greater flexibility in approaches to funding OMR needs. Moreover, the original justification and purpose for some components of the Corps water infrastructure have become less relevant. Although this may make continued federal support of OMR needs for all infrastructure less vi- able, this will be a matter for the U.S. Congress and the executive branch to decide. In order to identify viable paths for the future of Corps water resources infrastructure, it is useful to consider the range of options available to the Corps, the U.S. Congress, and Corps project beneficiaries. In its public meet- 

86 Corps of Engineers Water Resources Infrastructure ings and field visits, this committee heard a wide range of suggestions for productively moving forward. Those suggestions led the committee to identify potential future paths that might be taken with regard to Corps of Engineers infrastructure: 1. Business as usual. Accept degraded performance, and the conse- quences of gradual or sudden failure of infrastructure components. 2. Increase federal funding for operations, maintenance, and rehabili- tation. 3. Divest or decommission parts of Corps infrastructure to reduce OMR obligations. 4. Increase revenue from direct project beneficiaries for maintenance costs. 5. Expand public-private partnerships for portions of existing infra- structure. 6. Adopt some combination of options 2-5. The choices of which of these options, or combinations of them, repre- sent the best path forward for the Corps, and the nation, will be public poli- cy decisions. Further, different components of the Corps water resources in- frastructure have different OMR challenges and hence different considera- tions with respect to the options. Evaluation of these alternatives provides insights that can help inform the needed public policy decisions. Option 1: Business as Usual With this option, the Corps will continue to operate the existing water resources infrastructure for inland navigation, hydropower, and flood risk management to the best of its ability with inadequate funding, with routine maintenance and repair efforts focused on keeping systems running and minimizing the rate of increase in degraded performance. Major rehabilita- tion projects will be directed only to the most critical facilities and will nec- essarily be conducted over a long period of time because of funding limita- tions. 

Options for Improving Operations, Maintenance, and Rehabilitation 87 Resources from the Corps annual budget (i.e., the general fund of the U.S. Treasury) for new construction and rehabilitation of existing water infrastructure have been declining steadily and are inadequate to cover all OMR needs. Available sources of funding have been inadequate to cover OMR costs, leading to an unsustainable situation for maintenance of ex- isting infrastructure. This scenario entails increased frequency of infra- structure failure and negative social, economic, and public safety conse- quences. The potential extent of these negative consequences is not well understood. Many project beneficiaries, including commercial navigation companies and shippers, and communities with dam and levee rehabilitation needs, see the business-as-usual option as unacceptable. There are projections of sig- nificant negative impacts if current approaches continue (ASCE, 2012b). Barring new direction from Congress that would enable significant changes in current business models and available federal funding, however, the sta- tus quo may be the most likely path forward. Option 2: Increase Federal Funding for Operations, Maintenance, and Rehabilitation Increased federal funding under Option 2 will require a renewed inter- est by Congress and the executive branch to provide more federal resources for rehabilitation of Corps water resources infrastructure. It is worth noting that lack of interest by the Congress to increase OMR funding to a level ade- quate to support existing Corps water infrastructure contributes to a grow- ing rehabilitation and replacement backlog. There has been a long-term declining trend in funding for Corps wa- ter resources infrastructure construction and rehabilitation across numer- ous federal budgets. The future viability of this option is unclear. Option 3: Divest or Decommission Parts of the Corps Infrastructure Current legislation governing Corps activities obligates the Corps to maintain existing infrastructure. This legislation, however, does not give the 

88 Corps of Engineers Water Resources Infrastructure Corps authority to decommission obsolete projects for which the original justification and project purpose are no longer relevant, or to divest itself of projects which are of marginal importance to the Corps mission and for which state/local government or private sector management is feasible. Across the Corps water resources infrastructure inventory, these conditions tend to be most pertinent to inland navigation facilities. The inability of the Corps to divest and decommission infrastructure is an obstacle to focusing available funding on highest-priority OMR needs. Financial stresses placed on the Corps to provide for safe and efficient oper- ation of all existing infrastructure under modern budget realities leads to partial investments in needed OMR across many facilities, rather than larger investments in more critical facilities. Decommissioning and divestment of some components of the Corps water infrastructure would reduce OMR obligations, but such decisions are matters of public policy and would require action by Congress or the administration. Option 4: Increase Revenues from Corps Project Operations For several components of the Corps water resources infrastructure, mechanisms exist to capture revenue from project operation. As discussed in Chapter 3, these mechanisms include the Inland Waterways Trust Fund (IWTF) which collects monies for use in rehabilitation and construction pro- jects on the inland navigation system through a fuel tax on commercial users of the system; the Harbor Maintenance Trust Fund which collects monies to support dredging of harbor channels to their authorized depths and widths through a cargo value tax on maritime shippers; and the allowed use of hy- dropower revenue by some Corps hydropower projects for OMR. With respect to inland navigation, there is potential in higher fuel taxes for commercial shippers and for lockage fees. The IWTF, funded by the fuel tax, is far from adequately funded to meet the rehabilitation needs of the in- land navigation system. Lockage fees could be implemented for commercial users, as well as for recreational boaters. For hydropower, permission for use of some power revenue to be retained for OMR could be extended to all Corps hydropower projects. Currently, only a relatively small number of 

