Funding and Managing the U.S. Inland Waterways System: What Policy Makers Need to Know What Policy Makers Need to Know (2015) / Chapter Skim
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5 Options for a User-Based Approach to Funding Operations, Maintenance, and Rehabilitation for Commercial Navigation
5 Options for a User-Based Approach to Funding Operations, Maintenance, and Rehabilitation for Commercial Navigation
Pages 131-157
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From page 131... ...
The options could be used alone or in various combinations. The next section describes criteria for evaluating the payment options: economic efficiency, revenue potential, distribution of burden, ease of administration, user support, and need for congressional action.
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From page 132... ...
Options for Increasing User Payments for Commercial Navigation User charges for the inland waterways system can take the form of a dedicated tax or user-specific fees.1 The inland waterways barge fuel tax, a dedicated tax, involves a required payment to a government entity to be used for funding construction and other capital expenditures for the inland waterways system.2 As discussed below, a dedicated tax on barge fuel to fund operations and maintenance (O&M) of the inland waterways system would be more in line with the concept of economic efficiency.
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From page 133... ...
proposal, the capital projects business model (Inland Marine Transportation System Capital Investment Strategy Team 2010)
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From page 134... ...
However, a proposal to increase the fuel tax to fund new construction was supported by IWUB in its capital projects business model report (Inland Marine Transportation System Capital Investment Strategy Team 2010) and passed by the 113th Congress.
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From page 135... ...
The next section describes criteria and related considerations in choosing among user payment options. 5 However, in its 2011 budget options report, CBO included a proposal to increase user fees on inland waterways to a level sufficient to cover the costs of construction and O&M.
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From page 136... ...
From an economic perspective, user charges should be related to use of the system and should be equal to the marginal cost that users impose. This approach enhances economic efficiency by ensuring that
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From page 137... ...
ta bl e 51 Fr am ew or k fo r A ss es si ng U se r Pa ym en t O pt io ns C ha rg e to U se rs D ir ec t Pr om ot io n of Ef fi ci en t U se of W at er w ay Re so ur ce s Re ve nu e Po te nt ia l D is tr ib ut io n of B ur de n Ea se o f A dm in is tr at io n Pr om ot io n of U se r Su pp or t f or C os tEf fe ct iv e Ex pe nd it ur es Re qu ir ed C on gr es si on al A ut ho ri za ti on In cr ea se d or re di re ct ed fu el ta xa Se gm en t l ic en se fe e A nn ua l l ic en se fe e (fi xe d)
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From page 138... ...
Another consideration is that user charges can be imposed either systemwide or at specific facilities or waterway segments with userspecific fees. If the purpose is to promote a national freight system, a nationwide fee, such as a dedicated barge fuel tax that applies to all inland waterway fuel, may be appropriate.
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From page 139... ...
This leads to delays and closures that may require more construction to improve system performance. Indeed, the current arrangement encourages deferral of maintenance; instead of the system being maintained, it is allowed to deteriorate until expenditures can be reclassified as either major rehabilitation or new construction, which qualify for funding from the IWTF.7 Second, economic efficiency is promoted when user fees relate directly to the service provided.
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From page 140... ...
To the extent that user charges are set according to these criteria, the system will move toward economic efficiency. revenue potential Federal legislation specifies the fuel tax amount and the waterways subject to the collection of the tax (see Appendix A)
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From page 141... ...
As a result, depending on the user charge, the potential exists for cross subsidies, in which users of low-cost facilities and segments are charged an amount that allows users of high-cost facilities and segments to pay a lower amount relative to the benefit they receive. The fuel tax creates cross subsidies because it distributes costs equally across all users of the system.
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From page 142... ...
A counterargument is that equal payment from all users, whether in the form of a fuel tax or a user fee, is the proper cost distribution for the inland waterways because users on one part of the system (such as those downstream without a high number of locks) benefit from other parts of the system (such as locks upstream that allow passage of commercial traffic to areas downstream)
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From page 143... ...
Systemwide charges are simple to administer but are not as closely related to actual use of the system as a fuel tax, under which payments increase with usage. The fee can be a flat rate, which might be tied to equipment (number or size of vessels, or both)
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From page 144... ...
To manage the system, USACE needs to be responsive to pressures expressed through the political process as well as to information collected on traffic volumes and facility performance. Uniform systemwide charges such as the fuel tax or user fees that do not reflect the costs of providing service on a specific waterway segment can encourage political pressure that thwarts the cost-effective use of resources from USACE's budget.
