AlllOM DSaDia PUBUCATION^

^ ,, , '..Ti NBSIR 73-294

Cost Sharing as an Incentive to

Attain the Objectives of Shoreline

Protection

Harold E. Marshall

Technical Analysis Division

Institute for Applied Technology

National Bureau of Standards

Washington, D. C. 20234

December, 1973

Final Report

,'ed for "^^^ snter for Economic Studies

• IJ 5 6 '^^ ^o"* Water Resources

#7^-9qa °^ Engineers

' ^ j-i tment of the Army

1973

C.2

NBSIR 73-294

COST SHARING AS AN INCENTIVE TO

ATTAIN THE OBJECTIVES OF SHORELINE

PROTECTION .

Harold E. Marshall

Technical Analysis Division

Institute for Applied Technology

National Bureau of Standards

Washington, D. C. 20234

December, 1973

Final Report

Prepared for The Center for Economic Studies

Institute for Water Resources

Corps of Engineers

Department of the Army

V. ^

•"•t.o o»

U. S. DEPARTMENT OF COMMERCE, Frederick B. Dent. Secretary

NATIONAL BUREAU OF STANDARDS. Richard W. Roberts. Director

EXECUTIVE SUMMARY

Current rules for sharing the costs of shoreline protection between Federal and

nonfederal interests have been criticized for being inefficient, inequitable, inconsistent among programs, difficult to understand and administer, and unsuccessful in encouraging local interests to participate in projects with the Federal government. This

report is an attempt to provide the Army Corps of Engineers (Corps) with an evaluation

of existing and alternative cost-sharing rules for shoreline protection with respect

to efficiency, equity, and administrative feasibility.

Cost sharing is evaluated in terms of its incentive effects on local interests.

Because local interests are primarily concerned with benefits which accrue in their

geographical area, they will not necessarily choose the combination of techniques or the scale of shoreline protection that is optimal from the national viewpoint. The

major problem examined in this study, then, is to determine cost-sharing rules that

will induce local interests to select project designs that are optimal from the

national as well as local viewpoints, where both national economic development and

enhancement of environmental quality are considered to be objectives.

Existing cost-sharing rules are described under three Corps shoreline protection

programs: hurricane, tidal, and Great Lakes flood protection; emergency flood and

coastal storm protection; and beach erosion control. Examination of cost-sharing

rules, statistics of actual cost shares imposed, and theoretical considerations show

that existing rules will not induce local interests to choose nationally efficient

projects. The present cost-sharing structure tends to encourage more costly techniques

of production, e.g., engineering rather than management techniques, and overbuilt

projects in terms of the efficient scale.

Two alternative sets of cost-sharing rules, those being proposed in legislation,

and those recommended in this report, were also compared. The proposed rules call

for either making heretofore ineligible private property now eligible for cost sharing,

or an increase in the percentage local cost share for beach erosion control. Adopting

this proposed legislation would probably encourage local interests to seek more and

larger projects that are nationally inefficient. Rules recommended in this study,

to be listed below, are justified on the basis of efficiency, equity, and administrative

feasibility. Implementation of the recommended rules will probably result in higher

local percentage cost shares on average per shoreline protection project, a shift of

local demand away from engineering techniques in favor of management techniques, and more protection benefits per national dollar expended. Futhermore, local interests

and the general taxpayer will be treated more fairly in that the costs of shoreline

protection would be mope closely associated with the beneficiaries.

The specific recommendations of the study are:

(1) The Association Rule, which requires local beneficiaries of shoreline protection to share in all of the costs of a project purpose in the proportion that local

benefits bear to national benefits at the margin, should be applied to the beach erosion

control, hurricane protection, and emergency protection programs. A second-best solution, in the event that a new flexible-rate rule is not acceptable, is to retain the

existing rule for beach erosion control and to raise local cost shares to a flat 50%

for the other two programs.

(2) All techniques, management and engineering, should be subject to the same percentage cost-sharing rule. This means that the Corps might have to acquire new authority to plan for and7or cost share techniques such as insurance, zoning, building

codes and standards, and land use planning.

(3) All categories of project costs, including construction, lands, easements,

rights-of-way, operation and maintainance , and relocation and alteration of utilities

should have the same percentage cost share applied to them.

(4) Federal cost sharing should be used as an incentive to encourage nonfederal

interests to comply with certain minimum land use requirements that would provide

shoreline protection benefits.

Some additional research that might be of value in evaluating alternative

cost-sharing rules for shoreline protection was identified in preparation of this

report. An essential type of information needed for determining cost-sharing rules

is to whom and in what amounts benefits accrue from shoreline protection projects.

A second area of research is the description of legal and other institutional barriers
that might prohibit the Corps from implementing management techniques. A third

research area is the examination of the costs of management techniques for shoreline

protection. A fourth topic is the evaluation of future legislation to be proposed

on cost sharing in terms of the criteria presented in this report, with estimates of

Federal and local costs for alternative cost-sharing rules. Finally, a research task

that would help the purchaser and owner of shoreline property is to classify coastal

areas by degree of susceptibility to shoreline damages and to make this information

available to the public.

ii
PREFACE

This study was sponsored by the Institute for Water Resources, U.S. Department of

the Army, Corps of Engineers. This research is intended to be useful both to the Corps

of Engineers in relating cost sharing to the objectives of shoreline protection and to

others who are interested in shoreline protection but have no familiarity with alternatives available to them under Corps programs.

The author wishes to thank Dr. V. L. Broussalian for his valuable technical review

and the other reviewers in the Technical Analysis Division of the National Bureau of

Standards for their comments on this study. The author also wishes to acknowledge the

many persons from the Corps of Engineers who patiently explained to him the techniques

of erosion control and some of the intricacies of cost sharing for shoreline protection

The responsibility of all errors and shortcomings in the paper, however, rests with the

author.
TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY i

1. INTRODUCTION 1 1.1 SHORELINE PROTECTION: PAST, PRESENT AND FUTURE 1 1.2 FEDERAL-LOCAL COST SHARING: PROBLEMS AND INCENTIVES 2 1.3 COVERAGE AND STRUCTURE OF THE REPORT 5

2. FEDERAL SHORELINE PROTECTION PROGRAM 6 2.1 GENERAL OBJECTIVES OF SHORELINE PROTECTION 6 2.2 LEGISLATIVE AND ADMINISTRATIVE BACKGROUND OF FEDERAL

PROGRAMS S 2.3 PRESENT FEDERAL-LOCAL COST SHARING RULES 11

2.3.1 HURRICANE, TIDAL, AND GREAT LAKES FLOOD PROTECTION 11

2.3.2 EMERGENCY FLOOD AND COASTAL STORM PROTECTION 12

2.3.3 BEACH EROSION CONTROL .-• 14

2.3.4 COMPARISON OF COST-SHARING RULES 16

3. THEORETICAL CONSIDERATIONS 19

3.1 SELECTIVE SURVEY OF THE LITERATURE 19

3.2 DERIVATION OF LOCAL DEMAND FOR A PROJECT 21

3.3 NECESSARY CONDITIONS FOR EFFICIENCY AND OPTIMALITY 24

3.3.1 TECHNIQUE 24

3.3.2 SCALE 27

4. DESCRIPTION OF ACTUAL PERCENTAGE COST SHARES AND THEIR

EFFICIENCY IMPACTS 30

4.1 DIFFERENCES IN COST SHARING BY TECHNIQUE 30

4.2 DIFFERENCES IN COST SHARING BY PROGRAM 31

5. EVALUATION OF ALTERNATIVE COST-SHARING RULES WITH RESPECT TO

CRITERIA OF EFFICIENCY, EQUITY, AND ADMINISTRATIVE

FEASIBILITY 45

5.1 ALTERNATIVES TO EXISTING COST-SHARING RULES 45

5.1.1 RULES PROPOSED IN LEGISLATION 4 5 5.1.2 RECOMMENDED RULES 46

5.2 EVALUATION OF EXISTING AND ALTERNATIVE RULES 4 6 5.2.1 EFFICIENCY AND OPTIMALITY 46

5.2.2 EQUITY 48

5.2.3 ADMINISTRATIVE FEASIBILITY 49

5.3 SUMMARY 50

6. SUMMARY, RECOMMENDATIONS, AND SUGGESTIONS FOR FURTHER RESEARCH 51

6.1 SUMMARY 51

6.2 RECOMMENDATIONS 52

6.3 SUGGESTIONS FOR FURTHER RESEARCH ,53

APPENDIX A: ALTERNATIVE TECHNIQUES FOR SHORELINE PROTECTION 55

A.l ENGINEERING TECHNIQUES 55

A. 2 MANAGEMENT TECHNIQUES 58

APPENDIX B: BEACH EROSION CONTROL COST-SHARING DISTRIBUTION BY

PERCENTAGE OF COSTS SHARED BY LOCAL INTERESTS 60

APPENDIX C: STATE COST SHARING IN SHORELINE PROTECTION PROJECTS 60

SELECTED BIBLIOGRAPHY 61

iv
LIST OF TABLES

Table Page

2.1 Maximum Federal Percentage Cost Shares for Shoreline Protection

by the Corps in Nonfederal Shore Areas 13

2.2 Maximum Federal Percentage Cost Shares for the Corps Beach

Erosion Control Program by Ownership and Use 15

4.1 Authorized and Completed Beach Erosion Control Projects 32

4.2 Authorized and Underway Beach Erosion Control Projects 33

4.3 Authorized But Not Yet Started Beach Erosion Control Projects 34

4.4 Authorized and Completed Multiple-Purpose Projects Which Include

Beach Erosion Control 35

4.5 Authorized and Underway Multiple-Purpose Projects Which Include

Beach Erosion Control 36

4.6 Authorized But Not Yet Started Multiple-Purpose Projects Which

Include Beach Erosion Control 37

4.7 Percentage Cost Shares for Multiple-Purpose Projects for Hurricane

Flood Protection and Beach Erosion Control by State 38

4.8 Percentage Cost Shares for Each Erosion Control by State 39

4.9 Authorized Beach Erosion Control Projects As of June 30, 1968 41

4.10 Shoreline Protection Projects Restored Under P.L. 84-99 43

4.11 Apportionment of Cost for Typical Section of New York State Beach- • 43

5.1 Evaluation of Cost-Sharing Rules 50

LIST OF FIGURES

Figure Page

3.1 Indifference Curves and Budget Constraints 23

3.2 Demand for Shoreline Protection 23

3.3 Cost Share for Efficient Technique (s) 26

3.4 Cost Share for Efficient Scale 28

V

1. INTRODUCTION

This study attempts to provide the Army Corps of Engineers (Corps) with an objective evaluation of existing and alternative cost-sharing arrangements for its

shoreline protection program and to suggest appropriate policy changes. The shoreline

protection program is examined in relation to the objective of national economic

development as well as the objective of enhancement of environmental quality. Alternative cost-sharing rules are evaluated with respect to efficiency, equity, and administrative feasibility. The incentive effects of cost sharing are emphasized. Although the

focus of this report is on cost sharing for shoreline protection, the principles and

techniques employed are likely to be of general applicability in evaluating cost sharing

for any Federal-local program.

1 . 1 Shoreline Protection: Past, Present, and Future

Man's concern with beach erosion is very recent in geologic time. Prior to World

War I, the few people who inhabited the shorelines were fishermen or sailors who

respected the natural erosion process of the sea. Harbors were usually landlocked or

far up estuaries, thereby protected from the ravages of high waves and tides. Natural

dunes and barrier islands protected backshore areas from the encroaching sea. The concern over shoreline erosion became widespread only after man settled upon

and developed the shoreline. The following excerpt from the National Shoreline Study

explains why beach erosion suddenly became of national interest.

The technical revolution brought trains, the automobile gasoline-powered

pleasure boats, large ships with deep drafts, and the new leisure. Coupled

with the population explosion, these developments resulted in hordes of people

descending onto the shore.

Dunes were destroyed to make way for hotels, boardwalks, roads, and

houses. Breakwaters and jetties were built to aid large and small craft to

harbor. In nearly every instance, these harbor structures interrupted the

alongshore movement of sand and starved adjacent downdrift beaches.

The rivers were dammed to provide the expanding population and industry

with hydroelectric power, water supplies and flood control. These dams

have essentially stopped the supply of sand previously reaching the

beaches from large parts of the major river basins.

In may places, dunes were bulldozed away merely to provide picture

window views of the ocean.

With man's interest in protecting the shoreline came government support of beach

erosion control. Federal planning and monetary assistance have been substantial. The

Corps of Engineers has cooperated with and shared the costs with nonfederal interests

for the construction of 61 beach projects protecting 110 miles of shore. The Federal

government has contributed $28 million to a total construction bill of $45 million for

these projects.

Seventeen projects covering a distance of 171 miles of shore have been authorized

and are underway. The Federal cost share of these projects is $279 million of total

estimated construction costs of $423 million. Six of the projects underway and 4 of

the completed projects provide hurricane protection. Forty-three additional projects,

protecting about 300 miles, have been authorized but not yet started.^

Past and current protection programs rank relatively small, however, in comparison

to those that have been identified as necessary to combat today's widespread and

expensive erosion. The National Shoreline Study shows that the United States has

84,240 miles of shoreline. ^ Significant erosion is occuring along 20,500 miles (24%)

of our coasts, although protection appears economically justifiable (i.e., benefits

exceed costs of protection) for only 2 ,700 miles (.03%)."* The estimated costs

'u.S. Department of the Army, Corps of Engineers, Shore Protection Guidelines , A Part of the National Shoreline Study (Washington, D.C.: U.S. Army Corps of Engineers,

1971) , p. 9. ^U.S. Department of the Army, Corps of Engineers, Report on the National Shoreline

Study, A Part of the National Shoreline Study (Washington, D.C.: U.S. Army Corps of

Engineers, 1971), p. 37.

^This includes shorelines around the Great Lakes, Puerto Rico, and the Virgin

Islands

.

'*U.S. Department of the Army, Corps of Engineers, Report on the National Shoreline

Study , p. 18.

1
of measures to protect these 2,700 miles is $1.8 billion plus $73 million for beach

nourishment on an average annual basis.

The uncertainty and diversity of shore ownership further complicate the shore

erosion problem. Excluding Alaska from consideration, the Federal government owns

3,900 miles (11%) of our shoreline, state and local governments 4,600 miles (12%),

private interests 25,800 miles (70%), and title is uncertain for the remaining 2,600

miles (7%) . The Federal government owns 41,400 miles or 88% of the Alaskan shoreline,

which includes 47,400 miles.

It is reasonable to expect that the degree of Federal cost sharing influences the

willingness of local interests to support the shoreline protection program (to be

demonstrated in detail in Section- 3.2). It is also reasonable to expect, given the

current Administration's efforts to reduce Federal spending,' that the legislative

and executive departments of the Federal government are unlikely to embark on such

expensive and ambitious programs as outlined above, especially with a relatively high

Federal cost sharing policy. Thus to provide comprehensive protection from shoreline

erosion, alternative approaches to protection may have to be considered.

Cost-sharing rules contribute to a loss in economic welfare when they induce local

interests to seek a type of shoreline protection that is optimal from their standpoint,

but not necessarily from the nation's. For example, if local interests must pick • between a beach erosion project or a larger one that incorporates hurricane protection,

they may pick the hurricane project primarily because it requires a smaller local cost

share in percentage terms, and possibly even a smaller cost share in absolute terms, even though the beach erosion project might be the optimal one from the national viewpoint. Or, if local interests could protect a shoreline area either by relocating

people along the shore or by building engineering structures, they may pick the latter

simply because that is the technique for which they can receive Federal aid, even though

it might not be the optimal technique from the national viewpoint.

Thus the problem of cost sharing addressed in this paper is how to design a cost

sharing system that provides a set of incentives which will induce local interests to

ask for and make commitments to those shoreline protection projects that are optimal

for the nation as well as for themselves. ' '

1 . 2 Federal-Local Cost Sharing: Problems and Incentives

The Federal government shares the cost of water, highway, airport, educational, and

other facilities with state and local governments. In most cases. Federal legislation

dictates how costs will be shared by providing specific cost-sharing rules. In the case of hurricane protection the costs are shared according to the rule that not more

than 70% of construction costs can be borne by Federal interests (in this case the

Corps), and at least 30% of these same costs must be borne by nonfederal interests."*

Determining absolute cost shares is more complicated when a project is multiplepurpose (e.g., beach erosion control and hurricane protection are provided jointly),

and when the multiple purposes are governed by different cost-sharing rules. Costs

attributable to each purpose must be separated out of the total project costs so that

cost shares can be determined for each purpose. The process of apportioning total

project costs among the multiple purposes is called cost allocation. This procedure

is discussed in this report only in so far as it affects cost sharing.^

' Ibid. , p. 25.

^ Ibid. , p. 30.

^Note that President Nixon vetoed the 1972 Omnibus Rivers and Harbors and Flood

Control Bill.

''A complete description of present cost-sharing rules for shoreline protection is

given in Section 2.3.

^For a detailed description of cost allocation in water projects, see Harold E. Marshall and Vartkes L. Broussalian, Federal Cost-Sharing Policies for Water Resources , National Bureau of Standards Report to the National Water Commission, PB-208-304

(Springfield, Va.: National Technical Information Service, 1972), pp. 28-34.

2
The major issue in cost sharing for shoreline protection is often thought to be an inadequacy of the Federal cost share to promote the desired shoreline protection.

Since it seems reasonable to expect that higher Federal cost shares (lower local cost

shares) would induce local interests to request and support more projects, the implication is that more Federal money is needed to encourage more protective structures.

However, since two-thirds of the shoreline suffering critical erosion, where benefits

exceed the costs of protection, is held privately,' Federal cost sharing under existing

legislation is perforce limited. Local interests have simply not been willing to

absorb much of the costs of protection.

Representative Vanik, in a statement supporting a bill on Federal aid for shoreline

protection, describes the plight of some of his constituencies in Lake County, Ohio,

as follows:

...and under current legislation the private land owner along the shore

is helpless. Insurance companies have no provisions for covering loss

of a home or land due to gradual erosion; they are not permitted to

deduct Federal income tax losses resulting from gradual erosion;

and, so far, no Federal aid has been available to help them save their land. While some 120 Federally assisted beach protection

projects have been constructed or are pending, these have been almost

exclusively for the protection of parks and recreation areas--not

for the protection of communities and their residents. Adequate

protection is beyond the means of local citizens, citizen groups

and their individual cities and counties. In most cases the

various states have also failed to provide help--and their

communities need Federal help. HR 13689 permits Federal assistance

for imperiled homeowners. The enactment of this legislation is

desperately needed.^

Here again the cost sharing problem in shoreline protection is perceived to be simply

one of insufficient Federal funding.

From a broader perspective, however, the problem of shoreline protection may be

viewed as one of protection from injury and damages from erosion forces, rather than

simply the protection of the shoreline. Hence, we can regard cost sharing not solely

as a tool to induce local interests to accept more structures, but as a general

incentive to encourage local interests to consider a variety of engineering and

management techniques for the most efficient and equitable solution to the general

problem of shoreline protection. This broader perspective is the one adopted in this

paper.

