Port Infrastructure: Financing of Navigation Projects at Small and
Medium-Sized Ports (Letter Report, 03/02/2000, GAO/RCED-00-58).

A sizable amount of the nation's waterborne commerce is handled at 444
small and medium-sized ports that constitute the majority of the U.S.
port system. These small and medium-sized public ports each have annual
net revenues of less than $35 million but collectively handled more than
one billion tons of cargo in 1996. GAO reviewed the Corps of Engineers'
financing of navigation projects at small and medium-sized public ports
and found that (1) for most small and medium-sized public ports, states
play a major role in financing the nonfederal share of the Corps'
navigation projects; (2) a small number of navigation projects
identified by the Corps as having initiated from 1986 through 1999 had
been terminated or suspended because the ports had failed to raise the
nonfederal share; and (3) certain types of federally sponsored
innovative financing mechanisms conceptually offer desirable financing
alternatives to fund navigation projects for some small and medium-sized
public ports.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-58
     TITLE:  Port Infrastructure: Financing of Navigation Projects at
	     Small and Medium-Sized Ports
      DATE:  03/02/2000
   SUBJECT:  Water resources development
	     Waterway costs
	     Cost analysis
	     Cost sharing (finance)
	     Construction costs
	     Harbors
IDENTIFIER:  New Hampshire
	     Oregon
	     Wisconsin
	     Maine
	     California
	     Humbolt Bay Harbor (CA)
	     Sacramento Deepwater Channel (CA)

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GAO/RCED-00-58

Appendix I: Scope and Methodology

20

Appendix II: Summary of Selected Federally Sponsored Innovative Financing
Mechanisms Used by Federal Transportation Projects

22

Appendix III: Summary of Results From GAO Survey of States
With Small and Medium-Sized Ports

23

Appendix IV: Summary of 12 Projects Terminated for Financial
Reasons

29

Appendix V: GAO Contacts and Staff Acknowledgments

31

Table 1: Phases in the Assessment Process for Specifically
Authorized and Section 107 Projects 8

Figure 1: States Currently Providing Grants or Appropriations to Fund
Navigation Projects at Small and Medium-Sized Public Ports 10

Figure 2: Funding Sources for Navigation Projects at Small and Medium-Sized
Public Ports 13

FAA Federal Aviation Administration

FHWA Federal Highway Administration

GARVEE Grant Anticipation Revenue Vehicle

TIFIA Transportation Infrastructure Finance and Innovation Act

Resources, Community, and
Economic Development Division

B-283630

March 2, 2000

The Honorable Bob Smith
Chairman, Committee on Environment
and Public Works
The Honorable Max Baucus
Ranking Minority Member
Committee on Environment
and Public Works
United States Senate

The Honorable Barbara Boxer
The Honorable Bob Graham
United States Senate

While the public may be familiar with the role of large public ports like
those in Los Angeles and New York, a sizeable amount of the nation's
waterborne commerce is handled at 444 small and medium-sized ports that
constitute the majority of the U.S. port system. These small and
medium-sized public ports each have annual net revenues of less than $35
million but collectively handled over 1 billion tons of cargo in 1996.1 They
include such seaports as Wilmington, North Carolina, and Santa Cruz,
California; such river ports as Vicksburg, Mississippi, and St. Louis,
Missouri; and such lakeports as Duluth, Minnesota, and Toledo, Ohio. To
improve access to their harbors, officials at these ports (port sponsors)
sometimes seek navigational improvements, including dredging (to deepen
channels), building breakwaters (to protect ships in harbors from rough
water conditions), and constructing turning basins (to ease ships' access to
and from ports). The U.S. Army Corps of Engineers (Corps of Engineers) is
responsible for developing and building federally funded navigation projects
at public ports. Until 1986, public ports could qualify to receive 100
percent federal funding for such improvement projects. Under the Water
Resources Development Act of 1986,2 all public ports have had to share in
the cost of navigation projects with the Corps of Engineers by paying the
nonfederal share of a project's cost, which ranges from 20 to 60 percent,
depending on the type of project and the depth of the channel.3 Other types
of transportation projects, such as airport and highway projects, also have
cost-sharing provisions. In the 1990s, the Department of Transportation
initiated several innovative financing programs, such as guaranteed loans
and other credit enhancements to lower interest costs, which helped sponsors
of airport and highway projects meet cost-sharing requirements. However, it
is the Corps of Engineers, not the Department of Transportation, that is
responsible for developing and building federally funded navigation projects
at these ports.

You asked us to examine the following issues concerning the Corps of
Engineers' financing of navigation projects at small and medium-sized public
ports. Specifically:

ï¿½ How have small and medium-sized public ports financed the nonfederal share
of the cost of navigation projects from 1986 through 1999?

ï¿½ To what extent have projects been terminated or suspended at small and
medium-sized public ports during this period because the ports were unable
to demonstrate a feasible source of funding for the nonfederal share?

ï¿½ Could federally sponsored innovative financing mechanisms help small and
medium-sized public ports fund the nonfederal share of navigation projects?

We collected data on navigation projects at small and medium-sized public
ports from the Corps of Engineers, the U.S. Maritime Administration, and
several individual ports. To determine how small and medium-sized ports
financed the nonfederal share of the cost of navigation projects, we
surveyed 37 states that potentially had the Corps of Engineers' navigation
projects at small or medium-sized public ports from 1986 through 1999 and
examined whether those states had provided financial assistance to the
ports. Due to limitations in the Corps of Engineers' record keeping, we were
not able to collect information about all the ports and all the projects
initiated during this time period. However, the Corps of Engineers did
provide detailed information on the financing plans for 63 projects. To
determine the extent that projects were terminated or suspended during this
period, we analyzed 463 projects that the Corps of Engineers identified as
having been initiated at small or medium-sized public ports from 1986
through early 1999. We discussed selected projects with Corps of Engineers
and port officials. These projects were in various stages of development or,
in many cases, had been terminated for a variety of reasons, including
financing. We used this information to determine whether federally sponsored
innovative financing mechanisms could help small and medium-sized ports fund
the nonfederal share of navigation projects. Appendix I contains a more
detailed description of our scope and methodology. Our work was performed
from April 1999 through December 1999 in accordance with generally accepted
government auditing standards.

