24 Transportation Research Record 763 the zone's operating expenses may be minimal. On to correct this problem is to sponsor seminars on the other hand, it is obvious that a zone cannot the many advantages of foreign-trade-zone use. survive on tenants that have only occasional storage Another is to prepare an illustrated presentation and distribution requirements. At least one that can be given to local business groups. high-quality tenant is needed if the zone is to Perhaps the most effective means of locating and succeed financially. A high-quality tenant attracting tenants is through concentrated research represents a permanent fixed enterprise that can and door-knocking by the zone representatives. For make a substantial contribution to the zone's fixed instance, meetings with banks, customs brokers, and operating expenses. cargo carriers will often result in ideas for trade There is a chicken-and-egg relationship between zone applications and industry contacts. Research the quality of the tenants that are attracted and information on imports and exports to and from the the financial success of the zone. Although the economic hinterland of the foreign trade zone can be grantee is discouraged by the board from showing a obtained from the New York Journal of Commerce and profit from the zone's operations, there must be the U.S. Bureau of the Census. A sample of a recent adequate income to support capital improvements, census data run is given in Table 3. This utilities, staff, and promotional activities. The information will prove useful in identifying greater the number of high-quality tenants, the potential zone users. higher is the income available to improve facilities When grantee-operators do not have an adequate and conduct promotional activities. These expendi­ staff to conduct complete and ongoing tenant tures, in turn, attract even more tenants. solicitation, there are a number of specialized A variety of steps can be taken to market a consultants who can undertake the necessary work on foreign trade zone and make it attractive to behalf of the grantee. potential tenants. First, it is essential that the zone be well managed and free of political HOW TO RETAIN TENANTS interference. Nothing is more discouraging to a businessman contemplating a long-term investment Finally, it is important to retain tenants once they than the prospect that a change in the political have occupied the zone, either with products in winds will alter the conditions on which the storage or with manipulation or manufacturing investment decision has been based. This processes. Tenants, like customers everywhere, will contributed to the failure and revocation of the stay where the service is good and the prices are grant for the Mobile, Alabama, zone. reasonable. Some zones have complained that their In addition, the facilities should be clean and tenants have been pirated or stolen by other functional. Since a high-quality tenant may locate competing zones, and as a result the zones have equipment and staff within the zone, the facilities become very secretive about their tenants and their should be equal to those the tenant would have operation. This type of defensive activity only chosen at a location outside the zone. detracts from a zone's main concern, that of The grantee-operator should have a professional providing superior service. It is virtually staff and, where appropriate, directors or governors impossible to pirate or steal tenants who are happy with recent successful business experience. The with the service they are receiving. staff should be oriented to providing service and should understand and be sympathetic to the profit CONCLUSIONS motive of the tenants. If a new zone grant has just been granted and the Foreign trade zones have a bright future in the grantee is seeking its initial tenants, coming decade and can serve as a real asset to concentration should be placed on the firms ana their hinterlands. However, success in providing the letters of intent as well as on any foreign-trade-zone operations is not automatic and leads from the feasibility survey, both of which is in fact a direct function of the number and were a part of the application process. Individual quality of the tenants. Zones that achieve their visits to potential tenants by the zone staff are goals of attracting new economic activity will be essential. If necessary, incentives, including those that have understood the concept of service in state and/or city tax breaks, should be used to attracting and sustaining their customers, the influence high-quality tenants. tenants. The grantee-operator may find that it is necessary to conduct an extensive educational program. Many potential tenants are not aware of Publication of this paper sponsored by Committee on State Role in Waterborne the possible uses of a foreign trade zone. One way Transportation.

Financing Inland Development

JAMES H. KELLOW

The financing of future port facilities will require agressive marketing efforts Many studies, including the recently completed as a basis for developing creative financing strategies. The various types of ~iid-America Ports Study {]J, point to the funding for development-federal, state, regional, and local-are significant benefits that accrue to local outlined. It is concluded that, because of the wide range of requirements for communities and private firms from port development public funds and future prospects for a reduction in available resources at all as well as the future need for additional facilities levels, future inland port development will be largely in the hands of private on the inland waterways system (as referred to in entrepreneurs and that a sound, integrated public-private financial plan will be the study, Mid-America consists of Alabama, a necessity in the 1980s. Arkansas, Illinois, Iowa, Kansas, Kentucky, Transportation Research Record 763 25

