Alternative Public Financing for Improvement of the Industrial Canal Lock in New Orleans

9. Preliminary Official Statement. Utah State The views, opinions, and recommendations in this Bonding Commission, Federal Highway Reimburse paper are those of the author and should not be ment Anticipation Notes, Series 1983. Salt Lake construed as representing the views or policies of City, March 15, 1983. the Rice Center, Houston, Texas, or the u.s. Depart 10. Official Statement. Alabama Federal Aid Highway ment of Transportation. Finance Authority, Federal Reimbursement An ticipation Bonds, Montgomery, July 7, 1981. 11. The Federal Budget and the Cities. United States Conference of Mayors, Washington, D.C., Publication of this paper sponsored by committee on Feb. 1983. Local Transportation Finance.

WALTER C. CARLSON

ABSTRACT traditional funding arrangements based on a system of federal allocation. These issues will assume new meaning when presented to state and local govern Continued federal leadership in financing ments, and they can be expected to influence the the development of the nation's public direction and success of actions to accommodate waterway system is uncertain, If proposed future growth of this nation's public waterway federal cutbacks are approved, and federal system. cost-recovery and cost-sharing programs are Proposed capital improvement of the industrial implemented, additional pressure will be canal lock in New Orleans offers an excellent op placed on state and local governments when portunity to examine an existing situation in which selecting a financing structure to provide the issues and concerns regarding these non-federal required front-end funds for public waterway cost-sharing programs are currently being addressed. improvements. A method of evaluating avail Because these programs are expected to typically able local financing alternatives--to pre influ·ence similar public waterway improvement proj dict expected performance and select best ects, it appeared advantageous to incorporate the possible options--is necessary if state and Industrial Canal Lock project as the focal point of local governments are to successfully ful this research on alternative methods of funding fill their financial obligations with op local public waterway improvement projects. portunistic financial planning. Such funda mental changes may require unique and in novative organizational arrangements. In any THE INDUSTRIAL CANAL LOCK: A NEED FOR CAPITAL instance, the initiative and organization IMPROVEMENTS for such changes should occur at the federal level. The existing industrial canal lock facility, which serves the Port of New Orleans Industrial Canal, Tidewater Port Area, the Mississippi River-Gulf Outlet, and the Gulf Intracoastal Waterway, is in In competing for business, a public waterway im urgent need of capital improvement. The Industrial provement project must finance facilities, services, Canal Lock is the only locking facility connecting or both, to attract and maintain business. The suc the lower Mississippi River with these navigable cess of a specific capital improvement program waterways to the east. It is the only existing depends on its ability to anticipate and respond to locally owned and financed facility of its kind on a change in the economic cycle and to adapt to the federally owned and maintained navigable waterway. needs of industry and rapidly changing technology in Capital improvement of this facility is of national a manner that will meet the demands of potential importance--i t is ranked as the second most impor - users at competitive rates. tant navigation project by the U.S. Army Corps of - Current federal cost-recovery and cost-sharing Engineers' priority listing of required national proposals on public waterway development reguire a waterway improvement works as established by the unique combination of local public service utility National Waterways Study. and private enterprise to achieve this goal. State Completed in 1923, this lock is presently over and local governments will have to overcome many used, too small, and has limited life remaining obstacles. Many of these obstacles historically have without con iderable renovation or replacement. It been avoided because of the inherent advantages of is also the critical link between the Port of New Carlson 43

