Good afternoon. I am Michael A. Leone, Chairman of the American Association of Port Authorities (AAPA) and Port Director of the Massachusetts Port Authority. Founded in 1912, AAPA represents virtually every U.S. public port agency, as well as the major port agencies in Canada, Latin America, and the Caribbean. AAPA members are public entities mandated by law to serve public purposes, primarily the facilitation of waterborne commerce and the generation of local and regional economic growth. I am testifying today on behalf of the 82 U.S. public port members of the American Association of Port Authorities.

AAPA commends you, Mr. Chairman, for calling this hearing to address the role of the U.S. Army Corps of Engineers (Corps) in meeting the nation’s water resources needs. This nation has been served well by regular authorizations of the Water Resources Development Act (WRDA), and returning this legislation to its biennial cycle will be of great value to the Corps, U.S. public ports, shippers and carriers and our trade partners throughout the world.

Today, I plan to highlight the role of ports in the U.S. economy; the status of our nation’s navigation system; the historic role of the U.S. Army Corps of Engineers in meeting the needs of U.S. ports; the need for enactment of a Water Resources Development Act of 2004; and ways to improve the nation’s deep-draft navigation system through more seamless partnerships between public port authorities and the Corps of Engineers.

ROLE OF PORTS IN U.S. ECONOMY

America’s port system comprises more than 100 public port authorities located along the Atlantic, Pacific, Gulf and Great Lakes coasts, as well as in Alaska, Hawaii, Puerto Rico, Guam and the U.S. Virgin Islands. This committee undoubtedly knows the value of ports and waterborne commerce to the nation’s economy. U.S. public ports provide the vital link for getting goods to the nation's consumers and transporting exports overseas. Deep-draft ports, which accommodate oceangoing vessels, move more than 95 percent of U.S. overseas trade by volume and 75 percent of U.S. overseas trade by value.

Every community in this nation is served by U.S. ports, as they provide gateways for a variety of exported commodities, including forest products, coal, corn and soybeans, iron, petroleum, steel, machinery and manufactured goods. In addition to linking U.S. products to the world community, ports enable U.S. consumers to enjoy a wide selection of imported products, such as automobiles, toys, athletic shoes and winter fruit. This flow of goods extends well across state lines, as each state relies on between 13 to 15 ports – on average – to handle 95 percent of its imports and exports.

This constant commerce has a major impact on the communities ports serve. Public ports are considerable contributors to the national economy, as well as state and local economies. Ports provide 13 million direct and indirect jobs, accounting for nearly $500 billion in personal income. U.S. ports contribute $743 billion to the Gross Domestic Product, as trade has increased over the past 30 years from 13 percent to 30 percent of U.S. GDP.

In addition to this positive effect on the national economy, ports generate significant amounts of revenue for federal, state and local governments. Ports and port users contribute approximately $200 billion in federal, state and local taxes. Of this amount, $16 billion is generated directly from U.S. Customs duty revenues on imported goods.

Ports also play an important role in economic development. The fast-growing cruise industry, for example, is enjoying robust demand for cruise vacations as nearly 8 million North Americans cruised in 2003, a 6.9 percent increase over 2002. Cruise lines now depart from 24 port cities and call on 48 ports in North America.

While maritime functions are certainly the most visible and traditional activities associated with ports, port authority activities may also include airports, bridges, tunnels, commuter rail systems, inland river or shallow-draft barge terminals, industrial parks, Foreign Trade Zones, world trade centers, terminal or shortline railroads, shipyards, dredging, marinas, and various public recreational facilities. Public ports also play a critical role in our national security, peacekeeping and humanitarian efforts around the world. In particular, ports support the mobilization, deployment and resupply of U.S. military forces.

Public port authorities also make substantial investments in the nation’s port and harbor infrastructure. In 2002, AAPA member port authorities invested more than $1.7 billion in capital improvement projects. Next year, port authorities will invest nearly twice as much as they did in 1995 ($2.2 billion vs. $1.2 billion), a rate of increase that closely matches the growth rate for containers moving through ports (see Figure 1). While state and local authorities have historically been responsible for land-side development, in the Water Resources Development Act of 1986 (WRDA’86), Congress enacted significant cost-sharing requirements for Federal navigation projects. Significantly, these require public port authorities to provide, among other things, half of the cost of feasibility studies and between 35 and 60 percent of the cost of construction for Congressionally authorized harbor navigation projects. WRDA’86 also permits non-Federal sponsors to undertake feasibility studies at full non-Federal expense or to contribute in-kind services in lieu of cash on Department of the Army-led projects. The full cost of Federal maintenance of harbor projects is funded by port and harbor users.