Louisiana, Minnesota, Mississippi, Missouri, addition, the lack of an immediately identifiable Nebraska, Ohio, Oklahoma, Pennsylvania, Texas, West benefit may affect local funding. In the case of Virginia, and Wisconsin). Projections in the study the Louisville and Jefferson County Riverport indicate that by the year 2000 cargo will exceed Authority, we are fortunate that Jefferson County, existing port capacity by almost 700 million tons Kentucky, has guaranteed the initial $6. 5 million annually. bond issue used to acquire the property for the port The capital investment needed to accommodate the complex as well as annual operating expenses. forecast growth is projected to be $9.5 billion. This money will provide more than 1000 new port STATE GOVERNMENT SOURCES terminals, on more than 100 miles of waterfront and 11 000 acres of land, plus additional acreage for industrial facilities that will be served by these terminals. This is the investment required for new To varying degrees, states have established agencies port development and does not include funding for to help in developing their states' port potential modernization to existing facilities. (}) . Some states have established centralized Historically, ports on the inland waterways agencies that plan, finance, and operate local system of the United States developed and grew ports; others essentially provide a source of either because of the location of a major firm that capital financing and, once the port has been built privately funded river shipping and related established, are not involved in providing operating facilities or because a state or local community subsidy; others fund both capital and operating provided public shipping facilities as part of its needs; and still others have limited, if any, real industrial development program and encouraged firms involvement. Space does not permit a detailed to use them. discussion of each state's activities, and so I have My own experience has convinced me that there is restricted my comments to the state of Kentucky (!). no one best way, no pat formula, that could be used Kentucky is committed to the development of river by all communities to develop and finance a new port ports. As a part of that commitment, in 1966 the or expand an existing facility (±_). On the state created the Kentucky Port and River contrary, basic developmental and financial Development Commission to aid in the promotion and considerations for the port planner are dictated by development of river-related industry, agriculture, the local community's relationship to the regional and commerce in the state and to aid in the and national transportation system, local promotion and development of local port competitive industrial location advantages, as well authorities. The commission consists of the as local community, state, and private investor Kentucky Commissioner of Commerce, the Secretary of attitudes toward port development. the Cabinet for Development, and five citizens The attitudes and commitment of a local community appointed by the Governor. toward port development will involve political, This commission is the main agency of Kentucky social, and economic considerations. Of course, the state government to which local Kentucky ports look same may be said about state, regional, and federal for capital investment funding. Only funding for funding sources. Private funding sources will nonoperating purposes is provided. Based on the certainly be conscientious about the political and recommendation of the commission, funds are social climate, but the private sector's investment appropriated every two years by the state decision is more economically oriented. legislature and allocated by the commission to As we move into the 1980s, the trend is toward specific Kentucky port authorities. fiscal conservatism, and no single unit of To date, the commission has helped to establish government may be capable of financing port local ports in Louisville, Paducah, Owensboro, development. Rather, the successful port Henderson, Eddyville, Hickman, Maysville, Ashland, development or improvement project in the future and northern Kentucky. The largest of these is will probably be the project that has a sound, Louisville, with more than 1600 acres of property. integrated financial plan that includes limited Grants amounting to $17. 5 million have been made to public funds from a variety of sources to provide Kentucky ports. Louisville has received $1.6 leverage for private investment. million from the commission and has requested This paper briefly discusses possible funding another $6 million during the next two years, in sources that a local port might consider in addition to state highway funds of $2.7 million. preparing an integrated financial plan. The philosophy of the Kentucky Port and River Development Commission is that the funds represent LOCAL GOVERNMENT FUNDING seed money to help obtain capital from other public and private sources. Total funding for a specific Local government funding for a port may take the project is not contemplated. form of revenue bonds for the acquisition and/or Local participation in the project is development of the facilities. Other potential particularly important in the commission's local contributions may include the grant of funds allocation decision. Grants to a local port are or existing owned land or facilities, the annual based on the justification submitted by the local payment of operating expenses, or a combination of port for capital expenditures and the project's such funding. economic impacts and benefits compared with those of The usual reason for such commitment at the local other projects in the same location or different level relates to providing additional local jobs and locations. No funding is provided to any port where tax base. Therefore, the community attitude toward economic feasibility has not been determined. growth and industrial development, the existing Although there are several state agencies in financial condition, and the extent of need for Kentucky that provide funds to assist local ports, other public expenditures by the local governmental requests for all such funds are channeled through unit will play a large part in the decision of the the commission. This allows a consolidation of amount and type of local funding support made expenditures for ports in one state agency and also available for the port development. Because most aids the local ports by reducing the coordination local governments have more identified needs than and red tape that are required. In addition to financial capacity, the amount of financial aid they funding, technical assistance is also available from can provide to any one project is limited. In the commission's professional staff. 26 Transportation Research Record 763

