Bid to cut project spending a net loss for taxpayers

The White House has drawn a hard budget line for the Army Corps of Engineers in a bid to corral federal spending and harness what its critics say is a runaway agency.

The Office of Management and Budget wants to nix funding for any Army Corps projects that fail to meet minimum cost-benefit standards. While the agency has always had cost-benefit thresholds for starting new projects, the new rule applies to ongoing work, including long-running enterprises.

The first victim: a northwest Arkansas hydropower plant.

Federal taxpayers have provided the Ozark-Jeta Lock and Dam Power Plant with more than $40 million and utility ratepayers $20 million to renovate the plant over the past four years. But the corps's calculations show the project won't provide adequate returns on the federal investment -- reaping $1.70 for every tax dollar. The administration wants every dollar to bring at least $2.50 in benefits.

Ironically, shutting down the Ozark-Jeta project won't save taxpayers a dime, since the government would pay a $12 million cancellation fee and reimburse utility ratepayers for their $20 million share. Bottom line: Federal taxpayers would spend $32 million to kill the project -- $4 million more than it would cost to complete it.


Rep. John Boozman (R-Ark.), whose congressional district is home to the 100-megawatt hydro plant, is livid. "It is a project where we've appropriated a lot of money. The project is almost two-thirds done, the construction is such that the thing is all torn up," he said at a hearing last month. "And now it appears in the president's budget that we're just walking away from it. What sense does it make?"

The Ozark-Jeta Lock and Dam Power Plant is 120 miles northwest of Little Rock. It provides electricity through the Southwestern Power Administration to towns and utilities in Arkansas, Oklahoma, Louisiana and East Texas. It has suffered the corps's highest forced outage rate over the past decade, the result of a design flaw in the plant's five original turbines.

All of the replacement turbines have been ordered, and one has already been installed, said Lee Beverly, who manages the project for the Army Corps.

"We had repeated discussions on this before the budget was published, and it was understood -- regrettable but understood -- that this would be an impact," said a high-ranking corps official who was not authorized to speak to the press and asked not to be identified. "But it was the administration's decision that having a hard cutoff was more important."

The Obama administration did make exceptions, but only for projects that involved public safety or were in their final year of construction. The Army Corps says the power plant is the only mid-construction project that would be canceled for falling below the $2.50-to-$1 cost-benefit threshold.

Critics say the administration's hard-line policy paints with too broad a brush, creating illogical casualties and leaving no room for nuance in the Army Corps' $5 billion civil works budget.

"It's just poor decision-making," said Rick Melberth, director of regulatory policy for OMB Watch, a nonpartisan watchdog group. "They're looking for savings everywhere that they can, but it still reeks of simplicity, in my opinion. To use one criterion for something as complex as the types of the projects that the corps does is silly."

But with a $60 billion project backlog, the corps must draw a line somewhere, said Robert Stearns, a water resources consultant who was the Army's deputy assistant secretary of civil works during the administrations of President George H.W. Bush and President Clinton.

"They've struggled with this whole concept for a long, long time," Stearns said. "The truth is, there's just not enough money to go around. The notion that somehow you could create a set of factors that would unambiguously drive a budget that would be unassailable -- that's just never going to happen. There's too much to do."

Wanted: better planning

Longtime observers of the Army Corps say the Arkansas project is a symbol of a venerable problem: No one is in charge of crafting a coherent vision for the nation's water infrastructure.

"They do have development plans that are supposed to give it a broader context, but there's sort of a current-year pressure to developing the budget," Stearns said.

The Army Corps annually assigns economic values to projects and tosses draft budgets back and forth with OMB. Money is then provided by congressional appropriators who are chiefly concerned with work in their own districts.

"It continues to be a major problem that there is not a basic process for a broad-level determination of priorities," said David Conrad, senior water resources specialist for the National Wildlife Federation. "The corps faces an insurmountable backlog of authorized projects, and I think it's safe to say the nation's priorities are changing. There's a major need to review the backlog in a very thoughtful way to figure out what is priority and what would have to fall off the platform."

To be sure, even the administration's hard line on Ozark-Jeta could be undone. The project is a candidate for leftovers from the federal stimulus law and could still get money from Congress despite its absence from the White House list.

The Army Corps, whose civil works programs have long been criticized by environmentalists for damage done to natural resources, faced an outpouring of wrath in recent years after there were reports of cost-benefit analyses being cooked to justify billion-dollar projects.

The corps's planning studies are "fraught with errors, mistakes, and miscalculations, and use invalid assumptions on outdated data," the Government Accountability Office wrote in 2006.

Congress in 2007 directed the agency to develop a new set of project planning guidelines that tally environmental gains as well as economic benefits. The corps is scheduled to release a draft this fall.

But the larger issues of vision and accountability remain, experts say. And most agree that even the best-honed economic formula is a poor substitute for thoughtful analysis.

Terrence "Rock" Salt, the Army's acting assistant secretary for civil works, conceded that there are indeed problems with the administration's approach in a hearing last month before the Senate Energy and Water Development Appropriations Subcommittee.

"I, too, am sharing some of your frustrations as to how we're doing this," Salt told lawmakers after fielding questions about the Ozark-Jeta plant and other funding decisions.

"The big issue is ... how you ensure that we're funding the highest priority needs," Salt added. "And so, we're very interested in trying to come up with a better way of working through this in a way that's more mutually satisfactory."

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