As Congress begins a new session, it must immediately turn its attention to avoid defaulting on America’s debt, an issue that has long stymied efforts to identify annual spending caps and pass federal appropriation bills on time. The resulting recurring congressional spending fights have made continuing resolutions the norm. Since 2010, 50 of these measures were enacted to avoid a government shutdown. But what gets lost in the debate over wasteful and irresponsible spending are the consequences these measures have on large-scale federal projects that provide a significant return-on-investment to the nation’s economy and the Treasury.
One federal agency, the U.S. Army Corps of Engineers, whose Civil Works mission includes commercial navigation, generates $14 in economic benefits for every dollar it spends, and returns $31 billion (about $95 per person in the United States) in revenue back to the Treasury each year. The Corps mission of deepening and improving our federal navigation channels is imperative to remaining globally competitive. Yet, the Corps gets hit with a double whammy: Not only are they the largest federal construction agency, but the Corps Civil Works program also relies on annual appropriations on a project-by-project basis.
Anyone in construction knows that available funding drives schedule, and the successful execution of any major construction project depends on thoughtful budgeting. This is not a luxury the Corps always has, because there is no certainty on how much funding a project will receive and when. In a federal horror version of Groundhog’s Day, the Corps is forced into the resource exhaustive task of re-baselining project funding every fiscal year. Then there’s also the downstream impact on everyone else.
Civil Works projects are shared with a non-federal sponsor and for coastal navigation projects, this is often the local port, a state government, port authority, or municipality. For the government to spend federal funding as it becomes available, the non-federal sponsor must also provide their required cost share match. This is tricky when their budget process to secure funding misaligns with an unpredictable federal timetable. Sometimes sponsors must sit on large sums of funding that are in limbo awaiting possible federal dollars. This can be quite frustrating and pricey for those with limited budgets and other needs.
Industries who support commercial navigation improvements, such as dredging companies, are faced with tough decisions when bidding on government contracts. Many of these projects are multi-year efforts because of the scale of work or other work limitations, such as those due to environmental time-of-year restrictions. But optimal contract structures are not always possible when a project only receives what it can use for that fiscal year. Being able to schedule and plan the use of specialized and sometimes limited equipment is essential to keeping rates down.
When industry makes assumptions based on the risk of available future funding, they build costly contingencies into their bids. In 2021 alone, 231 million cubic yards of material was dredged under the Corps program, and with 88% of those dredging dollars being contracted out, the consequences of these contingencies are not insignificant. Even the government includes contingency in its independent estimate to account for the risk of delayed or untimely funding.
Alarmingly, the biggest loser is the American taxpayer. Looking beyond the costs of inefficient business, there are also billions of dollars in economic benefits lost by not having these projects completed. Not to mention the obvious fact that with inflation, projects could have been constructed at a lower cost.
Take the Savannah Harbor Expansion project as an example. It took 23 years from the time the deepening project was authorized for construction in 1999, until the channel improvements were completed last March. While the project was delayed due to unforeseeable factors inherent to any complex project of its magnitude, a lack of consistent and reliable federal funding added years to its completion date. The most recent estimate shows that deepening Savannah Harbor generates $291 million per year in economic return. And those are just the benefits to the nation as a whole, not the potential impacts to the local or regional economic area. If the expansion project had been completed just two years earlier (three years later than the Corps originally estimated the project could be completed with efficient funding back in 2012), the nation would have seen a return of $582 million in economic value. That is thirty times what it costs to expand the Portsmouth Harbor shipping channel in New Hampshire and Maine. Now imagine what those numbers would look like when compounded across the United States.
If you give the Corps the resources, they will execute. Just ask the folks in New Orleans whose homes did not flood during Hurricane Ida because of the massive $14.5 billion hurricane protection system that was constructed in an unprecedented amount of time in the wake of Hurricane Katrina. That feat was possible because Congress provided large swaths of the needed funding upfront. It is more than a job to the thousands of Corps civil and military servants. They understand the importance of these projects because they are members of the communities that rely on them.
