How Trump can turn to the private sector to keep our waterways afloat

When President Trump looked out at the vast expanse of the Ohio River this week and took in the enormity of the civil engineering required to aid shipping along this key corridor of commerce, he saw the height of 19th century transportation infrastructure struggling to meet the demands of our 21st century economy. To be fair, the canalization of the Ohio River and the construction of locks and dams to make it navigable was finished in the 1920s, but today, they represent the failure of the federal government to either directly invest in our decaying infrastructure or provide adequate incentives for the private sector to do so.

Our nation’s locks and dams are crumbling, and save for catastrophic events like California’s Oroville Dam spillway collapse earlier this year, the public hardly notices. We may stew in rush hour traffic on our overburdened highways or rage at flight cancellations caused by our antiquated air traffic control system, but we don’t see the shipping delays caused by cracking lock walls and rusting gates. When barges stack up along the Ohio River because a lock is out of service, those delays may never register, but we feel it in our pocketbooks, whether we notice or not.

{mosads}Barge traffic on rivers like the Ohio and Mississippi is crucial to our economic lifeblood. We may think of our inland waterways as a quaint throwback to the era of steam and sail, but they are a critical linchpin when it comes to transporting bulk commodities throughout much of the United States.

Researchers at the University of Tennessee studying the economic impact of the Upper Mississippi River and Illinois Waterway on agricultural commodities found that the closure of Lock 25, a key passageway on the Mississippi River north of St. Louis, would cause nearly 7,000 job losses due to its impact on the corn and soybean sector and would cost about $2.4 billion in lost economic activity. And remember, that’s just one lock. 

To get a sense of how much we have shortchanged our waterways sector, consider that the Army Corps of Engineers’ spending on civil works has shrunk from 0.16 percent of gross domestic product (GDP) in 1962 to as low as 0.04 percent today. That’s not the whole picture when you consider that over that same timeframe, GDP grew from $3.3 trillion to $15.9 trillion, while foreign trade volume grew from $207 billion to $3.7 trillion. We’ve dug ourselves a deep hole by systematically underinvesting in our water infrastructure for generations.

Even if we dramatically increased direct annual federal appropriations, we would still be unable to pay for the repair and modernization backlog that has accumulated. Waterway funding, an area that has long enjoyed broad bipartisan support hasn’t kept pace the with need. The Trump administration has wisely started to turn to the private sector to help unlock alternative sources of financing for infrastructure improvements. As my collaborators Jill Jamieson, Wyatt Cmar and I argue in a recent Harvard paper, public-private partnerships (P3s) can significantly increase the current rate of construction for inland waterway projects, saving taxpayers money and transferring risk over to the private sector.

Standing in the way of an expended P3 program are a number of restrictions that prevent inland waterway projects from charging fees to generate revenue. Legislative barriers impede the financial self-sustainability of our infrastructure (which in turn hinders their physical sustainability), and to make matters even worse, a whole other class of restrictions prevent revenue from being reinvested (or “ring-fenced”) back into the project that generated it.

If a river lock is generating revenue from user fees, that means it’s being used, and if it’s being used then it likely needs maintenance and repairs in proportion to its popularity. Moreover, private companies need revenues to generate profit, the only reason for them to invest in these projects in the first place.

Instead, the current system sends project revenue to back to the Treasury, and the money is spread out across the country. Of course, no private company would ever accept such an arrangement and they never will. The federal government needs to expands its authority to collect and retain revenue for project-specific purposes, and to enable private partners to see an upside from their investments.

Because federal inland waterway projects are so encumbered when trying to raise and ring-fence revenue, P3s must instead survive on budget-based compensation structures. Basically, payments made to a private partner need to be budgeted at a project’s outset, long before shovels hit the ground. Since these payments (which spread out over a number of years) need to be accounted for in the first year of the project’s development, P3s end up looking expensive relative to their non-P3 counterparts, even when they are in fact much cheaper.

The federal government needs a new scoring regime for civil works projects that allows P3s to compete on an equal footing with traditional project delivery methods. What’s more, the federal government should allow itself to enter into multi-year contracts without requiring full obligations of the contract amount at a project’s outset.

These fixes aren’t, as some suggest, a giveaway to the private sector. Many waterway users are clamoring for such reforms because they know that without them, infrastructure will continue to deteriorate and shutdowns and delays will accelerate. For budget hawks, continuing to do nothing is simply tantamount to greater deficit spending as increased transportation costs take their economic toll. It’s easy to ignore the problem, until a critical piece of our water infrastructure like Lock 25 fails and shuts down river traffic. We won’t ignore the consequences when it comes to paying our household grocery bills.

Stephen Goldsmith is the Daniel Paul Professor of of Government and Director of the Innovations in American Government Program at Harvard University. He has 25 years of experience with infrastructure finance and economic policy as a two-term mayor of Indianapolis, deputy mayor of New York City, and advisor to public entities.

The views expressed by contributors are their own and are not the views of The Hill.