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Outlays occur at different points in time. Land sale proceeds were realized at different points in time. The adjustments for changes in inflation and deflation are frankly very difficult. But in a rough, general sense there is no question but that there was a significant thrust in the direction of at least some repayment.

Senator DOMENICI. You both conclude that we don't need to wait for further studies to begin the imposition of user fees as experts. Is that correct?

Mr. HANKE. That is correct.

Senator DOMENICI. In simple language, if you can, can you tell us first, do you agree that Americans as both taxpayers and consumers would be better off with a user charge!

Mr. SPYCHALSKI. Yes, Senator, I do believe that..
Senator DOMENICI. How about you?
Mr. HANKE. I do, too.

Senator DOMENICI. Can you tell us in layman's language why? I understand the taxpayer. Whatever we are paying, he won't pay. But nonetheless, there are those who say the consumers are going to pay more. We have heard a number of economists say when you look at the whole thing, the consumer is really better off. Could either of you or both of you tell us that and why that would he in simple language?

Mr. HANKE. I think from my perspective one of the major things would be the fact that the value of the waterways would in aggregate be improved. In other words, there would be some waterways that if they were uneconomic in the sense of not being able to pay the O. & M. cost repayment, again in my terms segment tolls, they would be phased out. So you would be getting rid of investments that didn't yield a quality rate of return.

So that would be a benefit. You would also be improving the value associated with the viable waterways because you would be relieving congestion. You would be allowing the shippers who value time most highly to go through the waterway in an uncongested fashion. So you would be improving the value of the highwav, so to speak, and improving the quality of service provided by inland waterways. So the consumer would be the primary beneficiary there.

Senator DOMENICI. Professor Spychalski?

Mr. SPYCHALSKI. I think we have to look at the degree to which benefits that are created by water transport are distributed through the economy. In other words, to whom do they accrue, at what points of time! The shippers using the waterways are those who reap the harvest of the nonexistence of user charges in the first instance. They do so both as customers of the commercial inland waterway carriers and, in many instances, as operators of their own inland waterway and barge equipment.

Beyond this is the matter of how and in what ways and over what period of time these benefits ultimately filter down through the economy to consumers is the next question. In my judgment, the larger portion of the total benefits accrue in an immediate or initial sense to a relatively small number of firms in industries which are often highly concentrated.

Ultimately some of these benefits do filter down to the ultimate consumer who makes use of products produced directly or indirectly by the efforts of firms that are primary recipients of the benefits of inland navigation. In the meantime you have a long, drawn out, filtering down process between the time the benefit is first received, for example, by an inland water shipper and the time that benefit reaches the consumer, or might reach the consumer, in the form of lower prices for consumer goods and services.

There is another question I think that should be considered in conjunction with this matter. That is the question of the structure, if you will; the competitive structure of some of the industries that rank as prominent inland water shippers. While I tried to keep my prepared statement of testimony free from jargon, I did mention the oligopolistic and duopolistic characteristics of numerous prominent inland water shippers which suggest that at least a portion of water transport savings might remain in corporate treasuries rather than contribute to the consumer's purchasing power.

We don't have definitive evidence of how much of such savings might or might not be withheld. But it is at least conceivable. That is the question I am raising.

Senator DOMENICI. What you are talking about is the fact that most of these barges are not owned and operated by little family companies that are going to immediately have to pass on the additional cost but, rather, owned by U.S. Šteel, National Oil, Eastern Gas and Fuel, Cooke Industries, and that type. Is that what you are referring to?

Mr. SPYCHALSKI. In general, yes, Senator. I would like to elaborate on that a bit. Even if the traffic of shippers in highly concentrated industries were carried by the relatively small carrier, the savings from the absence of user charges will be passed on to the shippers, because the typical commercial inland water carrier sells its services in a highly competitive market and thus cannot keep such savings for itself.

