INLAND WATERWAYS USER FEES: An Industry Perspective

Since it fortunately appears that no new barge fuel taxes or other new user fees will be included in the Administration's 1995 budget proposal, now would be an opportune time to step back from the emotional and heated debate surrounding last year's $1 per gallon Barge Tax legislative battle and set out more dispassionately the particulars of the commercial navigation user fee issue.

First, two distinct issues surround the overall user fee debate; the first concerns fee proposals to cover Operation and Maintenance costs (O&M-overhead) such as the aforementioned $1 per gallon barge fuel tax which was estimated to collect an additional $460 million per year from the industry. The other issue concerns the existing fuel tax funding program for navigation- related construction projects associated with the waterways, currently prescribed by the Water Resources Development Act of 1986 (P.L. 99-662). Pursuant to this landmark legislation, 50 percent of the construction costs for inland river transportation structures are financed from revenues taken from the Inland Waterway Trust Fund, which is financed through a diesel fuel tax levied on the towing industry at an annual escalating rate (currently at 19 cents per gallon, set to reach 20 cents per gallon in 1995) which extracts from the industry approximately $80 million per year. As part of the negotiations which led to passage of this cooperative publicprivate financing program, Congress specifically agreed that "...The federal share of the costs of operation and maintenance of any project for navigation on the inland waterways is 100 percent." Subsequently, following lengthy industry and Corps of Engineers negotiations, an additional agreement to include 50 percent Trust Fund financing for major rehabilitation projects—which are expected to comprise a major portion of the Corps' waterways construction budget in the years ahead — was incorporated by the Congress in the Water Resources Development Act of 1992.

Thus, the joint funding system that has been established pursuant to specific congressional mandates, requires commercial navigation to pay one-half of all construction and rehabilitation costs of the system, and the federal government to pay the other one-half plus 100 percent of the O&M costs.

As to the particulars of the actual user fee debate, in essence, some economists and officials within the Administration believe that the barge and towing industry is overly subsidized and should pay more (all) of the cost associated with inland river navigation-related structures, and particularly for those operational (O&M) costs associated with these structures, from which they receive substantial benefit. The industry generally counters that they already directly pay their fair share for benefits received through Inland Waterways Trust Fund fuel tax deposits, and that whatever additional economic "subsidy" is deemed to exist regarding the waterways network goes not to them but to the commodity shippers and the many other users/beneficiaries of the system, a result clearly envisioned and intended by the Congress.

Indeed, while commercial navigation's direct financial support of the waterways infrastructure from which they benefit is established under law, there is no similar direct financial obligation assigned to the waterways' many other users and beneficiaries, and particularly the millions of Americans outside of commercial navigation interests who directly benefit from the inland river network's impact on: • Flood control — The U.S. Army Corps of Engineers estimates that $18 billion has been expended for flood control projects incorporated in the inland river system, which have prevented over $100 billion in flood damage (flood damage savings impacts from the Great Flood of 1993 are not included in this number); • Fish, wildlife, and wetlands preservation — Since enactment of the Endangered Species Act of 1973, the Corps has given priority to fish and wildlife protection for threatened and endangered species over all authorized water uses except flood control. River flows are increased or decreased when necessary to enhance the spawn of various fish species and to improve the survival rates of threatened bird species. River flows are also controlled to enhance and protect America's dwindling inventory of wetland areas and, along the Gulf Coast, numerous lock structures control damaging salt water intrusion; • Water supply — Literally thousands of communities and municipalities and millions of people rely on the lake and pooling areas created by the inland river lock and dam facilities for drinking water, industrial water resources, and for water for crop irrigation requirements; • Hydroelectric power generation Utilities along the inland system utilize vast quantities of water for power generation and operational uses; • Recreation — The lakes and pooling areas created by and for the inland waterways infrastructure provide recreational and fishing areas which are utilized and enjoyed by millions of Americans each year; • Regional Economic Activity Low cost waterborne transportation serves to extend, both domestically and internationally, the markets for regionally produced goods, and stimulates positive employment growth in a multitude of support services associated with the major bulk commodity industries which utilize barge transportation to move their goods.

The argument that these many other economic impacts are, in fact, what has stimulated and justified the government's waterways investment is clearly underscored by the approval process established by the Congress for inland river projects. That process requires that before any project is approved, it must pass a rigorous cost/benefit test which establishes under law that the public benefits surpass by a large margin the project's projected costs. Noteworthy to the ongoing debate is the fact that included in the cost side of this analysis are the projected Operation and Maintenance expenses of the project over its estimated useful life. Thus, while the Congress requires commercial navigation interests to directly pay for benefits they derive from the system through specific escalating fuel charges, other users/beneficiaries of the system, i.e., the general public, have their costs "covered" by the federal government based on the cost/benefit analysis which establishes that for each navigation infrastructure project the "public benefits" exceed the public'sgovernment's costs (including O&M). Unfortunately, even though the record of economic return on investment clearly establishes that the public/private partnership which has fashioned today's waterways infrastructure has indeed been a success and has yielded great financial and social returns to the government/ public for its investment, in today's reality of budget deficits, past successes may not be enough. In its near desperate search for new sources of revenues, "user fees," which simply transfer government's expenses to the private sector, clearly have become a Washington favorite.

A recent Congressional Budget Office (CBO) report documents that between 1980 and 1991, federal user fee charges increased (in constant dollars) 54 percent (to $120 billion) and CBO predicts more of the same in the '90s. This fact shouldn't come as a surprise when one considers that under the government's accounting system, user fees are classified as spending reductions and not what they really are — new tax increases.

Against this bleak backdrop, the industry is beginning to take the offensive, particularly concerning the cost side of the infrastructure itself. The congressionally-established Inland Waterways User Board has initiated efforts to encourage the Corps of Engineers to examine ways to reduce navigation construction costs, streamline project selection and approval processes, consider the benefits of privatizing all or parts of the inland waterways, and to delay approving more river projects not already in the funding stream. Some industry executives are also urging that construction schedules for projects already approved be stretched out to slow down the drain on Trust Fund receipts, which could be depleted before the end of the decade. In addition, work has commenced on providing better and updated documentation of the massive economic benefits which are derived from the waterways infrastructure, which will hopefully serve to debunk the commercial navigation "subsidy" argument. If the Congress deems it appropriate to reconsider the current funding structure, the industry submits that it should do so based upon solid impact analyses, and after full discussion and debate in the authorizing and appropriating committees which have fashioned their public/private financing set-up. This full debate request as opposed to the no debate format of the budget process — is particularly important given the magnitude of private investment which has been made or underwritten by a vast number of local governments, individuals, and companies for landside improvements based on the government's commitment to share in the financing of this multi-use waterways system.