This chapter discusses funding options for the inland waterways commercial navigation system other than reliance for the most part on federal general revenues. The immediate users of the inland waterways are the companies operating the barge tows that move commercial freight. They are the focus of this chapter. However, the burden of payments by the barge industry is not borne fully by the operators, and they do not enjoy all the benefits. The industries that use barge shipping benefit from the low cost of shipping their products, mostly commodities that are low in value relative to their weight such as coal, petroleum and petroleum products, food and farm products, chemicals and related products, crude materials, and to a lesser degree manufactured goods and equipment. These commodities are sold for a price that is set by the market. If barge companies become the direct payers of a new user charge, their cost may be passed on in whole or in part in the form of increased costs to the shippers of these commodities and, in turn, to the producers and consumers of the commodities.
The first section below describes the taxes or fees that might be paid by companies operating the barge tows that move commercial freight. The options could be used alone or in various combinations. The next section describes criteria for evaluating the payment options: economic efficiency, revenue potential, distribution of burden, ease of administration, user support, and need for congressional action. These criteria were derived from the committee’s review and understanding of the ongoing political discussions over who might pay for the inland waterways navigation system and were informed
by reports of the Congressional Budget Office (CBO) (1992) and the U.S. Government Accountability Office (GAO) (2008). The criteria have been explicitly or implicitly used to justify various payment systems and are subject to debate. No single criterion is proposed as most important; the aim of the chapter is to inform discussions concerning the choice of one or more of the options. Policy makers may decide that one criterion should carry more weight than others. The next section of the chapter explains that a trust fund different from the current Inland Waterways Trust Fund (IWTF) would be needed for revenues collected to operate and maintain the inland waterways system, since the IWTF is designated for capital expenditures. The disposition of facilities and segments that have limited or no commercial freight is then discussed. The final section summarizes the chapter’s findings and conclusions.
Options for Increasing User Payments for Commercial Navigation
User charges for the inland waterways system can take the form of a dedicated tax or user-specific fees.1 The inland waterways barge fuel tax, a dedicated tax, involves a required payment to a government entity to be used for funding construction and other capital expenditures for the inland waterways system.2 As discussed below, a dedicated tax on barge fuel to fund operations and maintenance (O&M) of the inland waterways system would be more in line with the concept of economic efficiency. In recent years, proposals have been made to add to or replace the inland waterways barge fuel tax with user-specific fees. In contrast to a tax, user-specific fees are direct charges paid by an identifiable user in exchange for the opportunity to pass through a lock or use a portion of the waterways. Failure to pay the fee results in being excluded from the use of a service (i.e., denial of passage through a lock, use of a particular segment, or passage
________________
1 Consistent with the terminology of GAO, “user-specific fee” refers to a fee for use of a specific part of a system, such as a waterway segment or facility (GAO 2008).
2 Not all waterways are taxed, nor are fuel taxes collected on all taxable waterways. Appendix A shows waterways subject to the fuel tax and where fuel taxes are collected.
during times of peak traffic). User-specific fees have been proposed in addition to the dedicated tax user charges discussed above as a way to increase the economic efficiency of system use, as explained in more detail in the subsections under Criteria for Assessment of Options, and to secure additional revenue.
User-specific fees can take a variety of forms, including annual licensing fees (applied to towboats or barges on a segment basis or systemwide), congestion fees (a charge for passing through a lock during peak traffic periods), segment charges, and lockage fees (a charge for passing through an individual lock). Depending on goals for the fee, a user-specific fee can be combined with a fuel tax (CBO 1992).3
CBO, GAO, and the Congressional Research Service have prepared extensive descriptions and analyses of these alternatives.4 A number of recent proposals for inland waterways funding have promoted movement toward a user-based funding approach. Box 5-1 summarizes recent administration proposals and the Inland Waterways Users Board’s (IWUB’s) proposal, the capital projects business model (Inland Marine Transportation System Capital Investment Strategy Team 2010). Although Congress passed an increase in the barge fuel tax in 2014, it has not supported user charge proposals that have included one or more user-specific fees. (See Chapter 3, Box 3-3, for a brief history of user fee proposals made by previous administrations
________________
3 According to GAO (2008, 4–5), a user fee is a charge assessed to users of goods or services provided by the federal government and is normally related to the cost of the goods or services provided; thus, a user fee is related to a voluntary transaction or request for government goods or services beyond what is normally available to the public. Taxes arise from the government’s sovereign power to raise revenue and need not be related to benefits received but only to an individual’s ability to pay. However, fees vary with the availability of reasonable substitutes in the degree to which they can be considered voluntary. User fees may also be collected through a tax such as an excise tax. As explained by GAO (2008, 4), “the legal distinction between a ‘fee’ and a ‘tax’ can be complicated and depends largely on the context of the particular assessment. Whether a particular assessment is statutorily referred to as a tax or a fee is never legally determinative. Instead, federal courts will examine the structure and the context of the assessment’s application.” The trade-offs in deciding between payment options often can apply to both a tax and a fee.
4 GAO (2008) assessed how design features may influence the effectiveness of federal user fees. The report examines how the economic efficiency, equity (referred to in this report as distribution of burden), revenue adequacy, and administrative burden of fees are affected by how the fees are set, collected, used, and reviewed. CBO (1992) analyzed alternatives for funding the inland waterways system. The Congressional Research Service (Stern 2014) has summarized recent proposals for the inland waterways system.
BOX 5-1
Recent Administration and Shipping Industry Proposalsa
In 2008, the Bush administration submitted a legislative proposal to the 110th Congress for a lock usage fee to replace the fuel tax. Charges to commercial barges of $50 to $80 for lock chambers longer than 600 feet and $30 to $48 for lock chambers less than 600 feet per lockage per barge would have been phased in through the end of calendar year 2012. IWTF balances would have been tied to this user fee at the end of 2012: lockage fees would be raised when the IWTF balance fell below $25 million and lowered when the balance exceeded $75 million. The proposal would have resulted in the industry paying considerably more than it does under the fuel tax. Congress did not support this proposal.
