Federal Waterways Infrastructure Outlook

 

On Capitol Hill, October 1 was the first day of 2018, at least for the federal government’s fiscal year. In theory, on 10/1, the federal budget is supposed to be finalized with appropriations – i.e., spending – established for the next year. In practice, of course, it rarely works that way. Budget deliberations frequently last through December. And even on New Year’s Eve, Congress may be forced to vote on a Continuing Resolution to keep the government operating.

 

The 2018 budget is of particular interest and it’s particularly important. It’s the first budget for a new President, representing President Trump’s priorities and resources, not just for 2018, but for at least the next three years. And, inland stakeholders will not soon forget the President’s recent speech on the Ohio River, when he promised, “Together, we will fix it. We will create the first-class infrastructure our country and our people deserve.” The President campaigned on pushing for an infrastructure package to the tune of $1 trillion. Hence, inland operators and their clients probably feel like there’s no time like the present.

 

For the Army Corps of Engineers Civil Works programs, there are three main spending proposals. First, there is the President’s budget document, introduced last May, proposing to spend $5 billion on Civil Works. Then, there are two Congressional bills – HR 3266 and S 1609 – both introduced in July, by Rep. Michael Simpson (ID 2-D), and Sen. Lamar Alexander (Tenn.). Importantly, each legislator is on the House or Senate Appropriations Committee and, even more significantly, each is chairman of the subcommittees on energy and water development. The point is; Simpson and Alexander are leading this work.

 

Appropriations bills involve money and establish policy and programs. Congress would spend $6.16 billion, compared to the President’s $5 billion. Of the totals, the President would spend $1 billion on construction, the House and Senate $1.7 billion. For operations and maintenance, the President would spend $3.1 billion, the House $3.5 billion, the Senate $3.4 billion. The balance of funds covers smaller but still important programs: Mississippi River and Tributary expenditures, for example, and flood control programs and, of course, staff and administrative functions.

 

For maritime businesses, these are critical numbers, with consequences. Mary Lamie, P.E., Executive Director of the St. Louis Regional Freightway, points out that “global buyers are paying attention to our Nation’s waterway system. Any time there is inefficiency those buyers are going to look at the competition; they are going to go to countries to find a network whose logistics will deliver the capacities they need.” For Midwest farmers competing with an increasing competitive South American breadbasket with similar aspirations, those words have especially dire meaning.

 

As always, with infrastructure, there’s never enough money. Spending policies are important and this is where big differences emerge between the Administration and Congress. For example, the Administration does not propose spending all of the money in the Inland Waterways Trust Fund (IWTF), paid for by the $0.29/gallon tax on maritime diesel fuel. To be fair, President Obama similarly withheld trust fund revenue, but for FY18, President Trump’s team would use just $29 million of the $105 million collected last year. The Congressional bills use all the money.

 

Another nettlesome issue for Congress, and others, is the President’s move to raise additional revenue from the maritime community, even while withholding funds. The President’s budget seeks an additional $1 billion over 10 years. The devil, of course, is in the details. At a press briefing last June, the Waterways Council Inc. (WCI) called this move the “worst example of Swamp Behavior.”

 

WCI’s President and CEO Mike Toohey, in a recent interview, was especially vocal about the issue, saying “How can you justify withdrawing $115 million/year from the commercial operators, who then pass that on to their customers, and say that’s not a justified expenditure and therefore we’re just going to keep the money in the Trust Fund? That’s ridiculous.”

 

Another concern is not just the amount of money for construction, but that funding continues for major projects, long under development, particularly the big four construction projects: Olmsted Lock and Dam (Louisville District), Chickamauga Lock near Chattanooga, Lower Monongahela Locks and Dams (Pittsburgh District) and the Kentucky Lock Addition Project (Nashville District). The President’s FY18 budget would just fund Olmsted, withholding money for the other three.

 

In June, at an energy and water subcommittee hearing, Sen. Alexander asked Doug Lamont, temporary Assistant Secretary of the Army for Civil Works, why the Administration proposed to spend such a small fraction of Trust Fund revenue. Lamont answered that funds were withheld because the total construction project backlog – about $10 billion – is so overwhelming that it just wasn’t productive to program relatively small sums of money; that, in effect, it was perpetuating a kind of money mill rather than efficient programmatic spending.

 

Lamont explained further that Olmsted is the only project “that is high performing, which means that it’s budgetable.” Lamont said his team’s analysis looked “for a benefit-to-cost ratio (BCR) of 2.5-to-1 or higher, calculated at a 7-percent discount rate.” Of the four big projects, Lamont said that “Lower Mon, Kentucky Lock and Chick Lock – have benefit cost ratios, at the 7 percent discount rate, that are less than 2.5. The problem,” Lamont told Sen. Alexander, “is that the balance to complete is over $10 billion (a reference likely to the Corps’ complete project list, not just the big four). The Administration is concerned,” Lamont continued, “about the opportunity there, with the age of the infrastructure on the inland waterways system, the ability to effectively target and effectively deal with the need to rehab these systems.” Again, the main concern was about throwing ‘good money after bad.’

 

The formal House and Senate Reports on HR 3266 and S.1609 do not reference a project benefit cost ratio analysis. Interestingly, almost anticipating this different way of looking at things, the House Report includes the comment that “Administration budget metrics shall not be a reason to disqualify a study or project from being funded.”

