Dredging up dollars
U.S. ports seek more funding, reforms for harbor maintenance and deepening.
By Eric Kulisch
Exasperated by the federal government’s inability to adequately maintain navigable channels and dredge deeper in major container ports, some states have opted to front their own money to jumpstart long-stalled projects amid wider cries that the lack of investment in maritime infrastructure is hurting the nation’s economic competitiveness.
Importers, exporters, carriers and state transportation officials similarly worry about neglect of the inland waterways.
As Congress begins to craft a Water Resources Development Act (WRDA) for the first time since 2007, pleas for action are growing. Marine freight advocates are focused on three areas: getting the government to spend money it already collects for keeping harbor channels at their authorized depths and widths; flexibility for funding new deepening projects to accommodate super post-Panamax vessels that require at least 50 feet of draft; and overhauling how the U.S. Army Corps of Engineers evaluates applications for deepening to speed up projects that are taking 10 to 20 years from concept to completion.
“Florida is investing hundreds of millions of dollars to ready our ports and grow capacity” to meet growing demand for trade, Paul Anderson, director of the Tampa Port Authority and representative for the Florida Ports Council, told members of the House Transportation and Infrastructure Committee during an informal public briefing in late March.
“Unfortunately, in many instances we are being hindered from developing these projects with non-federal dollars by bureaucratic delays and antiquated regulations and an agency that does not seem to understand how important it is that we develop our port infrastructure,” he said.
One of the consequences, he said, is that U.S. warehousing jobs during the next five years will migrate to offshore load centers that can handle the mega-vessels, where containers will be resorted for direct-to-store delivery once they get unloaded at a U.S. port.
Ninety percent of U.S. imports and exports — 2.3 billion tons in 2010 — move by ocean transport, according to the U.S. Department of Transportation and Corps of Engineers. Exports represent more than 14 percent of U.S. GDP, but imports touch everyone’s lives from the clothes they wear to the food they eat and the cars they drive.
In late March, the Senate Environment and Public Works Committee passed its version of a WRDA bill and Rep. Bill Shuster, the new chairman of the House Transportation and Infrastructure Committee, has made passage of the reauthorization bill his first priority. Washington insiders expect the House to move a bill to vote by early fall, while the Senate could act this spring.
Congress is responsible for passing legislation to authorize programs and appropriate funds for the Corps to maintain and upgrade federal channels, as well as river systems. WRDA bills typically are renewed every two to three years, but it has been almost seven years since the last one was enacted.
Maritime interests and their supporters on Capitol Hill say the process is broken and heavy investment in port-related infrastructure in other countries is narrowing the gap in transportation efficiency that for decades provided U.S. exporters an advantage when competing for business in overseas markets.
It costs U.S. farmers $88.50 per metric ton to transport soybeans from Davenport, Iowa, to China, for example, compared to $160 for a comparable shipment from Brazil, which helps keep U.S. soybean prices competitive, according to the U.S. Department of Agriculture. The price differential is mostly because U.S. farmers can rely on cheaper barge transportation to reach export terminals in southern Louisiana while their counterparts in the main soybean producing region of Brazil have to truck product more than 900 miles to ports. Transportation represents 14.5 percent of a customer’s total cost to import U.S. soybeans and 23 percent of the total cost for Brazilian grain.
But locks and dams on the nation’s inland waterways are so old — more than half the Corps’ locks at 196 sites have exceeded their 50-year design life — that shippers fear an equipment failure could shut down waterborne traffic for an extended period. According to the Corps and Government Accountability Office, the hours of scheduled and unscheduled lock closures because of mechanical failures have increased since fiscal year 2009 and there has been a consistent trend of deteriorating lock performance since 2000, with 61 preventable lock closures of more than 24 hours and 37 lock closures of more than seven days in 2010.
