AMERICAN ASSOCIATION OF PORT AUTHORITIES

1010 Duke Street    Alexandria, VA 22314

Phone: (703) 684-5700    Fax: (703) 684-6321

TESTIMONY OF THOMAS J. CHASE

Director of Environmental Affairs

American Association of Port Authorities

Before the Senate Committee on

Environment and Public Works

JUNE 18, 2002

 

INTRODUCTION

Good morning.  I am Thomas J. Chase, Director of Environmental Affairs at the American Association of Port Authorities (AAPA).  Founded in 1912, AAPA represents virtually every U.S. public port agency, as well as the major port agencies in Canada, Latin America and the Caribbean.  AAPA members are public entities mandated by law to serve public purposes, primarily the facilitation of waterborne commerce and the generation of local and regional economic growth.  I am testifying today on behalf of the 86 U.S. public port members of the American Association of Port Authorities.

 

Mr. Chairman, AAPA commends you for calling this hearing on the Water Resources Development Act of 2002.  We appreciate the opportunity to testify on behalf of the U.S. members of AAPA.

 

The Corps of Engineers, in partnership with the nation’s public ports, plays a vital role in ensuring the nation’s marine transportation system (MTS) meets the needs of the nation’s businesses and consumers.  The MTS is a complex, market-driven system that provides many benefits to the nation. Federal investment in one part of this system – navigation channels – is critically important to the success of the system and produces benefits to the nation far in excess of the investment.

 

AAPA and the public port authorities of our country, the agencies on whom the responsibility for the development and operation of our nation’s ports rests, urge the Congress to keep these essential arteries of international commerce open in an efficient, cost-effective and environmentally protective manner by providing the Corps of Engineers with the resources and authorities it needs to get the job done.  To that end, we urge the Congress to fully fund the Corps of Engineers civil works program, to maintain a biennial cycle in enacting Water Resources Development Acts, to consider carefully any changes to Corps of Engineers project authorities, and to seriously review the impact of any proposed changes to avoid needlessly increasing the cost, or further delay the construction, of needed deep-draft navigation projects.

 

In my testimony today, I will discuss the following four points:

·       Importance of the Corps deep-draft navigation mission;

·       The need to enact a Water Resources Development Act of 2002; and,

·       The potential impact on the MTS of S. 1987, the Corps of Engineers Modernization and Improvement Act.

 

 

IMPORTANCE OF THE CORPS DEEP-DRAFT NAVIGATION MISSION

Our water highways are national assets that serve a broad range of economic and strategic interests.  The United States has the most extensive, complex and decentralized marine transportation system in the world; it is an appropriate asset for the world’s largest trading country and sole superpower.  A large measure of this country’s unprecedented economic growth is due to the increased productivity of the American economy and foreign trade.  To remain competitive in the global marketplace, U.S. businesses must have an efficient and reliable transportation system.

 

This section of my testimony discusses the many benefits provided by the nation’s system of deep-draft navigation channels.  The structure of the broader marine transportation system and its relation­ship to deep-draft navigation channels is also discussed.  Finally, a number of challenges facing the Corps of Engineers and its non-federal partners on deep-draft navigation projects — the nation’s public port authorities — are also highlighted.

 

Benefits of Deep-Draft Navigation Projects

Economic Benefits:  Ports’ activities link every community in our nation to the world marketplace, enabling us to create export opportunities and to deliver imported goods more inexpensively to consumers across the nation.  The deep-draft commercial ports of the U.S. handle over 95 percent of the volume and 75 percent of the value of cargo moving in and out of the nation.

 

The marine transportation system has helped American exporters from every state develop and maintain markets around the world for a variety of commodities, ranging from paper, forest and agricultural products, to plastics, chemicals and pharmaceuticals; from fruits and vegetables to poultry, beef and cotton; and, from machinery and automobile parts to frozen fish.

 

The industry has also provided American consumers and businesses with inexpensive access to a vast array of goods from around the world, including more than half of the petroleum used, 75% of the apparel and 95% of the footwear worn in this country, food products, beverages such as coffee and beer from around the world, flowers, kitchenware, household appliances, furniture and bicycles, marble and tile, automobiles, auto parts and tires, machinery and tools, electronic goods, computer equipment and copiers, manufacturing components and supplies, and thousands of other goods.

 

All ports serve multi-state needs.  The foreign trade activities of each state are supported by a variety of ports both within and, more often, outside the state.  On average, each state relies on between 13 to 15 ports to handle 95 percent of its imports and exports.  The goods from 27 states leave the country through the ports in Louisiana alone.  Midwestern grain supplies the Pacific rim market through ports in the Pacific Northwest.  Imported crude oil refined in New Jersey and Pennsylvania reaches consumers on the entire East Coast, from Maine to Florida.  Steel that travels to major Midwestern industrial centers is delivered cheaply and efficiently through Great Lakes ports.  Ports on the West Coast handle goods such as cars, computers, and clothing, which are destined for consumers throughout the country.

 

World trade increased by 3.8 percent annually (on a tonnage basis) between 1993 and 1997 to a total of 5.3 billion metric tons.  In that same period, U.S. foreign waterborne trade grew by 4.6 percent per year to 1,071 million metric tons and accounted for about 20 percent of global waterborne trade and almost 30 percent of U.S. Gross Domestic Product.3  By 2020, U.S. foreign maritime trade is expected to more than double over 1996 tonnage levels, with total tonnage projected to grow 3.5 percent annually.  Figures 1 and 2 illustrate the range and scope of import and export cargos, respectively, moving through U.S. ports in 2000.

 



Text Box:  Text Box:

 

 

 

 

 

 

 

 

 

 

 

 

Transportation costs, and, thus, deliver goods to the consumer more cheaply and compete more effectively in international markets.  As a result of the proliferation of just-in-time manufacturing practices, time definite delivery, and vendor managed inventory in our manufacturing and retail sectors, an interruption of only four to five business days can have devastating consequences for our global supply chain, as evidenced by the impact of September 11 on our land border crossings.

 

These global business trends are interrelated to the demand of cargo shippers for increasing reliability, reduced damage, and decreasing cost.  All of these demands drive the transportation provider to improve service and find efficiencies at each link in the transportation chain.  This is especially true for the ocean carrier who transports large volumes of cargo over relatively long distances.  The drive to satisfy cargo shippers in ocean transportation has led to the building of larger ships and to the increasing containerization of cargo.   Figure 3 illustrates the trend in the containerized cargo segment of U.S. foreign trade. The number of containers moving though U.S. ports doubled between 1990 and 2000, from 15.3 to 30.4 million twenty-foot equivalent units (TEUs) and the volume is expected to double again over the current decade.  Relative increases were con­sistent on the Atlantic, Gulf and Pacific Coasts with volumes in 2000 of 13, 1.7, and 15.7 million TEUs, respectively.

Recent testimony by the World Shipping Council discusses trends in freight rates for containerized cargo moving in U.S. international trade.[1]  Table 1 summarizes the changes in average rates for moving containerized cargo in the major U.S. foreign trade routes from 1978 through 1998.  Significantly, rates in real terms have declined by between 52 and 72 percent, during this period of rapid expansion in the use of containers for shipping cargo. It has been an unrecognized success that all segments of the maritime transportation system have made the invest­ments necessary to sustain, and in turn foster, the explosive growth in global trade.

 

According to a semi-annual survey conducted by the U.S. Department of Agriculture, American shippers of containerized agricultural goods have reported that they are able to obtain cost-efficient ocean transportation.  Specifically, the USDA’s December 2001 report on Agricultural Ocean Transportation Trends states that:

 

Table 1. Changes In Average Freight Rates In US East-West Trades, 1978–1998

 

Current Dollars

Real Terms

Trans-Pacific 

   - Eastbound

-32.1%

-72.1%

   - Westbound

-20.8%

-67.5%

Trans-Atlantic 

   - Eastbound

-4.6%

-60.9%

   - Westbound

18.2%

-51.5%

The rates for U.S. outbound dry containers, particularly westbound trans­pacific rates, are approaching historically low levels. Virtually all U.S. agricultural exporters are paying less for transportation than they were in early 2001 when rates were already perceived to be extraordinarily low. . . It is remarkable that commodities are reportedly moving in certain transpacific, westbound trades at $225 per 40-foot equivalent unit. . . Rates are so uniformly low, they are no longer the primary determining factor for carrier selection.  There is a presumption that rates will hit "rock bottom," so, while agricultural shippers continue to keep an eye on the overall rates (the base rate plus the surcharges), carriers are now primarily selected according to service capabilities.[2]

 

Besides providing cost savings to the country’s businesses and consumers through more efficient transportation, the U.S. marine transportation system, including the nation’s deep-draft navigation channels, creates substantial economic and trade benefits for the nation, as well as for the local port community and regional economies.  The following statistics highlight how critical ports are in facilitating national economic activity:[3]

 

·         U.S. Customs duty revenues totaling approximately $15.6 billion were paid into the general treasury in fiscal year 1996 on cargo moved through ports.

