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OCR for page 59
6
Funding Issues
The port dredging stalemate results from a complex and interacting set
of factors. Three barriers to new construction dredging or increased
maintenance dredging are regularly identified: (1) lack of national
funding, (2) institutional problems, and (3) environmental problems.
This chapter addresses the first barrier.
As discussed in Chapter 3, since 1824 the U.S. Army Corps of
Engineers has had primary responsibility for both new construction and
maintenance dredging of ports in the United States. Until 1970, there
was a consensus that dredging would be paid for from general U.S.
Treasury revenues. Beginning in the early 1970s, that consensus on
funding began to unravel.
Prior to the 1970s, struggles over port dredging occurred primarily
in the context of the annual congressional appropriations process.
The primary issues that had to be resolved each year concerned the
level of appropriations and which ports should receive construction
funding. Since 1970, the struggle over dredging has experienced a
fundamental change. At issue now is whether additional new
construction dredging is needed, and if it is, what the source of
funding should be.
No agreement exists about why the traditional consensus on funding
came to an end. Four factors, however, are repeatedly identified as
contributing to the erosion of the legislative consensus that funding
should come from general revenues:
· the federal budget deficit
the high cost of new construction dredging (and possibly
increased maintenance dredging)
problems of initiation after a long stalemate
changing social values and attitudes
These four factors are discussed in the succeeding section.
FACTORS CONTRIBUTING TO THE FUNDING STALEMATE
The most frequently identified factor in the funding stalemate is the
growing size of the federal budget deficit. Starting in the 1970s and
59
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continuing into the 1980s, concern with deficits was driven, in part,
by the unpredictable performance of the national economy. With
declining confidence in the economy's ability to sustain predictable
rates of growth, it was no longer possible to assume ever-growing tax
revenues. In parallel, so-called nondiscretionary activities in the
federal budget manifested a pattern of seemingly uncontrolled growth.
One consequence of these two patterns was a growing concern with a
future of large and rising budget deficits.
In this environment, categories of federal expenditures that were
perceived as being discretionary received increasing congressional
attention. In the eyes of many, water-resources projects are seen as
among the most discretionary of federal expenditures. Unlike the
entitlements programs (e.g., Social Security) which require positive
governmental action to achieve cuts, all that is necessary to achieve
reductions in expenditures is inaction. By the late 1970s and early
1980s, appropriations for these projects were increasingly being
handled by Congress with continuing resolutions. Under continuing
resolutions federal agencies are allowed to continue spending for
ongoing programs at the previous year's rate, but no new construction
initiatives are possible.
With arrival in the early 1980s of projected budget deficits of
$200 billion per year and more, the prospects for finding majority
support in Congress for major new water resources projects became even
more doubtful.
In this context, the second factor contributing to the funding
stalemate--the high cost of many proposed construction dredging
projects, takes on increased importance. Table 13 (Appendix G)
suggests the magnitudes of these costs. Note that five of the seven
largest ports (in tons handled) have proposals for new construction
dredging. Estimates by the Corps of Engineers for each of these
construction projects range from $371 million to $479 million. In a
context of large deficits, new project initiatives of this size have
raised serious questions. Although the Corps' benefit-cost analyses
for each of the projects show a positive benefit-cost ratio, these new
projects require additional appropriations, and therefore, they
represent absolute increments in the federal deficit.
A third factor frequently identified as contributing to the funding
stalemate is self-amplifying. The longer the funding stalemate
continues, the more difficult it becomes to reinitiate the old
process. A brief recapitulation of the traditional time sequence
associated with port dredging is useful in clarifying this third
factor.
New construction dredging projects completed during the 1970s were
regularly initiated 20 years earlier. Although there was widespread
criticism of the long lead times required, they had significant
benefits for the traditional, congressional funding process. First,
the funding costs were spread over many years, so the costs for any
individual project for any given year were relatively low. Second,
project costs started at very low levels and incrementally increased,
so that the high costs were incurred at the end of a long period.
Little opposition could be mobilized against the low dollar
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expenditures associated with initial feasibility studies which
themselves might be spread over several years, and so it was with
initial design study costs. By the time initial construction costs
were called for, a different and seemingly powerful logic had
intervened. It was two-fold. First, "This project has been studied
and reviewed over a very long period of time and repeatedly found to
be justified." Second, "It would be a substantial waste to have
invested all of these initial funds and not complete the project."
Given the expectation that authorization of a major new
construction dredging project involved long years, individual ports
were accustomed to an incremental process. So long as the expectation
was that new construction dredging would ultimately be authorized but
would inevitably take long periods of time, the mechanism for
quid-pro-quo negotiations existed in the congressional appropriations
process. Coalitions for support of individual projects could be built
up in Congress based on the assumption that "if you support my
beginning this year, I will support your beginning next year...or at
some future date." The long incremental authorization and funding
process, on the one hand, never provided any port with all it wanted,
but on the other hand, provided most ports with some of what they
wanted on a consistent basis. Most years, ports could expect that
some incremental step would be taken toward satisfying their
· ~
aspirations.