It should be mentioned at this point that, bonds. These bonds may be backed either by a pledge although the state of Kentucky and many other states of anticipated revenue by the port or a pledge of heavily support the development of ports, present the use of port facilities by one or more private federal-state cost-sharing proposals being firms (2_) • Such bonds can be used to fund a wide considered for locks and dams and other waterway range of facilities and can provide significant improvement projects may restrict greatly the revenue for a port's growth and development at the ability of states to provide continued heavy support time of actual demand for such growth. for future local port development. Many currently programmed port projects are planning to use the latter funding method. In many cases, this is the safest method for the port in that the specific project must stand on its own. It Loans can be obtained for port facilities through also requires the least commitment from a public the Kentucky Development Finance Authority, an agency to pay off the debt. independent state agency. The agency's purpose is Other possible funding methods that should be to promote and aid the development of industrial, considered are lease and lease-purchase plans. Such manufacturing, commercial, and agricultural plans might provide for a year-to-year, renewable enterprises. It was established in 1958 and is lease with an option agreement that allows controlled by a board of 14 members appointed by the termination at the end of any given year should Governor. Its funds are obtained from legislative funds not be appropriated for the future year's appropriations and from borrowing from state lease payment. Ownership of the item may be assumed employee pension funds. Qualifications for a loan at the end of the full lease. Third-party financing are very similar to those for loans from private should be considered when a facility is built by an financial institutions. Loans are available to operator or a subsidiary of the engineering firm local development agencies, including ports, and to that designed the facility. The third-party concept private firms on a participation basis. is particularly useful when there are several Industrial revenue bonds have been permitted facility users, none of which has sufficient demand since 1950 in Kentucky. In addition to the Kentucky to justify the financing. In addition, local ports Development Finance Authority, any city, county, or and communities may issue bonds backed by private local port authority is authorized to issue firms to finance pollution control facilities. industrial revenue bonds. Further state sources of specialized funding for SUMMARY AND CONCLUSIONS private firms, other than that allocated by the legislature, are the Business Development From this brief discussion, it is obvious that, in Corporation of Kentucky, the Kentucky Highlands Kentucky (and, in my opinion, in all states), if the Investment Corporation, and Equal Opportunity economic justification for a port exists and a Finance, Inc. In addition, the Kentucky Pollution community wants it, the funding sources exist to Abatement Authority may issue bonds for a firm's help to make the port a reality. The real decisions pollution control facilities. facing the local community are in preparing its strategy for port development and financial REGIONAL FINANCING PROGRAMS marketing. In these decisions, such factors as the environment, the need for related public facilities There are funds available to local communities from such as roads and schools, the local labor force, regional sources such as the Appalachia Regional the ex is ting economic base, and the size and Commission and the Ozark Regional Commission. geographic location of the community must be However, since the main sources of funds for such considered. One of the most important decisions is commissions are state and federal, the future level the degree to which the development strategy will of such funds may be limited, and a direct rely on public revenue versus private funding. allocation to a port from a state or federal source In light of the wide range of local requirements may provide a greater level of support. for public funds and the future prospects for Nevertheless, if funds are available, they should be reduced state, regional, and federal help, it is pursued. probable that future port capital development will be accomplished primarily with private funds or FEDERAL FINANCING PROGRAMS publicly issued bonds backed by leases or the credit of one or more private firms. Therefore, although The principal source of federal funding for port the acquisition of water-oriented land and basic development is the Economic Development infrastructure development such as roads, water, and Administration (EDA). Other federal agencies that sewers will probably always require at least some have provided grants to ports include the Maritime public financing, the future development of inland Administration, the Office of Coastal Zone ports appears to be largely in the hands of private Managment, the U.S. Department of Transportation, entrepreneurs. We all know that competition for the Law Enforcement Assistance Administration, the private development capital is very keen. The Sea Grant Program, the U.S. Department of financing of future port facilities will thus be Agriculture, the Farmers Home Administration, and directly related to how successful we are in our the Environmental Protection Agency. marketing programs. As we all know, competition for grant money is The strategy of the local port authorities of the very keen. Therefore, the use of a skilled future is likely to be that suggested in the "grantsman" is almost mandatory. A grantsman helps Mid-America Ports Study: develop a master plan for to alleviate much of the frustration for port the port complex and the adjacent waterfront and planners and to shorten the time between a request encourage the private sector to plan and construct for funds and approval. Such skilled help has been facilities in accordance with the port master plan. provided by Jefferson County. REFERENCES INTERNAL PORT FUNDING 1. Tippets-Abbett-McCarthy-Stratton. Mid-America A local port may use its own retained earnings or, Ports Study. U.S. Department of Commerce, Vol. where permitted legally, issue its own revenue 1, June 1979. Transportation Research Record 763 27

