2. EVALUATION OF COSTS VERSUS BENEFITS

(a) United States engineers method of calculations

1. The total cost of a project is determined by a detailed study of construction costs, maintenance, and financing. This cost is amortized over a 50-year period which is considered the effective life of the project, giving an "annual charge." These charges are borne by the Federal Government and paid through taxes. 2. The benefits are determined by a study of present and proposed operations from information provided by industries or groups interested in the project. These benefits are summarized over a 50-year period and, as with costs, are brought down to an "annual benefit" figure. These benefits accrue to private businesses who, theoretically, are supposed to pass on the savings in reduced prices so the entire country benefits thereby.

3. A benefit-cost ratio is then obtained from the above figures, which determines whether or not the project is economically sound. If the annual benefit is greater than the annual charges the benefit-cost ratio is more than 1 to 1 and is considered a worthwhile project-of course, the greater the ratio the more economical the project.

(b) Cost estimates

1. The United States engineers made their original cost report December 12, 1951, and followed by a revised report on November 18, 1953. The main changes were: (a) The 1951 report showed only a 32-foot channel was economically sound above the United States Steel plant to Trenton. The 1953 report says the channel should be 35 feet deep at an extra cost of $2,477,000.

2. The Board of Engineers for Rivers and Harbors, who had to review the United States engineers report, cut out of the costs $6,227,600 for changing the Tacony-Palmyra bridge, although the United States engineers were very specific in the need of a more adequate bridge because strong currents at oblique angles to the axis of the bridge and strong winds made realinement of the channel through the bridge a necessary job for safe passage of the huge super ore carriers.

3. SUMMARY OF COST ESTIMATES

Below is listed the Federal cost for the present proposed 40-foot channel to Newbold Island, thence 35 feet to Trenton, N. J.

Of the benefits the United States engineers report $6,363,000 of the above $6,675,000 will accrue to the United States Steel Co. (p. 46). This is approximately 95 percent.

COMMENTS

Note that all of the above costs are based on 1951 level of costs, which certainly are much lower than the costs will be during the next several years while the work is actually being done.

Note that the Board of Engineers for Rivers and Harbors has lowered the cost and raised the benefits over the original figures of the United States Army engineers thus increasing the benefit-to-cost ratio without detailed public documents. The United States Army engineers based the savings to United States Steel on the eventual shipment at a future date of 10,400,000 tons if the plant is expanded to 2 times the present capacity. Of this, 4,400,000 tons will actually be used at the Fairless plant and the balance will be shipped to the Pittsburgh area and other inland plants. This amounts to 200 80-ton cars daily. Neither United States Steel nor the Army engineers can explain why this tonnage cannot be shipped from the new $10 million Pennsylvania Railroad docks below Philadelphia or from Baltimore and other ports located on the present 40-foot channel. This change of avenue of transportation would cut the cost ratio to approximately 0.92 to 1 and 0.72 to 1, respectively, and thus not justify the project at all. The Engineers report does not calculate the ratio of savings to cost under the

method of using oceangoing vessels of a size by which most of the world's commerce is carried as the United States Steel Co. is doing at the present time at this plant.

Now, let us consider another possibility. Suppose that the 40,000-ton ore carriers were used as far as Philadelphia and barges were used for the remaining 32 miles. If advanced engineering methods can produce super ore carriers, can they not produce superbarges of larger than ordinary capacity that would also operate more economically? The Great Lakes area uses shallow-draft vessels to move ore which are no more than glorified oversize barges. These are easily loaded and unloaded and designed for just such short hauls that are undoubtedly a cheap form of transportation.

OUR CONCLUSIONS

1. It appears that methods of calculating of savings-to-cost ratios were based on the lowest underestimates of expense for construction and the highest overestimates of benefits for transportation. A more realistic calculation, we believe, in the hands of expert engineers should produce an inverse ratio of savings to cost.

2. In view of the following statement by the United States Army engineers in regard to the channel above the Fairless works to Trenton (p. 27, H. Doc. No. 358):

"Previous to World War II, over a period of about 8 years, a very small number of oceangoing vessels, some with drafts up to 24 feet, used the channel above Philadelphia to its terminus of Trenton. Under wartime conditions traffic in oceangoing vessels practically ceased on the portion of the river above Delair, wherein a channel depth of 25 feet is authorized; its resumption was not considered sufficiently assured to warrant maintenance of the project depth."

It appears that the proposed 35-foot channel above the Fairless works will never be used and the estimated saving ratio of 1.03 to 1 could very well become 0 to 1. Zero to 1 is the ratio that exists at the present time on the 25-foot channel to Trenton, that was dredged at Federal expense in 1937. Is the channel to Trenton included to attract New Jersey and its legislators?