In 2010 and 2011, the Obama administration proposed a user fee that could either replace or supplement the fuel tax. It proposed a two-tier funding structure in which all shippers would pay the fuel tax (on both currently taxed waterways and waterway segments that would be added to the fuel-taxed waterways). In addition, an annual lockage fee would be paid by tows for passing through locks. This approach is close to one set forth by GAO (2008) for a two-part fee for users. Under the Obama administration proposals, Congress would set the fee level to reach revenue targets of the administration, which suggests that raising revenue from users was the main purpose of the proposals. The proposals were not accepted by the 111th or the 112th Congress. The administration’s budget request for FY 2015 was less complex and included an unspecified user fee, but this proposal was not included in the 2014 Water Resources Reform and Development Act (WRRDA).
Industry users of the inland waterways have almost universally opposed user-fee funding. However, a proposal to increase the fuel tax to fund new construction was supported by IWUB in its capital projects business model report (Inland Marine Transportation System Capital Investment Strategy Team 2010) and passed by the 113th Congress. The annual revenue generated by the barge fuel tax is typically between $80 million and $85 million. The new rate, $0.29 per gallon, is $0.09 (45 percent) above the current tax of $0.20 per gallon and is estimated to raise $123 million annually. [This
________________
a See Stern 2014 for additional details on these proposals.
projection is largely consistent with a recent estimate conducted by Dager (2013) for the U.S. Army Corps of Engineers (USACE) on the basis of 2011 towboat trip reports recorded by USACE’s Waterborne Commerce Statistics Center. The analysis indicated revenue increases from $97,041,270 to $108,238,340, if it is assumed that all taxes due are collected.] Even after the $0.09 increase, the shortfall in funds for the system remains substantial: on the basis of the FY 2015 budget, the total cost of the inland waterways system was $834 million. O&M was 77 percent of the total cost and, according to authorizing legislation, cannot be paid for with revenues generated from an increase in the fuel tax. Like the original tax of $0.20 per gallon, the increased fuel tax would not be indexed for inflation and would not include a capital recovery mechanism linking future taxes to expenditures. Any action on these concerns would require separate legislation and falls under the jurisdiction of the House and Senate taxation committees.
and Box 5-1 for more recent proposals to supplement or replace the fuel tax with other user fees.)
Administration and commercial navigation industry proposals have only addressed increased revenues for the IWTF, which, according to current law, is designated only for payment of capital costs (capacity expansion, replacement, and major rehabilitation). None of the proposals has explicitly focused on the need for a reliable source of funding for operating and maintaining the system.5 With increasing budget pressures, Congress may seriously consider proposals for users to pay more of the system costs, especially costs associated with day-to-day use and repairs to maintain reliable freight service, which now account for most of the inland navigation budget. The next section describes criteria and related considerations in choosing among user payment options.
________________
5 However, in its 2011 budget options report, CBO included a proposal to increase user fees on inland waterways to a level sufficient to cover the costs of construction and O&M. CBO projected that such a change would save approximately $4 billion over a 10-year horizon (CBO 2011, 105).
Criteria for Assessment of Options
The purpose of this section is to advance policy makers’ understanding of the range of facts to be considered and the trade-offs to be made in deciding among options for funding, not to recommend funding alternatives. Table 5-1 presents the various payment options (see the row headings in the table) and criteria for evaluating the options: promotion of cost-effectiveness, revenue potential, distribution of burden, ease of administration, promotion of user support for cost-effective expenditures, and congressional authorization (see the column headings). The subsections that follow present key considerations in evaluating each of the payment options according to these criteria. A complete analysis of the advantages and disadvantages of a policy decision would depend on the details of how each type of fee is structured and implemented. [CBO (1992) and GAO (2008) present a more detailed analysis of the options.]
DIRECT PROMOTION OF EFFICIENT USE OF WATERWAY RESOURCES
The design of a user payment strategy can promote a waterways system that uses resources more efficiently (CBO 1992). The requirement that users of the system pay for its costs generates signals concerning the value of the system to the users and whether the benefits of the system justify the costs. In the private sector, payments by purchasers of a good or service send a clear signal concerning whether the purchasers are willing to pay the costs associated with providing it. Similarly, if users of the inland waterways system pay for the costs of navigation service on the various parts of the system (on a river segment or at a lock and dam facility), the payments show which parts of the system are cost-effective components of the national freight transportation system and should be maintained (GAO 2008). Parts of the system for which shippers are not able or willing to pay may be discontinued or justified under revenue streams other than federal navigation funding, as discussed later.
From an economic perspective, user charges should be related to use of the system and should be equal to the marginal cost that users impose. This approach enhances economic efficiency by ensuring that
TABLE 5-1 Framework for Assessing User Payment Options
| Charge to Users | Direct Promotion of Efficient Use of Waterway Resources | Revenue Potential | Distribution of Burden | Ease of Administration | Promotion of User Support for Cost-Effective Expenditures | Required Congressional Authorization |
| Increased or redirected fuel taxa | ||||||
| Segment license fee | ||||||
| Annual license fee (fixed) | ||||||
| Lockage charges | ||||||
| Congestion fees | ||||||
NOTE: The table shows a framework for evaluating the user payment options. A complete analysis would entail the gathering of facts for each cell in the table and consideration of trade-offs among the criteria and any other factors that policy makers choose to consider in making a decision.
a Under current law, fuel tax revenues are to pay only for part of construction and not for O&M.
resources are allocated to their highest-valued use as users weigh the costs and benefits of various aspects of the system and change their behavior accordingly (GAO 2008). In the case of the inland waterways system, the facilities are already in place, so short-run marginal costs are the costs of operating and maintaining the locks and dams (associated with the passage of each vessel) and maintaining channel depths.
