The marine transportation system is a vital component of our nation’s economic growth and plays an important role in national defense. According to the 1999 MTS Report, there is a growing gap between the services that the current infrastructure can provide and the increasing levels of demand being placed upon it. Furthermore, security issues have emerged as a result of the September 11 terrorist attacks. Given these changes, port stakeholders have growing concerns about the level of effort needed to keep the system functioning efficiently and are asking the federal government to increase funding for the system. The United States is the world’s largest maritime trading nation, accounting for 1 billion metric tons, or nearly 20 percent of the world’s oceanborne trade. Over 95 percent of the U.S. overseas trade tonnage is shipped by sea. The marine transportation system, a system of navigable waterways that connects oceans to rivers, lakes, and canals, serves waterborne commerce through more than 300 public and private ports. These ports serve as freight connectors between the waterborne system and the nation’s other transportation systems. In addition to the ports and navigable waterways, the marine transportation system also encompasses vessels, marine terminals, intermodal connections, shipyards, locks, dams, and information systems. The marine transportation system plays an essential role in the nation’s economy and defense. For example, it moves import and export cargo worth hundreds of billions of dollars, generating jobs, both directly and indirectly, for Americans and our trading partners. The system’s inland waterways also support the movement of grain, petroleum products, coal, paper products, and industrial chemicals. In addition to its economic role, the marine transportation system plays an important role in national defense by facilitating the movement of military equipment and supplying troops deployed overseas. The nation’s marine transportation system also serves as an alternative transportation mode to roads and provides recreational value through boating, fishing, and cruises. Federal, state, and local governments and private sector organizations all participate in financing the marine transportation system. In general, expenditures for the development and operation of the waterside portion of the system (e.g., dredging channels, installing navigational aids, monitoring vessel traffic, or operating locks and dams) have been largely a public function, with participation at the federal, state, and local government levels. Ports—usually state, county, or local entities—and private commercial interests spend billions of dollars in the landside portion of the system by updating and modernizing their facilities. The source of the expenditures for intermodal connections (rail, pipeline, or highway) can vary. For example, rail and pipeline development are generally funded by the private sector; funding for public roadways, on the other hand, comes from the public sector. One source of federal funding common to all three major transportation systems—marine, aviation, and highway—is collections from assessments on users of the system. These collections can include user fees and excise taxes. Collections are deposited into the U.S. Treasury’s general fund and can be used for the general support of federal activities or may be earmarked by law for specific purposes and credited to a trust fund. Also, some collections are credited directly to agency accounts for services provided by that agency such as inspections or certifications. Trust funds that support the marine transportation system include the Harbor Maintenance Trust Fund and the Inland Waterways Trust Fund. Trust funds that support the aviation and highway transportation systems include the Airport and Airway Trust Fund and the Highway Trust Fund. (See app. II for detailed information concerning these trust funds.) The portion of collections from users of these systems that are deposited into the U.S. Treasury’s general fund are not earmarked for a specified purpose and are used for the general support of federal activities. In addition to assessing fees and taxes to specifically support the transportation systems, the federal government also assesses customs duties on goods imported into the United States. All three transportation systems ship goods that generate customs duties. Customs duties are taxes on imported goods without regard to their mode of transportation. The majority of customs duties are deposited into the U.S. Treasury’s general fund to be used for the general support of federal activities. Given the role of the marine transportation system within the nation’s entire transportation system, some system stakeholders have raised concerns about the system’s ability to keep pace with the growing levels of demands being placed upon it. This issue was discussed in depth in the 1999 MTS Report that assessed the capabilities and challenges of the nation’s marine transportation system. The report cited a growing gap between transportation demands and shifting user requirements on one side and available transportation infrastructure on the other side. According to the report, the projected doubling of maritime trade by the year 2020 and the need for the system to be responsive to users means that the infrastructure would face challenges on several levels. The projected increase in maritime trade will likely result in an increase in the overall demand for the kinds of infrastructure improvements in which the federal