Taxpayers for Common Sense
Presented by Steve Ellis
Senior Director of Water Resources
Taxpayers for Common Sense
Senior Director of Water Resources Vice-President, Policy and Communications
Good afternoon, Chairman Jeffords, Senator Smith and other distinguished members of this Committee. I’m Steve Ellis, the Senior Director of Water Resources at Taxpayers for Common Sense, a national, non-partisan budget watchdog group. I’d like to thank you for inviting me to testify on behalf of two of the nation’s leading taxpayer advocacy groups – Taxpayers for Common Sense and the Council for Citizens Against Government Waste – at this hearing on the Water Resources Development Act of 2002 and reforming the Army Corps of Engineers. The National Taxpayers Union (NTU) is also concerned with the Army Corps of Engineers and advocates reform of the agency. I would like to submit for the record a statement from the NTU.
The last time there was significant reform of the Corps of Engineers and the United State’s approach to water resources development was in 1986 with the approval of cost sharing reforms championed by President Reagan.
Virtually overnight we have gone from budget surpluses to deficits. We are engaged in a costly and lengthy war against terrorism. In this context, fiscal restraint is more important now more than ever to get to a balanced budget.
Wasteful spending through the Army Corps is symbolic of everything that is wrong with Inside the Beltway politics, where Members of Congress abandon their duty to promote the best interests of the nation in order to help a handful of special interests.
In this election year, the temptation will be great to focus on just bringing more projects home to please special interests. But enacting true, meaningful reform of the Corps of Engineers this year will be an indication of whether Congress has the will to make the hard decisions necessary to achieve fiscal responsibility.
Undoubtedly, the Corps of Engineers has faced some of the sharpest criticism in its history over the last two and half years. However, concern over the Corps and the way it conducts business is not new. For example, more than 150 years ago in 1836 the House Ways and Means Committee chastised the agency for bungling 25 projects that were over-budget, behind schedule, and not performing as planned.
Similarly, the criticism in recent years is the result of revelations that the Corps manipulated or committed serious mistakes in project evaluation studies that could waste billions of taxpayer dollars.
This series of scandals has severely eroded public trust in the Corps. To restore the agency’s credibility, it is critical that the 20002 Water Resources Development Act address the problems that led to these scandals. The Corps needs to be reformed, and it needs it now. It is vital that we define what exactly is meant by Corps reform? Real reform will achieve these four fundamental goals:
· Make the Corps more accountable;
· Set clear priorities;
· Modernize the project planning process; and
· Ensure that everyone pays a fair share
In March, Senators Bob Smith, Russ Feingold, and John McCain introduced S. 1987, the Corps of Engineers Modernization and Improvement Act. This comprehensive reform proposal addresses each of the four key reform areas in a serious and effective manner. We urge the Committee to adopt S. 1987 as the basis for reform in the Water Resources Development Act.
I would like to outline each of these tenets of reform and provide a few examples of why reform is essential.
The need for more accountability in the Corps becomes more apparent by the month, as a growing list of project studies have been found to have been manipulated or contain egregious errors:
Dozens of other examples of problematic and controversial projects could also be cited that together account for billions more dollars in wasteful spending.
A key way to restore some credibility to the Corps’ project planning process is to implement a system of independent peer review for costly and controversial projects. A workable and faithful independent peer review process should include the following elements:
The need for independent review has now been endorsed by the National Academy of Sciences, the General Accounting Office, President Bush and many Members of Congress, and dozens of public interest groups across the nation.
There are growing external pressures placed on the Corps to green-light projects lacking true economic justification. Congress will “contingently authorize” a project based upon a favorable finding by the Corps prior to the necessary feasibility studies being completed. There is a correlation between contingent authorizations and later findings that a project study had been poorly conducted on an unjustified project. For example, two of the projects listed earlier in this testimony, the Columbia River deepening project and C&D Canal deepening project in Eastern Maryland, were both contingent authorizations.
The Smith-Feingold-McCain reform bill would address this problem by allowing Senators to raise a point of order when controversial projects are included in authorizing legislation without the Corps first completing the mandatory feasibility studies and approval from the Chief of Engineers. S. 1987 would take significant steps towards restoring integrity to the authorization process.
We are also very concerned that there are efforts underway to seek a contingent authorization of the billion-dollar Upper Mississippi and Illinois Rivers lock expansion project in the hopes of beginning Pre-construction, Engineering, and Design. The Corps has only prepared an Interim Report introducing various scenarios, but has still not done any in-depth re-evaluation of alternatives that would lead to a recommendation to Congress.
