U.S. Waterborne Commerce by Type of Traffic

1. Thank you for opportunity to be here in Brussels for the SmartRivers Conference. This is a great opportunity for navigation professional from Europe and the U.S. to get together and learn from each other, and it builds on the momentum started last year in Pittsburgh. My topic is “Institutional Challenges to Improving U.S. Waterways.” As Chief of Operations for the Corps of Engineers, I’ve faced my share of infrastructure challenges – especially this past year. I’d like to spend a few minutes on - Background and overview of the Corps’ navigation program and the infrastructure we manage; My perception of the key institutional challenges we face as this infrastructure ages and funding becomes more constrained; And steps we’re taking to focus on Asset Management and to rank and prioritize our critical maintenance needs.Thank you for opportunity to be here in Brussels for the SmartRivers Conference. This is a great opportunity for navigation professional from Europe and the U.S. to get together and learn from each other, and it builds on the momentum started last year in Pittsburgh. My topic is “Institutional Challenges to Improving U.S. Waterways.” As Chief of Operations for the Corps of Engineers, I’ve faced my share of infrastructure challenges – especially this past year. I’d like to spend a few minutes on - Background and overview of the Corps’ navigation program and the infrastructure we manage; My perception of the key institutional challenges we face as this infrastructure ages and funding becomes more constrained; And steps we’re taking to focus on Asset Management and to rank and prioritize our critical maintenance needs.

2. U.S. Waterborne Commerceby Type of Traffic 2.5 Billion Tons (2005) 59% Foreign Trade / 41% Domestic Of Domestic: 61% Inland Waterway Our ports and waterway infrastructure handle about 2.5 billion tons of cargo annually. Freight traffic that is vital to keep our economy running. More than half of this is foreign trade – critical oil imports, agricultural exports, consumer goods (foreign trade passed domestic waterborne movements in the early 1990s). This trade creates jobs and income for Americans – not just at our ports, but throughout the Nation’s heartland. Every single state ships and receives goods that at some point move in foreign trade. Our domestic waterborne movements are also critical to our economic well-being. And over 60% of this domestic traffic is on our inland and intracoastal waterways.Our ports and waterway infrastructure handle about 2.5 billion tons of cargo annually. Freight traffic that is vital to keep our economy running. More than half of this is foreign trade – critical oil imports, agricultural exports, consumer goods (foreign trade passed domestic waterborne movements in the early 1990s). This trade creates jobs and income for Americans – not just at our ports, but throughout the Nation’s heartland. Every single state ships and receives goods that at some point move in foreign trade. Our domestic waterborne movements are also critical to our economic well-being. And over 60% of this domestic traffic is on our inland and intracoastal waterways.

3. U.S. Inland Waterway System Our 12,000-mile inland and intracoastal waterway network is a vital component of our national freight transportation system. This network depends on 198 locks, with 241 chambers, that provide the stair-steps to move cargo deep into the Nation’s interior – Pittsburgh, Chicago, Minneapolis, even Tulsa, Oklahoma, and Lewiston, Idaho. We estimate the replacement value of this infrastructure – if we had to rebuild it all today – would be in the neighborhood of $125 billion. This system handles over 600 million tons of freight annually, keeping this traffic off our overcrowded highways and railroads, and – on average -- barges move this cargo at about 2/3rds the cost of rail and about 1/10 the cost of truck.Our 12,000-mile inland and intracoastal waterway network is a vital component of our national freight transportation system. This network depends on 198 locks, with 241 chambers, that provide the stair-steps to move cargo deep into the Nation’s interior – Pittsburgh, Chicago, Minneapolis, even Tulsa, Oklahoma, and Lewiston, Idaho. We estimate the replacement value of this infrastructure – if we had to rebuild it all today – would be in the neighborhood of $125 billion. This system handles over 600 million tons of freight annually, keeping this traffic off our overcrowded highways and railroads, and – on average -- barges move this cargo at about 2/3rds the cost of rail and about 1/10 the cost of truck.

5. The inland waterways are an efficient and environmentally friendly way to move relatively low value and high volume cargoes long distances – at low cost per ton. The bulk cargoes are the building blocks for our economic activity – basic energy sources such as coal and petroleum, farm products for export, chemicals for manufacturing, aggregates for construction – and, of course, metal ores, products and scrap. Our inland waterways handled 624 million tons of these commodities in 2005 (don’t have final 06 numbers yet). Coal is the leading commodity in terms of tons (at 30%) followed by petroleum at 25%.The inland waterways are an efficient and environmentally friendly way to move relatively low value and high volume cargoes long distances – at low cost per ton. The bulk cargoes are the building blocks for our economic activity – basic energy sources such as coal and petroleum, farm products for export, chemicals for manufacturing, aggregates for construction – and, of course, metal ores, products and scrap. Our inland waterways handled 624 million tons of these commodities in 2005 (don’t have final 06 numbers yet). Coal is the leading commodity in terms of tons (at 30%) followed by petroleum at 25%.