Since 2004, American Electric Power’s barge arm has experienced several lock failures on the Ohio River that have cost it $11 million dollars, including one shutdown that lasted 32 days and cost the company $4.6 million in delay costs for coal, Chief Executive Officer Nick Akins said Feb. 13 at the U.S. Chamber of Commerce’s Transportation Infrastructure Summit.
Jetties at the mouth of the Columbia River, which help to maintain the depth and orientation of the shipping channel and protect ships from waves, are about 100 years old. Sediment buildup on the Lower Mississippi River often restricts when vessels can operate, creating costly shipping delays and can create safety hazards, while ports that continue to silt up or aren’t deepened can’t handle fully loaded vessels. And leaving cargo behind when vessels have extra capacity crimps the big-ship economics of today’s ocean carriers and is expected to become a greater factor in determining which ports they serve.
In its quadrennial report on the state of the nation’s infrastructure, the American Society of Civil Engineers gave ports a “C” grade, which was better than the “D+” for the overall state of the nation’s core structural systems. Inland waterways and ports require $30 billion of investment by 2020, but ASCE estimates only $14 billion worth of projects will be completed.
The need to redevelop ports to handle super-size containerships is similar to the nation’s expansion of runways, gates and terminals when the aviation industry went from propeller to jet aircraft, Anderson said.
The maritime industry’s top legislative priority is securing a guarantee the Corps receives all Harbor Maintenance Tax receipts to keep navigation channels from silting up. The Harbor Maintenance Tax is an excise tax of 0.125 percent assessed on imports, domestic waterborne shipments and cruise passengers. The program brings in about $1.5 billion for the Harbor Maintenance Trust Fund. Port authorities and port users are frustrated Congress only appropriates just over half that amount, preventing the Corps from properly maintaining many channels — to the detriment of efficient vessel operations. The balance is used to offset other federal expenditures. On paper, the Harbor Maintenance Trust Fund has a surplus in excess of $7 billion.
The American Association of Port Authorities (AAPA) points out the 59 busiest U.S. ports on average have authorized channel dimensions available just 35 percent of the time, forcing vessels to light load or wait for high tides, with the increase in transportation costs passed on to consumers. And the Great Lakes have 17 million cubic yards of sediment clogging harbors, forcing the largest freighters to leave more than 100,000 tons of revenue-paying cargo behind per trip to carry less draft, according to lake carriers. The Corps estimates it needs $200 million to restore the Great Lakes Navigation System to project dimensions, about equal to 2 percent of the trust fund’s surplus.
The RAMP Act (Realize America’s Maritime Promise), reintroduced by Rep. Charles Boustany, R-La., earlier this year, would mandate all HMT money be spent on dredging. It has 98 co-sponsors. The Senate WRDA bill includes language ensuring all HMT revenues are spent for port maintenance, but with protections against cannibalizing the rest of the Corps’ budget. It also prioritizes spending on deep-draft ports and ports already deepened if 100 percent of HMT receipts are not spent, with up to 20 percent of the remaining money going to ports that have been maintained at below their authorized depth and width for the past five fiscal years.
AAPA President Kurt Nagle said at Shuster’s roundtable that ports would need an additional $2 billion over five years to catch up and bring their channels to a state of good navigation, after which time annual HMT collections would be sufficient to keep them at their authorized dimensions.
The barge industry has said it’s willing to increase by 9 cents the 20-cent per gallon fuel tax it pays to help support the inland waterways system and is seeking an annual appropriation level for the Corps of $380 million, up from about $170 million.
Go Deeper. Port authorities and their customers are also urging Congress to fund more channel deepening and widening projects. The HMT is only used for maintaining authorized dimensions, so Congress must appropriate money from the General Fund for new construction. A WRDA bill authorizes which projects the Corps should study to determine its necessity, costs and benefits, environmental soundness and technical feasibility, but the review process can take years. After a feasibility study is done a more detailed analysis of engineering and contracting requirements must be conducted. Other agencies involved in the process include the Environmental Protection Agency, Fish and Wildlife Service and National Marine Fisheries Service.
