To illustrate the difference with a simple example, suppose the rail rate on a commodity stood at $4 per ton and the rate via an existing water route was $3 per ton, and the traffic was still moving by rail. By the creation of this project they calculate that the cost of moving that commodity to the same destination would be $2 per ton. They have taken as the saving the difference between the $2 rate and the $3 rate which the traffic could have used but was not using, and they have set up $1 as the saving. They did not set up the $2 or the dif ference between the rate by the new project and the rail rate. In that they were certainly correct. However, they did not carry their logic far enough in my opinion. If the traffic did not shift from rail to water at $1 differential, which they could avail themselves of now, what assurance would there be that it would shift at $2? Some traffic would not shift, regardless of the differential. Some, of course, would shift if the differential became great enough. But at what level would it shift? If it had not shifted at $1, at what point would it shift between the $1 and the $2. Perhaps it would shift at $1.40. If the differential had become $1.40 it might shift, whereas it would not shift if it were at $1.50. In that assumption the so-called saving is the difference between the rate of $2 and $2.40, or a figure of 40 cents, and no higher. If they have included $1 as the saving, then they have overstated their saving by 60 cents. The only thing you can say is that by this method they are bound to exaggerate their savings to some extent on every ton that they include, because what their assumption amounts to is that the traffic would shift if the differential were made 1 cent greater than it is today. That is the only way you can follow their reasoning logically. You just know that it would not shift if the differential became 1 cent greater. So the only question left open is the extent to which they have exaggerated the savings. We have made some studies, since the close of the House hearings, of the underlying data which the Board of Engineers for Rivers and Harbors, with Colonel Feringa's assistance and cooperation, have made available to us to study. We spent some time studying the underlying data in order to try to present to you something concrete; not mere words, but something as concrete as we could get from that traffic study. I want to show you an exhibit which I have marked "Exhibit 1" which illustrates certain cases in which the method described by the Board of Engineers in paragraph 140 was not followed. In other words, they said they took, as I understand their report, the difference between the rate by the proposed waterway and the rate by any existing alternative water route rather than the difference between the proposed rate and the rail rate. (The document referred to is as follows:) Mr. PRINCE. This chart deals with the commodity corn. To explain it to you: Each figure under column 9 represents a specific movement by rail which they believe would be able to use the waterway when constructed. The actual tonnage figure there has been built up to represent what they consider would be the annual movement of that commodity represented by a particular movement of lesser amount. In other words, the thousand tons, the first figure there, would not represent an actual movement of a thousand tons but some lesser movement which they have projected on an annual basis. Opposite the tonnage figure in column 22 is the rate per ton which is calculated as the cost of this movement from the point of origin to the point of destination shown in columns 4 and 7, respectively, by a barge-rail movement using the proposed waterway. Take the second movement in that diagram, where the tonnage figure in column 9 is shown to be 1,163 tons. Opposite that, in the next column, which is designated column 22, the 4.36 represents the cost at which it is calculated this movement would be made over the waterway when constructed. Immediately below that is the figure "5.17." That represents the rate which is now available and was available at that particular time. Senator ROBERTSON. The railroad rate? Mr. PRINCE. No, sir. The 5.17 is the rate which could have been used by an existing water route. They could have used a rate of 5.17. As I understood the statement in paragraph 140, their method of calculating savings was to take the difference between the 4.36 rate and the 5.17 rate, whereas in this case they have taken the difference between 4.36 and the rate in column 23 of 5.40, which is the all-rail rate. They have done that in every case on that page where you see a small check mark after the figure in column 24. I would like to say, in all fairness, so that you will not get the impression that it was done as generally as this in all cases, that in the great preponderance of cases they followed the method which they described in paragraph 140. This happens to be a case that I picked as an illustration. But in order to give you the cumulative effect of all the instances in which we believe they deviated from the method described in paragraph 140, we have made up another table, which I have marked "Exhibit No. 2." (The document referred to is as follows:) EXHIBIT 2.-Recapitualtion of exaggeration in savings by reason of failure to follow the method of calculating savings outlined in pars. 80 and 140 of report contained in H. Doc. No. 486 34 Total overstatement of prospective savings, $485,852.80. 35 36 $6, 251,000.00 485, 852.80 5,765, 147. 20 Mr. PRINCE. Exhibit No. 2 gives you the cumulative effect of all of those instances in the underlying data where we found that they had deviated from the method stated in paragraph 140 as the method used for calculating savings. The total overstatement of prospective savings as a result of this deviation in method, by our calculation comes to $485,852.80. The grand total of prospective savings shown in paragraph 30 of House Document No. 486 is $6,251,000. If there is subtracted from this figure the overstatement of prospective savings which we have calculated, the net result would be $5,765,147.20. The total Federal and non-Federal annual charges on this project are listed as $5,953,000. You must not overlook the fact that the margin on this project is one of the narrowest that you could possibly have. It is 1.05 to 1, in benefits to costs. If this $485,000 is eliminated from the savings, then that ratio of benefits to costs will be 0.968 to 1. It will fall below the 1 to 1 ratio. The significance of falling below the 1 to 1 ratio on one of these projects, as you probably well know, is that the Board of Engineers would not give it a favorable recommendation if it did not have at least a 1 to 1 ratio. General Wheeler made that statement himself before the House committee. I would like to read you a very short exchange between him and Congressman Dondero on this point. Senator OVERTON. There is no doubt about that. It is not necessary to read it. Mr. PRINCE. That is his statement absolutely, that they would not recommend it unless it had a 1 to 1 ratio. We believe that simply in checking the figures to see if the method was followed in all respects we have found that there is not a ratio of 1 to 1, accepting their own figures. Senator BILBO. That is a rather severe indictment that you are making against the Board. Mr. PRINCE. Not at all, sir. If there is an explanation of why in any of these instances the method was deviated from, I am absolutely certain that they will make that explanation. All I can say from studying the thing we did not have an opportunity to cross-examine them on their reasons as to why they deviated from this method; there may be a reason; I cannot say that there is not-all I can say is that this does call for an explanation. Senator OVERTON. The deviation represents only savings in costs of transportation. Mr. PRINCE. Yes, sir; as far as I know. That is all I found here. Senator OVERTON. Are there other benefits besides savings on transportation? Mr. PRINCE. This figure of $6,251,000 includes the $1,200,000 of savings calculated by diversion of traffic from the Mississippi, of which I spoke at some length before you came in, sir. There were only two items of savings shown in the report, one of $1,200,000 and the other of $5,051,000 in transportation costs. Senator OVERTON. There is no other benefit? Mr. PRINCE. There is no other dollars-and-cents benefit included in the report. The tremendous volume of traffic, the tremendous increase shown in this report, as compared with the last report immediately caused us to study the movement of these same items of traffic on other rivers, and we have prepared statement which I think is one of the most illuminating on this subject that you could possibly find. We have marked it as "Exhibit No. 3". (The document referred to is as follows:) |