6. Inland Waterway CommoditiesShare by Ton-Mile, 2005 But in terms of ton-miles we see a different pattern. The system handled 274 billion ton-miles in 2005 – which is about 10% of all intercity freight. Farm products made up about 25% of this traffic – indicating this cargo group generally moves longer distances over the system than most other commodities. But in terms of ton-miles we see a different pattern. The system handled 274 billion ton-miles in 2005 – which is about 10% of all intercity freight. Farm products made up about 25% of this traffic – indicating this cargo group generally moves longer distances over the system than most other commodities.

7. The Inland Waterway Connection:Linking the Heartland to the Coasts Our Navigation Mission is vitally important to the Nation’s economy. Nearly 30% of US GDP now depends on foreign trade, and much of this trade moves through our ports. Across the country, some 50 harbors handle over 10 million metric tons of total traffic annually – domestic and foreign. 4 port areas each handled over 100 million total tons in 2002 – South Louisiana – 216 million Houston – 178 million NY&NJ – 135 million Lower Delaware River ports – 112 million About 90 percent of our overseas foreign trade is handled through just 30 ports, based on cargo value. Our Navigation Mission is vitally important to the Nation’s economy. Nearly 30% of US GDP now depends on foreign trade, and much of this trade moves through our ports. Across the country, some 50 harbors handle over 10 million metric tons of total traffic annually – domestic and foreign. 4 port areas each handled over 100 million total tons in 2002 – South Louisiana – 216 million Houston – 178 million NY&NJ – 135 million Lower Delaware River ports – 112 million About 90 percent of our overseas foreign trade is handled through just 30 ports, based on cargo value.

8. Inland Waterway Transportation:Market Uncertainties High Fuel Costs: Impacts transportation and production costs Weak Dollar: Increases cost of imports Tight Barge Capacity: Higher barge freight rates and competition with other cargo for scarce equipment System Reliability: Will the lock be open? There are a number of market uncertainties that could have an impact on barge movements of metals. High fuel costs affect all of us and have a clear impact on transportation and production costs. The value of the dollar continues to fall – and a weak dollar increases the cost of those imported metals and metal products moving by barge off the Lower Mississippi. The size of the covered hopper barge fleet has been declining for a number of years. This tightens the availability of barges and – along with higher fuel costs - has helped lead to a dramatic increase in barge rates. There is another market uncertainty that is a particular concern to the Corps of Engineers – inland waterway system reliability. Shippers using barge transportation – including metal shippers -- want a high level of confidence that a river lock will be open when their cargo reaches it. And if it is open, they don’t want to be held up by huge queues waiting to get through. There are a number of market uncertainties that could have an impact on barge movements of metals. High fuel costs affect all of us and have a clear impact on transportation and production costs. The value of the dollar continues to fall – and a weak dollar increases the cost of those imported metals and metal products moving by barge off the Lower Mississippi. The size of the covered hopper barge fleet has been declining for a number of years. This tightens the availability of barges and – along with higher fuel costs - has helped lead to a dramatic increase in barge rates. There is another market uncertainty that is a particular concern to the Corps of Engineers – inland waterway system reliability. Shippers using barge transportation – including metal shippers -- want a high level of confidence that a river lock will be open when their cargo reaches it. And if it is open, they don’t want to be held up by huge queues waiting to get through.

9. The Corps’ Challenge: Reliability U.S. inland waterways infrastructure is an aging system – more than half the locks are over 50 years in age We reap the benefits from a public investment of our parents and grandparents generations But we have not adequately reinvested to maintain and modernize the system The consequences are increasing incidents of downtime and a higher risk of a major component failure… RELIABILITY is an increasingly critical challenge facing the users of the system and the Corps. The U.S. inland waterways infrastructure is an aging system – more than half the locks are over 50 years in age. Today we continue to reap the benefits from public investments of our parents and grandparents generations. But we have not adequately reinvested to maintain and modernize the system. The consequences are increasing incidents of downtime and a higher risk of a major component failure… RELIABILITY is an increasingly critical challenge facing the users of the system and the Corps. The U.S. inland waterways infrastructure is an aging system – more than half the locks are over 50 years in age. Today we continue to reap the benefits from public investments of our parents and grandparents generations. But we have not adequately reinvested to maintain and modernize the system. The consequences are increasing incidents of downtime and a higher risk of a major component failure…