Orleans' traditional riverfront facilities and mod result from amortizing the total estimated project ern, deep-draft terminal development taking place in cost of $600 million at 10 percent annual interest the Tidewater port area. Capital improvements are over a 50-year period (approximate designed life needed before waterborne traffic relying on this expectancy of the new lock) would ultimately be locking facility is forced to travel greater dis passed on to the users of the improved locking tances on alternative routes, or cargo is diverted facility. Dividing the annual cost of improvements to different modes of transportation. In either ($60.5 million) by the average annual tonnage using case, the cost of moving commerce will increase, and the existing facility (25 million tons) indicates the overall efficiency of the present system will that a user fee of approximately $2.40 per ton would decrease. be required. This additional transportation cost The economic justification for a new lock has could dive~t marginally profitable bulk commodities, been thoroughly documented and generally accepted. which encompass a majority of traffic currently Since 1970 approximately 64,000 vessels pass through using the lock, f rom the waterway system. the lock annually carrying an average of 25 million Furthermore, if such cost-sharing policies were tons of cargo--2 million tons more than the facil to be enacted, a non-federal interest capable of ity's designed capacity. Actual tonnage has de funding a capital-intensive improvement project of er.eased from a high of 29,469,277 tons in 1977 to this type would have to be located. In 1983 the Port 21,743,392 tons in 1981 because of the economic of New Orleans invested $28,845,747 of its working recession and because of costly delays experienced capital into the construction of facilities, the at the lock. The U.S. Army Corps of Engineers pro retirement of long-term debts, and the purchase of jects tonnage to increase to 29 million tons by 1995, land, equipment, and improvements necessary to sup to 30 million tons by the year 2000, and to 32 mil port the Port's 10-year, $360 million capital im lion tons by 2010. The majority of traffic carries provement program. Total working capital available bulk commodities of low value such as grain, coal, in 1983 was $29,544,919, of which the state of Lou marine shell, petroleum products, and industrial isiana was the primary source providing $18,827,572. chemicals. Eighty percent of all traffic moving The net increase in working capital available to through the lock neither originates nor terminates undertake the proposed new lock project in 1983 in Louisiana. An estimated annual economic impact of after existing obligations have been met was $500 million is realized from public and private $699, 192--far below the estimated annual amortized industries directly served, which supports approxi cost of the project (60.5 million) if all costs were mately 11,000 jobs. Excessive demand has resulted in to be borne by non-federal interests. The Port of an average of more than 14,000 lock ages a year- New Orleans' limited operating margin, and the proj causing costly delays, restricted movement of mar ect's inability to cover its total costs through the ginally profitable and low-value commodities, and use of project-operated revenues demonstrates a need has brought to question, in light of future uncer for a creative local financing package and a high tainties, both local and regionally related indus level of funding participation from outside trial growth that requires this facility's services. sources--most likely from the state and federal Local public meetings to determine a new lock levels. site and to develop facility objectives began in 1960 and continued unsuccessfully until 1975 when the u .s. Army Corps of Engineers completed a de EVALUATING A LOCALLY FINANCED PUBLIC WATERWAY tailed site-plan selection study. This analysis, CAPITAL IMPROVEMENT PROGRAM which evaluated 28 major points of socioeconomic-en vironmental concerns, concluded on the superiority Determining the expected performance of locally of a site-plan downriver of the existing facility in financed public waterway improvement programs de adjacent St. Bernard Parish. Opposition expressed by pends on the ability of the local agency to analyze local residents and various interest groups cur and implement the most desirable program for its tailed implementation of the project. specific situation. Careful and opportunistic local In 1977 the Carter Administration conducted a financial planning within individual public agencies review of all water resource-related projects, As a will be essential to meet the future needs of the result of that review, President Carter requested nation's demand for waterborne transportation. the elimination of the U.S. Army Corps of Engineers, The ability of state and local governments to site plan proposal for environmental reasons. He provide the front-end funds required by proposed further requested that the U.S. Army Corps of Engi federal cost-recovery and cost-sharing programs will neers' study the possibility of construction occur ultimately depend on (a) the availability of ade ring at the existing lock site--with a specific quate funding; (b) the cost of borrowed capital; and mandate to avoid •severe residential and industrial (c) the discounting element, or lead-time required dislocations in the area.• before project revenues can begin to cover costs. That study was completed by the u.s. Army Corps The degree of freedom a state or local government of Engineers in 1982 and is currently undergoing experiences in financing required capital improve review. The cost of the resulting 6-year delay is ments will also depend largely on the specific agen astronomical, and it increases each year. The proj cies' (a) political make-up and structure, (bl de ect's estimated cost of more than $600 million con gree of freedom allowed in raising and using cluded in the current Corps proposal, of which more capital, (c) financial position in terms of assets than $200 million has been projected by using tradi and investments, and (d) support from the local tional cost-sharing policies to become a local re community. sponsibility, has approximately doubled 1975 esti When assessing a locally financed public waterway mates. Such delays are not only costly but have also project, four steps should be incorporated into the jeopardized the current economic feasibility of the evaluative process. project. Under the current Administration's proposed cost Step 1: Develop a working knowledge of current sharing policies for shallow- and deep-draft naviga proposals for federal cost-recovery and cost-shar tion projects, all costs would be borne by non-fed ing--explore their theory and application. eral interests and recovered through the application Step 2: Identify methods of generating local of user fees. According to this proposed arrange front-end resources--analyze the requirements and ment, the annual payments of $60.5 million that implications. 44 Transportation Research Record 967

