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MEMORANDUM January 6. 1959
To: Rear Admiral R. Malcolm Fortson (Ret. ). Managing Director
The Ship Canal Authority of the State of Florida
From: Henry H. Bucltman
Engineering Counsel
SUBJECT: The "Preliminary Analysis" by the Association of American Railroads
of the Chief of Engineers Re -Study of the Peace-time Economics of
the Cross-Florida Barge Canal.
SUMMARY OF THIS MEMORANDUM
The subject analysis is issued from an office of the Atlantic Coast
Line Railroad address by the Zone 3 Subcommittee on the Cross-Florida Barge
Canal of the Committee on Waterway Projects of the Association of American Rail o
roads. It reflects the traditional opposition of the railroads in general to all com-
peting inland water transport and to the above named project in particular. This
"analysis" is of a piece with the tactics usually employed by the railroads against
other such projects. On its face. the document deals only with the re -study of the
peace-time economic benefits of the project. It omits all reference to the defense
values of the canal which are recognized in the re-etudy but which are not assessed
in dollars.
The "analysis" thus inferentially presents the peace-time economic
values of the project as its only values. purports to find that these represent a bene-
fit cost ratio much less than unity and alleges therefore that the project is unjusti-
fied. The document omits any mention of the very material fact that its defense
values are the justification of the project expressed by Congress in the authorizing
Act. While disclaiming any intent to do so. the "analysis" alleges both incompetency
and a lack of integrity in the Corps of Engineers in its evaluation of such projects in
general as well as of the Cross-Florida Barge Canal. As opposed to the Chief of
Engineers' re -study finding of a cost of $170,000,000 and a peace-time economic
benefit -cost ratio of 1.05. the "analysis" alleges a cost in excess of $522,000,000
and a benefit -cost ratio of 0. 25. In the opinion of engineering counsel, the data.
assumptions and argument adduced do not support these allegations. nor any con-
clusions that the Chief of Engineers' findings of peace -time economic benefits are
too high. or that his cost estimates are too low. Too much of the material presented
in the "analysis" is patently immaterial. incomplete. inappropriately related to the
project or altogether inapplicable. It is the opinion of engineering counsel that. for
these reasons. no weight can be reasonably attached to the assumptions and conclu-
sions set forth therein.
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Any clarifying discussion of the subject analysis requires a clear un-
derstanding of the real issues. These include:
I. The basic issue. which is the alleged competition between rail and
inland water transport. The principal question is --. "la the public interest bet-
ter served by fostering all forms of transport to the extent of their respective
ecoaornic potentials. or by fostering rail transport only at the expense of other
forms '1"
Although there are probably railroad managements which take an en-
lightened view of the role of inland water transport. and correctly consider it as
contributing to the development of commerce in which the railroads share. the
traditional position of the Association of American Railroads has been one of
vigorous and sustained opposition to major channels for such transport. Their
opposition to the Cross-Florida Barge Canal is of long standing. and follows the
routine of their continuing Opposition to inland water-borne movements except
that the potential nation-wide influence of this particular project for the improve-
ment of the economy of transportation gene rally is so great that it has generated
an unusually determined campaign of obstruction on the part of these railroads.
Over a long period of years the records of the Office of the Chief of Engineers
and those of the House and Senate Committees having jurisdiction. show the rail-
roads coming forward to Oppose proposals for channels for inland water transport.
setting forth objections that are of the same general pattern as those advanced by
them in the present instance. They opposed the Panama Canal. the St. Lawrence
Seaway. the Illinois Waterway, the Red River Project. the Tennessee-Tombigbee
Project. and almost all great waterway projects. They have. from the beginning.
opposed any navigable water route aeross northern Florida which would make pos-
sible economical interregional inland water transportation.
It is well to repeat that the underlying issue is the alleged competition
between rail and inland water transport. and whether the public is better served
by supporting the former at the expense of the latter. or by a policy which in-
cludea the development of all economical forms of transport.