 

·         Our nation's commercial deep draft ports annually handle in excess of $600 billion in inter­national trade.

 

·         Foreign trade is an increasingly important part of the U.S. economy, currently accounting for almost 30 percent of our Gross Domestic Product.  U.S. exports and imports are projected to increase in value from $454 billion in 1990 to $1.6 trillion in 2010.  The volume of cargo is projected to increase from 875 million to 1.5 billion metric tons in 2010.

 

·         The overall national economic impact of port activities in 1996 generated:

           13 million jobs;

           $743 billion to the Gross Domestic Product; and

      $200 billion in taxes at all levels of government.

 

National Defense Benefits:  We should also not lose sight of the fact that the ports continue to play a very critical role in our nation's defense.  That role has never been more apparent than during the loadouts of military cargo and personnel during Operation Desert Shield/Desert Storm.  The huge buildup of U.S. forces in and around the Persian Gulf would have been impossible without the modern facilities and strong support provided by America's ports.  According to the U.S. Military Traffic Management Command (MTMC), between August of 1990 and March of 1991, MTMC loaded 312 vessels and more than 4.2 million measurement tons of cargo in 18 U.S. ports for delivery to the Persian Gulf in support of Desert Shield/Desert Storm.  More than 50 ports have agreements with the Federal Government to provide ready access for national emergency purposes.

 

Environmental Benefits:  Several navigation projects that have substantial environmental features, including the creation of thousands of acres of wildlife habitat using dredged material, would not proceed under the proposed funding levels.  For example, the Port of Oakland is currently building a project to expand its container handling capability that will redevelop a former military facility, create 120 acres of shallow-water habitat, restore 3200 acres of wetlands, provide 30 acres of new public parkland, and reduce vehicle emissions by 40 tons per year.  In addition, the larger, more efficient ships that will be able to call at the port will result in reduced volumes of ballast water discharged and air pollutants emitted.  Similar multi-objective projects are the hallmark of local public port development projects throughout the country.

 

Structure of the MTS

The U.S. Marine Transportation System (MTS) consists of ports and their inland connections, vessels, and navigation channels.  Each component is a complex system within itself and is closely linked with the other components.  The first two components are primarily an aggregation of State, local, or privately owned facilities and private companies; navigation channels are primarily Federal assets.  As with the U.S. economy as a whole, decisionmaking and investment are primarily driven by the marketplace.  In addition, Federal, state, and local governments participate in the manage­ment, financing, operation and regulation of the MTS.

 

The MTS is subject to an almost infinite variety of economic, political and market conditions and forces which affect the need for and types of investment in MTS facilities and services (i.e., ports, vessels, and navigation channels).  These factors include:

 

·         Demand for MTS services has been, and is expected  to continue, growing at a rate significantly greater the rest of the economy, and prediction of the exact need for and locations of new MTS facilities is extremely complex;

·         Short term demand for MTS services can be highly variable and is related to, among other things, global economic conditions, evolving trading patterns, changing consumer preferences, and seasonal fluctuations.

·         Investments in MTS facilities are capital intensive and –

o    take long lead times to bring into the market,

o    must be sufficient to meet peak demand,

o    are not easily transformed to meet changes in demand because of large fixed costs and the need to maintain minimal levels of service,

o    can only be delivered in “lumps” or relatively large units of capacity and,

o    have a relatively long lifetime (often on the order of 25 years).

 

Because of these factors, the addition of new MTS facilities cannot be precisely coordinated with

increase in demand.  Also, in the presence of the vigorous competition inherent in the port and ocean carrier segments of the MTS, there is a potential for some excess capacity to exist at any given point in time.  However, quantifying the level or cost of excess capacity is extremely complex and may not be relevant in investment decisionmaking.  In addition to providing an ability to handle peak demand, excess capacity also ensures competition among the various ports and vessels to the advantage of the nation’s business and consumers.

 

Another important benefit of excess capacity is demonstrated when there are interruptions in certain segments of the MTS.  For example, following the September 11 attacks on the World Trade Center, the Port of New York and New Jersey was closed to all vessels for several days.  Cruise ships were rerouted to the ports in Baltimore, Boston, and Philadelphia; cargo ships were also diverted to other ports.  In 1997, problems with rail service in the Southwest U.S. caused cargo diversions to ports in the North­west.  A westward shift in manufacturing patterns in Asia has resulted in more consumer goods from that region being delivered to the U.S. through East Coast ports, via the Suez Canal.  The excess capacity also serves the country well during times of crisis when the military needs to quickly move troops and materiel.

 

Ports:  The majority of port terminals, 87% on the inland waterways and 66% in deep-draft harbors, are privately owned.[4]  Public port authorities are creations of state governments and are generally set up as semi-autonomous authorities with their own elected or appointed governing boards.  Local, state-wide or regional ports are responsible for investment, development and operation of public marine terminal facilities.  Ports and other marine terminals, both public and private, are responsible for dredging of berthing areas and access channels connecting the port facilities to Federal navigation channels.  The U.S. Maritime Administration reports that in 2000 alone, the cumulative local investment in public port facilities was nearly $1.1 billion.[5]

 

Table 2 provides a break down of capital expenditures by type of facility as well as a projection of capital spending for the five-year period 2001 to 2005.  Each of the five cargo type categories includes expenditures for pier or wharf structures, storage facilities, and handling equipment.  Infra­structure expenditures cover improvements, such as roadways, rail, and utilities that are located on or off terminal property.  Dredging consists of local port expenditures associated with the dredging — deepening and/or maintenance — of Federal and non-Federal channels and berths as well as the local costs for land, easements, rights-of-way, and disposal areas.  The "other" category includes those structures and fixtures not directly related to the movement of cargo, such as maintenance and administrative facilities.

 

 

Table 2. Comparison of Annual Capital Expenditures by Type of Facility for 1992 – 2000

and Projected Capital Expenditures for 2001-2005

 

Year

General Cargo

Specialized Cargo

Dry Bulk

Liquid Bulk

Passenger

Other

On Terminal

Off Terminal

Dredging

Total Expenditure (millions)

2001-2005

9.8%

44.4%

1.5%

0.6%

4.3%

8.0%

8.5%

6.3%

16.6%

$9,434

2000

22.8%

31.2%

3.5%

0.8%

5.7%

8.2%

8.0%

8.7%

11.1%

$1,058

1999

11.5%

39.2%

5.2%

1.4%

6.4%

9.0%

8.8%

8.6%

9.9%

$1,116

1998

10.9%

35.8%

8.3%

0.2%

1.9%

8.5%

7.1%

11.2%

10.8%

$1,414

1997

14.8%

35.5%

8.3%

0.1%

3.8%

8.5%

14.0%

6.7%

8.3%

$1,542

1996

14.7%

41.0%

5.9%

0.5%

2.7%

4.8%

10.7%

8.8%

10.9%

$1,301

1995

22.2%

28.8%

3.0%

0.9%

4.7%

8.2%

18.0%

3.1%

11.1%

$1,203

1994

22.8%

34.8%

5.6%

0.3%

4.7%

7.3%

15.1%

6.0%

3.4%

   $687

1993

24.5%

27.6%

4.5%

1.7%

5.6%

11.9%

11.6%

3.6%

9.0%

   $654

1992

23.9%

31.8%

4.8%

0.2%

7.5%

9.5%

9.0%

3.8%

9.5%

   $680

 

Table 3 presents information on the methods used by the U.S. public port authorities to finance their capital expenditure programs.  The table identifies six funding categories to classify the financing sources: port revenues, general obligation bonds (GO bonds), revenue bonds, loans, grants, and other.  The "other" funding category includes all financing sources that were not described above, such as state transportation trust funds, state and local appropriations, taxes (property, sales), and lease revenue.  As the table illustrates, public ports are relying on either direct revenue or revenue-backed bonds for a greater percentage of the financing needs, and this trend is expected to continue with revenue-based financing expected to reach almost 78% of capital financing needs in 2001-2005. (Note:  Total financing and total expenditure levels from Table 2 may not agree because of incomplete survey responses.).