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From page 145... ...
required congressional authorization Authorization by Congress would be needed to implement any of the user payment options, including an increase in the current fuel tax or a redirection of fuel tax revenues to allow them to be used for O&M. Similarly, any adjustment in the federal–nonfederal cost share for either capital costs or O&M would require congressional authorization.
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From page 146... ...
. Greater reliance on user payments for capital expenditures and O&M will indicate which segments or facilities have economic value to commercial navigation beneficiaries and therefore suggest which parts of the system continue to warrant funding.9 8 Public–private partnerships have been discussed as a source of financing for construction, which includes capacity expansion and major rehabilitation projects.
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From page 147... ...
For example, the 2014 WRRDA stipulates that the Secretary of the Army, in coordination with IWUB, develop a 20-year capital investment program for making investments on the basis of objective prioritization criteria for the selection of national projects. It further specifies that the program be developed with consideration of IWUB's capital projects business model (Inland Marine Transportation System Capital Investment Strategy Team 2010)
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From page 148... ...
Deferred maintenance can lead to infrastructure failures and facility closures and to more costly capital expenditures for rehabilitation and construction. Segments and Facilities with Minimal or No Commercial Traffic The analysis of inland waterways traffic in Chapter 2 can be used as a model to rate the importance of inland waterways segments and facilities to national freight transportation.
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From page 149... ...
The third situation emerging from the analysis is that of segments or facilities with no or a minimal amount of commercial traffic but that are being maintained with navigation funds for other uses and beneficiaries. Under a prioritization based on economic value to the shipping industry, they would not receive funding through the navigation portion of USACE's budget, but their future must still be considered as part of a new funding and management strategy.12 Removing the cost of portions without significant freight traffic from the federal navigation budget would support better management decisions for the system and further the possibilities of shifting to a user-based funding structure for commercial navigation services.
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From page 150... ...
minimal or no freight traffic Projects currently authorized to be maintained and operated for commercial navigation may no longer have freight traffic, may have minimal amounts of traffic that could move on other modes, or may have traffic that is not of sufficient economic value to move by waterway if shippers are required to pay more of the cost of waterway maintenance. The latter would indicate that the economic value of the navigation is below a threshold for federal investment.
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From page 151... ...
The third situation is a variation of the first. In this situation, when maintenance for freight traffic is not needed, the costs of water storage might be reallocated to other purposes such as flood damage reduction, water supply, or recreation.
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From page 152... ...
As a result of the negative economic impact of lock closures from a loss in tourism, the nonprofit Allegheny River Development Corporation and the Upper Monongahela River Association have partnered to work with the USACE Pittsburgh District to use a provision in the newly enacted WRRDA that encourages the use of contributed funds to pay for waterway infrastructure. Section 1017 calls for the establishment of a pilot program to enable the acceptance and expenditure of funds contributed by nonfederal interests to USACE water resources projects.
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From page 153... ...
Findings and Conclusions A system more reliant on user payments is feasible, would provide revenue for maintenance, and would promote economic efficiency. It also would be more consistent with the federal posture toward other freight Hydropower services: As part of an agreement among USACE, the Southwest Power Association, and its federal power customers, a system was devised whereby priority USACE facilities for power generation could be directly paid for by customers.
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From page 154... ...
Provision of navigation services is just one of several purposes for which the system's operations are authorized; others are water supply, flood control, hydropower generation, recreation, and management of water releases for several nonfederal power generation dams. Commercial use of the waterway has declined steadily over time and now is minimal, mainly haulage of sand and gravel.
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From page 155... ...
No single payment alternative offers a perfect choice; for example, the preferred choice for achieving a policy goal may combine an increase in the barge fuel tax with other user fees. Setting user charges to move the inland waterways system closer to economic efficiency would provide for more adequate maintenance of the most important parts of the system and contribute to a more efficient national freight transportation system.
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From page 156... ...
Because of constraints on its budget, USACE has already begun identifying waterways and facilities where commercial navigation is essential to national freight transportation or where significant commercial traffic continues. A policy and a process are needed for identifying the components of the system essential for freight transportation to fund from the navigation budget.
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From page 157... ...
http://www.gao.gov/new.items/d08386sp.pdf. Inland Marine Transportation System Capital Investment Strategy Team.
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