ative methods of providing a safe and efficient lock and dam at this point on the Mississippi River. All recommended alternatives were carefully considered and hearings conducted again this year to obtain additional views of interested parties and those of the new Carter administration.

The proposed replacement of Locks and Dam 26 raised questions regarding policies of the Army Corps of Engineers with respect to repair or replacement of facilities which are no longer structurally sound or economically efficient. Prior to 1975, the corps replaced obsolete facilities under the authority of the act of March 3, 1909. If the Secretary of the Army approved, based on a finding that a reconstruction was essential for continued use and consistent with other proposed improvements for the system, work could go forward without specific authorization, subject only to the appropriation of funds.

This authority was challenged in the courts and the Secretary of the Army has since taken the position that he will request specific authority for projects such as locks and dam 26. This bill provides the authorization for this project.

But the Committee recognizes that the question of Locks and Dam 26 is not an isolated issue. It must be addressed and resolved in the context of an overall inland navigation program, which also addresses the question of who is to pay. According to calculations of the Corps of Engineers, two-thirds of the annual "benefits" from a rebuilt locks and dam 26 are due to "delay reduction." That is a $53,411,000 annual benefit to barge operators, and it is a taxpayer-provided benefit from just this one project. It is the committee's view that those taxpayer-provided benefits should be, in part, recovered by the Federal Government not simply accrued by the barge operators. A system of waterway user charges achieves this objective.

Since Congress initiated the inland navigation program in 1824, considerable sums of money have been appropriated for improving and maintaining the navigable waterways of the United States. The committee has determined that water transportation continues to have an important and useful role in the national economy and is an integral part of the Nation's transportation system. A viable waterway system is important not only to shippers but also to consumers of goods. It is clearly in the national interest to have an inland waterway network in sufficient repair to move goods economically and efficiently from producer to

consumer.

According to a study by the Congressional Budget Office, the inland waterway system users received a Federal subsidy exceeding 40 percent of the industry's revenues. The rail, air, and highway modes received subsidies from the general fund in the range of 1 to 3 percent of industry revenues. In contrast to other modes, waterway users make no contribution to operating and maintaining their rights of way.

Taxpayer-provided improvements to a single mode necessarily create imbalances. Because of this relationship, the committee approved the provision authorizing collection of user charges on the inland waterways. Such charges are to be imposed over a 10-year period and are designed eventually to collect 100 percent of the operation and maintenance costs and 50 percent of the new construction costs for the inland system. The committee believes balanced transportation and fairness require that the commercial users of the federally supported transportation facilities should pay a portion of the costs of developing and maintaining these facilities in the future.

It will be increasingly hard to win taxpayer, and thus political, approval of con-tinued financing for new work on the waterways without some form of user charge. A gradual imposition of a reasonable user charge system meets that problem.

The waterways industry testified that it believed there was need for more study before action was taken to implement a waterway user charge. The committee believes that a number of safeguards are built into this legislation to protect the interests of the waterway industry and the public, while creating au action mechanism establishing user charges. Moreover, the bill, based on testimony from concerned waterway interests, provided protection of marginal waterways from economic hardship.

During the period lasting from enactment until January 1, 1979 the Department of Transportation will conduct hearings, issue draft legislations, review comments, and study this issue before issing final regulations. Once these regulations are sent to Congress, they are subject to a special provision allowing Congress time to reject or amend them.

At the end of fical year 1982, 3 years after the effective date of the charges, the administration will report to the Congress and the public on the actual effects, allowing for a possible mid-course correction. The committee believes this is a reasonable approach and one that will protect tapayers and consumers.

