Taxpayers
for Common Sense
Presented
by Steve Ellis
Senior
Director of Water Resources
Taxpayers
for Common Sense
Senior Director of Water Resources Vice-President, Policy and Communications
steve@taxpayer.net dwilliams@cagw.org
Good afternoon, Chairman Jeffords, Senator Smith and other distinguished members of this Committee. I’m Steve Ellis, the Senior Director of Water Resources at Taxpayers for Common Sense, a national, non-partisan budget watchdog group. I’d like to thank you for inviting me to testify on behalf of two of the nation’s leading taxpayer advocacy groups – Taxpayers for Common Sense and the Council for Citizens Against Government Waste – at this hearing on the Water Resources Development Act of 2002 and reforming the Army Corps of Engineers. The National Taxpayers Union (NTU) is also concerned with the Army Corps of Engineers and advocates reform of the agency. I would like to submit for the record a statement from the NTU.
The last time
there was significant reform of the Corps of Engineers and the United State’s
approach to water resources development was in 1986 with the approval of cost
sharing reforms championed by President Reagan.
Virtually
overnight we have gone from budget surpluses to deficits. We are engaged in a costly and lengthy war
against terrorism. In this context,
fiscal restraint is more important now more than ever to get to a balanced
budget.
Wasteful
spending through the Army Corps is symbolic of everything that is wrong with
Inside the Beltway politics, where Members of Congress abandon their duty to
promote the best interests of the nation in order to help a handful of special
interests.
In this election
year, the temptation will be great to focus on just bringing more projects home
to please special interests. But
enacting true, meaningful reform of the Corps of Engineers this year will be an
indication of whether Congress has the will to make the hard decisions
necessary to achieve fiscal responsibility.
Undoubtedly, the
Corps of Engineers has faced some of the sharpest criticism in its history over
the last two and half years. However,
concern over the Corps and the way it conducts business is not new. For example, more than 150 years ago in 1836
the House Ways and Means Committee chastised the agency for bungling 25
projects that were over-budget, behind schedule, and not performing as
planned.
Similarly, the
criticism in recent years is the result of revelations that the Corps
manipulated or committed serious mistakes in project evaluation studies that
could waste billions of taxpayer dollars.
This series of
scandals has severely eroded public trust in the Corps. To restore the agency’s credibility, it is
critical that the 20002 Water Resources Development Act address the problems
that led to these scandals. The Corps
needs to be reformed, and it needs it now.
It is vital that we define what exactly is meant by Corps reform? Real reform will achieve these four
fundamental goals:
·
Make the
Corps more accountable;
·
Set clear
priorities;
·
Modernize
the project planning process; and
·
Ensure that
everyone pays a fair share
In March,
Senators Bob Smith, Russ Feingold, and John McCain introduced S. 1987, the
Corps of Engineers Modernization and Improvement Act. This comprehensive reform proposal addresses each of the four key
reform areas in a serious and effective manner. We urge the Committee to adopt S. 1987 as the basis for reform in
the Water Resources Development Act.
I would like to
outline each of these tenets of reform and provide a few examples of why reform
is essential.
The need for more accountability in the Corps becomes more apparent by the month, as a growing list of project studies have been found to have been manipulated or contain egregious errors:
Dozens of other
examples of problematic and controversial projects could also be cited that
together account for billions more dollars in wasteful spending.
A key way to
restore some credibility to the Corps’ project planning process is to implement
a system of independent peer review for costly and controversial projects. A workable and faithful independent peer
review process should include the following elements:
The need for
independent review has now been endorsed by the National Academy of Sciences,
the General Accounting Office, President Bush and many Members of Congress, and
dozens of public interest groups across the nation.
There are growing external pressures placed on the Corps to green-light projects lacking true economic justification. Congress will “contingently authorize” a project based upon a favorable finding by the Corps prior to the necessary feasibility studies being completed. There is a correlation between contingent authorizations and later findings that a project study had been poorly conducted on an unjustified project. For example, two of the projects listed earlier in this testimony, the Columbia River deepening project and C&D Canal deepening project in Eastern Maryland, were both contingent authorizations.
The Smith-Feingold-McCain reform bill would address this problem by allowing Senators to raise a point of order when controversial projects are included in authorizing legislation without the Corps first completing the mandatory feasibility studies and approval from the Chief of Engineers. S. 1987 would take significant steps towards restoring integrity to the authorization process.
We are also very concerned that there are efforts underway to seek a contingent authorization of the billion-dollar Upper Mississippi and Illinois Rivers lock expansion project in the hopes of beginning Pre-construction, Engineering, and Design. The Corps has only prepared an Interim Report introducing various scenarios, but has still not done any in-depth re-evaluation of alternatives that would lead to a recommendation to Congress.