 

Table 3. Comparison of Annual Capital Financing by Method for 1996 – 2000

and Projected Capital Financing for 2001-2005

 

Method

1996

1997

1998

1999

2000

2001-2005

Port Revenues

31.7%

30.4%

33.8%

44.4%

48.1%

46.5%

GO Bonds

9.4%

10.0%

6.6%

7.8%

9.1%

7.1%

Revenue Bonds

42.6%

47.1%

40.9%

21.4%

10.9%

31.1%

Loans

1.1%

0.5%

1.1%

6.6%

3.8%

2.9%

Grants

2.5%

8.1%

10.4%

14.0%

16.0%

7.8%

Other

12.7%

3.9%

7.2%

5.8%

12.1%

4.6%

Total (millions)

$1,240

$1,478

$1,355

$1,066

$898

$7,457

 

Vessels:  The world’s ocean cargo vessels enter the market offering a wide variety of shipping services and trade routes from a variety of ownership patterns representing large global integrated logistics companies to national entities to niche carriers.  Because the majority of ocean carriers are non-U.S. owned, some critics of Federal investment in navigation channels have charged that the benefits of such investments only accrue to  “foreigners” and, therefore, such investments are somehow defective.  There are several reasons why this is otherwise.

 

First, the ocean carrier industry is highly competitive.  There are no barriers to entry in international shipping as there are in other industries, such as international commercial aviation.  In the liner industry, which is often the focus of this criticism, the shipping public has a wide array of carriers and variety of shipping services from which to choose.  For example, as illustrated in Table 4, only one carrier has a market share above 10 percent, and the top ten carriers combined account for only 57.5 percent of the total containerized cargo carried (exports and imports combined) in U.S. trades.

 

Second, as discussed above, freight rates for the shipment of containers in the liner industry have declined substantially over the last 15 years due to, among other reasons, the increased efficiencies resulting from larger vessels and deeper navigation channels.

 

Table 4.  Market Share In U.S. Liner Trade in the

First Quarter 2002  (Source: JoC/PIERS)

Lines

TEUs Carried

Jan.-March 2002 Market Share

Combined Market Share

1. Maersk-Sealand

572,106

13.2%

13.2%

2. Evergreen

307,382

7.1%

20.3%

3. APL

280,932

6.5%

26.8%

4. Hanjin

264,420

6.1%

32.9%

5. Cosco

217,990

5.0%

37.9%

6. P&O Nedlloyd

186,405

4.3%

42.2%

7. Hyundai

171,274

3.9%

46.1%

8. OOCL

166,379

3.8%

49.9%

9. Yang Ming

164,828

3.8%

53.7%

10. MSC

164,382

3.8%

57.5%

All Lines (over 100)

4,340,611

100%

100%

Third, vessel owners have made huge investments in new equipment, information technology, and larger vessels to achieve economies of scale, developed alliances with other vessel owners to take advantage of these economies of scale and scope that made possible signi­ficant cost savings. To keep pace with the expected doubling of trade by 2020, the liner industry expects that it will need to invest an estimated $100 billion in new vessels and containers alone.  Those efficiency gains and cost reductions resulting from these investments are passed on to shippers in lower rates and improved service.

 

Some critics have pointed out that the liner industry enjoys anti-trust immunity as proof that these foreign companies enjoy a benefit that is detrimental to U.S. businesses, consumers and, in the case of Federal investments in navigation channels, to the American taxpayer.  Again, a closer exam­ination of this issue demonstrates that this is not the case.

 

The anti-trust immunity provided to the liner industry is limited and highly regulated.  The protection to the industry was established by the U.S. Congress, not some foreign, unaccountable entity.  In fact, Congress most recently reviewed and reauthorized this protection in 1998 with passage of the Ocean Shipping Reform Act of 1998.  Carriers may operate under agreements filed with and overseen by the Federal Maritime Commission that promote and enable operational cooperation and efficiencies. Under this system, carriers, among other things:

 

·         May not operate under an agreement that unreasonably increases rates or decreases service;

·         May not engage in unjust or unfair or predatory practices;

·         May not retaliate against any shipper;

·         May not drive competitors out of a trade; and,

·          May not impose any unreasonable prejudice or disadvantage with respect to any port.

 

Given the highly competitive marketplace for transporting U.S. foreign trade evidenced by the large number of companies engaged in this business and the dramatic reduction in rates that have occurred over the last 15 years, it is clear that there is no monolithic “foreigner” dictating the terms of the trade to U.S. businesses and consumers.  Instead, these companies are continually making invest­ments in their operations to reduce costs and provide better service to users of the nation’s marine transportation system — U.S. businesses and consumers.

 

Navigation Channels:  Since its beginning, the U.S. Congress has authorized and funded activities to ensure free and open access of the nation’s waterways to navigation.  The General Survey Act of 1824 established the U.S. Army Corps of Engineers (USACE) as the agency responsible for the nation’s navigation system.1  Since that time, the Federal Government has consistently exercised its power to develop and maintain a navigation system for the benefit of the whole nation.  Today, there are approximately 1,000 Federal navigation channel projects spanning over 25,000 miles of inland, intracoastal, and coastal waterways.[6]

 

Prior to the Water Resources Development Act of 1986, the Federal government paid 100 percent of “general navigation features” (GNFs) of harbor projects that consisted primarily of harbor dredging.[7] Lands, easements, rights of way and relocations (LERRs), and dredging for berthing areas were a local or private responsibility, as were all landside improvements including terminals and equipment. All maintenance dredging was federally funded out of general revenue.  With the passage of WRDA ‘86, cost-sharing for general navigation features changed to include a local or non-Federal share as shown in Table 5.  Maintenance dredging remained 100 percent Federally funded; however, today Federal costs may be recovered 100 percent from deposits of the Harbor Maintenance Tax to the Harbor Maintenance Trust Fund.

 

Table 5.  Navigation Cost-Sharing Formula From WRDA 1986

Channel Depth

Federal Share

Non-Federal Share

20 feet or less

80 percent

20 percent

20 to 45 feet

65 percent

35 percent

Over 45 feet

40 percent

60 percent

Note:  Non Federal shares include 10 percent cash contribution requirement for all depths.  The 10 percent cash contribution may be offset by a credit for lands, easements, rights of way and relocations, which are still a non-Federal responsibility.  To the extent not offset, this 10 percent can be repaid over period not to exceed 30 years.

Figure 4 illustrates the volume of material dredged and the cost of dredging for new work and maintenance dredging from Federal navigation channels between 1965 and 1999.[8]  Annual construction costs have averaged about $125 million for the period between 1977-1996 and average annual maintenance costs have averaged about $450 million.  Average Federal investment in new channels increased since 1996 to a level $271.4 million in FY 2002.  Maintenance dredging volumes range annually between 250 and 300 million cubic yards.

 

Individual navigation channel improvements must be demonstrated to be in the Federal interest before becoming eligible for Federal funding.  Congress established that the Federal interests in water resources projects are as follows:

 

It is the intent of Congress that the objectives of enhancing regional economic development, the quality of the total environment, including its protection and improvement, the well-being of the people of the United States, and the national economic development are the objectives to be included in federally financed water resource projects (including shore  protection projects such as projects for beach nourishment, including  the replacement of sand), and in the evaluation of benefits and cost attributable thereto, giving due consideration to the most feasible alternative means of accomplishing these objectives.(42USCx 1962-2)

 

Congress also authorized the establishment of a Water Resources Council composed of the Secretaries of the Interior, Agriculture, Army, Commerce, Housing and Urban Development, and Transportation and the Administrator of EPA.  In 1983, the Council adopted The Federal Principles and Guidelines for Water and Related Land Resources Implementation Studies, which continues today as the benchmark against which Federal water resources projects are measured.  The P&G, as the policy document is informally called, applies to all water and land-related resources projects undertaken by the Federal government, including projects by the Corps of Engineers, the Bureau of Reclamation, and the Department of Agriculture.  Despite Congress’ intent that Federal water resources should also take into account regional economic development benefits, the P&G sets the maximization of national economic development (NED) benefits as the definitive threshold for Federal involvement in such projects.[9]  This policy continues even after non-Federal interests became responsible for cost-sharing projects.  Thus, non-Federal interests are required to share up to 60 percent of the cost of Federal navigation projects, but any regional benefits derived from these projects may not be included in justifying the project.