10. Corps’ Civil Works Appropriations1967 – 2006 in Constant (FY 96) $ Billions Like many federal agencies the Corps has been challenged to “do more with less”. Funding for the Corps in constant dollar terms declined through the 70s and 80s as major construction projects were completed – and new ones were deferred. Both construction and operation & maintenance budgets have been largely flat in recent decades. At the same time our projects have aged, requiring more maintenance. And we have added significantly to our portfolio of projects – especially in the environmental area.Like many federal agencies the Corps has been challenged to “do more with less”. Funding for the Corps in constant dollar terms declined through the 70s and 80s as major construction projects were completed – and new ones were deferred. Both construction and operation & maintenance budgets have been largely flat in recent decades. At the same time our projects have aged, requiring more maintenance. And we have added significantly to our portfolio of projects – especially in the environmental area.

11. Challenge: Major Locks and DamsRequiring Emergency Repairs November 2002 through Oct 2007 A consequence of not adequately reinvesting in our waterways is an the increasing number of emergency repairs across the system. In many respects we’ve had to move to a “fix – as –fail” approach. Increasingly, we are fixing components when failure becomes imminent, or actually occurs. And then we have to scramble to divert funds and resources from other activities to respond to the emergency and restore service as soon as we can. Since November 2002, we’ve had at least 12 significant incidents requiring emergency repairs at locks or dams.A consequence of not adequately reinvesting in our waterways is an the increasing number of emergency repairs across the system. In many respects we’ve had to move to a “fix – as –fail” approach. Increasingly, we are fixing components when failure becomes imminent, or actually occurs. And then we have to scramble to divert funds and resources from other activities to respond to the emergency and restore service as soon as we can. Since November 2002, we’ve had at least 12 significant incidents requiring emergency repairs at locks or dams.

12. Challenge: Aging Infrastructure + O&M Backlog = Increasing “Downtime” at Locks Aging infrastructure has consequences. Increasing challenge to operate and maintain. Problem can be seen in huge increase in both scheduled and unscheduled “unavailability” time at locks. Such downtime at locks more than doubled in the 1990s to an annual average of over 100,000 hours system-wide between 2001-06. Scheduled maintenance and repairs are taking longer. Unscheduled closures due to failure of a lock component, or some other incident, are occurring more often and taking longer to fix. Such service interruptions cost our customers time and money – but of course the unscheduled closures have the most disruptive impacts – such as in 2005 at Hannibal Lock on the Ohio. This also represents a long-term erosion in the navigation capacity of our system – we simply can’t handle the same volume of traffic as periods of closure increase in duration. (The big increase in 2006 is impacted by the prolonged closure of Wilson Lock on the Tennessee River after a tow heavily damaged a gate – so not a maintenance issue, but it was a safety issue that needs to be addressed.)Aging infrastructure has consequences. Increasing challenge to operate and maintain. Problem can be seen in huge increase in both scheduled and unscheduled “unavailability” time at locks. Such downtime at locks more than doubled in the 1990s to an annual average of over 100,000 hours system-wide between 2001-06. Scheduled maintenance and repairs are taking longer. Unscheduled closures due to failure of a lock component, or some other incident, are occurring more often and taking longer to fix. Such service interruptions cost our customers time and money – but of course the unscheduled closures have the most disruptive impacts – such as in 2005 at Hannibal Lock on the Ohio. This also represents a long-term erosion in the navigation capacity of our system – we simply can’t handle the same volume of traffic as periods of closure increase in duration. (The big increase in 2006 is impacted by the prolonged closure of Wilson Lock on the Tennessee River after a tow heavily damaged a gate – so not a maintenance issue, but it was a safety issue that needs to be addressed.)

13. Reliability –A System Maintenance Approach Goal: Achieve Acceptable Levels of Reliability The Corps has made significant progress in the last three years on redefining our approach to achieving acceptable levels of navigation system reliability Defining Reliability Performance Standards Applying reliability standard to each project site Assess current reliability status and plan strategy Implementing long-term system optimum improvements Clear dialog with stakeholders A risk management methodology as cornerstone to way forward What are we doing? We are working hard to provide improved reliability to our customers through a systems approach to maintenance priorities. Our goal: Achieve acceptable levels of reliability. Towards this end: The Corps has made significant progress in the last three years on redefining our approach to achieving acceptable levels of navigation system reliability; We’re Defining Reliability Performance Standards; Applying reliability criteria to each project site Assessing current reliability status and planning our strategy accordingly We’ve begun implementing long-term system optimum improvements It requires a clear dialog with our stakeholders – such as this audience -- so you have a say in how we proceed A risk management methodology is the cornerstone to way forwardWhat are we doing? We are working hard to provide improved reliability to our customers through a systems approach to maintenance priorities. Our goal: Achieve acceptable levels of reliability. Towards this end: The Corps has made significant progress in the last three years on redefining our approach to achieving acceptable levels of navigation system reliability; We’re Defining Reliability Performance Standards; Applying reliability criteria to each project site Assessing current reliability status and planning our strategy accordingly We’ve begun implementing long-term system optimum improvements It requires a clear dialog with our stakeholders – such as this audience -- so you have a say in how we proceed A risk management methodology is the cornerstone to way forward