In this cannection it is pertinent to recall the complaint of the rail
carriers that the improved waterways are furnished free to the water carriers by
the Federal Government. and that these latter carriers are thus the recipients of
a subsidy which is unfair to the tax-paying railroads. This claim is invalid in view
of the fact that the railroads themselves have been and still are the beneficiaries
of Federal subsidies. in one form or another. which total more than all the Federal
funds ever expended on inland navigation channels. These Federal subsidies to the
railroads include:
(a) Land grants by the Federal Government of approximately 10". ot'
the entire land area of the continental United States as it exists today. exclusive
of Alaska. While some of this land was forfeited by the railroads. and while some
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of it was never patented. the amount which had been actually patented to the rail-
roads by June 30. 1910. was equivalent to substantially 67s of the land area of the
United States. and there were still available to them an additional 2%. making a
total of 155,000,000 acres. This is exclusive of grants by Texas which amounts
to approximately one-sixth of the area of that state. or about 32.400.000 acres.
Thus. the rail roads have been subsidized by land grants totalling approximately
10% of all the land in this country. or some 187. 400. 000 acres.
0:) Continuing subsidies in the form of Federal funds expended 0n
the creation and improvement of inland navigation channels which have been. in
general, beneficial to the rail carriers as a whole.
((2) Subsidies in the form of Federal funds expended for harbor im-
provements resulting in direct benefits to the rail carriers by increasing their
traffic to and from the ports.
(d) Subsidies in the form of Federal funds expended for flood control.
relieving the railroads of the necessity. in many cases. of protecting their lines
by the expenditure of their own funds.
(e) Miscellaneous special Federal subsidies, direct or indirect. as
an example may be cited the fact that in the year 1944 (World War II) the Federal
treasury was paying a subsidy to the rail roads (via the oil companies) of
$2.53. 000,000 annually in connection with the movement of petroleum.
(f) Every alteration (up or down) in the rate structure permitted by
the United States Interstate Commerce Commission which effects for the benefit
of the rail carriers a decrease in the ecooomy of the movement of any segment of
commerce is in essence a Federal subsidizing of these carriers.
(g) Federal subsidies to United States flag ocean shipping which in-
creases the volume of the haul by the rail carriers to and from the ports is also
a subsidy for those carriers.
It is beside the point to claim that all of these subsidies may have
been wise public policy. The meat of the matter lies in the fact that the railroads
have received far more in Federal subsidies than have the public instrumentalities
for inland water-borne commerce which they oppose and endeavor to obstruct. For
this reason they cannot come before th e Government "with clean hands". pleading
in effect that Federal expenditures for the improvement and maintenance of public
inland water transport channels are unwise and inequitable because such expendi-
tures are allegedly Opposed to their interests.
ll. A secondary issue is raised by the proposition put forward in the
"analysis" that the subject project is not justified because the peace time economic
benefits found by the Chief of Engineers in his re -study are too high and that his
cost estimates are too low.
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It is necessary to bear in mind that. by due process, the construc-
tion of this project is now the law of the land. The proposition above stated
boils down to a proposal to repeal the Act of Cengress which authorized this
project. The tremendous significance of such a step for all presently author-
ized and. as yet. unconstructed projects for all river and harbor, flood con-
trol and other water use and conservation throughout the nation. should give
pause to all concerned with the relation of the over all transportation network
to the public welfare.
With respect to the Cross-Florida Barge Canal. the only point not
already determined by law is the time at which construction shall begin. Con-
gress has long since studied. evaluated and authorised this project onthe basis
of its value to the national defense plus a peace time economic benefit -cost ratio
of 0.19. To support the project. no such ratio greater than 0. 19 is required to
be shown by the re-study by the Chief of Engineers or by the subject "analysis"
or by any other examination.
Appropriations for the project are now lawful, appropriate and in
accordance with the express permission of Congress. This is true regardless
of any findings by the Chief of Engineers in his re-study, or any findings alleged
in the subject "analysis".