Last year, the Corps approved $7.8 million for pre-engineering and design work. The federal share of the so-called Chief’s Report for deepening the Port of Savannah from 42 to 47 feet was about $31 million. The feasibility study says annual maintenance would cost $39 million, but the nation would reap $213 million in economic benefits (a 5.5-to-1 benefit to cost ratio) because of increased vessel efficiencies, according to a November report by the GAO. The total cost of the project, which includes widening channel turns and turning basins, is estimated to be $652 million.
Once a project gets the green light it faces delay because appropriations tend to be doled out annually instead of in a lump sum. And the traditional method of funding port projects — legislative earmarks — has dried up after Congress in 2011 placed a moratorium on inserting pet projects into spending bills.
Ports must now hope to get subsidies for infrastructure projects included in the initial budgets presented by the president and each chamber of Congress, but there is no systematic process for identifying worthy improvements and funding for new construction has declined in recent years.
Obligations — liabilities for signed contracts or grants — for navigable waterways have decreased from more than $3 billion in fiscal year 2009 to about $1.8 billion in fiscal year 2011, according to the GAO.
The White House’s fiscal year 2014 budget request released April 10 includes $4.8 billion for the Corps’ Civil Works program and calls for a bump in HMT appropriations to $890 million, from $848 million, even though the trust fund will have a balance of $7.9 billion by then.
The Senate’s WRDA bill authorizes 18 projects — including flood control, storm surge protection, and environmental restoration — for which the Corps’ chief of engineers has completed preliminary studies. Placing a dollar figure on the amount of the package is difficult because the committee didn’t list any specific projects and instead delegates that authority to the Corps. The Congressional Budget Office estimates implementing the bill would cost about $5.9 billion over four years.
The reality is that the Corps’ annual appropriated funding is about $5 billion, which means most of the authorization wish list won’t get done. The $5 billion includes flood control and environmental restoration, and operations and maintenance, leaving only about $1.8 billion for navigation work. Factoring out the $800 million for the HMT and the inland waterway’s trust fund leaves about $1 billion for new deepening projects, an amount that is unlikely to increase because conservative lawmakers oppose large spending bills that add to the deficit. Unlike surface transportation bills, WRDA bills don’t include any outlay authority so authorized programs and projects have to go to an appropriations committee to get funded.
The GAO’s review of the Corps shows current authorizations for navigation construction exceed the amount appropriated by $13.5 billion and the estimated operation and maintenance backlog is $3.4 billion, assuming current funding levels. Some reasons for the growing backlog are the rising costs associated with maintaining aging facilities, construction inflation and challenges related to environmental mitigation and dredge disposal. Mitigating environmental impact, for example, accounts for 45 percent of the $652 million cost of the Savannah Harbor Expansion Project, the GAO reported.
The current formula for channel improvements requires a local cost-share of 35 percent for channels up to 45 feet and 60 percent for depths greater than 45 feet.
AAPA is recommending that the next WRDA legislation change the cost-sharing formula for navigation improvements so the 60 percent contribution for local ports kicks in at 55 feet instead of 45 feet to reflect the growing size of cargo vessels. The formula was established 27 years ago when container vessels were much smaller. The trade association also advocates that the requirement for local sponsors to contribute 50 percent of the additional cost to maintain a channel beyond 45 feet be extended to 55 feet.
The Senate bill adjusts the threshold for maintenance cost-sharing to 50 feet.
Some port directors want the federal government to target where scarce federal resources are spent based on the biggest economic impact for the nation, saying not all ports need to be dredged to 50 feet to accommodate 12,000-plus TEU vessels. Charleston and Savannah are among those clamoring for priority treatment to be ready for more of those vessels when the Panama Canal expansion is completed in 2015.
