The Inland Waterways Users Board (the "Board"), which was established under Section 302 of the Water Resources Development Act of 1986 (P. L. 99-662) has completed its second year of developing and making recommendations to the Secretary of the Army on the construction and rehabilitation priorities on the inland waterways and harbors of the United States. The Board's eleven members, representing a cross section of users and shippers which use the system, have met three times during 1988 to formulate the recommendations reflected in this report.

The Board would like to thank the Executive Director of the Inland Waterways Users Board, Brigadier General Patrick J. Kelly, Director of Civil Works, and Mr. William C. Holliday, Coordinator of Board Support and Assistant Chief of the Planning Division of the Civil Works Directorate, for their assistance in marshalling facts, figures, and candid responses to the questions of the Board. We would also like to acknowledge the contribution of Lieutenant General H. J. Hatch, for his guidance during his tenure as the first Executive Director of the Users Board prior to his elevation to Chief of Engineers earlier this year.

II. BOARD ACTIVITIES

year.

The following are activities in which the Board was involved during the past

In April, the Board submitted written testimony to the House and Senate Subcommittees on Energy and Water Development of the Committees on Appropriations. This testimony reflected the Board's priority recommendations as set forth in the First Annual Report of the Board issued last December for purposes of developing fiscal year 1989 appropriations for water resources. While the Board was not asked to give oral testimony before these subcommittees, its written submissions emphasized the goal of the Board to establish priorities based on traffic demand, age and reliability of structures, and rehabilitation needs throughout the system. At the same time it looked at these needs with the understanding that fiscal restraint brought on by cost sharing, budget deficits, and Inland Waterways Trust Fund ("IWTF") balances requires difficult decisions on establishing construction priorities.

During the past year, the Board has requested and received detailed briefings and information from the Corps on various topics important to understanding the inland waterways system and its component parts. During the three meetings the Board held in 1988 this data was discussed and debated in depth.

In March 1988, the Board received a Corps briefing on the Red River Waterway project in response to the Board's request for a detailed discussion of the progress and timing of construction, an analysis of the factors which went into the Corps' initial cost/benefit ratio calculations, and the underlying benefits assumed in that calculation relating to waterborne traffic increases and freight rate decreases. The Board questioned some of these assumptions, particularly those relating to cost savings per ton, but recognized that as work continued on the project, the cost/benefit ratio would improve, particularly after the 60% completion benchmark is passed near the end of fiscal year 1989. This information was used to arrive at the Board's position on the Red River Project which is set forth later in this report.

At the June 1988 Board meeting, the Internal Revenue Service ("IRS") gave a report on methods used to collect the Inland Waterways Fuel Tax. Board members requested the briefing because it was concerned that as long as cost sharing from the IWTF would continue for new projects, those who are sharing this cost with the government through payment of the tax must be assured that all waterway operators are paying the tax, and that the IRS collection system is adequate to enforce payment of a self reported tax. The Board provided information to the IRS at the meeting regarding information sources which it could use to cross check towboat operators and assure vigorous enforcement. The general belief following the presentation, however, was that there is a generally high rate of compliance for the Inland Waterways Fuel Tax, particularly when compared with IRS experience with similar taxes in other industries. Obviously, assuring that the revenue side of the IWTF is as complete as it can be is

an important goal. This will help provide as much money as possible for needed projects.

Both the June and October 1988 meetings included detailed cash flow analyses of the IWTF using various expenditure, traffic, and cost sharing scenarios. For example, the trust fund balances into the next century were analyzed assuming accelerated construction schedules for the projects which are already authorized and those which are likely to be authorized in the foreseeable future. Variables such as length of time for construction, river traffic which affects trust fund receipts, changes in the percentage of new construction money taken from the trust fund and use of the trust fund for rehabilitation as allowed under the provisions of P. L. 99-662 were all factored into these studies. The issues surrounding trust fund use and solvency are perhaps the most critical faced by the Board in performing its priority-setting responsibilities. It is obvious that the fiscal condition of the IWTF will determine the course of water resource policy considerations as they affect the inland waterways. The Board's role is to assure that as it selects priorities, it does so always with an eye towards the ultimate effect on the IWTF. So long as cost sharing remains a crucial element of authorizing and funding these projects, the IWTF will remain an important part of the project funding equation.

During the Board's discussion about the trust fund balances, the issue of using the trust fund for rehabilitation expenditures was thoroughly discussed. The Board worked with the Corps to define rehabilitation for purposes of cost sharing in a manner consistent with the Corps' practice of differentiating between operation and maintenance and rehabilitation that more closely resembles new construction. While the definition of rehabilitation has not yet been finalized, the Board hopes that the final version recognizes the need to maintain the integrity of the IWTF. The Board believes that in future policy deliberations regarding cost sharing, either in Congress or in the