The re ~study was undertaken by the Chief of Engineers on his own
initiative )requesting and receiving from Congress the funds for this purpose) in
order to bring down to date the peace time ecOnomic data on the project for intra-
office use. Had this re -study found the project not justified by its peace time
economic value alone. this fact of itself could not have disqualified it. nor could
it have altered the fact that Congress has authorized the project expressly to
promote the national defense" and with the understanding that the criterion of
justification by peace time economic value alone is not applicable to it. The same
consideration governs the subject "analysis" or any other study of the project
which seeks to invalidate its justification by attempting to minimize its peace
time economic value.
As a matter of fact. the Chief of Engineers' re-study finds that the
peace time ecoriomic benefits of the project have increased to more than five
times what they were found by him to be in his original study made more than
sixteen years ago and which. taken in conjunction with its defense values. Con-
gress accepted as adequate justification for its authorisation. That is to say that
the present re-study shows that during those sixteen years the commerce potentially
served by this project has so increased and is so increasing as to result in a bene-
fitccost ratio of l.05 as against the 0.19 ratio formerly found. It is evident that
any increase at all of the 0. 1) ratio serves to increase the justification of the pro-
ject determined as necessary by Congress.
It is to be noted that the "analysis" by the Association of American
Railroads finds that there has been an increase of approximately 31% in the economic
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phase of the projects justification determined by Congress as adequate. The
"analysis" finds an increase in the benefit-cost ratio from 0. 19 to 0.25. Thus.
the railroads themselves testify to a substantially greater present justification
than Congress has seen fit to require.
It is well to repeat that Congress never imposed on this particular
project the usually imposed condition that it yield a peace time scenanic bene-
fit-cost ratio of unity or greater. On the contrary. Congress accepted a ratio
of only 0. 19 because of the absolutely necessary defense function of the project.
By testifying to an increase of some 31% in its economic benefit -cost ratio. the
rail carriers submitting the subject "analysis" are bound to the proposition that
the justification of the project judged by Congress to be sufficient in 1946 is
greater now than it was then.
A careful scrutiny of the subject "analysis" fails to reveal either
logic or competent evidence that would justify a conclusion that the Chief of
Engineers finding of a peace time economic benefit ~cost ratio of l. 05 is too
high. or that his cost estimates are too low. Even if this were not the case. the
point would be academic since both the Chief of Engineers and these rail carriers
agree on the cardinal point that, regardless of specific magnitudes. the peace
time economic value of this particular project is greater than that determined by
Congress to be sufficient in view of the essentiality of its defense function.
The question --. "Is the expenditure of the Taxpayers' money for the
construction of this project in accord with sound public policy?" -- cannot be fur-
nished with an informed answer. or even intelligently examined. without full con-
sideration of the necessity for the completed intracoastal canal (which this project
will afford) to provide in time of war a safe inland navigatiou route between the
Gulf and Mississippi Valley States and those of the Atlantic Seaboard. This pro-
tected route for water-borne commerce will avoid the otherwise necessary ex-
posure of our ships and cargoes on the alternate route over the. open sea to losses
from enemy submarine attack on a scale which may well prove disastrous to our
defense. The purported evaluation of the project by the "analysis" put forth by the
Association of American Railroads omits this predominant consideration altogether.
It will not serve to say that the subject "analysis" necessarily omits
consideration of defense values since it deals only with econOmic values measur-
able in dollars. Having failed to meet and overcome this consideration. the "ana-
lysis". on its own showing. fails to sustain its major premise, i.e. that the pro-
ject should not be constructed.
Entirely aside from the invalidity of the assumptions. data and argument
presented in the subject "analysis". not only is there no warrant in fact for the at-
tempt to rest the burden of the justification of this project on its peace time economic
value alone. but such an evaluation has been made inadmissable by existing law. It
is well to restate that Congress authorized the Crosstlorida Barge Canal "in order
to promote the national defense."
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While the defense of his own findings may be appropriately left to
the Chief of Engineers. it is in order to point out the fallacious nature of the
major allegations in the subject "analysis". The following are examples:
(a) That the fact that the expected total movement of some com-
modities via the subject canal. as determined by the re ostudy. is 500 per cent
greater than the actual 1957 total movement of these same commodities ."over
the entire Mississippi System. over 5. 500 miles of highly develOped waterways
running through the heart of the country" and that "this alone appears to con-
demn the project".
