Permanent Change Sought For IWTF Cost Share

Over the past five years, the nation has seen a major advancement of major inland waterway infrastructure projects underway, namely lock construction projects at Olmsted, Lower Monongahela (Lower Mon), Kentucky and Chickamauga, along with major rehabilitation work at LaGrange. And much of that progress is due to language in the Water Resources Reform and Development Act of 2014 (WRRDA 2014).

At the request of the towboat and barge industry, WRRDA 2014 raised the fuel tax on the inland side from 20 cents per gallon to 29 cents per gallon. Funds generated by the fuel tax flow into the Inland Waterways Trust Fund. With the fuel tax now at 29 cents per gallon, operators on the inland waterways contribute, on average, about $115 million per year to the Trust Fund (IWTF). By law, major rehabilitation and new construction projects on the nation’s inland waterways are funded 50 percent from the General Treasury and 50 percent by the Trust Fund. This is known as the “cost share” for inland waterways projects.

Also part of WRRDA 2014 was a cost share change for the $3.1 billion Olmsted Locks and Dam Project from the typical 50-50 split to 85 percent General Treasury and 15 Inland Waterways Trust Fund. That cost share change had a twofold impact.

First, it dramatically sped up construction and lowered the cost estimated at completion (EAC) at Olmsted. The cost share change shaved four years off the timetable to operation at Olmsted, with the structure coming online in August 2018. That lowered the EAC from $3.1 billion to $2.841 billion—a reduction of $258 million. It also meant the nation began realizing the $800 million per year estimated economic benefits of Olmsted four years sooner.

That’s $3.2 billion in economic benefits due to efficient funding at Olmsted.

Second, the cost share change at Olmsted freed up a significant amount of IWTF dollars for other projects, meaning all the projects mentioned above have seen efficient funding since 2015.

“As a result, we have seen the cost of these project de-escalate and we see the projects being completed sooner,” said Marty Hettel, vice president of governmental affairs for American Commercial Barge Line, who recently completed a six-year term as chairman of the Inland Waterways Users Board, “thus we receive the net benefits sooner.”

The Users Board, the federally chartered body of stakeholders that makes recommendations on the use of the Inland Waterways Trust Fund, met in New Orleans, La., May 23 and received a progress report from the U.S. Army Corps of Engineers regarding the projects at Olmsted, Lower Mon, Kentucky and Chickamauga. Besides the $258 million cost reduction at Olmsted, estimated cost reductions at Lower Mon, Kentucky and Chickamauga due to efficient funding are $221 million, $168 million and $89 million, respectively.

“So due to efficient funding, since [fiscal year] 2015 we see an estimated cost reduction of about 12 percent—or about $736 million—below authorized cost on these four projects,” Hettel said.

And that’s just the cost reduction. As the projects come online ahead of their most recent schedule due to efficient funding, the nation will see the economic benefits that much sooner as well.

Lower Mon and Kentucky are both now funded to completion, and Congress approved a one-time cost share change at Chickamauga for fiscal year 2019 from 50-50 to 85 percent General Treasury and 15 percent IWTF.

Unfortunately, a problem is on the horizon, though, because a 50-50 cost share is rapidly depleting the Inland Waterways Trust Fund balance. And if that looming shortfall is not addressed, both current and future projects will suffer construction delays and cost escalations, much like what was seen at Olmsted from the 1990s until 2014.

“The IWTF cannot support efficient funding for the four projects,” Hettel said. “If we do not see efficient funding, we will see the Corps EAC increase.”

For industry leaders, the solution is simple: Learn from the successes of WRRDA 2014 and put in place a permanent change for the cost share from 50-50 to 75 percent General Treasury and 25 percent Inland Waterways Trust Fund.

Hettel said the precedent is there. Besides the WRRDA 2014’s 85-15 cost share change at Olmsted, WRDA 2016 changed the cost share for deep water ports from a 50-50 split to 75 percent general treasury and 25 percent non-federal sponsor. Likewise, Hettel pointed to the one-time change for Chickamauga in the fiscal year 2019 appropriations bill.

“So there is precedent in changing the cost share on inland waterway projects from 50 percent General Treasury and 50 percent IWTF to 75 percent General Treasure and 25 percent IWTF,” he said.

Tracy Zea, vice president of government relations for Waterways Council Inc. (WCI), said his organization is working hard to communicate why a cost share change is not only crucial for waterway infrastructure but also a smart investment for the nation.

“This is one of our priorities we see as modernizing the system moving forward,” Zea said. “This would move our construction time table for our current slate of projects from 40 years to 20 years.”

Congress could include a permanent change in the cost share in a Water Resources and Development Act, an appropriations bill or even an infrastructure bill.

Zea explained that, with the 50-50 cost share and the annual $115 million contribution to the Inland Waterway Trust Fund, the total construction program possible is $230 million. A cost share change to 75-25 brings the construction program above $400 million, which is where it’s been the past five or six years. Olmsted alone is proof that a change in the cost share, combined with the 29 cent fuel tax, carries significant and obvious national benefits.

“If you look at it from a purely inland waterways standpoint, it’s an extremely critical thing to happen,” Zea said. “You’re moving 24 or 21 projects from being completed in 40 years to 20 years. That’s a significant time reduction, which allows our operators to become more efficient, shippers save money, and the price of goods goes down.”

And in that time period, the nation—and the world—are set to see a rise in demand for agricultural products, many of which are transported on the inland waterways.

“This is a very good opportunity to provide your soybean farmers some savings to compete and remain competitive in the foreign market,” Zea said.