One of the best arguments for not proceeding with authorization of any Upper Mississippi navigation project in this WRDA comes from the Inland Waterways Users Board themselves, an industry advisory committee for the Army Corps of Engineers. A construction schedule for inland waterways projects posted on its website lists the Upper Mississippi lock expansion as not being able to start construction until 2020 – and this is the optimistic scenario. A limiting factor is that despite a current surplus in the Inland Waterways Trust Fund, so many waterways expansion projects are being sought by the navigation industry that the pace of construction will be limited by the availability of money from this fund, which is generated from a tax on diesel fuel used for barges.
Contingent authorizations have contributed to a ballooning construction backlog that is now $52 billion. Even with increased construction budgets, it will still take the Corps more than 25 years to build all of these projects.
Each year when the President’s budget is introduced, Senators inevitably complain that projects in their state did not receive “full” funding and consequently benefits are delayed and project completion costs increase. This is a result of too many projects competing for a limited amount of resources. Under the current funding process, bad projects are just as likely to receive funding as good projects.
This enormous backlog is partly due to the Corps having provided bad information to Congress upon which it authorized a project, as well as Members of Congress seeking authorization despite Corps data pointing out serious problems with the project.
Recently, Taxpayers for Common Sense conducted an analysis of the backlog that has made available to the public. Detailed information is easily accessible to the public on the 285 projects, for which the President has requested funding and submitted a Budget Justification Statement to Congress. This amounts to only $28 billion worth of the construction backlog. We urge Congress in this year’s WRDA to require the Corps to make the full backlog available to the public, accompanied by, at a minimum, the same detailed information included in Budget Justification Statements.
TCS’ analysis found that the median project was only 24% constructed. In fact, 25 projects authorized in 1986 are still less than half-complete. These alone account for $2.4 billion of the backlog. An additional 39 projects representing $4.3 billion of the backlog have benefit-to-cost ratios of less than 1.5, and are less than half-complete.
The backlog slows down the construction of all projects, whether they are good or bad. Just as the Base Realignment and Closure (BRAC) process was a tough pill to swallow but nonetheless one that will improve the health of our nation’s military forces, Congress needs to institute a project-blind process for deauthorizing outdated, marginal, and unnecessary projects that have yet to be constructed. Deauthorizing these low-priority projects will enable funds to be focused on legitimate projects that provide large benefits to the public at a low relative cost.
The Smith-Feingold-McCain bill proposes two simple improvements to an existing automatic deauthorization process that would significantly help break the backlog. First, S. 1987 would shorten the amount of time in which a project must receive funds for construction in order to continue to be authorized. Currently, a project must receive funds at least once every nine and a half years. S. 1987 would reduce the timeline to five years for newly authorized projects and three years to projects that have already received some construction funds.
Second, S. 1987 would require that construction funds actually be used on physical construction to re-set the clock, as opposed to planning, design, or re-evaluation studies. There are dozens of projects that have been kept on life support while tens of millions of taxpayer dollars are wasted having the Corps perform repetitive studies in a futile attempt to resolve major controversies.
In the case of the $108 million Oregon Inlet Jetties proposed for the Outer Banks, the Corps has been continuously “studying” the viability of the project for more than 30 years. Yet through all those years, a half dozen separate independent reviews by notable economists and scientists have determined the Corps is incapable of finding a way to design a cost-effective and scientifically sound project. In the coming months, we believe a forthcoming General Accounting Office report will add to the already overwhelming evidence supporting the case that the Oregon Inlet Jetties are an immense boondoggle.
These two simple reforms would put more pressure on Congress to weed out bad projects and speed up construction of good projects. In fact, President Bush’s proposed FY03 budget request follows this same logic by focusing much of the Corps construction budget on completing 30 major projects. While certainly not a perfect budget, the Bush administration has recognized the need for priorities and reining in the Corps much more seriously to date than Congress.
A more recent, but growing, pressure on the backlog is “mission creep” within the Corps of Engineers. The Corps has three congressionally mandated primary missions: navigation, flood damage reduction, and environmental protection. Other activities such as hydropower, recreation management, and water supply are permitted when associated with a multi-purpose project. However, the Corps has sought – and Congress has authorized – to extend its tentacles into irrigation, municipal water supply, wastewater treatment, and even construction of public schools. Each of these areas has traditionally been carried out by the private sector or through other government programs.
The Corps does not have extensive experience in cross-basin water transfer projects, for example, but is seeking to build more than a billion dollars worth of pump and distribution infrastructure in Eastern Arkansas to assist rice irrigation. A lack of experience led the Corps to only look at structural solutions to long-term groundwater depletion concerns. After the release of the Corps’ initial design for the $319 million Grand Prairie Area demonstration plan, hundreds of farmers – the very people the Corps was trying to help – withheld support for the project because they prefer cheaper and more effective non-structural conservation alternatives that would minimize water taxes slated to be assessed on them to pay for the project.
