Economy Threatened By Aging of Michigan's Soo Locks

The Detroit Free Press reported last month that it obtained, via a Freedom of Information Act request, a U.S. Department of Homeland Security report finding that a six-month closure of the Poe Lock in Sault Ste. Marie, Michigan could trigger a nationwide recession. While the report does a good job of highlighting the economic costs of a Poe Lock closure, it notably ignores options like privatization and a user fee system that could provide the necessary funding.

The report, a copy of which we have received from the Free Press, warns of scenarios in which a Poe Lock closure could lead to the loss of $1.1 trillion in gross domestic product and 11 million jobs across the nation. Michigan would be particularly hard hit, with estimates of state unemployment rates spiking to 20 percent and the possibility of North American automobile production halting entirely for up to 10 months.

Approximately 50 percent of the iron ore that is used by American steel mills is shipped through the Poe Lock, which is the only Soo lock large enough to accommodate the 1,000-foot lakers that are vital for transporting the ore. (There are three other smaller Soo locks, but of those only the MacArthur is currently in operation).

To be sure, the report relies on inherently uncertain and potentially contestable assumptions. Regardless, it underscores the importance of a well-functioning, well-funded water infrastructure system. The report points out that Congress authorized the construction of a second Poe-sized lock over 30 years ago but has never appropriated the estimated $580 million needed. The lock itself needs at least $87 million in upgrades, according to the Army Corps of Engineers.

The Corps, which operates the Soo locks, also oversees 192 locks nationwide, most of which were built in the 1930s. The Corps has estimated that it would need $13 billion in additional funding through 2020 to fix the country’s decaying locks. Yet, in this year’s budget proposal, President Obama proposes cutting the Corps budget by $1.4 billion, or 23 percent.

This persistent funding shortfall, coupled with the current gridlock in Washington, D.C. and a federal debt of $19 trillion, paints a grim picture for prospects of a new Poe-sized lock. Luckily, there is another way. Options such as privatization and a user-pays fee system could fund its construction and maintenance. Under a privatized system, a private entity would own and operate the lock and be responsible for funding any needed maintenance and rehabilitation. To recover the cost of its investment, the private entity would charge user fees to vessels that traversed the locks.

If privatization is not politically possible, the Corps itself could be authorized by Congress to charge user fees for lock usage. User fees are appropriate under a beneficiary-pays principle, which recognizes that commercial lakers like the 1,000-foot vessels transporting iron ore through Sault Ste. Marie derive special benefits from the locks beyond those enjoyed by the general public. It is therefore reasonable to expect such lock users to contribute to their maintenance. Best of all, it would provide an immediate source of funding for much-need upgrades, rather than relying on inconsistent and inadequate congressional appropriations.

As the homeland security department notes in its report, time is running out. In fact, it might be too late to expect strategies like privatization and user fees to completely eliminate the economic risk of a Poe Lock closure. The report estimates that the construction of another lock at the Soo would take up to 10 years, and any efforts to rehabilitate the Poe Lock could require it to be shut down for six to 12 months. Even so, user fees are still the quickest and most reliable way to get the funding needed to ensure adequate facilities at the Soo locks and at other lock systems around the country. At the very least, implementing a nationwide system of user fees, or transitioning to a privatized model of locks and dams, could prevent future economic calamities like those that might occur if Poe Lock is suddenly forced to close.

William B. Newman, Jr. is Senior Advisor to HC Project Advisors in Washington, D.C. Jarrett Dieterle is an attorney at Harkins Cunningham LLP in Washington, D.C.