For most small and medium-sized public ports, states play a major role in
financing the nonfederal share of the Corps of Engineers' navigation
projects. Twenty-three of the 32 states where such projects have been
conducted have provided all or a portion of the nonfederal share to the
associated public ports through annual appropriations or grants. Our
analysis of 63 projects, for which detailed financial information was
available from the Corps of Engineers, corroborated the states' role in
financing navigation projects. Our analysis showed that while most of these
projects relied primarily on assistance from the states, some projects also
used cash reserves, bonds, and grants from local communities to complete the
nonfederal share of the financing package.

Only 12 of 463 navigation projects identified by the Corps of Engineers as
having been initiated from 1986 through 1999 had been terminated or
suspended because the ports had failed to raise the nonfederal share. These
projects were located in ports and waterways where funding was limited or in
states that did not provide financial assistance for them.

Certain types of federally sponsored innovative financing mechanisms, such
as guaranteed federal loans and other credit enhancements to lower interest
costs, conceptually offer desirable financing alternatives to fund
navigation projects for some small and medium-sized public ports. However,
their practical relevance in funding the cost-sharing requirement for
navigation projects has been limited by two principal factors. First, unlike
the sponsors of airport and highway projects, the sponsors of public port
projects do not receive federal funds directly and do not have the
opportunity to increase those funds in the private debt market to help them
raise their nonfederal share. Second, the use of some federally sponsored
innovative financing mechanisms involves debt financing, which, by its very
nature, requires a project's sponsors to eventually repay the debt. Although
some sponsors of navigation projects could eventually repay such debt,
generally, the 12 sponsors that had difficulty funding navigation projects
did not have sufficient revenues to repay any type of additional debt.

The federal government has long participated in developing and improving the
nation's transportation infrastructure because a well-functioning
infrastructure is important for commerce, international trade, and national
defense. The federal government's financial participation in infrastructure
development typically requires some type of cost-sharing arrangement among
the federal government, the states, and other local entities. For navigation
projects, these requirements were initiated in the Water Resources
Development Act of 1986. The Act's requirements responded to a need to
address federal budget constraints, a desire to encourage local communities
to support such infrastructure, and a need to provide a means to prioritize
which types of development are most important.4 Public ports requesting
navigation projects are required to share in their cost by providing funds
and, in some cases, lands, easements, and rights-of-way, to the Corps of
Engineers, which uses those funds in combination with funds appropriated by
the Congress to design and build navigation projects.

For other types of infrastructure projects, such as those at airports and on
highways, the federal government has initiated several innovative financing
programs. Innovative financing programs within the Department of
Transportation provide the sponsors of airport and highway projects with the
ability to leverage federal dollars--that is, they are allowed to maximize
federal aid by accessing several types of private capital, such as loan and
bond financing, that they might not be able to obtain using their own
resources. Innovative financing programs are not grants--borrowers are
required to repay some loans or bonds at some specified time in the future
(see app. II for a summary of some of the major innovative financing
mechanisms used by the Department of Transportation and the Corps of
Engineers).

The Congress and the Corps of Engineers participate in examining potential
navigation projects to determine if they should be pursued with federal
funds. The Corps of Engineers assesses all proposed navigation projects to
determine if they meet eligibility standards for federal assistance,
including the availability of funding for the nonfederal share. When
analyzing navigation projects for basic eligibility, the Corps of Engineers
categorizes them according to two types, as defined by the Congress. The
first type, called specifically authorized projects, reflects specific
congressional interests and requires congressional authorization at various
stages of their development. According to Corps of Engineers officials,
these projects typically cost more than $4 million and take from 8 to 10
years or more to complete, depending on the scope of construction. The
second type, called continuing authority or Section 107 projects (named
after Section 107 of the River and Harbor Act of 1960) reflects specific
interests of the Corps of Engineers, because it can fund projects without
specific project-by-project congressional authorization. A Section 107
project cannot exceed $4 million. Table 1 shows the assessment process for
these two types of projects.5

Table 1: Phases in the Assessment Process for Specifically Authorized and
Section 107 Projects

 Project type               Assessment phase
                            Reconnaissance Study: The Congress may approve
                            funding for a federally funded reconnaissance
                            study conducted by the Corps of Engineers to
                            identify potential solutions to particular
                            navigation issues and determine whether further
                            study is warranted. This study typically takes
                            about 1 year.

                            Feasibility Study: If funding is approved by
                            the Congress, the Corps of Engineers will
                            initiate a feasibility study whose cost is
                            shared with the affected port or waterway
                            sponsor. This study, which typically takes
                            about 3 years, describes the economic,
 Specifically authorized    environmental, and social benefits and
 projects                   detriments of the navigation project and
                            proposes alternatives (if necessary).

                            Preconstruction, Engineering, and Design:
                            During this phase, which typically takes about
                            2 years, a cooperation agreement is developed.
                            This includes the project's plans and
                            specifications, its costs, which are finalized
                            during this process, and identifies various
                            financial resources.

                            Construction: If funding is approved by the
                            Congress, construction can begin, which
                            typically takes anywhere from 1 to several
                            years to complete, depending on the project's
                            scope.
                            Project Study: The Corps of Engineers initiates
                            the project study, which combines the elements
                            of the reconnaissance and feasibility studies
                            and provides an overall assessment of the
                            project. The cost of the project study is
                            shared with the port or sponsor.

 Section 107 projects       Cooperation Agreement: Plans and specifications
                            are developed, and the cooperation agreement
                            finalizes the project's costs and identifies
                            various financial resources.

                            Construction: The Corps of Engineers allocates
                            funds for construction from its Section 107
                            funds.

Source: Corps of Engineers.