A Paradigm Shift
While solving the continuing resolution problem with on time appropriations bills would help part of the problem, it does not address out-year funding for a project still unknown beyond that year. And let’s face it, the threat of a government shutdown has become too much of an irresistible leveraging tool in Congress to just go away. What we need is a paradigm shift away from the dribs and drabs of annual funding along with a national coastal navigation strategy.
The benefits of multi-year funding for coastal navigation projects are proven. In fiscal year 2020, Congress directed the Corps to execute a multi-year regional dredging demonstration program and provided $400 million for the effort. By providing upfront funding to complete two major deepening projects in the Gulf of Mexico, the Corps had greater flexibility to complete the projects faster and at a lower cost. By seeking opportunities to combine work across funding accounts or projects, the Corps improved economies of scale and reduced other direct costs. The success this program led the Corps to consider applying such efforts to other regions. But the potential of the Corps is still limited by the single year appropriations they receive.
The situation is complicated further by the tendency to gauge success in appropriations by how much more a program or agency receives compared to the previous year. This is an imperfect measure of success given how a project’s funding needs can fluctuate from one year to the next and does not necessarily increase linearly. The yardstick of success should instead shift to fully funding the Corps program in a manner that optimizes cost saving opportunities. This is where a comprehensive and forward-looking analysis of the coastal navigation program, including scenarios to maximize efficiencies and stretch limited federal dollars farther, could be of immense value.
The 2021 passage of the Infrastructure Investment and Jobs Act provided a $1.5 billion dollar investment in the Corps coastal navigation program. While this funding is significant — and clears much of the existing backlog of shovel-ready navigation improvement projects — it also funded studies to investigate potential future port improvements and projects in the design phase. The volume of ongoing studies and projects in the design phase is a bellwether for forecasting future construction needs. To prepare for the next wave, there is no better time than now to tackle this problem head-on. With new direction in the National Defense Authorization Act to update the national maritime strategy every five years, developing a comprehensive strategy for coastal navigation funding is a no-brainer.
Unfortunately, coastal navigation funding often falls victim to the false assumption that coastal navigation projects only help coastal states or districts with ports. But if the recent supply chain crisis taught us anything, seaports are the center of our nation’s trade and transportation systems. A disruption in just one facet of that complex machine can send ripples across the economy, coastal state or not.
Developing a comprehensive capital investment strategy is not a foreign concept for the Corps. The Water Resources Reform and Development Act of 2014 required the Secretary of the Army to develop a report describing a 20-year strategy for making capital investments on the inland and intracoastal waterways. In coordination with a User Board made up of industry representatives, the strategy supplied a planning framework to ensure efficient funding of inland waterways projects. The report sent to Congress in 2016 gave a clear picture of the current and future needs for each project along with an objective look at the benefits of various funding scenarios. Not only did it empower federal appropriators with an understanding of the universe of projects and the impact of specific funding levels, but it also unified a coalition of members to see how their project fit into the bigger national picture.
The result of the capital investment strategy and other key reforms made in 2014 to support successful implementation of the strategy was consistent funding that accelerated project completion. Funding for inland waterway construction increased from $214 million in fiscal year 2013 to $433 million in fiscal year 2017. This led to a multi-billion project, that soaked up decades of inland construction funding, to be funded to completion faster, allowing other projects in the queue to see the metaphorical lighthouse at the harbor’s shore.
Taking initiatives like the regional dredge demonstration program and the inland waterways capital investment strategy from concept to realization required assertive champions in Congress. Right now, there is a landmark opportunity for leaders to have a meaningful impact on the maritime industry and leave a legacy of good government. As we all buckle up for what the 118th Congress has in store, one thing that should be beyond debate is the need to re-evaluate past practices that do not serve the goal of being good stewards of the taxpayer’s money.