Last summer, President Obama directed that harbor deepening projects at five ports — Jacksonville, Miami, Savannah, Charleston and New York/New Jersey — be put on a fast track for permitting and review. (Savannah received final federal approval in October.) A multi-agency task force was also created to develop a federal strategy and coordinate decisions related to port and coastal infrastructure that focus on the economic benefits.
Steven Cernak, chief executive of Port Everglades in Florida, doesn’t subscribe to the principle of selectively funding ports based on their likelihood to attract big ships.
“My position is a rising tide floats all boats because there’s going to come a time 20 or 30 years from now where you’re going to need that capacity,” he told American Shipper while visiting lawmakers in Washington. “You shouldn’t be in a position to pick winners and losers.”
Ports need deeper channels because the size of feeder vessels is going to increase as carriers replace them with some of the large vessels currently serving trunk-line routes and population growth spurs demand for import, he explained.
Harbor Equity. The debate over the WRDA bill includes a call from ports with naturally deep harbors, or ones that don’t gather much silt after being dredged, to loosen the rules governing HMT receipts so money can be used for other needs, such as landside infrastructure. Ports such as Seattle, Tacoma, Los Angeles and Long Beach are some of the biggest contributors to the Harbor Maintenance Trust Fund but receive relatively little in return.
Rep. Janice Hahn, D-Calif., founder of the PORTS Caucus on Capitol Hill, has informally suggested ports should receive 50 percent of the funds collected in their jurisdiction once the HMT is fully spent for its intended purpose.
In an interview, Hahn said she supported a local set-aside for “any purpose that makes the port more livable and secure. The shippers paying that tax want their ports to be safe, efficient, modern and secure. People don’t object to taxes if used for their intended purpose. You really lose credibility the next time you go and ask for any more money” by diverting user fees.
The Senate WRDA bill would let large donors that get back less than half of their HMT contributions to apply the federal cost share to dredging berths, as well as dredging and disposal of contaminated soils.
Hahn also favors changing the HMT formula from a tax on the value of goods to one based on tonnage because many ports handle heavy bulk products that have a lower value than consumer merchandise, the congresswoman said.
She suggested the possibility of different categories of taxes and even measures to increase the money collected.
“I think there’s a real feeling of injustice from ports across the country and how it’s collected, and that’s just not right,” she added.
Local control of funds makes sense, Hahn said, because “the port authorities are the ones that understand best what is needed to keep their ports modern, efficient and secure. And it goes way beyond dredging. That’s first and foremost if we’re going to be competitive, but there’s more to that now. This is 2013 and there’s a lot more that goes into harbor maintenance than just making sure your channels are deep and wide.”
Maritime infrastructure would have a better chance of being properly funded if there was a national strategy for goods movement that better recognized the importance of ports, according to freight industry and port officials. Outside of port communities, lawmakers and the public tend not to appreciate the role of ports in supporting delivery of goods that make their lives possible or U.S.-made products to overseas markets, they argue.
Maritime transportation is ignored or treated as second class compared to surface transportation, Clint Eisenhauer, vice president of government relations for Maersk Line, said during a panel discussion hosted by Bloomberg Government last summer. He noted Maersk’s sister company, APM Terminals, built the nation’s only privately owned container terminal in Portsmouth, Va., last decade in seven years because the ultra-modern facility didn’t require any government funding, even though it followed all environmental and other permitting requirements.
“Port authorities and private partners are going to spend $46 billion over the next five years and our concern is the federal government isn’t doing its part,” Susan Monteverde, AAPA’s vice president of government relations, said. Lawmakers operating under political pressure to bring down deficits and shrink government, she added, are more inclined to limit funding for surface transportation investment and siphon money from the Harbor Maintenance Trust Fund if they don’t perceive ports and other freight infrastructure as intrinsic to economic growth.
“There’s this perception that we don’t want to grow government. We all can do a better job of explaining why freight isn’t just growing the government, why it’s essential if we want to avoid congestion in the future,” she said.