government has typically participated. For example, there are calls to modernize aging structures such as key locks and dams in river transportation systems. Changes in the shipping industry also have increased the pressure to make capacity improvements, such as deeper navigation channels to accommodate larger ships. Since the issuance of the 1999 MTS Report, new and far reaching security issues have emerged as a result of the September 11 terrorist attacks. Many of the security improvements now planned or under way at our nation’s ports will require costly outlays for infrastructure, technology, and personnel. Even before September 11, the Interagency Commission on Crime and Security in U.S. Seaports estimated that the cost of upgrading security infrastructure at U.S. ports ranged from $10 million to $50 million per port. These estimates could increase dramatically due to new post- September 11 security requirements. For example, when the Congress recently made $92.3 million in federal funding available for port security as part of a supplemental appropriations bill, the Transportation Security Administration received grant applications totaling almost $700 million. In today’s environment, with growing system demands and border security concerns, some stakeholders have suggested a larger federal role in funding the marine transportation system. Two examples illustrate the mounting pressure for increased federal funding in this area. First, for the last several years, the U.S. public port authorities have advocated increased federal funding for dredging. Currently, funding for such maintenance—which has totaled more than $700 million annually since fiscal year 2000—is derived from a fee on passengers and imported and domestic cargo loaded and unloaded in U.S. ports. Ports and shippers would like to see funding for maintenance dredging come from the general fund instead, and there was legislation introduced in 1999 to do so.Second, besides the growing pressures on areas of traditional federal investment, ports are seeking substantial federal assistance to enhance security in the aftermath of the events of September 11. In other work we have conducted on port security, port and private-sector officials have said that they believe combating terrorism is the federal government’s responsibility, and that if additional security is needed, the federal government should provide or pay for it. Deciding on an appropriate federal role to address these concerns requires, in part, a better understanding of the magnitude and nature of federal revenues generated by and expenditures for the maritime transportation system and how these revenues and expenditures compare to other transportation modes. Also key is the establishment of a sound investment framework to make certain that limited federal dollars are applied in ways that, from a national perspective, provide the greatest public benefit. During fiscal years 1999, 2000, and 2001, federal expenditures for the commercial marine transportation system averaged about $3.9 billion each year, most of which was provided from general revenues. About 45 percent of this money was spent on construction and maintenance of federally authorized projects. During this same period, almost $1 billion in revenue was collected each year by federal agencies from users of the marine transportation system, and most of this money was credited to trust fund accounts dedicated to financing the system. In addition, customs duties on imported goods shipped through the system during the same period averaged $15.2 billion each year. The majority of the customs duties are deposited into the U.S. Treasury’s general fund. Thirteen federal agencies spent an average of $3.9 billion annually for 3 years on the commercial marine transportation system. (See app. III.) As shown in table 1, the majority of federal funding spent by these agencies for the system came from general revenues. On average, general revenues accounted for $3 billion, or 80 percent, of the total amount expended for the system. To provide a perspective on the uses for which federal expenditures were applied, we analyzed the type of service or activity for which each expenditure was directed. We used four categories: administrative processing and associated services (e.g., processing documents or issuing permits), physical services (e.g., inspections or certifications), construction and maintenance projects (e.g., dredging, constructing or maintaining locks and dams, or operating and maintaining aids to navigation), and miscellaneous services. As shown in table 2, the average amount expended for construction and maintenance projects represented $1.7 billion, or 45 percent, of the total amount expended annually for the system, with physical services accounting for about $1.5 billion, or 38 percent. Eleven different federal agencies collected an average of nearly $1 billion each year from users of the commercial marine transportation system to help finance federal expenditures to support the system. (See app. IV.) As shown in table 3, an average of $830 million, or 85 percent, of the assessment amounts collected from users was credited to trust funds to be appropriated to agencies for designated services, with the remaining amount credited to agency accounts as reimbursement for the services provided or deposited in the general fund for the general support of federal activities. The collections shown in table 3 do not include amounts from customs duties levied on the goods carried through the marine transportation system.