Chapter 3: Navigation

CHAPTER 3 Navigation So far, the total construction cost that TVA has allocated to its navigation program is $149 million.16 The operating expense charged to navigation in 1947 was almost $3 million.17 This does not include the yearly War Department, Coast Guard and dredging expenses for operating and maintaining the TVA locks and related services. In 1947, this additional cost was about $900,000.18 Are these the proper amounts that should be charged to navigation? TVA claims that they are. But TVA decides how much cost it wishes to allocate to what. One method of arriving at the true cost of TVA navigation is to use the test of alternatives. That is, how much would it cost to build a complete navigation system all by itself? It would seem that the portion of total cost which TVA now allocates to navigation should be less than the cost of a separate navigation project. Fortunately, for purposes of rough comparison, the Army Engineers made an estimate of the cost of a separate navigation project for the Tennessee River in 1930. This report to Congress concerned a contemplated project to do for navigation on the Tennessee River just what TVA later did. The estimate for the total project was $75 million.19 Yet, in a period of much lower construction costs, TVA allocated $149 million for the project. This correspondingly 24 NAVIGATION reduces the costs charged to power production, permits lower electricity rates to TVA customers, and puts a larger share of the load on the taxpayers.

TVA is exceedingly proud of the many new river terminals it has built or helped pay for along its 9-foot deep, 650-mile long waterroad. But the main selling point used by TVA to induce shippers to use the Tennessee River waterroad is the claim that it is "free." The fact that the cost of operating this waterroad is paid by the taxpayers is not so well advertised. The total cost of maintaining navigation on the Tennessee in 1944 was about $7 million. In 1947 it was about $8% million. This includes the actual annual maintenance expenditures by TVA and the Army — plus the estimated interest on both maintenance expenditures and capital investment.20 Using these figures for total costs, let us see how this works out as a cost per tonmile of freight actually handled on the river. The following table shows this cost. It also shows the average cost of freight handled by the railways in that area.

Average rate per tonTon-miles of freight Estimated cost mile on railroads in on Tennessee River21 per tonmile the Southern region22 1944 159,495,634 4.37 cents 0.976 cents 1945 258,465,193 2.88 " 0.993 " 1946 192,805,241 4.13 " 1.000 " 1947 350,000,000 2.45 " 1.094 " According to these figures, it would have cost shippers about one cent per tonmile to ship by rail. Therefore, from 1944 to 1947 it cost taxpayers from 2.45 cents to 4.37 cents per tonmile to make a gift of one cent per tonmile to shippers using the TVA waterroad. TVA states that its "savings" — in reality, subsidies — to shippers on grain shipments "average $1.75 per ton, as measured by TVA SUBSIDIES AND LOSSES NOT "SAVINGS" 25 the difference between charges for barge-rail and alternative allrail movements."23 But how much did it cost the taxpayers to give this "saving" to the shippers? On this point, one thorough study concludes with these words: "And it cost $149 million — plus some $4.00 in expenses in 1946 for every dollar of estimated savings, plus some terminals that covered 'out-of-pocket expenses of operation' except for a loss of $1.50 on every ton of freight handled, exclusive of depreciation, plus whatever it costs to maintain the illusion that the region is greatly benefited by the improvements of navigation on the Tennessee."24 In its 1948 report to Congress — after conducting a thorough study of the "savings" produced by the TVA navigation project — the United States General Accounting Office states: "On the basis of the foregoing determination, the benefits are not sufficient to cover the out-of-pocket expenses."25 Admittedly, these TVA navigation improvements and services do give a few merchants and barge owners lower shipping costs than they could get in a free market. But these "savings" could have been provided at about one-third the present cost to the taxpayers merely by paying the full freight cost to these favored merchants for shipping by rail instead of by the "free" TVA waterroad.

If these merchants wish to use the Tennessee River waterroad, why shouldn't they pay the cost themselves? Why should the taxpayers' money be taken and used to subsidize an automobile dealer or a grain merchant in Tennessee? TVA has an answer for that. It says that the automobile dealer — and all other merchants who save on shipping charges by using the tax-supported TVA waterroad — should pass that saving along to the consumers. But why should the taxpayers be forced to subsidize the consumers any more than the shippers?

26 NAVIGATION If the shippers had been willing to pay the cost, they could have — and would have — had these navigation improvements long before TVA stepped in with government funds. But if the shippers don't consider the improved service to be worth its full cost, why should other people be forced to bear the burden of giving it to them at a fraction of its cost? If the shippers or carriers using the Tennessee River had to pay the cost of the navigation improvements, there would be little, if any, freight left on the Tennessee. Even with rates at a fraction of the cost, the tonnage of freight on the Tennessee was greater three years before TVA began its navigation project than it was after 13 years of TVA improvements. A TVA chart shows 2.5 million tons of freight on the Tennessee in 1930.26 The same chart shows 2.2 million tons in 1940 - a decrease of 300,000 tons after TVA had poured millions of our tax dollars into its super waterway.

In 1938 TVA estimated: "It is reasonable to base the present computations on an assumed movement of 8 million tons, a figure which should be reached in 1946. . . ."27 In 1946 the amount of freight was 2.4 million tons.28 This was less freight than in 1930 when TVA navigation was still a dream instead of a government project to "increase the amount of freight on the Tennessee." Suppose that such a mistake had been made by a privately owned business? What would happen in a free economy if a large transportation company missed its estimated volume of business by almost three-fourths? The owners of that company would lose their capital and go out of business. In a free market, they would automatically be replaced by persons capable of supplying the consumers with the goods and services they want at a price they are willing to pay. But when TVA makes a bad estimate or mistake, the government merely collects additional amounts of tax money from the private railroads, electric companies and the genTVA FAR WRONG ON ITS FREIGHT ESTIMATES 27 eral taxpayers. This money is then turned over to TVA to continue its mistake indefinitely.

Meanwhile, this uneconomic policy enables TVA to charge off a large part of its total costs to "navigation" — really to the taxpayers. This in turn helps TVA to show a "profit" on its electricity program.