In the case of municipal water supply and wastewater treatment, or what has also been called “environmental infrastructure”, Corps involvement in these projects is a redundant – and wasteful – substitute for the Environmental Protection Agency’s Drinking Water and Clean Water State Revolving Funds. The only difference is that projects obtained through the Corps effectively receive grants as opposed to loans, and the allocation of funds to projects under the Corps budget is driven almost exclusively by politics.
In Los Angeles and Washington, DC, the Corps has entered into billion dollar and hundred million dollar contracts, respectively, to build and renovate public schools. But they have done a poor job at that too, while at the same time crowding out construction management firms in the private sector that could have performed the work faster and at less cost.
President Bush has sought to limit mission creep by not requesting funds for these types of projects. His fiscal 2003 budget request outlines the impacts of “mission creep”:
Congress periodically directs the Corps to work in other areas that duplicate existing federal programs or are activities that should be carried out by non-federal interests. This “mission creep” diverts the Corps from its primary business lines, slows down completion of higher priority construction projects, and postpones the benefits that completing these projects would bring.
The reform to check mission creep is simple: deauthorize all of the unconstructed irrigation, municipal water supply and wastewater projects, and stop the Corps from entering into contracts with local school districts to build schools.
The Corps of Engineers’ recently announced that it would pause more than 150 authorized projects in order to “resolve questions” over the “accuracy and currency of economic analyses, the validity of plan formulation decisions, and the rigor of the review process.” This was a significant acknowledgement that the agency too often relies upon outdated economic information, as well as other problems with the project planning process.
For example, the Delaware River deepening project was justified in 1992 primarily upon projections of increased oil imports and scrap metal exports. However, we now have the benefit of ten years of actual data, which reveals that the Corps predictions were overly optimistic. None of the area refineries have significantly increased their oil imports, mostly because they have not, nor plan to, make any expansion of plant capacity in order to avoid having to install expensive pollution control technology if they did expand. By 2000, scrap metal was no longer being exported from the Port of Philadelphia because the former Soviet states replaced the U.S. as the main provider of scrap to Turkey.
Both of these trends were apparent during the early and mid-1990s, but the Corps never updated its project studies to reflect these real world market changes, even though they did revise cost estimates downward during that time. In fact, the Corps continually denied the economic reality of the project and continually sought construction funds for this project despite knowing its benefits analysis was woefully out of date. Only after the General Accounting Office examined the project has the Corps acknowledged these errors and sought to update their feasibility report.
Although we hoped the Corps “pause” represented a real effort to change the way the agency did business, the Corps did not follow through with an honest evaluation of the 150 projects. In fact, only eight projects will be subjected to further analysis. Although the Corps cited that dozens of projects were already undergoing further re-evaluation before the launch of the nationwide review, the Corps failed to correct its studies on dozens of other boondoggle projects like the Dallas Floodway and Grand Prairie irrigation projects.
The Corps’ review fiasco is yet another indication the agency is incapable of reforming itself and that real reform must be passed into law this year by Congress.
The Smith-Feingold-McCain bill would also require the Corps to work with the National Academy of Sciences in modernizing the planning guidelines. For example, the guidelines should be updated to ensure full accounting of costs of projects – including adverse economic impacts to other interests – incorporating new techniques in risk and uncertainty analysis, eliminating biases and disincentives for nonstructural flood damage reduction projects, incorporate new analytical techniques, and ensuring projects are justified upon benefits to the public interest rather than a few private firms or individuals.
A full revision of the Corps planning guidelines was recommended by the National Academy of Sciences itself in a 1999 report on the Corps’ project planning process. The Principles and Guidelines, the Corps planning documents, was last updated in 1983, and with the exception of a few minor revisions, has basically been frozen in time for nearly two decades.
Many of the Corps’ problems stem from an increasingly obsolete planning process that was developed at a time when water projects were seen as more of a job creation program than a national investment.
Our nation and thinking certainly have changed since the New Deal Era, but the Corps still relies on the 1936 Flood Control Act’s standards to call a billion dollar project economically justified if the benefits outweigh the costs by even one dollar. No business would ever make an investment knowing that they would get no return on their dollar, and we deserve no less from our investment of tax dollars.
The Smith-Feingold-McCain bill’s proposal to require project benefits be 1.5 times the total estimated costs in order to qualify as economically justified makes strong fiscal sense, by ensuring at least a modicum of a return to the federal taxpayer. An additional benefit is that this reform will help break the backlog by deauthorizing marginal projects that have yet to start construction.
Another problem with the Corps is that it studies and plans projects in a vacuum. The Corps assumes there are no budget or other constraints when developing a construction schedule. For example, the Corps benefit-cost analysis for the $420 million Delaware River deepening project, anticipated construction over a four-year period. There was virtually no chance of this ever happening, as the project would have to receive more than $90 million – 5% of the agency’s overall construction budget – each year for four straight years. The actual construction appropriations for the project have not exceeded $20 million – with none of those funds ever being spent on actual construction – but by optimistically scheduling construction over only four years, the Corps was able to reduce estimated costs by maximizing scales of efficiency. In fact, this problem was cited by the General Accounting Office as another factor that led the Corps to overestimate the true benefits of the project.
