Copyright © 2010 by K&L Gates LLP. All rights reserved.

Water Resources Infrastructure Funding

Whence the Money?

Jorge Romero

National Waterways Conference - 50th Anniversary Annual MeetingSeptember 24, 2010

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K&L Gates Maritime Group

One of the largest maritime law and policy practices in Washington, D.C.

Represent all major sectors of the maritime industry before Congress, Executive Branch agencies, and in the courts.

Assist clients in complex transactions, drafting legislation and supporting advocacy documents, developing comprehensive strategies to affect public policy, and advocating their interests before federal and state governments.

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Jorge Romero

Background:

General corporate and financing practice

Focus on vessel construction, financing, documentation, and transactions

Clients in the inland waterways, non-profits and associations

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Agenda:

A quick look at long-term pressures on the federal budget and their effect on water resources needs

A look at the past

Suggest a path forward

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Warning! Complexities Ahead

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To simplicity

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CBO’s Ten-year Analysis of the President’s 2011 Budget

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CBO Baseline Assumptions:

Bush tax cuts expire at the end of this year as scheduled

No alternative minimum tax (AMT) fix Fiscal stimulus measures will expire as currently

scheduled Future annual appropriations will be kept

constant in real (inflation-adjusted) terms

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CBO Baseline Assumptions (cont.)

Assumption that tax cuts are not extended means that revenues are overstated

Assumption that discretionary appropriations remain constant relative to GDP probably understates expenses

Assumption that ATM will be left alone overstates revenues

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CBO’s Analysis After the Next Ten Years:

“Beyond the 10-year budget window, the nation will face daunting long-term fiscal challenges posed by the aging of the population and rising costs for health care. Continued large deficits and the resulting increases in federal debt over time would reduce long-term economic growth.

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CBO’s Analysis After the Next Ten Years (cont.)

Putting the nation on a sustainable fiscal course will require policymakers to restrain the growth of spending substantially, raise revenues significantly above their average percentage of GDP of the past 40 years, or adopt some combination of those approaches.”

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President’s 2011 Budget for the Army Corps of Engineers:

$4.9 billion represents a 10% reduction from $5.4 billion appropriated in 2010

Maybe, as in the past, or maybe not, the President’s proposed reduction will be restored to some extent by Congress

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What’s Ahead?

Continued proposed budget cuts War of attrition Pressure to raise taxes or impose new taxes

or user fees Continued unmet needs in maintenance and

new construction

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President’s Labor Day Stimulus Proposal

All about roads, railways and runways Not a word about rivers, water, marine, locks,

dams, ports or the like “Waterways transportation industry …

disappointed and puzzled … [exclusion form proposal] unreasonable and unacceptable.” Cornel Martin, Waterways Council, Inc.

Prof. Krugman says “$50 billion much too small.”

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Options:

Make do with less money More or new taxes, user fees, and cost-

sharing Financing options Comprehensive education campaign

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Make do with less money

Gone are the days of bringing home the bacon

It’s going to be a struggle to hold on to what you have

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More or New Taxes, User Fees, or Cost-Sharing

They’re coming

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Financing Options

Long-term bonds Public-private partnerships Non-profits Co-Ops

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Problem:

There still needs to be a source of revenue And what would that be?

Taxes, User fees Government funds Other?

A financing mechanism is not a new source of revenue

The issue merits more careful discussion and detailed study on a sector-by-sector basis The private sector directly or through associations

should take the lead in setting these up

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Education Campaign

Comprehensive: must include the public, the Administration, Congress, and industry

Unified: must include all sectors of industry working together with a consistent message

Long-term: must have a plan and the resources for the long haul

Vision: What’s the vision that people outside the industry can buy into?

Leadership: Who’s going to make it happen?