Share for Port Navigation Projects

Over 70 percent of the 32 states that we surveyed that have small or
medium-sized public ports and that had a Corps of Engineers' navigation
project from 1986 through 1999 provided the majority of the nonfederal share
for port navigation projects. We also analyzed 63 projects' financial plans
for some small and medium-sized ports, which corroborated the state's role
in financing navigation projects, but also showed that other funding sources
were used, including capital reserves, bonds, and grants from local
municipalities.

to Small and Medium-Sized Ports

Only 9 of the 32 states with small and medium-sized public ports that we
surveyed that had Corps of Engineers' navigation projects from 1986 through
1999 did not provide grants or appropriations to help fund the

nonfederal share of the projects' costs (see fig. 1).6 The nine states that
did not provide financial assistance to those ports are California,
Connecticut, Illinois, Kentucky, Maine, Minnesota, Tennessee, Texas, and
West Virginia.

Figure 1: States Currently Providing Grants or Appropriations to Fund
Navigation Projects at Small and Medium-Sized Public Ports
Source: GAO.

The extent of states' assistance to small and medium-sized public ports is
significant. Of the 23 states that have provided financial assistance to
ports for navigation projects, 20 have provided up to 100 percent of the
nonfederal share for the Corps of Engineers' navigation projects.7 Three
other states have provided at least half of the nonfederal share. Most
states told us that in order to receive financial assistance for the
nonfederal share of a project, a port had to demonstrate that the project
would provide significant economic benefits to that state (see app. III for
information on the ports in each state).

States have used a variety of financing mechanisms to help fund the
nonfederal share of the Corps of Engineers' navigation projects. These
mechanisms include direct legislative appropriations, grant programs, and
bonds. Some states also allow local sponsors flexibility in raising their
own funds by levying property taxes or issuing general obligation or revenue
bonds.8 The following examples illustrate the range of financing mechanisms
that states have taken:

New Hampshire: The Port Authority of New Hampshire manages one major
international seaport and three smaller harbors that have commercial
traffic. The nonfederal share of the Corps of Engineers' navigation projects
in New Hampshire is funded directly through appropriations from the state's
general fund.

Oregon: Ports in Oregon consult with the state's Economic Development
Department before initiating a navigation project. If it is approved, the
Economic Development Department funds the entire nonfederal share for the
Corps of Engineers' project. These funds are earmarked specifically for this
purpose from state lottery revenues.

Wisconsin: Wisconsin provides up to 50 percent of the nonfederal share of
the Corps of Engineers' navigation projects. Ports in Wisconsin are able to
levy property taxes and issue general obligation and revenue bonds without
voter approval to raise funds to finance the remaining nonfederal share of
these projects.

In contrast, some states, such as the following, provide no direct grants or
appropriations to help fund the nonfederal share of the Corps of Engineers'
navigation projects:

California: California provides no grants or appropriations to ports trying
to finance the nonfederal share of the Corps of Engineers' navigation
projects. However, the state provides low-interest loans to local
governments to create or improve harbors for small crafts. For the Corps of
Engineers' navigation projects, the loans are limited to constructing
breakwaters and basins and are not available for channel dredging.

Maine: The Maine Department of Transportation uses funds raised by general
obligation bonds to develop recreational and commercial ports' landside
facilities (such as docks, piers, roads, and wharves) but does not provide
any financial assistance to improve their navigational access.

Analysis of Selected Projects' Financing Plans Affirms Reliance on State
Support

Our analysis of the financing plans for 63 navigation projects from 1986
through 1999 that were provided by the Corps of Engineers showed the
reliance of small and medium-sized public ports on the states' support.9 Our
analysis showed that 65 percent of the 63 projects relied, at least in part,
on assistance from the states to help finance the nonfederal share of their
Corps of Engineers' navigation projects. In addition to this assistance, the
ports also used a variety of other financing sources, but data were not
consistently available to show the magnitude of the financial contribution
supplied by each source. The proportion of projects that used various
financing sources is shown in figure 2.

Figure 2: Funding Sources for Navigation Projects at Small and Medium-Sized
Public Ports
Notes: The total percentage presented is more than 100 percent because 24 of
the ports used more than one source to finance the nonfederal share of a
navigation project.

The "other" category includes direct loans to ports, operating income, and
tax revenue.

Source: The Corps of Engineers' project data.

The cost or size of a project had little apparent influence on the types of
financing mechanisms used, except as might be expected, specifically
authorized projects tended to use multiple sources of funds to finance their
share, while smaller Section 107 projects tended to use a single source of
funding. For example:

Humbolt Bay Harbor, California: A small harbor used by commercial fishermen
and timber interests, located along the northern California coast, Humbolt
Bay Harbor District developed a financing plan for its specifically
authorized project that used a combination of cash reserves, a grant from
the local city of Eureka, loans, fee increases, the imposition of a tariff,
and debt restructuring to finance the $5.2 million nonfederal share of its
$15.2 million dredging project.

Virginia: Virginia was the local sponsor for a Section 107 project to
improve navigation to the entrance channel to the York River, located west
of the Chesapeake Bay and north of Norfolk. According to the project's
financing plan, Virginia pledged to contribute the entire nonfederal share
of $1.49 million toward the $4.26 million improvement project.

Suspended for Lack of Funding for the Nonfederal Share

We analyzed databases obtained from the Corps of Engineers and found that 12
projects, or less than 3 percent, of the approximately 463 navigation
projects initiated or in progress from 1986 through early 1999 were
terminated or suspended because the port was unable to obtain funding for
the nonfederal share,10 according to Corps of Engineers and port officials.
Generally, these projects, such as the two examples that follow, were
located in states that did not provide grants or appropriations for the
nonfederal share or in states where the funding sources of local sponsors
were limited (see app. IV for a summary of each project and the main reasons
provided by local officials for the inability to secure nonfederal funding).