Although being able to construct large-scale projects quickly is ideal and preferred because it minimizes construction costs while quickly returning benefits to taxpayers. However, such scheduling does not reflect the harsh reality of a massive backlog and growing budget constraints. S. 1987 requires the Corps to devise more realistic construction schedules for projects and reflect the impacts on project costs.
The Corps’ tunnel vision is also apparent in its planning of port development projects. Currently, there is a “race to the bottom” amongst major U.S. ports, including twelve major Corps deepening projects along the East Coast that together will cost taxpayers $2.4 billion to complete. This phenomenon is stoked by a shift amongst the shipping lines to larger and deeper-draft container ships and a fear among ports that they may be left behind.
The problem is that few of these ports will be successful in alluring these larger ships to their docks. With significant deregulation of the shipping industry in the 1990s and other factors, shipping lines have consolidated and begun to rely more heavily upon hub ports like New York / New Jersey Harbor and the Ports of Los Angeles and Long Beach. The result is these larger ships will carry more cargo, but to fewer ports. Medium sized ports are poised to become feeder ports in this system, similar to the way the airport network has evolved. These ports will also find advantages in specializing in niche cargos, like the Port of Wilmington, Delaware’s successful makeover into one of the nation’s premier ports for refrigerated produce.
Certain ports like those in New York and Los Angeles are logical choices for hubs due to the tens of millions of consumers within a relatively few miles of the piers. Other ports have natural advantages like the Port of Seattle that requires very little dredging to maintain its deep berths, or Hampton Roads, Virginia, which already is maintained at a deep draft and is well positioned only a few miles from the Atlantic Ocean.
On the other hand, the Ports of Philadelphia and Portland, Oregon are more than 100 miles inland, and the cost of maintaining deep access channels is inherently expensive. Furthermore, it is more difficult and much slower to navigate up 100 hundred miles of a restricted channel, consequently it takes much longer for ships to traverse those rivers to deliver their goods than it would to a port near the open ocean.
The Corps continues to pursue many more deepening projects than the nation needs. This is because the Corps evaluates a particular deepening project without any consideration of potential adverse economic affect upon its competitor ports. These studies do not take into account the potential impacts of other nearby port development projects in the works, but not yet completed, that can affect the ability of the port under study to ultimately attract more ships.
Also, the Corps expertise and mandate generally limit it to only consider deepening a port’s access channels when studying port improvements. However, a port’s depth is only one of many factors that determine its competitiveness. The amount of dockside land available to store containers, intermodal connections to rail and highways, crane equipment, labor conditions, geography and many other factors are just as important.
On April 15, the Alameda Corridor project opened, connecting the Ports of Los Angeles and Long Beach to downtown L.A.’s rail and highway nexus, twenty miles inland. The $2.4 billion collaborative project was on time, on budget, had almost no public opposition, and used only a moderate amount of federal funds – 22% of the total cost plus a $400 million loan. The loan and the rest of the costs of the project are being borne by the ports, Los Angeles County, and revenue bonds to be paid off over time by a $15 user fee on each loaded container that uses the corridor.
Port experts are predicting that the efficiencies gained from the corridor by facilitating the quick transfer of containers from ships to the highways and rail lines leading out of L.A. will solidify Los Angeles and Long Beach’s position as the nation top two ports for decades to come. Transportation Secretary Norman Mineta at the corridor dedication ceremony called the project, “a powerful example of what we want to encourage” throughout the country.
We urge Congress to require the Corps to institute rational port planning to consider what investments are in the best national interest on a regional basis. In fact, the Department of Transportation is already ahead of the Corps on this issue, and is currently funding a project at the University of Rhode Island Transportation Center to develop a comprehensive framework for sustainable container port development.
S. 1987 would require the Corps to work with the National Academy of Sciences in revising its project planning guidelines include rational port planning. Unfortunately, in recent years some port interests have pushed for increasing the federal subsidy of dredging ports deeper than 45-feet from 40% to 65%. If such a change were applied to the New York / New Jersey Harbor project to deepen to 50-feet, taxpayers would be fleeced for more than $375 million. There is no need for the U.S. to subsidize port overcapacity through the dredging of dozens of ports past 45-feet. A few select ports with depths of 45-feet or more can serve the whole nation well as hubs.
We strongly urge Congress to reject any attempt this year to increase the federal subsidy for dredging deep draft ports past 45-feet.
Weeding out wasteful water projects through a streamlined deauthorization process, holding the Corps more accountable and modernizing the planning process are all effective ways to ensure the best water projects get built. Cost sharing is another tool for breaking the backlog. Forcing beneficiaries to pay their fair share, can be used to reduce the budget, freeing up federal resources to speed up construction of good projects, and provides incentives for good local policies that also further reduce federal disaster bailouts.