Federal aid for surface transportation is heavily weighted toward highways and states that have wide discretion for picking projects, with planning typically oriented toward motorists than motor carriers and railroads. There is no dedicated program for funding freight projects.
Freight interests, though, are beginning to make small inroads in national policy.
The MAP-21 surface transportation reauthorization bill enacted last summer directed DOT to create a national freight strategic plan and identify arteries that comprise the national freight network as a guide for setting funding priorities. Until now, the bulk of U.S. infrastructure development has been haphazard and at the discretion of states. The United States is several steps behind Canada, which last decade implemented a strategic plan to guide port and surface transportation investments geared toward capturing more ocean trade by offering an alternative intermodal route for U.S. cargo through Pacific and Atlantic ports. Meanwhile, Congress has renewed the TIGER grant program three times since its initial creation as part of the economic stimulus plan in 2009. TIGER is designed to support multimodal, multi-jurisdictional projects that neatly fit within traditional formula-based funding programs, with investment decisions made in part based on estimated economic returns. Through four rounds, DOT has awarded more than $3.1 billion to 177 projects.
More than a quarter of TIGER funding has gone for freight rail projects. Since fiscal year 2009, DOT has awarded $357 million for 26 port or port-connector projects. Port projects received about 12 percent of the $500 million awarded in the latest TIGER round. AAPA wants 25 percent of available funds to go for port-related infrastructure because ports are one of four eligible areas.
Rep. Albio Sires, D-N.J., wants Congress to expand the definition of the national freight network to include rail, navigable waterways, inland ports, freight intermodal connectors and airports through his new Multimodal Opportunities via Enhanced (MOVE) Act. DOT officials have promised to take a holistic approach to the freight system as they draft the strategic plan and a report about the network’s condition and performance.
Sires’ bill, which is supported by 11 other lawmakers so far, would also create a National Freight Infrastructure Investment Grants program, essentially making the TIGER grant program more permanent.
In the absence of a full freight plan, DOT is trying to target port funding where it makes the most sense. TIGER program managers have coordinated with the Corps when evaluating grant applications from ports, Polly Trottenberg, undersecretary for policy, said at the April 9 annual meeting of the Coalition for America’s Gateways and Trade Corridors on Capitol Hill. And a year ago, a memorandum of understanding between DOT and the Corps formalized their cooperation on setting investment priorities.
TIGER “made us realize we had to have a national perspective” because East and Gulf coast ports were all chasing money to invest in expansion in anticipation of gaining cargo when the Panama Canal opens its new set of locks.
DOT has been careful not “to rob Paul to pay Peter” because “you’re trying to use national dollars to invest in what you hope will be a benefit of economic activity for the country, not for Miami over Savannah, or Jacksonville over Houston,” Trottenberg said.
The department is taking advantage of the Corps’ expertise in port trends because officials realized “if we’re doing a lot of landside investments in a port that they’re not going to put a nickel into dredging, maybe that’s not so logical,” she said.
DOT, Trottenberg added, is encouraging other agencies involved in transportation permitting to adopt the principles of the Federal Highway Administration’s “Every Day Counts” initiative, which strives to identify and deploy new technologies for cost-effective road building and follow creative techniques for shortening project reviews and accelerating construction. Meanwhile, President Obama recently pledged to cut permitting time in half for major projects.
Tired of waiting for Congress to appropriate money for deepening, the states of South Carolina and Florida have committed to cover the federal contribution with their own funds to launch the projects. Florida Gov. Rick Scott set aside $77 million in 2011 to pay the federal share for the $150 million project to deepen Miami’s harbor to 50 feet after it was authorized by Congress and in January committed $36 million to clear a navigation obstacle on the St. John’s River so larger vessels can reach the Port of Jacksonville.