14. Average Hourly Delays by LockAll Tows, 2005 Another concern to users are delays at locks due to congestion and processing time. Many locks are undersized for today’s tow configurations. Tows must be uncoupled and pass through the locks in two (or more) lockages and then reassembled. This process can take two hours or more compared to 30 minutes or so for a single lockage. That, in turn, can lead to long queues of tows awaiting their turn to lock through – especially during peak periods like harvest time. As you can see in the graph, 24 key locks averaged more than two hours of delay for each tow passing through. Five locks average more than 5 hours of delay. The good news is that many of these locks have larger replacement chambers under construction or authorized (green and yellow bars).Another concern to users are delays at locks due to congestion and processing time. Many locks are undersized for today’s tow configurations. Tows must be uncoupled and pass through the locks in two (or more) lockages and then reassembled. This process can take two hours or more compared to 30 minutes or so for a single lockage. That, in turn, can lead to long queues of tows awaiting their turn to lock through – especially during peak periods like harvest time. As you can see in the graph, 24 key locks averaged more than two hours of delay for each tow passing through. Five locks average more than 5 hours of delay. The good news is that many of these locks have larger replacement chambers under construction or authorized (green and yellow bars).

15. Major Navigation Projects OperationalCost-Shared with Trust Fund As of 2007

16. Meeting the Challenge:Major Navigation Projects Underway As of 2007 So what do we have underway to address capacity constraints and improve the SUSTAINABILITY of the system? We have a very active modernization program with nine new or replacement locks currently under construction that will add capacity, and five major rehabilitations that will improve reliability. All of these with the exception of Montgomery Point Lock & Dam (McClellan-Kerr Arkansas River Waterway), are being cost-shared 50/50 from the Inland Waterways Trust Fund. Congress appropriated about $433 million for these projects this year. Altogether these projects represent an investment of nearly $6 billion in system modernization. We’re still waiting to find out what funding will be in 08, but the President’s Budget Request for most of these projects would keep momentum in the construction program. So what do we have underway to address capacity constraints and improve the SUSTAINABILITY of the system? We have a very active modernization program with nine new or replacement locks currently under construction that will add capacity, and five major rehabilitations that will improve reliability. All of these with the exception of Montgomery Point Lock & Dam (McClellan-Kerr Arkansas River Waterway), are being cost-shared 50/50 from the Inland Waterways Trust Fund. Congress appropriated about $433 million for these projects this year. Altogether these projects represent an investment of nearly $6 billion in system modernization. We’re still waiting to find out what funding will be in 08, but the President’s Budget Request for most of these projects would keep momentum in the construction program.

17. Just a couple quick highlights from the ongoing lock construction program… McAlpine Locks and Dam is on the Ohio River at Louisville. The ongoing project here is to replace the old 600-foot auxiliary lock with a second 1200-foot chamber. We want to complete this project as soon as possible because having just a single chamber in operation (left side of photo) puts Ohio River traffic at risk from any incident that might shut down or impede that chamber. We have already faced an emergency closure for gate repairs that effectively closed the Ohio River to through traffic for 11 days. So we hope to have this $430 million project open to traffic by early 2009. Just a couple quick highlights from the ongoing lock construction program… McAlpine Locks and Dam is on the Ohio River at Louisville. The ongoing project here is to replace the old 600-foot auxiliary lock with a second 1200-foot chamber. We want to complete this project as soon as possible because having just a single chamber in operation (left side of photo) puts Ohio River traffic at risk from any incident that might shut down or impede that chamber. We have already faced an emergency closure for gate repairs that effectively closed the Ohio River to through traffic for 11 days. So we hope to have this $430 million project open to traffic by early 2009.