However, strict adherence to short-run marginal cost pricing principles may not be feasible for the inland waterways system or may not provide funds sufficient for both O&M and capital investment. New construction is characterized by large fixed capital investment costs. Fixed costs of the system (the cost of building locks and dams) are set expenses that do not vary with the amount of activity such as barge traffic. When marginal costs are low relative to the fixed costs of the system (as is the case for waterways), setting the fee at the marginal cost may not cover the fixed costs of the system. In such cases, the fees could be set above the marginal cost, or allocations from the general fund could be used to help make up the difference.
In addition, marginal costs are incurred for passing tows, such as labor to operate the locks and wear and tear on the infrastructure. Pricing a service or good on the basis of marginal cost makes practical sense in many circumstances, but implementation of such pricing is extremely complex for the inland waterways system. Marginal costs for the inland waterways system would be difficult to assess and would fluctuate significantly with traffic delays and lock unavailabilities.6 Despite these realities, some reports have suggested complicated pricing strategies that are intended to approximate marginal cost pricing (see, for example, GAO 2008). None of these more complicated systems has received support in the executive branch or in Congress.
Another consideration is that user charges can be imposed either systemwide or at specific facilities or waterway segments with user-specific fees. If the purpose is to promote a national freight system, a nationwide fee, such as a dedicated barge fuel tax that applies to all inland waterway fuel, may be appropriate. If the purpose is to support
________________
6 Estimating marginal cost for the inland waterways system can be a conceptual and empirical challenge. See CBO 1992 for more extensive discussion of the problem of relying on short-run marginal costs for pricing when an industry has large fixed costs, as is the case for the inland waterways.
individual locations or if maximizing economic efficiency is considered more important than maintaining a national system, a segment or other sort of user-specific fee may be more appropriate (GAO 2008, 19.)
Although an idealized form of marginal cost pricing may not be possible, some general pricing principles that advance efficiency can be derived. First, economic efficiency is promoted whenever user charges are first applied to recover the O&M costs of the inland waterways. Under the current system, user charges are placed into a fund to be used for construction rather than O&M. The funds for O&M expenses are paid from general revenues and must be appropriated annually by Congress. As a result, sufficient funds are not always available to cover O&M, with the unintended consequence that maintenance is deferred. This leads to delays and closures that may require more construction to improve system performance. Indeed, the current arrangement encourages deferral of maintenance; instead of the system being maintained, it is allowed to deteriorate until expenditures can be reclassified as either major rehabilitation or new construction, which qualify for funding from the IWTF.7
Second, economic efficiency is promoted when user fees relate directly to the service provided. User fees can be linked to the costs of providing navigation service at a segment or facility level. The logic for this form of user fee is that certain facilities and segments have limited commercial freight use but have operational costs. The willingness of users to pay a fee that reflects the costs of operating that facility or segment would indicate the value of that component of the inland waterways system to the user. The identification of essential components of the system may be aided by such user fees. However, this logic does not imply that only facility- or segment-based user fees are desirable. Systemwide user fees to offset part of the cost of systemwide O&M on the components of the system deemed to be essential to the national freight transportation system might also be used. As noted above, the complicating factor for relying on segment- or facility-based pricing is that it may run counter to the desire to fund an integrated system of waterways (GAO 2008).
________________
7 As explained in Chapter 3, repairs that exceed $20 million under the 2014 WRRDA and meet other criteria are classified as capital costs instead of O&M.
Finally, in the long run, user payments would provide enough revenue to replace components of the system as they deteriorate. Therefore, in setting user charges, the cost of the depreciation of waterways assets would be included and placed in a dedicated fund (the IWTF) to be used when major rehabilitation is warranted.
To the extent that user charges are set according to these criteria, the system will move toward economic efficiency.
REVENUE POTENTIAL
Federal legislation specifies the fuel tax amount and the waterways subject to the collection of the tax (see Appendix A). An increase in the fuel tax of sufficient magnitude could pay for both construction and O&M of the system. However, fuel tax revenues even at the level of $0.29 per gallon passed by the 113th Congress would not be sufficient to pay for maintaining the system. They would need to be increased substantially and perhaps combined with other forms of payment. According to one recent analysis, if the fuel-taxed inland waterways system were expanded to include 40 additional waterway segments and the tax rate increased to $0.50, the total revenue generated still would be less than $190 million (Dager 2013), on the assumption that all taxes due were collected. FY 2015 budgeted amounts for construction were $180 million; O&M costs, all of which are currently a federal responsibility, were $612 million.
Projection of revenue potential, as well as revenue required, from an increase in the fuel tax requires a careful analysis that includes the effects of the tax on traffic levels and on system costs. On the one hand, at a certain level of fuel tax, some traffic may divert from the system, and revenues may be less than estimated on the assumption of no change in traffic. On the other hand, traffic diversion may allow the abandonment of some facilities with high costs relative to their use, which would reduce the cost of the system and thus the need for revenues.
The potential revenues from lockage or segment fees (for example, a segment fee based on the tonnage moved over a segment) can be calculated readily if the hypothesized fee is multiplied by a measure of current traffic. As in the case of the fuel tax, the projection of
revenue potential and of the revenue that would be required from fees requires careful analysis that takes into account the intended or possible effects of the fee on traffic levels as well as on system costs. Congestion fees are often proposed as a method of raising revenue, but they may not generate large amounts if they primarily serve to discourage traffic when facilities are congested. If a specific location suffers from congestion even with congestion charges, the revenue collected would serve as both a source of funds and a market signal that capacity expansion is needed. However, as shown in Chapter 2, traffic on the inland waterways is flat or declining, and delays occur mainly at locks on waterways that experience seasonal spikes in traffic for agricultural commodities. If these trends continue, the additional revenue potential for congestion fees is likely to be small compared with that of other fees and taxes. Congestion fees, however, could still be considered as a demand management tool with the goal of reducing congestion while avoiding lock expansion and other construction.
