Future Financing for Inland Waterway System in the US

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Description of Issue

Today, in the United States of America (USA), the fundamental importance of the various types of infrastructure is being recognized by populations and politicians alike, especially within the context of unparalleled economic and environmental problems, including low growth and government deficits (Miller, 2013).

Economic pundits, policymakers and other interested parties are well aware of the fact that infrastructure can be used as a mechanism to promote economic development not only in the United States (U.S.) but also globally (Copeland, Levine, & Mallett, 2011).

However, this has not always been the case as federal, state and local governments continue to be faced with a multiplicity of challenges related to infrastructural development. This report attempts to look into the infrastructure issue related to future financing for inland waterway system investments in the U.S.

Justification for Selection

The main justification for selecting this infrastructure issue is grounded on the fact that inland waterways continue to form a significant component of the country’s transportation mix for many commodities yet this type of infrastructure continues to be underfunded at the federal level, leading to operational and structural inefficiencies (Stern, 2013).

Indeed, this author acknowledges that the future financing for the inland waterway system remains uncertain due to a combination of factors that eat into its operational balance, including increased appropriations, cost overruns, aging infrastructural systems, and decreased revenues. Without substantial and focused shifts to the current financing regime, therefore, the Inland Waterways Trust Fund (IWTF) spending is likely to be constrained by a multiplicity of factors.

Background Information

Available literature demonstrates that inland waterways in the U.S. form a substantial constituent of the country’s maritime transportation architecture by virtue of the fact that they carry approximately 16.7 percent of the national capacity of intercity consignment on 25,000 miles of commercially viable inland and intra-coastal waterways.

As Stern (2013) notes, Included in this volume “are in excess of 12,000 miles of fuel-taxed federal waterways popularly known as the Inland Waterway System (IWS), which are managed by the U.S. Army Corps of Engineers (Corps)” (p. 1). This author further acknowledges that the waterways cover 38 state-wide jurisdictions and handle in excess of 50 percent of all inland waterway luggage, or 8.3 percent of all national shipments.

The economic feasibility of these waterways cannot be underestimated. Gries (n.d.) argues that this network “is the primary artery for more than half of the nation’s grain and oilseed exports, for about 20 percent of the coal for utility plants, and for about 22 percent of domestic petroleum movements” (p. 1).

However, due to inadequate funding directed at the Corps to develop, operate, and maintain the infrastructure of these commercial waterways (e.g., navigation channels, harbors, locks and dams), economic pundits and policymakers are increasingly becoming worried that a failure of the system’s component locks and dams could have grave economic ramifications for the country and beyond (Stern, 2013).

It is, therefore of great importance for the relevant stakeholders to start developing and implementing policies and practices aimed at addressing the funding issue.

Locating the Issue

The issue of funding the commercial waterways is definitely a national/federal one, in large part due to the fact that the waterways transcend state and local government boundaries. It should be the function of the national/federal government to ensure that the IWS does not grind to a halt due to funding deficits, as this could have profound consequences on the productivity and growth of the country.

Future Trends

Stakeholders must always acknowledge that making a considerable ongoing investment on the inland waterways will go a long way in securing mobility and enhancing economic efficiency by undertaking major transport functions within the country at the lowest possible cost.

Lack of financing will also spur a trend whereby the aging inland waterways infrastructure will be incapable of maintaining its economic viability due to frequent closures for repairs and national lock “unavailability” time.

Additionally, owing to budgetary deficits, the country will most likely experience a trend whereby scheduled maintenance and repairs of the inland waterway infrastructure will be occurring more often and at more locations, while unscheduled closures will become rampant due to failure of a lock component (Grier, n.d.). Such trends will occasion grave ramifications on the perceived reliability of the IWS and subsequent economic losses not only for shippers and carriers but also for the country.

Current Policies/Practices to Address Issue

Currently, the “…costs for maintenance and construction of inland waterways are funded by the Corps (through appropriations) and the commercial user industry (through user fees paid to the federal government” (Stern, 2013 p. 1). As demonstrated by this author, the engineers cover for all of the costs related to research activities, daily operations, and maintenance of the inland waterway infrastructure, while the costs for new construction and key rehabilitation schemes (presently described as any improvement in excess of $8 million) is divided evenly between the engineering department and the commercial sector.

Congress is faced with competing applications concerned with the future financing of the infrastructural facilities, with available literature demonstrating that the present revenue foundation (a predetermined tariff on fuel agreed to in the mid-1980s) is not adequate to meet non-federal costs of mainstream monetary spending on inland waterways.

This scenario has for some time now resulted in federal taxpayers meeting more than half of these costs, not mentioning that the ongoing finance deficit is currently constraining the number of new and continuing inland waterway infrastructural projects (Herrmann, 2012; Stern, 2013).

Desired Policies/Practices to Address Issue

To address this issue, there is an urgent need to come up with new policies and practices that will substantially shift the financing system as currently enacted by Congress (Stern, 2013). One of the desired policies to address the issue should be to phase out the fuel tax levied on transportation companies relying on the inland waterway system in favor of lock usage fees, with the view to enhancing equity in waterborne commerce investments by virtue of the fact that locks account for most IWS capital construction expenditures.