After more than a decade in which no significant new construction
dredging has been initiated, the expectations of the various ports are
very different. Rather than new construction proposals entering into
an ongoing stream or process of authorization and appropriations, a
number of major port construction projects are lined up together at
the starting gate. With future funding uncertain, there is little
incentive for any port to agree to be anything other than first out of
the gate. In sum, the port community no longer appears capable of
presenting a common front on priorities to Congress.
Finally, many believe that the erosion of the consensus on how
ports should be funded is, in part, a reflection of changing social
attitudes and values. This argument suggests that opposition has
grown to "big government" and to governmental activities which are
perceived as using general tax revenues to benefit narrow economic
interests. One response to the concern with "big government" is that
many governmental activities would more appropriately be carried out
in the private sector. Such ideas are reflected in proposals that
call for the private sector to take over some of the services provided
by the U.S. Weather Service.
Where it does not appear feasible to transfer activities completely
to the private sector, proposals are made to introduce market-like
control mechanisms into the public sector. These views are summarized
in a letter from five prominent economists to the chairman of the
Senate Environment and Public Works Committee (October 18, 1983~:
"new or increased user fees for ports and inland waterways,
market-based pricing for hydroelectric power..., and increased cost
sharing and financing by non-federal entities for all federal water
resources" would "lead to a more rational federal water resources
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policy....Economists have shown that economic benefits are enhanced
when a project's beneficiaries pay in accord with the costs they
impose and the benefits they receive." The concept is generally
reflected in proposals for raising port dredging money with user fees.
These considerations, and others, have contributed to the demise of
the consensus in Congress that general funds should be used to fund
port dredging. What appears clear is that before new dredging
programs can be undertaken, the old consensus must either be
reestablished or a new method of funding must be found. The rapid
rise in coal exports from the United States in 1980 resulting from the
combination of the Iranian oil disruption, political difficulties in
Poland and labor problems in Australia, together with the backlog of
proposed port projects gave major impetus to the search for a new
funding consensus.
NECESSARY ELEMENTS FOR CONSENSUS
Before a new funding consensus can be established for port dredging,
and therefore, before stability can be returned to the port funding
process, five interrelated issues will need to be resolved. First,
formula must be established which determines who will pay for
dredging. At its most general level, this choice involves deciding
whether, and if so, what portion of funding will be paid for from
general tax revenues. If that portion is anything less than 100
percent, then a determination will have to be made concerning who will
be required to pay and what mechanisms will be used to collect the
funds.
Second, it will be necessary to determine who will collect the
revenues. Revenue-raising responsibility can either rest totally with
the federal government, totally with individual ports, or it may be
shared. Shared responsibility ("cost sharing") implies that some
portion of the revenues will be raised by the federal government and
some portion by the individual ports, with an obviously important
issue being what the relative portions are.
Third, any new consensus that changes the arrangements concerning
who pays for dredging and who collects the revenues will likely be
connected with new arrangements for revenue allocation. The
traditional process of congressional negotiations associated with
annual appropriations bills will be questioned if such changes occur.
Depending on how revenues are raised and who raises them, the payers
and collectors of these revenues will likely insist on a process that
assures a return on investment in a rapid manner that at least
partially assures that major payers will be the major recipients of
the benefits.
Fourth, any changes to the above three sets of arrangements have
the potential for changing the management and implementation role of
the U.S. Army Corps of Engineers. For example, if the choice were for
individual ports to raise all of their own funds for dredging, or a
significant portion, it is quite possible that the individual ports
would seek to exercise management control.
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Finally, the evolution of a new consensus on port funding will
doubtless require modifications in, at a minimum, existing permit
approval processes. These processes apply to the dredging projects
initiated by ports (or other local interests) that the ports will
fund. Most proposals for federally funded new construction dredging
will involve port-funded dredging as well, and depending on the
funding mechanism finally selected, the permit process could take on
added importance or replace the Congressional process. The ports have
in recent years pressed for changes in this process, arguing that it
is indefinite and without fixed limits (see Chapter 7~. If required
to raise and spend more for port dredging, the ports will likely
demand more certain time horizons for investment decisions. The goal
will be to accelerate the approval process and for that to occur, both
legislative and regulatory changes may be necessary.
FUNDING ALTERNATIVES
Three options are possible as funding sources for dredging. The
first, the traditional source, is general fund revenues. The second
makes use of existing revenue sources at individual ports. The third
involves new federal authorization for levying user fees or
specialized taxes. In this latter connection, the right to levy user
fees or other specialized taxes could be given either to the federal
government, or to the individual ports, or to both.
GENERAL FUND REVENUES
Although proposals aimed at finding a new consensus on funding range
across the spectrum, only one, the Reagan Administration's 1982
proposal, would totally eliminate general fund revenues as a source.
However, if precedent is in any sense suggestive, the likelihood is
high that general fund revenues will continue to pay some portion of
dredging costs. For example, in 1982, according to the Energy
Information Agency, slightly over half of the $23.3 billion in federal
expenditures for transportation came from general fund revenues
(Energy Information Administration, 1983~. Of that amount, roughly
$337 million was expended on U.S. Army Corps of Engineers operations
and maintenance dredging at ports. Based on the transportation
precedent and the fact that, with the exception of the Reagan
Administration's, all of the legislative proposals aimed at breaking
the funding deadlock have included general fund revenues, it appears
likely that any new consensus on funding will involve general tax
revenues covering a portion of dredging costs.