Text Box: Figure 4.  Actual Federal Dredging Costs and Volumes for the Period 1963-1999.
 

          

The Corps of Engineers project planning process is divided into two stages, a reconnaissance study and feasibility study, which together require an average of 5.6 years to complete.  Corps recon­naissance studies, which are conducted by the Corps’ district offices, are today required to be completed with 12 months.  There is then often a lag between the end of reconnaissance and the start of feasibility.  Between 1985 and 1996, the average length of this gap was roughly one year.  Feasibility studies during the same period averaged 3.6 years.[10]

 

The basic economic benefits from navigation plans are the reduction in the value of resources required to transport commodities and the increase in the value of output for goods and services. Specific transportation savings may result from the use of larger vessels, more efficient use of large vessels, more efficient use of existing vessels, reductions in transit time, lower cargo handling and tug assistance costs, reduced interest and storage costs such as from an extended navigation season, and the use of water transportation rather than an alternative land mode.

 

Corps of Engineers’ navigation improvement studies examine the transportation costs of an identi­fied set of commodity flows both with and without the proposed project over the planning period, usually 50 years.  Elements of analysis of current tonnage include: size and type of vessel, annual volume of movements, frequency of movements, volume of individual shipments, adequacy of existing harbor and transportation facilities, rail and truck connections, and service considerations. Generally this prospective traffic is the aggregate of a large number of movements (origin-destination pairs) of many commodities; the benefit from the navigation project is the savings on the aggregate of these prospective movements.

 

Next, the analysis evaluates the vessel fleet composition and cost.  Key components in the study are the size and characteristics of the current and future fleet that would use the harbor both with and without the proposed improvement.  Vessel characteristics are often dependent on trade route, type of commodity, volume of traffic, waterway restrictions, foreign port depths, and lengths of haul.  Vessel costs include the full origin-to-destination cost, including necessary handling, transfer, storage, and other accessory charges.  The without-project condition is based on costs and conditions prevailing at the time of the study.  Transportation costs with a plan reflect any efficiencies that can be reasonably expected, such as use of larger vessels, increased loads, reduction in transit time and delays (tides), etc.  In evaluating these cargo flow assessments, the Corps conducts a systematic determination of alternative routing possibilities, regional port analyses, and intermodal networks.  Benefits may not be claimed for cargo that may be diverted from another port because of a Federal navigation project.

 

Challenges

There are a variety of challenges that threaten the ability of the MTS to meet the growing demands of the nation’s businesses and consumers for transportation services.  These challenges include:

 

·         Growing Levels of Demand – As discussed above, the volume of trade is expected to double over the next 20 years and the movement of cargo in containers is expected to double in the next 10 years.  The business environment in which American companies must operate has become more competitive.  They must be lean and capable of effectively serving larger, more demanding markets.  Ports and other MTS service providers must meet increasingly stringent requirements to successfully meet the needs of American business and consumers.  Everything must be accomplished faster and less expensively, while maintaining dependable, secure, and safe movement of goods.  Consequently, the need to provide investment in improved MTS facilities and services is great.

 

·         Increasing National Security Needs — The attacks of September 11 have dramatically heightened everyone’s awareness of the threat to the U.S. from rogue states and terrorists.  Ports and other MTS service providers are, and will continue, spending substantial resources to improve the security at their facilities.  These resources, however, are being diverted from other investments that would have been made in improving the efficiency of the system.

 

·         Minimizing conflicts among land uses along the waterfront and intermodal connections -- Many of our nation’s port cities are trying to revitalize their communities through waterfront re­development that has focused on residential, commercial, and tourist-related uses, leaving less land available for port development.  Intermodal connections at ports, such as roads and railroads, also experience land constraints because of zoning and environmental regulations that restrict expansion, particularly in densely populated areas.  Proposals for port expansion, largely for projects handling cargo that will move far outside the local port area, are facing increasing public opposition due to concerns about local environmental impact.  Many port communities are reluctant to bear the environmental and social costs for projects that largely benefit people outside of their region.

 

·         Ensuring Adequate Navigation Channels — Larger vessels are increasingly carrying the cargos of U.S. international trade because they provide the cost efficiency and level of service that U.S. businesses and consumers are demanding.  These larger vessels require deeper waterways.  The nation’s public port authorities are working closely with the Corps of Engineers and the Congress to ensure that appropriate investment in the nation’s system of navigation channels is made.  In addition to the need for adequate Federal funding of studies and construction of navigation improvement projects, we have also identified several areas in the partnership between the Federal government and non-federal sponsors of navigation projects that should be improved so we can improve the timeliness and cost effective delivery of these projects.  A summary of these recommended improvements are discussed in the next section.

 

 

NEED TO ENACT WRDA 2002

Regular and dependable enactment of Water Resources Development Acts and Federal investment in navigation is of critical importance to the nation’s economy.  The local non-Federal project sponsor must be able to rely on a dependable biennial WRDA authorization, as well as annual appropriations. Delays in authorizing vital navigation and water resource projects result in increased costs and reduced benefits from substantial Federal, local and private investment in port facilities and navigation channels.  AAPA urges Congress to enact a Water Resources Development Act of 2002 that authorizes needed deep-draft improvement projects and refines several provisions of WRDA’ 86 relating to the Federal-local partnership to make project formulation more efficient and cost effective as discussed below.

 

In enacting the Water Resources Development Act of 1986 (WRDA ’86), after 200 years of solely Federal responsibility, Congress for the first time imposed mandatory cost-sharing of navigation projects (aside from previous ad hoc requirements for local contribution of lands, easements and rights of way) under which non-Federal interests acting as local sponsors were required to contribute to the cost of planning, constructing and maintaining navigation projects on a sliding scale based upon project depth.  The elements of what, at that time, was portrayed as the “quid pro quo” in consideration of mandatory cost sharing were:  (1) greater local latitude in partnering in project construction; (2) environmental and planning streamlining to reduce project planning and construction time and cost; and, (3) local user fee authority to recover local expenditures for project construction.

 

Port authorities have greatly increased their ability to plan, design, and resolve complex environ­mental, social and economic conflicts since WRDA ’86 was enacted.  After more than 15 years of experience in working as non-Federal sponsors under the framework provided in WRDA ’86, the nation’s public ports have identified a number of policy and legal changes that are needed to improve the collaborative partnership envisioned in 1986.

 

AAPA established a special Task Force in 2000 to review the existing authorities for project partnership and to make recommendations on policy changes that should be included in a WRDA ’02 authorization.  Each member of the Task Force has been intimately involved in the navigation project partnership process, with most members having experience spanning over 20 years involving projects with total values in the hundreds of millions, if not billions, of dollars.

 

The Task Force identified changes in seven policy areas that would significantly improve the partnership between non-Federal sponsors and the Federal government and would improve the ability of local sponsors to participate in Federal navigation projects.  These proposals include the following subjects:

 

·       Improvements to the Local-Federal Partnership in Navigation Projects

o      Project Cooperation Agreements

o      Indemnification

o       Relocations

 

·          Other Improvements to Help Local Sponsors Participate in Navigation Projects

o      Credit for In-Kind Services During Construction

o      Deep-Draft Cost Sharing

o      Port and Harbor Dues

o      Non-Federal Sponsor Led Projects

 

Further detail on these proposals, including a discussion of the purpose and need for the proposal and specific legislative language for each proposal, is included below.

 

Improvements to the Local-Federal Partnership in Navigation Projects

Project Cooperation Agreements:  As part of the cost-sharing provisions included in WRDA ’86, Congress directed that non-Federal sponsors and the Secretary of the Army enter into a cooperative agreement before initiating construction of the project (Section 101(e)).  The law directs that such agreements shall be in accordance with the Flood Control Act of 1970.

 

Many ports are frustrated by the rigid approach the Corps of Engineers takes in negotiating project cooperation agreements (PCA).  While there was an assumption in 1986 that a Federal-local sponsor partnership would be formed, ports believe the current approach does not represent a true partnership between the Federal government and non-Federal sponsors.  PCA negotiations often take six months or more to complete.  Delays often result from the need to accommodate special local circumstances which were not envisioned in the model agreements developed promulgated by the Corps of Engineers.

