Private investment could pay for waterways improvements, new study says

A study prepared for the nation’s soybean farmers suggests that private sector financing and partnerships could provide a viable option for funding the nation’s aging and often unreliable system of locks and dams on the inland waterways.

“Given the federal budgetary and private capital realities, the U.S. inland waterways need more innovative, lower cost solutions,” said the report, prepared by the Horinko Group for the Soy Transportation Coalition, Ankeny, Iowa.

The inland waterways infrastructure is currently managed by the federal government, which also finances the entire cost of operation and maintenance. New construction and major rehabilitation is paid through the Inland Waterways Trust Fund, from which half the revenue comes from a 20-cent per gallon fuel tax on the barge industry and the rest from taxpayers. Receipts from the fund only cover 8-10 percent of the total costs the U.S. Army Corps of Engineers incurs annually to support inland navigation, the study said.

Tight federal budgets coupled with declining trust fund revenues have caused maintenance backlogs, unfinished construction projects and costly lock failures and closures. Given the present funding levels, the Corps can address only the most urgent maintenance and repair needs, the study said.

The barge industry, through the Waterways Council, wants Congress to pass legislation that would reform how inland projects are evaluated by the U.S. Army Corps of Engineers and increase the per-gallon barge fuel tax by 6-9 cents to inject more money into the trust fund. But there’s a growing feeling that these revenues won’t be enough and that other funding options should be investigated. The Council was not immediately available to comment on the report.

One alternative that is gaining traction in Washington is the concept of public-private partnerships to rejuvenate the nation’s sagging transportation infrastructure. Such partnerships are already working well in other industries, the study said.

“While there is substantial interest in this concept, there is little understanding of how it could work,” Patrick Knouff, a soybean farmer from Minster, Ohio, and chair of the Soy Transportation Coalition, said in a statement. “The goal of this report is to increase the awareness of both the potential advantages and shortcomings of such an approach.”

The study explains the approach of so-called P3 public-private partnerships, discusses where they have been used in other industries and suggests locations that would be possible sites for such arrangements.

The report suggests that the private sector would be less interested in investing in the construction of a new lock and dam, and more attracted to providing private investment for the proper maintenance of existing sites.

“The Soy Transportation Coalition continues to argue that a predictably good inland waterways system is better than a hypothetically great one,” said Mike Steenhoek, executive director of the Coalition. “Given the reality that the cost of one lock construction project is approximately equal to the cost of nine major rehab projects, we concur with the recommendation that a P3 project focused on maintenance is more viable that one premised on new construction.”

The report identifies two possible sites for a pilot program: Peoria and LaGrange locks and dams on the Illinois River and the Melvin Price Locks and Dam 27 on the Upper Mississippi River.

The report says that partnership agreements will likely produce more efficient and cost-effective operations and remove the uncertainties of the congressional appropriations process. Joint ventures with separate financial partners that possess experience in complex, sophisticated financial transactions would be a plus. But precise negotiations would be necessary to clearly spell out the responsibilities of the Corps and the private partner, as well as the financial terms.

Development of partnerships will require congressional legislation to authorize the Corps to enter into long-term leases and to guarantee the investor a sufficient revenue stream and an adequate rate of return. The new Water Resources Development Act (WRDA), which is under final consideration by Congress, is likely to include a series of pilot projects to test the feasibility of a P3 approach to the inland waterways system. The final bill is expected to be passed by both the House and Senate and signed by the president in May or June.

“A public-private partnership for locks and dams could be appealing because of the potential for better project execution and delivery,” said Steenhoek. “The private sector often is better able and equipped to deliver the same or elevated services at a lower cost. It is appropriate to examine and investigate alternative methods to finance, operate, maintain and enhance our inland waterways system.”
 

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