A table on Page 10 of the "analysis" is adduced as proof of this.
This table is quite obviously a self-serving compilation of commodities select-
ed to yield the answer desired. This device is an naive as it is punitive and
serves only to render suspect the good faith of the document. It is only neces-
sary to point out that. by use of this device. the picture can be reversed by
appropriate selection of other commodities to show that the estimated l95?
movement of those other commodities over the Mississippi System was 500%
(or more if desired) greater than the re -study finds will move over the subject
canal.
(b) That the cost of the project will ultimately exceed one ohalf
billion dollars:
This fallacy is so transparent that disection is really unnecessary.
What the "analysis" does in this case is to take only the expense items. i.e. ,
the first cost of the project (which is stated as $184, 368.000) and add to it 50
years of annual charges. i.e. $7. 365,000 for each year. and then report the
total as the "cost of the tax payer over the 50-year period . . . . . in
excess of $552,000,000." This "conclusion" is arrived at without any allowance
whatever in the accounting for the estimated annual benefits of $7, 758.000 which
would be designated as revenue in private enterprise bookkeeping. It is not dif-
ficult to imagine the effect on their security markets if this astonishing bookkeep-
ing were applied to the finances of the railroads. The prospect of these companies
going further and further into debt each year because their operating and other
annual charges were cumulative. with no offset for revenue received would. of
course. be totally destructive.
A proper reporting of the Chief of Engineers' cost accounting will
show that at the end of the 50-year period. the project will stand as a fully paid-
for property of the taxpayer. in good condition and still in profitable use: the tax~
payer's capital investment will have been returned to him with interest over the
entire period and. in addition. he will have received dividends of some $20,000,000.
(c) That the railroads had a right to be heard at a public hearing in the
course of the re -study. but that no such hearing was had. and because of this their
interests have been prejudiced:
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There have been a number of public hearings on this project before
the appropriate committees of the House and Senate over a number of years.
At at least two of these hearings, representatives of the railroad interests did
appear and placed in the record their opposition. These were the hearings
before the House Committee on Rivers and Harbors in May. 1942. and the
Hearing before the House Committee an Appropriations in May. 1958. Of
course. these appearances for the railroads were before the presently dis-
cussed reatudy by the Chief of Engineers. and it is interesting to note that
the tenor of their opposition was substantially the same then as it is now. after
the re-study has been made. It is difficult to escape the conclusion that the
findings of the Chief of Engineers in his re ostudy are merely the occasion and
not the reason for the presently expressed opposition of the railroads to the
Cross-Florida Barge Canal.
The implied prejudicing of the railroads' interests. because the
Chief of Engineers did not hold a public hearing. has no weight. No opportunity
could have been afforded them by such a hearing which they and all others in-
terested have not had. They have been free at all times to submit their views
to the Chief of Engineers and the opportunity to discuss the Chief of Engineers'
findings. as well as to submit data and argument before and after these were
made. have been enjoyed as fully by the railroads as by any other parties at
interest.
11:. A third issue raised by the analysis is the charge made that
the Corps of Engineers. both in general and in this instance in particular, have
been guilty of a lack of integrity and have shown a lack of competency in its ex-
aminatiou of and reporting on projects of this nature.
This is an issue between the Association of American Railroads and
the Corps of Engineers. It seems an altogether reasonable assumption that the
Corps is capable of making its own defense. Engineering counsel places entire
confidence in the integrity and competency of the Corps. a confidence gained
during 30 years of acquaintance with its procedures and personnel. It is believed
that discussion of this issue may be most appropriately left to the Corps and those
bringing the charges.