DISTRIBUTION OF BURDEN
Cost distribution is a consideration in the design of any user payment arrangement. For the inland waterways system, most of the costs are for locks and dams located upstream; areas downstream, such as the Lower Mississippi, may require only occasional channel dredging. As a result, depending on the user charge, the potential exists for cross subsidies, in which users of low-cost facilities and segments are charged an amount that allows users of high-cost facilities and segments to pay a lower amount relative to the benefit they receive. The fuel tax creates cross subsidies because it distributes costs equally across all users of the system. While fuel taxes relate to use of the system, fuel is taxed at the same rate throughout the waterways system. Because federal spending varies substantially across waterways, the users of waterways where the cost of the system is relatively low subsidize users of waterways where the cost is high.
Conversely, user-specific fees, such as lockage and segment fees, can be assessed in direct relation to the O&M costs of specific segments and facilities. To avoid cross subsidies between users, charges could vary by facility or waterway, depending on usage, to align the
distribution of payments with the distribution of incurred costs. Such a practice is consistent with the cost-effectiveness criteria described earlier in which users pay for service on parts of the waterways that are economical for them to use. The consequences for specific waterways and their users are difficult to predict (a complete analysis is beyond the scope of this report). Waterways with low freight traffic are most likely to be affected by a user-specific charge because the cost to shippers would be spread across fewer users than in waterways with more freight traffic. The cost may rise to the point that the waterway closes because shippers decide that its use is not cost-effective. Sections of waterway closures may cause shippers to shift origin–destination routes, with economic consequences to regions on abandoned routes that are not cost-effective for shipping. Shippers may switch modes, and some commodities may no longer be shipped. A cost savings to the public may result because federal general revenues may no longer be needed to maintain waterways that are not cost-effective for freight transportation.
A counterargument is that equal payment from all users, whether in the form of a fuel tax or a user fee, is the proper cost distribution for the inland waterways because users on one part of the system (such as those downstream without a high number of locks) benefit from other parts of the system (such as locks upstream that allow passage of commercial traffic to areas downstream).
A systemwide fuel tax combined with a segment or facility charge is another option that may help to increase revenues while addressing concerns about how cost burden is distributed to users of various parts of the system.
EASE OF ADMINISTRATION
Establishment and maintenance of a user-pays system are associated with a number of administrative activities and their costs. They include design of the charge, recording of revenues, and enforcement of revenue collection. Increased and redirected fuel taxes would have minimal additional administration costs since the fuel tax is the current form of user payment and a system already exists for the collection and recording of these revenues.
A lock passage fee for each tow would require costs for its design, but the necessary data are available or could be calculated with some simplifying assumptions. Costs for O&M and for capital depreciation could be calculated and the costs allocated to a time period (a year, for example) to determine the average cost during the period for the passage of each tow (average costs being easier to estimate then marginal costs). If annual costs are the basis for a lock fee, the costs in a previous year divided by the number of lockages in that year could be used to set a lock passage fee, which could be revised for changes in costs and traffic. This is only one of several ways in which the lock fee could be designed. The larger point is that data are available for the design of alternative lock fee systems. Lockage fees are moderately easy to administer and could be implemented on a systemwide basis, with lock operators keeping track of lock use. Enforcement costs would be small, since the tow using the lock could be identified and passage would require payment (or a guarantee of payment) before the lock is operated.
A segment fee requires knowledge of the tow traversing a segment, its size, and perhaps its cargo. The fee might be based on miles traversed and might vary by the value of the cargo. For example, tows with oil might pay more than tows that are empty or that haul grain. This option would focus attention on maintaining parts of the waterways used for high-value shipments. The design of segment fees can be complicated, but once design is completed, the current reporting systems for measuring traffic provide some of the necessary data for fee setting and collection. In the past a segment fee presented a logistical challenge related to tracking individual tows, but GPS technologies now allow for such tracking.
Annual license fees for each vessel can be imposed on either a systemwide or a waterway-specific basis. Systemwide charges are simple to administer but are not as closely related to actual use of the system as a fuel tax, under which payments increase with usage. The fee can be a flat rate, which might be tied to equipment (number or size of vessels, or both) used by the barge operation (towboats and barges). A segment-specific license fee is more complex to administer because most vessels operate on more than one segment.
A congestion fee would be the most difficult to implement because it would require varying the fee as a function of congestion at the lock and then making lock users aware of the fee at any time, much as high-occupancy toll (HOT) lanes vary prices on urban highways with the goal of maintaining a set level of throughput. HOT lanes provide real-time cost information concerning use of the lane to drivers. Real-time information on lock passage costs could be provided to a tow that anticipates using the lock, along with a fee schedule showing passage costs if there is no congestion (the fee might be zero). With GPS technology, the location of the tow, the location of other tows, and their direction of travel could be provided. Tow operators could use the information to time the arrival of their tows at the lock to avoid the congestion fee. During periods of seasonal increases in traffic, when lock capacity is insufficient (such as after a harvest), shippers may be willing to pay a higher fee to prioritize their movement through the lock. Slots to pass through the lock during a peak period could be allocated through an auction in which the highest bidder would move to the front of the line. (Tow operators already holding reservations could sell them to others who want to go through the lock first.) As described earlier, the congestion fee needs to be considered for cost-effective management of traffic spikes on some parts of the system during certain times of the year.