The problem is what cost-sharing rules encourage optimal shoreline protection , where protection is defined broadly to include management as well as engineering

techniques . This report therefore examines the impact of cost sharing on local

incentives with respect to techniques of protection, mix of project purposes (e.g.,

beach erosion versus hurricane protection) , and size of the projects. For this

purpose it is necessary to examine, first, what techniques for protection are available, and second, how a shoreline protection project is conceived, planned, and

authorized for construction through the Corps programs.'

'u.S. Congress, House, Committee on Public Works, Projects Proposed for Inclusion

in Omnibus River and Harbor and Flood Control Legislation--1972 , Joint Hearings , before

a subcommittee on Rivers and Harbors and on Flood Control and Internal Development,

House of Representatives, 92d Cong., 2d sess., 1972, p. 81.

^U.S. Congress, Senate, Committee on Public Works, Omnibus Water Resources

Authorizations--1972 , Hearings , before a subcommittee on Flood Control —Rivers and

Harbors, Senate, 92d Cong., 2d sess., 1972, p. 576.

'For a more detailed description of the Corps planning process, see U.S. Department

of the Army, Corps of Engineers, Shore Protection Program (Washington, D. C: U.S.

Army Corps of Engineers, 1970), pp. 5-10.

3
Private and public groups have two general kinds of techniques that they can use

to protect their beaches; these are engineering techniques and management techniques.

(See Appendix A for a detailed discussion of these techniques.) Engineering techniques

include jetties, seawalls, breakwaters, groins,' vegetative sand cover, dune construction,

and other structures that deal with the physical interaction of the shoreline and the

sea. Management techniques include zoning, building codes, ordinances, insurance

requirements, condemnation, permits, and other government devices that can be used to

influence people in their use of the shore. Any of these techniques can be used

individually or in combination with others.

The type of technique used to achieve shoreline protection is relevant to this

study of cost sharing incentives for two reasons. First, if local cost sharing

requirements were to differ among techniques, this might induce local interests to

choose techniques on the basis of minimum cost feharing requirements rather than on the basis of cost effectiveness. Second, there may not be any Federal authority for

implementing or for cost sharing some of the techniques, especially the management

techniques, thereby biasing local and Federal interests against any such alternatives

for which there is no precedent.

Recognition of the link between man's use of the shoreline and the damages from

shoreline erosion will have an effect on the techniques chosen by government to reduce

erosion damages. As scientist Robert Dolan has very clearly pointed out, "...beach

erosion is a natural proces , and becomes a serious problem only when man's

structures are placed in the path of shoreline recession."' The Corps has also

recognized the challenge of new techniques for future shoreline protection as indicated

by General Koisch in the following excerpt from a statement to Congress:

Land use and development are inseparable from erosion control. In

many cases, natural erosion should be permitted to continue. In such

cases, zoning or other management regulation is necessary to preclude

development that might be damaged.

Given that the National Shoreline Study has outlined shoreline erosion as being

a widespread problem, and given that government and private resources are limited in

terms of meeting competing demands on them, from water and other programs, then the

evaluation of cost sharing as an incentive to local acceptance and support of

engineering and management techniques becomes a very important task.

There is a general procedure for planning and developing a beach erosion project.

Local individuals or groups concerned about shoreline erosion initially must make

a request for help. They may go directly to a Corps District Engineer or to nonfederal

agencies that specialize in shore management. If, after discussions with the District

Engineer, a project appears eligible for Federal assistance under the small project

program or under the program for investigating erosion caused by Federal navigation

works, the Secretary of the Army can authorize a beach erosion study. If the study

shows that the project is economically justified, i.e., benefits exceed the costs,

and if local groups provide assurances of willingness to pay their required cost share,

the Secretary of the Army can authorize the project and allocate funds for it from

civil works appropriations.

For the regular beach erosion program. Congress must authorize each feasibility

study individually. This is usually done by the Public Works Committee of either the

House or Senate or in some instances by inclusion in a Rivers and Harbors Act. Hearings

are held to give local interests an opportunity to make their views public. A general

plan is produced after examining impacts of the project. The project will be

recommended for adoption only if it is economically feasible and if the local sponsoring

group affirms its willingness to provide its cost share. The Board of Engineers

for Rivers and Harbors, the Chief of Engineers, the Governors of affected states, and

interested Federal agencies must review the project before Congressional authorization.

Once the project is authorized and funds have been appropriated, the Corps District

Engineer performs detailed drawings and specifications on the basis of which contractors

make bids. The successful bidder is awarded the contract.

'Robert Dolan, U.S. Department of the Interior, National Park Service, Beach

Erosion and Beach Nourishment , Dune Stabilization Study, Natural Resource Report No. 4 (Washington: National Park Service, 1972).

^U.S. Congress, House, Committee on Public Works, Projects Proposed for Omnibus

River and Harbor Legislation—1972. Joint Hearings , p. 58.

4
Local interests have some opportunity to make their views known to project

planners through hearings and discussions. The local groups have what might be

termed bargaining discretion in that they can approve or reject a project by commiting

or withholding respectively local requirements. Local funds are limited, and we would

expect that local interests would act rationally and seek the best "buys" among their

consumption possibilities with their limited resources. They will weigh the benefits

and costs of participation with Federal agencies in shoreline protection against the

benefits and cOsts of participation with Federal and nonfederal agencies in the general

fields of water, transportation, education and any other area where cost sharing is

available. It seems reasonable to hypothesize that the availability of Federal dollars

for specific project purposes will affect local decisions on the size, types, and

combination or mix of projects that they will be willing to buy.

The Corps also exercises discretion in recommending or not recommending a project

for authorization. So the outcome of the local-Federal interaction depends upon the

bargaining process between the two factions.

It is recognized that many factors other than cost sharing might also affect local

willingness to accept Corps projects. The gestation period between the initial

request for help and completion of the project is often so long and uncertain that

nonfederal interests might feel that they should carry on the project alone. Federal

requirements, such as where dredged material should be deposited, may seem prohibitively

expensive to local interests even with Federal cost sharing, and consequently they

decide to do the job themselves. Finally, the optimal project plan from the national

viewpoint might be much larger and more expensive than what the nonfederal interests

feel is necessary to meet their particular demands for protection. In effect, each

of these factors may result in a higher local cost share, which would probably affect

the local demand for Corps projects.

It is also acknowledged here that there are many problems outside of cost sharing

that hinder the development of an optimal shoreline protection program. The selection

of an appropriate discount rate, estimation procedures for future benefits and costs,

and institutional complications make determination of optimal shoreline projects

difficult. These problems, however, are not examined in this paper. They are assumed

to be given in order to isolate for examination here the local incentive effects of

cost sharing.

1 . 3 Coverage and Structure of the Report

This study is divided into six chapters. In Chapter 2 the current Federal

shoreline protection programs are described. Both the general objectives and the

legislation and administrative background of the Federal programs are discussed.

The cost-sharing rules incorporated in the beach erosion, hurricane protection,

and emergency protection programs are described in detail. Differences and similarities

in the rules are emphasized.

A general model of cost sharing for shoreline protection is provided in Chapter 3. A brief survey of the literature describes what has been done and what is needed in

cost-sharing research. The demand by local interests for shoreline protection is

derived as a function of the percentage rate of cost sharing to demonstrate analytically

cost sharing as a local incentive. Cost-sharing rules are derived that induce local

interests to support the nationally efficient protection projects with respect to the

techniques and the scale of protection.

A description of actual percentage cost shares and of their efficiency impacts

is made in Chapter 4. Differences in cost sharing are compared by technique and by

program. In Chapter 5 existing and alternative cost-sharing rules are evaluated with

respect to efficiency, equity, and administrative feasibility.

The report is summarized in Chapter 6. Recommendations are made for policy changes

in some existing rules and in some existing institutions that affect cost sharing.

Recommendations are also made to retain some of the existing rules and institutions.

Finally, suggestions are made for further research.

5

The size of the group benefiting from the project is a more nebulous characteristic.

If the number of public and private landholders along a section of the beach is small,

they can be left to work out a scheme that is beneficial to them. However, if we consider the protected shore to include that area seaward of the mean high water level,

regarding it in other words as national property, then the potential benefiting group

becomes extremely large, i.e., the entire nation, and it would be impractical to expect

them to work out a profitable scheme. On this basis some government involvement might

be justified. The answer to what is the relevant benefiting group becomes further

complicated if, given that we accept the seaward area as national property, there is

still only limited or no public access to the beach.

Finally, the production of public goods often results in effects not considered by

the producer or consumer in his private calculation of benefits and costs. These are referred to as spillovers or externalities. An example of an external diseconomy or negative spillover is the starving of a beach area downdrift from an engineering

structure that traps sand. The project builder might regard the protective structure

as a success within the confines of his part of the beach, but he is ignoring the

spillover effects on society in the form of sand depletion on his neighbors' beaches.

In effect, the damaged party can neither prevent the builder from entrapping the sand

nor make him provide adequate compensation. The rationale for government involvement

in this case is to broaden the calculus of benefits and cost to cover all parties so that resources will be allocated most efficiently for the nation.

The second situation which merits government participation on efficiency grounds

is declining average costs of production . Economies of scale yield diminishing average

costs of production as project output is increased. Private producers, however, may

be induced by the profit motive to produce less than the nationally efficient level of

output under conditions characterized by economies of scale. For example, in order to

reap the full benefits of economies of scale, and in order to maximize net national

benefits of shoreline protection, perhaps 5 miles of shoreline would require groin

structures, whereas private interests would not find it desirable to develop more than

1 mile , and even then not as an integrated project. Thus to take advantage of economies

of scale, government involvement might be necessary. (Note that justification of

government involvement here depends on technical conditions of production rather than

on any public good characteristics of the output.)

To summarize, we can state that there are probably some public good attributes

in shoreline protection and some elements of decreasing cost that would support

government involvement.

Government involvement in shoreline protection and in other programs is often

claimed to be justified on a less rigorous basis than efficiency, namely that government

participation is in the "national interest" or "public interest." The Federal government

it is argued has historically helped people protect their lives and property from major

disasters. This function would generally be considered in the national interest. Vwo

of the three legislative programs investigated in this report deal specifically with

protection from extreme events such as floods and hurricanes, which may result in

disasters of widespread effects. However, it is not the duty of the government to

guarantee protection to the public against all possible damaqes from "acts of God"

which could have been foreseen and provided for on a probabilistic basis.

The terms "national interest" and "publi

support for Federal aid to large projects or

or services are involved. However, the use o the presence of true public goods and service

by General Koisch:

c interest," are often used freely to build

to defend Federal aid where no public goods

f these terms does not necessarily preclude

s, as illustrated by the following statement

...the public interest in... private shores is considerable. The

management of private lands may affect public beaches, navigation

channels, and other facilities. Adverse ecological and environmental problems do not end at private fences, nor do the problems

associated with storm flooding and disaster-related emergencies.

Private as well as public lands inevitably need to be considered

in shoreline and coastal zone planning in order to fully reflect

the total public interest.

'u.S. Congress, House, Committee on Public Works, Projects Proposed for Omnibus

River and Harbor Legislation--1972 , Joint Hearings , p. 58.
Hence, given these grounds for Federal involvement, and given the additional fact

that structural works for shoreline protection are very expensive (see Appendix A) , it

is only natural that local interests have turned to the Federal government to share with

them at least some of the costs for protection.

2 . 2 Legislative and Administrative Background of Federal Programs '

Federal involvement in shoreline problems prior to 1930 was restricted mostly to

improvements in navigation and protection of Federal property. In 1930 Congress

authorized the Chief of Engineers to study the ocean and Great Lakes shorelines with

the purpose of devising ways to prevent erosion from waves and currents. Congress

further established a seven member Beach Erosion Board which was to make studies of

beach erosion problems in cooperation with nonfederal public agencies.^ The Beach

Erosion Board was given additional powers in 1945 through P.L. 79-166. It was to

state in every report its opinion regarding the advisability of adopting projects, the

degree of public interest involved in those projects, and the share of project costs

the United States should bear.

Specific cost-sharing rules for the Corps were outlined by P.L. 79-727 as amended

by subsequent bills.' The Act stated that it

...be the policy of the United States... to assist in the construction

but not the maintenance, of works for the restoration and protection

against erosion, by waves and currents, of the shores of the United

States, its Territories and possessions .

"*

The Federal share of construction cost was not to exceed 50% of the cost of a project

on nonfederal lands except where the project was to protect a publicly owned shore

park and conservation area or to provide hurricane protection, in which cases the

Federal share could not exceed 70% of the costs exclusive of land costs. Private

shores could be afforded some cost sharing by the Corps, the amount to be in proportion

to public benefits that would arise from erosion protection.^ Cost-sharing rules for

hurricane protection were further outlined in the Flood Control Act of 1958..

In 1955 the Corps, in an amendment to the Flood Control Act of 1941, was authorized

an emergency fund "...to be expended in flood emergency preparation, in flood fighting

and rescue operations, or in the repair or restoration of any flood control work

threatened or destroyed by flood...."^

The Flood Control Act of 1962 amended Public Law 84-99 to provide specific authority

for Federally authorized hurricane and shore protection works as follows:

That there is hereby authorized an emergency fund expended ... in

the emergency protection of federally authorized hurricane or shore

protection being threatened when in the discretion of the Chief of

Engineers such protection is' warranted to protect against imminent

and substantial loss to life and property; in the repair and

restoration of any federally authorized hurricane or shore

protective structure damaged or destroyed by wind, wave, or water

action of other than an ordinary nature when in the discretion of

the Chief of Engineers such repair and restoration is warranted

for the adequate functioning of the structure for hurricane or shore protection.'

'For a collection of the laws relating to shoreline protection, see U.S. Department

of the Army, Corps of Engineers, Shore Protection Program , pp. 1-1 to 1-10.

^ River and Harbor Act , P.L. 71-520, 71st Cong., July 3, 1930, Sec. 2. ^Amending bills are P.L. 84-826, P.L. 87-874, P.L. 89-298, and P.L. 91-611.

'' River and Harbor Act , P.L. 79-727, 79th Cong., August 13 , 1946, Sec. 1. =Ibid.

^ Amendment in Flood Control Act of 1971 , P.L. 84-99, 84th Cong., 1st. Sess.,

June 28, 1955.

' Flood Control Act , P.L. 87-874, 87th Cong., October 28, 1962, Sec. 206.
The emergency works discussed in the above authority are exclusively for those projects

specifically authorized by Congress or authorized by the Chief of Engineers under a special continuing authority. The Corps does not have any authority for the emergency

protection of nonfederal works being threatened nor the repair or restoration of such

works damaged by a storm. However, this does not preclude the Corps from furnishing

emergency flood fighting assistance during a storm. This paper treats emergency work

provided under P.L. 84-99, as amended, but not under the Disaster Relief Act of 1970.'

In 1963 the Beach Erosion Board was replaced by the Coastal Engineering Research

Center (CERC) , which retained most of the functions of the Board. ^ CERC conducts

research on shore processes, storm frequencies, storm-tide elevations, and other topics

of use to the District Corps offices that design shoreline projects.

Numerous House and Senate bills to amend the cost-sharing responsibility of the

Federal government, usually to increase the Federal share, have come before the Congress

in recent years, ^ indicating the continuous legislative concern about cost sharing

for shoreline protection. The implications of these alternative cost-sharing rules

will be evaluated along with existing rules in Chapters 4 and 5. General policy documents as well as legislation dealing directly with shoreline

protection have had some impact on the planning of shoreline protection projects.

The "Green Book," "Budget Circular A-47," and "Senate Document 97" are three such

documents, although none has statutory standing."*

The Green Book, authorized for publication by the Inter-Agency Committee on Water

Resources, was published with the hope that interested parties in the water field would

consider its proposals. It was not issued as an official procedural guide as were

Budget Circular A-47 and Senate Document 97.

The Green Book established certain evaluation practices for water-resource development in general. It defined the efficient scale of development as that level at which

net benefits are a maximum (where marginal benefits equal marginal costs) , and it

specified that the cheapest (most efficient) technique (s) of providing a project purpose

should be adopted.' However, no relationship between these efficiency conditions and

cost sharing was described in the Green Book.

Budget Circular A-47 was a directive prepared by the Bureau of the Budget (now the

Office of Management and Budget) to inform all water-resource agencies of the standards

and procedures used by the Executive Office of the President in reviewing reports and

budget estimates of proposed water-resource developments. It was an official

procedural guide designed to encourage the agencies to adopt a more uniform planning

policy than that which had been followed in the past.

The Circular emphasized that project plans must show which parts of project costs

are to be borne by the various participating parties and that the Federal construction

agency must indicate legislative or other authority for proposing that certain costs

are nonreimbursable.^

^ Disaster Relief Act , P.L. 91-606, 91st Cong., December 31, 1970.

^ River and Harbor Act , P.L. 88-172, 88th Cong., November 7, 1963.

^For a detailed discussion of two shoreline bills, see the following Hearings for

1972 and 1970: U.S., Congress, Senate, Committee on Public Works, Omnibus Water

Resources Authorizations, Hearings , before the Subcommittee on Flood Control--Rivers

and Harbors, Senate, for S-3603, 92nd Cong., 2nd Sess., 1972, pp. 595-664; and for

S-3774, 91st Cong., 2nd Sess., 1970, pp. 649-677.

'*In the order listed above, the documents are: U.S., Subcommittee on Evaluation

Standards, Proposed Practices for Economic Analysis of River Basin Projects , Report to

the Inter-Agency Committee on Water Resources (Washington, D. C. rev. ed., 1958) ; U.S.

Bureau of the Budget, "Circular on Water Resources Projects," Budget Circular No. A-47

(Washington, D. C, 1952); and U.S. Congress, Senate, Policies, Standards, and

Procedures in the Formulation, Evaluation, and Review of Plans for Use and Development

of Water and Related Land Resources , prepared under the direction of the President's

Water Resources Council, Senate Document 97, 87th Cong. 2nd sess., 1962.

^U.S., Subcommittee on Evaluation Standards, Green Book, p. 1114.

^U.S. Bureau of the Budget, Budget Circular A-47, pp. 12-13.

9
The Department heads of the Army, the Interior, Agriculture, and Health,

Education, and Welfare prepared Senate Document 97, which superseded the documents

described above. It was aproved by both the President and by the Bureau of the

Budget, and it became the "guide book" to which water-resource agencies turned for

criteria to be used in planning and reviewing water-resource projects. Planning

multiple-purpose projects was encouraged, and the developing agencies were to

consider all viewpoints — national, regional, state, and local. .

The objectives and promises of Senate Document 97 were stated as follows:

...to establish Executive policies, standards and procedures for

uniform application in the formulation, evaluation, and review of

comprehensive river basin plans and individual project plans for use and development of water and related land resources. Problems

of cost allocation and of reimbursement or cost sharing between the

federal government and nonfederal government bodies will be covered

subsequently.

The promised examination of cost allocation and cost sharing was never completed.

Even so, since the Document included the basic conditions of (1) planning for the scale

at which marginal benefits equal marginal costs and (2) picking the least-cost

technique (s) for accomplishing a given purpose,^ it is relevant for our purposes.

The Water Resources Council's Proposed Principles and Standards for Planning

Water and Related Land Resources ^ has also affected the development of water projects.