 

For all the discussion by both Congress and the Corps of Engineers concerning the need for “partnering” during and since enactment of WRDA 1986, there is no legislative embodiment of such a policy nor, unfortunately, any great incentive for the Corps to follow such a policy.  In fact, by expressly incorporating the requirement for a cooperative agreement between the United States Government and a non-Federal interest under Section 221 of the Flood Control Act of 1970 and concurrently enacting Section 912 of WRDA 1986 to impose substantial civil penalties upon a non-Federal interest for non-compliance and conferring jurisdiction upon U.S. District Courts for that purpose, Congress arguably did precisely the opposite by substituting a “contract of adhesion” one-sided, one size fits all arrangement for a cooperative agreement.  The negative connotation attributable to civil penalties, reinforced through the mandatory attorney’s certificate (required by the Corps, not by statute) as to the ability of the local sponsor to respond in damages, is the antithesis of the nature of a cooperative agreement.

 

AAPA believes there is a better model for conducting cooperative agreements within the existing body of Federal law.  The Federal Grants and Cooperative Agreements Act was enacted in 1986 and defines and distinguishes cooperative agreements from grants and contracts as a procurement device. This law provides the means to better define the relationship that should exist between the Government and the Local Sponsor.

 

Section 6305 of Title 31, United States Code prescribes the use of such cooperative agreements as follows:

 

An executive agency shall use a cooperative agreement as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when

 

(1)   the principal purpose of the relationship is to transfer a thing of value to the State, local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and

 

(2)   substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity con­templated in the agreement.

 

 

A cooperative agreement entered into pursuant to the Federal Grants and Cooperative Agreements Act carries certain advantages not realized by the current WRDA.  A true cooperative agreement is the nearest thing to a private sector partnership agreement that exists under Federal law.  It reflects the fact that two independent sovereign entities come together on an equal footing to accomplish a common purpose in which each brings competence, expertise and a commitment of resources to that end.  While the Corps of Engineers may have led the way back in the days of Section 221 Agreements under the Flood Control Act of 1970, since then more than thirty agencies -- including the Department of Defenseroutinely use true cooperative agreements for everything from cooperative research, to sharing law enforcement responsibilities, to infrastructure improvements.

 

AAPA requests that the Committee consider language such as the following:

 

SEC. __.  COOPERATIVE AGREEMENTS

 

(a)   Section 2211(e) of Title 33, United States Code is amended by inserting after the words “cooperative agreement” the words “under Section 6305 of Title 31, United States Code and incorporating the alternative dispute resolution procedures under Section 575 of Title 5, United States Code and”

 

(b)  Section 1962-5b of Title 42, United States Code is amended in subsection (b) by striking the words “pay damages” and insert in lieu thereof the words “collect any amounts due in the event of a payment default and subject to the march in rights of the Chief of Engineers under subsection (f) of this section in the event of a performance default”

 

(c)   Section 912(b) of Public Law 99-662 (42 U.S.C. 1962-5b Footnote; 100 Stat. 4190) is amended as follows:

 

(1)  In subsection (b) by striking paragraph (2) in its entirety and redesignating paragraphs (3), (4), and (5) as paragraphs (2), (3) and (4) accordingly; and

 

(2)  In redesignated paragraph (3) by striking the words “to collect a civil penalty imposed under this section,”.

 

Indemnification:  Section 101(e) of WRDA ’86 refers to Section 221 of the Flood Control Act of 1970 and in paragraph (e)(2) requires that a Project Cooperation Agreement provide that the local sponsor hold and save the United States free from damages due to the construction or operation and maintenance of the project, except for damages due to the fault or negligence of the United States or its contractors.  As a matter of policy, the Corps has expanded this requirement and has demanded in its “model” agreement that the local sponsor also hold and save the Government free from damages due to the construction, operation and maintenance of local service facilities and berths adjacent to local service facilities as well as betterments, even though these provisions are not specifically required by statute.

 

Many local sponsors find that they have a legal impediment to agreeing to the indemnification that is now required by statute and demanded by the Corps.  The “hold and save” provision creates an open-ended liability that may not be supported by an appropriation, thus creating a problem under a many state constitutions.  Essentially, many state agencies have a legal problem not unlike the one claimed by the Corps under the Anti-Deficiency Act.  The normal reaction of most local sponsors when confronted with this provision is to insist on a cross-indemnification.  The Corps takes the position that it cannot provide the local sponsor with a cross-indemnification providing similar protection because of the Anti-Deficiency Act.  Essentially, it demands to be indemnified but will provide no indemnification to a local sponsor, notwithstanding the fact that the design and implementation of the project is controlled by the Corps.

 

AAPA believes a possible remedy to the problem is to authorize the Corps to require its contractors to carry insurance that protects both the contractor, the non-Federal sponsor and the Federal government.  The cost of such insurance should be included in the total project cost and shared accordingly between the Federal government and the non-Federal sponsor.  This, we believe, not only addresses the indemnity problem but provides protection to the public.

 

AAPA requests that the Committee consider language such as the following:

 

SEC. __.  INDEMNIFICATION

 

Section 101 of the Water Resources Development Act of 1986, as amended, is modified as follows:

    (1) Paragraph (e)(2) is deleted;

(2)  Paragraph (e)(3) is renamed “(e)(2);” and,

            (3)  The following new section is appended at the end of the section:

“(f)  Indemnification – Costs of insuring the Federal government and non-Federal sponsor against damages due to the construction or operation and maintenance of the project shall be shared in the same proportion as the sharing provisions applicable to the project.”

 

Relocations:  Section 101 of  WRDA 86 requires the non-Federal sponsor to provide the lands, easements, rights-of-way, relocations (other than utility relocations) necessary for the Federal project. The non-Federal sponsor also is to perform or assure the performance of all relocations of utilities necessary to carry out the project. Under Section 101 of WRDA 86, the value of lands, easements, rights-of-way, relocations and the costs of utility relocations borne by the sponsor shall be credited to the non-Federal sponsor’s share of project costs.

 

In practice, non-Federal sponsors do not have sufficient authority to compel owners of property needing to be relocated from within a navigation channel to remove their property.  In most cases, such property was placed under the navigation channel pursuant to a Section 10 permit issued by the Corps of Engineers under the Rivers and Harbors Act of 1899.  This has resulted in numerous lawsuits and counter-suits as non-Federal sponsors seek to compel relocations by private entities, and private entities seek to have the non-Federal sponsors pay the cost of the relocations.

 

AAPA believes it is appropriate for the Federal government, acting through the Corps of Engineers, to compel property owners to remove or relocate all obstructions to navigation improvement projects which are located within the navigable waters of the United States.  In fact, Section 10 permits, which authorized the placement of the property in navigable waters originally, contain conditions requiring such removals when directed by the Corps.  The utilities were installed with the assump­tion that they would be subject to those conditions.  Property owners have argued that the WRDA ’86 language supersedes the permit condition, and the Corps has been reluctant to enforce the permits until the non-Federal sponsor has exhausted all efforts to compel the removal or relocation.

 

The ability of the Corps to permit the placement of property in navigable waters and to compel its removal stems from the concept of “navigation servitude.”  The navigation servitude stems from the Commerce Clause of the U.S. Constitution.  The case law is very solid that against the U.S., there is no right to compensation when a Federal project requires use of submerged lands.  In U.sS. v. 597.75 acres of land, U.S. District Court, Western District of Louisiana in 1965, the court stated, “There is nothing novel or unconstitutional in the requirement that the defendants relocate pipelines they constructed in and across the bed of a navigable river.  The right of free unobstructed navigation is of paramount interest to the welfare of the citizens of the United States.”  241 F.Supp.798, at 799.

 

This should not be confused as exercising a right for a non-Federal sponsor.  These are still Federal projects, authorized by Congress.  In fact, it is the U.S. who determines what interests need to be acquired to meet the requirements of the Fifth Amendment.  If the Federal government already has a power, it does not need to and should not ask the non-Federal sponsor to provide the for the removal or relocation.

 

AAPA’s proposal would ensure the transfer of all costs for removals and relocations in navigable waters from the public sector to the owners (private sector), who in fact installed their utilities assuming that they would have that responsibility.  These costs are estimated to be millions of dollars per year for Corps projects.  It would relieve some pressure on the Federal budget and allow these dollars to be redirected to other urgent infrastructure needs.  This change will also reduce delays in projects caused by litigation.

 

AAPA requests that the Committee consider language such as the following:

 

SEC. __.  RELOCATIONS AND REMOVALS IN NAVIGABLE WATERS

 

Section 101 of the Water Resources Development Act of 1986, as amended, is modified as follows:

    (1) Paragraph (a)(2) following the word “relocation” is modified by inserting the phrase “(except for those relocations located within navigable waters of the United States)”.

