Interview: John Doyle, Vice President - Government Affairs, Waterways Council, Inc.

Thursday, June 19, 2008
John Doyle, Vice President - Government Affairs, Waterways Council, Inc.

John Doyle, Vice President - Government Affairs, Waterways Council, Inc., shares with readers of MarineLink.com his insights on key market drivers for the coming year.

What legislative/political issue do you count as the most important for the marine industry in the next few years?

JD: Returning to timely, cost-effective modernization of the inland waterway system is the most important issue facing the inland segment of the marine industry today.

Comprised of approximately 12,000 miles of river and intracostal waterways made navigable by 257 lock chambers owned or operated by the U.S. Army Corps of Engineers at 212 locations, the inland waterways have been characterized as this nation's "stealth transportation system" because so few Americans appreciate how extremely important this system is to the nation's economy and general well being.  More than 600 million tons of building-block commodities like coal, grain, petroleum, chemicals, steel, sand, and gravel are transported on the system every year in support of economic activities that are the foundation of our country's standard of living.  More than $7 billion in transportation costs are saved every year because of the inland waterways' commercial availability.  Every American benefits from the system in some way.

Like other types of infrastructure and other transportation systems, the inland waterway system faces its own set of challenges.  Until recently, one of the most significant challenges that it faced was a ballooning surplus in the Inland Waterways Trust Fund (IWTF) of diesel tax revenues contributed by commercial users to modernize the system.  Fortunately, because of the hard work of many maritime industry members and of supporters in the Administration and Congress, this challenge has been met and successfully overcome.  What had been an IWTF surplus of more than $400 million and was increasing at an average rate of about $25 million each year is now expected to be completely eliminated before the end of the 2009 fiscal year.  The funds that commercial users contributed for investment in modernization of the inland waterway system are now finally fully being invested in Congressionally-approved modernization projects.

But, as the sage once said, no good deed goes unpunished or, said another way, not every good deed gets rewarded.  The punishment or reward, depending or one's outlook, for the inland waterway industry has been an Administration proposal to more than double the amount the industry would be taxed through imposition of a new barge lockage fee.

Giving the Administration the benefit of the doubt and the proposal its most charitable interpretation, the suggested doubling of the taxes paid by the industry may have been well-intended, but it was completely ill-advised and would be exactly the wrong policy prescription for future inland waterway system modernization.  Fortunately, key Congressional policy-makers have recognized the folly of the proposal and, on a resounding bipartisan and bicameral basis, have declared it to be "dead on arrival".

Instead of raising industry's taxes, particularly during a time of recession or near-recession general economic conditions, what's needed at this time is a concentrated, focused effort to significantly improve the project delivery performance related to construction of lock and dam and other modernization projects on the inland waterway system.  Where in the late 1980's and early 1990's the Corps of Engineers was building lock and dam modernization projects authorized in the Water Revenues Development Act of 1986 (WRDA 86) in an average of a little more than 6 years, today it's taking the Corps an average of 17 years to build post-WRDA 86 lock and dam projects.  On average, the rate of cost escalation that has occurred for the post-WRDA 86 projects is triple what was experienced for the WRDA 86 projects.  In one case, Olmsted Lock and Dam, what Congress authorized in 1988 at an estimated cost of $775 million and an expected construction time of 7 years now carries an estimated cost of almost $2.1 billion and an estimated 24-year construction schedule.  And that's best case for the Olmsted project.

The current construction project delivery performance for lock and dam modernization projects on the inland waterway system is unacceptable from many perspectives, but is particularly so from the perspective of the commercial users of the system whose diesel taxes currently pay half the costs to construct these modernization projects.  Comparing WRDA 86 project construction performance with current experience, today's industry-contributed diesel tax dollar is buying only one-third as much completed project as it did following WRDA 86 through the early-to-mid 1990's.

We can and must do better than this.  Congress and the Administration must examine why it takes so much longer and costs so much more today to do what we were able to do just two decades ago.  This effort must identify the structural and process changes, both within the Corps' control and external to it, that are required to "get more project" for the dollars that are currently being contributed by industry and invested in lock and dam modernization.  This examination and the implementation of the corrective action based on it are required before the waterway industry's taxes are increased to support system modernization.

If you could change or improve one policy in the federal government that affects your business' bottom line, what would it be?

JD: The policy I would change in order to positively impact the inland waterways is the cost-sharing regimen applicable to building inland waterway system modernization projects.  Instead of paying for the construction and major rehabilitation of projects like modern more-efficient locks to better facilitate commercial navigation one-half from industry-contributed revenues in the Inland Waterways Trust Fund (IWTF) and one-half from general revenues, I believe changing the policy to require 25 percent of modernization project costs to be paid from industry-contributed funds and 75 percent from general revenues is most appropriate at this time. 

Such a policy change would be beneficial not only to the inland waterway industry but also to the entire national economy. 

In recent years, industry has contributed approximately $90 million a year in twenty-cents-per-gallon diesel fuel taxes into the Inland Waterways Trust Fund to support waterway system modernization projects. 

Since 1986 and that year's Water Resource Development Act, federal policy has called for one-half of the costs to construct their projects to be paid from the IWTF and one-half from general revenues.  Because for too much of the 1990's industry's contributions were not spent fully and were allowed to accumulate creating a growing surplus in the Trust Fund, in the past four years industry's annual $90-million diesel tax contributions have been sufficient to support and have supported an inland waterway system modernization program appropriations level of between $272 million and $418 million a year as the IWTF surplus gradually has been spent down.

As the IWTF surplus is eliminated, the policy question for the future is what, if anything, should change to reflect the challenges and opportunities facing the nation's undeniable need to continue to modernize our inland waterway system. 

Rather than imposing additional taxes on the inland maritime industry to support future modernization, as the Administration has proposed, the better policy approach is to formally adopt a construction project cost sharing regimen that continues to produce results like those seen in the past four years where industry's annual 20-cent-per-gallon diesel tax revenues support a system modernization spending level that is approximately four times that amount each year.

Formally adopting this cost sharing regimen policy change at this time would maintain the current healthy pace of inland waterway system modernization, have a positive stimulative effect on the overall economy, avoid increasing taxes, and incentivize increased use of the safest, most environmentally sensitive, most congestion-reducing transportation mode.  It would also provide the time required to mount a needed focused effort designed to achieve significant improvements in how timely and cost-effectively inland waterway modernization projects are completed.

(Source: MarineNews, June 2008 edition, "CEO Six-Pack")

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