This report was approved by President Nixon in a letter to the Chairman of the Water

Resources Council on August 3, 1973."* The Corps and other agencies will focus their

planning in the direction recommended by the document. Specifically, the Principles

and Standards, as amended, call for planning water projects to maximize net benefits

from two objectives — national economic development and environmental quality. Each

of these objectives is made up of. many components or project purposes for which benefits

are to be measured and to which costs are to be allocated. Yet, except for the

recommended local cost share of 50% for the water quality component of the environmental

quality objective, there is no new policy position on cost sharing. The Principles

and Standards treat cost sharing in' the following manner: Current reimbursement and cost-sharing policies will be reviewed

in their entirety at an early date in light of experience gained from

actual application of the new principles and standards. At that time

the basis for reimbursement and cost sharing now required, the need

for adjustment of these policies, the need for new reimbursement and

cost-sharing policies for dther objectives and their components or entirely new approaches and appropriate repayment arrangements and

interest rates for repayment will be extensively reviewed. Until

this comprehensive review is completed, all current reimbursement

and cost-sharing policies are -considered to be in full force and

effect.^

Thus the Principles and Standards, like Senate Document 97, fails to review cost sharing

for water resource development.

President Nixon, in his approval letter to the Chairman of the Water Resources

Council, recognized the need for prompt action on cost sharing.

^U.S. Congress, Senate Document 97, Sec. 1.

^ Ibid. , V(C) (2)

,

'u.S., Water Resources Council, "Proposed Principles and Standards for Planning

Water and Related Land Resources," pp. 24144 - 24194.

"•Richard Nixon, President of the U.S., Letter to Honorable Rogers C. B. Morton,

Chairman, Water Resources Council, 2120 L Street, N.W., Washington, D.C. 20037.

^U.S. Water Resources Council "Proposed Principles and Standards for Planning

Water and Related Land Resources," p. 24183.

10
I understand that analysis of ways to assume more equitable

cost sharing by the beneficiaries of water resources projects is

underway. I ask that you complete this work promptly so that

draft legislation can be transmitted to Congress in time for

enactment this year.

The most current review of cost sharing has been provided in the final report of

the National Water Commission. ^ It describes and appraises current cost-sharing rules

for many water programs. The conclusions in part are as follows:

...appropriate cost-sharing policies should provide incentives

for the selection of efficient projects that will lead to progress

toward water resources policies that are in harmony with other

national programs and policies.... Cost-sharing policies should

be equitable, with project beneficiaries bearing proportionate

shares of project costs .

The National Water Commission Report gives specific recommendations for cost sharing

policies that will lead to the achievement of the goals specified above. The key

recommendation is that "...the identifiable beneficiaries of project services should

bear appropriate shares of development and operating costs through systems of pricing

or user charges ..." "*

The following section describes in detail the present cost-sharing rules for

shoreline protection, their differences, and problems that arise from these differences.

2 . 3 Present Federal-Local Cost-Sharing Rules

In this section we review the three Corps programs that provide shoreline protection.

Each program has its own authorizing legislation and internally produced Corps Engineering

Manuals or Engineering Regulations that dictate how costs will be shared and under what

conditions local groups are eligible for Federal cost sharing under that program. The

programs are differentiated here by the type of shoreline protection they provide; i.e.,

hurricane protection versus emergency protection versus normal beach erosion protection.

Each of the programs is discussed, and differences within and among the three programs

are emphasized.

2.3.1 Hurricane, Tidal, and Great Lakes Flood Protection

The purpose of the Federal hurricane flood protection program is to protect those

areas bordering oceans, estuaries, and the Great Lakes from inundation caused by

hurricanes (and other high winds) or by exceptionally high tides. In the course of

providing hurricane protection, normal beach erosion will ordinarily be prevented, too.

But it is important to recognize that this program is intended primarily for protection

against exceptionally high tides, and that areas not encountering these severe flooding

processes would not be eligible, theoretically, for protection under this program.

The current Corps policy for hurricane protection cost sharing is detailed in an Engineering Regulation,^ but the precedents for these rules lie in the cost-sharing

formulas adopted in the Flood Control Act of 1958 for specific shoreline projects.

It should be noted that there is no connection between cost sharing and the degree

of public (albeit nonfederal) ownership and use. Cost sharing is relatively fixed

for projects authorized and funded under the hurricane protection program.

'Richard Nixon, President of the U.S., Letter to Chairman of the Water Resources

Council

.

^National Water Commission, Water Policies for the Future: Final Report to the

President and to the Congress of the United States (Washington: U.S. Government

Printing Office, 1973), pp. 485-499.

^ Ibid . , p. 496.

" Ibid . , p. 497.

^U.S. Department of the Army, Corps of Engineers, Federal Participation in Coastal

Protection Projects , ER-1165-2-19 , August 20, 1969, pp. 1-7.

^ Flood Control Act , P.L. 85-500, 85th Cong., July 3, 1958, Sec. 203.

11
Table 2.1 displays the maximum Federal cost shares under the three Corps

programs for nonfederal shore areas.' For hurricane protection, the Federal share

ranges up to 70% for the costs of construction; lands, easements, and rights-of-way;

and for relocation and alteration of utilities. Thus the local share for these first

costs is at least 30%.

Operation and maintenance (O & M) cost, necessary for ensuring continued operation

of the project through its planned life span, is generally a nonfederal responsibility.

When performance of O & M by the Federal government is assumed to be in the public

interest, nonfederal interests may be required to make a cash contribution in the amount

of the estimated present value of O & M, capitalized at the current Federal discount

rate.^ A Federal tax or subsidy could result for local participants if the Federal rate were different from the market rate. The amount of the tax or subsidy respectively

would be the difference in the capitalized value of 0 & M with the market rate of

interest and with a lower or higher Federal rate.

Pre-author ization surveys in the project area and aids to navigation required by

the project are financed totally at Federal expense.

2.3.2 Emergency Flood and Coastal Storm Protection

The purposes of this program are to prepare for flood and coastal storm emergencies,

provide flood fighting and rescue work, and to repair and restore flood control works

and Federally-authorized and constructed shore protection structures.' ("Federally

constructed" means only that the Corps lets bids for the repair of the project by

private enterprise.)

Assistance by the Corps is intended to supplement state and local resources. Thus

the authorizing legislation (P.L. 84-99 and P.L. 87-874) does not provide explicit

cost-sharing rules for the Corps. The policy adopted by the Chief of Engineers for

local cooperation is based on local requirements specified in the 1936 Flood Control

Act and set forth in a Corps Engineering Regulation.'"

Table 2.1 displays the maximum Federal cost shares for emergency protection. The

maximum Federal share for construction costs, pre-authorization surveys, and aids to , navigation is 100%. Local interests are required to bear the costs of lands, easements,

and rights-of-way; O & M; and relocation and alteration of utilities. In specific

cases, the Chief of Engineers can eliminate any of these local cooperation requirements

upon adequate justification.^ However, except for O & M costs, local interests have

already provided these requirements for the original project.

Much of the Corps work under the emergency protection program is flood fighting,

including advanced flood fighting in the form of strengthening project features where

preservation of a Federally constructed project is threatened. Shoreline protection

performed under this program is usually in the form of repairs to Federally constructed

structures following damaging storms, and shoreline protection per se is only a small

proportion of the Corps' total activities under the emergency protection program.

Although this report treats emergency protection under P.L. 84-99 only, it should

be pointed out that the Corps does have the authority under the Disaster Relief Act

of 1970 to provide beach restoration even where there has been no Federally authorized

project. However, this authority can be exercised only when the President has declared

the event a major disaster. The same cost sharing described above applies.

'The Federal government bears the full costs of protection of Federal lands.

^U.S. Department of the Army, Corps of Engineers, Federal Participation in Coastal

Protection Projects , p. 4. 'u.S. Department of the Army, Corps of Engineers, Emergency Employment of Army and

Other Resources , ER 500-1-1, January 4, 1972, p. 1-1, Sec. 11-10.

"ibid., p. 5-4, Sec. 53-20.

^Ibid.

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2.3.3 Beach Erosion Control

The beach erosion control program is for the purpose of preventing erosion damages

resulting from wave and current action against shores and beaches. Structural measures

for such projects are designed to protect a specific area against normal erosion

processes rather than the severe storm that is likely to occur only once in 100 or in

200 years. The latter, more expensive type of protection is provided in the hurricane

program described in Section 2.3.1.

Cost sharing of construction costs under the beach erosion control program differs

significantly from hurricane protection in that the degree of Federal cost sharing for

beach erosion control is a direct function of public ownership and use of the protected

shoreline. Thus, the percentages as well as the absolute values of project construction

costs borne by Federal and nonfederal interests will vary from project to project.

Table 2.1 shows that the maximum Federal share of construction costs varies from

0.0% to 70% for the beach erosion control programs. The costs of lands, easements,

and rights-of-way; 0 & M; and relocation and alteration of utilities are borne by

local interests. Pre-authorization surveys and aids to navigation are provided at

Federal expense.

A more complete description of cost sharing for the beach erosion control program

is given in Table 2.2.^ The table illustrates the maximum Federal shares to be paid

under five categories of ownership of shore frontage with varying degrees of public

benefits or use. For category I, Federally owned land, all costs are borne by the Federal government.

Category II comprises property which (1) is publicly owned; (2) includes a zone landward

from the mean low water line that excludes building for habitation (thereby preventing

development that would be vulnerable to storm and water damages) ; (3) includes a beach

for recreational use; (4) provides for the preservation, conservation, and development

of the environment (i.e., to maintain game preserves and natural conditions in some areas while providing facilities for intense recreational use in others) ; (5) includes

natural protective features such as dunes to act as a buffer zone between upland

development and the active shore zone; and (6) provides the public with full park

facilities commensurate with intended park use. Note that the second requirement of

a zone excluding building amounts to a land management alternative to engineering

techniques for controlling shoreline damages; note also that the 70% share provides

a local incentive for adoption of management techniques and natural protective

forces as opposed to residential or commerical development and engineering protective

structures

.

Lands, easements, and rights-of-way costs plus O & M costs must be borne by local

interests, although the costs of pre-authorization surveys are still borne by the

Federal faction. One cost can be* shared by the Federal government, however, and that

is the cost of periodic beach nourishment."^ If beach nourishment is considered as a method of shoreline protection, the Chief of Engineers may recommend a time (usually

10 years) during which Federal aid may be given. On the other hand, when maintenance

is the primary purpose of periodic beach nourishment, i.e., if used in conjunction

with structural measures that confine the restored beach. Federal cost sharing cannot

be granted.

Category III shoreline is publicly owned, but does not meet the special park or conservation requirements of Category II shoreline. Only a 50% Federal cost share is

available for construction.

Categories IV and V cover privately owned property. Here the applicable principle

relating to cost sharing is that the greater the extent of public benefits present,

the larger the Federal cost share for <\?hich private property will be eligible. Public

benefits include public recreational use and prevention of damage to public facilities

such as boardwalks, buildings, highways, and parks. The Federal cost share (percentage)

for Category IV properties — privately owned properties which provide measurable public

benefits — is computed by multiplying 5 0% times the ratio of public benefits to total

^U.S. Department of the Army, Corps of Engineers, Federal Aid Toward Shore

Restoration and Protection , ER 1120-2-110, March 1, 1965, pp. 1-9.

^Periodic beach nourishment, as an engineering technique, is discussed in

Appendix A.

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15
benefits, i.e., the percentage Federal share = 50% x public benefits/total benefits.

The absolute Federal cost share would be obtained by multiplying the percentage Federal

share times construction costs.' Where public benefits accrue mostly in the form of

recreational use, then the Federal share varies directly with the degree of public use.

If the property is privately owned and protection does not result in measurable

public benefits (Category V) , then the project is not eligible for Federal assistance

under the beach erosion control program. Federal cost sharing at the 50% rate is

available for both Category IV and Category V property, however, when the overall

project provides only minor or incidental benefits to private interests and the cost

of providing these private benefits by the project is equal to or less than the costs

of providing only public benefits with the project.

To compute the absolute dollar cost shares for any given category of shoreline,

one need simply multiply the percentage shares times the costs of construction.

However, where a project encompasses several or all of the described categories of

beaches, the formula used is as follows:

The percentage Federal share of total construction cost =

If the cost of construction per unit of benefited frontage is not relatively

uniform, the project must be divided into compartments that meet this condition. The

above formula can then be applied to total construction costs with each compartment.

Some projects satisfy beach erosion control as well as hurricane protection. For

these multiple-purpose projects, total costs are allocated among the various purposes

so that cost shares can be determined by purpose according to the prescribed rules

for that purpose. Cost allocation in multiple-purpose projects is recognized as influential in affecting cost shares and the choice of scale and techniques. For

example, local interests will be biased by cost-sharing rules to want as much as possible of the total costs of a joint beach erosion-hurricane project allocated to

hurricane protection because their share will be minimized with that allocation. For

a more complete discussion of cost allocation and how it relates to- cost sharing, see Marshall and Broussalian.

Differences or inconsistencies among cost-sharing rules can be expected to

influence local choices of shoreline protection programs. In this section, therefore, we summarize the differences among the rules described in earlier sections. Full

analysis and evaluation of the efficiency and equity effects of these differences will

be attempted in Chapters 4 and 5. One major difference among the three programs relates to the criteria of eligibility.

While all projects must demonstrate positive net benefits to be eligible for Federal

assistance, a major difference exists between the beach erosion control program and the

other two. Applicants for aid under the beach erosion control program must demonstrate

public ownership or public use to be eligible for assistance, whereas neither is required

under the hurricane or emergency protection programs. Hence, projects providing the

same general service, shoreline protection, and possibly using the same technique, e.g.,

an engineering structure, can have different eligibility requirements for Federal

participation.

^When privately owned shores are under public control, as through a long-term lease,

they may be treated as Category III land for cost-sharing purposes.

^U.S. Department of the Army, Corps of Engineers, Federal Aid Toward Shore

Restoration and Protection , p. 5. ^Marshall and Broussalian, "Federal Cost Sharing Policies for Water Resources,"

X Public Benefits Along Category IV Frontage)

Total Benefits Along Category IV Frontage/ X 100.

2.3.4 Comparison of Cost-Sharing Rules

pp. 28-34.

16
A second major difference among the three programs is the percentage cost shares

borne by the Federal government. For construction the Federal share ranges from 100%

under the emergency protection program down to 0.0% for some privately owned land

under the beach erosion control program. Federal cost shares also differ for other

types of costs. For example, lands, easements, and rights-of-way expenses are borne

totally by local interests in the emergency and beach erosion control programs, but

the Federal share is as high as 70% for the hurricane protection program. Operation

and maintenance can be shared under both the hurricane protection program and the

emergency program under special circumstances, but not for the beach erosion program

except under the guise of periodic beach nourishment. And relocation and alteration

of utilities is shared at 70% for the hurricane protection program, but at 0.0% for

the other programs. Within the beach erosion control program itself there are differences in cost sharing, depending on the degree of public ownership and use, as discussed earlier. Tables 2.1 and 2.2 show that the three shoreline protection

programs vary considerably in terms of cost sharing.

A third difference, which exists between emergency protection and the other two

programs, should also be noted. The nature of emergency protection is restoration

and repair of existing Federally authorized shoreline protective structures, whereas

the other programs are for new projects.

Because emergency protection is thought to be needed quickly to protect property

and lives, we might expect the Federal share to be higher than for the other programs.

It is less obvious, however, why beach erosion control and hurricane protection, two

purposes that are quite similar in nature, should have different eligibility requirements for Federal aid and different rules for Federal cost sharing. Hurricane

protection projects appear to differ from beach erosion control projects only in that

they provide bigger and stronger forms of protection. Thus, there is no apparent

reason for different cost-sharing rules.

There have been some steps towards making the percentage cost shares equal for

the two purposes. Senator Javits introduced a Bill, S.3774, in the 2nd session of

the 91st Congress that would allow the Chief of Engineers in the Corps to provide

a Federal cost share up to 70% of construction costs if hurricane protection is

included as a part of a multiple-purpose project. This would, in effect, raise the

maximum Federal share from around 50% to 70% for that part of the project which is

supposed to be for beach erosion control. Senator Javits described the need for the

bill as follows:

The federal financial participation in beach erosion and

hurricane protection projects have been limited by needlessly

complex and, in my judgment, unbalanced cost-sharing formulas.

These formulas must be adjusted, especially with regard to

hurricane protection projects, if we are to preserve our shores

and avoid the catastrophe that violent storms often cause.

Section 208 of the 1970 Rivers and Harbors Act (P.L. 91-611) authorized 70% costsharing for projects including hurricane protection as a purpose to be used at the

discretion of the Secretary of the Army acting through the Chief of Engineers. The

impact of this section on Corps policy is summarized by the following statement of

General Koisch:

...this authority has not been used. We see it as a means for

discretionary correction of cost-sharing inequities that

may exist in some of these joint projects.

We have not yet come up with criteria to define its

applicability. We will, of course, examine all joint

hurricane and beach erosion projects with section 208 in

mind. But for the time being, at least, we feel that the

burden of demonstration lies on those seeking change in

the cost sharing.^

^U.S. Congress, Senate, Introduction of a Bill to Award Cost Sharing for Hurricane

Protection Projects, Congressional Record , 91st Cong., 2nd Sess., April 30, 1970,

p. S. 6308.

^U.S. Congress, House, Committee on Public Works, Projects Proposed for Omnibus

River and Harbor Legislation —1972, Joint Hearings , p. 81.

17
The current procedure for sharing costs of joint beach erosion and hurricane

protection projects, as outlined in Corps Engineering Regulation 1165-2-19, is to

first allocate total project costs between the two purposes and then to assign the

appropriate cost-sharing rules. The controversy has centered upon whether or not that

part of total project cost allocated to beach erosion should be Federally shared at

70% rather than at the existing maximum for privately owned beaches of 50%. By the same token, efficiency and equity arguments might be addressed to support a contrary

position, namely a reduction of the 70% share paid for hurricane protection to a uniform

share of 50% for both single and multiple-purpose projects.

One similarity among the three programs appears especially significant. Cost

sharing does not vary by engineering techniques within any given program; that is,

the percentage share that local groups must pay will be the same whatever technique

of protection might be used. Thus, on cost-sharing grounds, there is no incentive

to pick one engineering technique in preference to another. The same is not true as between engineering techniques and management techniques for which the Corps does not

have full authority. Appendix A describes the full range of engineering and management

techniques that are available for determining the optimal shoreline protection program.

18
3. THEORETICAL CONSIDERATIONS

This chapter develops a model which illustrates how cost sharing affects local

decision-making in planning shoreline protection projects.

First, a brief survey of selected literature on cost sharing is presented for

shoreline protection and for water resources development in general. Reference is

also made to some general works on grants-in-aid, a form of cost sharing. The purpose

of the literature survey is to provide a sketch of thinking about cost sharing. The

interested reader may pursue the subject on his own by consulting the references cited

in the footnotes.

Second, the demand for shoreline protection by local interests is derived to

demonstrate the impact on local willingness to buy shoreline protection as a function

of cost-sharing percentages. The third section derives a system of cost sharing that

encourages local interests to select nationally efficient or optimal projects.

3 . 1 Selective Survey of the Literature '

Much of the literature on cost sharing in water resources development focuses on political and administrative problems rather than economic problems. Inefficiencies

and inequities are often cited as primary problems, but they are seldom discussed

analytically. The writings to be considered here are selected on the basis of their

analytical contribution to cost sharing; i.e., in so far as economic theory has been

applied to cost sharing problems. The paucity of such writings, particularly on the

issue of shoreline protection, is one of the reasons why this study was undertaken.