3. All evidence points to the fact that all claims for the approval of this project are expressed in generalities, not concrete facts, with confusing and not businesslike figures to justify a Federal subsidy of nearly $100 million to the United States Steel Co.

Mr. JONES. Thank you very much, Doctor. You are a good advocate for your cause and we are glad to have had you. I have a telegram.

TELEGRAM FROM HON. W. AVERELL HARRIMAN, GOVERNOR, STATE OF NEW YORK

Hon. ROBERT E. JONES,

ALBANY, N. Y., September 22, 1955.

Chairman, Special Subcommittee on Water Resources and Power,
Committee on Governmental Operations of the United States.

On behalf of the State of New York, I want to record with your committee my emphatic opposition to the general conclusion of the Hoover Commission Report on Water Resources and Power, and particularly to the specific recommendation of the Commission task force in that field. The recent catastrophic flood in the Northeast has emphasized once again the critical importance of flood control work, the unimportance of State boundaries when such disaster strikes, and the necessity for the Federal Government putting its greater resources to the task of minimizing the impact of future such floods. I am particularly opposed to the task force's recommendations that "clearly identifiable recipients of substantial benefits be required as a condition of Federal participation to bind themselves to pay at least 50 percent" of the capital cost of irrigation and flood control projects. This recommendation is unworkable, unrealistic, and unfair to the State and localities involved.

Under the present law which wisely recognized the regional interstate character of the problem and the overriding responsibility of the Federal Government, the Federal Government has been carrying the bulk of the load. To impose tighter standards of flood control work and to greatly increase financial responsibility of the State and localities, as the Hoover Commission task force would do,

would be to move in a wrong direction. We must have more flood control work, not less. With reference to public power, the Commission and the task force's recommendations would likewise represent backward rather than forward steps. I particularly want to record my strenuous opposition to the task force's recommendations in favor of the abolition of the preference clause in the sale of public power which has been a fundamental principle of our law for half a century.

Signed,

Mr. JONES. Senator Dumont.

Senator DUMONT. How do you do, sir?

Mr. JONES. Fine, thank you, sir.

Do you have a prepared statement?

AVERELL HARRIMAN.

Senator DUMONT. No, sir. I am going to have to talk off the cuff for just a few minutes, if I may. I will not talk too long.

STATEMENT OF HON. WAYNE DUMONT, STATE SENATOR, STATE OF NEW JERSEY

Senator DUMONT. I am a State senator representing one of the counties along the river in the northwest portion of New Jersey, namely, Warren County, and I am also majority leader of the New Jersey Senate.

I would like to direct my remarks to two things in particular. One of them would be the relief that we would hope we could get by the building of a dam or dams along the Delaware from any further disasters such as our whole area suffered last month, which caused a tremendous damage, not only to property but considerable loss of life, particularly in the Stroudsburg area, which is not far from us.

And the other thing is the question of water supply, which a dam or dams-with particular reference to one at Wallpack Bend, which is an area of the Delaware River separating Sussex County in New Jersey and Pike County, Pa.-could act not only as a source of water supply but also as a flood control measure, long range, for both States. We have had this problem of water supply for a number of years in New Jersey, and we are coming to a solution that might be termed an intermediate solution at the present time in our legislature. But we still have to find a long-range solution to the problem, and the great damage suffered by the whole area after Hurricanes Connie and Diane has accentuated, of course, the flood control problem in the Delaware. Several of us from the New Jersey Legislature went out to Harrisburg on March 2, I believe it was, and then we went to Albany on March 29, I think, of this year for the purpose of determining what could be worked out by way of interstate cooperation in an effort to revive a plan which has long been before us in this area, known generally as the plan of the Interstate Commission on the Delaware River Basin, or INCODEL. Wallpack Bend is an area where one of the dams planned by INCODEL would have been or would be constructed. In the hearings that we held throughout this year on the question of how we might solve the water supply problem in our State in conjunction with Pennsylvania, I believe it was estimated by the executive director of INCODEL, Mr. Allen-who I notice is here today—that a dam at Wallpack Bend would cost approximately $60 million, and if I am in error in these figures, he can correct me.

There has been enabling legislation for a dam at Wallpack Bend in New Jersey since the latter part of 1953. That legislation gave the authority to construct such a dam to the Commonwealth of Pennsylvania and said that our State could share in the water supply provided there up to 30 percent, provided we shared 30 percent of the cost. also required enabling legislation in Pennsylvania and that was passed; we were able, I think, to influence it perhaps a little bit when we went to Harrisburg, but it was passed in the latter part of June and repealed an old compact between the two States which prohibited the construction of any dam across the Delaware, a compact dating back to 1783. With such a dam at Wallpack Bend, and perhaps other dams in other areas of the Delaware-but specifically that dam has been authorized by legislation.