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MEMORAND!!M January 6, 1959 To: Rear Ar1mi ral R. Mal col m ]--or.sun (Ret .1. Managing Director The S11:p Gunal Aut11erity of the State of Florirla From: Henry H. Buckman Engineering Gour.sel SUBJEGT: The 'T'ream:nury Analysis hy the Associat-.or of Arru-ricar: Railroads oftl:e Chici uf Fjngineers Re-5tudy ofthe Peuce-time Economics of the Cross -.Florir]a Barge Ganal. SUMMARY OF T HIS MEMORANDUM The s.bject ''analysis'' is issued from ar. office of the Atlantse Guast Line Rai;ruad address by the Zone 1 Subc.ommittee on the Crosti alorida Barge Canat of the Cummittee on Waterway Projects of :he A.ssociation of Amer!aar, Rail roads. h reflects the traditional opposition of the rai-.raads m general to all compeLir.g inland watea' transport and to the above named project in particular. This "analysis" a of a p:ece with the tactics usually emp~oyed by the railroads against otlier sue}: proje::: s .On its face the docume:1t r]eal e coty with the re --itudy of the peace-time scariomic beneftis of the project. It omits all referrne.e to the rjefer.se va:ues of the canut whic.h --re recognir.ed in the re-study but which urc not assessed in cleil lars. The ar:ajysi e-' dius inferentially 3rascots the pcuce -time economic values of the project as its only vaalrs, purpor1e to find thM (bese represent a bene fit-cost ratto mucli less th[tn uni".y and alleges therefore t is: trus prolect iti ur 1.istifier]. ne document omia any mention of ac very mater al fact thu: as defense values are the jur;tification of the projer.t expre::sed -ov Cunuress in the authorizing Act. While disc'uiming a:1y intent a do so, the %.nalysis'' aj-eges both bic.ampseitcy und a lack of turity in the Corps of Engineers in its evaluution of such projects ir. ge:teral as well as of the C-on -Florida Burge Canal. As apposert in the Chief of Enginee rs' cc -study finding of a cost of $170 000 000 ar.d u peace-tar-.e eco:10m:c benefit -cost ratio of 2. 0~1. thic 'uns.lvsis' a'.l eges a coe.t at ers:ess of $5~42, 000, 000 ariel a ber:cfat -cust ra:in af 0. U~. ]r: 1}tc opinion of eng:neerir.g col::1set, the data, assumptior.s aarl arpment udduced do not support these allegutions, nor ur.y conriusions !but the: Chiai of h'ngineers' fmdings of peace-time er.n:rsmie -oenefits are too h3gh, o r th-li hts cost estimatry ;tre too low. Too much ca: tar. material preser.ted in the 'ana.Jyst';" 35 patcni.y :mmute''inj, itic.emtal ete, 3nappropriately reinted to the project or altogethe r inapplicab".c. It is the opmion of engineeri-ty Counsel that Ior these reasons r.o weigIn can be reasonably attached :o the assumptioi:s a.nel enric.~e stor.3 set fo--th there:r..
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]'agn Z any clarifying discussion of the subject analysis requires a c;ear unelerstaarji:tg of Lha rea !Ssues These incjedre I. The basic assue, which is The alleged competstion between rui] anr] r.land water trarisiiert. The prmcipal questior. 13 --, '']s the public inLarest het er serrect by r~osterir.g all form=: ni t ransport to the extent of their respectas economic poredials, or by :osterir:g ran trar:sport only at the es.pense of other forms?'' A:thougii there u''e probably railroad managemer.ts which ta.
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... e ...