In 1995, Dr. Robert P. Inman of the Wharton School of Business published a study on the effects of cost sharing for Corps of Engineers water projects, “Changing the Price of Pork.” The study examined the Water Resources Development Act of 1986 and the unique situation where Members of Congress and their constituents had an opportunity to seek smaller-scale, more efficient projects once it became apparent that cost-sharing rules were going to be adopted in the legislation. The Inman study found that the cost-sharing rules of 1986 saved federal taxpayers more than $3 billion, or a 48% savings of what taxpayers would have otherwise paid for projects in the bill. The financial effect on local communities was marginal, a 12% increase of what they otherwise would have paid, even though they were paying a significantly greater share of the cost. The reason the increased costs for local communities was minimal is that they chose smarter and more efficient projects that met only their true water resource development needs.
The cost sharing reforms of WRDA 1986, championed by President Reagan, ushered in a new era that sought to instill market-based economics into water development project planning. It marked a significant evolution from the New Deal era thinking of building projects to simply put people to work regardless of whether the project had any lasting benefits.
The cost sharing reforms of the Smith-Feingold-McCain bill seeks to build upon the Reagan reforms. The guiding principle behind S. 1987’s cost share formula changes is that the greater the proportion of benefits that are local in nature the greater the financial responsibility of the local sponsor. The Inman study also endorsed this principle.
Specifically, S. 1987 implements tiered cost sharing for operations and maintenance of inland waterways, reduces the federal subsidy for flood damage reduction projects to 50%, and reduces the federal subsidy for beach building projects to 35%.
According to the Corps of Engineers, the Inland Waterways System currently has a maintenance backlog of $350 million. However, each year 30% of the inland waterways maintenance budget is spent on underused waterways that carry only 2.3% of the system’s cargo. Eliminating the huge federal subsidy of the most wasteful waterways and requiring a 25% cost share contribution from non-federal interests for other low use waterways could free up tens of millions of dollars each year to reduce the maintenance backlog on the nation’s workhorse rivers, like the Ohio and Mississippi.
The effect of eliminating subsidies for the handful of waterways would be minimal. For example, if the Corps were to stop dredging the Apalachicola River in Florida’s Panhandle, only three-dozen barges a year would be affected. On average only one barge every ten days floats down the Apalachicola at more than the river’s natural depth. Yet, recent annual federal appropriations for this waterway have been $12 million.
Despite the Corps of Engineers having spent more than $120 billion on flood control projects over the last five decades, annual flood damages continue to increase. This trend was cited in the Interagency Floodplain Management Review Committee or Galloway Report on the Midwest floods of 1993, which recommended a new course for the nation to implement policies that discourage further or more intensive development within floodplains. A 1998 report by the National Wildlife Federation, Higher Ground, illustrates the double, triple, and even quadruple subsidies from the federal government as a result of a series of uncoordinated policies.
Corps of Engineers subsidized construction of large structural projects encourages further development of floodplains by making people feel safe to live closer to the river. Inevitably, there will be the big flood, which then usually brings flood insurance claims and Federal Emergency Management Agency disaster assistance. And as Higher Ground documented, there are tens of thousands of homes that have repeatedly flooded and received checks from the federal government to rebuild within the floodplain.
Reducing the federal subsidy of Corps of Engineers flood damage reduction projects from 65% to 50% can help break this cycle of subsidies and encourage smarter flood damage reduction options like non-structural flood-proofing of moderate risk homes and voluntary buyouts of homes located within high risk flood zones.
Beach building projects are another example where the beneficiaries are easily identified and are very local in nature, the people who visit the beach, the people who live along the beach, and the people who own second homes along the beach and rent them out. In fact, beneficiaries of beach projects tend to be the most affluent beneficiaries of any Corps subsidy.
For example, roughly one-third of America’s 74 wealthiest beach towns are beneficiaries of a Corps beach building project. Palm Beach County, Florida is receiving a $2 million reimbursement from federal taxpayers this year for sand that was pumped in front of very wealthy homes, including those in Gulf Stream where the median home value is $1.5 million. All the beaches in the Hamptons of New York have been maintained by federal sand subsidies.
During the 106th Congress, a provision was snuck into WRDA 2000 approving the world’s most expensive beach project, $1.8 billion for Nags Head, Kitty Hawk, and Kill Devil Hills in North Carolina’s Outer Banks. This 15-mile stretch of beach is one of the most highly eroding beaches along all of the Atlantic Coast. To compensate, the Corps will have to rebuild one-third of the beach every year repeatedly for the next 50 years. A cursory glance at any of the websites for the many real estate brokers in this booming county will turn up a half-dozen or more listings for $1 million beachfront homes for sale. The going rate for beach house rentals during the peak summer season is $4000 to $8000 a week. Obviously, these towns are not poor by any means.