One of the best arguments for not proceeding with authorization of any Upper Mississippi navigation project in this WRDA comes from the Inland Waterways Users Board themselves, an industry advisory committee for the Army Corps of Engineers. A construction schedule for inland waterways projects posted on its website lists the Upper Mississippi lock expansion as not being able to start construction until 2020 – and this is the optimistic scenario. A limiting factor is that despite a current surplus in the Inland Waterways Trust Fund, so many waterways expansion projects are being sought by the navigation industry that the pace of construction will be limited by the availability of money from this fund, which is generated from a tax on diesel fuel used for barges.
Contingent
authorizations have contributed to a ballooning construction backlog that is
now $52 billion. Even with increased construction
budgets, it will still take the Corps more than 25 years to build all of these
projects.
Each year when
the President’s budget is introduced, Senators inevitably complain that
projects in their state did not receive “full” funding and consequently
benefits are delayed and project completion costs increase. This is a result of too many projects
competing for a limited amount of resources.
Under the current funding process, bad projects are just as likely to
receive funding as good projects.
This enormous
backlog is partly due to the Corps having provided bad information to Congress
upon which it authorized a project, as well as Members of Congress seeking
authorization despite Corps data pointing out serious problems with the
project.
Recently,
Taxpayers for Common Sense conducted an analysis of the backlog that has made
available to the public. Detailed
information is easily accessible to the public on the 285 projects, for which
the President has requested funding and submitted a Budget Justification
Statement to Congress. This amounts to
only $28 billion worth of the construction backlog. We urge Congress in this year’s WRDA to require the Corps to make
the full backlog available to the public, accompanied by, at a minimum, the
same detailed information included in Budget Justification Statements.
TCS’ analysis
found that the median project was only 24% constructed. In fact, 25 projects authorized in 1986 are
still less than half-complete. These
alone account for $2.4 billion of the backlog.
An additional 39 projects representing $4.3 billion of the backlog have
benefit-to-cost ratios of less than 1.5, and are less than half-complete.
The backlog
slows down the construction of all projects, whether they are good or bad. Just as the Base
Realignment and Closure (BRAC) process was a tough pill to swallow but
nonetheless one that will improve the health of our nation’s military forces,
Congress needs to institute a project-blind process for deauthorizing outdated,
marginal, and unnecessary projects that have yet to be constructed. Deauthorizing these low-priority projects
will enable funds to be focused on legitimate projects that provide large
benefits to the public at a low relative cost.
The
Smith-Feingold-McCain bill proposes two simple improvements to an existing
automatic deauthorization process that would significantly help break the
backlog. First, S. 1987 would shorten
the amount of time in which a project must receive funds for construction in
order to continue to be authorized.
Currently, a project must receive funds at least once every nine and a
half years. S. 1987 would reduce the
timeline to five years for newly authorized projects and three years to
projects that have already received some construction funds.
Second,
S. 1987 would require that construction funds actually be used on physical
construction to re-set the clock, as opposed to planning, design, or
re-evaluation studies. There are dozens
of projects that have been kept on life support while tens of millions of
taxpayer dollars are wasted having the Corps perform repetitive studies in a
futile attempt to resolve major controversies.
In
the case of the $108 million Oregon Inlet Jetties proposed for the Outer Banks,
the Corps has been continuously “studying” the viability of the project for
more than 30 years. Yet through all
those years, a half dozen separate independent reviews by notable economists
and scientists have determined the Corps is incapable of finding a way to
design a cost-effective and scientifically sound project. In the coming months, we believe a
forthcoming General Accounting Office report will add to the already
overwhelming evidence supporting the case that the Oregon Inlet Jetties are an
immense boondoggle.
These
two simple reforms would put more pressure on Congress to weed out bad projects
and speed up construction of good projects.
In fact, President Bush’s proposed FY03 budget request follows this same
logic by focusing much of the Corps construction budget on completing 30 major
projects. While certainly not a perfect
budget, the Bush administration has recognized the need for priorities and
reining in the Corps much more seriously to date than Congress.
A more recent, but growing, pressure on the backlog is “mission creep” within the Corps of Engineers. The Corps has three congressionally mandated primary missions: navigation, flood damage reduction, and environmental protection. Other activities such as hydropower, recreation management, and water supply are permitted when associated with a multi-purpose project. However, the Corps has sought – and Congress has authorized – to extend its tentacles into irrigation, municipal water supply, wastewater treatment, and even construction of public schools. Each of these areas has traditionally been carried out by the private sector or through other government programs.
The
Corps does not have extensive experience in cross-basin water transfer
projects, for example, but is seeking to build more than a billion dollars
worth of pump and distribution infrastructure in Eastern Arkansas to assist
rice irrigation. A lack of experience
led the Corps to only look at structural solutions to long-term groundwater
depletion concerns. After the release
of the Corps’ initial design for the $319 million Grand Prairie Area
demonstration plan, hundreds of farmers – the very people the Corps was trying
to help – withheld support for the project because they prefer cheaper and more
effective non-structural conservation alternatives that would minimize water
taxes slated to be assessed on them to pay for the project.