18. We’re also nearing completion of a larger replacement lock at Marmet on the Kanawha River in West Virginia. This $391 million project will provide an 800 x 110-foot chamber that will allow tows to lock through in a single lockage. The two current 360 x 56-foot chambers were opened in 1934 and can only process 1 barge at a time. Delays average nearly 3 hours per tow – but can be much longer. The new lock is scheduled to open in spring 2008.We’re also nearing completion of a larger replacement lock at Marmet on the Kanawha River in West Virginia. This $391 million project will provide an 800 x 110-foot chamber that will allow tows to lock through in a single lockage. The two current 360 x 56-foot chambers were opened in 1934 and can only process 1 barge at a time. Delays average nearly 3 hours per tow – but can be much longer. The new lock is scheduled to open in spring 2008.

19. Major Inland Navigation StudiesPotentially Leading to Projects Cost-Shared from IWTF2007 There is also a lot of work on the horizon to continue modernization of the system. We have authorized lock extensions at Greenup and Myers on the Ohio. We ready to move forward with lock improvements along the GIWW at Bayou Sorrel and with channel improvements along the Texas coast. And we’re continuing design work for larger lock chambers at five sites on the Upper Miss and two sites on the Illinois Waterway, as well as small scale efficiency improvements. And we have a number of studies underway: the Ohio Mainstem and three Upper Ohio locks, major rehabs on the Columbia-Snake System in the Pacific Northwest, studies for additional channel work on the Texas reach of the GIWW, and a number of others. These studies will help us identify and program future modernization needs throughout the system. There is also a lot of work on the horizon to continue modernization of the system. We have authorized lock extensions at Greenup and Myers on the Ohio. We ready to move forward with lock improvements along the GIWW at Bayou Sorrel and with channel improvements along the Texas coast. And we’re continuing design work for larger lock chambers at five sites on the Upper Miss and two sites on the Illinois Waterway, as well as small scale efficiency improvements. And we have a number of studies underway: the Ohio Mainstem and three Upper Ohio locks, major rehabs on the Columbia-Snake System in the Pacific Northwest, studies for additional channel work on the Texas reach of the GIWW, and a number of others. These studies will help us identify and program future modernization needs throughout the system.

20. Improving Technology: CRIS Working with USCG and industry to implement new data exchange Real time river condition information for operators Automated data exchange for Corps and USCG – locks, WCSC Similar to AIS system in use on Danube and expanding to Rhine And it’s not only about adding physical capacity. We’re working on new technologies that improve safety and efficiency. Our Coastal and River Information Service – CRIS – is being developed in coordination with the Coast Guard, other agencies, and with the towing industry to implement a new data exchange. It will provide tow operators with real time information on river conditions including flows and out-drafts at locks. It will also automate data exchange for the collection of waterborne commerce and lock statistics. We’re working to link with existing AIS technology already in use by towing companies and the Coast Guard to try to minimize the need for any new equipment. Similar river services have been implemented in Europe with great success and we’re learning from their experiences.And it’s not only about adding physical capacity. We’re working on new technologies that improve safety and efficiency. Our Coastal and River Information Service – CRIS – is being developed in coordination with the Coast Guard, other agencies, and with the towing industry to implement a new data exchange. It will provide tow operators with real time information on river conditions including flows and out-drafts at locks. It will also automate data exchange for the collection of waterborne commerce and lock statistics. We’re working to link with existing AIS technology already in use by towing companies and the Coast Guard to try to minimize the need for any new equipment. Similar river services have been implemented in Europe with great success and we’re learning from their experiences.

21. WRDA ’02 ’03 ’04 ’05 ‘06 Civil Works projects usually authorized in Water Resources Development Acts (WRDAs) every two years or so. No WRDA had passed Congress since 2000. WRDA 2007 passed House and Senate by wide margins and was sent to the President Oct 23rd. Vetoed Nov 2nd. Overridden by House 361-54. Overridden by Senate 79-14. WRDA provisions include new inland and intracoastal waterway improvements (cost share 50/50 from IWTF) Harbor deepening projects Corpus Christi Miami At long last we also have a new Water Resources Development Act which has authorized some of the planned improvements I mentioned. We had not had a WRDA since 2000, so there is quite a backlog of new work that has been included. The WRDA bill passed both houses of Congress by wide margins and was sent to the President on October 23rd. The President vetoed the bill out of concern for the total cost of project that it authorizes (but funding is done separately through the appropriations process). Congress overrode the veto, again by wide margins. Among the provisions, WRDA authorizes: 7 larger replacement locks on the Upper Miss & Illinois Waterway as well as ecosystem restoration; Larger lock at Bayou Sorrel on GIWW Port Allen Route; Realignment of GIWW in Texas at Matagorda Bay and other GIWW channel improvements. WRDA would also change how the Corps conducts studies including external agency “Peer Review” for large or controversial projects and updating the Principles & Guidelines.At long last we also have a new Water Resources Development Act which has authorized some of the planned improvements I mentioned. We had not had a WRDA since 2000, so there is quite a backlog of new work that has been included. The WRDA bill passed both houses of Congress by wide margins and was sent to the President on October 23rd. The President vetoed the bill out of concern for the total cost of project that it authorizes (but funding is done separately through the appropriations process). Congress overrode the veto, again by wide margins. Among the provisions, WRDA authorizes: 7 larger replacement locks on the Upper Miss & Illinois Waterway as well as ecosystem restoration; Larger lock at Bayou Sorrel on GIWW Port Allen Route; Realignment of GIWW in Texas at Matagorda Bay and other GIWW channel improvements. WRDA would also change how the Corps conducts studies including external agency “Peer Review” for large or controversial projects and updating the Principles & Guidelines.