PRESENT PORT REVENUES
Although some proposals aimed at breaking the funding deadlock have
involved a combination of general fund revenues and revenues raised
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through new federally authorized user fees, one option is to leave the
ports dependent on only those revenues that they could raise under
authorities now available to them. Ports have various sources of
revenue. They range from wharfage and warehousing charges through
revenues from non-port activities in those instances where port
authorities operate airports and commercial properties, to state and
local tax revenues. The capacity of ports to fund new dredging varies
greatly depending on the volume of cargo they handle, the range of
funding they have available, and the costs of both construction and
maintenance dredging.
At one extreme are ports such as Los Angeles and Galveston, which
faced with the present stalemate, are prepared to pay construction
dredging costs. Los Angeles recently completed deepening of the
harbor (in connection with federal dredging of the authorized project)
to depths ranging from 45 ft to 51 ft at a cost to the port of $37
million. Galveston is committed to deepening its port to 56 ft at a
cost of $139 million.
The Port Authority of New York/New Jersey has indicated to Congress
that it is willing to advance the $110 million cost of a channel-
deepening project, if assured of an expedited permit-approval
process. By comparison, "Baltimore continues to insist on 100 percent
federal funding for its project because it is the only port authorized
to be deepened with federal funds" (Energy Information Administration,
1983).
At the other extreme, many small ports indicate that they are
without the capacity to pay the costs of new dredging. A review of
public statements by ports indicates that with very limited
exceptions, some ports are either unwilling or incapable of paying for
either routine maintenance dredging or new construction dredging until
some new consensus has been formalized by legislative action.
Considerable variation exists concerning the ability of ports to
pay all or some share of routine maintenance dredging and new
construction dredging. How ports are organized and how they perceive
their roles influences the rates they charge for port services. Some,
for example, are partially supported by state or local revenues, owing
to their importance in local and regional economies and their
competitive status with other nearby ports. Other ports contribute
revenues to state or local governments. The range of port charters
and institutional identities represent various interpretations of
their mixed public- and private-sector nature. Ports vary in the
degree of control exercised by state or local governments, and ports
have differing recourse to state and local bond issues (as indicated
in a succeeding section).
Reviewing the existing rates levied by various ports in the United
States (or charges they are now allowed to levy by federal law)
evidences these disparities. Wharfage charges per ton of general
cargo average $3.50 to $4.00 on the West Coast; $1.00 to $1.30 in the
Gulf of Mexico, and $1.45 to $1.65 on the East Coast. Land leases and
other port charges exhibit a comparable range. Because the range of
costs among geographical regions in land, labor, and construction are
not as great as the range of port charges, the principal reason for
the remaining disparities would seem to be institutional differences.
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USER FEES
New federally authorized user fees have been the most frequently
proposed vehicle for building a consensus on funding. Substantial
precedent exists for establishing port user fees as revenue sources.
As previously noted, slightly less than half of the $23.3 billion
expended by the federal government in 1982 for transportation was
provided by user fees. A user fee in the form of an excise tax on
motor fuels provides the revenues for the Federal Highway Trust Fund.
Taxes on passenger tickets and other items provide the revenues for
the Airport and Airway Trust Fund, and beginning in 1980, the Inland
Waterways Trust Fund began receiving revenues from a fuel tax levied
on barge operators. (The Inland Waterways Revenue Act of 1978
established a fuel tax of 4 cents per gallon of fuel for 1980, and
2-cent increases every 2 years ending in 1986 at 10 cents per gallon
of fuel. Revenues in the trust fund are for new construction and
major rehabilitation--e.g., of locks--on the inland waterways, but not
for routine operation or maintenance.)
In its 1982 budget submission, the Reagan Administration sought to
eliminate the use of general fund revenues for dredging and replace
them with funds raised through new user fees. Under the
Administration's proposal, port user fees (together with inland
waterway user charges) were expected to raise $2.1 billion in revenues
over the 1983 to 1986 period (Office of Management and Budget, 1981~.
As interpreted in an Energy Information Administration (1983)
report:
The Administration's proposal was aimed at removing the federal
subsidy from navigation programs, reducing the growth in
federal spending, and moving toward a balanced budget. Besides
reducing federal budget deficits, the justification for user
fees rests on the efficient and equitable allocation of limited
federal funds. In this argument, a user fee system becomes an
efficient market test whereby only economically viable projects
are selected out of a multitude of proposals. Port development
yields significant benefits to port users who are not only able
to pay but should pay for the benefits. User fees ease the
burden on federal funds thus promoting more efficient and
equitable allocation of these limited funds among competiting
purposes.
As noted in this statement, the Administration and other advocates
of user fees attribute three distinct advantages to them: (1) new
revenues, (2) economic efficiency, and (3) economic equity.
Faced with growing budget deficits and general resistance to
increased taxes, governments at all levels in the United States have
moved toward broader use of user fees. User fees offer the advantages
of increased revenues while at the same time mobilizing minimum
opposition. By tying user fees to the delivery of specific goods and
services, payer opposition is diluted since the payers are also the
beneficiaries. User fees are particularly efficacious revenue-raising
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instruments when the payer-beneficiary perceives a strong need for
additional goods and services and is faced with the choice of either
paying a fee or not receiving the needed good or service. Such
appears to be the situation for those interests pushing vigorously for
additional dredging. In theory, user fees are most attractive when
they are levied such that the interests with the most pressing need
pay the highest fees. In practice, however, that formula usually must
be modified to take into account the capacity of the payer to pay.