Davis and Hanke have provided some economic analysis of the hurricane protection

and beach erosion programs in their report entitled Pricing and Efficiency in Water

Resource Management .^ They identify a "two-pronged government subsidy" in the form

of disaster relief made available through the Disaster Act and in the form of the 70%

Federal cost share for hurricane protection. ' Davis and Hanke criticize the dual

shoreline subsidy because it fails to discourage people from moving into disaster-prone

areas. They recommend insurance as one solution. By charging individuals a beneficiary

charge, i.e., an insurance premium, protection would be provided in the event of a disaster and, what they consider more important, unwise development in the flood-prone

area would be discouraged. "*

Loughlin has recommended a cost-sharing policy for structural flood protection

that is related to the flood insurance program.^ To ensure efficiency and equity,

he recommends that local beneficiaries of a flood protection project share project

costs in the same proportion that local benefits (i.e., local reductions in flood

insurance premiums and noninsurable damages) bear to total benefits from the project.^

'For a more comprehensive survey of the literature on cost sharing, see Harold E. Marshall, "The Relationships Between Local Cost-Sharing and Efficient Water-Resource

Development (unpublished Ph.D. dissertation. The George Washington University, 1969),

pp. 56-89,

^Robert K. Davis and Steve H. Hanke, Pricing and Efficiency in Water Resource

Management , Reproduced by National Technical Information Service, No. PB-209-083

(Springfield, Va. : NTIS, 1971), pp. 151-160.

^Ibid. , p. 153-154.

^Ibid. , p. 154.

^James C. Loughlin, "A Flood Insurance Model for Sharing the Costs of Flood

Protection," Water Resources Research , VII, No. 2 (April, 1971), pp. 236-244.

^ Ibid . , p. 239.

19
Loughlin has also examined cost sharing in water resources apart from insurance.

He emphasizes that differences in cost-sharing policies within an agency and among

agencies lead to social ineffiencies and inequities.^ Loughlin recommends a uniform

approach to the sharing of costs for flood protection to effect greater efficiency and

equity .

Marshall has derived the necessary conditions in cost sharing^ for encouraging

local interests to select the least-cost combination of techniques and the nationally

efficient project scale for providing any given water resource project. The condition

for encouraging the selection of the least-cost combination of techniques is that local

interests be charged the same percentage cost share for each technique available to

them. The necessary condition (called the Association Rule) for encouraging local

support of the nationally efficient scale is related to the benefit theory of taxation

and requires that local interests be charged according to the benefits that they

receive.** Marshall shows that current cost sharing rules for many of the water programs

do not meet these conditions.^

Marshall and Broussalian have analyzed cost sharing in water resources for

satisfying not only the single traditional objective of national economic development,

but also for satisfying multiob jectives that include environmental quality and regional

development.^ They have also examined alternative cost-sharing rules for their equity,

or fairness, implications . The Marshall and Broussalian report, prepared at the National Bureau of Standards,

was used by the National Water Commission in preparation of its final report as a background for Chapter 15 on "Paying the Costs of Water Development Projects." (See

Section 2.2 for a brief discussion of the National Water Commission Report.)

Rafuse and Sherman have examined cost sharing specifically for flood control

projects. They maintain that the net benefits from a flood control project are not

additive among benefiting districts, and therefore that cost sharing formulas should

not be based on an addition of these benefits.® They introduce the "net fiscal benefits

criterion" as an alternative method for determining what local interests should be

willing to pay. It requires simply that local interests be required to pay a share

of the project cost that is equal to the net fiscal benefits (e.g., increased tax revenues minus increased local government expenses) that they expect to realize from

the project.^ Rafuse and Sherman recognize that their criterion will not necessarily

achieve efficient project decisions, but they emphasize that it has merit in achieving

equity among cost-sharing participants.^"

^ James C. Loughlin, "Cost-Sharing for Federal Water Resource Programs with Emphasis

on Flood Protection," Water Resources Research , VI, No. 2 (April, 1970), p. 377.

^Ibid.

^The necessary conditions will.be discussed in Section 3.3.

•Harold E. Marshall, "Economic Efficiency Implications of FederaL-Local Cost

Sharing in Water Resource Development," Water Resources Research , VI, No. 3 (June, 1970),

pp. 673-682.

^Ibid. , pp. 677-680

.

^Harold E. Marshall and Vartkes L. Broussalian, Federal Cost-Sharing Policies for

Water Resources , pp. 182-201.

^Ibid . , pp. 201-214.

^Robert W. Rafuse, Jr., and Michael D. Sherman, The Implications of the Net Fiscal

Benefits Criterion for Cost Sharing in Flood Control Projects, Mathematica Report to

the Corps of Engineers, IWR Report 71-12 (Washington, D. C: Institute for Water

Resources, 1971), p. 49.

^ Ibid . , p. 51.

1 0 Ibid . , p . ii

.

20
Earlier writings than those discussed above dealt with cost sharing in water

projects in a somewhat less technical fashion. Regan was an early advocate of sharing

costs in proportion to benefits. He recognized that local interests would have

different viewpoints from those of society, and that these differences, if not

compensated for by cost sharing, might encourage local support of projects that were

not socially optimal.'

Renshaw recognized the economic efficiency effects of having different cost-sharing

rules for alternative techniques of providing a given project purpose. He pointed out

that, for flood protection, local interests would pick that alternative with the highest

ratio of Federal to local costs, other things equal, even though that selected

alternative might not be the cheapest for society.^

Other areas of research involving cost-sharing programs are in agriculture and in

grants-in-aid. Hurlburt has derived optimal leasing (cost-sharing conditions) for

inducing landlords and tenants to operate a rental farm in such a way that profits are maximized.^ Adams and Rask have developed the "ideal" lease or cost-sharing arrangements

for tenant farmers in less developed countries." Writings by McGuire and Garn^ and by

Break^ deal with efficiency in resource allocation through general grant-in-aid (costsharing) programs.

This selective survey of the literature has focused on local incentive effects of

cost sharing and its impacts on efficiency and equity. The remainder of the chapter

analyzes in detail how cost sharing rules affect local demand for project output, the

choice of techniques for building a given project, and the size of the project to

be built.

3 . 2 Derivation of Local Demand for a Project

The demand by local interests for shoreline protection must be presumed to depend

on the price that they must pay for that protection, and the value they place in this

protection, other things being equal.'

Assume that the local group's benefit or welfare function can be expressed as

= (Q, M) , (3.1)

where B = benefits accruing to the local group

Q = unit measure (i.e., quantity) of shoreline protection, and

M = all other goods and services available to the local group,

measured in dollars.

'Mark Regan, "Sharing Financial Responsibility of River Basin Development,"

Economics and Public Policy in Water Resources Development , ed. by Stephen C. Smith

and Emery N. Castle (Ames, Iowa: Iowa State University Press, 1961), p. 215.

^Edward F. Renshaw, Toward Responsible Government: An Economic Appraisal of

Federal Investment in Water Resource Programs (Chicago: Idyia Press, 1957), p. 50.

^Virgil L. Hurlburt, "Farm Rental Practices and Problems in the Midwest,"

Research Bulletin No. 416 (Ames, Iowa: Iowa State College Agricultural Experiment

Station, 1954) , p. 85.

"Dale W. Adams and Norman Rask, "Economics of Cost-Share Leases in Less-Developed

Countries," American Journal of Agricultural Economics , L, No. 4 (1968), p. 935.

^Martin C. McGuire and Harvey A. Garn, "Problems in the Cooperative Allocation of

Public Expenditures," Quarterly Journal of Economics , LXXXIII, No. 1 (1969), pp. 31-39.

^George F. Break, Intergovernmental Fiscal Relations in the United States

(Washington, D. C. : The Brookings Institution, 1967)

.

'This analysis is based on a similar derivation described in Harold E. Marshall,

"The Relationships Between Local Cost-Sharing and Efficient Water-Resource Development,"

pp. 25-28.

21
The local group is constrained in its purchase of M and Q by the amount of wealth . available to it, i.e., its budget. Therefore the local group will maximize its welfare

(other things being equal) subject to the budget constraint which satisfies the

relationship

L = M + c • P • Q (3.2)

where L = local budget,

c = percentage local cost share,

P = national price per unit of Q,

c • P = local price per unit of Q, and

c • P • Q = absolute local costs of Q.

All functions are considered continuous. To isolate the effect of cost sharing

on demand, we shall assume that only percentage cost shares (c) change. Thus the

national price (P) is assumed to be constant.

Figures 3.1 and 3.2 show graphically the derivation of demand for shoreline

protection as a function of cost sharing.^ An indifference curve (IC) represents

combinations of M and Q to which the local group is indifferent. For higher levels

of M and Q, the local group achieves higher levels of satisfaction as represented by

IC 3 and IC2 being located up and to the right in Figure 3.1. The slopes of these

indifference curves represent the marginal rate of substitution (trade-off) of M for

Q that the local group is willing to make, based on that group's judgment of the

value of benefits from extra units of M and Q. These indifference curves are derived

from the welfare function in equation 3.1.

The functions L(ci), L(c2)/ and L(c3) represent the local budget constraints for

different cost shares ci, Ca, and C3, where ci > C2 > C3. The slope of the budget

constraints is equal to the ratio of the local price (c • P) of Q over the price of

the other goods (M) . If the price of M remains constant and the local cost share of

Q diminishes, the budget constraint pivots at point L and intersects the horizontal Q

axis at points farther to the right. The points of tangency between the indifference

curves and the budget constraints indicate the optimal combinations. Hence, as the

local cost share decreases f rom c 1 to c^ to 03^ the absolute local price per unit of

Q decreases, and the local group will increase its purchases from Qi to Q2 to Q3

respectively, as shown in Figure 3.2. Thus, the local demand for shoreline protection,

other things equal, is shown graphically to depend inversely upon the percentage cost

share paid by the local interests.

If the sole purpose of cost sharing for shoreline protection were to encourage

local interests to seek more protection, then it follows from this analysis that

reducing the local cost share would serve that purpose. But since we know that the

Federal budget is also limited and that there are other water projects and nonwater

projects competing for scarce Federal funds, there is no basis on national efficiency

and equity grounds for lowering local cost shares just to encourage local interests

to demand more and larger shoreline protection projects.

The demand analysis is significant for this study in that it shows that local

interests acting on rational economic grounds will be affected by the local percentage

cost share. Thus cost-sharing policy has the potential to be used as a tool to induce

local behavior that will result in nationally efficient projects.

^This assumption is made for convenience of illustration. Even if the national

price were allowed to vary, it is unlikely that in practice the purchase of extra units

of shoreline protection would increase the national price sufficiently to have a dampening effect on local quantity demanded. Thus the local demand curve would

probably still be downward sloping.

^This derivation technique could be applied in deriving demand for any project

purpose

.

22
$M

ICi IC2 IC

L(

An.

c 1 X \

Q2 Q;

Figure 3.1 — Indifference Curves and Budget Constraints

Figure 3.2 -- Demand for Shoreline Protection

23
3.3 Necessary Conditions for Efficiency and Optimality

This section derives the necessary conditions that cost sharing rules must satisfy

in order to encourage local interests to select and support those projects that are most efficient with respect to national economic efficiency, or in the case of multiobjectives, that are optimal from the national viewpoint.

Traditionally, in the techical economic evaluation of a project, the benefits

and costs of alternative projects are compared to determine which project maximizes

net national benefits. The planning objective of the shoreline protection program

under this type of evaluation scheme is the maximization of national income, or alternatively, what is called in the water literature, maximizing national economic

development. This is traditionally called an efficiency objective.

This chapter treats cost sharing in its incentive effects not only from the

standpoint of the efficiency objective, however, but also from the standpoint of

nonef f iciency objectives, such as environmental quality. In this paper the "best"

project from the standpoint of satisfying multiobjectives will be called the optimal

project.

The following terminology is used in the model. Individual goals of the shoreline

protection program such as beach erosion control and hurricane protection are called

project purposes . A project may comprise one or more purposes. Project benefits are measured as the increase in value of goods (e.g., boardwalk and housing developments)

and services (e.g., recreation experience) available to the nation, net of associated

or induced costs, that results from having a project as compared to not having it.

These benefits may accrue locally or be widespread. Purpose benefits represent the

change in value of goods and services that results from having that purpose as compared to not having it.

Project costs include the total costs of project construction, interest, and of

operation, maintenance, and replacement. Purpose costs include that part of project

costs allocated to a given purpose. Project and purpose net benefits equal the

difference between benefits and cost for a project or purpose, respectively. Purpose

output, of which benefits and costs are a function, refers to the units of physical

output (reduction in number of houses lost or increase in recreation user days)

provided by the purpose.

The model makes the following assumptions. The Federal agency (e.g., the Corps)

and a nonfederal composite of local governments, state governments, shoreline districts,

and other local sponsors share the costs of a project providing shoreline protection.

The Federal agency and the local faction may apply different criteria for evaluating

the project. Local groups would be expected to be most interested in benefits that accrue locally, and the Federal agency must consider benefits that accrue nationally,

i.e., benefits that are widespread as well as local. Local interests and the nation

as a whole are assumed to have downward sloping demand functions for project outputs.

That is, the higher its respective cost share, other things being equal, the less

output a faction will demand. Finally, the production function for each purpose

output is assumed to be characterized, at least after an initial range, by diminishing

marginal returns to successive units of a given input.

Appendix A describes the many engineering and management techniques that can be

used for reducing the damages caused by shoreline erosion. The purpose of this section

is to derive that cost sharing rule which will encourage local interests to select

the combination of techniques for a given project that is least costly to society.

A necessary condition for least-cost production to the nation is that

3.3.1 Technique

(3.3)

where Q = units of output,

Ti,T2 = are units of techniques

Ti and T2 , which can be management and/or engineering

techniques, and

Pi,P2 = national cost or price per units of techniques Ti and T2

.

Pi and P2 are assumed to be constant in the relevant range of demand.

24
3W 9B 9Q

8Ti 9Q 9Ti

3W 9B 9Q

9T2 9Q 9T2

This necessary condition is derived as follows. Assume that benefits to the nation (B)

from shoreline protection are a function of Q and that Q = Q(Ti,T2). Assume further

that the nation has some budget constraint (S) . To find the maximum of B[Q(Ti,Tj)]

subject to the constraint that S = PiTi + P2T2, we make the problem unconstrained

by use of the Lagrange multiplier (A) and maximize the new expression

W = B(Q) + X (S - PiTi - P2T2), (3.4)

where W now is a function of Ti , T2 , and A, A necessary condition for optimization is that the partial derivatives of W with

respect to each variable must equal zero. By doing this for the two techniques we have

+ A (-Pi) = 0, and (3.5)

+ A (-P2) = 0. (3.6)

Placing the negative terms to the right side of the equations and dividing the first

expression by the second yield

9B 9Q_ /9B 9Q_ ^

AP_i_ . , 9Q " 9Ti / 9Q ' 9T2 \P 2

'

Cancellation results in the condition to be demonstrated,

9Q /9Q _ Pi_ ,-, ^, 9Ti/ 9T2 P2

This means simply that each technique will be used up to that level at which the

extra output realized per extra dollar spent is equal for the two techniques. The

Federal agency, as an agent for society as a whole, is supposed to select techniques

according to this least-cost principle.

To illustrate how a local group will choose among techniques, we examine that

group's behavior under the assumption that it attempts to maximize local benefits

subject to a local budget constraint. A necessary condition for the least-cost

production for local interests is that

9Q /3Q _ CiP ^, (3.8) 9Ti/ 3T2 C2P2

where Ci, C2 = local cost shares (proportions) of techniques Ti and T2 respectively.

This condition if derived as follows.^ Assume that local benefits (Bj^) are a function

of Q and that local interests have some budget constraint L. To find the maximum of

B-j^ CQ (T 1 , T2 )] subject to the constraint that L = CiPiTi + C2'P2'^z 1 we can make the problem

unconstrained by use of the Lagrange multiplier and maximize the expression

V = B^(Q) + A (L - CjPiTi - C2P2T2), (3.9)

where V is now a function of Ti , Tz, A, Ci, and C2

.

By setting the partial derivatives of V with respect to Ti and T2 equal to zero, we obtain

^This derivation of the necessary conditions for inducing local interests to

choose the least-cost technique for society is similar to that which appears in

Marshall, "Economic Efficiency Implications of Federal-Local Cost Sharing in Water

Resource Development," pp. 674-675.

25
Placing the negative terms to the right side of the equations and dividing the first

expression by the second yield

3Ti,

9Q

3T2

AciPx

XC2P2 (3.12)

Cancellation results in the condition to be demonstrated,

9Q

3Ti /

3Q_

aT2

CiPl

C2P2 (3.8)

Note that identical cost shares (ci = C2) must apply to each technique if cost

sharing is to induce local interests to select the nationally efficient combination of

techniques. If Ci > C2 , local interests will be biased by cost sharing to choose less

of Ti and more of T2 then is nationally efficient. If c^ > Ci, they will be biased to

choose less of T2 and more of Ti than is nationally efficient. Only when ci = Cz does

the local maximizing condition (3.8) become equivalent to the least-cost condition

for society (3,3) . This condition for equal cost shares can be extended to as many

techniques as are reasonable substitutes for providing a given level of output.

It is possible that the efficient level of output (scale) will not be chosen,

however, when Ci = C2. The choice of scale and the choice of techniques are often

executed independently in water projects. Yet given some scale of Q, local interests

are encouraged to choose the nationally least-cost combination of techniques by

making ci = C2. (Section 3.3.2 treats the problem of efficient scale in detail.)

Figure 3.3 provides an alternative illustration of the cost-sharing condition for

efficient techniques. Assume that Qj level of shoreline protection can be produced

with those combinations of units of Ti and indicated by the three dots a, b, and c. Assume further that the local share of benefits is the same for output Qi , whether it

is provided by combinations a, b, or c. Isocost L depicts the locus of quantity

combinations of Ti and Tz that local interests can afford with budget constraint L and Federal cost sharing. Isocosts Si and S2 depict the locus of quantity combinations

of Ti and T2 that the nation can afford with budget constraints Si and S2 (Sz > Si).

The local and Federal isocosts are not parallel because Ci < Cz . That is, the slope

of L, CzPz/ciPi, is steeper than' the slope of P2/P1 of Si and Si. Because the local

cost share of T2 is higher than the share of Tj, local interests will choose a production process using more Ti than will the Federal agency seeking national efficiency.

Figure 3.3 shows that local interests can afford Qi level of output with budget L only if technique Ti is used exclusively. The cost to the nation of producing Qi with

technique Ti is Sz . Yet society can realize Qi at a lower cost Si by using only

technique T2 . The local faction will select the same technique (s) as the Federal

faction for producing Qi only when the slopes of both factions' budget constraints are

the same. If the local budget is large enough to make L coincident with Si under the

condition that ci = C2, then both the Federal agency and the local faction will choose

to produce with technique T2 exclusively. The savings to the nation (net efficiency

gain) from producing Qi with T2 instead of Ti would be the difference in budgets S2 and

Si .

Units

of Ti

0 Units of T2

Figure 3.3 — Cost Share for Efficient Technique (s)

26
The analyses above show that an equal percentage cost share for all techniques

of providing shoreline protection is necessary on national efficiency grounds. An

equal percentage policy is also necessary where the project is designed to maximize

the net benefits from multiob jectives . For example, if cost sharing were to be

selected as a way of redistributing income for meeting the objective of regional • development, the most efficient redistribution would be effected by lowering local

cost shares to an equal percentage for all techniques of production rather than just

lowering them for some of the techniques.