PROMOTION OF USER SUPPORT FOR COST-EFFECTIVE EXPENDITURES
The inland waterways system is operated by a federal agency requiring congressional authorizations and annual appropriations to carry out its work. Thus, system users can express their desires through the political process as well as through the market for waterway services. To manage the system, USACE needs to be responsive to pressures expressed through the political process as well as to information collected on traffic volumes and facility performance. Uniform systemwide charges such as the fuel tax or user fees that do not reflect the costs of providing service on a specific waterway segment can encourage political pressure that thwarts the cost-effective use of resources from USACE’s budget. For example, regional organizations can be
encouraged to lobby the executive branch and Congress to maintain unwarranted levels of service on waterways because no cost is incurred by those organizations or its members if expenditures on their waterway are increased. If a higher service level could be had only through additional direct cost to the users, greater scrutiny of the value of that service would result.
The degree to which users would advocate for a cost-effective user-payment option is included among the evaluation criteria because user advocacy through the political process is important to USACE as public agency. However, any cost-effective option, whether it results from a USACE response to political advocacy or to market forces, would result in pricing that translates into an increased cost to users.
REQUIRED CONGRESSIONAL AUTHORIZATION
Authorization by Congress would be needed to implement any of the user payment options, including an increase in the current fuel tax or a redirection of fuel tax revenues to allow them to be used for O&M. Similarly, any adjustment in the federal–nonfederal cost share for either capital costs or O&M would require congressional authorization. The ease of gaining congressional approval is a consideration for any user-pays funding strategy in view of the various committee jurisdictions involved and the dialogue and analysis that would be needed to gain the support of the shipping industry.
NECESSITY OF JUDGMENT
Use of the framework illustrated in Table 5-1 for evaluating the options requires two steps. First, an analysis of each user charge with regard to each criterion would be carried out. The analysis would result in a rating, which would be entered into the appropriate cell, even if the rating is qualitative. To a great extent, the ratings can be completed with facts already known. Second, trade-offs will need to be made among the criteria. Any substantial change in funding for the system may need to be phased in. This would allow for monitoring of the changes that occur in freight transport system costs and movements and for adjustment of the approach on the basis of such information.
This framework can be useful in helping to distinguish debates over “the facts” from those over which values or interests are being served by an argument. In the past, failure to make this distinction, combined with hope for more general revenue funding, has made the choice of a sustainable funding strategy more difficult. No single payment approach is best for all of the evaluation criteria, but a preferred approach can be selected on the basis of this framework. The preferred approach is likely to be a combination of the payment alternatives (CBO 1992).8 While there is no perfect choice, the only alternative to selection of one or more of these options is to hope for more congressional appropriations from the federal general fund, especially for O&M, which may not materialize.
Deciding the amount beneficiaries would need to pay for the commercial navigation system and how to allocate costs among beneficiaries would be complex tasks. The economic value of parts of the system to commercial navigation beneficiaries would need to be identified, and a systemwide assessment of assets to achieve a level of reliable freight service would need to be made (see Chapter 4). Greater reliance on user payments for capital expenditures and O&M will indicate which segments or facilities have economic value to commercial navigation beneficiaries and therefore suggest which parts of the system continue to warrant funding.9
________________
8 Public–private partnerships have been discussed as a source of financing for construction, which includes capacity expansion and major rehabilitation projects. For one proposal, see http://www.thehorinkogroup.org/wp-content/uploads/2014/04/Inland-Waterway-P3-Report.pdf. WRRDA 2014, Section 5014, authorizes a public–private partnership pilot program for funding the construction of water infrastructure. Private investments theoretically can be made in a number of ways, including up-front private financing, bond financing, or contributed funds. Such partnerships would still require revenues from user contributions or federal general revenues as described in this chapter. For example, bonds would need to be repaid, and the most efficient way of raising revenues for repayments would be through dedicated user fees for valued parts of the system. Up-front private financing with federal availability payments would require substantial and unlikely increases in USACE’s budget from general revenues. While public–private partnerships have been discussed for capital investments, which can include major rehabilitation, they have not been discussed for O&M, which is a priority for the system.
9 Previous National Research Council reports (TRB 2003; TRB 2009; NRC 2012) have come to similar conclusions about the federal role in freight transportation generally, as follows: promote economic efficiency, with investments directed to improvements that yield the greatest economic benefits; limit federal involvement to circumstances in which market-based outcomes clearly would be highly economically inefficient; limit federal subsidies and ensure that facility beneficiaries pay the costs; and rely more on user revenues and the “user-pays” principle.
User support for cost-effective expenditures is one of the criteria for consideration in deciding among the user fee options. To help ensure stakeholder support for any increased revenues from user fees, an option to consider is authorizing USACE to deposit new10 revenues for maintenance into a revolving trust fund to be used for major rehabilitation to maintain the system and for O&M. Decisions about payments for the system would be made by USACE (as the service provider) and by the navigation industry (as the system users) and would be independent of the annual appropriations process. Direct management of the fund would protect revenues for the intended commercial navigation purpose, which would help in preserving the solvency of the trust fund and in resolving a concern of users that their contributions for navigation may be reappropriated for nonnavigation purposes. A danger of establishing such a dedicated fund from the user perspective, however, is that Congress may reduce general appropriations for the system in proportion to the revenues collected from users for this account.11
IWUB’s advisory role concerns capital expenditure decisions affecting the current IWTF. If a revolving trust fund for rehabilitation and O&M is created, IWUB’s role could be broadened to provide advice on USACE responsibilities related to O&M and major rehabilitation. For example, the 2014 WRRDA stipulates that the Secretary of the Army, in coordination with IWUB, develop a 20-year capital investment program for making investments on the basis of objective prioritization criteria for the selection of national projects. It further specifies that the program be developed with consideration of IWUB’s capital projects business model (Inland Marine Transportation System Capital Investment Strategy Team 2010) and to ensure to the
________________
10 Creating such a fund will—under current budget rules—allow only new revenues to be dedicated to the fund. For example, the incremental revenues from any increase in the inland waterways fuel tax might be designated as above the current fuel tax receipts (baseline) and be deposited into the account.
