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Joint | March 18, 2015 | Committee Room | Transportation Committee Meeting

Full MP3 Audio File

Good morning ladies and gentlemen. We're going to operate on House time today. Thank you all for being here. We'd like to start off by thanking our Sergeant at Arms for helping us today. That's Carlton Adams with the House, Joe Austin, thank you Joe, and Martha Gadston, hey Martha, good morning. On the Senate side we have Terry Vaughnheart. Terry, thank you. And Howl Roach. Thanks Howl. Some of the most important people working with us today are our pages. And from the Senate we have Anthony Fortae. Anthony, welcome sir. And he's sponsored by Senator Rabin. I believe that's correct. I'm doing this without my glasses guys so bear with me. And on the House side from my neck of the woods, the Garden of Eden of North Carolina, Gaston county Sierra Cox. Sierra welcome. I hope you have a very fun packed week. Thank you for being here. We have a few presentations we're going to go ahead and get started on it. The first one up is North Carolina Railroad Company. Present Scott Sailor and Scott you have the podium sir. [SPEAKER CHANGES] Thank you Mr. Chairman. Thank you members of the committee. Ladies and gentlemen, it's my pleasure to be here today to talk to you a little bit about the North Carolina Railroad Company, give you an update. We are. Is that ok? Is that better? Sorry. A little bit. Is that better? Ok, thank you Senator. We're moving ahead with our strategic plan and it's showing signs of success and economic development with our key partners. Business continues to be very stead on the railroad and even increasing in the last year or two. We're going to talk about that in a few minutes. A couple of projects. Our recently restate mission calls for a renewed emphasis on economic development and I want to talk about this in just a moment. This emphasis goes to our capital budgeting, our partnerships, and to the performance metrics we have for the success of our organization. These three new vision elements drive our investments, they were adopted, these principles were adopted by our board about 20 months ago, enabling freight to create jobs and business, expanding rail to move more people, and investing in the railroad for the long term health of the franchise that is now 165 years old. It is North Carolina's oldest corporation. We manage this asset and the capital it generates. It's a 317 mile line as most of you know, between Charlotte and Morehead City. About ten percent of the freight network that you see on this map is the North Carolina Railroad. The health of this network is so important to the economic development of this state. The North Carolina Railroad serves as a key backbone, not the only backbone, because you gave two mainline freight line railroads going North South through the State. Our line is part of that western mainline, stretching over to the East to the port and three major military installations and other significant customers on that network for the rail service. A lot of the trains you see or read about are passenger trains. So I put this map in here to also give you that picture as well. Our line, as do some of the other lines, host these Amtrak trains under a 50 year old statute that created Amtrak. These trains are not a revenue service for us. They are operated by Amtrak under sponsorship by the Federal Government, from our DOT, who help sponsor those trains. And they operate as you can see here, not only just over our line but over the entire network. All passenger trains in North Carolina operate over the freight network with one small exception, the light rail in Charlotte operates on its own designated carter but everything else, all the other passenger trains you see are operating on freight lines. They typically operate at higher speeds than freight trains so the tracks have to be maintained