Federal subsidy for beach projects is a relatively recent phenomenon. Federal subsidies for sand pumping projects were not very common before the 1980s, but in the last three years these projects have been consuming a rapidly increasing amount of the Corps’ construction budget. Many towns nourish beaches on their own without federal assistance, using hotel occupancy taxes or property taxes assessed on a home’s proximity to the beach. The State of Florida recently established an annual beach building fund.
Between the wealth of the beneficiaries and the proven alternative local revenue raising mechanisms, reducing the federal beach subsidy to 35% is common sense. Such a policy change will also discourage the more intensive development of high-risk coastal areas, which would in turn reduce federal flood insurance bailouts following hurricanes. Some states have sought to limit development of high-risk areas with only limited success. Despite zoning regulations in Florida that establish a “line of control” beyond which developers cannot build seaward, the state has issued developers more than 400 permit waivers in the last several years.
Many of these same points are made in a White House Office of Management and Budget memo to the Corps, which is very critical of a draft agency report that attempts to determine an optimal cost sharing formula for beach projects. We have included this OMB memo as an attachment this testimony.
Ultimately, beach erosion only becomes a problem when there are homes on the beach. Beaches naturally migrate, and they will always exist. It is just a matter of where the beach is and if it is in front of your house or rental house. Federal policies, including cost sharing for beach nourishment, ought to discourage irresponsible development in high-risk zones.
Some have concerns over whether cost sharing and even other reforms could negatively affect underprivileged communities. However, most likely the reforms in the Smith-Feingold-McCain bill would be a net benefit to poor and minority communities.
In the case of cost sharing reforms, Section 103(m) of the Water Resources Development Act of 1986 allows for cost sharing reductions on flood damage reduction projects down to as little as 5% for qualifying poor communities. In WRDA 2000, Congress extended the ability to pay rules to all Corps projects and directed the Corps to rewrite the qualifying rules and formulas. The Corps has not completed revision of these rules, and concerns regarding the impact of cost sharing upon financially strapped communities are best addressed through that process.
A significant benefit to disadvantaged communities and all stakeholders are the reforms in S. 1987 that call for greater public involvement in the project planning process, inclusion of adverse economic impacts of a project on a community in the benefit-to-cost analysis. Additionally, independent peer review would ensure that the voices of all communities are better heard and listened to by the Corps.
One of the worst cases of the Corps failing to take into account a project’s effect on a poor, minority community is the $715 million Inner Harbor Navigation Canal in New Orleans. This project lacks economic justification. In addition, there is evidence that the Corps used Enron-style accounting and cost-apportionment to add-on a hundreds of million dollar deepening element of the project, to benefit just one shipyard.
This lock replacement and canal-deepening project was first authorized in 1956 and has been vigorously fought by the surrounding poor African-American neighborhoods ever since. Concern over the Corps’ ignorance of the local residents in planning the project came to a head in 1991, when Congress directed the Corps to create a stakeholder advisory committee composed of local citizens from affected neighborhoods and to establish a mitigation fund to compensate those in the neighborhood who would have to suffer the extremely disruptive effects of seven straight years of construction.
However, despite this Congressional directive, the Corps has in many ways treated the local residents even worse by hiding critical facts from them about various aspects of the project.
In an off-hand remark to residents at a public meeting about the project, a Corps engineer mentioned that the canal was going to be dredged to 40-ft. The plan Congress approved only included designs for a 36-ft deep lock. Testing has shown that between 36 and 40-ft levels there are tons of toxic sediments, which now will be flushed out to Lake Pontchartrain, a popular swimming area for the children of the nearby neighborhoods. This additional dredging would also add tens of millions or more costs to the project to only accommodate a handful of additional ships.
The Corps also claimed for years that the project would actually reduce traffic congestion at the bridges that cross the canal because barges and ships would be able to move through the new lock faster. After close examination of the Corps’ plans, a local retired engineer discovered that the construction process would frequently cause several mile long backups for 45 minutes or more each day, creating a traffic nightmare for thousands of commuters trying to get to their jobs in the heart of New Orleans. Only recently at a public meeting did the Corps acknowledge that these traffic problems would be created and now pledge to investigate solutions. New solutions that could add another hundred million dollars or more to the cost of this already unjustified, over-budget project.
There are dozens of other cases where the Corps has ill-treated or just flat out ignored citizens who are not considered their project “clients” such as:
The Corps of Engineers has a vast influence over our nation’s waters, and its work affects millions of Americans. Many projects have had a positive effect, protecting countless lives from floods and bringing the fruits of midwestern farmers’ labor to the rest of the world. But there are also many projects that have had a significant negative effect on people’s lives, have harmed other industries and users of the nation’s waters who are not the Corps’ traditional “clients”, and most outrageously squandered taxpayer dollars on these activities.