11 Securing this authority requires going through a congressional authorization process. If the new revenues are called a “tax,” the taxing committees with broad jurisdiction would consider the legislation. If the new revenues are defined as generated from “user fees,” the committees that oversee USACE may gain jurisdiction over authorization.
maximum extent practicable efficient funding of inland waterways projects. While a capital projects plan may be warranted, for IWUB to advise on how newly collected funds deposited into the trust should be allocated to O&M would be a new and important responsibility.
Rules and conditions for managing the fund could be set by Congress when the fund is authorized. This approach would be consistent with a number of other programs for which revenues are collected by federal agencies and spent at the discretion of the agencies. (For examples see GAO 2001 and GAO 2008, Chapter 12, Sections C and D.)
Direct management of the fund by USACE and the navigation users would avoid delays in receipt of funds through the appropriations process, which can affect the reliability and cost-effectiveness of the system. Funds are not always available in a timely manner to cover ongoing O&M costs, and maintenance may be deferred. Deferred maintenance can lead to infrastructure failures and facility closures and to more costly capital expenditures for rehabilitation and construction.
Segments and Facilities with Minimal or No Commercial Traffic
The analysis of inland waterways traffic in Chapter 2 can be used as a model to rate the importance of inland waterways segments and facilities to national freight transportation. Regardless of the specific changes that may occur in barge traffic and that may be difficult to forecast, three situations can be anticipated, each with implications for decisions about funding. First, some parts of the inland waterways (segments or facilities) are essential components of the national freight transportation system and, as such, warrant a new funding strategy administered by USACE to ensure their continued viability. Up to this point, Chapter 5 has been concerned with funding for parts of the inland waterways system essential for freight movement.
Chapter 2 also identifies parts of the inland waterways system with some commercial navigation traffic but where the type or volume of cargo suggests lesser significance for the freight system. Commercial freight movements in these segments might not warrant federal sup-
port, and a different funding approach may be called for. For budgetary reasons, USACE has already reduced funding to some low-priority segments and facilities, although portions of the system with lower freight traffic that now receive limited funds might receive more if additional funds were available.
The third situation emerging from the analysis is that of segments or facilities with no or a minimal amount of commercial traffic but that are being maintained with navigation funds for other uses and beneficiaries. Under a prioritization based on economic value to the shipping industry, they would not receive funding through the navigation portion of USACE’s budget, but their future must still be considered as part of a new funding and management strategy.12 Removing the cost of portions without significant freight traffic from the federal navigation budget would support better management decisions for the system and further the possibilities of shifting to a user-based funding structure for commercial navigation services. The consequences for other uses and beneficiaries of these water resources would need to be considered. For example, freight traffic on low-use segments often also passes through medium- or high-use segments, so the consequences to the latter segments of losing that traffic should be considered in the analysis.
The situations of low freight traffic and minimal or no freight traffic are discussed in the following subsections.
LOW FREIGHT TRAFFIC
Some of the payment strategies discussed earlier are available not only to the federal government but also to a nonfederal entity wishing to maintain low-use segments for shippers. If federal spending for a waterway segment or facility is no longer viable,13 a nonfederal entity
________________
12 Drawing the distinction among these three situations will require technical data and analysis to support a policy judgment that surely will need to involve IWUB. Any drawing of lines for inclusion in the navigation system may be challenged. In view of this reality, one approach may be to have an appeals process under which current commercial users of a segment or a facility in a segment that has been identified as nonessential for freight movements can petition to be included in the federally supported navigation system.
13 Federal spending includes funding from general revenues collected from taxpayers and revenues collected from shippers disbursed via the IWTF.
(a local government or port authority or perhaps a newly created entity) may use some of these payment options or take other revenue-raising actions. Some options may not be possible for nonfederal entities because of the authorities that would be required (for example, the charging of a lock fee by a nonfederal entity may not be possible), but others such as ad valorem taxes and access fees would be.
The entity raising the funds can make the receipts available to USACE in the form of contributed funds for operating, maintaining, or rehabilitating that part of the system. Contributed funds are funds beyond any nonfederal cost contribution required by statute that may be provided voluntarily by a state or political subdivision for all project purposes, including navigation. Authorizing legislation (WRRDA 2014) suggests the possibility of other mechanisms (one of which is a public–private partnership) by which the benefiting entities can collect and then dedicate funds to a waterway segment or facility.
MINIMAL OR NO FREIGHT TRAFFIC
Projects currently authorized to be maintained and operated for commercial navigation may no longer have freight traffic, may have minimal amounts of traffic that could move on other modes, or may have traffic that is not of sufficient economic value to move by waterway if shippers are required to pay more of the cost of waterway maintenance. The latter would indicate that the economic value of the navigation is below a threshold for federal investment. In this case, four situations that would need to be resolved can arise.
First, a continuing USACE navigation project could be needed to support benefits realized by nonnavigation beneficiaries, but navigation is the project’s only authorized purpose. For example, over time and at no cost to the project, the pools may have come to serve as municipal water supply or to be used for water recreation. In such a situation, federal funds,14 preferably not from the navigation budget, could be used to secure the structural integrity of the facility. This would ensure public safety and allow for the continuation of any nonnavigation uses. Ideally, USACE would turn the structure over to
________________
14 Federal funds for navigation include federal general revenues and revenues from shippers disbursed via the IWTF.
another entity, but the agency does not have the authority to transfer ownership of a project that no longer moves freight. Congress must authorize such a transfer. (For example, several locks and dams on Wisconsin’s Fox River were transferred to the state, but only after a long process.) USACE may still need to monitor any structures to ensure their integrity. For locks and dams authorized for navigation that have low or no navigation benefits but still provide ancillary benefits, it would be possible to close the locks and retain the dam function, thereby reducing system costs but still providing ancillary benefits. Moreover, these benefits would become primary, which would enable a fresh analysis of cost sharing among users, local beneficiaries, states, and federal agencies (that may or may not include USACE).