Part of the burden may be allocated to a broader set of users at high-
value or high-volume ports (or both) without vigorous opposition if
the absolute cost per ton or per dollar represents a small or
insignificant addition to existing costs. However, even though the
absolute cost per ton or per dollar may represent only a small
addition to a large port's charges, it is very difficult to convince
the larger ports (and their users) that they should be paying an
amount in excess of that required for their own new construction or
maintenance dredging if the surplus is funding the dredging of another
port or ports. While specific commodities have been the focus of some
proposals for new construction dredging, it must be remembered that
all coastal ports compete with one another for general cargoes (OCP,
or "overland common-point" cargoes).
Second, some advocates of user fees explain their support by
arguing that such charges provide the public sector a vehicle for
simulating market-like allocation decisions. That is, user fees,
appropriately formulated, are said to bring standards of economic
efficiency into public sector choices. Where users are required to
pay the full costs for public goods and services, fees provide users
with accurate information with which to evaluate their options. For
example, if shippers are required to pay both the full cost of port
deepening and the full cost of lightering/topping-off, they will
choose the most economically efficient of the two options. If that
were topping-off, the pressure for some dredging needs would
presumably no longer exist. In a similar vein, user fees are said to
provide public managers with information which will allow them to
evaluate both the quantity and the quality of the goods and services
they provide. In theory, then, appropriately formulated user fees
would ensure adequate port capacity while at the same time protect
against excessive capacity. Third, user fees are advocated as
vehicles for achieving equity. In theory, user fees require those
interests who benefit from public goods and services to pay in
proportion to the degree they receive benefits. Alternatively, those
who don't benefit don't pay.
In practice, establishing systems which achieve the stated benefits
of user fees has turned out to be extremely difficult. In the case of
port dredging, some interests simply reject the notion that standards
such as efficiency and equity should be applied. Quite clearly,
efficiency and equity standards applied in any pure form would have
the result of closing certain ports. Where user fees threaten the
existence of a port, efficiency and equity arguments have little
appeal.
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An additional complication is the wide range of differences among
the ports of the United States in physical characteristics. Those
having naturally deep water and those having lower maintenance
dredging requirements than other ports are opposed to user fees,
particularly if these fees are assessed on a nationally uniform
basis. Thus, the principle of those receiving the benefits paying the
bill cannot be actualized through a uniform nationwide fee. For
example, the Congressional Budget Office (1983) estimates that a
system of full cost recovery from user fees for small ports (less than
100,000 tons per year) would require those ports to charge a user fee
of $90 per ton to recover all the costs associated with operations and
maintenance dredging now provided by the Corps of Engineers, but for
large ports (over 10 million tons per year) the charge would be $.20
per ton.
Even where there may be agreement in principle to the application
of efficiency and equity standards, there is seldom agreement on the
data base that should be used for calculating dredging needs and the
establishment of a user fee system. First, in the case of new
construction dredging, a central justification is always based on some
projection of future need or opportunity. That, in turn, rests on
projections of the future growth of the world economy and future trade
patterns. We've already noted that there is little agreement to be
found on these projections. What is clear is that if user fees were
required to pay the full cost of construction dredging, they would
likely be high at the beginning of the period of amortization and
decline over time as the volume or value of cargo over which they were
distributed grew. If the user fees are high on a per unit of cargo
basis at the beginning, however, that may have the effect of diverting
cargo to other, lower-cost ports, and the projected volume would never
be achieved.
There are other practical matters that weigh against the
application of users fees to specific beneficiaries. Ports that have
a number of terminals essentially in competition with one another as
well as with terminals in other ports are already faced with equity
problems in port pricing. As a general example (exclusive of cargoes
handled), if a port has two similar terminals, one constructed 15
years ago and one constructed in today's market, the first may have
been built at a total construction cost of $10 million and the second
at $50 million. The difference in dollar amounts may provide a 5
percent to 10 percent increase in efficiency; that is, the difference
in cost is greater than the difference in efficiency or cargo-handling
capability. The terminal operator in the 15-year-old terminal is
operating from the facility that has been amortized, but the operator
in the new facility has $40 to $50 million to amortize. In practice,
this essential difference in the competitive status of the two
operators is resolved by the port: the port's demands for funds to
support operations, maintenance, and development are calculated and
distributed as equitably as possible over all competing terminals. As
a result, the operator of the 15-year-old terminal pays somewhat more
and the operator of the new terminal somewhat less than their
respective amortization costs. An analogous situation would be
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created by new construction or maintenance dredging if the port pays
the costs. It is not unlikely that if user fees for a deeper channel
or other facilities and associated terminals are assessed to only the
users of these facilities, the economic justification for the projects
will appear questionable.