To keep goods and people moving through U.S. ports, the nation’s deep-draft navigation system needs to be well-maintained, and the system needs to be able to grow to keep pace with changes in the global shipping industry. The U.S. Marine Transportation System (MTS) is facing a number of constraints that hamper the system’s effectiveness, and, if not addressed, threaten U.S. economic and national security.

STATUS OF THE MARINE TRANSPORTATION SYSTEM

Demand on the MTS is growing. As I mentioned, 95 percent of U.S. overseas trade moves through U.S. ports. While total trade is expected to double over the next twenty years, the growth in container movements through U.S. ports is doubling every ten years. Figure 1 illustrates that the number of containers moving through U.S. ports next year will be nearly twice the number in 1995 (21 million vs. 11.4 million). The exploding demand for containerized transportation is not only driving the doubling of investment in land-side infrastructure by port authorities, but ocean carriers are also responding to the increased demand for their services by building larger and larger vessels.

Currently, there are about 60 post-Panamax ships in service, and several worldwide shipping industry consulting firms are reporting that more ocean carriers are placing orders for ships that exceed this size. For example, Drewry Shipping Consultants, Ltd., reports that there are 15 vessels of 8,000 TEU capacity that will enter the global shipping fleet this year, with an additional 20 more to follow in 2005. The construction of post-Panamax size container ships reflects the dramatic increase in total industry capacity, which will grow by approximately 60% per year to 1.1 million TEUs by 2007. The average draft of current post-Panamax ships is 42.9 feet. The largest ships have drafts of about 45.5 feet, which require channels that are at least 50 feet deep. The growth of these container vessels will require deeper navigation channels, which will require significant contributions from both the federal government and local project sponsors.

Port expansion to handle the exploding trade is straining the capacity of port communities. Congestion at freight terminals is growing, as motor carriers and rail companies are struggling to keep up with the cargo moving through ports on increasingly larger vessels. Port authorities and the Corps of Engineers are finding it increasingly difficult to plan, construct and maintain needed improvement projects. Port authorities understand their responsibility to develop sustainable projects, and a substantial cost of all port and harbor projects is for environmental mitigation or enhancement. AAPA encourages the development of multi-objective port and harbor projects consistent with Congressional cost-sharing authorities.

Dealing with the physical pressures and financial constraints on the nation’s transportation system is the challenge this committee is called to address. Our nation’s deep-draft navigational system is at a crossroads, and its future has the potential to be bright or to be bleak. The Corps has a key role to play in this process, and the direction the Corps is given by Congress in WRDA legislation will be critical to the future of the MTS.

ROLE OF THE CORPS OF ENGINEERS

Throughout its 200-plus year history, the Corps has been charged with providing quality, responsive engineering services to the Army and the nation. Since 1802, the Corps has focused on managing the nation’s water resources effectively. Traditional work done by the Corps has focused on navigation, flood control and irrigation. Creating channels for shipping and transportation, as well as maintaining those channels, has been an activity for the Corps throughout its history.

Since the 1970s, the Corps’ mission has expanded to include environmental restoration and protection, recreation, and water supply. While these new missions are also served by other Federal agencies, only the Corps of Engineers is charged with designing, building, and maintaining the nation’s navigation system. Even while the Corps’ mission areas have increased, funding for the Corps’ Civil Works Program has decreased by 50 percent in the last 30 years and now stands at roughly the same level it was around 1960. The Corps’ primary responsibility to the nation must be to keep navigation channels open and navigable for the transportation of people, goods and military needs. As funding for the Corps continues to be restrained, AAPA urges this committee to ensure the Corps’ navigation mission receives your highest priority in this year’s WRDA bill.

Construction and maintenance needs of the nation’s deep-draft navigation system are not being met. Ongoing, budgeted construction projects have not been completed, due to the low funding levels being allocated for Corps’ civil functions. The President’s proposed fiscal year 2005 budget would reduce deep-draft project construction funding by more than $40 million compared to the fiscal year 2004 enacted level. AAPA estimates that deep-draft projects need approximately $500 million for construction in FY05, more than double the President’s proposed funding level. As shown in Figure 1, spending by the Corps of Engineers on deep-draft navigation is barely higher than ten years ago ($929 million vs. $755 million), and clearly not meeting the challenge of a doubling in container volumes during that period or keeping pace with the investment of public port authorities.