22. Some Features of WRDA ’07 Authorizes 751 projects 1200-foot locks at 7 sites on UMR/IWW Ecosystem restoration on UMR/IWW GIWW: Bayou Sorrel Lock, Matagorda Bay Re-route, channel improvements on High Island reach Louisiana Coastal Restoration and hurricane protection Additional Everglades restoration components Independent “Peer Review” of Corps projects in excess of $45 million Revise “Principles & Guidelines” in two years to include risk & uncertainty, public safety considerations, non-structural approaches, adaptive management, and others Project review streamlining Provides authorization – not appropriations At long last we also have a new Water Resources Development Act which has authorized some of the planned improvements I mentioned. We had not had a WRDA since 2000, so there is quite a backlog of new work that has been included. The WRDA bill passed both houses of Congress by wide margins and was sent to the President on October 23rd. The President vetoed the bill out of concern for the total cost of project that it authorizes (but funding is done separately through the appropriations process). Congress overrode the veto, again by wide margins. Among the provisions, WRDA authorizes: 7 larger replacement locks on the Upper Miss & Illinois Waterway as well as ecosystem restoration; Larger lock at Bayou Sorrel on GIWW Port Allen Route; Realignment of GIWW in Texas at Matagorda Bay and other GIWW channel improvements. WRDA would also change how the Corps conducts studies including external agency “Peer Review” for large or controversial projects and updating the Principles & Guidelines.At long last we also have a new Water Resources Development Act which has authorized some of the planned improvements I mentioned. We had not had a WRDA since 2000, so there is quite a backlog of new work that has been included. The WRDA bill passed both houses of Congress by wide margins and was sent to the President on October 23rd. The President vetoed the bill out of concern for the total cost of project that it authorizes (but funding is done separately through the appropriations process). Congress overrode the veto, again by wide margins. Among the provisions, WRDA authorizes: 7 larger replacement locks on the Upper Miss & Illinois Waterway as well as ecosystem restoration; Larger lock at Bayou Sorrel on GIWW Port Allen Route; Realignment of GIWW in Texas at Matagorda Bay and other GIWW channel improvements. WRDA would also change how the Corps conducts studies including external agency “Peer Review” for large or controversial projects and updating the Principles & Guidelines.

23. Small scale structural and non-structural measures ($256M) Mooring facilities @ Locks 12, 14, 18, 20, 22, 24 and LaGrange Switchboats @ Locks 20 through 25 Develop and test - appointment scheduling system. New 1200’ locks at Locks 20 through 25, LGR, and PEO ($1.95B of which $235M is for mitigation) Implementation will be through an adaptive approach requiring continued evaluation and reporting to the Administration and Congress. Upper Miss & Illinois WW

24. UMR-IWW Lock Plan This slide shows the mix and timing of construction of the seven locks in the first phase of lock implementation. Using roughly 9 years to build a lock and starting construction of two locks about every three years results in construction until 2026. It is key to note that the locks all get started in the first 15 years and not finished in the first 15 years.This slide shows the mix and timing of construction of the seven locks in the first phase of lock implementation. Using roughly 9 years to build a lock and starting construction of two locks about every three years results in construction until 2026. It is key to note that the locks all get started in the first 15 years and not finished in the first 15 years.

25. Inland Waterways Trust FundLegislative Background Inland Waterways Revenue Act of 1978 Created fuel tax at 4 cents per gallon Designated 26 shallow draft waterways on which the tax would apply Water Resources Development Act of 1986 Established Users Board Authorized expenditures from fund for 8 lock & dam projects Precedent for 50/50 cost-sharing Increase tax to 20 cents by 1995 WRDAs 88, 90, 92, 96, 99, 2000, E&W 03 Criteria for “major rehab” and “modernization” Added 8 new locks, 9 major rehabs, 1 coastal barrier WRDA 2007 Adds 5 Upper Miss, 2 Illinois locks, 1 GIWW lock, and GIWW channel improvements

26. Inland Waterways Trust Fund1987 - 2006

27. Declining Revenues Trust Fund revenues have been flat or declining since 2001 Industry consolidation Less long-haul grain traffic More efficient technology Fewer empty moves, deeper-draft barges Trust Fund “purchasing power” declining since tax peaked at 20 cents in 1995 Revenues tied only to fuel consumption Buying power goes down over time with inflation To have 1995 purchasing power today would be a tax around 27-29 cents.