Second, an operable lock could be used for recreational passage (or an occasional commercial freight passage). Payments to cover the costs of keeping the lock operational for recreational purposes may be provided to USACE by another entity via contributed funds. USACE could continue to operate the lock with these funds, even if recreational boats are the principal users. (See Box 5-2 for an example on the Lower Allegheny River.)
The third situation is a variation of the first. In this situation, when maintenance for freight traffic is not needed, the costs of water storage might be reallocated to other purposes such as flood damage reduction, water supply, or recreation. Federal funds, again preferably not from the navigation budget, would be used to secure the structural integrity of the facility. A study would be required to develop and evaluate such alternatives. Development of the preferred plan will require interaction with potential beneficiaries, who would be expected to pay for the new services and perhaps for the continuation of services that they received as incidental beneficiaries of a project as currently authorized. However, any costs incurred to allow the project to serve new purposes would need to be justified by a feasibility study and the cost shared according to the law governing the new purposes being served.
In the fourth situation, maintenance operations and construction for the inland waterways system have altered river hydrology, with effects on life-cycle processes of flora and fauna (e.g., disruption of fish spawning areas in rivers and floodplains and backwater habitats). For example, on segments such as the Apalachicola River, Florida,
BOX 5-2
Two Examples of Nonfederal Funding Options for Locks and Dams for Nonnavigation Purposes
Local recreation and economic benefits: In the 1920s and 1930s, eight locks and dams were built on the Lower Allegheny River to move commercial traffic 72 miles from Pittsburgh to East Brady, Pennsylvania. This corridor once was important for moving oil and timber from northwestern and central Pennsylvania to Pittsburgh and markets beyond and for supplying and moving products from metal manufacturing plants. While recreational boat traffic has increased over time, commercial traffic has decreased to levels that no longer justify substantial federal expenditures. By 2011, a total of 38,000 tons moved through Locks and Dams 6, 7, 8, and 9; there were 54 total commercial lockages versus 1,583 for recreational vessels. For comparison, in 2011 just one of the locks at Locks and Dam 2 on the Monongahela River moved 13,055,000 tons of cargo, with 2,627 commercial lockages versus 53 lockages for recreational use.
Funding for O&M and repairs for these locks has steadily declined, and hours of operation have been reduced. In 2014 the locks passed commercial traffic by appointment only and, with rare exceptions, have been closed to recreational traffic since 2012. USACE is obligated to keep the facilities operating only to the extent allowed by the available budget resources. USACE would require congressional authorization to remove the infrastructure, however.
As a result of the negative economic impact of lock closures from a loss in tourism, the nonprofit Allegheny River Development Corporation and the Upper Monongahela River Association have partnered to work with the USACE Pittsburgh District to use a provision in the newly enacted WRRDA that encourages the use of contributed funds to pay for waterway infrastructure. Section 1017 calls for the establishment of a pilot program to enable the acceptance and expenditure of funds contributed by nonfederal interests to USACE water resources projects. This approach has the support of groups that encourage the use of this new authority to maintain the Allegheny and Monongahela for recreational boating and fishing, such as the National Waterways Conference. The goal of this coalition for the Allegheny is to raise nonfederal funds from private and public sources so that USACE can continue O&M of the infrastructure, mainly for recreational use.
Hydropower services: As part of an agreement among USACE, the Southwest Power Association, and its federal power customers, a system was devised whereby priority USACE facilities for power generation could be directly paid for by customers. This system was launched after power customers experienced an increase in unscheduled power outages associated with reduced and untimely appropriations for federal hydropower plant operation, maintenance, and major rehabilitation (Coombes 2013). New nonfederal development and investment also are permissible at USACE facilities. For example, as of 2010, 90 nonfederal power units were installed and maintained at operator expense at USACE dams, with a total capacity of 0.003 gigawatts. Such development requires a Federal Energy Regulatory Commission license and a Corps Section 408 permit, which authorizes the nonfederal use of a federal facility (http://fas.org/sgp/crs/misc/R42579.pdf, p. 6).
which has minimal barge traffic, continued maintenance activities are opportunities lost for the improvement and restoration of aquatic ecosystems (Box 5-3). The USACE national ecosystem restoration mission may suggest investment to remove the physical facility partially or completely or leave lock gates open to return the river to a natural flow regime. A study would be required to develop and evaluate restoration alternatives. Among the costs that would need to be recognized in such a study is the loss of benefits (for example, a water supply intake) to incidental beneficiaries, who need to be compensated for having to invest in alternative facilities. As for any other restoration, the costs incurred would need to be justified by a feasibility study and the costs shared according to the law governing the purposes served.
A system more reliant on user payments is feasible, would provide revenue for maintenance, and would promote economic efficiency. It also would be more consistent with the federal posture toward other freight
BOX 5-3
Apalachicola, Chattahoochee, and Flint River System: A Multiple-Purpose River System Not Reflecting Today’s Economic and Environmental Values
The Apalachicola–Chattahoochee–Flint Rivers basin originates in northeast Georgia, crosses the state boundary into central Alabama, and then follows the Alabama state line south until it terminates in Apalachicola Bay, Florida. The basin covers 50 counties in Georgia, 10 in Alabama, and eight in Florida. Extending a distance of approximately 385 miles, the basin drains 19,600 square miles. The Apalachicola, Chattahoochee, and Flint River Waterway consists of a channel 9 feet deep and 100 feet wide from the mouth of the Apalachicola River to the head of navigation at Columbus, Georgia, for the Chattahoochee River and at Bainbridge, Georgia, for the Flint River. The total waterway distance is 290 miles, with a lift of 190 feet accomplished by three locks and dams. Provision of navigation services is just one of several purposes for which the system’s operations are authorized; others are water supply, flood control, hydropower generation, recreation, and management of water releases for several nonfederal power generation dams.