WATERWAY USER CHARGES

Section 303 establishes, for the first time in our Nation's history, a system of user charges to be paid by the commercial cargo vessels that use the 25,000 miles of federally built and maintained inland waterways. Federal waterway expenditures are now a full Federal subsidy to the barge operators with no cost recovery. The schedule of charges in the bill, to be implemented in phases over a decade beginning October 1, 1979, eventually would recover 100 percent of the Federal costs of waterway operations and maintenance and 50 percent of new waterway construction costs, based on the appropriations in the preceding fiscal year. This section applies only to commercial, shallow-draft vessels. It does not apply to recreational vessels, which already pay a fuel tax, nor does it apply to international traffic. Specifically excluded from the charge system are waterways not operated and maintained by the Federal Goevrnment, such as the New York State Barge Canal, which is operated by the State of New York.

IMPLEMENTATION

On January 1, 1979, administrative regulations setting a specific user charge schedule will be submitted to the Congress for review. Prior to that time, there is a period of 10 months when the Secretary of Transportation, in cosultation with the Secretary of the Army, will study alternatives and publish preliminary usercharge regulations. During that period, not less than 45 days must be allowed for public comment and at least one pubile hearing must be held on alternatives to allow all interested parties to comment.

General guidance is provided to the Secretary on how to establish user charges that are reasonable and equitable.

The Secretary must consider such factors as traffic volumes and seasonal peaks in setting charges, and he may establish user charges that utilize techniques such as licensing fees, congestion charges, ton-mile charges, lockage fees, capacity fees, or any other equitable system or combination thereof. The Secretary must set the charges so they do not impose any unreasonable economic burden on the users of any specific waterway segment. Thus, while variations in the charges on various segments are permitted, they must be undertaken with care to assure they will not cause the closing of any segment or economic hardship on any particular use. The Secretary could also determine that a nearly uniform system-such as license fees or lockage fees-would be the most effective, practical, and reasonable way of developing a user charge system that recovers a portion of the annual investment of the taxpayers. The committee was impressed by arguments for possible congestion tolls as a way to provide cost recovery while improving waterway efficiency.

Following promulgation of final regulations on January 1, 1979, a period of GO days is provided to give the Congress an opportunity to review the charges and their impact, and to disapprove or pass legislation to amend the regulations by joint resolution. This period of 60 days provides time to examine the actual effects on waterways users and the balance between competing forms of transportation. Such a well-controlled, cautious legislative experiment is preferable to additional theoretical studies in determining what the real economic impact of user charges will be.

The bill includes a procedure for resubmittal and consideration of amended regulations, similar to the timetable in the initial congressional veto procedure. This also extends to any significant changes in the regulations, such as a restructuring that would eliminate or add any major form of cost recovery, or sharply alter the cost impacts on any waterway segment or group of users. Resubmittal is not necessary for minor, conforming changes that may be needed periodically to assure the efficient and equitable collection of user charges.

On October 1, 1979, if the regulations are not disapproved, the percentage of annual costs noted below will be collected from the commercial users of the inland waterways.

The schedule is based on estimates by the Corps that it spent $140 million for operating and maintaining the inland waterways and $240 million for construction on the inland waterways during fiscal year 1976.

The initial phase of national waterway improvements has been accomplished at full Federal expense: Some $4 billion to build the system, plus approximately an equal sum to operate and maintain it.

While free waterway transportation was a legitimate Federal interest when there was need to find a mode of transportation to compete with the railroad monopolies, partially-free waterways are sound public policy today. The expenses are growing dramatically, major replacements and expansions are contemplated and competing modes are experiencing financial difficulty.

In a real sense, the United States appears ready to embark on a major program to rehabilitate its inland waterways, now consisting of 25,000 miles of improved waterways and 212 navigational locks and dams. Costs estimated at $3.4 billion in lock building remain to complete projects now authorized. Projects valued at billions of dollars more are under consideration. As the Nation enters this second phase-the phase of major reconstruction typified by the authorization in this bill to rebuild locks and dam 26 at Alton, Ill.—the question of who pays for those improvements must be addressed.