Another issue of controversy revolves around the question of
whether the users are the primary beneficiaries of dredging. The user
fee concept rests on the assumption that the primary beneficiaries are
the identifiable users of a publicly provided service. In the case of
dredging, proposals for user fees generally call for a levy against
ships. Shipping interests regularly argue that these proposals
require them to carry the revenue burden for dredging, while in fact
there are many other beneficiaries. Some economic analyses argue that
in the case, for example, of coal exports, railroads, miners, and
retail and wholesale businesses in mining regions would also be major
beneficiaries. Others carry the argument much further, suggesting
that deeper ports would have significant economic multiplier effects
for the national economy. A recent study for the Corps of Engineers
Los Angeles District (Data Resources, Inc., 1983) projects the
economic benefits--in terms of total industrial production---from
channel dredging and landfill developments in the ports of Los Angeles
and Long Beach from the present to the year 2020. The following table
gives a brief summary of the study's projected benefits in direct and
indirect revenues and geographical component. While the direct
effects are concentrated in the immediate area of the port, the
indirect revenues are distributed across the country. Bushnell,
Pearsall, and Trozzo, Inc. (1983) find similar indirect effects
resulting from a uniform fee for maintenance dredging.
Regional Distribution of Industrial Production Revenues from Channel
Deepening and Landfill Developments, Los Angeles/Long Beach,
California: 1983-2020 (total cumulative 1983 dollars in millions)
Los Angeles Five-County Six-State
County Region California Region National
Direct 1,056.8 1,396.9 1,682.0 1,697.8 1,832.8
Indirect 179.3 249.7 456.2 711.0 4,830.7
Total 1,236.0 1,646.6 2,138.2 2,408.8 6,663.5
The argument at the national level is that (for example) increased
coal exports would reduce our balance of trade deficit, lower
unemployment (and with that, the need for federally funded social
services), and so on, to the end that new construction dredging of
ports should be paid for from general fund revenues since the nation
benefits. In sum, in a complex economy it is simply impossible, so
this argument goes, to sort out the primary beneficiaries of port
dredging, with the result that levying fees against any specific set
of users is inherently inequitable.
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Despite these difficulties, some analysts believe that the answer
is institutional. That is, the way to create a market-like situation
is to create competitive ports by withdrawing all federal support for
dredging whether for new construction or maintenance. Under this
arrangement, Congress would authorize the ports to levy user fees in
any way or at any level they were to determine. Critics of this
approach note that ports are inherently creations of government and
cannot be made to operate as purely private-sector organizations.
They note that the legal and institutional character of U.S. ports
varies-- from ports managed by state governments to those that are the
creations and responsibilities of city governments, and others run by
relatively autonomous port authorities. These differing situations
have potentially very different consequences for port financing.
While there are many sound reasons for enhancing the market-like
conditions of port operations to make the ports more profit-oriented,
an underlying issue remains their public character; phrased
differently, to whom do the ports really belong? The importance of
international trade to the domestic economy of the United States, the
dominance of oceanborne shipping in international trade, and the role
of the ports in national security and defense suggest that the ports
are national assets.
Where ports are managed by agencies of the state government, or
alternatively, city governments, they may be able to borrow money at
reduced rates using the full faith and credit of either the state or
the city. Where the ports have substantial political leverage, it is
reasonable to assume that general tax revenues from either the state
or the city might well be used to subsidize dredging costs. In the
cases of those ports run by authorities that also manage airports and
other commercial facilities, the possibility exists that profits from
these non-port activities will be used to subsidize dredging and
therefore potentially give those ports the ability to charge lower
user fees with the associated competitive advantage.
Financing arrangements for port dredging can make massive
differences in the user fees that must be charged. For example, the
ability to amortize capital costs over 50 years versus half that time
or less can significantly affect financing costs. Similarly, the
ability to borrow low-interest or no-interest money versus market-rate
money can make a decisive difference. These factors are heavily
influenced by the legal and institutional structure of the port and
vary from one port to another.
Finally, the form of the fee or tax obviously has very different
implications for different interests as well as for the costs of
collecting the fee. The key point is that while analysts may assess
user fee options based on abstract standards, those interested in port
dredging are concerned about who benefits and who pays. In the
context of support for various port funding proposals, the divisions
are clear. Low-volume ports with high-cost dredging requirements
support a uniform national user fee. Such a fee is attractive because
it requires high-volume, low-cost ports to provide them subsidies.
For these very reasons, high-volume, low-dredging-cost ports prefer a
user fee which is port specific.
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In the same vein, shippers of high-value, low-volume commodities
favor a tonnage-based fee, whether national or port-specific.
Alternatively, high-volume, low-value shippers prefer an ad valorem
tax, whether levied on a nationally uniform basis or on an individual
port basis.
Finally, there are a number of issues that revolve around the
efficient management of any user fee collection system. From the
point of view of economic theory, the most efficient user fees are
those that reflect the marginal uses. If user fees are to closely
simulate a free market, the essential purpose is to assure that the
marginal benefits of any new investment will be greater than the
marginal costs of that investment. In the changing environment of
international economies and trade, that requires detailed collection
and analysis of data and a great amount of flexibility would have to
be granted to those setting the fees. Collection, analysis, and
management of this kind of data is, in and of itself, high cost, and a
management system with this kind of flexibility also requires that
governing bodies give a great deal of discretion to administrators to
allow them to act quickly. The general pattern in the United States,
however, is to resist building the kinds of large administrative
systems necessary to manage user fees that are responsive to marginal
costs and benefits, and similarly, legislative bodies generally resist
giving broad discretionary authority to administrative organizations.
