Waterway Criteria

Before authorizing and funding a project to develop a navigable inland waterway Congress requires that the US Corps of Engineers submit a statement to the effect that the project's economic benefits to the nation are at least equal to its costs. But although a benefit-cost ratio of 1:1 or greater has attained the authority of dogma, the methods by which the national economic benefits are evaluated are not beyond question.

The Corps itself has been aware of certain deficiencies for some years, and in 1960 it started to overhaul its evaluation procedures with the intention of correcting some built-in biases.

Total navigation benefits can be thought of as the product of total freight tonnage carried by vessels on the waterway times the savings in cost per ton carried. A considerable amount of distortion enters into the calculations when savings between barge and rail transportation are measured in terms of rates rather than costs; for the amount by which freight rates exceed costs differs between railroads and barge lines. A further distortion comes about when estimates of future traffic fail to consider the competitive impact on a railroad of the newly developed waterway and the effects of improved rail technology.

Both are likely to lead to reduced rail fares, and failure to take them into account will have the effect of inflating estimates of the barge traffic expected to develop from a newly navigable waterway. Such distortions have led to the construction, of waterways that remain underutilized. The national net benefits of such projects are not conspicuous, although the benefits to bargeusing customers may indeed have useful consequences for local employment.

When in 1964 the Chief of Engineers put into effect some improvements in the estimating procedures, he retained (pending a solution to the difficult problem of unscrambling railroad costs) the use of rates as a basis for estimating benefits, but made two important changes that went far to correct both traditional biases. Henceforth, the directive reads: "estimates of waterway traffic will be prepared on the basis of projected 'water-compelled' rates with consideration of all data and factors that are likely to modify current rates to take account of the competitive situation anticipated with the waterway in being, and foreseeable technological developments applicable to the several transport media." And

"In developing the projected rates or charges, consideration will be given to all pertinent data and factors including the competitive situation in the absence of the waterway, current rates, and foreseeable technological developments applicable to the several transport media.”

These were highly rational and even courageous steps to be taken by an agency which, while serving the national interests, is the executing agency for the Congress' rivers and harbors projects.

But, as it happens, the revisions have been short-circuited by inclusion of an amendment to Section 7(a) in the Act establishing the Department of Transportation (P.L. 89-670).

Paragraph (1) of that section empowers the Secretary of Transportation to set standards for the economic evaluation of all proposals for the investment of federal funds in transportation facilities except water resource projects.

Paragraph (2) states that: "direct navigation benefits of a water resource project are defined as the product of the savings to shippers using the waterway and the estimated volume of traffic that would use the waterway; where the savings to shippers shall be construed to mean the difference between (a) the freight rates or charges prevailing at the time of the study for the movement by the alternative means, and (b) those which would be charged on the proposed waterway; and where the estimate of traffic that would use the waterway will be based on such freight rates."

And there the matter rests. The standards of evaluation are now so loose that it will be difficult if not impossible to discover whether the calculations supporting future waterway projects reflect some economic truth or are legal fictions.

To an extent, the above course of events has resulted from the all too prevalent tendency to equate benefit evaluations with strictly measurable quantities; yet it is more than likely that some benefits do not lend themselves to precise qualification. Gradually ways will be found to quantify at least some of the currently unmeasurable benefits but, even so, complete dependence should not be placed on a benefit-cost ratio which for every project contrives to present benefits as being as great or greater than costs. A ratio of 0.75 : 1 might sometimes be more realistic, but still could represent a socially desirable project if the B/C ratio were backed up with a detailed statement of the unmeasurable benefits that are expected to result from a waterway (or any other water resource) project. It is useful to know, for example, that a proposed project would attract X thousand people with X dollars of income from urban areas to a sparsely populated area; or that it would stimulate farm life and income. The non-monetary benefits accruing from such social changes, when fleshed out with as much factual information as possible, are best left to speak for themselves.