Commercial use of the waterway has declined steadily over time and now is minimal, mainly haulage of sand and gravel. According to the Waterborne Commerce Statistics Center, no commercial traffic occurred over the 5 years from 2008 to 2012. Nevertheless, channel maintenance of the lower reaches of the waterway requires dredging and clearing, which has severe adverse impacts on the ecological health of Apalachicola Bay, one of the most economically productive water bodies in the United States. While these efforts have been strongly opposed by the state of Florida through regulatory and other measures such as not providing dredged material disposal areas, USACE has found ways to provide navigation services. In addition to the financial outlays by the federal government for navigation, operation of the upstream reservoirs to provide navigation “windows” uses releases of water that are highly valued by other users, including municipalities and lake recreationists.
Because the cost of O&M assigned to navigation is borne by federal taxpayers, opposition to continued provision of navigation services comes largely from the environmental organizations and Florida. Furthermore, the lack of navigation benefits is only a small issue in the conflicts over the operation of this major multiple-purpose reservoir system. Growing demands for municipal water supply in Georgia have led to “water wars” among the states for decades, which have not been successfully addressed administratively by USACE or by Congress.
transportation modes. User charges for the inland waterways system can take the form of a dedicated tax such as the current fuel tax, a user fee, or some combination. The fuel tax can be an important source of revenue, but revenue potential alone is not sufficient for judging a funding strategy. User fees (segment- or facility-specific) instead of or in addition to the fuel tax or as a supplement to general revenues are an option to consider as part of a comprehensive funding approach. Criteria for choosing among the user payment options include the following: promotion of efficient use of waterway resources, distribution of burden, ease of administration, promotion of user support for cost-effective expenditures, and requirements for congressional authorization. No single payment alternative offers a perfect choice; for example, the preferred choice for achieving a policy goal may combine an increase in the barge fuel tax with other user fees.
Setting user charges to move the inland waterways system closer to economic efficiency would provide for more adequate maintenance of the most important parts of the system and contribute to a more efficient national freight transportation system. Economic efficiency is promoted when user charges are first used to recover the O&M costs of the inland waterways and when user fees relate directly to the service provided. In the long run, user payments structured properly to cover O&M and depreciation would also provide enough revenue to replace components of the system as they wear out.
Any additional revenues from users would need to be dedicated to the inland waterways system to ensure a source of funds for meeting system priorities and to respond to concerns that new payments intended for navigation could be reappropriated for other purposes. A revolving trust fund for maintenance would help ensure that all new funds collected are dedicated to inland navigation. Rules and conditions for managing the fund could be set by Congress if such a fund were authorized. The fund could be administered by USACE, and IWUB’s advisory role, which is currently limited to capital spending for construction, could be broadened to include spending for O&M and repairs. Amounts from the IWTF are disbursed through congressional appropriations under current practice, which can result in delays in funding and deferred maintenance. Direct administration of the trust fund allows spending O&M funds as needed to provide reliable freight service and avoid the increased costs associated with deferred maintenance.
Deciding the amount beneficiaries would need to pay for the commercial navigation system and how to allocate the costs among beneficiaries would be complex tasks. The economic value of part of the system to commercial navigation beneficiaries would need to be identified and a systemwide assessment of assets required to achieve a reliable level of freight service would need to be made (see Chapter 4). Greater reliance on user payments for capital expenditures and O&M will identify which segments or facilities have economic value to the commercial navigation beneficiaries and therefore suggest which parts of the system continue to warrant funding. Because of constraints on its budget, USACE has already begun identifying waterways and facilities where commercial navigation is essential to national freight transportation or where significant commercial traffic continues. A policy and a process are needed for identifying the components of the system essential for freight transportation to fund from the navigation budget. A path to removing the cost of parts of the system not essential for freight service presently charged to the federal inland navigation budget may further the prospect of shifting to a user-based funding approach for commercial navigation service. Alternative plans and potential funding mechanisms described in this chapter are available
for segments and facilities that are deemed not essential to freight transportation but that may provide other ancillary benefits.
References
ABBREVIATIONS
| CBO | Congressional Budget Office |
| GAO | U.S. Government Accountability Office |
| NRC | National Research Council |
| TRB | Transportation Research Board |
CBO. 1992. Paying for Highways, Airways, and Waterways: How Can Users Be Charged? Washington, D.C.
CBO. 2011. Reducing the Deficit: Spending and Revenue Options. Washington, D.C.
Coombes, T. 2013. Power Marketing Administrations: A Ratepayer Perspective. Congressional testimony, June 26.
Dager, C. A. 2013. Fuel Tax Report, 2011. Center for Transportation Research, University of Tennessee, Knoxville.
GAO. 2001. Federal Trust and Other Earmarked Funds: Answers to Frequently Asked Questions. GAO-01-199SP. Washington, D.C.
GAO. 2008. Federal User Fees: A Design Guide: Report to Congressional Requesters. GAO-08-386SP. Washington, D.C. http://www.gao.gov/new.items/d08386sp.pdf.
Inland Marine Transportation System Capital Investment Strategy Team. 2010. Inland Marine Transportation System (IMTS) Capital Projects Business Model. Final Report, Revision 1. Inland Waterways Users Board, Alexandria, Va.
NRC. 2012. Predicting Outcomes of Investments in Maintenance and Repair of Federal Facilities. National Academies Press, Washington, D.C.
Stern, C. V. 2014. Inland Waterways: Recent Proposals and Issues for Congress. Congressional Research Service, Washington, D.C.
TRB. 2003. Special Report 271: Freight Capacity for the 21st Century. Transportation Research Board of the National Academies, Washington, D.C.
TRB. 2009. Special Report 297: Funding Options for Freight Transportation Projects. Transportation Research Board of the National Academies, Washington, D.C.