Options for Improving Operations, Maintenance, and Rehabilitation 89 Corps hydropower projects are permitted to retain and use their own reve- nue. Most Corps hydropower revenue is directed to the federal treasury. Hydropower revenues could be increased by improving efficiency of the turbine systems used in Corps hydropower projects, as has been demon- strated by the Tennessee Valley Authority (Sale, 2010). Total generation from Corps hydropower projects decreased by 16 percent from 2000 to 2008. By contrast, the TVA increased hydropower generation 34 percent with the same water availability through efficiency improvements in the 1980s and early 1990s (Sale, 2010). This suggests that at least a 20 percent improvement at Corps hydropower projects with current water flows may be obtainable and would provide significant new revenues. Opportunities exist for expansion of revenue capture from water re- sources infrastructure, especially for inland navigation and hydropower projects. However, legal and other barriers will necessitate congressional action to expand such revenue streams. Option 5: Expand Partnerships Although some components of the Corps water infrastructure entail shared responsibilities and activities with private entities, public-private partnerships are utilized only in a limited manner to support operations for much of Corps water resources infrastructure. Broader use of public-private partnerships would offer a range of possibilities for bringing new resources and potentially more efficient methods to OMR of Corps water resources in- frastructure. As discussed in Chapter 3, there are sophisticated public-private part- nerships in place at port facilities around the United States, involving part- nerships between state and local governments and private entities, with the Corps having a limited but important role related to navigation dredging. Distribution of responsibilities between federal, state, and local governments in OMR of port facilities could serve as a model for other Corps water re- sources infrastructure. Direct engagement of the Corps in public-private partnerships (PPP) in hydropower projects was discussed in Chapter 3. There are 90 nonfederal hydropower projects in place at Corps dams, as well as opportunities for 

90 Corps of Engineers Water Resources Infrastructure expanded public-private partnerships in hydropower at Corps facilities. If increased funding for OMR at Corps hydropower projects will not be feasi- ble either through federal budgeting or allowance of more projects to cap- ture power revenue for OMR, some of the projects could be turned over to private-sector organizations to operate and maintain. The regulatory and li- censing infrastructure exists to do this, but there would be political and legal challenges that need to be addressed in order to expand such partnerships at hydropower projects. Although the Corps consults with private sector users on OMR of the inland waterways system, and those users help to support part of OMR needs through a fuel tax directed to the IWTF, OMR of the inland navigation system is largely the responsibility of the Corps and the federal government. As discussed in Chapter 3, portions of the Gulf and Atlantic Intracoastal Wa- terway system are managed by the states. Through interactions with the In- land Waterways Users Board, the Corps regularly engages with the private sector users of the inland waterways system on issues of OMR prioritization and priorities for capital expenditures from the IWTF (e.g., IMTS Capital In- vestment Strategy Team, 2010). Greater private sector, or state government, involvement in overall management of the inland waterways system, how- ever, likely would entail some barriers and challenges. Multiple criteria, in- cluding social and environmental considerations, for operations and maintenance will continue to be important, certainly requiring some level of Corps oversight. Nevertheless, there may be good opportunities for public- private partnerships for operation and maintenance of the inland navigation system that merit investigation. Expansion of public-private partnerships will in most instances require congressional action. The potential public-private and other kinds of partnerships that offer the best opportunities for more efficient OMR activities are not immediately clear As this report has documented, PPP arrangements are complicated, may take years to develop, and are affected by site-specific circumstances. Moreover, greater private sector participation in Corps water infrastructure OMR will not be merited or desirable in all circumstances. Given the many complexities and uncertainties surrounding partnership prospects, with pri- vate sector entities as well as state and local governments, a credible evalua- tion of promising opportunities could help identify the most immediate, promising prospects. 