Another viable option should be to implement a plan that entails effecting increases to the existing fuel tax regime in combination with a marked increment in the general federal budgetary allocation for inland waterway costs.

The user cost-sharing arrangements brought about by a change of legislation in the 1970s and 1980s are not adequate to ensure that the full economic viability of the inland waterway system is realized, thus the need for increased federal budgetary allocation to cater for noted financing deficits (Herrmann, 2012; Stern, 2013).

Still, the issue can be addressed by increasing some form of new user fee for inland waterways in combination with a customized option for the Corps to further enhance fees at high-traffic locks, as such a move would increase both efficiency (by minimizing traffic at these locks) and revenues (Stern, 2013).

Additionally, it is desirable for the federal government to come up with a new inland waterway financing structure that should not only maintain the existing fuel tax, but also institute a two-tier annual fee for commercial barges that would be calibrated by the Corps to attain the required revenue target (Engel, Fischer, & Galetovic, 2011). In such an arrangement, barges using inland waterway locks would be expected to part with an elevated fee than those not employing the locks.

Lastly, to substantially reduce operational and maintenance costs, policymakers and other interested parties need to come up with ways to keep costs at a minimum while focusing on additional financing streams.

Some of the desired practices intended to minimize operational and maintenance costs for inland waterway system investments include (1) limiting accessibility of the waterway and facilitating downtime acceptance, (2) doing away with old components and structures in the system, and (3) strengthening embankments to limit erosion caused by wash (International Navigation Association, 2005).

Cost of Financing Desired Policies/Practices

It is common practice that “when new inland waterway infrastructures are to be built or existing ones modernized, funding has to be sought and the financial viability and profitability of the works demonstrated” (International Navigation Association, 2005 p. 4).

Consequently, implementing the desired strategies and policies will definitely require some funding, but it is a difficult task to quantify the cost as various stakeholders are involved. However, available literature demonstrates that federal funding will have to be increased to at least $380 million per year and fuel tax enhanced by at least $0.06-$0.09 per gallon (30 percent to 45 percent above the current tax of $0.20 per gallon) for adequate financing of the IWS to be made a reality (Stern, 2013).

Recommendations for Future

Consecutive research studies have resulted in a general consensus that infrastructure spending not only enhances economic development through productivity and growth but also stimulates labor demand and creates jobs to aid economic recovery (Copeland et al., 2011). Consequently, it is of importance to develop recommendations that will ensure the waterways continue to be a viable economic enterprise for the country.

Owing to the fact that federal funding is becoming increasingly uncertain (Miller, 2013), it is highly recommended for policymakers to develop strategies that will bring states and local governments on board in the management of the waterways. For example, governors and mayors need to be given the leeway to implement new taxation regimes, tolls and user fees that will be ploughed back to maintain the aging IWS.

The federal government can also rely on the bond market to finance long-term projects within the IWS. However, care should be taken by the government to ensure its ability to repay in the face of turmoil characteristically associated with financial markets (Copeland et al., 2011). The U.S. government also needs to deepen its use of public/private partnerships, with the view to securing adequate finances to continue developing and maintaining the waterways.

Indeed, public/private partnerships serve as an effective tool for addressing budgetary constraints related to long-term infrastructure projects (Miller, 2013). Other recommendations include increasing the federal share of inland waterway costs, increasing overall spending on inland waterways, as well as enhancing stakeholder involvement on project planning and construction (Poole, 2013; Stern, 2013).

Conclusion

This report attempted to look into the infrastructure issue related to future financing for inland waterway system investments in the U.S. It has been illuminated that the future financing for the inland waterway system remains uncertain due to a combination of factors that eat into its operational balance, including increased appropriations, cost overruns, aging infrastructural systems, and decreased revenues.

Overall, some of recommendations agreed upon in this report include developing new taxation regimes, tolls and user fees, relying on the bond market for funding, establishing public/private partnerships, and increasing the federal share of inland waterway costs.

References

Copeland, C., Levine, L., & Mallett, W. J. (2011). The role of public works infrastructure in economic recovery. Web.

Engel, E., Fischer, R., & Galetovic, A. (2011). Public-private partnerships to revamp U.S. infrastructure. Web.

Gries, D. V. The declining reliability of the U.S. military waterway system. Web.

Herrmann, A. W. (2012). Continuing to make the case for infrastructure development. Civil Engineering, 82(10), 14-14.

Inland Navigation Commission. (2005). Economic aspects of inland waterways. Web.

Miller, J. D. (2013) Infrastructure 2103: Global priorities, global insights. Web.

Poole, R. W. (2013). Funding important transportation infrastructure in a fiscally constrained environment. Policy brief no, 102. Web.

Stern, C. V. (2013). Inland waterways: Recent proposals and issues for Congress. Congressional Research Service. Web.

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