Operations and maintenance (O&M) funding is also struggling to keep pace with the navigation system’s needs. For fiscal year 2005, the Administration has proposed $600 million for O&M, well short of the $735 million needed to address the needs of the nation’s deep-draft navigation system. This shortfall in funding is especially frustrating to ports, as there is a dedicated source of O&M funding that is not being used to its full potential.

The Harbor Maintenance Trust Fund (HMTF) is a repository for funds collected by the Harbor Maintenance Tax. Funds in the HMTF are dedicated toward funding the federal share of O&M costs associated with maintaining the nation’s deep-draft navigation channels. However, the use of the tax for other purposes is increasing at an alarming rate. The Administration’s recent budget request estimates that the surplus in the HMTF will grow to more than $2.6 billion in fiscal year 2005, more than four times the level in 1995 ($626 million). At the rate of spending outlined in the Administration’s request, the HMTF surplus will likely reach $5 billion by the end of the decade (see Figure 1).

ENACTING WRDA 2004 There is a critical need for Congress to move forward on WRDA this year. As I stated earlier, local port agencies rely on the authorization of studies and construction to make needed improvements to the nation’s deep-draft navigation system. AAPA urges the Senate to pass WRDA in 2004 to allow our nation to reap the economic benefits of increased trade. Attached is a letter of support for quick action on WRDA signed by 33 port directors.

Since the passage of WRDA’86, Congress has worked to reauthorize this legislation on a biennial basis. Its regular reauthorization is critical in enabling U.S. port authorities to plan needed studies of, and improvements to, the nation’s deep-draft navigation system. The last WRDA was enacted in 2000, and on behalf of AAPA, I urge this Committee to move forward on reauthorization of this law expeditiously. Further delay in authorizing vital navigation projects will increase the cost of navigation projects, create uncertainty for U.S. ports in business planning, and negatively impact the flow of commerce through port communities all across the nation.

With WRDA 2004, this Committee can significantly refocus water resources policy in this nation, making this legislation as important to water policy and the work of the Corps as WRDA ’86 was and continues to be. To that end, AAPA has a number of specific recommendations regarding water resources policy and Corps modernization that I urge this Committee to consider as it moves forward on WRDA.

I would first ask this Committee to address the growing surplus in the Harbor Maintenance Trust Fund (HMTF). The Harbor Maintenance Tax, levied on imports and domestic cargo, contributes a significant amount of revenue to the HMTF each year, and as trade continues to increase, the contributions to the HMTF are growing. While these funds are dedicated toward maintenance of federal navigation of channels – specifically through dredging – their utilization has not kept pace with their collection or with the maintenance dredging needs at ports.

Operations and maintenance needs on the deep-draft navigation system are not being met. Rather that allowing the HMTF surplus to continue to grow unchecked, AAPA urges Congress to better utilize these funds for their intended purpose. Specifically, I urge this Committee to authorize guaranteed funding of the HMTF, ensuring that the funds collected are spent, similar to the treatment of the Highway Trust Fund.

Additionally, AAPA believes that local sponsors are providing a greater share of the cost of navigation channel deepening projects than Congress expected when it mandated cost sharing in 1986. AAPA recommends that Section 101 of WRDA’86 be amended to revise the definition of deep-draft harbor and the cost-sharing formula to reflect the changes that have occurred in the general cargo fleet.

AAPA also urges this Committee to consider seven proposals to modernize the Corps of Engineers, improve its relationship with local sponsors of deep-draft improvement projects and more efficiently manage the water resources of this nation:

· Partnership Agreements. AAPA believes there are fundamental disparities in the partnership relationship between the Corps of Engineers and local sponsors that should be corrected. AAPA recommends that WRDA’86 be amended to reference partnership agreements and that the process of negotiating and implementing agreements be improved.

· Credit for In-Kind Work During Construction. AAPA recommends adoption of a provision allowing local sponsors credit for in-kind services during construction of a project.

· Port and Harbor Dues. AAPA believes that ports should have broad authority to levy fees for raising the local share of Federal dredging projects. AAPA believes common law and precedent provide this authority, but that Section 208 of WRDA’86 severely limits this ability. AAPA recommends that all of Section 208 be replaced by a general authority restating the common law principle that ports can assess fees to recoup the cost of their services.

