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criterion for assessing the desirability of user charges must be the finding that such a program makes a material contribution to those objectives.

Efficiency in the Allocation of Transportation Resources

Few would argue that we should be seeking an efficient transportation network. But how do we define efficiency in an operational context? Professor Vickrey looks at efficiency almost solely on the basis of getting the most out of our existing transportation network through means that would reallocate commodity flows to avoid congestion costs. It is concerned with short-run problems and would require a set of variable user charges, both in time and place, that could well exceed by a large factor user charge proposals that have previously been considered by the Congress. Equity and cost recovery concerns appear to be of only minor significance to the Vickrey approach.

Others who have looked at efficiency tend to view this issue in a somewhat different and broader context. In theoretical terms, efficiency in transportation can only be achieved when each mode charges a price that approximates their marginal costs. Over the long run, this would assure the appropriate allocation of transportation resources. Few would argue this point. Operationally, this raises some very crucial questions. We know that other modes are allowed to set the price of transportation services both above and below their marginal costs depending upon competitive circumstances and public policy. Aside from questions of equity and the very real problem of determining marginal costs, per se, one wonders if a user charge program on waterways would in fact achieve a better allocation of transportation resources unless there are effective mechanisms that would assure at the same time marginal cost pricing for other modes. This could, operationally, call for even more regulation of transportation at a time when there is considerable public sentiment for less and less regulation.

A last facet of the efficiency concern relates to the future posture of the Federal government in allocating public investments for transportation. Some would argue that an important by-product of user charges would be an overall improvement in standards for public investments in waterways. Waterway users would be less inclined to support waterway improvements of marginal value to their operations if they knew beforehand that they would have to pay a price for such improvements. This, however, begs the question because the Congress should not be placed in the position of having to consider waterway projects of questionable merit. To the extent that there are real and legitimate questions on the merits of a particular waterway improvement project, the screening and selection of projects requires an improvement in the techniques of benefit/cost analysis and the expertise of the practitioners who undertake benefit/cost studies.

I would also note that the problems of standards and benefit/cost analysis should not be limited to inland waterways. This is only one part of the larger public policy issue related to the way in which the Federal sector makes its investments and financing available to all transportation modes. A full rationalization of these policies should be made even prior to consideration of inland waterway user charges.

The Equity Concerns

The equity issue is the second major transportation objective that is also cited as a primary reason for the imposition of user charges on inland waterways. The equity arguments generally breakdown into three categories: recovery of costs; intermodal rates; and fairness in the formulation of public policy.

Recovery of future Federal investment in the Nation's inland waterways by the users has usually been the lead argument in support of waterway user charges. Behind this is the concept that the identifiable beneficiaries of special services provided by the Federal government be obligated to pay for such services. Unless it can be demonstrated that the operators of barges are attaining monopoly rents, due to the composition and structure of the industry, beneficiaries are the ultimate consumers of the products moved on the inland waterways. This group also includes consumers in other nations who purchase exports that move on our inland waterways. It is important to recognize that the beneficiaries of current inland waterway programs represent an important and large segment of the Nation's consumers and it would ultimately be this group that would bear the costs of user charges.

This question of equity must be evaluated on the basis of the extent to which user charge programs would alter income distribution among different segments of the population.

One further facet of the cost recovery component of equity relates to impacts upon efficiency. The relationship between cost recovery programs and efficiency in the allocation of transportation resources is by no means trivial. Nearly every user charge program that has been proposed would exact some payment by waterway users whether based on a system approach, lockage fees, licenses, segment tolls, etc. These payments would include operation and maintenance for portions of the waterway system where there is little or no congestion or where one user of the waterway does not detract from other users. In this case, there is potential for the user charge to exceed marginal cost, and thereby reduce efficiency in the name of equity. This line of reasoning, in part, accounts for Professor Vickrey noting in his testimony that cost recovery can claim no specific support on efficiency grounds. Thus, there is the potential for conflict between efficiency and equity objectives. Even before we judge the priority between equity and efficiency, it is essential to visualize and understand where these may be in conflict and the extent of trade-offs involved.

Intermodal commodity rate differentials are often cited as a major equity issue in consideration of user charges. While more appropriately an efficiency issue, the basic problem is one of determining the extent to which such differentials are in fact real. Direct comparisons of rail and barge rates may be misleading. Rail rates are not necessarily based on long-run marginal cost and barge rates may not reflect true resource costs.

Such comparisons are crucial in determining the extent to which current allocation of transportation resources are efficient and the degree to which user charges could or should alter that pattern to achieve greater efficiencies. From the viewpoint of society as a whole, these comparisons would require that rates for both rail and water be approximated to reflect their respective marginal costs. This has not been accomplished in the impact studies to date. Until rate comparisons can be made on a comparable basis, we are not likely to get a clear picture on this very critical question of resource efficiency.

A last aspect of equity relates to fairness in the implementation of a major change in public policy. Earlier, reference was made to Professor Vickrey's point that the imposition of user charges would have impact through altering legitimately formed expectations of those affected. He argued that implementation should be gradual. This impact has also been referred to as changing the "terms of trade". I would carry Professor Vickrey's concern one step further by requiring that adequate study and analysis be required prior to any user charge in order to provide the affected parties with the information upon which their best response can be predicated.

WATER RESOURCES, REGIONAL DEVELOPMENT AND ENERGY PROGRAMS

Another very important criterion for judging the merits of user charge programs and proposals can be stated in the following way:

It must be shown that adverse impacts that may affect other national policies and programs do not seriously prejudice or bias those programs so as to impair their effectiveness.

There are at least three major national policy areas where objectives and programs that are likely to be affected adversely by inland waterway user charges. These are water resources, regional development and energy.

Water Resources

It is difficult to separate public policy towards the development of the Nation's inland waterway system from the policies that have been pursued in the overall development and management of the Nation's water resources. The rationale for government intervention in the stewardship of the Nation's water resources has a long history; and the management and development of waterways for multiple use is an integral facet of established policy. With respect to waterway user charges, several issues must be raised.

National water policy has grown out of increasing recognition of the physical, economic, and social interrelationships that are found in the multiple-use concept of water resources management. Failure to recognize the multiple use development of water programs would result in distinct economic and social losses to the Nation. Due to this and in consideration of current efforts to redefine the appropriate roles of the Federal and non-Federal sectors in water resources management and development (namely, the Section 80 study), it is important that inland waterway user charge programs also be assessed in that context. If public policy on waterway user charges is developed outside the overall context of related public policy concerns within Federal water resources management and development, this could distort the basis upon which our Nation's water resources are utilized and result in a failure to capture their full social utility.

Operationally, there is a very thorny question of establishing a meaningful cost base for any waterway user charge proposal given the joint cost attributes of public investments in water resources development that serve not only waterway navigation needs, but other water resource functions as well. Establishing the proper cost base is not only needed as the basis for proposals that seek some form of cost recovery, but also required if any meaningful intermodal rate comparisons are to be made as a basis for the efficiency impacts of user charge programs. There are weaknesses in the present method used by the Corps of Engineers in the allocation of project costs which results in a somewhat arbitrary allocation of common or joint costs. Even those economists who have advocated user charges concede that it would make little sense to impose user charges on waterway users to recover some arbitrary allocated costs. The problem of establishing the proper cost base should be resolved prior to legislating user charges.

Regional Development

The development and well-being of regions within the Nation have been a long standing concern of the Congress. Heavy Federal involvement in the development of the

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