In 1992, the year Congress authorized the deepening project, the Corps  completed a Final Interim Feasibility Study and Environmental Impact  Statement (EIS) for the project. The Corps’ Reanalysis Addressed Many of the Economic Analysis Limitations GAO Had Identified in 2002

The Corps’ reanalysis addressed many of the limitations that we had  identified in 2002 in the project’s original economic analysis by using more  recent information to correct invalid assumptions and outdated data,  recalculating benefits and costs to correct miscalculations, and accounting  for some of the economic uncertainty associated with the project. In  addition, as we recommended, the Corps had independent experts review  the reanalysis before submitting it to Congress. Although the Corps’ efforts  were responsive overall to the recommendations we made in 2002, we  found several additional limitations in the reanalysis. For example, in its  analysis of the economic uncertainty associated with the project, the  Corps considered the effects of negative-growth scenarios only for crude  oil and refined petroleum but not for the remaining benefit categories. The 2004 Supplement to Comprehensive Economic Reanalysis Report  also contained sensitivity analyses—four related to crude oil benefits and  three related to containerized cargo benefits. The Benefit Assumptions in the Corps’ Reanalysis and Economic Updates Do Not Fully Reflect Current and Anticipated Future Market and Industry Conditions

In the 6 years that have elapsed since the Corps completed its reanalysis,  current and anticipated future market and industry conditions have  changed significantly. Several of the assumptions that underlie the Corps’  estimates of the project’s benefits are inconsistent with these changes. For  example, the Department of Energy has lowered its long-term forecasts for  growth in East Coast refinery capacity and U.S. imports of crude oil. The Corps’ 2008  and 2009 economic updates did not analyze the potential effect of these  changes on the project’s benefit estimates. Like the 2008 update, the 2009 update provided no  updated information about the current status of the weekly shipping  services on the two trade routes that account for all containerized cargo  benefits. Several Key Issues That Could Affect the Project Remain Outstanding

We identified three key outstanding policy issues that could impact the  construction of the Delaware River deepening project as it moves forward. Specifically, the Corps (1) lowered its estimate of the volume of dredged  material, which eliminated the need for new disposal sites, but it continues  to face resistance to its disposal plan; (2) was sued by Delaware and New  Jersey in October and November 2009, respectively, which charged that  the Corps lacks the environmental approvals needed to proceed with the  project; and (3) has an ongoing dispute with New Jersey and several  environmental groups over the project’s National Environmental Policy  Act (NEPA) process. In response to the Corps’ statements and actions,  in fall 2009, Delaware, New Jersey, and several environmental groups filed  separate lawsuits against the Corps in U.S. district courts in Delaware and  New Jersey. Among other things,  environmental groups criticized the Corps for not giving stakeholders  sufficient time for commenting on these changes and for scheduling the  comment period over a major holiday period. Recommendations for Executive Action

To better ensure that decision makers have the most current information  about changes that could affect the benefits of the Delaware River  deepening project, we recommend that the Secretary of Defense direct the  Chief of Engineers and Commanding General of the U.S. Army Corps of  Engineers to provide an updated assessment to the Assistant Secretary of  the Army for Civil Works, and to Congress, of relevant market and  industry trends and outlook that specifies the extent to which the data and  assumptions underlying each benefit category have changed, and the  effect of any changes on each benefit estimate and the project’s net benefit  estimate. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine (1) the extent to which the U.S. Army  Corps of Engineers’ (Corps) reanalysis addressed the economic analysis  limitations we identified in 2002; (2) the extent to which the benefit  projections the Corps included in its reanalysis of the project, as updated,  are consistent with current and anticipated future market and industry  conditions; and (3) what other key issues, if any, could affect the project,  and the extent to which the Corps has accounted for these issues and their  potential impacts.
Why GAO Did This Study

In 1992 Congress authorized the U.S. Army Corps of Engineers (Corps) to implement the Delaware River deepening project, which would deepen the river's shipping channel from 40 to 45 feet. In 2002 GAO reviewed the Corps' economic analysis of the project, concluding that it contained significant limitations. GAO recommended that the Corps prepare a comprehensive economic reanalysis, which the Corps completed in 2004. GAO was asked to determine the extent to which (1) the reanalysis addressed the limitations GAO identified; (2) the reanalysis's benefit projections, as updated, reflect current and anticipated market and industry conditions; and (3) the Corps has accounted for other key issues that could affect the project. GAO reviewed Corps project documentation and interviewed federal officials along with representatives of affected states, firms, and environmental groups.

What GAO Found

The Corps' reanalysis addressed many of the limitations GAO had identified in 2002 in the Delaware River deepening project's original economic analysis by using updated information to correct invalid assumptions and outdated data, recalculating benefits and costs to correct miscalculations, and accounting for some of the economic uncertainty associated with the project. For example, the Corps revised its benefit estimates for transportation cost savings related to such commodities as crude oil, containerized cargo, and steel slabs. In addition, as GAO recommended, the Corps had independent experts review the reanalysis. Although the Corps' efforts were responsive overall to GAO's 2002 recommendations, GAO identified several additional limitations in the reanalysis. For example, in its analysis of economic uncertainty, the Corps considered the effects of negative-growth scenarios only for crude oil and refined petroleum, but not for the remaining commodities. In the 6 years that have elapsed since the Corps completed its reanalysis, current and anticipated future market and industry conditions have changed significantly. Several of the assumptions that underlie the Corps' estimates of the project's benefits are inconsistent with these changes. For example, the Department of Energy has lowered its long-term forecasts for growth in East Coast refinery capacity and U.S. imports of crude oil. Also, in the fall of 2009, Delaware River refinery firms closed two major facilities. Further, steel imports have declined since 2006 according to the benefiting facility identified in the reanalysis, and were well below the reanalysis's growth projection for 2009. However, the Corps' 2008 and 2009 economic updates for the project did not analyze the potential effect of these changes on the project's benefit estimates. The updates also did not determine the current status of shipping services on two trade routes that provide all of the benefits related to containerized cargo. Because of these and other omissions, decision makers do not have sufficient updated information to judge the extent to which market and industry changes would affect the project's net benefits. GAO identified three key outstanding issues that could affect the Delaware River deepening project. First, the Corps lowered its estimate of the volume of dredged material, which eliminated the need for new disposal sites in New Jersey, but its disposal plan continues to face resistance from that state. Second, Delaware, New Jersey, and several environmental groups filed separate lawsuits against the Corps in the fall of 2009, charging that the Corps lacks the environmental approvals needed to proceed with the project, among other concerns. Finally, New Jersey and several environmental groups have challenged in court the Corps' National Environmental Policy Act (NEPA) process for the project. Although the Corps completed an environmental assessment (EA) in April 2009, stakeholders believe that the process for soliciting public comment on its scope was unclear, did not allow enough time for comment, and that a new supplemental environmental impact statement is needed. Also, at the Army's direction, the Corps did not provide a public comment period for the draft EA as it had proposed to do.