Alternatively, the lowest cost and simplest user fees to administer
are those that are broadly based and therefore incapable of
distinguishing between marginal and non-marginal costs and benefits.
As an example, the federal tax on motor fuels is broad and easy to
collect. The nine cent per gallon tax on motor fuel is referred to as
a "highway tax." It is actually collected from a small number of
refiners and distributors and is cheap and easy to administer.
Alternatively, it does not reflect any difference between cars and
trucks and the amount of damage they do to highways. It therefore
does not meet the more refined definitions of efficiency and equity
which are frequently used to justify user fees.
Two conclusions must flow from any review of the user fee debate.
First, user fees are being proposed as a vehicle for finding a new
national consensus on port funding. Second, there is no agreement on
the role user fees should play or how they should be applied. If user
fees turn out to be the structure around which a new funding consensus
is evolved, it will be because they serve as a mechanism for evolving
compromises. The conflict over funding is a conflict of values and
goals, a conflict about who pays and who benefits. Those conflicts
can only be resolved in the political process with political
compromises.
Intertwined with the proposals for alternative sources of revenues
are various proposals concerning who should collect the revenues.
Three categories of options exist. The first would have all revenue
raised by the federal government. Clearly, if all revenues were to
continue to be derived from general taxes, the dominant federal role
would remain the same. Similarly, the Reagan Administration's
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proposal would retain the same federal dominance but would derive all
dredging revenues from a new source, a user fee.
Second, at the other extreme, individual ports could be made
responsible for raising all revenues. This arrangement would exist
if, on the one hand, ports were required to raise revenues from
existing sources, or, on the other hand, if the federal government
passed legislation authorizing ports to establish new taxes or user
fees to be determined by individual ports.
The third option would have both the federal government and
individual ports raising some portion of the revenue. A review of the
proposed legislation dealing with dredging indicates that every
proposal with the exception of the Administration's first (100 percent
cost recovery, later revised to 70 percent) calls for some form of
joint funding by the federal government and the individual ports.
Stated differently, most efforts to build a new consensus on port
funding have included what are known as cost-sharing arrangements.
Cost sharing between the federal government and state or local
governments has a long history. Historically, cost-sharing has been
an instrument used by the federal government to induce state and local
governments to carry out new activities. The pattern has been for the
federal government to establish programs which commit federal funds to
paying for some percentage of given activities if state and local
governments match those funds. Cost-sharing programs, for example,
have been instrumental in the federal highway program; in the case of
interstate highways, the federal share is 90 percent and the state
share is 10 percent. Similar cost-sharing arrangements have been the
instrument for initiating and carrying out a wide range of programs
from environmental enforcement activities to a broad set of social
welfare programs.
In the case of port dredging, the motives behind cost sharing are
different. Cost-sharing proposals in this sector have as their goal
getting the ports to assume responsibility for a greater portion of
funding for an activity which traditionally has been fully funded by
the federal government (except for local sponsor costs). That is,
cost sharing is a way to transfer what have traditionally been federal
responsibilities and costs to the state and local level.
To the extent that cost sharing is attractive to individual ports,
it is because such cost sharing is seen as a way either to increase
the absolute level of federal funding by offering a formula which
would reduce the percentage or the proportion of federal funding, or
to achieve some other benefit such as fast tracking of required
regulatory review (discussed in the section, "Non-Funding Issues".
Given the funding stalemate, many observers believe that the only way
to increase federal dollars is for the individual ports to assume some
greater portion of the costs. Cost sharing, then, may be attractive
to the individual ports as a vehicle for prying loose additional
federal dollars to pay for new construction dredging, or increased
maintenance dredging, or for both.
It must be emphasized that the cost-sharing concept does not
inherently provide any answers to the question of who will pay. The
federal government's portion of any cost-sharing formula could come
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from either general fund revenues or from a new tax or user fee.
Similarly, in the case of individual ports, revenues for cost-sharing
could come either from existing sources such as wharfage, dockage,
stevedoring, and harbor transfers or from state or local tax revenues,
or they could come from new federally authorized user fees.
The key point is that although cost sharing is an integral part of
most proposals aimed at finding a new consensus on funding, the
principle does not by itself imply anything about the source of
revenues.
This point can be illustrated by looking at three simple
hypothetical alternatives. If a 50-50 cost-sharing arrangement for
all dredging were put in place which required the vessels using each
port to pay the full costs of that port's operations and maintenance
dredging, the average charge for small ports (under 100,000 tons)
would still be $90 per ton of cargo, while for large ports it would be
$.20 per ton (Congressional Budget Office, 1983~. The only
qualification is that if both the federal goverment and the local
ports were charging a tonnage fee as the sole basis for raising their
share, the cost of two administrative structures to collect those fees
might very well make the charge even higher.
Alternatively, if there were a 50-50 cost-sharing arrangement, with
the federal government levying a uniform national user fee, the
federal levy needed to cover just operations and maintenance would be
an average 12.7 cents per ton at all ports in the United States, while
the local user fees would range between an average $45 per ton for
small ports to an average $.10 per ton for large ports.