Step 3: Establish an historical perspective of tional local front-end financing arrangements, and related public waterway improvements--determine the the Port's continued bonding capacity are satisfac specific parameters and constraints of the proposed torily addressed. If these issues cannot be re project, Rnlve<'I, altern;,tive financing options must be Step 4: Determine the expected performance of a examined. locally financed public waterway project--in the Third, modifications to the Port's current 10- light of results concluded in steps 1, 2, and 3. year, $360 million capital improvement program, which is required to include the Industrial Canal In step 4 of this proposed evaluative model, de Lock capital improvement project, would jeopardize termination of expected project performance, ad the Port of New Orleans' expected long-term finan ministrative resources, and implementation proce cial performance and severely compromise future dures: selection of appropriate local front-end capital improvement projects recommended for devel f1nanr.1ng tPchniques: and the projection of expected opment according to the Port'"' r.nmprPhenaive master financial performance must be examined in detail. plan. Without increased funding, new capital im A standardized method of evaluating potential provement priorities would have to be established public waterway capital improvement programs such as and reevaluation of investment timing and sensitiv presented here must be relatively simple to apply. ity analysis should occur. This is necessary to accommodate a wide variety of Because of this final point, as well as uncer political and institutional structures, data avail tainties regarding basic assumptions made, the out ability, and specific policies and external condi come of cost-recovery and cost-sharing legislation, tions. The evaluative process must be objective and and expected long-term performance of creative fi flexible for use by responsible state and local nancing alternatives, it must be concluded that this planners and officials when comparing alternative capital-intensive project should not be initiated at strategies. For this reason the following concerns, the local level because it is beyond the Port's or design specifications, should be considered by financial capabilities. It is recommended that the such an evaluative model: direct useability, flexi state review and consider the project's possible bility, sensitivity to judgment, data requirements, implementation, Because the proposed improvements staff requirements, and computational requirements. are of national importance, serving mainly water borne traffic passing through the state, improve ments could be justifiably questioned. Although the RESULTS OF INDUSTRIAL CANAL LOCK IMPROVEMENT capital improvement of this facility is urgently EVALUATION needed, such a decision would have to be based on the state's economic priorities. It must therefore Evaluation of the industrial canal lock case study be recommended, because of the national importance yielded important and conclusive results. Although a of this lock facility, that a special governors task relatively basic application of the proposed model force or legislative task force be established to was conducted to facilitate the academic nature of further investigate this topic and recommend appro the research, specific issues and concerns were priate action. identified that can be expected to influence the future actions and directions of this project. To assist in the evaluative process and to sim CONCLUSIONS AND RECOMMENDATIONS plify the complex relationships involved, a number of assumptions had to be made. Critical problems The evaluative approach taken here attempts to pro were avoided through the formulization of these vide a general tool for the evaluation and analysis assumptions. The realization that these variables or of alternative methods of locally financing public assumptions exist, and the potential impact each waterway improvements in the United States. These represents, is an important by-product of such an findings will be of value if existing federally evaluation. based financing arrangements are modified according For the Industrial Canal Lock proposal, it was to currently proposed federal cost-recovery and assumed that 100 percent of local front-end financ cost-sharing legislation, The broad scope of sub ing, or the worse case, would be required and that a jects critical to determining future non-federal $320 million capital improvement program with a funding arrangements for the operation, capital 10-year construction-lead time would accomplish investment, and rehabilitation of this nation's necessary improvements. Th is was based on the U.S. public waterway system have been only briefly iden Army Corps of Engineers' original 1975 proposa'ls, tified in this paper. whioh have since increased to abot1t $1;00 million The subject discussed here has provided new in according to the Corps' 1982 study. It was also sights into alternative financing of public waterway assumed that the Board of Commissioners of the Port improvement projects. This discussion has been pre of New Orleans must initiate, administer, and fund sented from a planner's point of view--it was in proposed works--assuming that the complex political, tended to identify problem areas and should not be environmental, and socioeconomic issues surrounding considered a final statement. The complex problems this situation have been resolved and an actual plan that would result from this conceptually unique finalized. Using these tentative assumptions the reorganization of financial responsibilities has evaluative process produced the following results. received little attention, and where attention has First, the Board of Commissioners of the Port of been given, it has been given in a fragmented man New Orleans possesses the administrative structure, ner. After having extensively researched available available financing resources, and technical capa information on alternative financing methods capable bilities to facilitate the complex tasks of plan of satisfying proposed local front-end obligations, = ning, programming, and controlling a major public much remains to be done. waterway capital improvement project of this nature: The need exists for a similar level of in-depth however, the Port has only limited resources for analysis encompassing the broad spectrum of issues funding capital improvement projects. that such fundamental changes represent: such an Second, future capital improvement projects could analysis must become an ongoing process. Successful feasibly be based on traditional local financing initiation of this requirement depends, in part, on arrangements--if the issues of long-term financial the recognition by state and local governments that security, recent national trends away from tradi- their ability to respond to future demand will de- Carlson 45

