Indirect Impact of U.S. Dredging RulesOn June 14, CSIS published a study entitled, Expanding Competition, Expanding Ports: Competition in U.S. Hopper Dredging, which analyzed the economic impact of the restrictive rules on dredging contracts in U.S. coastal waters. That study addressed the direct impact of U.S. policy and did not look closely at broader indirect impacts. Consequently, CSIS is also posting the following short paper that addresses selected indirect impact issues as a companion piece.
Dredging funded by the Corps of Engineers falls into one of two categories: new work or Operation and Maintenance (“O&M”). New work dredging consists of dredging the channel deeper or wider, or, in some cases, creating a new channel. O&M funded dredging restores a federal channel to the depth and width along an alignment that has been previously dredged by the federal government. The types of federal funds used and the cost-sharing formula with the federal government’s local cost-sharing partner change depending on the particulars of the project.
In order to construct or improve a new channel, the Corps requires both an authorization and an appropriations bill. The authorization typically follows a multi-year planning process. At the end of that process, if a project is justified both from an economic and environmental perspective, the executive branch sends a report recommending its construction to Congress. Congress then can choose whether to authorize the project or to improve it in a water resource development act. Projects are funded through the annual Energy and Water appropriations bill. A key consideration is that, while Congress can add funds to a project requested by the Administration, its rules prevent it from funding a project for the first time in an appropriations bill unless the Administration requests funding a “new start.” The Corps of Engineers has tens of billions of dollars-worth of authorized projects that have not received federal funding. In one example of the backlog of unconstructed projects requiring new work funding, of the six deep draft ports in Texas, only one of the ports is dredged to its authorized depth. Three of the other ports have authorization to be deepened, while the Corps is studying deepening the channel in another port. In each case, these are projects where there is an economic justification to improve the channel – the benefits exceed the cost of the improvement over the useful life of the project. Given the anemic level of new work funding, the huge backlog of authorized but unconstructed projects will continue to grow as Congress authorizes more projects than there is an appropriation to construct. The funding situation with O&M is just as dire. In Texas, the Corps is receiving less than one-half of the $240 million it needs to maintain their coastal navigation projects. A large percentage of this funding is for maintenance dredging.
All Corps of Engineers dredging projects create some level of economic benefits beyond the immediate port improvement. In the case of new work dredging projects where a federal project is being improved, dredging is often a relatively minor component of the overall improvement project when federal and non-federally funded projects are considered. As an example, additional improvements such as cranes, warehousing, and container yard improvements often cost as much or more than the dredging. Transportation improvements, including roads and rail, are often an even larger amount. Finally, most new work projects include environmental remediation and dredge material disposal facilities. While it is not unusual for a $100 million new work dredging project to result in $400 million in induced construction and thus expanded benefit to the surrounding community, none of this activity occurs unless there is an economic payback for the sponsor or owner of the betterment.