The committee believes that participation by the users in the financing of waterway operations and improvements will lead to a more realistic assessment of the needs for improvements, since the users will no longer be asking for something "free." It is expected that users will focus their attention on those new projects that will offer real benetfis. Once such an improvement is paid for, even in part, by the users, the Congress can be assured that the expenses are more likely to be in the Nation's interest. A user charge will provide a realworld market test of a proposed project. If the users are willing to repay a portion of the cost of the project, even if spread throughout the system, then the Congress can, with far greater confidence, assume the project is economically viable. By minimizing the current subsidy advantage to the waterway users, the committee also believes it will result in a more rational national approach to transportation policy.

The barge industry has more than doubled its national market share in recent years. If this had been achieved strictly through efficiency, this increase would he commendable. But as important in this growth has been the existence of a free right of way provided to the industry, at the expense of competitors who must either finance their own right of way or pay taxes toward its upkeep.

Complete Federal financing of waterway construction and operation has led to several problems. The traffic delays at Locks and Dam 26 are symptomatic of the larger issues at stake. The capacity problem is a direct function of free funding. As long as a free system is provided, delays and future capacity problems are to be expected.

STUDIES AND ANTICIPATED RESULTS

President Carter is the eighth successive President to support the imposition of waterway user charges. Because of this broad interest, many recent studies have been made of waterway user charges and their possible impact. For example, the 1973 report of the National Water Commission recommended user charges for full recovery of operation, maintenance, and capital costs:

"There is no longer any rational justification for assumption by the Federal Treasury of the entire cost of construction, operating, and maintaining navigable waterways."

In September 1975, Transportation Secretary Coleman stated in the study of National Transportation Policy.

"Economic efficiency and consideration of equity also lead in the direction of some form of cost sharing. Insofar as it is practicable and administratively feasible, the identifiable beneficiaries of federally improved and maintained waterways should bear some share of development and operating costs through a system of user charges."

A November 1975 report by the General Accounting Office found only minimal impact and many benefits from imposition of user charges to recover operation and maintenance costs.

The Department of Transportation June 1976 study of "Regional Market Industry and Transportation Impacts of Waterway User Charges" concluded that: "Predictions of substantial, generalized impacts on water carriers as the result of user charges appear unsupported...."

A December 1976 study for the Corps of Engineers "Potential Impacts of Selected Inland Waterway User Charges," found little noticeable effect on most waterways from cost recovery systems.

Probably the most thorough review was the three-volume study issued in March 1977, by the Department of Transportation, "Modal Traffic Impacts of Waterway User Charges."

Among its conclusions:

"It was found that delivered commodity price impacts rarely exceeded 1 or 2 percent for 100 percent recovery of Federal O.M. & R. (operation, maintenance, and repair) expenditures and were more commonly only a fraction of 1 percent. Projected market forces other than user charges were generally found to have a more substantial impact than navigation cost recovery.

"In general, these price and income effects were measured in fractions of 1 percent, although certain commodities may experience slightly larger increases...

"Although segment tolls are relatively high in comparison to other rivers, coal traffic on the Monongahela, Allegheny, and Kanawha Rivers should not be adversely affected by user charges. Average barge haulage of coal is between 10 and 25 miles on the rivers. Overall impacts of user charges on final delivered price are minimal and less than 5 percent of barge rates.

"A phased implementation of user charges would limit absorption of the tolls by barge and terminal operators by allowing natural traffic growth to offset any traffic diversion caused by the tolls and by permitting the orderly retirement of uneconomic facilities and equipment.

"User charges for the recovery of 100 percent of Federal O.M. & R. expenditures on the inland waterway system would have small impacts on the cost of producing steel in the areas bordering the river system-a fraction of 1 percent of total costs even for the worst case."

The question of impact was the center of the committee's inquiry during its hearings. William Vickerey, professor of political economics at Columbia University and a leading transportation economist, in testimony before the Committee on Environment and Public Works stated:

"User charges are not costs to the society. They are transfers. Any revenue that is obtained by user charges is going to be used in some other way to reduce taxes somewhere else. The net effect is going to be to benefit consumers."