In
the case of municipal water supply and wastewater treatment, or what has also
been called “environmental infrastructure”, Corps involvement in these projects
is a redundant – and wasteful – substitute for the Environmental Protection
Agency’s Drinking Water and Clean Water State Revolving Funds. The only difference is that projects
obtained through the Corps effectively receive grants as opposed to loans, and
the allocation of funds to projects under the Corps budget is driven almost
exclusively by politics.
In
Los Angeles and Washington, DC, the Corps has entered into billion dollar and
hundred million dollar contracts, respectively, to build and renovate public
schools. But they have done a poor job
at that too, while at the same time crowding out construction management firms
in the private sector that could have performed the work faster and at less
cost.
President Bush
has sought to limit mission creep by not requesting funds for these types of
projects. His fiscal 2003 budget
request outlines the impacts of “mission creep”:
Congress periodically directs the Corps to work in other areas that duplicate existing federal programs or are activities that should be carried out by non-federal interests. This “mission creep” diverts the Corps from its primary business lines, slows down completion of higher priority construction projects, and postpones the benefits that completing these projects would bring.
The reform to
check mission creep is simple: deauthorize all of the unconstructed irrigation,
municipal water supply and wastewater projects, and stop the Corps from
entering into contracts with local school districts to build schools.
The Corps of
Engineers’ recently announced that it would pause more than 150 authorized
projects in order to “resolve questions” over the “accuracy and currency of
economic analyses, the validity of plan formulation decisions, and the rigor of
the review process.” This was a
significant acknowledgement that the agency too often relies upon outdated
economic information, as well as other problems with the project planning
process.
For example, the
Delaware River deepening project was justified in 1992 primarily upon
projections of increased oil imports and scrap metal exports. However, we now have the benefit of ten
years of actual data, which reveals that the Corps predictions were overly
optimistic. None of the area refineries
have significantly increased their oil imports, mostly because they have not,
nor plan to, make any expansion of plant capacity in order to avoid having to
install expensive pollution control technology if they did expand. By 2000, scrap metal was no longer being
exported from the Port of Philadelphia because the former Soviet states
replaced the U.S. as the main provider of scrap to Turkey.
Both of these
trends were apparent during the early and mid-1990s, but the Corps never
updated its project studies to reflect these real world market changes, even
though they did revise cost estimates downward during that time. In fact, the Corps continually denied the
economic reality of the project and continually sought construction funds for
this project despite knowing its benefits analysis was woefully out of
date. Only after the General Accounting
Office examined the project has the Corps acknowledged these errors and sought
to update their feasibility report.
Although we
hoped the Corps “pause” represented a real effort to change the way the agency
did business, the Corps did not follow through with an honest evaluation of the
150 projects. In fact, only eight
projects will be subjected to further analysis. Although the Corps cited that dozens of projects were already
undergoing further re-evaluation before the launch of the nationwide review,
the Corps failed to correct its studies on dozens of other boondoggle projects
like the Dallas Floodway and Grand Prairie irrigation projects.
The Corps’
review fiasco is yet another indication the agency is incapable of reforming
itself and that real reform must be passed into law this year by Congress.
The Smith-Feingold-McCain bill would also require the Corps to work with the National Academy of Sciences in modernizing the planning guidelines. For example, the guidelines should be updated to ensure full accounting of costs of projects – including adverse economic impacts to other interests – incorporating new techniques in risk and uncertainty analysis, eliminating biases and disincentives for nonstructural flood damage reduction projects, incorporate new analytical techniques, and ensuring projects are justified upon benefits to the public interest rather than a few private firms or individuals.
A full revision of the Corps planning guidelines was recommended by the National Academy of Sciences itself in a 1999 report on the Corps’ project planning process. The Principles and Guidelines, the Corps planning documents, was last updated in 1983, and with the exception of a few minor revisions, has basically been frozen in time for nearly two decades.
Many of the Corps’ problems stem from an increasingly obsolete planning process that was developed at a time when water projects were seen as more of a job creation program than a national investment.
Our nation and
thinking certainly have changed since the New Deal Era, but the Corps still
relies on the 1936 Flood Control Act’s standards to call a billion dollar
project economically justified if the benefits outweigh the costs by even one
dollar. No business would ever make an
investment knowing that they would get no return on their dollar, and we
deserve no less from our investment of tax dollars.
The
Smith-Feingold-McCain bill’s proposal to require project benefits be 1.5 times
the total estimated costs in order to qualify as economically justified makes
strong fiscal sense, by ensuring at least a modicum of a return to the federal
taxpayer. An additional benefit is that
this reform will help break the backlog by deauthorizing marginal projects that
have yet to start construction.
Another problem
with the Corps is that it studies and plans projects in a vacuum. The Corps assumes there are no budget or
other constraints when developing a construction schedule. For example, the Corps benefit-cost analysis
for the $420 million Delaware River deepening project, anticipated construction
over a four-year period. There was
virtually no chance of this ever happening, as the project would have to receive
more than $90 million – 5% of the agency’s overall construction budget – each
year for four straight years. The
actual construction appropriations for the project have not exceeded $20
million – with none of those funds ever being spent on actual construction –
but by optimistically scheduling construction over only four years, the Corps
was able to reduce estimated costs by maximizing scales of efficiency. In fact, this problem was cited by the
General Accounting Office as another factor that led the Corps to overestimate
the true benefits of the project.