Options for Improving Operations, Maintenance, and Rehabilitation 91 This evaluation ideally would be conducted by independent and credi- ble organization with good knowledge of Corps of Engineers functions, pol- icies, and activities. If the Corps itself were to conduct such an evaluation, it could put the Corps in an awkward position and there could be questions about objectivity. An independent entity outside of the Corps of Engineers, with relevant expertise and knowledge of water infrastructure operations and financing, would be a preferred option. The U.S. Congress and/or the administration should commission an investigation of opportunities for additional and different kinds of part- nerships for operation and maintenance of Corps water resources infra- structure. Partnerships investigated should include both those with pri- vate entities and those with state and local governments. The investiga- tion should be conducted by an entity independent of the Corps of Engi- neers. Option 6: Some Combination of Options 2-5 THE NEED FOR FEDERAL LEADERSHIP AND ACTION Moving forward with “business as usual” with respect to OMR of the aging Corps water resources infrastructure is unsustainable, as discussed under Option 1. The underfunding situation is especially critical for those parts of the Corps water resources infrastructure that are most reliant on federal funding: inland navigation, hydropower, and flood risk manage- ment. Trends in infrastructure deterioration and the limited OMR resources lead toward degraded performance, and failures, of the national water re- sources infrastructure. Infrastructure in all transportation, trade, communi- cations, and other sectors eventually wears out and is either razed or re- placed. If resources for adequate OMR simply are unavailable, this reality should be recognized and plans should be made accordingly. In the long run, it will be more costly to ignore these realities and allow national water infrastructure to continue to degrade, with no plans for divestment, de- commissioning, or retiring old infrastructure. This path will result in unnec- 

92 Corps of Engineers Water Resources Infrastructure essary costs, infrastructure evolution dictated by variable degradation and failure rates, and costly negative surprises. Wise investment of limited resources in the nation’s water resources in- frastructure requires that priorities be established for infrastructure OMR, as well as inevitable divestment, or decommissioning, of some portions of the existing infrastructure. More sustainable future investments, operations, and maintenance of infrastructure also will entail stronger reliance on prin- ciples of economic efficiency, including more systematic use of the ‘user pays’ principle. It also will entail limited government subsidies and in- volvement in areas in which market-based principles will guide efficient de- cisions. Existing congressional processes for identifying, authorizing, funding, and implementing projects were developed when the United States was building water resources infrastructure. Today, many parts of the nation’s water resources infrastructure might be considered as completed, with to- day’s main needs in the areas of project operation, maintenance, and rehabil- itation. The current water project development and oversight process is not well designed for the modern, OMR-focused era. In particular, the use of the WRDA for congressional oversight and direction of water resources management is not adequate to today’s OMR challenges. WRDA provides a collection of projects, but without any prioritization. Unlike the system of federal-state-local cooperation on highway OMR, and the related criteria to determine federal interest, there is no similar arrangement between local level interests, the Congress, the administration, and the Corps for water re- sources projects. Setting explicit national-level OMR priorities for federal water infra- structure—including decommissioning decisions—would represent a de- parture from the familiar, traditional WRDA process. As this report has ex- plained, however, this action is today essential for sound investments in and management of a deteriorating national water infrastructure. Neither the executive branch nor the U.S. Congress has established a comprehensive process for setting OMR priorities for Corps water project investments. During an earlier era of expansion of national water infrastruc- ture, there was little need for such a process. Today, however, in a setting of increasing importance of OMR, this type of a process is increasingly neces- sary to identify high-priority investments of limited federal resources. The 

Options for Improving Operations, Maintenance, and Rehabilitation 93 lack of a process for high-level prioritization is a considerable impediment to more efficient and timely investments in critical Corps infrastructure. The lack of such a process also inhibits the ability to identify water projects that are candidates for divestment and decommissioning. The Corps effectively makes decisions about priorities within its allotted annual budgets. The agency, however, lacks broader authority for higher-level, policy-based pri- oritizations, such as those that would lead to infrastructure divesture or de- commissioning. More specific direction from the U.S. Congress regarding priority OMR investments for Corps water infrastructure will be crucial to sus- taining the agency’s high-priority and most valuable infrastructure. The executive branch also could play a more aggressive role in promoting dia- logue between the Corps and the Congress on existing infrastructure in- vestment needs and priorities.