· Utility Relocation. AAPA believes that the Corps should exercise its authority under Section 10 of the Rivers and Harbors Act and/or its navigation servitude powers to direct the removal and/or relocation of utilities within navigation channels. AAPA recommends that Section 101(a)(4) of WRDA’86 be deleted, and that report language should express Congress’ view that the Corps should exercise its existing authority to direct the removal and/or relocation of utilities within navigation channels at 100% owner expense.

· Indemnification. Because many ports are prohibited by state anti-deficiency laws from providing indemnification to the Federal government, AAPA recommends that Section 101(e)(2) of WRDA’86 be deleted. AAPA could support alternative language that would allow for the purchase of indemnification insurance for both the Federal government and the local sponsor as an allowable project cost.

· Local Sponsor-Initiated Projects. AAPA believes the procedures for local sponsor-initiated projects should be streamlined. AAPA recommends that Sections 204 and 205 of WRDA’86 be amended to allow for: (1) the reimbursement of projects which are constructed by the local sponsor without prior approval by the Chief of Engineers and authorization by Congress; and, (2) the assumption of maintenance by the Corps for such projects.

· Corps Dredge Fleet. AAPA urges Congress to enact policies that will ensure adequate capacity and the availability of dredging equipment to meet dredging needs. Specifically, AAPA urges Congress to direct the Corps of Engineers to analyze the costs and benefits of existing and proposed restrictions on the use of the Corps’ hopper dredge fleet. Congress should allow the Corps fleet to operate unconstrained by statutory and administrative restrictions for a specified period of time so an accurate assessment of the fleet’s true costs can be determined.

The U.S. House of Representatives passed a WRDA bill, H.R. 2557, on September 26, 2003, which included a number of the recommendations discussed above as well as several Corps “reform” provisions. We believe that the House’s Herculean effort last year strikes an appropriate balance on these Corps reform issues, and we urge the Senate to not reopen these issues as it considers WRDA this year. AAPA believes that if included in a WRDA bill, these policy recommendations will significantly improve the efficiency and effectiveness of the Corps and of the U.S. deep-draft navigation system. Further delays in authorizing projects and in clarifying important Corps of Engineers policies will add unnecessarily to the cost of projects and defer much-needed transportation cost savings, job creation and economic development in communities across the country.

BEYOND LEGISLATION: SEAMLESS FEDERAL-PORT PARTNERSHIPS

While AAPA believes that legislation is necessary to make important changes to the way that the Corps works with its local water resources partners, we are also working in other ways to improve our industry’s partnership with the federal government. Specifically, AAPA has recently launched a Quality Partnership Initiative (QPI) to positively affect the dialogue between U.S. public port authorities and the Corps. The QPI involves several major elements, including seeking the legislative changes discussed above, developing a project performance evaluation system, the development of a best practices database, and focused training and technical and policy support.

Last week, at AAPA’s Spring Conference, I signed a Memorandum of Understanding (MOU) with Assistant Secretary of the Army for Civil Works John Paul Woodley. This document sets forth a series of shared principles of our two organizations, and it dedicates both parties toward increased communication on formal and informal projects that move these principles forward. Specifically, AAPA and the Secretary’s office recognize the unique nature of being cost-sharing partners, the common mission to facilitate commerce through ports and harbors and the importance of developing cooperative projects, resolving disputes early, and finding innovative and mutually beneficial solutions to problems.

As part of AAPA’s upcoming Harbors, Navigation and Environment Committee Seminar this May in New Orleans, we will hold three half-day workshops on several critical QPI-related topics, including project cooperation agreements and project coordination teams, performance measures for Corps of Engineers projects, and strategies for assessing, remediating, and reusing contaminated properties and waterways. The public port industry recognizes that critical challenges face us, and we are ready to offer our services to find solutions.

CONCLUSION

In conclusion, Mr. Chairman, there is a significant opportunity for this Committee to refocus the water resources policy of this nation with passage of WRDA 2004. AAPA looks forward to working with this Committee to modernize the Corps of Engineers and address funding shortfalls for the development and maintenance of the deep-draft navigation system. The benefits of our cooperation and dedication will be increased trade, meaningful economic impact on communities all across the country and more jobs for hard-working Americans. AAPA appreciates your leadership on behalf of the U.S. port community. This concludes my testimony.