Although being
able to construct large-scale projects quickly is ideal and preferred because
it minimizes construction costs while quickly returning benefits to
taxpayers. However, such scheduling
does not reflect the harsh reality of a massive backlog and growing budget
constraints. S. 1987 requires the Corps
to devise more realistic construction schedules for projects and reflect the
impacts on project costs.
The Corps’
tunnel vision is also apparent in its planning of port development
projects. Currently, there is a “race
to the bottom” amongst major U.S. ports, including twelve major Corps deepening
projects along the East Coast that together will cost taxpayers $2.4 billion to
complete. This phenomenon is stoked by
a shift amongst the shipping lines to larger and deeper-draft container ships
and a fear among ports that they may be left behind.
The problem is
that few of these ports will be successful in alluring these larger ships to their
docks. With significant deregulation of
the shipping industry in the 1990s and other factors, shipping lines have
consolidated and begun to rely more heavily upon hub ports like New York / New
Jersey Harbor and the Ports of Los Angeles and Long Beach. The result is these larger ships will carry
more cargo, but to fewer ports. Medium
sized ports are poised to become feeder ports in this system, similar to the
way the airport network has evolved.
These ports will also find advantages in specializing in niche cargos,
like the Port of Wilmington, Delaware’s successful makeover into one of the
nation’s premier ports for refrigerated produce.
Certain ports like those in New York and Los Angeles are logical choices for hubs due to the tens of millions of consumers within a relatively few miles of the piers. Other ports have natural advantages like the Port of Seattle that requires very little dredging to maintain its deep berths, or Hampton Roads, Virginia, which already is maintained at a deep draft and is well positioned only a few miles from the Atlantic Ocean.
On the other
hand, the Ports of Philadelphia and Portland, Oregon are more than 100 miles
inland, and the cost of maintaining deep access channels is inherently
expensive. Furthermore, it is more
difficult and much slower to navigate up 100 hundred miles of a restricted
channel, consequently it takes much longer for ships to traverse those rivers
to deliver their goods than it would to a port near the open ocean.
The Corps
continues to pursue many more deepening projects than the nation needs. This is because the Corps evaluates a
particular deepening project without any consideration of potential adverse
economic affect upon its competitor ports.
These studies do not take into account the potential impacts of other
nearby port development projects in the works, but not yet completed, that can
affect the ability of the port under study to ultimately attract more ships.
Also, the Corps
expertise and mandate generally limit it to only consider deepening a port’s
access channels when studying port improvements. However, a port’s depth is only one of many factors that
determine its competitiveness. The
amount of dockside land available to store containers, intermodal connections
to rail and highways, crane equipment, labor conditions, geography and many
other factors are just as important.
On April 15, the Alameda
Corridor project opened, connecting the Ports of Los Angeles and Long Beach to
downtown L.A.’s rail and highway nexus, twenty miles inland. The $2.4 billion collaborative project was
on time, on budget, had almost no public opposition, and used only a moderate
amount of federal funds – 22% of the total cost plus a $400 million loan. The loan and the rest of the costs of the
project are being borne by the ports, Los Angeles County, and revenue bonds to
be paid off over time by a $15 user fee on each loaded container that uses the
corridor.
Port experts are
predicting that the efficiencies gained from the corridor by facilitating the quick
transfer of containers from ships to the highways and rail lines leading out of
L.A. will solidify Los Angeles and Long Beach’s position as the nation top two
ports for decades to come.
Transportation Secretary Norman Mineta at the corridor dedication
ceremony called the project, “a powerful example of what we want to encourage”
throughout the country.
We urge Congress
to require the Corps to institute rational port planning to consider what
investments are in the best national interest on a regional basis. In fact, the Department of Transportation is
already ahead of the Corps on this issue, and is currently funding a project at
the University of Rhode Island Transportation Center to develop a comprehensive
framework for sustainable container port development.
S. 1987 would require the Corps to work with the National Academy of Sciences in revising its project planning guidelines include rational port planning. Unfortunately, in recent years some port interests have pushed for increasing the federal subsidy of dredging ports deeper than 45-feet from 40% to 65%. If such a change were applied to the New York / New Jersey Harbor project to deepen to 50-feet, taxpayers would be fleeced for more than $375 million. There is no need for the U.S. to subsidize port overcapacity through the dredging of dozens of ports past 45-feet. A few select ports with depths of 45-feet or more can serve the whole nation well as hubs.
We strongly urge Congress to reject any attempt this year to increase the federal subsidy for dredging deep draft ports past 45-feet.
Weeding out
wasteful water projects through a streamlined deauthorization process, holding
the Corps more accountable and modernizing the planning process are all
effective ways to ensure the best water projects get built. Cost sharing is another tool for breaking
the backlog. Forcing beneficiaries to
pay their fair share, can be used to reduce the budget, freeing up federal
resources to speed up construction of good projects, and provides incentives
for good local policies that also further reduce federal disaster bailouts.
