The inland waterways system provides for the domestic barge shipping component of the nation’s freight transportation system. The system infrastructure is managed by the U.S. Army Corps of Engineers (USACE) and funded by Congress through the USACE civil appropriations for the inland navigation budget. The Executive Committee of the Transportation Research Board initiated this consensus study of the inland waterways system because of reports of deteriorating and aged infrastructure combined with perceived inadequate capital investment, a growing backlog of capital needs, and declining federal appropriations1 for inland navigation. The study committee was charged with addressing (a) the transportation role and importance of the federally funded inland waterways system, (b) its costs and benefits, (c) estimated levels of investment required to achieve an efficient inland waterways system and options for funding, and (d) who should pay for the required investment. (The complete charge appears in Chapter 1.)
This report describes issues relevant to policy makers in considering decisions about funding for the inland waterways system. The committee’s major conclusions are as follows.
The inland waterways system is a small but important component of the national freight system.
1 Federal appropriations for inland navigation include federal general revenues and revenues from shippers disbursed via the Inland Waterways Trust Fund.
The inland waterways system moves 6 to 7 percent of all domestic cargo in terms of total ton-miles, mostly coal, petroleum and petroleum products, food and farm products, chemicals and related products, and crude materials. The primary expense in providing for barge service is maintaining locks and other infrastructure that enables cargo movements. While many locks are more than 50 years old, age is not a useful indicator of their condition. Many locks have been rehabilitated, and lock performance correlates poorly with age. The large backlog of capital projects also is not a reliable indicator of funding required for maintaining reliable freight service. The navigation share of these projects is modest, maintenance costs are not included in the backlog, and Congress has authorized more projects than can be funded.
The most critical need for the inland waterways system is a sustainable and well-executed plan for maintaining system reliability and performance that ensures efficient use of limited navigation resources.
Time lost due to delays at locks and locks out of commission for repairs is a cost to shippers and an important consideration in deciding on future investments to maintain reliable freight service. Systemwide, about 20 percent of time lost in transportation is caused by scheduled and unscheduled outages. A more targeted operations and maintenance (O&M) budget would prioritize facilities that are most in need of maintenance and for which the economic cost of disruption would be highest. USACE has begun a process of prioritizing O&M spending along these lines, but it is not fully developed.
In contrast to the need to focus on system reliability, much of the policy discussion about the inland waterways system centers on the user charges to support the Inland Waterways Trust Fund, which is dedicated to capital improvement projects. Users, through a tax on barge fuel, and the federal government, through general tax revenues, share the cost of capital projects on a 50-50 basis. The passage of an increase in the barge fuel tax by the 113th Congress only heightens the urgency of settling on a plan for maintenance, since under
federal law any new revenues from the barge fuel tax can be used only for construction and not for O&M, for which the federal government pays the full cost. Because funds for capital projects raised by the barge fuel tax must be matched by the federal government, O&M competes directly with construction for federal general revenues. O&M now accounts for about three-quarters of the requested inland navigation budget (roughly $650 million annually). Without a new funding strategy that prioritizes O&M and repairs, repairs may continue to be deferred until reaching $20 million (the point at which they become classified as a capital expenditure), which would result in further deterioration and in an inefficient and less reliable system.
More reliance on a “user-pays” funding strategy for the commercial navigation system is feasible, would generate new revenues for maintenance, and would promote economic efficiency.
In a climate of constrained federal funds and with O&M becoming a greater part of the inland navigation budget, it is reasonable to examine whether beneficiaries could help pay for the system to increase revenues for the system and improve economic efficiency. Indeed, Congress, in the 2014 Water Resources Reform and Development Act (Section 2004, Inland Waterways Revenue Studies), called for a study of whether and how the various beneficiaries of the waterways might be charged.
A reconceived system of user charges would focus policy attention on a sustainable plan for system performance and efficiency. Since users are not responsible for the cost of O&M, strong incentives exist to overcapitalize the system. Dedicating revenues from users to O&M instead of only capital expenditures would focus maintenance spending on the assets that users most value and result in a system that is more cost-effective and efficient.
Commercial navigation is the primary beneficiary of the inland waterways, and commercial carriers impose significant marginal costs on the system. Charging commercial navigation beneficiaries for the costs associated with their use of the system is feasible. User charges may be restructured in a variety of ways. There is no single
best option; the preferred choice for achieving a policy goal may be to combine one or more of the options, such as an increase in the barge fuel tax with user fees. Charging user fees on the basis of facility and segment usage would identify the parts of the waterways most valued by shippers and warranting maintenance. Multiple criteria would apply in choosing among the user charge options: ease of administration, revenue potential, distribution of burden across user groups, and design components that would reinforce the efficient use of resources and cost-effective expenditures. A trust fund for maintenance would ensure that all new funds collected are dedicated to inland navigation while providing greater latitude for USACE to disburse funds for maintaining the system according to criteria approved by Congress and with the involvement of the Inland Waterways Users Board, whose current advisory role is limited to capital spending.
A special case arises for segments on which freight traffic has waned but other beneficiaries remain dependent on the pools originally created for commercial navigation service. Alternative plans and mechanisms exist under which these beneficiaries could pay for any maintenance that might be required for them to continue receiving benefits.
Deciding the amount beneficiaries would need to pay for the commercial navigation system and how to allocate the costs among beneficiaries would be a complex task. The economic value of parts of the system to commercial navigation beneficiaries would need to be identified, and a systemwide assessment of the assets required to achieve a reliable level of freight service would need to be made (see the next conclusion).
Asset management can help prioritize maintenance and ascertain the level of funding required for the system.
A standard process for assessing the ability of the inland waterways system to meet demand for commercial navigation service and for prioritizing spending for maintenance and repairs is lacking. For reasons explained in this report, the capital projects backlog and age of inland waterways infrastructure are not reliable indicators of the
needs of the system or the amount of investment required. Regardless of who pays for the system, a program of economically efficient asset management (EEAM), fully implemented and linked to the budgeting process, would prioritize maintenance spending and ascertain the funding levels required for reliable freight service. USACE has adopted a generally appropriate framework for asset management that is mostly consistent with EEAM, but it is not yet fully developed or deployed across USACE districts. The framework recognizes the importance of economic consequences for strategic investment instead of assuming that all navigation infrastructure needs to be maintained at its original condition. The approach appropriately includes assessment of three main elements that follow from EEAM: the probability of failure of the infrastructure; infrastructure usage (demand), defined as whether the waterway has low, moderate, or high levels of freight traffic; and the economic consequences of failure to shippers and carriers.
A fully developed and applied asset management approach could be used to prioritize allocation of resources for O&M to the waterways with economic value to shippers and carriers and indicate areas where major rehabilitation or other capital spending should be considered. The committee offers suggestions for implementing an asset management approach in Chapter 4 (summarized in Chapter 6).