ï¿½ The Port of Sacramento, California, proposed a dredging project to deepen
the channel of a 39-mile section of the Sacramento River and the Sacramento
Deepwater Channel from 30 feet to 35 feet. The nonfederal share of the
project amounted to $12 million. In fiscal year 1998, the port had net
revenues of $153,000. According to the port director, the port could not
fund the project through its cash flow or issuing new debt. New taxes were
politically unacceptable, and local governments were either unable or
unwilling to fund the sum. The port is attempting to increase its revenues
by developing its real estate into business parks. Also, the port is hoping
that California will authorize a program to help local sponsors leverage
federal funds.

ï¿½ A project for Appalachicola, Florida, a city with a population of less
than 3,000, involved deepening a channel and boat basin so commercial shrimp
boats could enter and exit the port's basin more efficiently. The estimated
cost of a feasibility study ranged from $300,000 to $400,000, with the local
community having to share half the cost. According to the Corps of
Engineers' documents and city officials, the project was terminated because
the city could not pay its share of the feasibility study.

Mechanisms Have Limited Relevance for Public Ports

While access to federally sponsored innovative financing mechanisms, such as
those offered to airport and highway sponsors by the Department of
Transportation, may be desired by some ports, most of the ones we examined
would currently have limited practical relevance for navigation projects at
small and medium-sized ports. Unlike sponsors of airport and highway
projects, sponsors of navigation projects currently do not receive federal
funds directly and therefore do not have the opportunity to leverage those
funds in the private debt market to help them raise their nonfederal share.
Even if ports directly received federal funds, innovative financing alone
might not assist the ports we identified that were unable or unwilling to
raise the nonfederal share.

Since 1994, the Department of Transportation has developed several
innovative financing mechanisms, such as guaranteed loans and other credit
enhancements to lower interest costs, for local sponsors to raise additional
private capital for highway and airport projects. These mechanisms are
currently used by the Federal Highway Administration (FHWA) and the Federal
Aviation Administration (FAA). For example, both FHWA and FAA allow states
or airports, respectively, to use federal grants to pay the interest on
loans obtained for approved capital development projects.

Our analysis indicates that most of the financial mechanisms used by FHWA
and FAA to fund infrastructure projects would currently have little
practical value in raising funds for the nonfederal share of navigation
projects because FHWA and FAA operate on a different model than that of the
Corps of Engineers. Currently, the Congress appropriates capital funds to
FHWA and FAA, which, in turn, allocate the federal funds directly to states
or individual sponsors, who then contract the projects out for
private-sector construction. Those states or individual sponsors can then
leverage the federal funds in the private debt market. However, according to
Corps of Engineers officials, public ports do not receive federal funds
directly from the Corps of Engineers because it is not a grant-making
agency. Instead, the Congress appropriates funds on a per-project basis to
the Corps of Engineers' budget, which are then used to develop and construct
port projects. The ports have no opportunity to leverage federal funds in
the private debt market because they never receive federal funds directly.

Even if ports were allowed to leverage federal funds, much as airport and
highway agencies do, innovative financing alone would probably provide
little benefit to the 12 ports that could not raise the nonfederal share of
funding for their navigation projects. Leveraging still requires repaying
the borrowed money, and most of these ports indicated that either the
short-term or the long-term cash flow required for repayment could continue
to be a problem. Three of the 12 ports indicated that, short of a total
subsidy, there was little that the federal government could do to help their
proposed navigation project because they did not have the ability to repay
the loans or the debt that would be incurred through various types of
innovative financing.

Officials at 5 of the 12 ports indicated that perhaps some types of
innovative financing, such as low-interest loans combined with a delayed
payment schedule, might help them finance the nonfederal share.11 However,
the ability of these ports to repay debt was uncertain. For example, port
officials at Pillar Point Harbor in California said they needed some form of
short-term financial assistance that would allow them to develop their
port's facilities and establish new sources of revenue. The officials
expected that the combination of adding a new $4 million pier (that is not
eligible for federal funds) and building a deeper channel would enhance
their revenue stream. However, while the new pier and the deeper channel are
being built, the port would have no new revenue stream, and port officials
said they could not accommodate the additional debt required to complete
both projects. They surmised that low-interest loans, coupled with some form
of delayed repayment, could help the port reach a point at which additional
revenues could be generated to pay off the port's share of the projects'
costs. However, they also said that they did not have firm commitments from
businesses ready to use the new facilities. Overall, officials at three of
the five ports said that, while they believed that innovative financing
might help them finance navigation projects, they had not yet performed
economic or other analyses to estimate future revenues and show how they
could repay any incurred indebtedness.

Available information for navigation projects from 1986 through 1999
suggests there is no compelling reason to change the current cost-sharing
ratio (ranging from 20 to 60 percent) between the Corps of Engineers and
public ports for financing navigation projects. We believe that the
conditions that existed when the Congress enacted the Water Resources
Development Act of 1986, such as constraints on the federal budget and a
desire to encourage states and local communities to prioritize and support
infrastructure projects, continue to be relevant today. Our analysis showed
that most states provide some assistance to public ports to finance the
nonfederal share of navigation projects. Moreover, only a small number of
port projects--less than 3 percent--were terminated or suspended because of
an inability to raise the nonfederal share. We believe that such a small
number of projects suggests that the Act, which emphasized a local role in
prioritizing port projects, is working as designed, and communities are
prioritizing their resources accordingly.

GAO provided copies of a draft of this report to the Department of Defense
and to the Department of Transportation for review and comment. The
Department of Defense indicated that it had no comments on the draft report.
In responding for the Department of Transportation, the Maritime
Administration provided technical clarifications, which were incorporated
into the report as appropriate.

We will send copies of this report to the Honorable Rodney E. Slater,
Secretary of Transportation; the Honorable William S. Cohen, Secretary of
Defense; the Honorable Lewis Caldera, Secretary of the Army; Lt. General
Joseph N. Ballard, Chief Engineer, U.S. Army Corps of Engineers; Admiral
James M. Loy, Commandant, U.S. Coast Guard; and Clyde Hart, Administrator,
U.S. Maritime Administration. We will also make copies available to others
on request.