In 1995, Dr.
Robert P. Inman of the Wharton School of Business published a study on the
effects of cost sharing for Corps of Engineers water projects, “Changing the
Price of Pork.” The study examined the
Water Resources Development Act of 1986 and the unique situation where Members
of Congress and their constituents had an opportunity to seek smaller-scale,
more efficient projects once it became apparent that cost-sharing rules were
going to be adopted in the legislation.
The Inman study found that the cost-sharing rules of 1986 saved federal
taxpayers more than $3 billion, or a 48% savings of what taxpayers would have
otherwise paid for projects in the bill.
The financial effect on local communities was marginal, a 12% increase
of what they otherwise would have paid, even though they were paying a
significantly greater share of the cost.
The reason the increased costs for local communities was minimal is that
they chose smarter and more efficient projects that met only their true water
resource development needs.
The cost sharing
reforms of WRDA 1986, championed by President Reagan, ushered in a new era that
sought to instill market-based economics into water development project
planning. It marked a significant
evolution from the New Deal era thinking of building projects to simply put
people to work regardless of whether the project had any lasting benefits.
The cost sharing
reforms of the Smith-Feingold-McCain bill seeks to build upon the Reagan
reforms. The guiding principle behind
S. 1987’s cost share formula changes is that the greater the proportion of
benefits that are local in nature the greater the financial responsibility of
the local sponsor. The Inman study also
endorsed this principle.
Specifically, S.
1987 implements tiered cost sharing for operations and maintenance of inland
waterways, reduces the federal subsidy for flood damage reduction projects to
50%, and reduces the federal subsidy for beach building projects to 35%.
According to the
Corps of Engineers, the Inland Waterways System currently has a maintenance
backlog of $350 million. However, each
year 30% of the inland waterways maintenance budget is spent on underused
waterways that carry only 2.3% of the system’s cargo. Eliminating the huge federal subsidy of the most wasteful
waterways and requiring a 25% cost share contribution from non-federal
interests for other low use waterways could free up tens of millions of dollars
each year to reduce the maintenance backlog on the nation’s workhorse rivers,
like the Ohio and Mississippi.
The effect of
eliminating subsidies for the handful of waterways would be minimal. For example, if the Corps were to stop dredging
the Apalachicola River in Florida’s Panhandle, only three-dozen barges a year
would be affected. On average only one
barge every ten days floats down the Apalachicola at more than the river’s
natural depth. Yet, recent annual
federal appropriations for this waterway have been $12 million.
Despite the
Corps of Engineers having spent more than $120 billion on flood control
projects over the last five decades, annual flood damages continue to
increase. This trend was cited in the
Interagency Floodplain Management Review Committee or Galloway Report on the
Midwest floods of 1993, which recommended a new course for the nation to
implement policies that discourage further or more intensive development within
floodplains. A 1998 report by the
National Wildlife Federation, Higher Ground, illustrates the double,
triple, and even quadruple subsidies from the federal government as a result of
a series of uncoordinated policies.
Corps of
Engineers subsidized construction of large structural projects encourages
further development of floodplains by making people feel safe to live closer to
the river. Inevitably, there will be
the big flood, which then usually brings flood insurance claims and Federal
Emergency Management Agency disaster assistance. And as Higher Ground documented, there are tens of
thousands of homes that have repeatedly flooded and received checks from the
federal government to rebuild within the floodplain.
Reducing the federal subsidy of Corps of Engineers flood damage reduction projects from 65% to 50% can help break this cycle of subsidies and encourage smarter flood damage reduction options like non-structural flood-proofing of moderate risk homes and voluntary buyouts of homes located within high risk flood zones.
Beach building projects are another example where the beneficiaries are easily identified and are very local in nature, the people who visit the beach, the people who live along the beach, and the people who own second homes along the beach and rent them out. In fact, beneficiaries of beach projects tend to be the most affluent beneficiaries of any Corps subsidy.
For example,
roughly one-third of America’s 74 wealthiest beach towns are beneficiaries of a
Corps beach building project. Palm
Beach County, Florida is receiving a $2 million reimbursement from federal
taxpayers this year for sand that was pumped in front of very wealthy homes,
including those in Gulf Stream where the median home value is $1.5
million. All the beaches in the
Hamptons of New York have been maintained by federal sand subsidies.
During the 106th
Congress, a provision was snuck into WRDA 2000 approving the world’s most
expensive beach project, $1.8 billion for Nags Head, Kitty Hawk, and Kill Devil
Hills in North Carolina’s Outer Banks.
This 15-mile stretch of beach is one of the most highly eroding beaches
along all of the Atlantic Coast. To
compensate, the Corps will have to rebuild one-third of the beach every year
repeatedly for the next 50 years. A
cursory glance at any of the websites for the many real estate brokers in this
booming county will turn up a half-dozen or more listings for $1 million
beachfront homes for sale. The going
rate for beach house rentals during the peak summer season is $4000 to $8000 a
week. Obviously, these towns are not
poor by any means.