28. Inland Waterways Trust Fund StatusEnd FY 2007 and Outlook thru FY 2008 Starting FY 07 Balance: $ 267.7 Million FY 07 Revenues: $ 91.1 Million Interest: $ 10.4 Million Outlays: $ 159.8 Million End FY 07 Balance: $ 209.4 Million End FY 07 Carry-Over Obligations: $ 71.7 Million End FY 07 Balance Available: $ 137.7 Million FY 08 Budget Request: $ 211 Million Projected Ending 08 Balance: $ 11 Million But even with the new lock improvements included in WRDA, we have another looming challenge to ongoing modernization of the system – which is the depletion of the Inland Waterways Trust Fund. As I mentioned, most of the lock modernization projects underway are being cost-shared 50/50 from the Trust Fund. The Trust Fund balance has fallen from nearly $400 million several years ago to just over $200 million – and we have carry-over obligations of $72 million against that balance. This means the effective balance for purposes of new funding is down to less than $140 million. So – depending on revenues and outlays in 2008 (we still don’t know what Congress will appropriate) -- we’re looking at the Fund being drawn down to near zero by sometime in early fiscal year 2009. Main reasons: flat Trust Fund revenues since 2000 and increasing costs for ongoing construction projects.But even with the new lock improvements included in WRDA, we have another looming challenge to ongoing modernization of the system – which is the depletion of the Inland Waterways Trust Fund. As I mentioned, most of the lock modernization projects underway are being cost-shared 50/50 from the Trust Fund. The Trust Fund balance has fallen from nearly $400 million several years ago to just over $200 million – and we have carry-over obligations of $72 million against that balance. This means the effective balance for purposes of new funding is down to less than $140 million. So – depending on revenues and outlays in 2008 (we still don’t know what Congress will appropriate) -- we’re looking at the Fund being drawn down to near zero by sometime in early fiscal year 2009. Main reasons: flat Trust Fund revenues since 2000 and increasing costs for ongoing construction projects.

29. Trust Fund Options With Current Authority Prioritize funds for high return and nearly completed projects (Budget attempts this) Spread available funds across ongoing projects (previous approach from Congress) Legislative Options Increase fuel tax (might have to double) Change 50% cost-share requirement Inland Waterways Users Board examining commercial financing or bonding authority Administration’s budget proposal for user fee alternatives now under study Stay tuned… So the question is what happens next. With no change in current authority we can: Prioritize funds for high return and nearly completed projects (08 budget request begins this approach, likely 09 budget would curtail some project funding requests even more); Or we could spread available funds across most or all ongoing projects to keep them moving, but at levels far less than needed for efficient construction (Senate 08 appropriations bill does this); If new legislation is proposed – and the Asst Sec of the Army has said it will be – some of the options include: Increasing the fuel tax, which has been 20 cents per gallon since 1995 – it might have to double to fully fund all ongoing projects; Change the current 50/50 cost-sharing requirement; Looking at alternative ways to fund construction, such bonding authority for upfront funding to be repaid by future revenues (the Users Board’s preferred approach) Or alternatives to the fuel tax, such as users fees proposed by the Administration (structure still to be determined); So stay tuned for what happens next…So the question is what happens next. With no change in current authority we can: Prioritize funds for high return and nearly completed projects (08 budget request begins this approach, likely 09 budget would curtail some project funding requests even more); Or we could spread available funds across most or all ongoing projects to keep them moving, but at levels far less than needed for efficient construction (Senate 08 appropriations bill does this); If new legislation is proposed – and the Asst Sec of the Army has said it will be – some of the options include: Increasing the fuel tax, which has been 20 cents per gallon since 1995 – it might have to double to fully fund all ongoing projects; Change the current 50/50 cost-sharing requirement; Looking at alternative ways to fund construction, such bonding authority for upfront funding to be repaid by future revenues (the Users Board’s preferred approach) Or alternatives to the fuel tax, such as users fees proposed by the Administration (structure still to be determined); So stay tuned for what happens next…