    (2) Paragraph(a)(4) is modified as follows:

                “(4) UTILITY RELOCATIONS.  The non-Federal interests for a project to which paragraph (1) applies shall perform or assure the performance of all relocation of utilities necessary to carry out the project, except that the cost of each such relocation within navigable waters of the United States shall be borne by the owner of the facility utility being relocated.”

 

 

Other Improvements to Help Local Sponsors Participate in Navigation Projects

Credit For In-Kind Services During Construction:  While WRDA ’86 allows local sponsors to receive credit for in-kind services during feasibility studies, current law does not allow for such credit during preliminary engineering and design or construction.  AAPA is seeking authorization to allow credit for in-kind services during design and construction of specifically authorized harbor projects.  This authorization should also allow local sponsors to be given credit for design and construction work carried theyout before a cooperation agreement is signed between the local sponsor and the Corps of Engineers if the work done is integral to the project.  This proposal would not increase Federal costs.  This proposal provides an opportunity to better use the capabilities of local sponsors in collaborative ways that will promote a more efficient and timely project implementation process while maintaining a strong Corps engineering, design and construction management role.

 

AAPA requests that the Committee consider language such as the following:

 

SEC. __. CREDIT FOR IN-KIND SERVICES

      Section 101(d) of Public Law 99-662 (33 U.S.C. 2211(d)) is amended to read as follows:

 

“(d) Non-Federal Payments of amounts incurred under Pre-construction engineering and design and during construction- The amount of any non-Federal share of the cost of any navigation project for a harbor or inland harbor incurred under pre-construction engineering and design and during construction shall be paid to the Secretary on an annual basis during the period of construction beginning not later than one year after construction is initiated. [Larry:  Can we add a sentence saying non-feds can accelerate payment if they choose to?]  The non-Federal interest may accelerate payment of the non-Federal share, advance funds subject to credit or reimbursement, or make in kind contributions at any time after a Pre-Construction Engineering and Design Agreement for the project is executed.  The non-Federal share of the costs of the project incurred under pre-construction engineering and design and during construction may be provided in cash or in the form of in-kind services or materials.  [Larry:  I suggest adding the following sentence to make clear credit can be made for non-fed work before PCA is signed:  The Secretary shall allow credit toward the non-Federal share the cost of design and construction work carried out by the non-Federal interest before the date of execution of a project cooperation agreement]”.  The Secretary shall allow credit toward the non-Federal share of project cost: (1) before, during, and after construction for planning, engineering, and design and construction management work that is performed by the non-Federal interest and that the Secretary determines is necessary to implement the project; and  (2) during and after construction for the costs of construction that the non-Federal interest carry out on behalf of the Secretary and that the Secretary determines is necessary to implement the project.   

 

 

Deep-Draft Cost Sharing:  A 1998 report prepared by the U.S. Maritime Administration documents the status and trends of general cargo ship design and its impact on transportation infrastructure[11].  The report finds that the rate of growth in containerized cargo in the U.S. is at six percent per year, and predicts that by 2010 nearly 90 percent of general cargo will be shipped in containers and that nearly 33 percent of those containers will be transported on vessels carrying more than 4,000 twenty-foot equivalent container units (TEUs).  Such vessels, commonly referred to as  "megaships," are a key element in the strategies of the world's leading steamship carriers as they seek to meet growing trade requirements and optimize operations through global alliances.  These large vessels obviously pose major challenges to ports because of their size and the potentially large number of containers they could discharge or load during any one port call.  Key requirements will include suitable terminal facilities, container yards, rail and highway access, as well as deeper channels and berths.  Simply put, the standards have changed and what was once the exception has become the norm.

 

Prior to 1986, a channel depth of 45 feet would accommodate almost all of the container ships in the world’s fleets.  The Clarkson Containership Register indicates that most of the container ships in 1986 had maximum capacities of less than 3,000 TEUs of containerized cargo with average drafts of about 38 feet.  There were only a few larger container vessels with capacities over 3,000 TEUs which were built to the maximum size that could be handled by the Panama Canal.  Most of these panamax vessels had drafts of 41.6 feet or greater.  Vessels with these drafts cannot use a 45-foot deep channel when fully loaded.

 

In the years since 1986, the containership fleet has undergone a major evolution.  The world’s major ocean carriers have greatly increased the size of the ships and the number of large ships they use.  Today there are over 200 ships classified in the panamax sector of the fleet.  These are vessels that carry between 3,000 and 4,500 TEUs and are built to the maximum size of the Panama Canal. As stated above, most panamax vessels can not use a 45-foot deep channel when fully loaded.

 


Furthermore, in 1996, a new class of post-panamax ship was introduced into the world’s container shipping fleet.  Today there are over 150 of these large ships in service.  There are currently 68 post-panamax ships, with a capacity of in excess of 6,000 TEUs, in service with an additional 59 being built or on order.  These vessels are generally wider than can be handled in the Panama Canal.  They also have deeper drafts.  The average draft of the current post-panamax ships is 42.9 feet.  The largest ships have drafts of about 45.5 feet, which require channels that are at least 50 feet deep.  An analysis  containedanalysis contained in the Maritime Administration report cited earlier suggests naval architecture constraints on ships as large as 15,000 TEUs would not result in drafts much greater than 46 feet.  Thus, with allowances for under-keel clearance, vertical ship movement (squat), and uncertainty in predictions of future ship design, AAPA believes the norm for general cargo navigation channels will be as great as 55 feet.

 

As I described earlier, in WRDA ‘86, Congress created a cost-sharing formula for navigation improvement projects based on the needs of the general cargo fleet at that time.  Specifically, a cost-sharing transition was set at 45 feet, above which (i.e., shallower) local sponsors would pay a 35 percent (25 percent plus 10 percent over 30 years) cost-share and below which (i.e., deeper) would be cost shared at 60 percent (50 percent plus 10 percent over 30 years) local.  According to the legislative history for WRDA ‘86, the rationale for setting 45 feet as the transition to significantly greater local participation was that,

 

The Committee has surveyed the manner of financing navigation projects in most developed countries.  Based upon this survey the committee found that most of the national Governments in those countries financed general navigation improvements, including main and entrance channels to a depth of 45 feet to accommodate general cargo vessels (emphasis added).  This assistance is normally justified on the basis of national and regional economic development.  At the same time, most of these countries require local contribution to the cost of construction and maintenance of navigation projects in excess of that depth to accommodate larger, specialized vessels increasingly operating in liquid and dry bulk trades.

 

The bill, as reported, applies this experience by reconciling national investment policy toward future port development with prevailing international practice.  This  is accomplished through the establishment of 45 feet as the maximum standard depth for ports not designed to accommodate deep draft vessels, and the declaration of channel depths in excess of 45 feet as “deep draft ports.”  A graduated scale for the local contribution to the cost of project construction depending upon depth culminates in a 50:50 Federal/local cost-sharing formula for deep-draft navigation projects.

 

 

While Congress intended for non-Federal sponsors to pay a greater share for projects used by “specialized vessels increasingly operating in liquid and dry bulk trades,” it intended for more moderate cost-sharing for ports handling generalized cargo.  As discussed above, because of the country’s explosion in international trade, greater numbers of general cargo vessels are large containerships requiring depths greater than 45 feet.  In addition, many of the benefits of the cargo moving through these ports are accrued outside of the port area, while a greater share of the cost of building these facilities are borne within the port area.  The justification for setting a punitive cost-sharing rate for projects greater than 45 feet is no longer justified.  For these reasons, AAPA believes Congress should revise the definition of deep-draft harbor and the cost-sharing formula to reflect the changes that have occurred in the general cargo fleet.  AAPA requests that the Committee consider language such as the following:

 

SEC. __.  DEEP DRAFT COST SHARING

            (a) Section 101 of Public Law 99-662 [100 Stat. 4082 – 4084] and is amended by striking “45” wherever it appears in that section and inserting “55” in lieu thereof.

(b) Section 214(1) of Public Law 99-662 [100 Stat.4108] is amended by striking “45” and inserting “55” in lieu thereof.

 

 

Port And Harbor Dues:  As a means of cost recovery of the required non-Federal share of a navigation project, WRDA ‘86 included a provision that authorized a non-Federal interest to levy port or harbor dues in the form of tonnage duties or fees to help finance the local share of project construction cost.  During the course of the legislative process, conditions, criteria and limitations were added that effectively impeded their use by non-Federal interests.  The conditions imposed so limited the use of the provision that over the past 15 years, ports have found it to be virtually unusable.