If you or your staff have any questions about this report, please call me at
(202) 512-2834. Appendix V lists key contacts and contributors to this
report.
Phyllis F. Scheinberg
Associate Director,
Transportation Issues

Scope and Methodology

To determine how small and medium-sized public ports financed the nonfederal
share of the Corps of Engineers' navigation projects, we examined financing
plans from cost-sharing agreements between local sponsors at small and
medium-sized ports and the U.S. Corps of Engineers (Corps of Engineers). We
obtained the financing plans at the Corps of Engineers headquarters and
through a data query to its district offices. We analyzed the plans to
determine the sources of financing that sponsors used to pay for the
nonfederal share. In addition, we sent a written survey to 37 states that
potentially have public ports. In developing the survey, we pretested it
with officials in the following states: Alaska, Massachusetts, North
Carolina, Oregon, Texas, and Washington. We also developed a list of small
and medium-sized ports based on our analysis of several Corps of Engineers'
databases because a single one does not contain a list of all public ports.
We used data from publications by the Corps of Engineers Navigation Data
Center and the agency's U.S. Waterways Data CD, Volume 4, April 1998. We
supplemented this list by comparing the data with the list of public ports
found in the U.S. Maritime Administration's Report to the Congress on the
Status of Public Ports in the United States, 1996-1997. For the purposes of
this study, we defined 17 of the ports in the list as large ports--having
net revenues in excess of $35 million and excluded them when we examined the
Corps of Engineers' navigation projects. We asked officials from the Corps
of Engineers, the Maritime Administration, and the Coast Guard to review our
list for completeness and to review our proposed definition of large ports
for accuracy. The officials did not suggest any additional ports that should
be included in the list and, in general, they agreed with our definition of
large ports. Finally, we interviewed Corps of Engineers officials, and we
reviewed agency documents on the process and the requirements for navigation
projects.

To determine whether projects had been terminated or suspended at small and
medium-sized ports because they were unable to demonstrate a feasible source
of funding for the nonfederal share, we analyzed the Corps of Engineers'
databases on its specifically authorized and Section 107 projects. Based on
information in these two databases, we initially identified 52 projects at
small and medium-sized U.S. ports that may have been terminated for
financial reasons. We sent a query to all 37 of the associated Corps of
Engineers district offices requesting them to verify the reasons why these
projects had been terminated and to identify any other projects that had
been terminated for financial reasons. Based on responses from officials at
the 37 districts and port officials, we identified 12 projects that had been
terminated or suspended for financial reasons. Finally, we visited 3 of the
12 projects, (Sacramento, California; Noyo Harbor, California; and Pillar
Point, California) to discuss financing issues specific to those projects.
Officials at the Corps of Engineers districts provided us with 19 additional
projects that may have encountered financing difficulties, but we did not
include them in our analysis because they did not meet the requirements
established by the Corps of Engineers.

To examine some examples of federally sponsored innovative financing
mechanisms that could potentially help small and medium-sized ports fund the
nonfederal share of navigation projects, we obtained and reviewed program
information about innovative financing mechanisms under development at the
Department of Transportation's Federal Highway Administration (FHWA) and the
Federal Aviation Administration (FAA). We discussed innovative financing of
transportation projects with officials at FHWA and FAA. We also examined the
methods used to appropriate funds to FHWA, FAA, and the Corps of Engineers
for transportation infrastructure projects. Finally, we discussed innovative
financing mechanisms with port and waterway officials who were unable to
obtain the nonfederal share of navigation projects to determine if any of
those mechanisms might have been useful.

Summary of Selected Federally Sponsored Innovative Financing Mechanisms Used
by Federal Transportation Projects

 Financing mechanism      Agency                  Purpose
                                                  Allows states to use
                                                  federal funds to provide
 State infrastructure                             loans, credit
 banksa                   FHWA                    enhancements, or other
                                                  forms of financial
                                                  assistance to projects.
                                                  Lowers the cost of
 Commercial bond          FAA (pilot) and FHWA    financing projects that
 insurance or other       (within state           use general obligation or
 credit enhancement       infrastructure banks)   revenue bonds as part of
                                                  their financial package.
                                                  Allow states to leverage
                                                  future federal highway
 Grant Anticipation                               apportionment funds
 Revenue Vehicle (GARVEE) FHWA                    toward the payment of
 bonds                                            principle and interest,
                                                  thereby securing future
                                                  federal funding before it
                                                  is actually appropriated.
                                                  Allows for in-kind
 Flexible match                                   donations of land,
                                                  easements, and
 (using a variety of      Corps of Engineers      rights-of-way to be
 funding sources)                                 applied toward the
                                                  nonfederal share of
                                                  project cost.
                                                  Rules are relaxed
                                                  governing the percentage
                                                  of nonfederal funds
                                                  required for projects.
                                                  For example, some states
                                                  that receive funds for
 Flexible match (altering                         airports have used this
 the percentage of the    FAA                     financing mechanism to
 nonfederal share)                                require general aviation
                                                  airports to pay more than
                                                  the traditional 10
                                                  percent of the nonfederal
                                                  share of projects, thus
                                                  providing more funding
                                                  for more projects.

 Payment of interest cost FAA (pilot) and FHWA    Can be used to pay the
 on debt                  (within state           interest cost on debt.
                          infrastructure banks)
                                                  Provides federal credit
                                                  assistance to major
                                                  transportation
                                                  investments of critical
                                                  national importance (over
 Transportation                                   $100 million) by offering
 Infrastructure Finance                           secured loans, loan
 and Innovation Act       FHWA                    guarantees, and standby
 (TIFIA)                                          letters of credit. New
                                                  funding was provided for
                                                  this program. The
                                                  projects anticipate user
                                                  fees or other nonfederal
                                                  dedicated funding sources
                                                  to repay the loan.

aInfrastructure or other revolving loan programs have been established in
California, Mississippi, Missouri, and Washington. Only the fund in
Mississippi has offered loans so far, but that fund is not used by many
ports

Summary of Results From GAO Survey of States With Small and Medium-Sized
Ports

• Alabama: The Alabama State Docks Department operates one deepwater
port and ten inland river ports. The state estimates there are five other
ports in the state that are operated by municipalities, counties, and
private entities. The ports are funded through the state's general fund and
port user fees, general obligation bonds that require voter approval, and
revenue bonds that do not require voter approval.