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Page 4 it is necessary to bear a mirid tha.t, by diae process, the cmistru.rion of this project is now the jaw of the Lund. The propasition abave stated ho:Is down to a proposal] to repea.] the Act of Congress which authorized this proget. The tremeurlous signsficance of such a step for all presently authorized anr1, as yet, uncosistructeel projec.1s for a-1 river and harbor, flood erm r.-ol and n1hcr water use und conservation ibroughout the nation, should give pa.use :o all concerneri wilh the reation of the uver il] transportailor. network to the p.11); ir weniare. Wjth re-sper.: to the C:-oss-F]nrida Barge Car.a], the orily point not ready determined by law is the time ut which car.strucison shull begin. Congress has long s:r.r e studied, evaluated and authorized this project on Lhe basis of its va.]ue to the r.ational defense p]ua a peace time economic benefit -cost ratio of 0. 19. To support the project r.o such ratio greater :han 0. 19 is required to be Miown by the re-sody by rha C115ef of Er-gineers or by the subjec.t -'analysis' or by any other exammanon. Appropria:ians for the penject are now Lawfiti, appropriate arir] ir, accardar.cc with the express permassion of Congress. This is true regardjess of ar.y findings by the Ghtef of Er.gir.ecrs in his re -study, or any hr.dings aleged a: the subjert ''ealysio". The re -study was undertager. by the Chiet" of Engineers on his own initiative irequestmg and receiving from Gongress the funds far this purpose) in a eder to beirip, dowr 10 date the peace time ecor.omic data on the project for intra office use. Had th:s re-st..idy foinr1the penjees rtar justifteel by [1.3 paa.ee tiine economy value alone, this fact at"itsett" could 110t have disqualified it, nor coitld it have ai1ererl the fat! tam Cor.gress has authorized the project expressly "to promote the national clejenee" and with the understanding that the cr3tcr:Un of justificatten by acuca 1:me economic a;.ie alone ja uot app: icable 10 it. The same consicieration goverr.s the subject ''anaiysia'' niasiy mner st-.idy oi elia. jaroject which seeks to ar.vajidate us justificMien by attempting to m:nimize its peace rirne economic. value. As a matte r of tact 110. Chief of 15ngineers' rc -sttidy finds that the peace time econorr-it brinefits of the proje.c.t have ine:reaser] to more than five times what they were four.d by him zu be o his original study made more thar. sitteerl years a.o and whic h, laken a: conjunct [On wj6 als driense values Gon gress
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p .s .f t ...j... jsifcto d erie b o ges sa eqa h
PAGE 6
While ~ ~ ~ ~ ~ 1'1 7:1.e1eo i wr nms a eaprpitl eft t=oZll
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Page 7 There have been a mi.ber of p'.ablic hearings on ulis project before the appropriate committees of .he House and Senute over a number of years. At at least two afthese hearings, represer.latives of the railraadinterests did appear and placed inthe record their opposition. These were the hearirgs before the Hounc Committee an Rivers ar.d Harbors in May, 1942, and the Hearmg before the House Comrmitee on Appropriations in May, 1968, Of nurse, these appearances for the railroads were before the presently discr.ssed re -study by :he Chief of Er.ginee rs, arid it is trteresting [o r.ote that the ter.or of their opposit:or. was substanually the =same then as it as r:ow, after the re -strdy has been marle, it is diffical to escape the Conclusion that the findings of the Chief af Engir.eers in his --e-study are merely the occasior. ar.d r.ot -he' reason for thr: preser:tly expressed oppossion of the rail l'oads to The Gross -Florida Barge Canal, The i.plied prejudicing of the railroads' imerests, because the Chief of Engi:teers did r.ot hold a publ:c heuring, has no weigit. No opportunity could have beer: afforded them by such a hearing which they and all there in terested have not had. They have been free at a:! times to submit their views to the Chief of Erigirtee:'s and the opportunity to discuss the Chief of Engineers' findings. as well us to submit data a:td argument before ar.d after these were made ha,--e beers enjoyed as fully by the railroads as by any other parties at interest 1H. A :bird issue raised by the ar:alysis is the charge made that the Corps of Engineers, born in general and m this instance in part-.e.alar, have beer: gui'iy of a jack roi 9:tegrily as:d have shown a luck af competency in its exarrtinat ion uf und re:portog 01: projeer s o[ 1bts nalure. This is ar: issue be-.ween the Associatioi: of Arriericai: Rail roads and the (:orps of T|ngar.ee:rs .J1 seems an altogether reasonahja assumpt:ne car ille Corps i s 1. apabt<: of making its uw r: defer: se. F~r.gir.ecring cour.se] p'.aces er.tire t ar.fidel:e tn: :he bit.:s ril y and competency at the Gn rps a confjrlen::e gatr.ed during 30 ye.ars al ac.qui,1--3:1: e wdh its procedure.s and pa ararmel Jis be",ieved that asseuss:or. of this :ssi.rmay i.w roos: a::propriutely L,:i: to the Corps ai:d chose b ri-pirit' I ac C.harges,
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