pend on their ability to project their future phys each adopted comprehensive regional development of ical needs and financial capacity. It also depends public waterway systems to meet national objectives on the role the federal government adopts in leading as the ultimate goal of their programs. In the or accommodating this necessary research. United States the Tennessee Valley Authority (TVA) The case study examined here offers insight into was created with similar objectives, and it has been the nature of the problems that must ultimately be a model for comprehensive regional development of addressed. Currently, there appears to be no clear public waterway systems in other countries--but not cut traditional financing alternative available to in the United States. The foregoing examples served provide the local front-end funds necessary for the to enhance the multifunctional development of capital-intensive reconstruction of this facility energy, navigation, flood control, agriculture, and without adversely affecting the Port of New Orleans' socioeconomic welfare. These functions, which are long-term financial status. Although this conclusion typically organized and performed at the federal is based primarily on the expected financial per level, were created and administered at the regional formance of the project, uncertainties regarding the level. This approach brought government closer to actual implementation of non-federal responsibil the people and their specific problems, reduced ities must also be considered, Until such concerns duplication of functions and facilities, and in as (a) the local application and collection of user creased the opportunity to realize the comprehensive fees, (b) economically feasible local financing development of an entire region. mechanisms, and (c) administrative resources and Each of these three examples have focused on the implementation procedures are available and stan provision of inexpensive energy in the form of hy dardized, there will be little incentive for state droelectric power as the basic element with which to and local governments to commit to a capital im stimulate future benefits. In each case, front-end provement project of this magnitude. financing of initial improvements, and continued Although it is significant to realize the current funding to minimize the impact of related user fees, inability of the New Orleans community to enter into has come from the national level of government. The this local financial obligation, a community that question should then be asked: •can navigational possesses significantly greater economic resources improvements serve as this focal point, or as a and related past history from which to draw on than catalyst, if hydroelectric power capabilities do not most communities, there are other concerns that must exist or are not required?" Can cheap transportation be addressed. Although these concerns apply to the costs perform the same function as cheap energy New Orleans case, they can typically exist, or reoc costs have in past public waterway development cur, in similar future situations. schemes? Much has yet to be learned on the subject of 1. The question of equity, or the distribution alternative methods of financing public waterway of cost and benefits. Is it equitable to assume that improvement projects before any progress can be only the initiating public agency should bear the made. It has typicall y been the U.S. Army Corps of economic and political cost of improvements during Engineers' philosophy not to promote or actively the construction period and thereafter until returns pursue public waterway development projects but to began to be realized? What are the boundaries of the respond to requests initiated at the local level or hinterland that benefits? Can specific interest actions mandated by federal legislation. As observed groups that benefit be defined? with the New Orleans Industrial Canal Lock example, 2. The comprehensive nature of improvements must this may not now be an adequate approach to projects be addressed, How will proposed improvements affect of national interest or concern. The potential long existing and future development both regionally and term impacts of current federal cost-recovery and nationally? Are these improvements fulfilling the cost-sharing legislative proposals, and the degree goals and objectives of the nation's public waterway of complexity of the problems that must still be program? evaluated, warrant further investigation. It is 3. What responsibility does the local public essential that the initiative and organization of sector have to motivate such comprehensive improve relevant actions are begun at the federal level, ments? Can the different factors that influence Continued federal funding is necessary, and the public development (provision of services) and pri creation of a single agency, or authority, whose vate development (profit motive) be integrated or sole purpose is the coordination of this proposed compromised? Can either interest be expected to local, state, federal, and private-interest part successfully realize long-term benefits without nership is mandatory if the benefits this nation's short-term returns? vast waterway system has to offer are to continue to 4. Finally, are state and local governments be realized. In the case of the industrial canal actively included in the decision making process? lock, the New Orleans Port Commission will soon Can greater intergovernmental and interdisciplinary recommend that the U.S. Army Corps of Engineer exam coordination be enhanced by more effective legisla ine this project in the light of the recommenda tion and funding from the federal level? Are incen tions made in this paper. tives available to all levels of government?

When approaching these questions, important prob lems must be reevaluated in light of past successes. Two European examples, the Compagnie Nationale Du Publication of this paper sponsored by Committee on Rhone and the Rhine-Main-Danube Commission, have State Role in Waterborne Transportation.