30. Cumulative Economic Benefits Foregone from Construction Delays

31. AdministrationUser Fee Proposal Recognizes that Trust Fund will be depleted by 2009 at present expenditure rate Principal options are stop some projects or increase funds Administration prefers a User Fee that ties burden of capital improvements to beneficiaries Analysis underway to assess options and their economic impacts Impacts on individual waterways and commodities is a concern Unresolved issues on who pays and how collected Considerations to be addressed with stakeholders Impacts of a fee vs. a tax? What would be fee mechanism -- a fee per barge (loaded?), and is it based on use of a lock or something else? Distance traveled? Fee or tax fixed or adjustable? Would funds be available system-wide or where collected? Open to discussion of User Board proposal for bonding authority and how it could work DCW has requested scope for a study of alternatives Admin will likely propose legislation to accompany 09 Budget Request

32. IWUB Annual Report 2007

33. Recommendations Congress and the Administration should act to put in place a process which encourages award of multi-year construction contracts. Contracts should allow for completion of significant project segments. The Civil Works Program of the U.S. Army Corps of Engineers should be restructured to emulate the MILCON construction management process. The Military Construction Program has functioned efficiently and with significant cost savings benefits. Congress and the Administration should provide full capability funding in FY 2008 and beyond (i.e. to completion) for Inland Waterways Trust Fund projects. Congress and the Administration should direct appropriated funds to the priority projects listed in Table 1, rather than divert scarce financial resources to other authorized projects. Congress should strive to complete budget action by October 1 each fiscal year.

34. Recommendations (cont’d) Congress and the Administration should undertake an investigation to determine the feasibility of Inland Waterways Trust Fund revenues being used to issue bonds so projects can be fully funded at the 50/50 cost share basis without increasing taxes. Cost sharing for the Lockport Pool Major Rehabilitation project should reflect the multi-purpose nature of the Illinois Waterway, especially flood control and waste removal for the city of Chicago. Congress and the Administration should conduct an investigation to determine why there seems to be a significant drop in Inland Waterways Trust Fund receipts from FY 2005 to FY 2006. An informal survey by Inland Waterways Users Board members suggests that 76% of the credited receipts for FY 2006 were paid by 16 companies who were showing a year-over-year increase of 1%, rather than an overall decline of 11.5%. Congress and the Administration should require that project managers be fully accountable for scheduling, cost control, and expenditures of appropriated funds. Congress and the Administration should appropriate sufficient funds to provide for operation and maintenance of the inland waterway system and preclude catastrophic system failure as has been experienced in recent years. Congress and the Administration should direct the Corps of Engineers to develop a new contingency plan for emergency response to catastrophic failures of the inland waterway system, including a rigorous inspection program. Congress and the Administration should require that payments for waterway system damages that are now paid to the Treasury’s general fund be credited to the U.S. Army Corps of Engineers civil works accounts.

35. Other Challenges: Multi-Purpose Management Integrated inland waterway management allows these projects to serve a variety of purposes Hydropower Flood Protection Environmental Restoration Water Supply Recreation I also just wanted to quickly mention that that there are other challenges we face in managing the inland waterways. Many of our projects are authorized for multiple purposes. So managing the needs for navigation must be balanced against the needs of other purposes including: Hydropower Flood Damage Reduction Environmental Stewardship and Restoration Water Supply And Recreation We work hard to manage projects so that these purposes compliment each other. But that isn’t always possible.I also just wanted to quickly mention that that there are other challenges we face in managing the inland waterways. Many of our projects are authorized for multiple purposes. So managing the needs for navigation must be balanced against the needs of other purposes including: Hydropower Flood Damage Reduction Environmental Stewardship and Restoration Water Supply And Recreation We work hard to manage projects so that these purposes compliment each other. But that isn’t always possible.

36. Here in Georgia, and in many other states, we are struggling to balance the competing uses for water. Prolonged drought can turn a management debate into a crisis. We’re seeing this in river basins here in the southeast and in states along the Missouri River. We also face challenges with respect to endangered species and in trying to balance environmental stewardship with other missions like navigation. We won’t resolve these issues overnight, but if we all work together we can hopefully find equitable ways to balance the needs of waterway users and stakeholders –- and provide a modern and reliable navigation system in the process. Oh, and pray for rain… Thank you. Here in Georgia, and in many other states, we are struggling to balance the competing uses for water. Prolonged drought can turn a management debate into a crisis. We’re seeing this in river basins here in the southeast and in states along the Missouri River. We also face challenges with respect to endangered species and in trying to balance environmental stewardship with other missions like navigation. We won’t resolve these issues overnight, but if we all work together we can hopefully find equitable ways to balance the needs of waterway users and stakeholders –- and provide a modern and reliable navigation system in the process. Oh, and pray for rain… Thank you.