 

The statutory authorization to collect port dues or fees was considered to be in addition to any legal authority already held by ports.  There are relatively few reported cases on the subject, but the existence of limited legal authority for the establishment of harbor user fees is well settled law.

 

The key case describing existing authority is Clyde Mallory Lines v. State of Alabama State Docks Commission, 296 U.S. 261 (1935) in which the U.S. Supreme Court reaffirmed the authority of a State created port authority authorized to “conduct the operation of … harbors and seaports within the State” and “to adopt rules…for the purpose of regulating, controlling, and conducting the said operation: and with power “to fix from time to time reasonable rates or charges for all services and for the use of all improvements and facilities provided under the authority” as sufficient authority to levy a “harbor fee” for the privilege of mooring a vessel in a harbor separate from wharfage or fees for other services.  Implicit recognition of the improved harbor itself as a facility underlies the Court’s reasoning.  The charge was upheld as a valid charge incident to the exercise of the police power to ensure the safety and facility of movement of vessels in the harbor.

 

Clyde Mallory is the most recent embodiment of a long line of U.S. Supreme Court pronouncements upholding the authority of a State, or a political subdivision of a State, under its regulatory authority to levy a toll or fee as compensation for navigation improvements or other services.  This should be distinguished from (a) a duty of tonnage based exclusively on navigation, or entry upon State waters, subject to constitutional challenges as violative of the interstate commerce clause of 3 of Section 8, or tonnage duties clause 3 of Section 10 of Article 1 of the United States Constitution, or (b) a fee for specific services rendered such as wharfage or dockage.

 

The legislative history of Section 208 appears to reflect an intent of Congress to supplement common law authority emphasizing the existence of both direct and indirect benefits to be exercised by ports in the case of a navigation project in particular.  The section by section analysis of the predecessor bill, the Port Development and Navigation Improvement Act of 1981 (incorporated into WRDA ‘86 substantially without legislative change) explained that it was the intention of the drafter that a mechanism be provided to permit the local share to be borne in whole or in part, on a self-sustaining basis by public ports, agencies or municipalities.  Originally, the mechanism was an extension of the consent of Congress to local agencies to levy an appropriate duty of tonnage on U.S. and foreign flag vessels, and the import and export cargo loaded or discharged by those vessels.

 

The need for legislation to implement the original concept to expand common law authority was required because of Article I, Section 10, Clause 3 of the United States Constitution, which provides that a state may not impose a “duty of tonnage” upon ships without the consent of Congress.  The clear legislative intent was to supplement the aforementioned Clyde Mallory decision that distin­guished and permitted a state to impose a harbor fee used for harbor policing under a theory that it represented a fee for services to and enjoyed by the vessel and not a “duty of tonnage.”  This concept that the payments must be related to the benefits received to avoid being a duty of tonnage was incorporated in the harbor dues safe harbor provision of WRDA 1986 based upon the District of Columbia 1985 Circuit decision in the National Cable Television Association case.

 

Ironically, while legislation was considered necessary because the fees levied might ultimately extend beyond common law authority, i.e., those related to benefits received, the final legislation became overly restricted by conditions ostensibly relating to benefits but more intended to provide redundant protection to classes of vessel owners at ports’ expense.  In the process, the final legisla­tion lost sight of the principal purpose of the legislation to finance navigation project construction while expanding the role of local ports as non-Federal interests in planning, financing, and constructing those improvements through being given delegated Federal authority to do so.  Thus, the legislation did little to expand already existing authority.  Significantly, only one AAPA member port has successfullyinvoked Section 208 authority since enactment of WRDA 1986.

 

Section 208 (a)(1) imposes restrictions on the purposes for which dues may be levied.  They may be levied only in conjunction with a harbor navigation project, or separable element, whose construction is complete.  The dues must be used to finance the non-Federal share of construction and O & M (up to 100% of project cost).  There are also limitations on the type of vessel that may be subject to a levy.  Port or harbor dues may not be levied in conjunction with a deepening feature of a navigation improvement project on any vessel if that vessel, based on its design draft, could have utilized the project at mean low water before construction.  Section 208 (a)(4) dealing with the formulation of Port or Harbor Dues requires that they be levied only “on a fair and equitable basis” without clarifying what is fair and equitable.  At first glance, this may be perceived as fertile ground for statutory challenge, although Federal courts (including the U.S. Supreme Court) have had little difficulty in upholding Federal user fees established by agencies in a different context.

 

The levy of dues only when a project is complete may make it difficult to generate a revenue stream to support funding when the local sponsor must pay for the project through the use of revenue bonds. Local shares typically are paid for out of the proceeds from the sale of state or local bonds supported by the taxpayers rather than port revenues or port dues.  The limitation imposed on the type of vessels that may be subjected to harbor dues may leave a pool of available vessels so small that recovery of a non-Federal interest’s share of project costs would result in exceedingly high rates that would drive those ships away to another port.  Port diversion is a concern that would trouble any port authority but should be a concern to be dealt with locally rather than have options taken from it.

 

While the Act provides a theoretical tool for ports to use to recover their huge contributions to the cost of port navigation projects, the imposition of conditions, restrictions and criteria on the right of a port to levy dues has resulted in the use of the right to be difficult if not impossible.  AAPA believes a revision to Section 208 can make it more usable to a greater number of ports, while protecting shallow draft vessels from being subject to any port and harbor fees established under this section.

At a minimum, restrictions and conditions on the use of Port and Harbor dues should be eliminated and local sponsors given the greatest flexibility possible to recover the huge investment they must now make to preserve our nation’s ports.  The AAPA hopes to present a separate specific proposal relating to that funding.

AAPA proposes the following recommended bill text:

 

SEC. __. PORT OR HARBOR DUES 

 

 

Port-Led Projects:  In WRDA ‘86, Congress included several provisions that attempted to fashion a fast-track mechanism for the planning and construction of navigation projects.  These provisions were intended to provide flexibility to non-Federal sponsors where the traditional Corps of Engineers-led planning and construction processes were not adequate to deliver a needed navigation improvement in a timely manner or for other reasons.

 

Section 203 authorized non-Federal sponsors to conduct feasibility studies of potential navigation improvement projects.  Section 204 authorized non-Federal sponsors to construct navigation projects and provided for the reimbursement to the non-Federal sponsors of the Federal share of the project and for the assumption of maintenance responsibility of the project by the Federal government under specified conditions.  Section 205 established procedures for a non-Federal sponsor to seek the streamlined processing of Federal permits for the construction of navigation improvement projects solely under the planning, construction and funding of the non-Federal sponsor.  under a permit regime prior to project authorization.

 

While Section 203 has been used by several ports to accelerate the development of navigation projects,  Sections 204 and 205 have not been as widely used.  In most instances, a non-Federal sponsor seeking reimbursement and Federal maintenance under Section 204 will enter into a reimbursement agreement analogous to a project cooperation agreement, but based upon experience may not be given credit for certain expenditures or obligations incurred either prior to authorization or date of agreement (although in some instances for certain projects exceptions have been made both administratively and legislatively).

 

In other instances, a non-Federal sponsor may undertake a project exclusively under Section 205 in order to initiate the project in the most expeditious manner using port-generated funds.  However, Section 205 does not authorize reimbursement of the Federal share or assumption of maintenance under this provision.

 

Under current law in order for a non-Federal Sponsor to take full advantage of Sections 204 and 205 as enacted, the Sponsor must execute a Reimbursement Agreement before undertaking any work including work done under permit with Corps approval.  Based upon experience, if the Corps approves a project applying the trilogy of requirements-economically viable, engineeringly feasible and environmentally acceptable even if additional mitigation measures are subsequently required, there is no reason why a project may not be approved as-built and a favorable Chief of Engineer’s report being the vehicle for subsequent Congressional authorization for reimbursement subject to availability of appropriations and future Federal maintenance.

 

For these reasons, Sections 204 and 205 should be revised and updated in light of project experience and increased local sponsor capabilities that were largely non-existent in 1986.  More options can be created to effect a seamless transition toward project authorization with proper credit given for prior work by the project sponsor, as well as to address under the project definitional umbrella elements that are becoming increasingly commonplace today such as the need to consider all available dredged material disposal options including confined upland disposal early in project planning.

