Coal Age

FEB 2012

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inland waterways continued rently far too much of those meager revenues are being sucked up by just one project: the infamous Olmsted Lock and Dam. Olmsted Lock and Dam: Boondoggle on the Ohio The Olmsted Lock and Dam construction project is actually two pro- jects at once. One is the actual construction of the new locks and dam, but also the phasing out of the busy locks 52 and 53. Located just up-stream of the confluence of the Ohio and Mississippi at Cairo, Ill., Olmsted replaces these older dams with the one new one. "It's just become an enormously expensive proposition," said Toohey. In 1988, Congress authorized the Olmstead project at $775 million for a 12-year construction period. Because of the cost sharing formula for the initial funding authorization, about half of the cost was to come out of the IWTF, roughly $387 million over those 12 years. "What that worked out to was about $32 million a year spread over 12 years to come out of that fund for one project. But the fund is still sup- posed to fund all of the major projects on all the locks and dams on all the rivers in the U.S.," Darling said. However, the Olmsted project quickly fell behind schedule. After spending more than $1.3 billion so far, there continue to be problems, delays, and more delays. Over this time, Olmsted's project cost has ballooned to more than $2.1 billion. And now, instead of a 12-year project, it will take at least 26 years to complete. Worse for the IWTF, "using the same cost sharing formula, 50% or $1.05 billion will come out of the fund. That's $40.3 million per year for at least 26 years. And the sad part is, the Corps says it doesn't think it can meet that. So Olmsted is going to be higher in cost than even this and it's going to be a longer timeline to completion. The business model for financing our navigation infrastructure just isn't working," Darling said. There's a growing sense of frustration and almost helplessness in the industry because no other projects can be prosecuted or imple- mented until Olmsted is back on schedule or completed—or the rules are changed. "We're very concerned because the project is com- manding all the money for this modernization build out, even though we have 25 other authorized projects. That's more than $8 billion of backlogged work that we can't get to because of the priority Congress has established for the appropriation of funds," said Toohey. So in essence, as those contractors fritter away the time, and increase the price of the project, Congress has put all other major waterways projects on hold. "In its defense, Olmsted has great ben- efits. It returns $8 back to the community for every dollar invested. It's a good project, but it's just become an enormously expensive project. That's probably because of the use of experimental engi- neering technology. They are trying to build a dam in the wet rather than use traditional structures," said Toohey. Then again, the other projects on the drawing boards would gen- erate lots of revenue and jobs as well. "In the short term we have $8 billion of family wage construction work being held up. The Corps fig- ures 30,000 jobs per every $1 billion spent, so that's 240,000 jobs. Those projects are already authorized, but we need federal funding," said Toohey. The majority of them will be located along the Ohio. Just as importantly, modernization of the waterways will attract more investments along it, and thus more jobs. "Facilities that are located along the waterways, precisely because of their ability to transport goods in a reliable, efficient and environmentally friendly manner, are now in jeopardy, especially new build outs. "Shell Oil Co. stated it wants to locate a plant along the Ohio River. It has announced that it will either be in Ohio, West Virginia or Pennsylvania to take advantage of the crude oil production in the Marcellus shale gas. With the multiplier effect factored in, they esti- mate this plant, including construction, will create another 17,500 jobs," said Toohey. Solutions to Difficult and Expensive Problems In an effort to try to fix this failing model, a group of industry stake- holders including the Coast Guard, the Waterways Council and oth- ers sat down and hammered out a plan. Titled the "Inland Marine Transportation Systems Capital Projects Business Model," the plan "would allow us to complete 25 projects in a 20-year period as opposed to seven projects over a 20-year period if we go down the current path. And I have serious doubts that they'll even be able to accomplish the seven projects at the pace they're going," said Darling. The new plan provides for additional revenues for the trust fund, it re-prioritizes the nation's investments, and recognizes and accounts for all the beneficiaries of the water systems, and "it pro- tects commercial users that cost-share the construction projects," said Darling. The development plan has five elements. The first is to increase Federal funding for the program from the current $160 million a year to $380 million. Second, it suggests a way to prioritize the projects so that those that are ready to go and provide the most benefit would be funded first. Third, it proposes reforming the core project delivery process that now takes 40 years to achieve "what we used to be able to achieve in four years. And finally, it proposes to increase the current diesel fuel tax of $0.20 a gallon to $0.69 a gallon to help pay for these projects," said Toohey. Indeed, the waterways users would "volunteer to pay more money for an increased fuel tax," said Toohey. Stakeholders hope that by tak- ing a page out of the Warren Buffet playbook and showing a willing- ness to increase their collective exposure, maybe the government will follow suit. But so far, as the Great Recession wanes on, Congress' reception has been decidedly mixed. "Members that understand the importance of investment and infrastructure support it and those that are just, 'no new taxes,' of course oppose this," said Toohey. While industry is prepared to raise its stake, the only thing that can really save the existing system are more Federal funds. "It really is going to take convincing Congress that we need more infrastruc- ture investment. This is not a discussion about raising taxes. It's about having the resources to invest so that our economy can thrive. Congressman Ed Whitfield (R-KY) has agreed to be a champion for the proposal in House of Representatives. For the sake of the Inland Waterways system and to maintain the health and viability of our nation's industrial heartland, we need to pass the Whitfield bill," said Toohey. 40 www.coalage.com February 2012

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