Thus, it is the shipper in a concentrated, imperfectly competitive industry that may conceivably capture some of the savings rather than passing those savings down to customers. This gets into the question of the degree to which price competition functions as it should or whether it functions too imperfectly in some industries.

It raises a number of complicated issues to which no one has definitive answers. Some evidence exists which suggests that downward adjustments of oligopolists' selling prices sometimes do occur in a rather sticky fashion, causing cost savings to be passed on. However, for at least some length of time, such firms will enjoy significant control over their prices. In other words, they do not face competitive pressures on price comparable to those faced by firms in less concentrated industries.

Senator DOMENICI. I understand. Did you have any comment ?

Mr. HANKE. Just to elaborate briefly on the point I was making. It is always difficult to get economics into simple terms and sometimes just a little numerical example helps more than the verbiage. Even if the price-per-ton of products shipped on the inland water

ways went up by let's say 10-cents a ton, it still might be a net benefit to those people who consume those products to have the price up if they were getting a higher quality of service and faster delivery on those goods than they were due to the fact you had congestion beforehand.

So let's say the price goes up by 10-cents a ton, but the value received in terms of time savings is 15-cents a ton. Then you have a net benefit due to the fact the price has gone up. That is a consideration that should be dealt with, I think, when you are improving the quality of service on the waterways due to the fact you have got some kind of pricing allocating the scarce resource.

Senator DOMENICI. Why is inland waterway use increasing so rapidly when other modes of transportation are not? Is it strictly because it is cheap?

Mr. SPYCHALSKI. When you get into individual freight transportation decisions, of course one has to look at all the elements that enter into the particular shipper's decision to use or not use the service. I certainly think that the level of inland water transport service costs relative to those of other modes has induced or contributed at least somewhat to this growth.

I think, too, that there are matters such as industrial relocation, changes in industry product mix, and other conditions that have to be considered. What types of commodities are presently flowing in what volumes, for example, as a result of changes in industrial processes, as compared with previous time periods? We have had tremendous growth in petrochemicals, plastics and other commodities that do lend themselves in some cases to largescale bulk movement.

There is also a quality of service question. In spite of the problems other witnesses at these hearings have been discussing concerning congestion at certain key points on the inland waterways, I think it should be acknowledged that the service quality of many inland water carriers is very good in comparison with that of some of the rail carriers.

Speed is not the only element in a shipper's consideration. Predictability or reliability in terms of delivery is another important matter. I think that in some cases inland water carriers have compiled better records of performance in regularity of delivery than have some of the railways. The water carriers have simply done a better job, and this has aided their traffic growth.

Senator DOMENICI. I note that one of the major owners of inland barges, a wholly owned subsidiary of U.S. Steel—that is the Gulf Navigation Company and Ohio Barge Line, Incorporated-first, they are owned by one of America's largest corporations. In 1976, there was an increase of 21 percent over 1975 in shipment through that is more traffic than all of the combined traffic on the Missouri and Arkansas River svstems, just that particular statistic.

Is there anything other than ordinary growth that accounts for that 21-percent increase?

Mr. SPYCHALSKI. I have not studied that carrier's particular set of circumstances, Senator, so I could not offer you any information on that question.

Senator DOMENICI. You have?
Mr. HANKE. I haven't, Senator.

Senator DOMENICI. I am going to quote one sentence from yesterday's message on water projects issued by the President on page 29. He states, "Factors in decisions," and one of them is, "Economic justification for projects can be substantially improved by the institution of user fees.” That is part of what you have been saying. Is that correct?

Mr. Hanke. That is correct.

Senator DOMENICI. You both agree that better economic justification would ensue?

Mr. HANKE. It definitely would. If you perform the benefit-cost analysis now with the rules that we have, those rules implicitly assume that you will have user fees for the output that is produced by the project. If you don't charge a price, there is a tendency for over-use which then justifies even more investment.

Senator DOMENICI. Do you agree?

