The Economics Working Group met at 9AM on January 29, 2004. at the offices of Lockwood Greene, 1000 Towne Center Blvd, Bldg. 400, Pooler, GA The meeting adjourned about 2PM. The primary agenda item was a review of the Corps of Engineers' draft work plan for the Economics Analysis. A copy of the work plan had previously been circulated to EWG members via email.

Meeting Notes
Meeting notes from Larry Keegan
Meeting notes from Morgan Rees

Comments and questions received via email subsequent to the meeting

Received from Morgan Rees on February 11, 2004
 Judy, Please add to the EWG minutes the issue of whether the transportation cost savings would actually be passed along to the U.S. consumers rather than be retained by the shippers or carriers. As was stated at the meeting, the Corps process assumes a pass through based on widely accepted economic theory and the project team is not in a position to change that, it is important that the issue gets recorded and retained in the documentation that it was raised, considered and will be addressed in the final report for the ultimate decision-makers to consider.
Thanks.
Morgan

The Georgia Conservancy objects to the proposed use of the assumption that transportation cost savings generated from the project accrue entirely to the American consumer. While we appreciate the response that this assumption reflects long-term Corps policy, that fact does not change the obviously misleading character of this assumption. Particularly in light of the fact the General Accounting Office also has questioned this assumption during its review of other Corps' project analyses, we are asking the Corps to reconsider this analytical assumption.

If the Corps were attempting to assess global economic efficiencies, the justification that benefits accrue to global consumers in one form or another might be acceptable. As the review standard is national economic efficiencies, however, the assumption is plainly flawed. In a multinational trading world, with publicly-owned manufacturers and foreign-flagged carriers, it is plain that cost savings could just as easily be devoted to profit sharing or debt service as lower prices to consumers. As a consequence, we believe it is more appropriate to assign a percentage of lower transportation costs as a benefit to the American consumer.

The purpose of stakeholder participation is to identify issues such as this assumption, which clearly hold the potential to skew the results of the General Reevaluation and Redesign process. The Corps frequently is accused of overestimating project benefits while underestimating environmental costs. While GC's participation is especially focused on preventing the latter, we will not overlook formulaic bias such as this assumption. Frankly, the response that "it has always been done this way" is as inadequate as the idea that brilliant Corps economists can be found to defend it. As this assumption has the potential to undermine the legitimacy of the Savannah Harbor Expansion Project's most fundamental cost/benefit equations, including regional and multi-port analyses, we strongly urge that the District get additional guidance, and present it for Stakeholder review, before allowing its consultants to proceed.

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Received from Dave Kyler on February 2, 2004

1. Transportation costs as now computed are notoriously negligent about environmental consequences. Having more "commerce" traveling the planet will generate more air and water pollution, and related multi-modal land-based transport will add to already troublesome urban health issues caused by poor air quality. (Estimate is that 300,000+ premature deaths in the US annually are already attributable to human-caused air pollution, and the figures are proportionally worse worldwide.) Both land and water transport add significantly to non-point source water pollution as well. If such factors were included in the tally, would the societal benefit of net transportation cost reduction be comparable? (I doubt it -- but maybe the 'sensitivity analysis' would be an acceptable surrogate -- who knows?)

2. International trade cannot be viewed as invariably beneficial either. If lower shipping costs promote more trade, until workingconditions, wages, and environmental laws are globally consistent (and enforced!), promoting more trade by reducing these costs will generate further economic and social disruptions -- such as the ~13 million domestic jobs that have left the U.S. under NAFTA and GATT. To ignore these consequences seems negligent, making the existing assessment academic and self-fulfilling.

Although these factors evidently go well beyond the scope of analysis "allowed" within the economic analysis for the SHE project, they should not be ignored.

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Received from Judy Jennings on February 20, 2004

COMMENTS FOR EWG MEETING ON JANUARY 29, 2004

The Economics Analyses for other harbor projects, particularly the Delaware River deepening, have been criticized for certain inconsistencies and the Savannah project should be extremely cautious in avoiding the same criticisms. They include inconsistencies in:

1. The application of growth rates.

2. Project period times.

3. Discount rates to calculate present value.

4. Application of discount rates for different years for various benefit categories.

5. Differences in trade route distances.

6. Collection of data to determine growth rates.

7. Calculating project costs from dredging.

8. Calculation of landside costs.

The Delaware analysis was also criticized for double counting benefits. Is there a potential for this error in the Savannah analysis?

Other concerns include:

Will the project include benefits for vessels that do not require additional depth? It should not.

Will benefits accrue 24/7? If so, is this realistic given the labor and work shift parameters at Savannah and the availability for landside movement such as trucking and warehousing?

How will costs from potential project overruns be handled if the project takes too much time or if there is a delay in available funding?

How will the analysis deal with uncertainty in forecasting information such as commodity shipments, technological change, and the economic choices of industry? Will sensitivity analysis be adequate?

How will the analysis deal the uncertainty of necessary and related capital improvements? Will sensitivity analysis be adequate?

How will the NED analysis deal the difference in distribution of benefits between U.S. interests and foreign interests? If benefits accrue to foreign interests, NED benefits could be overstated.

Is the assumption that all benefits eventually accrue to consumers a valid one?

How will the analysis deal with the uncertainly of mitigation costs for any unexpected environmental damage such as: negative impacts to the Floridan Aquifer, beach erosion, damage to commercial and recreational fisheries, or lessen quality of treated river water? Will the analysis include provisions for compensation to users of such resources if damage occurs?

1. The work plan is comprehensive and specific.
2. The contractor (G.E.C., Inc.) appears to be highly qualified and experienced. The following is from its web site:
GEC's Economics and Planning staff has provided consulting assistance to port and harbor authorities, terminal operators, shippers, and Corps of Engineers districts nationwide for over 20 years. GEC's Ports and Navigation Planning staff has conducted investigations in Alabama, Alaska, Arkansas, California, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, New York, Oklahoma, Oregon, Texas, and Washington.

The broad geographical experience of the staff is accompanied by a corresponding breadth in the areas analyzed. The staff is experienced with inland and maritime water transportation, deep and shallow draft harbors, and recreational and commercial facilities. It has completed feasibility analyses for recreational harbor expansions; deep draft fleet and commodity forecasts for Corps of Engineers districts; strategic and master planning analyses for port authorities; market demand estimates for private clients; and economic impact analyses for port authorities and waterway organizations.

Since GEC is identified in the text (page 11), its is not clear to me why the name was redacted on the cover page.

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