Federal subsidy
for beach projects is a relatively recent phenomenon. Federal subsidies for sand pumping projects were not very common
before the 1980s, but in the last three years these projects have been consuming
a rapidly increasing amount of the Corps’ construction budget. Many towns nourish beaches on their own
without federal assistance, using hotel occupancy taxes or property taxes
assessed on a home’s proximity to the beach.
The State of Florida recently established an annual beach building
fund.
Between the
wealth of the beneficiaries and the proven alternative local revenue raising
mechanisms, reducing the federal beach subsidy to 35% is common sense. Such a policy change will also discourage
the more intensive development of high-risk coastal areas, which would in turn
reduce federal flood insurance bailouts following hurricanes. Some states have sought to limit development
of high-risk areas with only limited success.
Despite zoning regulations in Florida that establish a “line of control”
beyond which developers cannot build seaward, the state has issued developers
more than 400 permit waivers in the last several years.
Many of these
same points are made in a White House Office of Management and Budget memo to
the Corps, which is very critical of a draft agency report that attempts to
determine an optimal cost sharing formula for beach projects. We have included this OMB memo as an
attachment this testimony.
Ultimately,
beach erosion only becomes a problem when there are homes on the beach. Beaches naturally migrate, and they will
always exist. It is just a matter of
where the beach is and if it is in front of your house or rental house. Federal policies, including cost sharing for
beach nourishment, ought to discourage irresponsible development in high-risk
zones.
Some have
concerns over whether cost sharing and even other reforms could negatively
affect underprivileged communities.
However, most likely the reforms in the Smith-Feingold-McCain bill would
be a net benefit to poor and minority communities.
In the case of
cost sharing reforms, Section 103(m) of the Water Resources Development Act of
1986 allows for cost sharing reductions on flood damage reduction projects down
to as little as 5% for qualifying poor communities. In WRDA 2000, Congress extended the ability to pay rules to all
Corps projects and directed the Corps to rewrite the qualifying rules and
formulas. The Corps has not completed
revision of these rules, and concerns regarding the impact of cost sharing upon
financially strapped communities are best addressed through that process.
A significant
benefit to disadvantaged communities and all stakeholders are the reforms in S.
1987 that call for greater public involvement in the project planning process,
inclusion of adverse economic impacts of a project on a community in the
benefit-to-cost analysis. Additionally,
independent peer review would ensure that the voices of all communities are better
heard and listened to by the Corps.
One of the worst cases of the Corps failing to take into account a project’s effect on a poor, minority community is the $715 million Inner Harbor Navigation Canal in New Orleans. This project lacks economic justification. In addition, there is evidence that the Corps used Enron-style accounting and cost-apportionment to add-on a hundreds of million dollar deepening element of the project, to benefit just one shipyard.
This lock replacement and canal-deepening project was first authorized in 1956 and has been vigorously fought by the surrounding poor African-American neighborhoods ever since. Concern over the Corps’ ignorance of the local residents in planning the project came to a head in 1991, when Congress directed the Corps to create a stakeholder advisory committee composed of local citizens from affected neighborhoods and to establish a mitigation fund to compensate those in the neighborhood who would have to suffer the extremely disruptive effects of seven straight years of construction.
However, despite
this Congressional directive, the Corps has in many ways treated the local
residents even worse by hiding critical facts from them about various aspects
of the project.
In an off-hand remark to residents at a public meeting about the project, a Corps engineer mentioned that the canal was going to be dredged to 40-ft. The plan Congress approved only included designs for a 36-ft deep lock. Testing has shown that between 36 and 40-ft levels there are tons of toxic sediments, which now will be flushed out to Lake Pontchartrain, a popular swimming area for the children of the nearby neighborhoods. This additional dredging would also add tens of millions or more costs to the project to only accommodate a handful of additional ships.
The Corps also
claimed for years that the project would actually reduce traffic congestion at
the bridges that cross the canal because barges and ships would be able to move
through the new lock faster. After
close examination of the Corps’ plans, a local retired engineer discovered that
the construction process would frequently cause several mile long backups for
45 minutes or more each day, creating a traffic nightmare for thousands of
commuters trying to get to their jobs in the heart of New Orleans. Only recently at a public meeting did the
Corps acknowledge that these traffic problems would be created and now pledge
to investigate solutions. New solutions
that could add another hundred million dollars or more to the cost of this
already unjustified, over-budget project.
There are dozens
of other cases where the Corps has ill-treated or just flat out ignored
citizens who are not considered their project “clients” such as:
The Corps of
Engineers has a vast influence over our nation’s waters, and its work affects
millions of Americans. Many projects
have had a positive effect, protecting countless lives from floods and bringing
the fruits of midwestern farmers’ labor to the rest of the world. But there are also many projects that have
had a significant negative effect on people’s lives, have harmed other
industries and users of the nation’s waters who are not the Corps’ traditional
“clients”, and most outrageously squandered taxpayer dollars on these
activities.