Last year, the South Carolina legislature put $120 million into a reserve fund to pay the Corps up front for deepening the Port of Charleston’s harbor from 45 to 50 feet following completion of a feasibility study and authorization by Congress, if federal funding doesn’t materialize. State officials said the funds also could be used to keep the project moving forward so funding constraints wouldn’t hold up construction of the $300 million project.
Both states ultimately hope to get reimbursed by the federal government, but officials say the opportunity cost to the economy in terms of new business, exports and job growth is too great to delay any longer. Port authorities don’t want to take over operation and maintenance of navigable waterways because of the large ongoing cost and the feeling that users already pay for that service, Monteverde said.
Fix The Process. In addition to making more investments, Congress needs to reform how the Corps of Engineers does business because projects take too long to complete, port leaders say.
“In today’s global economy, we cannot continue to wait 15 to 20 years for federal projects to move forward,” Nagle said.
In February 2012, Michael Walsh, the Corps’ deputy commanding general for civil and emergency operations, directed that all feasibility studies follow a “3x3x3 rule” and will be completed in a target goal of 18 months but no more than three years; cost not greater than $3 million and be able to fit in a 3-ring binder.
Shuster has endorsed the recommendation of industry groups to streamline the study and permitting process for new dredging projects along the lines of last summer’s MAP-21 surface transportation reauthorization, which encourages early coordination between relevant agencies so that environmental and other reviews are conducted concurrently rather than consecutively.
The Senate’s WRDA bill would increase flexibility by allowing the Corps to authorize projects for which there is a Chief’s Report and local sponsors willing to pay for Corps work. It also intends to accelerate project delivery by codifying the Corps initiative to finish new feasibility studies in less than three years, improving the environmental review process, and creating two pilot programs to expand the local role in project implementation.
One demonstration program would evaluate the cost effectiveness of allowing states, port authorities and other groups to carry out inland and coastal harbor navigation projects to reduce the backlog of authorized Corps projects. The other would test the effectiveness of allowing a local sponsor to conduct feasibility studies for water infrastructure projects.
The bill also establishes a five-year innovative project financing pilot program modeled on the popular TIFIA loan program for highway transportation projects. The new pilot program will provide loans and loan guarantees for eligible flood control, water supply and wastewater projects, but if successful could be expanded to other types of projects.
Building flexibility into the work process is a key agenda item for port authorities. Ports want the Corps to be able to authorize projects when local sponsors are willing to pay the federal share in advance. They would normally be reluctant to give the Corps more authority to decide whether to move projects forward, but given the years between WRDA bills it is a better alternative than waiting for congressional action, Tampa’s Anderson said in an interview during AAPA’s recent spring conference in Washington.
Ports need some bureaucratic certainty so they and their customers can make plans for future growth, such as buying larger cranes and expanding container yards, he said.
Projects like Jacksonville’s are “dredge ready,” but the Corps can’t accept state money without congressional authorization, he complained to Shuster.
Shuster and other lawmakers said they want to speed up the decision-making process, but don’t support Congress ceding to the executive branch its constitutional authority to make spending decisions.
AAPA also recommends eliminating the reconnaissance phase of feasibility studies to determine if there is a federal interest when a project simply modifies an existing project that’s been approved in the past. Nagle said that change alone could cut two years off the review process.
Another delay stems from the peer review process established in the 2007 WRDA bill. The Corps is now required to forward finished studies to a group of external peers as insurance against mistakes, such as those associated with levees that failed during Hurricane Katrina. The rule has slowed down projects, contrary to assertions made at the time, and port authorities want to eliminate it, Anderson said.
The former Federal Maritime Commission member said the Corps’ criteria for the order in which it does maintenance work would be more relevant if it used cargo value rather than gross tonnage as a measure of importance. Tonnage was more appropriate in the 1980s when the majority of shipments came in dry or liquid bulk vessels, but today containerships carry a huge proportion of U.S. imports and exports, he explained. The Corps devotes more resources to ports that are conduits for more than 10 million tons annually and the least resources to those with less than 1 million tons of volume.