The efficiency implications of existing cost-sharing rules for different techniques

of shoreline protection will be evaluated in Chapter 4. 3.3.2 Scale

The purpose of this section is to derive a cost-sharing rule which will encourage

local interests to select the nationally efficient or optimal project size. The rule

to be derived is called the Association Rule (AR) . ' Assume the following:

B = B(Q) C = C{Q)

Bp = B - B^ C = Cj^ + Cj,

where B = total benefits accruing to the nation.

Bp = widespread benefits not assignable to local interests,

B^ = benefits accruing to local interests,

b = proportion of B accruing to local interests at the margin,

C = total costs accruing to the nation,

= costs borne by local interests,

Cp = costs borne by the Federal government, and

c = proportion of C paid by local interests at the margin.

For national economic efficiency, a project purpose must be built to that scale

where net national benefits are maximized. Assuming continuous and smooth functions,

this condition is

^ = (3.15) dQ dQ • iJ.-L^; The last increment in scale adds benefits just equal to the marginal costs of

production. If a project is underbuilt or overbuilt with respect to the scale that is

nationally efficient, then too few or too many resources respectively have been

allocated to that project purpose.

To maximize their net benefits, local interests will choose, if possible, that

scale where

dB-. dC^

dQ dQ~"

Local interests cannot gain net benefits by altering the size of the project when

this condition is satisfied.

(3.16)

^This derivation of the AR comes from Marshall and Broussalian, Federal Cost-Sharing

Policies for Water Resources , pp. 58-65, and Marshall, "Economic Efficiency Implications

of Federal-Local Cost Sharing in Water Resource Development, pp. 675-677.

^For a derivation of this condition and of the condition for maximizing efficiency

in the presence of a budget constraint, see Stephen A. Marglin, "Objectives of WaterResource Development: A General Statement," Design of Water Resource Systems , Maass,

et. al. (Cambridge, Massachusetts: Harvard University Press, 1962), pp. 31-36.

27
From equation (3.16) and equations (3.13 and (3.14), we obtain

dQ^ = ^ • a§ • (3.18)

By appropriate substitution into equation (3.16), we obtain the following condition:

^ = c . ^

(3.19) dQ dQ

This maximization condition for local interests shows, by comparing it with condition

(3.15), that the scale desired by local interests will equal that picked by the Federal

agency only if b = c. This condition, i.e., that costs are shared in the same proportion as benefits at the margin, is called the Association Rule (AR) . If b > c, local interests will choose a scale larger than the nationally efficient level and

dB/dQ < dC/dQ. If b < c, that will choose a scale smaller than the nationally efficient

level and dB/dQ > dC/dQ.

Figure 3.4 illustrates the AR graphically. Demand functions MNB and MLB represent

the willingness-to-pay for shoreline protection by the nation and by local interests

respectively.' The downward slopes depict diminishing marginal benefits to each

faction for extra units of protection output. Assume for illustrative purposes that

75% of MNB accrues locally, as measured by MLB. Assume further than the marginal

national cost curve, MNC, represents the least-cost combinations of techniques for

providing each level of output.

$

Costs

and

Qi Qq Qi Units of Project

Purpose Output

Figure 3.4 -- Cost Share for Efficient Scale

, dB

'mnb and MLB are respectively =^ and — dQ dQ

28
Net national benefits are maximized at Qo because dB/dQ = dC/dQ, i.e., MNB = MNC

.

Local interests will be encouraged to select up to Qo only when they pay a cost share

of 75%, which makes dBj^/dQ = dC^/dQ at Qo (i.e., MLB = .75 MNC = MLC) . If local

interests are charged 50% of costs, they will choose up to Qa . The national efficiency

loss would amount to abc if the project were built to this scale. A 90% local cost

share would induce local interests to choose up to Qi . If the project were built to

this scale, an efficiency loss of aed would result, equal to the foregone amount by

which extra national benefits would have exceeded extra national costs up to Qo

.

The mathematical and graphical analyses show that the AR meets the necessary

condition for encouraging local interests to choose the nationally efficient project

scale. However, two types of data must be available for applying the AR. The first

is local benefits information, which would be available if regional benefits were computed for a regional development objective. The second is marginal cost data by

purpose. For a single-purpose beach erosion control project or hurricane protection

project, this is available under current procedures. Where a multiple-purpose beach

erosion control and hurricane protection project is involved, marginal costs are not allocated by purpose, but the AR can still be applied to the two purposes as a bundle. Application of the AR is not difficult in shoreline protection because outputs

are similar among purposes and the beneficiaries are essentially the same for the

bundle of purposes. Even for multiple-purpose projects with such diverse purposes

as recreation and flood protection, the AR can still be applied.^

So far in our discussion of scale we have assumed that the single objective

of shoreline development is national economic development, where we attempt to

maximize net efficiency benefits. Now we broaden our perspective to consider the

nonef f iciency objective of environmental quality.

Assuming the Federal agency has found a method of determining the optimal

shoreline protection project with respect to multiob j ectives , ^ it should plan each

purpose to the scale at which MNB = MNC, where benefits and costs represent all

types of benefits and costs with respect to each of the multiobjectives . Once the

optimal scale is determined, the AR can be applied by purpose or bundle of purposes

to induce local interests to select that scale.

The following chapter examines the actual percentage cost shares that have been

incurred by local and Federal groups for shoreline protection. Differences in

percentage cost shares are displayed and evaluated for their efficiency impacts.

'For a description of the application of the AR to a bundle of purposes in

multiple-purpose projects, see Marshall and Broussalian, Federal Cost-Sharing Policies

for Water Resources , pp. 65-71.

^For one approach to determining the optimal water project with respect to

multiobjectives, see Marshall and Broussalian, Federal Cost-Sharing Policies for

Water Resources, pp. 182-201.

29
4 . DESCRIPTION OF ACTUAL PERCENTAGE COST SHARES AND THEIR EFFICIENCY .IMPACTS

The laws and policies that enable the Corps to participate in shoreline

protection have been discussed, and the cost- sharing rules that govern shoreline

protection have been explained and compared. The previous chapter set out necessary

conditions for local cost sharing to induce nationally efficient water projects. The

purposes of this chapter are (1) to examine actual cost shares to determine if shares

vary in practice among shoreline protection techniques, programs, and within a given

shoreline protection program and (2) to evaluate the efficiency impacts of existing

cost shariiic rules. Chapter 5 evaluates alternative cost-sharing rules with respect

to national efficiency criteria and both alternative and existing rules with respect

to equity and administrative feasibility,

4 . 1 Differences in Cost Sharing by Technique

Cost-sharing rules for shoreline protection are not specified by technique, but

by program (Table 2.1) and by ownership and use (Table 2.2). Because specified costsharing percentages are identical for established engineering techniques, there is no inherent cost-sharing bias that makes local interests select one established technique

over another. This satisfies the necessary condition derived in Chapter 3 for

selection of the least-costly technique. For example, since local interests pay the same percentage cost share for dunes as for groins, they will be induced to pick that

alternative which is cheaper for them as well as for the nation. This is in contrast

to other water programs such as Corps flood protection, where alternative techniques

such as large reservoirs, small reservoirs, levees, and diversion channels require

different local cost-sharing percentages,' thereby biasing local choice in some projects against the nationally efficient technique.

Some variation in the percentage local cost shares may exist within engineering

techniques, however, where all O + M is absorbed by local interests but construction

costs are shared to some extent by the Corps. Beach erosion control is an example.

Here local interests would be induced to select those techniques with relatively low

0 + M requirements. To eliminate this bias and satisfy the least-cost condition set

forth in Chapter 3, all categories of cost (in this case construction and O + M) would

have to be shared in the same percentage.

Cost sharing for Corps projects does differ by technique when we include among

the techniques management or non-structural alternatives such as zoning, subdivision

regulation, acquisition of property and relocation, and insurance. In effect, because

there is no or little Federal cost-sharing assistance for these techniques, local

groups have a built-in bias against 'them.

One potential efficiency impact of applying engineering techniques exclusively

for shoreline protection is that less costly raanagement alternatives may have been

overlooked. A second impact is on development. People feel more security with manmade, physical, tangible barriers against the sea. Providing engineering protection

thereby increases development in the protected area and raises the damage potential

from any storm that surmounts the barriers. Management techniques, on the other hand,

restrict development so that it is away from or protected in some way from the sea. The potential asset stock subject to damages is reduced or restricted in growth

instead of being stimulated as by engineering techniques.

^Marshall, "Economic Efficiency Implications of Federal-Local Cost Sharing in

Water-Resource Development," p. 679.

^For a comprehensive discussion of the choice among alternative technqiues for

protection against floods, see Gilbert F. White, Human Adj ustment to Floods: A

Geographical Approach to Flood Problems in the U.S . (Chicago: tJhiversity of ChTcago, 1945),

and Gilbert F. White, Choice of Adjustment to Floods , Department of Geography Research

Paper No. 39 (Chicago: University of Chicagj, 1964)

.

30
4.2 Differences in Cos t Sharing by Program

Given the different cost-sharing rules by program, as outlined in Table 2.1, we would expect to see different actual percentage cost shares incurred by local

interests for the different programs. Specifically, we would expect to see higher

percentage shares incurred by local interests in beach erosion control projects than

in hurricane or emergency protection programs

.

Tables 4.1 through 4.6 show local and Federal cost shares by region for single

purpose beach erosion control projects and for multiple-purpose projects which include

mostly beach erosion and hurricane protection, with some navigation. To determine

actual differences in local cost shares between the beach erosion control program

and the hurricane protection program, we can compare in Table 4.1 through 4.6, by

region and for the nation, percentage cost shares for projects that are authorized

and completed, authorized and underway, and authorized but not yet started. For

example, for the North Atlantic Region, projects that are "authorized and underway"

have a 60% local cost share for beach erosion control (Table 4.2) and a 44% local

cost share for multiple-purpose projects (Table 4.5). Note that by using cost shares

for multiple-purpose projects as a proxy for cost shares for hurricane protection, we are actually biasing the local percentage up; i.e., the beach erosion component

in hurricane protection will tend to make local cost shares higher than what they

vjould be otherwise.^ Thus, the 44% figure is an upper bound, and one would expect

the cost-sharing spread between beach erosion control and hurricane protection to be even greater than 16% (60% - 44%) . Looking at the totals for the nation, authorized and completed beach erosion

control projects (Table 4.1) cost local interests about 47%, whereas hurricane

protection (Table 4.4) cost them only 16%. A complete examination of the tables

show that in every region and in total, for projects completed, underway, and not yet

started, the local percentage cost share is higher for beach erosion control than for

hurricane protection.^

Additional data that demonstrate the differences in local percentage cost shares

between beach erosion control and hurricane protection are presented by state in

Tables 4.7 and 4.8/ All of the described projects were either authorized subsequent

to a 1962 Act or modified by it. Table 4.7 shows local and Federal construction costs,

in absolute and percentage terms, for 14 multiple-purpose projects, containing

hurricane protection and beach erosion control, divided amony 7 states. A proxy for

the local cost share for iiurricane protection was taken from these multiple-purpose

projects. Local shares averaged from about 30% up to 60% by state, with an overall

average taken from all state averages equal to approximately 4 2%.'* The average local

cost share for just 9 projects, excluding those 5 individual projects in North

Carolina, was about 44%.^

'The presence of navigation does not bias

sharing because the same rule (100% Federal sha

of lands, easements, and right-of-way) applies

^These figures include land rights but not

would give a more complete picture of cost shar

0 + M costs are normally not shared by the Fede

their comparison is not necessary to compare di

^These tables were computed from Tables I Javits from Leonard Edelstein, Colonel, Corps o U.S. Congress, Senate, Committee on Public Work

1970, Hearings , pp. 654-658.

"^The sum of the percentage local cost shares divided by the number of states (7) equals 41.9%.

^The cost shares for New York by project are not shown in the table. The cost

shares for North Carolina by project were not available.

the estimate of hurricane protection cost

re of construction and zero percent share

to navigation as to hurricane protection.

0 + M expenses. Inclusion of c + M costs

ing, but, as illustrated in Table 2.1,

ral government under either program, so

f ferences

.

through III in a letter to Senator Jacob

f Engineers . The letter is contained in

s , Omnibus Water Resource Authorizations--

31
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39
Table 4.8 shows that the local cost share averages by state range more widely for

single-purpose projects (5% to 86%) than for multiple-purpose ones (30% to 60%) as shown

in Table 4.7. The average local cost share over the 17 states is 50%,' and the average

local cost share for the 63 projects is about 54%.^ As we would expect on the basis of

the cost-sharing rules, single-purpose beach erosion control projects have higher

percentage local shares than projects with hurricane protection.

Another source of data on cost sharing for beach erosion control is a 1967 study

by the Corps on P'ederal reimbursement policies for water projects. The study described

total estimated construction costs and the Federal share for 97 projects that were authorized as of June 30, 1966.'* Table 4.9 summarizes this cost-sharing information.

As of the date of the study, 55 of the projects were completed or had extensive plans

(starting as early as 1948). The local cost share was 57% for these projects. No work

has been done on 27 of the projects, for which the local cost share is 72%. This lack

of local interest could have been due in part to the relatively small Federal

contribution

.

The remaining 15 projects included some cases of hurricane protection and other

unique situations. The local share was 43%. The 61% local share for the 97 projects

is, as would be expected, larger than the 42% local cost share of multiple-purpose

projects as shown in Table 4.7, and it is also larger than the 16%, 34%, and 42% local

cost shares for multiple-purpose projects described respectively for projects authorized

and completed, authorized and underway, and authorized but not yet started, as shown in

Tables 4.4, 4.5, and 4.6.

Emergency restoration under P.L. 84-99 of hurricane or shore protective structures

is not a program that is readily substitutable by nonfederal interests for beach erosion

control or hurricane protection. The latter programs provide essentially the same kind

of protection in the same areas, differing primarily in the degree of protection, and

they provide new protection to areas that have generally not been protected before.

Emergency protection is for the rehabilitation or restoration of old projects that have

already been constructed under one of the other two programs. As discussed in Section

2.3.2, rehabilitation of shoreline protection projects per se is a small proportion of

the emergency protection program, even where this program might be substitutable for

beach erosion control and hurricane protection. The local choice of emergency protection

for a "better deal" does not appear to occur frequently, if at all.

Personnel in the Emergency Operations Branch of the Army Corps of Engineers were

interviewed to ascertain what projects had been rehabilitated under P.L, 84-99 and the

cost-sharing arrangements for those projects.^ Four projects, described briefly in

'See Appendix B for the distribution of beach erosion control local cost sharing

by state for the 17 states discussed in Table 4.8.

^The calculation for the average local cost share by state is not shown in Table

4.8.

4.7 and 4.8 reveals that for some states (e.g.. New York)

the local percentage share for a multiple-purpose project might exceed that for a singlepurpose project. This might result from a large degree of public ownership and use of

the single-purpose beach protection project and/or from low public ownership and use

of a large beach erosion component in the multiple-purpose project.

"^U.S. Congress, Senate, Study of Federal Reimbursement Policy for Work by States

and Other Non-Federal Entities on Authorized Water Resources Projects, Senate Document

No. 10, 90th Congress, 1st. sess., February 23, 1967.

'Personnel interviewed were: Mr. Michael J. Helpa, Assistant Chief, and Mr. Richard S. Rahte, Chief, Emergency Operations Branch, Operations Division, Civil Works U.S. Army Corps of Engineers. '

40
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41
Table 4.10, were suggested as the major restoration projects over the past three

years

.

The Corps offices of the District Engineer were contacted for each project to

determine its status and the actual cost shares that were charged local interests.

As would be expected from the rules described in Table 2.1, the Federal ijovernment

paid 100% of construction costs for those parts of the restoration projects funded

under the P.L. 84-99 program. (Some of the projects incorporated parts funded under

the beach erosion control program.) Note that Table 4.10 is for construction costs

only. Nonfederal interests still have to contribute lands, easements, rights-ofways, operation and maintenance, and the other requirements that are always local; but

to the extent that they were already committed to the original project, there are no substantial additional commitments on the part of the nonfederal interests.

Although differences in cost sharing may not bias local interests in favor of

emergency protection relative to the other two programs, there are likely to be scale

effects from the Federal government absorbing all construction costs of emergency

protection. Inasmuch as nonfederal interests bear no new costs for rebuilding or restoring a project, they may be induced, first, to urge for restoration where in fact

the more efficient alternative from the nation's viewpoint might be to lea-ve the projec

in disrepair (do nothing) , and second, to overbuild in relation to the nationally

efficient scale.

The efficiency implications of different cost shares among the three programs

are first, that nonfederal interests will be attracted to their least-cost program

regardless of its cost nationally, and second, to the extent that the local share of

the favored program is beneath that dictated by the Association Rule, nonfederal

interests will tend to request project sizes that are larger than nationally

justifiable.

The choice between hurricane protection and beach erosion best i].lustrates these

efficiency problems. Hurricane protection and beach erosion control programs both

protect against storms, but hurricane protection offers a greater degree of

protection at a greater national cost. Existing cost sharing discourages local

groups from substituting beach erosion control for hurricane protection, however, not

just because the former gives less protection, but because it costs more locally for

any given level of protection. That nonfederal interests do in fact consider their

share of costs when facing a choice between a hurricane protection program and a beach

erosion control program is illustrated in Table 4.11. This table was derived from a statement by Robert Cook, Director of the Office of Central Engineering, State of New

York Conservation Department, in support of a bill for increasing Federal

participation up to 70% of the costs of projects that include hurricane protection.

Table 4.11 shows that, under present cost-sharing rules, the actual cost to the state

or nonfederal entity of protecting a typical section of beach in New York might remain

the same or increase very little' for three project plans differing significantly

as to the level of protection and of national cost. The low Federal .share in beach

erosion programs encourages local interests to seek protection under one of the

"cheaper" programs that include hurricane protection, although they are more costly

to the nation. For example, local interests would be induced to select Plan 2 rather

than Plan 1, and if in return for the extra local cost of $100,000 for Plan 3 (costing the nation $500,000), the expected benefits exceed $100,000, they would select

Plan 3 over Plan 2. The changes proposed by the state of New York, shovm on the right side of Table

4.11, demonstrate that, with a uniform percentage among all programs, local interests

could be induced on cost grounds to pick that program which is least costly to the

nation. Thus they would prefer Plans 1, 2, and 3, other things being equal, in that

order. We should note that the techniques for the 3 plans in this case are essentailly

the same, namely dune construction and beach fill. Yet local interests are attracted

to their least-cost program, namely hurricane protection. Thus, having lower

percentage local cost shares for hurricane protection than for beach erosion control

biases local interests to nationally inefficient, oversized projects.^

^U. S. Congress, Senate, Committee on Public Works, Omnibus Water Resources

Authorizations —1970 Hearings , pp. 667-670.

"

^See Section 3.3.