At the root of
so many of the agency’s problems is the belief that the local sponsor of a
project is Corps’ sole client. What
agency officials lose sight of when they promote a wasteful project is that the
federal taxpayer is the primary client, and the majority shareholder of virtually
all Corps projects.
The Army
Inspector General went out of his way to highlight these concerns in his
December 2000 report on the Upper Mississippi River project scandal:
Although this investigation focused on one study, the testimony and evidence presented strong indications that institutional bias might extend throughout the Corps. Advocacy, growth, the customer service model, and the Corps reliance on external funding combined to create an atmosphere where objectivity in its analysis was placed in jeopardy…The overall impression conveyed by testimony of Corps employees was that some of them had no confidence in the integrity of the Corps study process.
The Corps has
certain expertise and resources that can greatly assist local communities in building
something they would not be able to do on their own. But the agency is accountable to the nation as a whole, and its
mandate is to pursue a civil works program that will benefit the overall
national economy and welfare of its citizens.
Unfortunately,
the Corps has failed to remember that it serves the American taxpayer. Therefore, it is imperative upon Congress to
enact real Corps reform this year. In
fact, no Water Resources Development Act should pass without reform. At risk is the public’s confidence in the
Army Corps of Engineers and any hope that Congress can restrain itself from
ever-escalating pork barrel spending, even in the midst of the a very expensive
and important war on terrorism.
ATTACHMENTS
TAXPAYERS
FOR COMMON SENSE
The
Construction Backlog
Taxpayers for Common Sense performed a detailed analysis of
285 projects in the U.S. Army Corps of Engineers’ “Known Active Construction
Backlog” based upon a review of the FY02 Budget Justification Statements
submitted to Congress by the Corps in support of the President’s budget
request.[1] The full construction backlog is currently
$52 billion.[2]
Construction
Delay
·
There are
285 projects in the known active construction backlog – those projects that are
funded in the Construction General account of the President’s budget request –
which still require $28.1 billion to complete.
·
The typical
project in the known active construction backlog is only 24% complete (based on
median rate of completion).
·
190
projects in the known active construction backlog are less than 50% complete
and will require $22.3 billion more of taxpayer funds to complete.
·
60 projects
– representing $4.6 billion of the known active construction backlog – provide
a low economic return compared to taxpayer investment.
·
39 of these
projects ($4.3 billion remaining balance) are less than 50% completed, with the
typical project being 24% complete (based on median rate of completion).
·
The Dare
County Beach replacement project will cost $1.8 billion to maintain 15 miles of
wide beach in front of four booming beach towns for the next 50 years. The Corps has estimated only a 27% return in
net benefits (1.27 to 1.0 benefit-to-cost ratio), despite much uncertainty
about the cost and ability of the beach to hold the sand for very long.
·
61 projects
– representing $8.1 billion of the known active construction backlog – whose
most recent economic analyses upon which the project was approved is ten or
more years old.
·
30 of these
projects ($4.4 billion remaining balance) are less than 50% completed
·
The Corps
has been relying upon a 1974 economic analysis as the basis for claiming
justification for the $207 million Yazoo Backwater Pumping Plant, which is
still only 5% constructed.
·
44 projects
– representing $4 billion of the known active construction backlog – were
authorized 16 years ago, however, the typical project is still only 39%
completed.
·
25 of these
projects ($2.4 billion remaining balance) are less than 50% completed.
·
Completing
the 25 high-priority projects as identified by the 2001 Inland Waterways Users
Board Annual Report plus an estimated $60 million in annual major
rehabilitation costs for renovating the 37 locks and dams on the Upper
Mississippi and Illinois Rivers will cost $7 billion over the next 20 years.
·
With annual
revenues of only $100 million and a current $400 million surplus, there still
will be a $1.1 billion shortfall for the Inland Waterways Trust Fund’s
(generated from a $0.20 per gallon barge fuel tax) share of the inland
waterways backlog.
·
In recent
years the Administration has budgeted a modest amount for sand pumping projects
only to see Congress dramatically increase funding for beaches. In the last three years, beach funding has
increased 60% while the overall Corps budget increased 9%.
·
35 projects
– representing $6.3 billion of the known active construction backlog – were
budgeted for in President Bush’s Fiscal Year 2002 Budget.
·
Congress
subsequently funded a total of 58 beach projects for construction and 48
studies of new beach projects, which if all are continued through to completion
over the next several decades would cost taxpayers well over $10 billion.
********************
Peter J. Sepp,
Vice President for Communications
National
Taxpayers Union
Before the
United States
Senate Environment and Public Works Committee
On S. 1987, The Corps of Engineers Modernization and Improvement Act of 2002
June 18, 2002
Mr. Chairman and Members of the Committee, on behalf of the 335,000-member National Taxpayers Union (NTU), I am pleased to offer our support for S. 1987, the “Corps of Engineers Modernization and Improvement Act of 2002.” Although I am unable to attend these important hearings in person, and am aware that several colleague organizations will be providing testimony on this legislation, I am pleased to offer NTU’s own brief views on S. 1987.
