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To make up for that, they found tremendous increases in the other items. We have a traffic witness who will present those; but I do not want to go into that, because he is going to cover it and show you an exhibit which will point out the difference between those two surveys very graphically.

Representative RANKIN. You are aware of the fact that in that area there is the greatest belt of hardwood timber in America?

Mr. PRINCE. I was speaking of the traffic survey of the engineers, not from personal knowledge of the territory. All of the traffic may come from that region.

Representative RANKIN. But you are aware of the fact that that is the greatest belt of hardwood timber left in America, are you not?

Mr. PRINCE. I must say that I can remember from the previous hearings that you told us very graphically how that area had all the reserve supply in the world of many, many raw materials.

Representative RANKIN. That is right.

Mr. PRINCE. I think it is obvious from the face of the report that both the tonnage and the savings attributed to traffic are seriously exaggerated. I am relying now upon their estimates and speaking of the method. I think in one respect it can be shown simply by the method they followed that there is bound to be an exaggeration both of tonnage and of savings.

I would like to deal with that first, because that does not involve a question of how much of each item of tonnage will move. This requires a little bit of detailed consideration of their report, and I hope you will listen as attentively as you can.

From paragraph 145 of the report it will be seen that it is estimated that approximately one-half of the 5,764,000 tons of barge-borne commerce estimated in justification of the proposed improvement, which amounts to 2,882,000 tons, would be diverted from overland routes.

In paragraph 140 of the report we are told that approximately twothirds of the traffic anticipated as reasonably prospective for the proposed improvement could not use existing water routes to greater advantage than rail routes. Two-thirds of the anticipated prospective traffic amounts to 2,666,000 tons which is now moving by rail, although there is a cheaper water route which it could use. That, in itself, seems to me to be incontrovertible proof that there is an exaggeration both of their tonnage and of their savings. If you have 2,666,000 tons of traffic now moving by rail and there is available for it today to the same destinations an existing water route at a cheaper rate, and they are not using it, you know perfectly well that to take all of that traffic and say that now it is going to move by water because we can create an even great differential in the rate by water over the rate by rail is bound to involve an exaggeration. Every ton would not shift because you increase the differential.

The only concession which the Army engineers have made in this respect is that, according to paragraph 140 of the report, they have included as savings only the difference between the water rates via the presently available routes and the probable future water rates via the proposed route.

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 difference 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:)

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Mr. PRINCE. This chart deals with the commodity corn. Το 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:)

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Exhibit 2.-Recapitualtion of exaggeration in savings by reason of failure to follow

the meihod of.calculating savings outlined in pars. 80 and 140 of report contained in H. Doc. No. 486

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Beverages.
Fertilizer
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Clothes.
Bagging
Canned goods.
Scrap iron..
Cast-iron pipe
Nails
Iron and steel.
Machinery
Paper
Paper bags.
Fuel oil.
Lube oil
Sugar.
Rice
Cotton
Cotton linters.
Asphalt.
Salt.
Molasses
Poles and piling
Lumber
Manufacturing miscel-

laneous.
Corn.
Oats.
Barley-
Roofing.
Washing compound...

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

37, 127. 11 10, 694. 97 497, 230. 32 311, 565. 74 13, 820. 54 9, 824. 10

2, 592. 12 1,750. 22 12, 034. 02 5, 334. 63 22, 567. 16 16, 166. 24 4, 389. 44 4, 339. 56 8, 020. 80

3, 139. 20 296.00

44.00 8,839. 69 6, 661. 22

929. 25 337. 50 28, 318. 85 20, 937.30 15, 858. 55 10, 349. 46 7, 966. 91

5, 243. 60 10, 778. 42 3, 530. 38 52, 617. 12 41, 867. 16 4, 422. 32 2, 051. 75 1,968. 75 | 1,170.00 7, 554.33 6, 763.37 46, 969.59 31, 489.88

8,895. 02 7,070.05 123, 132. 28 79, 666. 65

37, 469. 34 29, 352. 90 291, 616. 53 198, 898. 29

26, 432. 14 185, 664. 58 3,996. 44

841.90 6, 699.39 6, 400. 92

49.88 4,881.60

252.00 2, 178. 47

591. 75 7,381. 55 5, 509.09 2, 723.31 7, 248. 04 10, 749. 96 2, 370. 57

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1, 824. 97 43, 465. 63

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Total overstatement of prospective savings, $485,852.80.
Grand total of prospective savings shown in table 30 of H. Doc. 486 minus overstate-
ment of savings.

$6, 251,000.00

485, 852. 80 Total.

5, 765, 147.20 Total Federal and non-Federal annual charges, $5,953,000. Revised ratio of benefits to cost, 0.968:1.

37 38 39

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

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