2. R.D. Dean and J.H. Kellow. Inland Devel- dustry. Kentucky Department of Commerce, Frank­ opment Strategies. American Industrial Develop- fort, 1978. ment Council Journal, Vol. 8, No. 2, April 1973. 5 . L. K. Barba. Port Financing: Tax-Exempt Financ- 3. J. L. Hazard. The Public Role in Port Develop­ ing with Bond Issues. World Ports, Jan.-Feb. ment. National Transportation Policy Study Com­ 1979. mission, Washington, DC, Working Paper 3, Aug. 1979. Publication of this paper sponsored by Committee on State Role in Waterborne 4 . Financing Methods for Kentucky Business and In- Transportation.

Economic Feasibility of Transporting Western Coal on the New York State Barge Canal System

JAMES E. VITALE

The results of a comparative economic study of the feasibility of transporting western coal to New York State utilities via the western coal to New York State utilities via the barge canal system are pre­ canal system. This methodology consisted of four sented. Three coal-supply regions are delineated: southwestern Pennsylvania major components, each of which is discussed in this and northern West Virginia, Wyoming, and Montana. Site-specific projections paper: of potential coal consumption developed for coal from each region are pre­ sented. A costing framework that includes all unit operations in the mine-to­ stack coal-use cycle is used in making economic comparisons of the use of the 1. Three coal-supply regions were delineated: three coals at new generating stations. This framework is designed to account southwestern Pennsylvania and northern West Virginia for major expenditures that vary as a function of the characteristics of coal (coal A), northern Wyoming (coal B), and Montana quality, including (a) extraction costs, (b) distribution costs, (c) flue-gas-desul­ (coal C) . There are major differences in physical furization system investment and operating costs, and (d) balance-of-plant in­ characteristics and free-on-board (FOB) mine prices vestment expenditures. The methodology is applied to a comparison of the for coals produced in these regions. Moreover, economics of using the three coals at a future mid-Mohawk River Valley gen­ northeastern utilities either use or have considered erating facility. using coal produced in these areas. 2. Site-specific projections of potential coal In recent years, commercial traffic on the New York consumption (for coal from each region) were de­ State barge canal system has steadily decreased. To veloped. These estimates were derived from the an­ ascertain the causes of this decline and estimate nounced plans of New York State utilities (_!) and future traffic volumes, the New York State Depart­ interviews with personnel of the New York State ment of Transportation engaged Roger Creighton As­ Public Service Commission. sociates, Inc., to conduct a market study of the 3. A costing framework that included all unit canal system. Cargo potentials and transportation operations in the mine-to-stack coal-use cycle was cost savings resulting from the use of the canal developed and quantified. Since this analytic con­ were estimated for two situations: (a) continued struct was to be used to compare the economics of operation of the existing facilities and (b) opera­ using alternative coals at new generating stations, tion of an improved and modernized canal that could it was designed to account for all major expendi­ accommodate larger barges and tows. tures that vary as a function of coal quality. A major component of the market study was an as­ 4. '£his framework was applied to all potential sessment of the economic feasibility of transporting supply-demand pairs, and estimates of future western western coal to New York State utilities via the coal traffic on the canal system were made. Ra­ canal system. It was felt that emerging federal tional economic behavior on the part of potential policies on energy resources and environmental qual­ coal consumers was assumed; that is, it was assumed ity might create pressures for increased use of that the source of coal supply and the transporta­ western coal in the state. This potential demand tion mode or route configuration for which total an­ for western coal, coupled with the construction of a nual costs would be lowest would always be chosen. proposed transshipment facility at the Port of Buf­ falo, might in turn lead to significantly increased COAL-SUPPLY REGIONS traffic on the canal system. Thus, western coal was considered to be the bulk commodity that had the For the purposes of this inquiry, one eastern and greatest potential for large-volume, long-term ship­ two western coal-supply regions were delineated. It ment via the canal. was assumed that eastern coal would originate from The primary purpose of this paper is to report mines located in southwester11 Pennsylvania and and update the coal-related portion of the market northern West Virginia, a region that has large study. It also serves to illustrate the importance quantities of untapped reserves and excellent access of using a total systems approach in estimating fu­ to New York State markets via the existing rail sys­ ture levels of coal traffic on waterways and rail tem. lines and through ports. The boundary between the states of Wyoming and Montana was used to divide the Powder River Basin GENERAL METHODOLOGY into two supply regions. This strategy was dictated by differences in quality characteristics and FOB A comparative economics approach was used in the mine pr ices of coals produced in these states as study to assess the feasibility of transporting well as differences in the accessibility of these