Mr. SPYCHALSKI. Yes, Senator, I do. If I may add a point. In terms of the processes of making judgments about the feasibility of future waterway projects, it would, I think, be well to require explicit comparisons of the user charge revenue forecasts of such projects with their capital, operating, and maintenance outlay estimates.

Senator DOMENICI. I want to thank both of you. Your statements will be made a part of the record in full.

I appreciate your accommodating us. We took a lot of time by having you wait. Mr. HANKE. Thank you. Mr. SPYCHALSKI. Thank you.

Senator DOMENICI. Is Mr. Gobrecht here? Let me ask, could you come and be our first witness in the morning?

Mr. GOBRECHT. I could.

Senator DOMENICI. If that would not be too hard for you to accomplish.

Mr. GOBRECHT. No sweat.

Senator DOMENICI. We will put you as our starting witness so we won't be here too long tonight. Let me ask now is Mr. Kennedy from the Iowa Department of Transportation here?

Mr. Kennedy, would you care to testify now? Mr. LIGHTSEY. My name is Jim Lightsey. I am former director of river transportation. STATEMENT OF JAMES L. LIGHTSEY, FORMER DIRECTOR OF RIVER


Mr. LIGHTSEY. Mr. Chairman, other members of the Senate Water Resources Subcommittee, I appear before you today representing the State of Iowa. I would like to comment on two separate but critical transportation issues:

One, locks and dam 26.
Two, waterway user charges.

I have provided the subcommittee with a copy of a State position paper on locks and dam 26, and an Iowa DOT staff user charge proposal. I will briefly summarize these documents. (See p. 828.)

First, locks and dam 26. Iowa's recommendation for the construction of a new locks and dam 26 with one 1200' lock located 2 miles downstream was forwarded to the chief of engineers on September 5, 1975. Our recommendation has not changed in spite of many recently published studies recommending rehabilitation.

Frankly, our engineers are not satisfied that these rehabilitation projects are engineeringly sound at their "published prices.” While our objective is not to spend taxpayers' money, we feel that at this time the corps proposal is the soundest investment. We certainly would not be reluctant to change our minds in the event new evidence is presented in support of some of the cheaper rehabilitation alternatives.

Thus, the essence of this much discussed problem has not changed. We must still weigh the risks of adverse environmental consequences and possible damage to the health of railroads against the consequences of continuing to ignore a critical transportation problem, our deteriorating river system.

While we of the Iowa DOT can offer no easy answer to this problem, we do believe the solution is not to be found in allowing another mode, the river system in this case, to deteriorate into obsolescence under the guise of aiding the railroads.

In 1964 the Rock Island and the Union Pacific Railroads applied to the ICC for a merger. No decision was ever made on this proposal; 11 years later the Rock Island filed for bankruptcy. Here is an example of a transportation decision which was delayed until there was no longer a choice. We all know the result. This indecision was very expensive, especially in Iowa-in fact, some 82 X 106 per year lost in property taxes alone. We hope that the decision on locks and dam 26 won't be delayed until we no longer have a choice.

While the foregoing reflects the State of Iowa's position on locks and dam 26, the following user charge proposal reflects the views of the Iowa Department of Transportation-DOT-staff only. Whether or not the State of Iowa ultimately supports user charges will depend upon an analysis of comments generated in public hearings held throughout the State. These comments will be reviewed carefully by the Iowa Transportation Commission prior to finalizing a departmental position.

As concerns waterway user charges, the Iowa DOT reviewed Corps of Engineers accounting records to determine the costs of operating and maintaining a 300-mile section of the Mississippi River. An analysis of accounts was made, and costs were separated into channel and lock maintenance components.

The Iowa DOT examined the impact of assessing 43 percent of the attributable charges against the barge companies, an amount comparable to that paid by the trucking industry for the publicly owned highway system. The results were: 3 cents per gallon of fuel; $32 per single lockage.

The above waterway user charges would cause a 3-percent to 4percent increase in barge rates; for example, Davenport to New

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