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Budget Deal Provision is Important to Hoosier Exports

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Budget Deal Insert Important to Hoosier Exports

Indiana farmers at OlmstedWithin the budget deal reached last week was a provision that has since been dubbed the Kentucky Kickback with Senate Minority Leader Mitch McConnell taking the hits. But was it a special interest kickback for the Kentucky senator? In fact, Indiana farmers know that the green light given to continue work on the Ohio River’s Olmsted Lock and Dam project is critical to shipping grain and goods from the Hoosier state.

“It’s quite an important part of the transportation network,” said Roz Leeck, Director of Grain Marketing and Biofuels for Indiana Corn and Soybean. “Olmsted is actually going to be replacing two locks and dams that are well beyond what’s considered to be their useful life. They were built in the ’20’s and they’re supposed to have a life of 50 years, so certainly there has been maintenance and improvements over the years, but not to withstand 80 or 90 years. So Olmsted is going to replace those two locks and it is a critical artery for us to get Olmsted on Ohio Riverto the Mississippi River. Without Olmsted we essentially would lose access to the Mississippi.”

Just over a year ago Hoosiers joined Kentucky and Illinois farmers and leaders on a tour of Olmsted, getting an update from the Army Corps of Engineers.

“The main purpose was just to familiarize our Indiana, Kentucky and Illinois farmers with the importance of that project especially since it is beyond the borders of Indiana. We often don’t think about what happens downriver and without Olmsted we lose our connection to the Mississippi which is a vital avenue for exports for Indiana goods.”

Section 902 of the Water Resources Development Act of 1986 sets maximum costs for construction projects, Olmsted included. Leeck says the budget deal just allowed the limit to be raised, something Congress does frequently.

“It’s almost like the debt ceiling to some extent because it essentially said that what had been approved previously, we were getting ready to reach that top limit, so the provision that was place in the budget was that the limit would be raised.”

The spending limit for Olmsted Lock and Dam was over $1.5 billion but that was raised to $2.9 billion last week and now more accurately aligns with current cost estimates. “Our research shows that if either of these locks failed and stayed closed for a year, it could cost Indiana farmers nearly $20 million,” said Joe Steinkamp, chair of ISA’s policy committee and a farmer from Evansville. “Grain only accounts for 5 percent of the volume on the Ohio River so just think what a closure could mean for other industries who rely on the river much more than we do.”

Olmsted, Illinois is about 17 miles upstream from the confluence of the Ohio and Mississippi rivers at Cairo, Illinois.

After the budget deal was announced last week Mike Steenhoek, Executive Director of the Soy Transportation Coalition put the deal, and the need for the increased funding limit into perspective:

One of the items from last night’s budget deal in Congress that is generating some attention is the so-called “Kentucky Kickback”.  Some conservative groups are criticizing Senate Minority Leader Mitch McConnell (R-KY) for allowing that provision to be surreptitiously inserted into the final deal.  It’s being categorized as a $3 billion earmark.

Regardless of one’s political stripes, the above categorization is quite inaccurate.  The project at the center of the issue is the construction of Olmsted Lock and Dam – located on the Ohio River east of the confluence with the Mississippi River.  Located between Kentucky and Illinois, the project is a replacement for locks #52 and #53 on the Ohio River.  The project had an original cost estimate of $775 million.  The current cost estimate is $3.1 billion.  At the earliest, the project will be completed in 10-12 years.

I and many others who monitor inland waterway issues have been very frustrated with how exceedingly over budget and behind schedule the Olmsted Lock and Dam project is.  There are a number of reasons for this poor project delivery, but that is beside the point regarding last night’s budget deal.

The Army Corps of Engineers is working to make progress (albeit slowly) on Olmsted Lock and Dam.  However, Section 902 of the Water Resources Development Act of 1986 imposes maximum costs on construction projects.  When cost escalations occur, Congress will frequently have to provide permission to raise the Section 902 limit.  The current spending limit on Olmsted Lock and Dam is $1.56 billion.  The deal last night raises the limit to $2.9 billion – more in alignment with the current cost estimate.

I attended a meeting with senior officials from the Army Corps of Engineers in early July in which the Corps expressed concern that they were nearing the Section 902 spending limit on Olmsted.  They explained that if the limit was not raised by Congress, they would have to shut down all construction operations at the site.  Restarting the project would cost $40 million.  As a result, the Senate version of the Water Resources Development Act (passed in May of 2013) and the House version (passed out of committee in September and will be voted by the full House next week) both contain increases to the Section 902 limit for Olmsted.  The reason the provision was included in last night’s budget deal is because there is a concern that the final Water Resources Development Act will not become law before the Section 902 limit is reached – likely in November, which would result in closing the project. 

Bottom line – this provision basically allows work on this project to continue.  No new funds are being allocated to Olmsted.  The same sources of funding (the Inland Waterways Trust Fund and matching funds from the U.S. Treasury) are paying for the construction work. 

Senator Lamar Alexander (R-TN) claimed to be the one who requested the Section 902 limit to be included in last night’s budget deal.  While Senator McConnell has been supportive of this measure, it does not appear to be precipitated by his office.  Regardless, this is an issue that has broad bipartisan support and it is not in any way an earmark. 

As mentioned above, the actual Olmsted Lock and Dam project is very concerning and the source of much debate, but this particular issue from last night’s budget deal is an exaggeration to say the least. 

Mike Steenhoek, Executive Director

Soy Transportation Coalition

(pictured ISA farmer-directors Carl Kissell, Mark Nigh and Don Wyss during a tour of Olmsted in August of 2012)

Click links below for more on Olmsted Locks and Dams:

Olmsted FAQ

Omsted Project Description

LRLOlmstedDamConstruction