—a higher level than they might otherwise be. The corporate history? The railroad company—your railroad company—was chartered in 1849 with both Providence and state stockholders. It operated under a longterm lease for 99 years; it expired in 1995. Our current BLET Agreement with Norfolk Southern runs until 2044. It has a couple of renewal options that Norfolk Southern's optioned over that period. It's always been operated as a part of that Southern Railway-Norfolk and Western Network under these longterm agreements. Through continued cap investment, in coöperation with the state and the economic development community, we work to use this railroad to attract business to the state, to foster development for all the citizens of the state. We try to maximize the value of the asset for that purpose. This includes protection and management of the irreplaceable 200 foot wide corridor that we're responsible for. We have a thirteen member board of directors. They're elected to four year staggered terms. As I mentioned earlier, the agreement with Norfolk Southern runs until 2044. It generates about twelve- to fourteen-million dollars a year in working capital. We fund our own expenses in engineering, design, and planning out of those revenues as well. We don't receive any state appropriations. In 2013, a provision was passed to have us pay dividends to the state. This gives you a summary of those. We've paid over about 23 million dollars. I signed a check a couple of weeks ago for the three-point-seven million dollars [$3.7M] that you see, here, for this year's dividend. [pause] You're welcome. We also have no debt. We haven't had any debt since the 1800s except for the note— the demand note that was done for the buyout in 1998. The assets that are part of the railroad are the corridor, of course. We have a few stations and buildings along the corridor, some additional properties for yards and maintenance facilities, other land and property that's been acquired, or, in some cases, re-aligned over the years. The original corridor totals about 7600 acres, or roughly the same acreage as Research Triangle Park. But ours is 200 feet wide and 317 miles long. So we have 630 miles of neighbors. And protection of that corridor, as I said earlier, is a key part of what we do. That includes all the utility agreements, crossing improvements that we work on with DOT, track expansions, try to keep those trains running, keep them running a long time. So managing this combination of these assets, which creates a reliable non-taxpayer funded revenue stream as well, is what we do, and that— the goal there— the ultimate goal there is to create jobs. Last year we had the Research Triangle Institute try and measure the economic value—and I know you all see lots of these numbers—but just quickly here: It generates about $800 million dollars of economic benefit to the state every year, when you total it up. If you didn't have it, you'd have $800 million dollars less of economic value for the state. [edi note: i'm -pretty- sure he said "BLET agreement." i looked up all the belownoted stuff that i did not previously know & the rest of it's correct— it sounds like he's saying "NET agreement" but it doesnt make any sense, while "BLET agreement" really does. over & out, & look out below.] --cut here-- This is a new map that we've done to try to reflect a little better, geographically, where the freight business is— and, more importantly, where the jobs are that are served by the North Carolina railroads. So, there are about 110 freight customers served directly by this line. This includes— you can see a little bit down south of New Bern, near Camp Lejeune, is served on a line that's actually owned by the federal government, and the trains carrying equipment come up to our line at Havelock. Another important dot on the map, if you look to the north, is PCS Phosphate. PCS Phosphate's the largest freight customer east of I-95 on the railroad. They have over twenty miles of track just on their property. They employee about 1500 people in that region of our state. It's very important to the economic health of that region. A couple more numbers here. As I said, over a hundred North Carolina employers, customers on the railroad served directly, if you count containers, over three hundred thousand [300,000] rail cars a year on the railroad. That includes the mainline, and from a tonnage standpoint the heaviest part of the railroad is between Greensboro and Charlotte, because it's part of the mainline going from Washington to Atlanta. To a lesser extent, the traffic, which—

[SPEAKER CHANGES] Between Raleigh and Greensboro falls off because you don't have the overhead traffic, and as you go east of Raleigh, it's less than the middle part. So think of it as tapering from a traffic standpoint to the total traffic standpoint, it goes down a little bit as you go east. Since 2001 we've put $80 million of capital in the railroad to bring it up to par. That does not include the investments of our partners. Those partners include Norfolk Southern, they include North Carolina Department of Transportation, who, who takes care of administering the federal funds that come to the state through rail grants. So, a little bit more about what we have in store for the future. A big one on our list is freight, customer access. The main line is in pretty good shape, but when you have a capital-intensive manufacturer come to the state, we need a spur track that might need to be 200 feet long, it might need to be 2000 feet long. It's a very capital-intensive investment, but once you get that customer, oftentimes they stay a long time because that infrastructure is hard to replicate. Partnerships with economic development entities to protect rail-served site, this is very important, because as the state grows, I know you all see what the population issues are, and the budget issues you face because of that growth. It creates a lot of pressure on all that land around the corridor, so there are fewer and fewer sites available for manufacturing companies who need rail. And thirdly, planning for infrastructure expansion for the long term on the main corridor. We've had double track, mostly double track on the main line for 70 years. At some point it'll need to be triple-tracked. That sounds a little bit easier maybe than it is. Laying another track alongside, there's a lot more to it than that because you have bridges, underpasses, overpasses, signal systems that all have to be integrated in that. It's not inexpensive. So it's a very capital-intensive business. The track can cost two to three million miles to build if you already own the right of way. Bridges can cost between five and thirty million dollars depending of course on the magnitude of the bridges. Got a give you a picture of some of the partners that are important, the folks that we work with. Obviously the North Carolina Department of Commerce and now the Economic Development Partnership of North Carolina are recruiting companies, manufacturing companies, the high value job that come to the state. About 5% maybe, in a given year, 10% of their projects are rail projects. But they tend to be the bigger projects. You ?? here, including CSX, CSX is the other Class I carrier, operates on eight miles of our track between Raleigh and Cary because of a very old agreement. We also cross CSX in six locations, so we have a relationship with them as well. Then you see CATS, the Charlotte Area Transit is going to build three miles of light rail in the corridor. And then of course Amtrak and some of the other parties that we work with a lot. Current committed investments, we have about $96 million on the slate through 2019. As I mentioned a minute ago, we put about $80 million in in the last 10 to 12 years, partnering with other folks. That's what our capital program, our investment program looks like today. This tank that you see here is in Raleigh heading to Camp Lejeune. That's the same track that your Amtrak trains run on, they're, they're sharing track in the same corridor. I'm proud to say that recently, there was an announcement last week that Sanderson Farms-you all have heard this, because I'm sure you've seen the announcements, is expanding into Robeson County. What's important about that to us is about seven years ago, they built some railroad infrastructure in Kinston and that plant is going to serve, that facility is going to serve the Robeson County operation. So just on our railroad, with this one customer, you're talking about 2600 jobs now. We started out grading that line in Lenoir County about ten years ago, part of that 80 million, a lot of it went into Lenoir County because it was the worst spot on the railroad where we had some old rail and some old bridges that need to be replaced. So we're proud of that investment and these types of announcements are what we're looking for. One more example, this is a project that started last year, Cambro is going to employ about 100 people in Alamance County. The track that we're building there, we're putting $750,000 in, DOT's putting in about 200,000 out of the dividend funds that we pay to them, to drive a lead track into a 500 acre industrial park that can serve not just Cambro, but other manufacturers as they look at Alamance County. This site's particularly attractive because the railroad as you all know, runs parallel to I-85