42
TABLE 4.10

SHORELINE PROTECTION PROJECTS RESTORED

UNDER P.L, 84-99

Project Name

and Location

Date Funds

Granted

Construction Cost in Dollars Percentage of Cost

Federal Local Total Federal Local

Carolina Eeach,

North Carolina 2/73 267,624 0 267,624 100 0 Hampton State Beach

and Wallis Sands

State Beach,

Nev; Hampshire 10/72 394,000 0 394,000 100 0 Ventura pierpont

Beach Erosion

Control, Calif. 2/73 150,000 0 150 ,000 100 0 Wrightsville Beach,

North Carolina 9/71 202,412 0 212,412 100 •

TABLE 4.11

APPORTIONMENT OF COST FOR TYPICAL SECTION OF NEW YORK STATE BEACH

Project

Present Proposed

'

Federal Nonfederal Total Federal Nonfederal

Plan 1 $ 100,000 $ 900 OOC $1 ,000,000 $ 700,000 $ 300,000 ' Beach Erosion 10% 90% 70% 30v

Plan 2 600,000 900 000 1 ,500,000 1,050,000 450,000 , Beach Erosion and

Hurricane Protection 40^. 60% 70% 30%i Plan 3 1,000,000 1,000 000 2 , 000 , 000 1,400,000 600,000

Beach Erosion and

Hurricane Protection 50% 50% 70% 30%

43
By equalizing the local cost share among program (30% in Table 4.11), we eliminate one bias for oversized projects, but another remains. Under the proposed

cost-sharing rules, nonfederal costs are less for every plan than under existing

rules. To the extent that local benefits at the margin exceed 30% of corresponding

national benefits, a bias still exists for overbuilding, and it applies to each of

the 3 plans.' Thus, although the proposed cost-sharing rule leads to a more efficient choice among programs, it does not necessarily lead to an efficient choice

of project size within that program. An alternative proposal that might eliminate

both of these biases will be considered in the final chapter of this report.

No attempt has been made in this report to describe cost-sharing policies of

nonfederal interests. Policies vary among states and among programs, and it should

be noted that these variations affect local acceptance of shoreline protection projects

as do variations in Federal policies. A description of state cost-sharing rules for

the North Atlantic region is shown in Appendix C.

'ibid.

44
5. EVALUATION OF ALTERNATIVE COST-SHARING RULES WITH RESPECT TO CRITERIA

OP EFFICIENCY, EQUITY, AND ADMINISTRATIVE FEASIBILITY

In Ciiapter 3 it was shown that the two ap^-ropriate cost-sharing rules for inducing

local behavior that would be nationally efficient were the Association Rule and the

equal cost sharing of all techniques, management as well as engineering, for shoreline

protection. In Chapter 4 we examined actual local and Federal cost shares that have

been incurred under the three shoreline protection programs. On the basis of the

analysis of the legislation in Chapter 2 and the empirical data of Chapter 4, the

efficiency conditions derived in Chapter 3 were shown to have been not satisfied.

This Chapter examines the efficiency, equity, and administrative implications of

rules now in existence, rules that are being proposed in legislation, and rules that

have been recommended in this paper on the basis of efficiency.

5 . 1 Altt-:;rnatives to Existing Cost Sharing Rules

There have been many recommendations for changes in the cost sharing of shoreline protection, and most contend that more Federal sharing is needed for helping

nonfederal interests afford protection. Section 5.1.1 describes briefly some recent

legislative proi.osals that chanae the cost sharing for shoreline protection. Section 5.1.2

summarizes a recommended cost-sharing package based on theoretical considerations in

Chapter 3.

5.1.1 Rules Proposed in Legislation

In 1970 Mr. Javits introduced Senate Bill 3774 in the 91st Congress, second

session, to raise Federal participation in cost sharing of multiple-purpose beach

erosion control and hurricane protection projects to a maximum of 70%.^ Current

programs were being shared on an average of 5 6.2% by the Federal government.^ Mr. Javits stated that "Hopefully, the legislation we have proposed will serve to offer

some relief to communities in these states hard hit by storms and hurricanes."^

In 1972 the 92nd Congress, second session, passed Senate Bill 4018, which

included a "Shoreline Erosion Control Demonstration Act." Tliis Act established two new precedents : (1) Federal cost sharing for project first costs of beach erosion

control v>70uld increase from about 50% to 75% and for hurricane protection from 70%

to 75%, and (2) private property would be eligible for protection under the same cost-sharing terms as public property. The Bill was not signed into law by President

Nixon

.

Several bills proposed in the 93rd Congress, first session, are essentially the same as Senate 4018 with respect to increased Federal participation in shoreline

protection. These are Senate Bill 606 and House Bills 4905 and 4906.

Other bills proposed in the 93rd Congress, first session, affect cost sharing

for shoreline protection in several ways. Making private property eligible for

Federal participation in beach erosion control projects is one way. This has been

proposed in Senate Bill 1161 and House Bills 2437, 2456, 3311, and 4613. Increasing

the Federal cost share of beach erosion control projects to 90% is another way.

This is proposed in House fiills 549, 1581, 4487, and 5073. Broadening the authority

of the Corps to undertake emergency beach erosion control is a third way. This

authority includes repair or restoration of any erosion control structure threatened

or destroyed by extraordinary wind, wave, or water action. Senate Bill 1266, which

also provides this authority, is significant in that it implies that all nonfederally

constructed projects are eligible for emergency protection and it requires nonfederal

interests to contribute only the lands, easements, and rights-of-way for the

emergency protection.

^U.S. Congress, Senate, Committee on Public Works, Omnibus Water Resources

Authorizations -- 1970 Hearings , pp. 650-651.

^Ibid. p. 658.

^Ibid. p. 664.

45
None of these Bills has passed Congress, but the large number of Bills proposed

and the mounting support behind them indicates that some change in cost sharing is

likely. The implications of the legislation for cost sharing are (1) to increase

Federal cost sharing by making heretofore ineligible private property eligible for

Federal cost sharing, (2) to raise the percentage of Federal cost sharing for beach

erosion control to a range of 70% to 90%, and (3) to expand emergency protection to

nonfederally authorized and constructed beach erosion control projects. These

implications will be evaluated ;in terms of efficiency and equity in Section 5.2.

5.1.2 Recommended Rules

Two general rules for shoreline protection are recommended here based on the

efficiency conditions examined in Chapter 3, the analysis of existing rules in

Chapter 4, and the examination of proposed rules in the preceding section. These

recommended rules will be compared to existing and proposed rules in Section 5.2.

The first recommended rule is to share the costs of all techniques, engineering

and management, equally for a given program (see Section 3.3.1) . This rule is currently

followed to the extent that cost sharing is uniform for traditional techniques of

providing a given program, e.g., beach erosion control. But management techniques are not considered because there is no authority to use them. Hence, in effect, unequal

cost sharing results; that is, the Federal government pays, for example, up to 70% for

beach erosion control with a groin, but 0% for protection against erosion damages

through condemnation and relocation. Thus for the Corps to follow a uniform rule,

it would need additional authority to plan for and finance management techniques.

The second recommended rule is for Federal and nonfederal interests to share

shoreline protection costs in the same proportion as they share benefits at the margin

(see Section 3.3.2). This Association Rule (AR) will therefore vary by project. If

for some reason a fixed percentage rule must be established, it should be based on the

local incidence of benefits. The degree of public ownership and use are likely to be

good proxies for how widespread benefits might be. Thus the local cost share could

vary directly with the degree of private ownership and inversely with the rate of

public use associated with a project.

The above rules are described here to make it possible, in the next section,

to compare these rules to existing and alternative rules. In Chapter 6 these

recommendations will be elaborated, and further recommendations will be made

regarding insurance and other management alternatives.

5 . 2 Evaluation of Existing and Alternative Rules

' 5.2.1 Efficiency and Optimality

Chapter 3 specified that the term efficient would refer to maximizing net national

economic development benefits, whereas the term optimal would refer to maximizing net

benefits from a combination of objectives, such as national economic development and

environmental enhancement.

The efficiency impact of existing shoreline protection cost-sharing rules was discussed in Chapter 4, and it was found that they may induce local interests to adopt

projects that may not be efficient. With respect to the newly recommended objective

of environmental quality, there are no current cost sharing rules to evaluate,^ and

thus we do not examine existing rules for optimality. In the remainder of this

section, the rules proposed in this paper, which were based on considerations of

efficiency, will be evaluated along with an alternative set of rules, as drawn from

proposed legislation in Congress.

It was shown in Chapter 3 that the same cost sharing percentage for all techniques

of shoreline protection would be necessary if local interests are to be induced to

pick the technique, or mix of techniques, that is least costly for the nation. This

same rule would apply whether the shoreline protection were planned to satisfy a single

or multiple objectives. It was also shown that the Association Rule (AR) was theoretically

the only rule that would encourage local interests to adopt the nationally efficient

scale.

^With the exception of a recommended cost share of 50% for water quality, no policy for cost sharing environmental quality components has been established.
The AR will also lead to optimal project designs and s>.;ales where the purpose

of shoreline protection is to maximize a sum of net benefits from multiobjectives

,

given a budget constraint.' That is, if the AR is applied to each component of the

multiob jective account:^:; , local interests will be encouraged to select project scales

and designs that are nationally optimal.^ However, a major problem with multiobjectives is the incommensurable nature of some benefits accruing to accounts other

than national economic development, such as environmental quality, which precludes

tiie determination of a national optimum without a politically based weighting scheme.

The implication of the AR for a regional development account would be a 100%

local cost share. Benefits by definition accrue locally or regionally, so local

interests would bear all of the costs. If local shares were below 100%, local interests

would be induced to choose shrireline protection projects over other locally financed

development projects which might be more efficient. Furthermore, local interests

would be biased to choose oversized shoreline protection projects.

The cost-sharing rules that have been proposed in the 93rd Congress for shoreline protection were summarized in Section 5.1.1 as follows: (1) to increase Federal

cost sharing by making heretofore ineligible property eligible for Federal cost sharing,

(2) to raise the percentage of Federal cost sharing for beach erosion control to a range of 70% to 90%, and (3) to expand emergency protection to nonfederally authorized

and constructed beach erosion control projects. Each of these policy changes is

evaluated with respect to its efficiency implications.^

Existing Federal cost sharing for beach erosion ccntrol varies directly with the

level of public ownership and use (see Table 2.2). This rule is somewhat consistent

with the AR in that costs assigned local interests vary directly with the proportion

of total benefits that they receive. By changing the rules for beach erosion control

so that private property contributing few widespread or public benefits becomes

eligible for I'ederal cost sharing, local interests will be encouraged to demand larger

and more numerous beach erosion control projects. Such action is inefficient in that

too many resources from the nation's point of view will be allocated to beach erosion

control as compared to other types of investments.

Raising the Federal cost sharing percentage of beach erosion control to a range

of 70% to 0 0% is a departure from existing policy (see Tables 2.2 and 4.9) and such

an increase in the actual percentages paid by the Federal government will induce local

interests to demand more and larger beach erosion control projects than under current

legislation. Not only does such a rule make additional projects eligible for Federal

cost sharing, .but it increases the contribution of the Federal government as well.

The national efficiency impact is likely to be that too many resources will be

allocated to beach erosion control.

Proponents of the higher Federal contr

local interests would no longer have a bias

protection (as explained in Section 4.2 and were set at the uniform rate of 70%. But a hurricane protection was eliminated, anothe

could just as easily be removed by lowering

protection to 50%. The aim should ultimate

alignment with local benefits.

ibution might defend it by explaining that

for hurricane protection over shoreline

Table 4.11) if the Federal contribution

s was argued earlier, while one bias towards

r was produced. Furthermore, this bias

the Federal contribution to hurricane

ly be to bring local costs more in

To broaden the authority of the Corps to repair or restore any erosion control

structure (Federal or nonfederal) that is threatened or destroyed by extraordinary

wind, wave, or water action also has far reaching implications. First, all nonfederally

constructed projects become eligible for emergency relief. Second, not only will the

Federal government contribute to the costs of restoration and repair, but it is

implied that it will pay 100% of the costs except for lands, easements, and rights-ofway (most of which have already been borne in an existing project) . Third, local

^Note that this section does not urge for the adoption of multiobjectives, but

simply explains that the AR would lead to optimal development if it were adopted.

^An approach to solving this problem has been described by Marshall in "Cost

Sharing and Multiobjectives," pp. 2-4.

'since proposed legislation does not describe cost sharing for multiob j ective

accounts, optimality is not discussed here.

47
interests will be induced to rebuild projects that might more efficiently (in the

national context) be abandoned and to urge for a more expensive restoration than is

nationally efficient.

5.2.2 Equity

Equity has two meanings in economics : fairness and redistribution of income . ^ Both concepts of equity will be used here in evaluating existing and alternative costsliaring rules for shoreline protection.

The notion of fairness implies a relevant circumstance with reference to which

the judgment about fairness is reached. That is, a cost sharing rule to be fair to

all parties must imply that it is fair with respect to some relevant circumstances

affecting them --- not just any circumstance. What is regarded as a relevant

circumstance, however, will vary with one's point of view. For example, a Federal

agency, acting in the national interest, might be expected to consider the incidence

of benefits (local or widespread) to be the relevant circumstance on which to judge

the fairness of a cost-sharing rule, whereas local interests might propose ability to

pay as the relevant circumstance. "Benefits received" is assumed to be the relevant

circumstance in this report. Thus, for a cost-sharing rule to be fair to all parties,

their contributions will have to be in proportion to the project benefits that they

receive

.

Neither hurricane protection nor emergency protection seems fair in terms of

benefits received, since benefits probably accrue to a relatively small number of

people in a well defined area, and yet 70% to 100% of the costs are borne by the

Federal government (see Table 2.1). The existing cost sharing rule for beach

erosion control, on the other hand, varies directly with the level of public ownership

and use (see Table 2.2), and thereby seems completely fair in terms of benefits

received

.

The AR that has been recommended in this paoer for consideration is based on benefits received at the margin. Thus the rule could be called completely fair only

if total benefits happened to be distributed in the same proportion as benefits

at the margin.

Rules that have been proposed in legislation to make private property eligible

for Federal assistance, to raise the Federal cost sharing percentage for beach erosion

control to a range of 70% to 90%, and to expand emergency protection to nonfederally

authorized and constructed beach erosion projects would further divorce the

responsibility for costs from benefits received.

Another standard by which fairness should be judged is continuity . It requires

that no major change in cost shares should result from a small change in the relevant

circumstance.

Existing rules for hurricane protection and emergency protection are inflexible

with respect to the relevant circumstance, since these rules are absolutely fixed in

percentage terms. That is, as the incidence of local benefits varies, the

percentage local cost share remains the same. The existing rule for beach erosion

control is very fair in that as the ratio of public benefits to total benefits

diminishes (see Table 2.2), the local cost share .increases. Thus the cost share,

varies continuously v^ith the incidence of benefits. The AR will result in a variable

local cost share as the incidence of benefits changes at the margin, thereby satisfying

the continuity objective. Rules proposed in legislation are in fixed percentage

form and therefore the local percentage cost shares do not vary at all with the relevant

circumstance

.

^For a more complete treatment of an evaluation of cost-sharing rules with

equity criteria, see Marshall and Broussalian, Federal Cost-Sharing Policies for Water

Resources , pp. 201-224.

48
Thus we see that the eciuity in fairness characteristics of relevancy and

continuity appear to be more closely satisfied under the existing rule for beach

erosion control and the AR recommended herein- than under the other existing rules and

those that have been proposed in legislation.

Redistribution of income, the second meaning of equity as it is traditionally

used in economics, occurs when shoreline protection benefits and costs accrue to

project interests in such a way as to change the prior distribution of income.

Conflicts of interests arise in evaluating equity in redistribution because those

persons from whom benefits are withdrawn or on whom taxes are raised may not consider

such a redistribution to be to their personal advantage or even in the national

interest

.

No attempt is made in this study to propose an optimal cost-sharing rule for

redistributional equity because (1) redistribution is unlikely to be regarded as an objective of shoreline protection, and (2) even if redistribution were considered

an objective, there are no generally acceptable weights assigned redistribution

relative to other objectives of shoreline protection.'

Some observations can be made as to the redistributional im.pact if tliose rules

currently proposed in legislation or those recommended herein were to be adopted.

Because shoreline protection is so costly (see Appendix A) , we must assume that the

benefits accruing from protection would have to be very high to economically justify

(i.e., for benefits to exceed costs) shoreline protection projects. Thus for any

economically justified project on private or public land in which the benefits are restricted to a relatively small number of people, we can assume that a large sum of

benefits accrues to a small number of people. Furthermore, since beachfront property

is commercially quite valuable, we might assume that the net wealth of the owners of

beach property is above the national average.

If proposed rules in legislation make private property eligible for Federal

cost sharing, and if the Federal contribution is raised, then a perverse redistribution

of income is likely to result. That is, instead of redistributing income from higher

to lower income persons, which is usually the preferred direction of redistribution,^

the general taxpayer will be paying taxes to generate benefits for a small segment of

the population who probably represent a group with higher than average incomes.^

If the AR v/ere implemented, it is unlikely that there would be any redistribution.

That is, beneficiaries would pay and there would be no transferring of net income or

v/ealth between general taxpayers and beachfront property owners.

5.2.3 Administrative Feasibility

Cost snaring rules for shoreline protection are administratively feasible when

they are simple to understand and require reasonable effort and expense in collecting

the necessary information to determine local cost shares.

Existing rules are difficult for local interests to understand in that they

perceive different real cost snares for different cost sharing programs (e.g., beach

erosion versus hurricane protection) , and therefore local interests may hesitate in

selecting a given program for fear of not getting the "best deal." Rules proposed in

legislation might be less complicated for local interests in that cost sharing will be

less varied among programs. The AR, albeit based on a simple-to-understand principle,

would proba)>ly be most difficult to understand.

Existing rules do not require any unreasonable effort and expense in collecting

information for determinina shoreline protection cost shares . The process for

computing local shares for beach erosion control (see Section 2.3.3), however, is more

For a discussion of the relationship between cost sharing and redistribution,

and of the implications of using cost sharing as a tool to effect various kinds of

redistribution, see Marshall and Broussalian, Federal Cost-Sharing Policies for Water

Resources , pp. 216-224.

z The progressive tax structure in the U.S., which taxes high income persons

progressively more than low income persons (other things being equal) , is supposed to

bring about a desirable redistribution of income.

^For a discussion of perverse redistribution in water projects, see Marshall

and Broussalian, Federal Cost-Sharing Policies for Water Resources, pp. 220-224.

49
complicated than the process for the hurricane protection and emergency protection

programs. The AR v;ould require more information than the other rules, requiring

additional effort and expense, although probably not in an amount to be considered

excessive. To identify beneficiaries of shoreline protection would not be too

difficult since local owners of the shoreline, and in most cases the users, can be

determined. The local rules proposed in legislation again would require no unreasonable

effort or expense, except in the sense that (1) making private property eligible

and (2) raising Federal contributions will probably increase the demand for shoreline

protection so that much more cost sharing and other planning effort will be required

of the Corps.

5 . 3 Summary

Cost-sharing rules for shoreline protection that are currently being proposed

in bills before Congress have been described. Cost-sharing implications are increased eligibility for Federal contributions for private property, increased Federal

cost shares for shoreline protection, and increased eligibility for Federal

contributions on emergency work for nonfederally authorized and constructed projects.

Existing rules, those proposed in legislation, and the AR developed in this paper

have been evaluated with respect to the criteria of national economic efficiency

(optimality) , equity, and administrative feasibility.