• Alaska: With 33,900 miles of coastline on the mainland and islands,
Alaska has 25 state-owned-and-operated ports, 22 state-owned and locally
operated ports, and 51 locally owned and managed ports. Although state
assistance to these ports comes through legislative appropriations, many
water-dependent communities, especially in rural areas of Alaska, do not
qualify for federal navigation projects due to their inability to meet the
Corps of Engineers' benefit/cost tests.

• Arkansas: Ports in Arkansas receive state assistance through
appropriations and grants. The Arkansas legislature appropriated
approximately $4 million to pay the entire local share of financing on the
White River in 1999. Ports can use property taxes, general obligation bonds,
and revenue bonds, all of which require voter approval, as well as fees and
guaranteed loans.

• California: California provides no grants or appropriations to ports
trying to finance the nonfederal share of the Corps of Engineers' navigation
projects. However, the state provides low-interest loans to local
governments to create or improve harbors for small craft. For the Corps of
Engineers' navigation projects, the loans are limited to the construction of
breakwaters and basins; they are not available for channel dredging.

• Connecticut: Connecticut does not operate any ports but does own a
pier in the Port of New London. The ports are owned by municipalities or
private entities. No state assistance is available for the Corps of
Engineers' projects, but, in 1999, the state guaranteed a percentage of a
bank loan obtained for a port employees' financial agreement.

• Delaware: Delaware operates one public port in the state and a
private entity operates the other public port. There has not been a new
Corps of Engineers' navigation project undertaken in Delaware since the
enactment of the Water Resources Development Act of 1986.

• Florida: Florida has a program to issue grants totaling up to $8
million per year for 14 deepwater seaports to fund up to 50 percent of the
nonfederal share of the Corps of Engineers' projects. Florida also offers up
to $15 million per year to be used to pay half of the debt service on bonds
issued by the ports for their share of the Corps of Engineers' projects.
These funds originate from the proceeds of motor vehicle licenses and fuel
taxes.

• Georgia: The Georgia Port Authority operates the state's four public
ports; it receives legislative appropriations and can also use general
obligation and revenue bonds that do not need voter approval to meet
cost-sharing requirements.

• Hawaii: All public ports in Hawaii are operated by the state. They
are funded through general obligation and revenue bonds that do not require
voter approval.

• Illinois: Independent port authorities manage all of Illinois' ports.
The state does not offer any assistance to the port districts to meet the
nonfederal share of the Corps of Engineers' navigation projects. A state
official stated that the options ports had for funding their share were all
site specific.

• Indiana: Indiana's three public ports are operated by the state. They
use appropriations, general obligation bonds, and revenue bonds that do not
require voter approval, and guaranteed loans to fund their share of the
Corps of Engineers' projects.

• Iowa: All ports in Iowa are privately owned and do not qualify for
the Corps of Engineers' navigation projects.

• Kentucky: While Kentucky law gives the state authority to oversee
public ports, it does not manage or oversee any of them or offer funding
assistance for their navigation projects. From 1966 through 1992, it
assisted with infrastructure and equipment funding, but it has since
disbanded that funding mechanism. Public ports are operated by independent
river port authorities that have authority to issue revenue bonds with or
without voter approval.

• Louisiana: Louisiana has provided funding assistance to the Corps of
Engineer's navigation projects through legislative appropriations. Larger
projects, such as the Mississippi River deepening have received 100 percent
state funding for the nonfederal share. The current governor has generally
moved to make local authorities pay 30 percent of the nonfederal share.
Louisiana also has a Port Construction and Development Priority Program to
pay for landside port improvements.

• Maine: The Maine Department of Transportation uses funds raised by
general obligation bonds to develop recreational and commercial ports'
landside facilities (such as docks, piers, roads, and wharves) but does not
provide any financial assistance to improve the navigational access to these
ports.

• Maryland: Maryland operates the port of Baltimore and private
entities operate four other public ports in the state. The state funds the
local share of the Corps of Engineers' navigation projects through
appropriations.

• Massachusetts: Massachusetts operates three ports in the state, which
receive funding through the state's Harbors, Rivers, and Inland Waterways
Programs. These programs offer grants to provide 75 percent of the local
share of the dredging costs and 50 percent for other types of waterways
projects. Local sponsors can use general obligation bonds and revenue bonds,
both with voter approval, to meet the remaining costs.

• Michigan: Michigan ports are owned and operated by public and private
entities. To date, there have been no cost-shared projects with the Corps of
Engineers.

• Minnesota: Minnesota does not offer any assistance for the Corps of
Engineers' projects at five public ports. It does offer assistance for
improving the infrastructure, marketing, and dredging of nonfederal
waterways through its Port Development Assistance Program.

• Mississippi: Mississippi operates two ports. The largest port (by
tonnage), Pascagoula, received $20 million in general obligation bond funds
from the state in 1998. Ports in Mississippi can apply for loans from the
state's revolving loan fund, which makes $2 million available each year. The
ports can request up to $500,000 a year to be paid off in 10 years at 3
percent interest.

• Missouri: In Missouri, all public ports are operated by independent
port authorities. Missouri lends support to these ports through legislative
appropriations to the Missouri Department of Transportation. The
appropriations are specifically directed for the ports' capital needs. The
Department then allocates the money to specific ports. The ports can use
revenue bonds with voter approval and user fees to help fund the Corps of
Engineers' navigation projects.

• New Hampshire: The Port Authority of New Hampshire manages one major
international seaport and three smaller harbors with commercial traffic. The
nonfederal share of the Corps of Engineers' navigation projects in New
Hampshire is funded directly through appropriations from the state's general
fund.

• New Jersey: In New Jersey, four ports are operated by state entities,
and one port is operated by a private entity. New Jersey supports its public
ports with legislative appropriations. The ports can also use revenue bonds
that do not require voter approval, guaranteed loans, and user fees to pay
their share of the Corps of Engineers' navigation projects.