so that these customers have great transportation resource here, great strategic location for them, because they have both good highway access and a pretty good railroad. For 2014, we approved for 2015 about $13 Million new economic development investments, you have a list in your materials that are also posted online to give you that list of projects and over what time frame. Time frame was important to us and something that's capital intensive because it takes three to five years, typically, to do a main project if it's a track project or a bridge project, spur track you can do in less than that but from design through construction can take that long. So here's the target under the strategic plan, to collaborate with our partners, particularly including the economic development community statewide, not necessarily on our railroad. We get called now for help in projects that are off the cart or that have a lot of value to the state, whether or not it's physically on our line. Creating new partnerships with the state, economic development partnership, Department of Commerce, to create that brand, that strategic advantage that we want to offer the state, because we own a railroad company, some states don't own railroad companies, in fact most of them don't. Committing to a new focus on capital investment in freight, spurring that kind of growth, and then working with our DOT. I know Paul [??] said, I want to say too, that we in this state are blessed with a really good safety program at DOT, it is a national leader in great crossing protection and safety and a lot of that is because of Paul. We do a lot of projects with them, whether it be a crossing improvement or a bridge and that sort of things because of the emphasis on safety here. So, thank you, Mr. Chair, members of the committee, and I"m available for any questions to the extent you have time. [SPEAKER CHANGES] Chairman Iler. [SPEAKER CHANGES] Thank you, Mr. Chairman. Back on slide eight, you [??] to the state- [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] We appreciate that. [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] Actually, but it goes, I see, is [??] to the freight and rail crossing safety improvement fund, [??], that's good, is that the total use of that [??] as far as you know or does any of it go to one of your larger companion assets, I guess you'd call it, the port that you serve in [??] city, [??] working on port expansions, port dredging and things like that. Any of that dividend, as far as you know, being used to enhance the ports? [SPEAKER CHANGES] I understand, I think most of the projects have been freight access or safety but I believe there were some grants to the ports but I would refer you to DOT on that to make sure you get a good answer. I don't know the details of that. [SPEAKER CHANGES] Okay, one follow-up. On slide ten, the term roadways in the corridor, 460.1 acres, is that, you're not talking about railroad ways you're talking about other kinds of highways or secondary roads or something? [SPEAKER CHANGES] That's correct, we have a lot of parallel encroachments where the roads go up along parallel to the tracks and now the roads were paved and they're in the right-of-way, about 460 acres of that encroachment, if you will. [SPEAKER CHANGES] Any other questinos? Representative Ford. [SPEAKER CHANGES] Yes, sir. You know, we've gone back to the double track in the various lowlands and southern lowlands and it's [??] and straighten out the curves of the track, and no we've talked about three tracks and I've seen plans for four tracks, I don't know what we're going to do, the whole downtown of the little town of China Grove is within ten feet of the track [??], you just wipe out all of downtown? That's just one of many examples, including businesses and homes that aren't ten feet from the track. So what are we going to do going forward? [SPEAKER CHANGES] Yes, Representative, I understand. That's the reason for the planning. You typically wouldn't triple track the whole line at the same time, it may not even be required, but what we try to do is plan enough in advance so that we can avoid those kinds of disruptions like I know you've had and other counties have had with this project that came on sort of fast. Good planning is the way I think we can mitigate that to the best extent we can. There are no current triple track plans. The busiest tonnage part of the railroads is between Salibury and Davidson County. It is the heaviest part in the entire Piedmont Division of Norfolk Southern. South of Salisbury, less so, but still a busy mainline, in part because it's a heavy intermodal corridor with the container operation. But