(Congressional Budget Office, 1983~.
Finally, if the cost-sharing arrangement took all of the federal
share out of general fund revenues and the local ports had to pay
their portion of a 50-50 split from user fees, the arrangement would
be the same as above for the individual port with no user fees charged
by the federal government. In sum, large ports would still charge an
average $.10 per ton and small ports an average $45 per ton.
The range of proposals for cost sharing is potentially infinite.
What is clear is that if cost sharing is to be one of the elements of
a new funding consensus, it will require the establishment of a
formula that is broadly acceptable, and achieving acceptability will
involve a complex set of political compromises.
Most of the legislative proposals calling for some kind of cost
sharing have sought to build consensus on port funding by establishing
some kind of ceiling on how much money individual ports would have to
pay in an effort to protect ports against excessive costs. Two
different ceilings have characterized these proposals. One approach
involves "grandfathering" depths, and the other establishing a
tonnage-fee ceiling. For example, House and Senate bills considered
by Congress in 1983-1984 (H. R. 3977; S.1389) set 14 feet as a
threshold. That is, small ports with depths of 14 feet or less would
not be required to pay any dredging costs. Another House bill used a
45-foot depth which retains the traditional federal role of paying the
full cost of navigational projects, including both new construction
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and maintenance dredging to 45 feet of depth. Only improvement
projects for dredging in excess of 45 feet would be subject to cost
sharing. An alternative Senate bill proposed the adoption of a
port-specific tonnage fee for maintenance dredging but set a maximum
tonnage fee so that no port would have to pay an excessive amount.
This bill, however, retained the port-specific cost recovery scheme
for any new construction dredging.
The most recent legislative acts and also the most nearly
successful were two bills introduced in the 1984 legislative session.
HR 3678, a water resources bill, passed the House by an overwhelming
7-1 margin. It contained many new authorizations and a large number
of Reauthorizations of projects that had been on the Corps of
Engineers program for several years without action. This bill
contained what has now become a widely accepted principle for
operation, maintenance, and new construction; that is, federal
responsibility to 45 ft in depth and cost sharing for additional
increments of depth. The bill also provided for a revolving fund to
finance federal participation in both new construction and maintenance
dredging. The fund would have a $2 billion reserve, all allocated
from customs collections, which now amount to more than $7 billion
annually ($6 billion/year from the coastal ports). Member ports of
the American Association of Port Authorities overwhelmingly supported
this bill.
Senate bill 1739, which contained some of the features of HR 3678,
was more restrictive on the handling of user fee collection and
disposition. It did not contain as large a number of authorizations
as the House water resources bill but did provide some port-specific
flexibility to ports in the authorization and assessment of user fees;
nevertheless, language concerning the collection of user fees from
beneficiaries made the bill unworkable in the opinion of most of the
major ports in the country. Senate Bill 1739 did not reach the floor
of the Senate. Both bills were attached to their respective House and
Senate continuing resolutions prior to the passage of the 1984/85
federal budget. Conflicts between House and Senate members over
provisions of the two bills and strong opposition from the Office of
Management and Budget resulted in both bills' being dropped from the
continuing resolutions; thus, there was no action on water resources
legislation in the 98th Session of Congress.
As this brief review indicates, of the bills proposed and seriously
considered by Congress to overcome the funding barrier, none was
primarily concerned with equity and efficiency.
ALLOCATION OF REVENUES
Any changes in either the sources of revenue (e.g., new taxes or user
fees) or in who collects those revenues (e.g., cost sharing) will
likely create major pressures for modifications in the traditional
processes for allocating revenues. The traditional process, in which
Congress allocates General Fund revenues on a project-by-project basis
in authorizations and appropriations, has involved long lead times.
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If new user fees were established, the collectors of those fees would
doubtless seek to assert a greater role in the allocation process,
both in an effort to accelerate dredging activities and to assure that
the ports paying the primary portions of the fees would receive
priority attention in the allocation process. Similarly, cost
sharing, which makes individual ports collectors of the revenue, would
likely see those ports demand some role in allocating the revenues.
A variety of allocation mechanisms can be hypothesized. One option
might involve the establishment of a national port plan. Such a plan
in its extreme form might identify a limited number of ports that
would have first priority for deep-draft capability (more than 45
feet) but it would clearly be extremely difficult to establish in the
political context of the United States.
Another approach might involve the establishment of a trust fund
whose general allocation criteria would be laid out by Congress with
an Executive Branch agency, such as the Corps of Engineers,
formulating the detailed criteria and allocating the funds on a port-
by-port basis. The model would be the highway or the airport and
airways trust funds. Ports have generally expressed skepticism about
the administration of such a fund, skepticism generated in part by the
participation of many ports in the airport and airways trust fund.
A third approach might be some kind of competitive bid situation in
which those ports willing to participate in cost sharing would bid for
first priority in revenue allocation. Under such a formula, the port
willing to put up the largest percentage of matching funds, above some
fixed percentage floor, would be given first priority for federal
funds.