Table 5.1 summarizes the evaluation of the three sets of rules with respect to the

three criteria. Existing rules for bt-.ach erosion control are ranked GOOD in terms of

the first two criteria and FAIR in terms of the third, whereas hurricane protection and

emergency protection are ranked POOR for the first two criteria and GOOD for the third.

The AR ranks GOOD on efficiency grounds, but only FAIR with respect to equity and

administrative feasibility. Proposed rules in legislation are ranked POOR on both

efficiency and equity grounds, and FAIR to GOOD in terms of administrative feasibility.

Recommendations for specific cost sharing rules should be made with the

consid<-.ration of all relevant criteria. In the Summary and Recommendations chapter

that follov;s , we suggest specific rules for shoreline protection.

TABLE 5.1

EVALUATION OF COST SHARING RULES

Desirable F'latures in Cost-Sharing Rules

Cost-Sharing Rule ' Efficiency (Optimality) ! Equity (Fairness)

Administrative

Feasibility

Existing Rules POOR -GOOD

!

i POOR - GOOD FAIR - GOOD

Association Rule ^OOD -i

' —

T='AIP FAIR

Proposed Rules in

Legis lation POOR POOR FAIR - GOOD

50
6. SUflMARY, RECOMMENDATIONS, AND SUGGESTIONS FOR FURTHER RESEA.RCH

6 . 1 Summary

Current cost-sharing rules for shoreline protection have been criticized both by

nonfederal and Federal participants in programs designed for beach erosion control,

hurx-icane protection, and emergency protection. Critics have sdid that existing

rules are inefficient, inequitable, inconsistent among programs, and difficult to

understand and administer.

In this study three sets of cost-sharing rules have been evaluated with respect

to criteria of national efficiency, equity, and administrative feasibility. The

three sets of rules include existing rules, those proposed in current legislation,

and two rules (the Association Rule (AR) and the same percentage cost share for all

techniques) which are recommended in this report.

The national efficiency problem of existing cost-sharing rules for shoreline

protection is that they encourage local interests to seek techniques of protection

(e.g., groins) and scales of development (usually oversized scales) which may be

economical from the local point of view, whereas from the national point of view,

other techniques (e.g., zoning) and smaller scales might be more efficient. Existing

rules also vary between programs (e.g., beach erosion control versus hurricane

protection) that are essentially the same except that one delivers a greater degree of

protection than the other. A description of existing cost sharing rules, a theoretical

explanation of cost-sharing inducements, and statistics on actual cost shares seem

to confirm that existing rules will bias nonfederal interests against nationally

efficient projects.

Rules proposed in legislation for shoreline protection entail one or more of

the following three provisions: (1) an increase in Federal cost sharing by making

heretofore ineligible private property eligible for Federal cost sharing, (2) an increase in the percentage of Federal cost sharing for beach erosion control to a range of 70% to 90%, and (3) an expansion in emergency protection to nonfederally

authorized and constructed beach erosion control projects. Adoption of these rules

would encourage local interests, first, to seek larger, and possibly oversized

shoreline protection projects; second, to seek more projects than under existing rules;

and third, to seek protection through repair of existing structures that might more efficiently be abandoned. It is quite conceivable that raising the Federal

contribution per project will result in fewer Federally assisted projects than

under current rules

.

The AR requires that local interests be charged a percentage of all project

costs that is equal to the proportion that local benefits bear to national benefits

at the margin. By associating local costs with benefits received, local interests

will not be induced to select projects that are nationally inefficient. Since the

AR makes no distinction among different techniques or categories of cost, it is

completely consistent with the other rule recommended here, namely that each

technique be shared in the same proportion. Thus if zoning, insurance, and groins were all substitutes for providing some given level of protection, by cost sharing

each in the same proportion, nonfederal interests would tend to pick the least-cost

technique (s )

.

Each of the three sets of rules were also evaluated with respect to the

criterion of equity, where equity is used in the sense of fairness. Existing rules were ranked from POOR to GOOD in terms of fairness, proposed rules were ranked POOR,

and the AR was ranked FAIR. Rules that have been proposed in legislation and the

AR were also evaluated with respect to equity, where equity refers to redistribution

of income or wealth. Redistribution would seem to be perverse for proposed rules;

that is, increased Federal cost sharing would probably redistribute income and wealth

in favor of people of relatively high income or wealth positions. For the AR, there

would seem to be little redistribution of income and wealth.

For the criterion of administrative feasibility, both existing and proposed

rules in legislation ranked FAIR to GOOD, whereas the Association Rule ranked FAIR.

This ranking for the AR is attributed to the extra information needed for its

implementation

.

51
The implications of the recommendations made in this report (listed in the

following section) are that (1) local cost shares for shoreline protection will

increase, (2) the local demand for engineering techniques of protection will decrease

relative to the demand for management techniques, and (3) Federal expenditures for

management techniques will increase relative to expenditures for structural techniques.

Implementation of the AR would probably require local interests to pay more and the

Federal government to pay less of the project costs, on the average, than they have

under existing rules (with the possible exception of beach erosion control for

property with little or no public use). However, through the selection of efficient

techniques and scale of shoreline protection, the Corps would be able to assist in

the planning for and the £jrotection of more shoreline areas than under the current

set of rules. A final benefit from implementation of the recommendations is that

local groups and taxpayers in general would be treated more fairly in that the costs

of shoreline protection would be more closely associated with the beneficiaries.

6.2 Recommendations

Cost sharing has been shown to be an inoucement for influencing local interests

in their decisions on the scale and combination of techniques to be used in developments

for shoreline protection. Alternative cost-sharing rules have been evaluated on the

basis of their incentive effects on local interests in choosing projects designed to

maximize a single objective, national economic efficiency, as well as to maximize

multiple objectives, including environmental quality. The following recommendations

are made ;ln the perspective of using cost sharing as an incentive mechanism to reach

these objectives of the shoreline protection program.

(1) The Association Rule

The AR, on grounds of efficiency and equity, is recommended as a general costsharing rule for beach erosion control, hurricane protection, and emergency protection.

It should be applied to all project costs, including beach nourishment and general

operation and maintenance"^ Only the AR will induce local interests to select shoreline protection projects that are built to the scale that is nationally efficient (or

optimal in the case of multiobjectives )

.

If the Association Rule is not applied for political or administrative reasons,

a second-best solution would be to retain the existing percentage rules for beach

erosion control, but to reduce Federal cost-sharing of the other two programs,

hurricane protection and emergency protection under P.L. 84-99, to 50% to make them

more consistent with beach erosion control. Again, all categories of cost should be

shared according to the percentage rules

.

( 2 ) Same Percentage Cost Share for Al l Techniques, Engineering and Management

The same percentage cost share should apply to all techniques for providing

shoreline protection, be they engineering (groins, seawalls, breakwaters) or management (insurance, zoning, codes). Tliis means that the Corps would need new authority to plan for and cost share in techniques that currently lie outside of

its domain.

Planning for and co^;L sharing in all techniques of shoreline protection will

result in the local adoption of more efficient techniques and more actual protection

for any given budget. Furthermore, introduction of management techniques would

provide more flexibility in altering the degree of protection. Codes and zoning

restrictions can be changed more quickly, easily, and inexpensively than a breakv/ater that has been built for shoreline protection. Engineering structures,

once built, tend to be relatively permanent investments, whereas, management

applications might be rescinded or extended at will. Also, given the great expanse

of underdeveloped shoreline subject to erosion, management techniques that preclude

damage-prone development appear particularly c-ttractive. Finally, management

techniques appear to be more consistent with the environmental quality objective

than conventional engineering techniques

.

Insurance, as a form of management technique, is endorsed here as a viable

alternative for protection against damages. Hurricane and high tide insurance might

be offered at true actuarial rates for new development along the shoreline, and at

subsidized rates for existing developemnts . The fact that flood insurance has not

been widely accepted by local interests, even at subsidized rates, does not mean

that such a program is destined to failure, but merely that sufficient incentives

for local adoption have not been provided. Mandatory insurance coverage required

by mortgage institutions, both for builders and consumers of shoreline buildings, would

encourage its adoption by local interests.

52
The potential role of manaqement techninues has been recognized, as is indicated

in the followina statement taken from tiie Corps' brief to Congress on the National

Shoreline Study:

Shore management tec'miciMcs to minimize damages appear

more appropriate than urotcction to halt erosion for approximately

85% of the suoreline undergoing signif icant erosion ....

A combination of protection and management- type measures may prove

most economical and practical in many locations when detailed

studios are ii;auc . Shoi c manacjemcnt is a very broad continuincj

i^roccss of researchino , planning, predicting changes, and

implementino by rogulat ioi'i , development or otlier means, leading to

l-reservinci and onhancino the shore in the best interest of all

concerned .

(3) San)c Percentage Cost Share for All Cost Categories

All categories of project costs (i.e, construction, lands, easements, and rightsof-v.'ay, operation and maintenance, and relocation and alteration of utilities) should

have the same percentage cost share applied to them. (This recommendation is implied

in tiie AR) . Adoption of this policy would eliminate any bias that might, encourage local

interests to choose a more expensive project over a less expensive one (from the

standpoint of the nation) simply because the actual costs incurred locally would be

less for the expensive project due to different cost-sharing rules among cost

categories, e.g.', between construction and operation and maintenance costs.

(4) Cost Sharing as an Incentive

It is recommended that cost sharing be used as an incentive by Federal agencies

to encourage local interests to comply with certain minimum requirements for shoreline protection. For example, a local community might be considered ineligible for

cost sharing under any shoreline protection program if it were to allow building

seaward of the f oredune . Or a Federal agency might reasonably be expected to

refuse cost sharing with any community that failed to adopt some land use plan for

the shoreline area. Adoption of management alternatives would in many cases reduce

the demand for engineering structures and therby make available more money for

alternative forms of protection.

6.3 Suggestions for Further Research

Research and evaluation carried out in preparation of this report uncovered

many additional areas of research that might be of value to the Corps in

considering alternative cost-sharing rules for shoreline protection.

One type of information needed is data on the incidence of benefits from

shoreline protection projects. If the proposition is accepted that efficiency and

equity depend on associatina costs v/ith benefits, then any cost-sharing rule based

on this proposition requires a knowledge of to whom benefits accrue and in what

amounts

.

A second type of useful information is a description of the legal and other

institutional constraints that would prohibit the Corps and nonfederal interests

from entering into agreements to provide shoreline protection through management

techniques. The first step in implementing management techniques is to identify

those institutional barriers that must be overcome. A third research area is an examination of the costs of management techniques

for shoreline protection. Ex post and ex ante cost studies of shoreline protection

already provided -and considered for the future might be made for conventional

techniques versus management techniques such as purchase (conderrjiation) and relocation,

restrictive zoning and codes, or general land use regulations.

A fourth research topic is the evaluation of forthcoming legislation on cost

sharing in terms of the efficiency and equity criteria presented herein, and to

compare the expected nonfederal and Federal costs of shoreline protection under rules now in existence, proposed in legislation and recommended in this report.

'u.S. Congress, House, Committee on Public Works, Projects Proposed for Ombibus

River and Harbor Legislation — 1972, Joint Hearings , p . 62.

53
A fifth research area that might be appropriate for the Corps is to classify

coastal areas by degree of susceptibility to shoreline damages. This information

could be made available to all pruchasers of shoreline property so that they would

have some indication of the risk that they incur in buying and building on that

property

.

In closing this paper, it is emphasized once again that management techniques

should be made eligible for planning and cost sharing by the Corps. We in this

country have been able to afford expensive techniques for protection, whereas less

developed countries have not. The United States could possibly learn from other

countries' experiences that engineering techniques are not always the best. This

is appropriately demonstrated in the following quote from a Malaysian newspaper

account of the ijovernment ' s latest approach to flood protection;

"Swimming Lessons to Prepare for Floods"

Two Ministries have been holding swimming lessons for East Coast

residents in preparation for the monsoon season.^

Should the Corps be given the authority to consider such simple but inexpensive

alternatives as swimming lessons in addition to the conventional alternatives

of building dams and levees?

^The Malay Mail, "Swimming Lessons to Prepare for Floods," November 10,

1972.

54
APPENDIX A

ALTERNATIVE TECHNIQUES FOR SIIORI'iLINE PROTECTION

A.l Engineer ing Techniques

Beach erosion occurs when the quantity of sediment that is being carried from

the beach exceeds the quantity of sediment accumulating on the beach. A beach is

considered stable if, over a long period of time, the processes of accumulation and

erosion are balanced, even though the beach constantly undergoes change.'

Beach stability is a function of three basic factors: the amount, type, and

size of sediment and materials making up the beach; the strength of erosional

forces such as v/aves , currents, and winds; and the variability of the sea level.

Thus a beach with fine, loose sand would be more vulnerable to erosion than would be

a cliff of hard materials, such as a rocky headland. Shorelines subjected to

Iiurricane winds and v\;aves would be more vulnerable to erosion than shorelines not

experiencing these severe natural forces. And a rising sea level relative to the

land mass would be expected to result in a retreating shoreline.

While beaches exposed to the above described conditions are retreating, it

should be noted that there are beaches that are actually growing by accumulating

deposits. Little attention is given liere to the natural process of beach building

because this is regarded as a windfall benefit by those who see their property grov/.

Consequently they do not regard it as a problem.

Engineering works generally control the interaction process of the water and

wind against the shore. Nature provides its own engineering works that have proved

somewhat effective as long as man has not interfered with her natural processes.^

Broad, gently rising beaches weaken the force of waves as they climb the foreshore.

Offshore bars are formed which cause v;aves to break and dissapate their energy

before reaching the foreshore of the beach. A crest of sand is built up on the beach

by normal v/ave action that holds back all but high storm waves. Beyond this crest

lies the broad, flat beach area called the berm, which provides a further dampening

effect on any waves that reach it.

A natural levee against the sea is formed behind the beach in the form of a dune. Winds create the dunes, and when shrubs and grasses grow on them, they

become somewhat stabilized against further shifting from the wind.

Hurricanes and storms, particularly the "Northeasters" on the Atlantic coast,

sometimes break through these protective dunes, resulting in an "overwash" of salt

water and sand inland of the dune. The overwash phenomenom is common along the

barrier beaches that form a buffer zone along most of the Atlantic coast from New

York to riexico. Barrier beaches are separated from the inland shore by shallow lagoons

or salt marshes which provide additional protection to the mainland from severe

storms

.

Dolan and Godfrey have explained the defensive role of the natural barrier

islands along the North Carolina coast as follows:

The unaltered barrier system can meet the challenge of

periodic extreme storms since there is no permanent obstruction in

the path of the waves and surge. Most of the initial stress of an extreme event is sustained by the broad beaches. Because no resistance is created by impenetrable landforms , water flows harmlessly between the dunes and across the islands with the result

that wave energy is rapidly exhausted. The combination of high

tides and waves occasionally succeeds in eroding the beach-face

and low lying foredunes and carrying sand and shells inland or completely across the island and into the marsh.

'Robert Dolan, U. S. Department of the Interior, National Park Service,

Beach Erosion and Beach Nourishment , Dune Stabilization Study, Natural Resource

Report No. 4 (Washington: National Park Service, 1972), p. 2,

^Ibid.

^This discussion comes in part from U.S. Department of the Army, Corps of

Engineers, Shore Protection Guidelines , pp. 7-9.

55
Because of steadily rising sea level (3 inches since 1963)

the beaches have, in most places, receded resulting in increased wave energy on the dunes and subsequent overwash and build-up

in the interior sandflats and the marshes. The net effect of

this process has been a gradual westward movement of the islands.'

Given that the general objective of the shoreline protection program is to

reduce damages from shoreline erosion, one alternative to be considered is doing

nothing to protect the shoreline. The National Park Service has adopted this policy

in some areas of its National Seashores. Robert M. Linn, the director of the Park

Service's Office of Natural Science Studies has said that "...allowing nature to

take its course is already policy on uninhabited islands."^ Doing nothing is not

politically and economically feasible for those shores that have been developed,

however, and the engineering techniques that are described in the rest of this

section have been utilized in an attempt to reduce erosion damages for such areas.

Dunes can be built by man for protection against high tides and storm surges.

A fast but expensive approach is to use a bulldozer. A slower yet less expensive

approacli is to use brush, fences (snow fences being most common), and vegetative cover

(e.g., American Beachgrass) to trap and hold wind-borne sand in a dune line."* These

trapping methods are particularly attractive to individual landowners who want to do

something at a reasonable cost and who do not qualify for Federal assistance in

providing expensive structural barriers. Furthermore, the sand catching methods build

a dune that protects landowners' property both from the action of the sea and from

drifting sand. In some areas dunes as high as four feet have been built in less than

a year with snow fences .

Beach nourishment and restoration, i.e., the pumping or placing of sand on the

beach to extend its area, is a technique that can be used periodically to maintain

an eroding shoreline. Sand for the eroding shoreline can be borrowed from offshore,

inland, or coastal inlet sources. The feasibility of beach nourishment depends on such factors as the sand characteristics, the technology of dredging and pumping,

the moving and transportation costs of sand, and the environmental impact of borrowing

sand.^ The initial beach fill may cost from $50 to $300 per foot. Subsequent

periodic nourishment at one to five-year intervals may be $15 per foot per year.'

Vegetative cover , by holding sand in place, provides protection against erosion

both on and off of dunes. This is most successful along the backshore areas that

are not exposed to severe wave erosion forces.®

' Robert Dolan and Paul Godfrey, U.S. Department of the Interior, National Park

Service, Dune Stabilization and Beach Erosion, Dune Stabilization Study, Natural

Resource Report No. 5 (Washington: National Park Service, 1972), p. 2. ^Dietrick E. Thomsen, "As the Seashore Shifts," Science News, CI (June 17, 1972),

39 7 .

^For explanations and pictures of the engineering techniques that are explained

in this section, see U.S. Department of the Army, Corps of Engineers, Shore Protection

Guidelines , pp. 25-54.

"*For a detailed description of how to build and save dunes. See John A Jagschitz

and Robert Wakefield, How to Build and Save Beaches and Dunes , Marine Leaflet Series

No. 4, Agricultural Experiment Station Bulletin 408 (Kingston : University of Rhode

Island, 1971)

.

^Ibid. , p. 2.

^ Dolan, Beach Erosion and Beach Nourishment , p. 18. .

'u.S. Department of the Army, Corps of Engineers, Shore Protection Guidelines , p. 53.

®For a detailed discussion of the establishment, fertilization, and seeding of

vegetative cover, see John A. Jagschitz and R. S. Bell, American Beachgrass,

Agricultural Experiment Station Bulletin 383 (Kingston: University of Rhode Island,

1966) . 56
Groins are structures made of rock, concrete, timber, or steel that extend

from the backshore out into the water where they act as a barrier to trap sand that

is being carried parallel to the shore as "littoral drift." The longshore current

that carries the littoral drift is interrupted by the groins which accumulate sand

along their updrift side. One problem witli groins is that they sometimes starve

the downdrift beaches (an external diseconomy) from the normal littoral transport

supply of sand. This may require periodic nourishment of the groins in the form

of pumping or hauling sand to the beach. The cost of groins, excluding any beach

nourishment that might be required, ranges from $100 to $350 per foot of shore

protected.