I am here today for one thing-in the hope that perhaps we can obtain some Federal help toward a project of that kind, specifically, Federal appropriations over the future.

We have in our own legislature, I think, solved our water problem, or will have by tomorrow when we expect the necessary legislation to pass. That would take us, provided the people approved the referendum for a bond issue that will be submitted to them on the November 8 ballot, until approximately 1975. But in water supply problems all of us understand that we do not plan just 20 years ahead, but very often 50 or a hundred years in the future. We look, and our engineers who have been hired by the legislature a firm of national and international prestige from New York City-look and they are studying long range the possibility of using the Delaware and specifically, a dam or a series of dams as was envisioned in the INCODEL program.

In addition to that, I feel that a dam of that kind, particularly at Wallpack Bend-if it were a multiple-purpose dam constructed not only for water supply but for flood control as well-could be of a tremendous service to the whole Delaware Valley area, and would vent any such disaster from coming to the counties along the river and both sides of the river such as the disaster of last month.

pre

Mr. JONES. Senator, you recall the 308 report made on the lower Delaware Valley. The report did not find the necessity for the construction of dams for remedial work that would arrest floods. It was called unjustifiable. Now, the Corps of Engineers in their testimony before the committee yesterday stated that that 308 report would be reviewed, and so I hope that that survey and study of the Corps of Engineers will not take too long to give a better idea.

Senator DUMONT. We certainly hope that, too, sir; because there has not been anything done in the way of flood control measures along the river, and I know that when many of the local residents were watching the water climb up and were in a position where they probably left their homes, they kept saying, "Well, never in the history of the river has it gone any higher than a certain point and, therefore, it won't go there this time." But it did.

We had the worst flood there in the history of the entire river.

Now, aside from flood control and water supply, it seems to me that a regulated flow of the river downstream would probably help industrial development on both sides of the river and would do a lot of good for both States. Of course, we have precedent behind the Federal Government doing something here, because not only do we

recognize the very obvious fact that this is an interstate river and acts as a boundary between several States, but also the United States Supreme Court has had jurisdiction and has retained it over the Delaware River for many years. As a matter of fact, only as recently as May of 1954 a decree was handed down by that Court which said in substance that New Jersey was concerned-that we could take a hundred million gallons a day from the Delaware River without having to return any of it by way of compensating releases.

Mr. JONES. That was the second decision?

Senator DUMONT. Yes, sir.

So with the precedent there, with the Supreme Court's jurisdiction, and the fact that it is an interstate boundary line, we feel that we not only need the help of the Federal Government, but we certainly solicit it in trying to help us construct a project or projects in the near future. I trust that will be not only beneficial in preventing future disasters such as we had last month but also will help solve long range the water supply problems of both States.

Mr. JONES. Thank you very much, Senator. It is nice to have had you.

Senator DUMONT. It is nice to have been here.

Mr. JONES. And I appreciate the fact that you had to leave your business over in Trenton.

Senator DUMONT. It is a pleasure to come, sir. We appreciate your coming into the area and giving us a chance to express our problems and ask for help.

Mr. JONES. Thank you very much.

Mr. LIPSCOMB. Mr. Chairman. Senator, so there will not be any misunderstanding, this committee is working on the Hoover Commission report and

Senator DUMONT. I understand.

Mr. LIPSCOMB. Some of the things that you were discussing are under the proper jurisdiction of other committees of the House of Representatives.

Senator DUMONT. That is undoubtedly true, and I hope we can get the opportunity to go down and express the same things to them at Washington, but since you were here at hand, even though it may be a little collateral to the issues you are working on, I still wanted to give it to you, too.

Mr. JONES. Well, Senator, I happen to be on the Public Works Committee, so I will be seeing you.

Senator DUMONT. Thank you very much. I appreciate your coming. Mr. STURDEVANT. Mr. Harrier.

Mr. JONES. Mr. Harrier, come right around. We thought we lost you.

STATEMENT OF ROBERT A. HARRIER, MANAGING DIRECTOR, LEHIGH VALLEY FLOOD CONTROL COUNCIL

Mr. HARRIER. Mr. Chairman, members of the committee, my name is Robert A. Harrier. I wish to express my gratitude to you for the opportunity to submit a statement here today.

Mr. JONES. Fine; do you want to submit the statement and summarize for us?