The key point about revenue allocation is that any new consensus on
funding that changes the source of the revenues and the organizations
that collect and dispense the revenues will likely require the
evolution of a new consensus on how those revenues should be
allocated. Without such arrangements, the possibility exists of
having new revenue sources but being unable to allocate the
resources. The consequence would be that funding barriers would
remain.
MANAGEMENT AND IMPLEMENTATION OF PORT DREDGING
So long as general fund revenues provided the monies for both
maintenance and new construction dredging, the Corps of Engineers
managed all major dredging projects. Such projects now require
congressional authorization and are funded on an annual basis similar
to other federally authorized programs.
In the abstract, there are substantial advantages in having a
single national management organization responsible for dredging.
That is particularly the case where port dredging is interrelated with
other social objectives. For example, in the case of the Port of New
Orleans, the Corps has responsibility both for maintaining the
navigational channels and for flood control. These two activities
would appear to be nearly inseparable. Further, where the Corps has
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sole responsibility, procedures involved in carrying out dredging are
the same nationwide. And finally, the Corps--with its broad base of
experience and its research and development program--provides a
technically competent organization.
As sources of funds and revenue-raising responsibilities change,
the possibility exists that the Corps' role might change in
fundamental ways. The range of possibilities is broad. At one
extreme, individual ports might insist that they be the managers of
their port dredging activity, contracting with private consultants and
private dredging companies for all of the work, with the Corps' role
being reduced to that of an approver of permits. Alternatively, the
Corps might become a contractor to the ports for design, or it is
possible that some ports would allow the Corps to play its traditional
role for federal projects, the only difference being the source of
funding.
The key point is that any change in funding sources and collection
arrangements has the potential for requiring changes in traditional
management procedures. Again, these changes, depending on how they
are worked out, could themselves become barriers to timely port
dredging.
NON-FUNDING I SSUES
Almost without exception, proposals for new funding and collection
arrangements aimed at finding a new consensus on port dredging have
involved calls for what has become known as fast tracking. Most of
the parties interested in port dredging find the present 20-year (or
more) lead time which has characterized completed projects to be
unacceptable. So long as general funds were the source of dredging
money, these long lead times served to provide a stable environment
within which priorities for port projects could be evolved. With the
arrival of the funding stalemate, however, demands for fast tracking
have received increasing attention.
What fast tracking would involve seems to vary. Discussions
pursuant to finding a new consensus have ranged from escaping the
requirement for congressional authorization for new construction
dredging to substantially accelerated permit approval for locally
funded dredging and filling projects by the involved federal and state
agencies. Fast-tracking--that is, reducing the lead times either for
congressional project authorizations or for agency permit approvals--
becomes increasingly important with progressively lower federal
funding for port dredging. When the federal government paid a major
portion of the costs for new construction dredging, the time value of
money did not become a major issue. However, if individual ports
assume all or a major portion of the costs for new construction
dredging, the present long lead times and the present and future time
factors of inflation and money may change the balance of benefit-cost
ratios. Certainly for dredging/filling projects necessary to the
development of a new terminal, securing outside financing is likely to
be the critical factor in proceeding with the project, and the ability
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to secure tenant financing will be impossible if the prevailing long
lead times continue. The same considerations apply to projects
involving dredging or filling that the ports have traditionally funded
but that need permit approvals. For any major port-funded project,
the single issue of greatest importance in the present open-ended and
indefinite permit-approval process is the inability to fix the time
horizon of decision making, or to identify an end-point.
The point to be emphasized is that any changes in any of the above
four categories of issues will doubtless also require some kind of
modification in, at a minimum, the dredging approval process. Without
that, the possibility of a funding consensus appears dim, and without
some agreement on fast tracking, all of the other points could be
resolved and the nation would find itself with a continued lack of
dredging.
CONCLUSIONS
Any new consensus on port funding that allows the funding barrier to
be overcome will require the resolution of five issues: (1) the
source of revenues, (2) who will collect the revenues, (3) how the
revenues will be allocated, (4) who will handle the management and
implementation of port dredging, and (5) the integration into this
process of some kind of modification in approval processes that allows
more expeditious initiation and completion of port dredging to occur.
It is essential that the political process address all of these issues
if a new consensus on port funding is to be found that allows the
nation to overcome the funding barrier.
REFERENCES
Bushnell, Pearsall, and Trozzo, Inc. (1983), "Economic Effects of
Levying a User Charge on Foreign and Domestic Commerce to Finance
Harbor Maintenance," Report to the Economic Development
Administration, U.S. Department of Commerce.
Congressional Budget Office (1983), Reducing the Deficits:
Spending and Revenue Options (Washington, D.C.: Government
Printing Office).
Data Resources, Inc. (1983), Los Angeles/Long Beach Landfill
Development and Channel Improvements: An Economic Analysis of the
Army Corps of Engineers Master Plan to the Year of 2020, Executive
Summary (Lexington, Mass.: DRI, Inc.~.
Energy Information Administration (1983), Port Deepening and User
Fees: Impact on U.S. Coal Exports, Report No. DOE/EIA-0400
(Washington, D.C.: Government Printing Office).
Office of Management and Budget (1981), Fiscal Year 1982 Budget Reviews
(Washington, D.C.: Government Printing Office).
Representative terms from entire chapter:
construction dredging