Bulkheads , seawalls , and revetments are used to protect seaside facilities

located beside the water and the seaward faces of bluffs and dunes. A bulkhead is a wave-resistent vertical wall that protects shore-front property from the sea. A

seawall is typically a stronger structure that can protect shore developments from

very strong waves. Revetments are rock or concrete-block armor plating that is used

to face the sides of bluffs and dunes to arrest erosion. Bulkheads and revetments

usually cost from $75 to $150 per foot, and for some areas may exceed $400 per foot.

Seawalls are more expensive, ranging from $200 to $500 per foot.^

Breakwaters are offshore structures that prevent waves and swells from eroding

tne shores or from disturbing a protected harbor area. Even when the breakv/ater is

built specifically for protecting a given beach, it starves downdrift beaches by

blocking tne normal littoral transport of sand. Breakwaters cost from $200 to over

$500 per foot.

Jetties extend seaward from the mouth of inlets to dam the sand stream, thereby

keeping sand from choking the inlet and obstructing navigation. Jetties are generally

constructed of steel, rock, or concrete. Downdrift erosion results from damming

of the littoral transport by the jetty unless sand is trucked or pumped to the

dov7ndrift side of the jetty.

The brief descriptions above cover most of the engineering techniques that the

Corps has exercised in its "man against the sea" role of protecting beaches. Several

points need to be emphasized here regarding the engineering techniques. First,

because many of the structural measures are so expensive, they are not economically

feasible for individual property owners. Their high costs do encourage, however,

careful consideration on the part of local and Federal interests as to the most

efficient (least costly) engineering technique for protection. Furthermore, since the

existing cost-sharing rules apply the same percentage for every engineering technique

(see Section 2.3) of providing shoreline protection, there does not appear to be any

cost-sharing bias against the least-cost engineering technique as in favor of more expensive techniques.

Second, engineering techniques can be relied upon to provide effective protection

in many cases only when an extended segment of the shoreline is included in the project.

The Corps has found the following:

Separate protection for shore reaches or eroding shores (as an individual lot frontage) within a larger zone of eroding shore, is

difficult and costly. Such protection often fails at the flanks as the adjacent unprotected shores continue to recede. Partial or inadequate protective measures may even accelerate erosion of adjacent

shores. Coordinated action under a comprehensive plan which considers

the erosion process over the full length of the receding shore segment

is much more effective and economical.'*

'U.S. Department of the Army, Corps of Engineers, Shore Protection Guidelines , p. 43.

^Ibid. , p. 33.

*Ibid. , p. 30.

57
Finally, because engineering techniques are most effectively applied for a long

stretch of beach, the Corps will generally be dealing with a group of beach owners

or beach interests. Nonfederal interests must be represented by a group that commits

itself to the local cost share to become fully eligible for Federal cost sharing.

The more people that are involved in such a local entity, the more difficult it may

become for them to agree upon their cost-sharing commitment. Additional

complications arise due to the differences in local requirements along a beach

characterized by varying degrees of public ownership and use. A . 2 Management Techniques

Management techniques influence, restrict, or control man in his use of the

shoreline. The Corps does not have the legal authority to use all of the techniques

to be described in this section. Many are under the exclusive jurisdiction of state

and local governments. Yet to achieve an optimal solution to the problems of shoreline management, management techniques should be considered.^

Regulatory Controls are techniques commonly under the authority of local

governments. Zoning, for example, is enacted by local governments to regulate

individual land use so that adjacent property owners and the community at large will

not be adversely affected (i.e., suffer external diseconomies). An example of a zoning requirement that might help prevent damages from beach erosion would be to

impose minimum setback distances from the mean high water mark.

Subdivision regulation is another regulatory technique that local governments

can use. A subdivision developer can be required to provide protection in shore

areas that he develops. Building codes control the construction of buildings. Codes

might include specifications such as the quality and strength of materials or the

height of the floor above mean high tide. Each specification is intended to decrease

the damages from high tides and winds . Ordinances can be passed by local governments

to cover problems not handled by other regulatory legislation. An example of an ordinance designed to protect the backshore is the prohibition of any destruction of

the foredune along the coastline. Permits require a developer or builder to obtain

the permission of an authorized government agency before building on or modifying

the shoreline. The Corps has two permit authorities which might give some precedent

for control of shoreline use. One is the right to approve any construction or action

which affects navigable waters, and the second is to monitor discharges into

navigable waters .

The acquisition of property in an area subject to erosion is another technique

for reducing erosion damages. To preclude shoreline development and damages that are likely to result from it, a government agency might acquire easements or fee simple

title to shoreline property through voluntary donation, direct purchase, or condemnation

.

Various government inducements might also be used to encourage private interests

to utilize the shoreline in such a way that erosion damages are minimized. High

property taxes could be imposed for developments along the shoreline that invite

damages, whereas lower taxes could be imposed for land uses that are not subject

to erosion damages.

^For a detailed discussion of management techniques, see U.S. Department of the

Army, Corps of Engineers, Shore Management Gu i delines , A Part of the National

Shoreline Study (Washington, D.C. : U.S. Army Corps of Engineers, 1971).

^U.S. Department of the Army, Corps of Engineers, Shore Management Guidelines , p. 42. ,^

58
Federal insurance for shoreline damages could be made available at premium

rates that reflect actual risks so that people along the shoreline would recognize

the real economic costs of building on the beach. The National Flood Insurance Act

of 1968 provides for a subsidized premium rate for shoreline development until the

Secretary of Housing and Urban Development has identified and published information

about the flood hazard possibilities of a given area, after which any construction

to be started will be insured only at the true risk premium rate.'

Federal insurance and Federal grants in general, including cost-sharing for

shoreline protection, would be restricted to areas in which local or state

authorities have adopted appropriate land use and control measures consistent with

reduction in shoreline damages. Here again the National Flood Insurance Act has

set a precedent in that, after a specified date, no flood insurance will be made

available in any area which fails to adopt adequate land use policy that discourages

development and construction in flood-prone areas .

' National Flood Insurance Act of 1968 , P.L. 90-448, 90th Cong., August 1, 1968,

Sec. 1308 (c) .

^Ibid. , Sec. 1316 and Sec. 1361.

59
APPENDIX B

BEACH EROSION CONTROL COST-SHARING DISTRIBUTION

BY STATES BY PERCENTAGE OF COSTS SHARED BY LOCAL INTERESTS

Percentage of Number Percentage _ , , . „ Cost Shared by of of Cumulative Percentage

Local Interests States States °: states J-Sss than Lower Limit

0-9.9 1 5.9 0 10-19.9 0 0 5.9

20-29.9 0 0 5.9

30-39.9 4 23.5 5.9

40-49 .

9

3 17.6 29. 4 50-59.9 . 4 23. 5 47.0

60-69.9 2 11.8 70, 5 70-79.9 1 5.9 82.3

80-89.9 2 11.8 88.2

90-100 0 0 100.0

Total 17 100.0

APPENDIX C

STATE COST SHARING IN SHORELINE PROJECTS^

States

of Nonfederal Share

Federal Projects Nonfederal Projects

Connecticut 50 33 or 67^

Delaware^ 100 100

Maine i d d

Maryland c c Massachusetts 50 50

New Hampshire d d

New Jersey 75 75

New York • 70 70

Rhode Island d 50

Virginia d d

^These figures are based on Table 2, "Summary of General Policy of State

Participation in Shore Protection Projects," National Shoreline Study: Regional

Inventory Report, North Atlantic Region , A part of the National Shoreline Study

(Washington, D. C; U.S. Army Corps of Engineers, 1971), Vol. 1, p. 103.

'^Every project must be approved individually by the state legislature.

c The state makes interest free loans to municipalities.

'^These states have no specific programs.

The state pays about 33% for privately-owned shores and about 67% for publicly

owned shores.

60
SELECTED BIBLIOGRAPHY

BOOKS

Break, George F. Intergovernmental Fiscal Relations in the United States . Washington,

D. C.: The Brookings Institution, 1967.

Marglin, Stephen A. "Objectives of Water-Resource Development: A General Statement."

Design of Water Resource Systems. Edited by Maass et al^. Cambridge: Harvard

University Press, 1962. 17-87.

Regan, Mark. "Sharing Financial Responsibility of River Basin Development." Economics

and Public Policy in Water Resources Development . Edited by Stephen C. Smith

and Emery N. Castle. Ames: Iowa State University Press, 1961. 209-221.

Renshaw, Edward F. Toward Responsible Government: An Economic Appraisal of Federal

Investment in Water Resources Programs . Chicago: Idyia Press, 1957.

White, Gilbert F. Human Adjustment to Floods: A Geographical Approach to Flood

Problems in the U.S. University of Chicago, 1945.

ARTICLES

Adams, Dale W. and Rask, Norman. "Economics of Cost-Share Leases in Less-Developed

Countries." American Journal of Agriculture Economics , L (November, 1968),

935-942.

Loughlin, James C. "A Flood Insurance Model for Sharing the Costs of Flood Protection."

Water Resources Research , VII (April, 1971), 236-244.

Loughlin, James C. "Cost-Sharing for Federal Water Resource Programs with Emphasis on Flood Protection." Water Resources Research , VI (April, 1970), 366-382.

Marshall, Harold E. "Economic Efficiency Implications of Federal-Local Cost Sharing

in Water Resource Development." Water Resources Research , VI (June, 1970),

673-682.

McGuire, Martin C. and Garn , Harvey A. "Problems in the Cooperative Allocation of

Public Expenditures." Quarterly Journal of Economics . LXXXIII (February, 1969)

31-39.

Thomsen, Dietrick E. "As the Seashore Shifts." Science News , CI (June 17, 1972),

396-397.

PUBLIC DOCUMENTS

Congressional Documents

U.S. Congress. House. Committee on Public Works. Projects Proposed for Inclusion in

Omnibus River and Harbor and Flood Control Legislation—1972 . Joint Hearings

before the subcommittee on Rivers and Harbors and on Flood Control and Internal

Development, House of Representatives, 92d Cong., 2d sess., 1972.

U.S. Congress. Senate. Committee on Public Works. Omnibus Water Resources Authoriza - tions—1972 . Hearings before the subcommittee on Flood Control--Rivers and

Harbors, Senate, 92d Cong., 2d sess., 1972.

U.S. Congress. Senate. Committee on Public Works. Omnibus Water Resources Authoriza- tions--1970 . Hearings before the subcommittee on Flood Control--Rivers and

Harbors, Senate, 91st Cong., 2d sess., 1970.

U.S. Congress. Senate. Introduction of a Bill to Amend Cost Sharing for Hurricane

Protection Projects . Congressional Record. 91st Cong., 2d sess., April

30, 1970, S6308-S6310.

U.S. Congress. Senate. Policies, Standards, and Procedures in the Formulation, Evaluation , and Review of Plans for Use and Development of Water and Related Land Resources , S. Doc. 97, 87th Cong., 2d sess., 1962.

61
U.S. Congress. Senate. Study of Federal Reimbursement Policy for Work by States and

Other Non-Federal Entities on Authorized Water Resources Projects . S. Doc.

10, 90th Cong., 1st sess., Feb, 23, 1967.

U.S. Water Resources Council. "Proposed Principles and Standards for Planning Water

and Related Land Resources." Federal Register, XXXVI, No. 245, Dec. 21, 1971,

24144-24194.

Public Laws

Amendment in Flood Control Act of 1941 . P.L. 84-99. 84th Cong. (June 28, 1955).

Disaster Relief Act . P.L. 91-606. 91st Cong. (Dec. 31, 1971).

Flood Control Act . P.L. 85-500. 85th Cong. (July 3, 1958),

Flood Control Act . P.L. 87-874. 87th Cong, (Oct, 23, 1962),

National Flood Insurance Act of 1968, P,L, 90-448. 90th Cong. (Aug. 1, 1968).

River and Harbor Act . P.L. 71-520. 71st Cong. (July 3, 1930).

River and Harbor Act. P.L. 79-727

.

79th Cong

.

(Aug. 13, 1946)

.

River and Harbor Act. P.L. 88-172, 88th Cong

.

(Nov. 7, 1963)

.

Executive Departmental Documents

U.S. Bureau of the Budget. "Circular on Water Resources Projects." Budget Circular No. A-47. Washington, D. C: 1952.

U.S. Department of the Army. Corps of Engineers. Emergency Employment of Army and

Other Resources . ER 500-1-1, January 4, 1972.

U.S. Department of the Army. Corps of Engineers. Federal Aid Toward Shore Restoration

and Protection . ER 1120-2-110, March 1, 1965.

U.S. Department of the Army. Corps of Engineers. Federal Participation in Coastal

Protection Projects , ER 1165-2-19, August 20, 1969.

U.S. Department of the Army. Corps of Engineers. National Shoreline Study; Regional

Inventory Report, North Atlantic Region . Vol. 1. A Part of the National

Shoreline Study. Washington, D.C.: U.S. Army Corps of Engineers, 1971.

U.S. Department of the Army, Corps of Engineers, Report on the National Shoreline

Study , A Part of the National Shoreline Study. Washington, D, C: U.S.

Army Corps of Engineers, 1971.

U.S. Department of the Army. Corps of Engineers. Shore Management Guidelines , A Part

of the National Shoreline Study, Washington, D, C: U,S, Army Corps of

Engineers, 1971.

U.S. Department of the Army. Corps of Engineers. Shore Protection Guidelines . A Part of the National Shoreline Study. Washington, D, C: U.S. Army Corps

of Engineers, 1971.

U.S. Department of the Army. Corps of Engineers. Shore Protection Program . Washington, D. C: U. S. Army Corps of Engineers, 1970 .

U.S. National Water Commission. Water Policies for the Future: Final Report to the

President and to the Congress of the United States . Washington, D. C: U. S. Government Printing Office, 1973.

U.S. Subcommittee on Evaluation Standards. Proposed Practices for Economic Analysis

of River Basin Projects , Report to the Inter-Agency Committee on Water

Resources. Washington, D, C. : rev. ed. , 1958.

62



NBS-114A (REV. 7-73)

U.S. DEPT. OF COMM. BIBLIOGRAPHIC DATA

SHEET

1. PUHl.K ATION OR RI^POK F NO. 2. Gov't Accession

No.

3. Recipient's Accession No.

4. TITLI- AND SlIIVriTLl- Cost Sharing As An Incentive to Attain the Objectives of

Shoreline Protection

5. Publication Date December, 1973

6. Performing Organization Code

7. AUTHOR(S)

Harold E. Marshall

8. Performing Organ. Report No. NBSIR 73-294

9. PERFORMING ORGANIZATION NAME AND ADDRESS

NATIONAL BUREAU OF STANDARDS

DEPARTMENT OF COMMERCE

WASHINGTON, D.C. 20234

10. Projecr/Task/Work Unit No.

11. Contract/Grant No.

12. Sponsoring Organization Name and Complete Address (Street, City, State, ZIP)

The Center for Economic Studies

Institute for Water Resources

U.S. Army Corps of Engineers

Ft. Belvoir, Virginia 22606

13. Type of Report & Period Covered

Final

14. Sponsoring Agency Code

15. SUPPLEMENTARY NOTES

16. ABSTRACT (A 200-word or less factual summary of most significant information. If document includes a significant

bibliography or literature survey, mention it here.) The nation's shorelines are being eroded by high winds and waves. Nonfederal

interests have traditionally received Federal help in the form of cost sharing for

protective structures. This study provides the Army Corps of Engineers with an evaluation of alternative cost-sharing rules for shoreline protection with respect to

efficiency, equity, and administrative feasibility.

Existing cost-sharing rules are described for hurricane, beach erosion, and

emergency protection. The present cost-sharing system appears to induce local interests

to choose (1) costly techniques of protection, e.g., engineering rather than management

techniques, and (2) overbuilt projects in terms of the efficient scale.

It is concluded that the Association Rule, which requires local beneficiaries of

shoreline protection to share in all of the costs of a project purpose in the proportion

that local benefits bear to national benefits at the margin, should be applied to all

shoreline protection programs. All techniques of protection should be subject to the

same percentage cost-sharing rule. It is also concluded that all^ categories of project

costs should have the same percentage cost share apply to them. Finally, Federal cost

sharing might be used as an incentive to encourage local interests to comply with

Tiinimum land use requirements that would prevent shoreline damages.

17. KEY WORDS (six to twelve entries; alphabetical order; capitalize only the first letter of the first key word unless a proper name; separated by semicolons

Beach erosion control; cost sharing; economics; efficiency; equity; incentives;

shoreline protection

18. AVAILABILITY Unlimited

1 For Official Distribution. Do Not Release to NTIS

1

^ Order From Sup. of Doc, U.S. Government Printing Office Washington, D.C. 20402. SD Cat. No. C13

1 Order From National Technical Information Service (NTIS)

Springfield, Virginia 22151

19. SECURITY CLASS

(THIS REPORT)

UNCLASSIFIED

21. NO. OF PAGES

69

20. SECURITY CLASS

(THIS PAGE)

UNCLASSIFIED

22. Price

USCOMM-DC 29042-P74
I
OTHER

Davis, Robert K. and Hanke, Steve H. Pricing and Efficiency in Water Resource

Management . Report to the National Water Commission. NTIS No. PB-209-083.

Springfield, Va. : National Technical Information Service, 1971.

Dolan, Robert and Godfrey, Paul. U.S. Department of the Interior, National Park

Service, Dune Stabilization and Beach Erosion . Dune Stabilization Study.

Natural Resource Report No. 5. Washington, D. C: National Park Service, 1972.

Dolan, Robert. U.S. Department of the Interior. National Park Service. Beach

Erosion and Beach Nourishment . Dune Stabilization Study. Natural Resource

Report No. 4. Washington, D. C: National Park Service. 1972 . Hurlburt, Virgil L. Farm Rental Practices and Problems in the Midwest . Research

Bulletin No. 416. Ames: Iowa State College Agriculture Experiment Station,

1954.

Jagschitz, John A. and Bell, R. S. American Beachgrass , Agricultural Experiment Station

Bulletin 383. Kingston: University of Rhode Island, 1966.

Jagschitz, John A. and Wakefield, Robert. How to Build and Save Beaches and Dunes . Marine Leaflet Series No. 4. Agricultural Experiment Station Bulletin 408.

Kingston: University of Rhode Island, 1971.

The Malay Mail (Newspaper). "Swimming Lessions to Prepare for Floods." Kuala' Lumpar

,

Malaysia. November 10, 1972.

Marshall, Harold E. and Broussalian, Vartkes L. Federal Cost Sharing Policies for

Water Resources . National Bureau of Standards Report to the National Water

Commission. NTIS No. PB-208-304. Springfield, Va.: National Technical

Information Service, 1971.

Marshall, Harold E. "The Relationships Between Local Cost-Sharing and Efficient WaterResource Development." Unpublished Ph.D. dissertation. The George Washington

University, 1969.

Nixon, Richard. President of the United States. Letter to Honorable Rogers C. B. Morton, Chairman, Water Resources Council, 2120 L St., N.W., Washington,

D.C. 20037.

Rafuse, Robert W. and Sherman, Michael D. The Implications of the Net Fiscal Benefits

Criterion for Cost Sharing in Flood Control Projects . Mathematica Report

to the Corps of Engineers. IWR No. 71-12. Washington, D. C: Institute

for Water Resources, 1971.

White, Gilbert F. Choice of Adjustment to Floods . Department of Geography Research

Paper No. 39. Chicago: University of Chicago, 1964.

63