• New York: In New York, four ports are operated by state entities and
one port is operated by a private entity. New York has provided its public
ports with legislative appropriations, grants, and loans. The ports can also
use general obligation bonds without voter approval, guaranteed loans, and
user fees to pay their share of the Corps of Engineers' navigation projects.

• North Carolina: Four ports are operated by the North Carolina State
Ports Authority and 31 other ports are operated by municipalities, counties,
and private entities. State financial assistance for the Corps of Engineers'
navigation projects is provided through legislative appropriations and
grants. Local sponsors can use local sales taxes, general obligations and
revenue bonds, and property taxes without voter approval as well as user
fees to fund their share.

• Ohio: In Ohio, ports are operated by independent port authorities.
Although Ohio's State Infrastructure Bank can offer loans for transportation
projects of all kinds, no loans have been made for port projects. Two small
harbor projects have received state assistance through the Ohio Department
of Natural Resources.

• Oregon: In Oregon, ports consult with the state's Economic
Development Department before initiating projects. If the project is
approved, that Department provides funding for the entire nonfederal share
for the Corps of Engineers' projects. These funds are earmarked specifically
for this purpose from state lottery revenue.

• Oklahoma: In Oklahoma, two public ports are operated by local port
authorities. There have been no Corps of Engineers' navigation projects in
Oklahoma since 1986.

• Pennsylvania: Pennsylvania operates one port and one port is operated
by a municipality. The state has not assisted with any of the Corps of
Engineers' projects to date, but a major deepening project of the Delaware
River is in the planning stages. The state is planning to offer direct
appropriations for a portion of the local share of that project and to
develop an infrastructure bank.

• Rhode Island: Rhode Island operates four ports and private entities
operate two ports. While state assistance is theoretically available for
local cost sharing, no dredging has occurred in state waters since 1986.

• South Carolina: All public ports in South Carolina are operated by
the South Carolina State Ports Authority. The state funds its ports through
legislative appropriations and general obligation bonds.

• Tennessee: The Tennessee Transportation Equity Trust Fund was
established to help with projects and programs related to railways,
aeronautics, and waterways. The fund has a $1.5 million balance but has not
made any loans for the Corps of Engineers' navigation projects.

• Texas: Texas does not offer any support to its ports for the Corps of
Engineers' navigation projects. Cities and navigation districts that act as
local sponsors can fund their share of the nonfederal cost for a project
through general obligation and revenue bonds that need voter approval as
well as user fees and guaranteed loans.

• Vermont: Vermont has no publicly owned ports.

• Virginia: The Virginia Port Authority operates the Port of Hampton
Roads. One other port in the state is operated by a city. The state has used
legislative appropriations and grants to fund a portion of the local share
of the Corps of Engineers' navigation projects.

• Washington: Ports in Washington have received state assistance
through legislative appropriations. The local sponsors have to pay some of
the nonfederal share to obtain state support. A state infrastructure bank is
being established, but it will not have sufficient funds to help with the
Corps of Engineers' navigation projects for some time. Ferry terminals are
considered part of the state highway system and receive 100 percent state
funding for the Corps of Engineers' projects.

• West Virginia: West Virginia has assisted with port projects, but not
for the local share of the Corps of Engineers' navigation projects.

• Wisconsin: Ports in Wisconsin are able to levy property taxes, issue
general obligation and revenue bonds without voter approval, and use user
fees in order to raise funds to finance the nonfederal share of Corps of
Engineers projects.

Summary of 12 Projects Terminated for Financial Reasons

Continued

 Location             Project description        Reason for termination
                                                 According to the Director
                                                 of Public Works, City of
                                                 Kenai, the project was
                      Dredge a channel to        terminated because of the
                      fish-processing plants on  difficulty in funding the
                      the Kenai River and build  nonfederal share. The
                      a bulkhead to minimize     Finance Director said that
                                                 the city has $6.7 million
 1. Kenai, Alaska     beach erosion              in cash reserves; however,
                                                 it is hesitant to use
                                                 these funds since the
                      Estimated cost: $3.8       interest from investments
                      million                    help pay for operating
                                                 costs. The Finance
                                                 Director said that
                                                 low-interest loans would
                                                 be helpful.

                      Develop a new harbor       According to the City
                                                 Manager, Saxman (a native
                                                 village with a population
 2. Saxman, Alaska                               of about 400) is
                      Estimated cost: $12        unincorporated and it does
                      million                    not have the ability to
                                                 raise taxes.

                      Deepen a channel to 8 feet According to a Corps of
                                                 Engineers official, the
 3. Ochlocknee Bay,                              county indicated that it
 Florida                                         was unable to pay for the
                      Estimated cost: $1.2       project and decided that
                      million                    it would not sponsor a
                                                 feasibility study.
                                                 According to the City
                                                 Clerk for Appalachicola,
                                                 the city only had $120,000
                      Deepen the channel from 9  in cash reserves in 1999.
                      feet to 11 or 12 feet      It had no funds to pay for
                                                 a large project. The city
 4. Appalachicola,                               has a population of less
 Florida                                         than 3000, and the county
                      Estimated cost: $150,000   is in a rural area of
                      to $200,000 (for a         Florida. The Clerk said
                      feasibility study)         that a grant or long-term
                                                 low interest loan would be
                                                 helpful in paying for a
                                                 project.

