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Strike Three... The Corps Fails Again to Justify
the Delaware River Deepening
by Dick Bewick, Dave Keifer, and Mike Casale
Sierra
Club - Delaware Chapter
In June 2002, The U.S. General Accounting Office (GAO)
released a report evaluating the U.S. Army Corps of Engineers'
("the Corps'") proposal to deepen the main navigation
channel of the Delaware River from 40 to 45 feet. Based
on that report, GAO determined that the actual benefit
cost rate (BCR) for this project was approximately 0.5.
Since projects are only economically justified if the
BCR is greater than 1.0, this finding called into question
any previous conclusions to proceed with the project.
The Corps' response was not unexpected. Instead of accepting
the GAO's findings and terminating all further work on
study and design, it conducted its own "economic reanalysis"
and concluded that the project was justified after all.
Its BCR was not high (1.14), but not surprisingly, it
was high enough to meet the minimum requirements for construction.
In December 2002, the Corps released its "Comprehensive
Economic Reanalysis Report for the Delaware River Main
Channel Deepening Project (Pennsylvania, New Jersey and
Delaware)", as well as supporting documents.
What did the Corps do during the six-month period from
June to December 2002 to "save the project?"
•It changed its analysis and forecast for crude
oil imports, by far the most important commodity affected
by the channel deepening.
• It
found new commodities, where service has been recently
initiated, and extrapolated current market conditions
over the 50-year project life.
•
It re-estimated the amount of dredge material that needed
to be removed, now concluding that less dredged material
than previously estimated would need to be removed and
disposed of.
• It reevaluated
the likely cost of acquiring land for dredge spoil disposal,
reducing this cost estimate.
•
It used a project discount rate that was significantly
lower than in past studies, thereby dramatically altering
project cost projections.
• It
continued to ignore outstanding environmental issues,
including compliance with applicable environmental laws,
which could dramatically impact project costs. In response
to GAO recommendation, the Corps introduced a new study
process for the Reanalysis, ostensibly to provide a clearer
picture of how the Corps reached its conclusions. "Independent"
Review Boards were established using "out-side" consultants.
(Though questions have been raised about the true independence
of these Corps-hired consultants.) The reviewers raised
serious questions addressed separately by the Corps. While
the documents provided by the Corps show that there was
a dialogue between the Corps and its reviewing committee,
they do not suggest that any action steps were taken:
the committee was not obliged to determine whether or
not the Corps' final adjustments to its analysis, or responses
to their questions and concerns, adequately resolved the
issues raised. This important function of assessing responsiveness
and adequacy was assigned to Corps headquarters; in every
case, Corps headquarters found that the issue had been
resolved. In addition, the reviewers did not make their
own evaluation of the merits of the project.
The Corps' conclusion that the project is economically
justified is simply not supported by its own analysis.
We have focused on six areas that show the weaknesses
of the Corps' conclusions.
1. Crude Oil Benefits: There is disagreement between the
Corps and the company that performs lightering for crude
oil tankers for Philadelphia refineries regarding lightering
costs. The Corps has acknowledged that if the lightering
company is correct, project benefits are significantly
less than project costs. ("Lightering" refers to the process
of transferring oil from one vessel to another, so that
the first can reduce its sailing draft to the depth of
the channel.)
2. Dredge Spoil Disposal: Despite Corps claims to the
contrary, the availability of suitable land for disposing
of dredged materials resulting from this project is not
clear. Moving this material to more distant sites or finding
and implementing "beneficial uses" would seriously impact
project costs.
3. Discount Rate: The Corps' most recent justification
for this project depends on the use of a discount rate
that is at a historic low point. If, for example, the
Corps used the rate established by the Office of Management
for evaluating projects, this project would not be economically
justified even if all of the Corps' other current assumptions
regarding project costs and benefits remained unchanged.
4. Project Beneficiaries: Clearly, some of the benefits
to this project will accrue to non-U.S. entities. Although
the Corps is not required to analyze the extent of this
incidence, it is certainly relevant within the broader
context of appropriate federal policy. Benefits accruing
to U.S. firms and consumers will probably not exceed project
costs even in the Corps' base case.
5. Outstanding Environmental Issues: The Corps' Reanalysis
Report and the associated documents available on the Corps'
Web site do not address any of the environmental concerns
raised up to this day. Some state permits must still be
obtained. And the Corps has failed to take necessary steps
to comply with applicable environmental laws, including
the Clean Air Act. The potentially large environmental
impacts create project uncertainties that have not been
adequately incorporated into estimated total costs.
6. Flawed "Independent" Review: The "independent" review
process is demonstrably flawed. The independent review
panel did not have all information and perspectives regarding
the project, and did not have the opportunity to provide
its own assessment of the project. In addition, the panel's
role was terminated before all of the relevant issues
were resolved. In some cases, important questions raised
by the independent review panel were not directly addressed-those
issues raised by the panel, which resulted in a benefit
cost rate less than 1, were dismissed by the Corps as
"unrealistic."
Additionally, throughout the process the Corps has decided
to derive conclusions that favor dredging from the available
facts. The Corps has also selectively accepted or rejected
the views of shippers and other affected firms, to maximize
the expected project benefits.
In summary, the Corps has been unable to refute the GAO
conclusion, or our conclusion, that the Delaware River
deepening project is not economically or environmentally
justified. Considering that the Army Corps has already
spent more than $20 million studying this project, and
many serious concerns remain, it is unlikely that any
new deepening project for the Delaware River of similar
scope can ever be justified.
We recommend that Congress
de-authorize the Main Channel Deepening project for the
Delaware River rather than wasting any more taxpayer funds
to study an inherently flawed proposal.
The economic analyses contained in this report were
conducted by Dr. RobertStearns. Dr. Stearns is currently
teaching courses in economics and conductingresearch at
the University of Maryland's School of Public Affairs.
Previously he has served as Deputy Assistant Secretary
of the Army (Civil Works) where he worked on a wide variety
of Corps of Engineers Civil Works issues. His total federal
service covers 20 years as a transportation economist
for the Department of Transportation, the Army Corps of
Engineers, and the Assistant Secretary of the Army. Previously,
he spent 10 years in academia. He received his PhDin Economics
from Yale University and his BA in mathematics from Swarthmore
College.
Dr. Stearns was Commissioned by the Delaware Riverkeeper
Network and the National Wildlife Federation to conduct
this economic analysis. Environmental and complimentary
information in this report were provided by Maya K. van
Rossum, the Delaware Riverkeeper and David Conrad, Water
Resource Specialist with the National Wildlife Federation.
For Additional Information:
Delaware
Riverkeeper Network
P.O. Box 326
Washington Crossing, PA 18977
215-369-1188
National
Wildlife Federation
1400 16th Street N.W., Suite 50
Washington, D.C. 20036
202-797-6697
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