 

AAPA requests that the Committee consider language such as the following:

 

SEC. __. CONSTRUCTION OF PROJECTS BY NON-FEDERAL INTERESTS

 

Section 2232 of Title 33, United States Code is amended as follows:

 

(a)          In subsection (a) by inserting adding after the words “subject to” the words “entering into to a cooperative agreement with the Secretary under subsection (e) of this Section or under Section 2233 subject to”;

 

(b)          Paragraph (e)(1) is amended:

 

(1) By inserting after the word “Acts” the words for the liquidation of contract authority,”

 

(2) By amending subparagraph (A) to read as follows:

 

“(A) Before authorization of the project-

 

(i) The Secretary approves the plans of construction of the project by the non-Federal interest or approves the project, or separable element, as built; and

(ii) The Secretary finds before approval of the plans of construction of the project that the project, or separable element, is economically justified and environmentally acceptable, or as built that the project, or separable element is complete and substantially in compliance with appropriate engineering and design standards and applicable environmental standards; and”; and

 

(3) By amending subparagraph (B) to read as follows”

 

    “(B) The non-Federal interest and the Secretary enter into a cooperative agreement under this Section and obligate themselves to pay their respective shares of the cost of construction and maintenance of the project under this chapter.”

 

(c)          Paragraph (e)(1) is amended by striking the word “construction” and inserting the words “undertaking any operation and maintenance,”

 

 

SEC. __.  COORDINATION AND SCHEDULING OF FEDERAL, STATE

AND LOCAL ACTIONS

 

Section 2233 of Title 33, United States Code is amended:

 

(a)          In subsection (a) by inserting a comma after the word “project” followed by the words “or separable element (including a project constructed under Section 107 of the River and Harbor Act of 1960 ((33 U.S.C. 577)),” and

 

(b)          By redesignating subsection (g) as subsection (h) and inserting the following new material in redesignated subsection (g), and by redesignating subsections (h) and (i) as (i) and (j) accordingly as follows:

 

“(g) Reimbursement- Subject to the enactment of Appropriations Acts for the liquidation of contract authority, the Secretary may reimburse any non-Federal interest an amount equal to the estimate of Federal share, without interest, of the cost of construction of any authorized harbor or inland project, or separable element thereof, or separable element (including a project constructed under Section 107 of the River and Harbor Act of 1960 (33 U.S.C. 577),” constructed under this section in the same manner and under the same terms and conditions as under Section 2232 of this chapter.”

 

 

S. 1987

AAPA does not have a formal position on S. 1987, the Corps of Engineers Modernization and Improvement Act.  Corps of Engineers projects focus on diverse social, economic development and environmental protection needs of the nation.  This bill as crafted, however, could have a significant impact on the marine transportation system in the U.S., and the ability of the Corps of Engineers to undertake vital water resources projects.  Therefore, AAPA strongly encourages the Committee to carefully consider all negative ramifications of this proposal.

.  Issues to consider when reviewing this legislation include:

·       Directly and indirectly increasing the cost of projects;

·       Directly and indirectly constraining the benefits attributable to projects;

·       Directly and indirectly extending the time to complete projects; and,

·       Setting stricter economic performance criteria and deadlines by which projects are automatically deauthorized, which may impact some current projects.

 

At the same time, the bill would impose substantial restudying of authorized projects, the promul­gation of numerous new regulations, and the generation and reporting of vast amounts of project data that would involve a significant diversion of Corps resources.  Many of the provisions do not recognize existing project formulation policies and processes by requiring activities that duplicate existing Corps practices or misstating the nature of existing policies.

 

Virtually no other Federal public works program is subject to this level of regulation from Washington.  The national highway programs, the airport improvement programs, drinking water and waste water treatment programs are all highly decentralized and decisions about the formulation and selection projects are done at the state and local levels following broad guidelines related to the ability to receive Federal funding.  In addition, the Corps of Engineers programs are rare among other Federal public works program in using benefit-cost evaluations in formulating projects.

 

Like most major development projects, both public and private, the Corps of Engineers’ water resources projects often generate significant public controversy about the appropriate use of public resources and the potential adverse effects of the project.  The Corps of Engineers process for formulating water resources has developed over the last 35 years and includes numerous requirements for detailed alternative evaluations, multi-objective planning, impact assessment, public involvement, and regulatory compliance.  Sometimes, in the successful cases, this process leads to timely, cost effective and socially beneficial projects.  In too many cases, this process leads to protracted conflict, lost social opportunities, and wasted resources.

 

While the Congressionally crafted process vests in the Corps of Engineers the central role of balancing all of the competing demands and interests related to water resource projects, the agency by no means has the final say in selecting projects.  Several Federal agencies must approve aspects of the process and the Administration and Congress have numerous opportunities to review, approve and fund individual projects.  S.1987 would remove this broad discretion from the Corps of Engineers in conducting the balancing needed to formulate successful public projects and would replace it with narrowly focused, stricter project standards and “independent review” of the agency’s decision making that would strip away any agency discretion afforded in judicial proceedings.

 

Under the current system, it often takes between five and ten years or more to move a project from problem identification to the start of construction.  S. 1987 would create a process that is even less efficient than the current system.  In the Water Resources Development Act of 2000, the Congress directed the National Academy of Sciences to study the need for improvements to several areas of the Corps of Engineers process.  Congress should not undertake any significant changes to the process for formulating and authorizing Corps of Engineers projects until it thoroughly reviews the existing process, clearly identifies the sources of problems with the process, and fully understands the likely consequence of its intended solutions.  We urge the Congress to defer action on attempts  to fundamentally alter the process for formulating and authorizing Corps of Engineers projects until the NAS’ studies are completed and Congress has had an opportunity to gather sufficient information about the issues through hearings or other appropriate means.

 

 

CONCLUSION

Thank you for the opportunity to testify today.  As I hope we have made clear in this testimony, the Corps of Engineers plays a vital role in ensuring the nation’s marine transportation system (MTS) meets the needs of the nation’s businesses and consumers.  The MTS is a complex, market-driven system that provides many benefits to the nation.  Federal investment in one part of this system – navigation channels – is critically important to the success of the system and produces benefits to the nation far in excess of the investment.

 

AAPA and the public port authorities of our country, the agencies on whom the responsibility for the development and operation of our nation’s ports rests, will continue to work with the Corps and Congress to keep these essential arteries of international commerce open in an efficient, cost effective and environmentally protective manner.  To ensure our nation's continued international competitiveness, it is now more important than ever for Congress to continue to invest in an improved and efficient water transportation system.

 

 

 

 

 

 

_______________________________



[1] Testimony of Christopher Koch, President & CEO of the World Shipping Council Before the House Committee on the Judiciary Hearing on International Liner Shipping Regulatory Policy, June 5, 2002.

[2] Agricultural Marketing Service, “Agricultural Ocean Transportation Trends,” December 2001, at www.ams.usda.gov/tmd/AgOTT/December%202001/Dec2001_content.htm.

[3] Source: U.S. Maritime Administration.

[4]     An Assessment of the U.S. Marine Transportation System - A Report to Congress.  U.S. Department of Transportation, Washington, DC, 104 pp., September 1999.  (www.dot.gov/mts/report/).

[5]   United States Port Development Expenditure Report, December 2001, U.S. Department of Transportation Maritime Administration, Office of Ports and Domestic Shipping, Washington, DC.

[6]     Civil Works Program — 1998.  U.S. Army Corps of Engineers, Washington, DC, 54 pp., 1998.

[7]     Cost sharing requirements are contained in Section 101 of the Water Resources Development Act of 1986, Public Law 99-662, November 17, 1986, 33 U.S.C. 2211.

[8]      Actual Dredging Cost Data for 1963-1999, Long-Term Continuing Cost Analysis data U.S. Army Corps of Engineers Dredging Program.  Navigation Data Center, U.S. Army Corps of Engineers, Fort Belvoir, VA.  (www.wrsc.usace.army.mil/ndc/ddhisbth.htm).

[9]     Principles and Guidelines for Water and Related Land Resources Implementation Studies. U.S. Army Corps of Engineers, Washington, DC, 1983.  (www.wrsc.usace.army.mil/iwr/pdf/p&g.pdf)

[10]    New Directions in Water Resources Planning for the U.S. Army Corps of Engineers.  National Academy of Sciences, Washington, DC, 120 pp., 1999.

     [11] The Impacts of Changes in Ship Design on Transportation Infrastructure and Operations, U.S. Maritime Administration, February 1998.