                      Dredge a 39-mile channel   According to the Port
                      to increase the depth from Director, the port cannot
                      30 feet to 35 feet         fund its share of the
 5. West Sacramento,                             project with cash flow or
 California                                      new debt, new taxes were
                                                 politically unacceptable,
                      Estimated cost: $50        and local governments were
                      million                    either unable or unwilling
                                                 to fund the sum.
                                                 According to the
                                                 Commissioner, Noyo Harbor
                                                 Port District, the project
                                                 is one of many capital
                      Build a breakwater         projects that it is
                                                 considering and that
 6. Fort Bragg,                                  currently it is not a top
 California (Noyo                                priority. Overall, he
 Harbor)                                         estimates that the
                      Estimated cost: $31
                      million                    district has other capital
                                                 needs of $1.5 million.
                                                 Because of these other
                                                 needs, the port finds it
                                                 difficult to raise capital
                                                 in debt markets.
                                                 According to the Executive
                                                 Director, San Mateo County
                                                 Harbor District, the
                                                 harbor district is not in
                                                 a position to handle more
                                                 debt. The need for the
                                                 Corps of Engineers'
                      Deepen the channel from 12 dredging project is linked
                      feet to 13 feet to permit  to the port's ability to
                      fishing vessels to transit finance a new loading and
 7. Pillar Point,     to and from the new pier   unloading pier for the
 California                                      commercial fishing
                                                 industry. Currently,
                                                 district officials
                      Estimated cost: $3 million estimate that the cost of
                                                 a new pier is greater than
                                                 $2 million, and the
                                                 district is not able to
                                                 pay for it. Any loan that
                                                 could be deferred would
                                                 help the district,
                                                 according to the Executive
                                                 Director.
                                                 According to the First
                                                 Selectman, Machiasport,
                                                 the project was terminated
                      Expand the anchorage at    because the town did not
                      the harbor                 have $160,000 for a
                                                 feasibility study. The
 8. Machiasport,                                 town is now resubmitting
 Maine                                           its proposal to the Corps
                      Estimated cost: $160,000   of Engineers because the
                      (for a feasibility study)  fishing industry is much
                                                 stronger and the town now
                                                 has the financial
                                                 capability to pay for the
                                                 project.
 Location             Project description        Reason for termination
                      Expand the anchorage and
                      improve access to the      According to a Corps of
                      channel                    Engineers official, this
 9. Beals Island,                                project was terminated
 Maine                                           because of the town's
                                                 inability to pay for a
                      Estimated cost: $125,000   feasibility study.
                      (for a feasibility study)
                      Expand the anchorage       According to the former
                                                 harbormaster, Milbridge's
 10. Milbridge, Maine                            inability to finance the
                                                 project was the reason why
                      Estimated cost: Not        the project was
                      available                  terminated.
                      Build a breakwater         According to a Corps of
                                                 Engineers official, the
 11. Stonington,                                 project was terminated due
 Connecticut                                     to the town's inability to
                      Estimated cost: $100,000   pay for the feasibility
                      (for a feasibility study)  study.
                      Build a slackwater harbor  According to the Mayor of
                                                 Devalls Bluff, Arkansas,
 12. Devalls Bluff,                              the project was terminated
 Arkansas                                        due to the town's
                      Estimated cost: Between    inability to finance the
                      $311,000 and $804,000      project.

GAO Contacts and Staff Acknowledgments

Phyllis F. Schienberg (202) 512-2834
Randall B. Williamson (206) 287-4800

In addition to those named above, Neil Asaba, Jonathan Bachman, Dana
Greenberg, Alison Han, and Stan Stenerson made key contributions to this
report.

(348167)

Table 1: Phases in the Assessment Process for Specifically
Authorized and Section 107 Projects 8

Figure 1: States Currently Providing Grants or Appropriations to Fund
Navigation Projects at Small and Medium-Sized Public Ports 10

Figure 2: Funding Sources for Navigation Projects at Small and Medium-Sized
Public Ports 13
  

1. We developed a list of about 461 recognized public ports in the United
States. For the purposes of this review, we defined 17 of these ports as
"large"--having annual net revenues in excess of $35 million.

2. P. L. 99-662, Nov. 7, 1986.

3. The cost-share provisions during the construction phase of a project are
based upon the depth of the channel or harbor. The sponsor contributes 20
percent of the cost for projects creating channel depths of less than 20
feet, 35 percent for depths between 20 and 45 feet, and 60 percent for
depths greater than 45 feet.

4. Prior to 1986, ports had some financial responsibility for navigation
projects and had to provide land, easements, and rights-of-way, according to
Corps of Engineers officials.

5. Under federal law, public ports can be reimbursed by the Corps of
Engineers for the federal share of all eligible costs incurred by a
navigation project. According to Corps of Engineers officials, this
provision is very rarely used.

6. Iowa and Vermont have funding programs but do not have public ports;
therefore they fund only privately operated ports. Rhode Island and Delaware
have several public ports but reported that they have not had a Corps of
Engineers' navigation project since 1986. Michigan ports are owned and
operated by public and private entities, but they reported that they had not
had a Corps of Engineers' navigation project since 1986.

7. Six of these states (Georgia, Hawaii, Indiana, New Hampshire, Oregon, and
South Carolina) always provide 100 percent of the nonfederal funds on all
navigation projects.

8. General obligation bonds issued to support projects are generally paid
for through taxes implemented by state or local governments. Revenue bonds
are issued to support a particular project and are typically paid for out of
the revenues generated by that project.

9. For the purposes of this analysis, we were only able to obtain
information from the Corps of Engineers on the financing plans for 63
projects. Corps of Engineers officials told us that there were other
projects that were constructed from 1986 though 1999, but their financing
plans either could not be located or had not been retained. The 63 projects
were about equally divided between specifically authorized projects (costing
more than $4 million) and Section 107 projects (costing less than $4
million).

10. To develop this list of 463 projects, we used the Corps of Engineers'
databases on its specifically authorized and Section 107 projects. According
to Corps of Engineers officials, the database on specifically authorized
projects includes projects that were initiated or in progress in 1989 and
the Section 107 database includes projects that were started or in progress
in 1986. In addition, we added six projects that Corps of Engineers district
officials identified as being terminated or suspended for financial reasons,
but which were not in these databases. These projects were in various stages
of development or, in some cases, had been terminated or suspended. We
limited our analysis to projects proposed at small and medium-sized ports.

11. We were unable to contact officials at the remaining four ports to
discuss whether innovative financing, if available, would have been useful
in financing the nonfederal share of their navigation projects.
*** End of document ***