At the root of so many of the agency’s problems is the belief that the local sponsor of a project is Corps’ sole client. What agency officials lose sight of when they promote a wasteful project is that the federal taxpayer is the primary client, and the majority shareholder of virtually all Corps projects.
The Army Inspector General went out of his way to highlight these concerns in his December 2000 report on the Upper Mississippi River project scandal:
Although this investigation focused on one study, the testimony and evidence presented strong indications that institutional bias might extend throughout the Corps. Advocacy, growth, the customer service model, and the Corps reliance on external funding combined to create an atmosphere where objectivity in its analysis was placed in jeopardy…The overall impression conveyed by testimony of Corps employees was that some of them had no confidence in the integrity of the Corps study process.
The Corps has certain expertise and resources that can greatly assist local communities in building something they would not be able to do on their own. But the agency is accountable to the nation as a whole, and its mandate is to pursue a civil works program that will benefit the overall national economy and welfare of its citizens.
Unfortunately, the Corps has failed to remember that it serves the American taxpayer. Therefore, it is imperative upon Congress to enact real Corps reform this year. In fact, no Water Resources Development Act should pass without reform. At risk is the public’s confidence in the Army Corps of Engineers and any hope that Congress can restrain itself from ever-escalating pork barrel spending, even in the midst of the a very expensive and important war on terrorism.
TAXPAYERS FOR COMMON SENSE
The Construction Backlog
Taxpayers for Common Sense performed a detailed analysis of 285 projects in the U.S. Army Corps of Engineers’ “Known Active Construction Backlog” based upon a review of the FY02 Budget Justification Statements submitted to Congress by the Corps in support of the President’s budget request. The full construction backlog is currently $52 billion.
· There are 285 projects in the known active construction backlog – those projects that are funded in the Construction General account of the President’s budget request – which still require $28.1 billion to complete.
· The typical project in the known active construction backlog is only 24% complete (based on median rate of completion).
· 190 projects in the known active construction backlog are less than 50% complete and will require $22.3 billion more of taxpayer funds to complete.
· 60 projects – representing $4.6 billion of the known active construction backlog – provide a low economic return compared to taxpayer investment.
· 39 of these projects ($4.3 billion remaining balance) are less than 50% completed, with the typical project being 24% complete (based on median rate of completion).
· The Dare County Beach replacement project will cost $1.8 billion to maintain 15 miles of wide beach in front of four booming beach towns for the next 50 years. The Corps has estimated only a 27% return in net benefits (1.27 to 1.0 benefit-to-cost ratio), despite much uncertainty about the cost and ability of the beach to hold the sand for very long.
· 61 projects – representing $8.1 billion of the known active construction backlog – whose most recent economic analyses upon which the project was approved is ten or more years old.
· 30 of these projects ($4.4 billion remaining balance) are less than 50% completed
· The Corps has been relying upon a 1974 economic analysis as the basis for claiming justification for the $207 million Yazoo Backwater Pumping Plant, which is still only 5% constructed.
· 44 projects – representing $4 billion of the known active construction backlog – were authorized 16 years ago, however, the typical project is still only 39% completed.
· 25 of these projects ($2.4 billion remaining balance) are less than 50% completed.
· Completing the 25 high-priority projects as identified by the 2001 Inland Waterways Users Board Annual Report plus an estimated $60 million in annual major rehabilitation costs for renovating the 37 locks and dams on the Upper Mississippi and Illinois Rivers will cost $7 billion over the next 20 years.
· With annual revenues of only $100 million and a current $400 million surplus, there still will be a $1.1 billion shortfall for the Inland Waterways Trust Fund’s (generated from a $0.20 per gallon barge fuel tax) share of the inland waterways backlog.
· In recent years the Administration has budgeted a modest amount for sand pumping projects only to see Congress dramatically increase funding for beaches. In the last three years, beach funding has increased 60% while the overall Corps budget increased 9%.
· 35 projects – representing $6.3 billion of the known active construction backlog – were budgeted for in President Bush’s Fiscal Year 2002 Budget.
· Congress subsequently funded a total of 58 beach projects for construction and 48 studies of new beach projects, which if all are continued through to completion over the next several decades would cost taxpayers well over $10 billion.
Peter J. Sepp, Vice President for Communications
National Taxpayers Union
United States Senate Environment and Public Works Committee
On S. 1987, The Corps of Engineers Modernization and Improvement Act of 2002
June 18, 2002
Mr. Chairman and Members of the Committee, on behalf of the 335,000-member National Taxpayers Union (NTU), I am pleased to offer our support for S. 1987, the “Corps of Engineers Modernization and Improvement Act of 2002.” Although I am unable to attend these important hearings in person, and am aware that several colleague organizations will be providing testimony on this legislation, I am pleased to offer NTU’s own brief views on S. 1987.