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Pages from History…

Abraham Alfonse Albert Gallatin (1761-1849)

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Gallatin Plan 1808

Thomas Jefferson’s Secretary of the Treasury, longest serving Secretary of the Treasury (1801-1813):

Proposed a system of roads and canals to connect the country from the Atlantic to the Mississippi

He argued that the scale of the effort and the length of time it would take for the rewards to materialize made this a proper object of federal money

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Gallatin (cont.)

Total estimated cost: $20,000,000 over 10 years When he took office the federal debt was

$80,000,000 Estimated federal budget deficit for 2010 is $1.3

trillion ASCE’s estimate of the 5-year need for drinking

water and wastewater, dams, inland waterways, and levees is $367.5 billion or about 28% of 2010 estimated budget deficit

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Gallatin (cont.)

Jefferson would have none of it Where the federal government didn’t act, the

New York State government eventually did and financed the construction of the Erie Canal

During the Civil War Lincoln’s 1862 Homestead Act and railroad land grants opened up and connected the nation in a way akin to what Gallatin had imagined

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Teddy Roosevelt 1908

His conservation and anti-trust ethic, reacting in part to the negative aspects of the railroads’ expansion, launched a numbers of initiatives around rivers valleys to promote navigable inland waterways, irrigation and cheap electric power, among other things

He convened at the White House on May 13-15, 1908 a “Conference of the Governors of the United States”

The agenda for the conference was set by the Preliminary Report of the Inland Waterways Commission

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Teddy Roosevelt 1908 (cont.)

The report reflects the understanding among its authors and sponsors “that the inland waterways were the strategic site for a comprehensive effort in national planning that had the power to conserve natural resources and bring prosperity to the neglected regions of the United States.” Robert Fishman, Professor, University of

Michigan, BLUEPRINT AMERICA, Beyond the Motor City, [Analysis] 1808 – 1908 – 2008: National Planning for America

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TR (cont.)

The Preliminary Report and the Conference were all about rivers – sources of navigation, clean water, floods, electrical power, and potentially collectors of pollution from uncontrolled discharges

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Franklin Delano Roosevelt

TR’s plan was not implemented for another quarter century

Another national crisis intervened – the Dust Bowl – to spur on TR’s ideas and redirect them into the New Deal, and its eventual progeny, the Tennessee Valley Authority and the Interstate Highway System

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Franklin Delano Roosevelt (cont.)

The national highway plan, first published in 1939 under the title Toll Roads and Free Roads made the point that “toll roads like the Pennsylvania Turnpike would be viable only in the heavily-traveled routes of the Northeast and Midwest. A system of toll superhighways would thus reinforce the dominance of those regions and perpetuate the pattern established by the railroads.” Prof. Fishman.

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Voices of Support:

Prof. Fishman: “A century later, we await a new vision and a new call.”

Bob Herbert: “The nation’s ports, inland waterways, drinking

water and wastewater systems — you name it — are hurting to one degree or another. Ignoring these problems imperils public safety, diminishes our economic competitiveness, is penny-wise and pound-foolish, and results in tremendous missed opportunities to create new jobs on a vast scale. Competitors are leaving us behind when it comes to infrastructure investment.”

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Bob Herbert (cont.)

“The great danger right now is that we will do exactly the wrong thing, that we’ll turn away from our screaming infrastructure needs and let the deterioration continue. With infrastructure costs so high (the needs are enormous and enormously expensive) and with the eyes in Washington increasingly focused on deficit reduction, the absolutely essential modernizing of the American infrastructure may not take place. That would be worse than foolish. It would be tragic.” “What’s Wrong With Us?,” New York Times Op-Ed, February 15, 2010

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One Hundred Years After TR…

Time for a another bold new vision, building on this history

In anticipation of the next WRDA NWC has reconvened the National Waterways Alliance Almost monthly meetings of water resources

association Washington representatives K&L hosts the NWA meetings

Let’s use that format and that venue to begin talking about what the vision for water resources should be for the next hundred years

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Contact:

jorge.romero@klgates.com

202-661-3815

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Thanks!