Over the past several decades, taxpayers have
witnessed a sharp decline in discipline as well as accountability in virtually
every component of the federal budget process. Federal taxes are hovering at a
postwar high in terms of their burden on the nation’s economic output, and
thereby inflict huge “deadweight losses” on a private sector that is currently
struggling its way out of an economic downturn.
In the past ten years
alone, federal spending has grown nearly twice as fast as the rate of
inflation.
Meanwhile,
agencies continue to mismanage these funds with an astounding level of
indifference. This year the Office of Management and Budget (OMB) gave “red
lights” for fiscal recklessness to over half of the 26 federal departments in
each one of the five categories used to evaluate them. For its part, Congress
often shuns a more methodical merit-based appropriations process in favor of a
politically-tilted patchwork of earmarks and open-ended authorizations. Last
year, the Washington Post reported
that House Members alone had requested nearly 19,000 earmarks totaling $279
billion in the spending bills before Congress, marking a three-fold escalation
of the practice since 1995.
Few areas of federal spending seem more impacted by these trends than public works projects, many of which are undertaken by the Army Corps of Engineers. Members of the Committee and their staff, led by Senator Smith, are to be commended for taking such a systematic approach to addressing the accumulated defects of the water resources development spending process, through the Corps of Engineers Modernization and Improvement Act. Although this legislation cannot erase the fiscal perils of the past overnight, it could, if properly implemented and vigorously enforced, provide measurable and significant benefits to taxpayers.
Among the advantages we find most attractive are:
· A more vigorous cost-benefit analysis. A recent study by Congress’s Joint Economic Committee found that the cost to the economy of raising $1 in additional taxes for new federal programs is $1.40 – after factoring in the deadweight loss of consumer substitution, reduced private-sector activity, compliance costs, and government enforcement costs. Conversely, reducing government spending by $1 and returning that money to taxpayers will eventually yield $1.40 in overall economic benefits. Thus, the bill’s provision to “require Corps projects to meet benefits at least 1.5 times as great as the estimated total cost of the project,” is far more justified than the current “1:1” requirement. Indeed, the proposed “1.5:1” ratio ought to be the absolute minimum taxpayers expect for the dollars they send to Washington.
· A more rational review process. As the National Endowment for the Arts and
the National Science Foundation have both demonstrated, a review process for
federally-supported projects is no guarantee that tax dollars will be spent
wisely. However, this legislation holds a better promise of success, by
creating an Independent Review Board overseen by the Director of OMB, and
operating within the Army Inspector General’s office. Equally important to avoiding past mistakes is the bill’s
requirement for a “balance of expertise” among Board members, which will
include economists and engineers.
· A push toward self-sufficiency. Federal taxpayers have long been threatened with spiraling costs associated with flood control and beach re-nourishment projects of parochial rather than national benefit. The legislation would encourage more state, local, and possibly private involvement in these particular projects – and perhaps lead to the termination of economically unsustainable projects – by reducing the federal cost “share” among them.
· A more visible “sunset.” Far too many federal construction programs take on a life of their own, especially when their systematic growth escapes the attention of Congress until billions of dollars are at risk. S. 1987 would help to address this problem in several manners, by de-authorizing projects that fail cost-benefit analyses, by restricting mission creep into areas such as school construction, and by encouraging de-commission of underused waterways. Obviously, de-authorizing a project does not ensure that it will be denied funding, but such a mechanism is helpful in highlighting expenditures of a lower priority.
No statutory legislation can promise to completely overhaul a fundamentally flawed budget process. In an ideal world, constitutional restraints on tax and spending increases, merit- and performance-based budgeting, more state and local responsibility for their own programs, and regulatory reform to promote privately-built and -maintained public works projects, would all be part of a comprehensive solution. However, the Corps of Engineers Modernization and Improvement Act of 2002 could serve as a solid bridge to take our nation toward this more fiscally responsible destination. Equally important, this bill could serve as a guide for policymakers seeking reform in other capital spending-intensive areas, such as transportation or federal office space.
For these reasons, the National Taxpayers Union strongly urges Members of the Committee and your colleagues in the Senate to support the Corps of Engineers Modernization and Improvement Act of 2002, and NTU looks forward to working with you towards the enactment of this critical legislation. Once again, I appreciate the opportunity to present our perspective on an issue that deserves a rightful place on Congress’s agenda.
ATTACHMENT
[1] Projects by the Corps’
Northwestern Division were not included in this analysis because Budget
Justification Statements for this division were not available on the
Internet.
[2] Based upon $28 billion of the known active construction backlog (those projects listed in the Corps’ FY02 Budget Justification Statements, not including the Northwestern Division), $8 billion of inactive projects (those that even the Corps has determined are no longer economically justified, are no longer in the Federal interest, or are no longer supported by a local sponsor), approximately $16 billion in additional projects that have been authorized by Congress and projects in the Pre-construction Engineering and Design (PED) phase.