 

Congress no longer sets “earmarks” for what used to be called “pork barrel” spending, i.e., committing money for specific projects. The President’s budget document, though, does list specific projects, which Congress usually incorporates into final spending bills. To get around the earmark restriction, to add its own projects, Congress appropriates additional funds, say for construction, while limiting that extra money just to projects meeting certain, select criteria, without actually naming names.

 

The Senate requires the Corps to develop a Work Plan, due within 60 days after appropriations become law. The Work Plan has to follow the Senate’s “general guidance.” It must provide details on the Corps’ rating system, funding allocations and “a list of all studies and projects that were considered eligible for funding but did not.” 

 

When all is said and done, maritime businesses and organizations expect to see commitments and funding for an expanded list of projects, particularly, for example, continued work on the big four construction projects – Lower Mon, Kentucky Lock and Chick Lock. That’s because, the failure of critical infrastructure isn’t just coming – it’s already here. 

 

For example, and on October 2, the Ohio River was closed after the failure of hydraulics that open and close the lower gate at Lock 53 near Brookport, Illinois. This closure was preceded in mid-September by an obstruction found in the main chamber at the lock that did not allow the gates to close properly. And an early September failure of the wooden wickets at nearby Lock & Dam (L&D) 52 also highlighted critical, but aging, lock and dam infrastructure on the inland waterways system. In service since 1928, Locks and Dams 52 and 53 on the Ohio River are to be replaced by the Olmsted Lock and Dam which was authorized in 1988, but will not open until next year. Once Olmsted is finished, Locks and Dams 52 and 53 will be removed.

 

But, the casualty further highlights the fact that these issues are no longer hypothetical. By October 12th, as many as 51 towboats and 564 barges were waiting to transit the lock. With a full harvest of grain and other commodities backed up like a massive truck wreck along the inland interstate corridor, foreign competitors all over the Americas – north and south – are eying new markets.

 

“Lower Mon is the #2 priority project after Olmsted,” remarked Peter Stephaich, Chairman & CEO of Campbell Transportation Company, Inc., based in Houston, Pa., near Pittsburgh, and a member of WCI’s Executive Committee. “We fully expect to see (Lower Mon) get completed, notwithstanding the budget proposals.”

 

Mike Monahan, Campbell’s president, and a member of the Inland Waterways User Board, likened the current funding system to a homebuilder asking for a bank loan to build a foundation, but telling the loan officer that construction may or may not continue with flooring and framing, and that the homeowner may apply for more money again next year to proceed with electric and plumbing. “That’s exactly what we’re doing with funding locks and dams,” Monahan said.

 

On the other hand, this is a new President, with different approaches to governing and spending. It remains unknown how much the new Administration might seek to upend predictable legislative momentum, especially in this first budget year. This President was elected with expectations about swamps and swamp behaviors.

 

The Report on HR 3266 comments that “the (Appropriations) Committee welcomes a dialogue with the new Administration to reach a mutually agreeable way to comprehensively plan for all initiated projects.” Surely, a common goal among all waterways participants.

 

To reach that goal, people are eagerly awaiting President Trump’s infrastructure plan, focusing on the “four Rs:” roads, rails, runways and rivers. And, it is nice that rivers are actually part of the discussion. At the June Senate hearing, Doug Lamont said the plan would be available within the next few months. WCI’s Mike Toohey noted that the Administration has suggested a $200 billion plan. Toohey said “we’re always looking for a better way to build it.”

 

He commented that it now takes 35 years to build a lock and dam and failures are increasing because operations and maintenance are not adequately funded. Continuing, he said that infusing $8.8 billion into waterways projects and programs would completely modernize the system and complete the backlog of construction in 10 years. WCI suggests that repatriated income tax revenue (estimated to total $128 billion) could help fund the President’s initiative.

 

Still others are looking for bolder moves with public private partnerships, or so-called P3’s. Mary Lamie, with the St. Louis Freightway, said that the top project among barge owners in her region is rebuilding the Merchants Rail Bridge, which carries six Class I railroads over the Mississippi. On the theory that competitive rail rates are linked to competitive barge rates, Lamie called the project “a model for public-private partnerships.” The bridge owner, Terminal Railroad Association of St. Louis, is prepared to fund two-thirds of the $200 million cost.

 

Separately, though, the Waterways Council and its stakeholders aren’t necessarily thrilled about P3 talk, if it could lead to tolling on the locks. With good reason, especially since WCI's members are (a.) already funding waterways improvements through the diesel fuel tax, (b.) realizing only a fraction of that contribution in actual expenditures and finally (c.) are the only ones funding the improvements despite the many other beneficiaries – flood control, hydropower, municipal water supply and recreational stakeholders among them – who don't. Indeed, while many entities gain from these projects, barge operators are the only direct contributors to the Inland Waterways Trust Fund through their payment of a 29-cent-per-gallon diesel fuel tax. Typically, the trust fund provides 50 percent of construction and major rehabilitation funding, while the remaining 50 percent comes from general treasury funds. 

 

With infrastructure there are plenty of good ideas. There’s broad agreement that infrastructure is a priority. Now, hopefully, the politics can avoid the swamps. Keep in mind, FY19 budget development starts in February, about 3 months. It would be nice to build on FY18 progress, not keep wrestling with stalemate.

 

 

(As published in the November 2017 edition of Marine News)