Over the past several decades, taxpayers have witnessed a sharp decline in discipline as well as accountability in virtually every component of the federal budget process. Federal taxes are hovering at a postwar high in terms of their burden on the nation’s economic output, and thereby inflict huge “deadweight losses” on a private sector that is currently struggling its way out of an economic downturn.
In the past ten years alone, federal spending has grown nearly twice as fast as the rate of inflation.
Meanwhile, agencies continue to mismanage these funds with an astounding level of indifference. This year the Office of Management and Budget (OMB) gave “red lights” for fiscal recklessness to over half of the 26 federal departments in each one of the five categories used to evaluate them. For its part, Congress often shuns a more methodical merit-based appropriations process in favor of a politically-tilted patchwork of earmarks and open-ended authorizations. Last year, the Washington Post reported that House Members alone had requested nearly 19,000 earmarks totaling $279 billion in the spending bills before Congress, marking a three-fold escalation of the practice since 1995.
Few areas of federal spending seem more impacted by these trends than public works projects, many of which are undertaken by the Army Corps of Engineers. Members of the Committee and their staff, led by Senator Smith, are to be commended for taking such a systematic approach to addressing the accumulated defects of the water resources development spending process, through the Corps of Engineers Modernization and Improvement Act. Although this legislation cannot erase the fiscal perils of the past overnight, it could, if properly implemented and vigorously enforced, provide measurable and significant benefits to taxpayers.
Among the advantages we find most attractive are:
· A more vigorous cost-benefit analysis. A recent study by Congress’s Joint Economic Committee found that the cost to the economy of raising $1 in additional taxes for new federal programs is $1.40 – after factoring in the deadweight loss of consumer substitution, reduced private-sector activity, compliance costs, and government enforcement costs. Conversely, reducing government spending by $1 and returning that money to taxpayers will eventually yield $1.40 in overall economic benefits. Thus, the bill’s provision to “require Corps projects to meet benefits at least 1.5 times as great as the estimated total cost of the project,” is far more justified than the current “1:1” requirement. Indeed, the proposed “1.5:1” ratio ought to be the absolute minimum taxpayers expect for the dollars they send to Washington.
· A more rational review process. As the National Endowment for the Arts and the National Science Foundation have both demonstrated, a review process for federally-supported projects is no guarantee that tax dollars will be spent wisely. However, this legislation holds a better promise of success, by creating an Independent Review Board overseen by the Director of OMB, and operating within the Army Inspector General’s office. Equally important to avoiding past mistakes is the bill’s requirement for a “balance of expertise” among Board members, which will include economists and engineers.
· A push toward self-sufficiency. Federal taxpayers have long been threatened with spiraling costs associated with flood control and beach re-nourishment projects of parochial rather than national benefit. The legislation would encourage more state, local, and possibly private involvement in these particular projects – and perhaps lead to the termination of economically unsustainable projects – by reducing the federal cost “share” among them.
· A more visible “sunset.” Far too many federal construction programs take on a life of their own, especially when their systematic growth escapes the attention of Congress until billions of dollars are at risk. S. 1987 would help to address this problem in several manners, by de-authorizing projects that fail cost-benefit analyses, by restricting mission creep into areas such as school construction, and by encouraging de-commission of underused waterways. Obviously, de-authorizing a project does not ensure that it will be denied funding, but such a mechanism is helpful in highlighting expenditures of a lower priority.
No statutory legislation can promise to completely overhaul a fundamentally flawed budget process. In an ideal world, constitutional restraints on tax and spending increases, merit- and performance-based budgeting, more state and local responsibility for their own programs, and regulatory reform to promote privately-built and -maintained public works projects, would all be part of a comprehensive solution. However, the Corps of Engineers Modernization and Improvement Act of 2002 could serve as a solid bridge to take our nation toward this more fiscally responsible destination. Equally important, this bill could serve as a guide for policymakers seeking reform in other capital spending-intensive areas, such as transportation or federal office space.
For these reasons, the National Taxpayers Union strongly urges Members of the Committee and your colleagues in the Senate to support the Corps of Engineers Modernization and Improvement Act of 2002, and NTU looks forward to working with you towards the enactment of this critical legislation. Once again, I appreciate the opportunity to present our perspective on an issue that deserves a rightful place on Congress’s agenda.
 Projects by the Corps’ Northwestern Division were not included in this analysis because Budget Justification Statements for this division were not available on the Internet.
 Based upon $28 billion of the known active construction backlog (those projects listed in the Corps’ FY02 Budget Justification Statements, not including the Northwestern Division), $8 billion of inactive projects (those that even the Corps has determined are no longer economically justified, are no longer in the Federal interest, or are no longer supported by a local sponsor), approximately $16 billion in additional projects that have been authorized by Congress and projects in the Pre-construction Engineering and Design (PED) phase.