Harry Gobrecht, director of transportation and physical distribution of the U.S. Gypsum Co., which ships both on company-owned barges and by rail, was asked during Committee hearings if user charges would "have a big negative impact on your overall company's transportation costs?" He responded:

"No. I firmly believe, and the reason I am here, is that with imposition of the user charges, it is going to have the effect of allowing the railroads to com

pete more equitably throughout the United States. I believe that if this occurs. then there is going to be an advantage in railroad freight rates that will far offset the modest increases in the imposition of the user charges."

In short, Mr. Gobrecht noted the possibility that the cost to consumer of any modest increase in barge rates will be more than offset by improved rail rates in those areas where rail is the only mode of transportation. Accordingly, the consumers of the Nation may actually benefit from the imposition of user charges. When coupled with savings to the taxpayer, user charges become a precondition to sound public policy with respect to inland navigation.

Testimony was received from groups strongly opposing user charges. Robert F. Stauffer, general counsel, National Coal Association, testified:

"Such charges would not only impede the orderly development and distribution of this vast, low-cost source of energy, but it would also have extensive adverse impact on the coal industry itself, on industries dependent upon coal, and on America's consumers of energy If user charges are imposed, we certainly see the cost of about 125 million tons of coal going up."

...

The members considered more likely the arguments involving barged coal costs stated in the March 1977 study of the Department of Transportation: "Overall impacts of user charges on final delivered price are minimal and less than 5 percent of barge rates. . . Diversion to alterantive distribution patterns is unlikely given that average user charges on coal traffic are only 11 cents per ton at 100 percent recovery levels."

Testimony showed that the price of coal had risen 125 percent over the last 3 years, with coal demand still rising. If a 125-percent price increase had not damaged coal usage, the committee is persuaded that the cost impact of waterway user charges, averaging less than 1 percent of the value of coal after the full decade-long phase-in, is likely to have a negligible adverse impact on the coal industry.

It should be noted that half of the coal traffic is controlled by two companies with combined annual revenues of $1.5 billion and ownership of 3,000 barges. One major steel company, with revenues of $8.6 billion has barge shipments exceeding the total combined traffic on the Arkansas and Missouri Rivers. One major oil company, with annual sales of $4.3 billion, controls the largest fleet of liquid cargo barges.

J. W. Hershey, President of the National Waterways Conference, Inc., and Chairman of American Commercial Lines, Inc., testified that S. 790 would create "competitive chaos" and "massive discrimination." He described the bill as the product of "intellectual chaos” and a “rash disregard" for its consequences and mentioned its "grave deficiencies." He said it establishes "life-or-death power over American communities" and imposed "unacceptable disruptions of trade paterns." Steelmakers, he says, would be "gravely injured" under the bill. Petroleum refiners would be placed at a "substantial disadvantage." He described the gradual approach, including administrative rate setting. Congressional veto, and mid-course corrrection, as "utterly lacking in substance."

The Committee found the documentation of the Department of Transportation more logical.

Great variation in freight rates exist on the waterways because of the unregulated nature of most waterway traffic. Variations occur, both by segment and by season. The average rates on some rivers, such as the Monongahela (4.9 mills per ton-mile) is nearly twice the rates charged on the Ohio (2.7 mills per tonmile), into which the Monongahela flows. Grain rates in late summer typically run three times the levels charged in the spring. The percentage effect of S. 790 is far below any of these variations.

It was also argued, in this energy conscious era. that the Nation needs to promote waterway usage because it is so energy efficient, regardless of other factors. But the committee found persuasive evidence that waterways are not necessarily the most energy efficient mode of transportation.

A study "Energy Intensity of Barge and Rail Freight Hauling," by the Center for Advanced Computation at the University of Illinois found that "rail is 10 to 23 percent less energy intensive than barge." This was based on average train movements, not necessarily moving in the most direct route. Point-to-point unit trains are nearly twice as efficient as barge movements. One reason is the meandering nature of rivers, making any river trip between two points far longer in miles than a rail trip.

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