understand the question. We have that issue all over the State where the railroad is through the center of the town and trying manage around that so we don't disrupt downtowns. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] Yes, follow up. If most of these businesses that are located that I'm talking about ?? were built in the 1950's and I'm hearing that possibly ?? and other maybe some I don't know, that folks were actually selling property that didn't belong to them and that's how we ended up with this. Is that true because almost everyone of them was built in the 1950's. [SPEAKER CHANGES] Yes it is true particularly in Eastern Gilford county, Northern Cabarrus county and part of ?? counties. There were older surveys which didn't show the entire 200 foot right of way. There were surveyor errors, inaccurate information and we tried to rectify as much of that as we can to share information with the surveyors to get it right when they can. But there have been problems about, dimensionally, making sure that the right of way is correctly shown in surveys, including the tax maps. That's been another problem is the tax maps you can't rely on for title purposes but a lot of people use those as guidance and in many cases the tax maps are incorrect. Does that answer your question representative? [SPEAKER CHANGES] Yes. [SPEAKER CHANGES] Senator Ford. [SPEAKER CHANGES] Thanks Chairman and thank you for coming out this morning and sharing this information. I'm try to understand a couple of different slides. Slide seven and slide eight. What I'm trying to determine is for you and your staff in the way that you manage, is there a formula that you use to determine, based on the revenues received to the North Carolina Railroad Company for investments to dividends. [SPEAKER CHANGES] Yes, there's a formula for the dividends set in the statutes, it's not discretionary, it's 25 percent of what Norfolk Southern pays in the lease agreement to the North Carolina Railroad. So it's 25 percent of that lease which currently is at about 14 and a half million dollars a year. So it's 25 percent of that amount and the residual is what we have available as working capital. [SPEAKER CHANGES] Follow up, follow up. And that is approximately what on an annualized basis? [SPEAKER CHANGES] It would be about 3.8 currently and will go up slightly with inflation each year. [SPEAKER CHANGES] Follow up. ?? The last time this formula was updated was when? [SPEAKER CHANGES] This is a brand new provision. We didn't have a dividend provision until 2013. [SPEAKER CHANGES] Thank you Mr. Chair. [SPEAKER CHANGES] Any other questions? You're done Scott, thank you so much. [SPEAKER CHANGES] Thank you sir. Thank you for your time. [SPEAKER CHANGES] Our next presenter and before you get up hang on one second we're going to do a little segue. I want to make sure people understand what the next gentleman is going to present to you. And let me give you a little background. Had it not been for the efforts of some people in this room, the Secretary of Transportation, the Governor of the great state of North Carolina, member of the U. S. House of Representatives and two U. S. Senators this State's port at Morehead City more than likely would have been closed to all inbound and outbound in three months. Does that mean anything to you all? If not it should. That means that the revenue generated by all inbound and outbound shipments coming into the port of Morehead would no longer have existed. When I say about the efforts of those individuals from writing letters and knocking on doors and pounding desks and face to face meetings in D. C. they were able to cobble together out of the Army Corp of Engineers just enough money to have the dredging issues taken care of one time. Is that correct? [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] One time. So we have a problem definitely on our horizon that we're going to have to deal with. To share that message with us today Tom Reeder, Assistant Secretary for Environment, Department of Environment and Natural Resources and I hope you give him a very strong listen. And please take the message back to your friends and foes alike to let them know that we have an issue on our coast with our ports and we need to address the modernization of our ports. And let me also add while you're here, in addition to that at Morehead at Wilmington we have birth eight, remember that number. Birth eight. That for years

And it's been known for years its been slowly, slowly, ever subtly sinking into the ?? River, making it virtually inaccessible or not available to either unload or offload container ships. So needless to say there's the correct amount of emphasis has not been placed on revenue generators for this state. Two of those critical revenue generators are the Port of Wilma and the Port of Morehead City and it's high time they be addressed. Thank you. [SPEAKER CHANGES] Good morning everybody, thanks for inviting me here today. I'm Tom Reeder the Assistant Secretary of the Environment and I am going to talk about dredging for abut the next fifteen minutes or so in North Carolina. And if you are wondering why ?? is involved in dredging it's because our division of Water Resources is the primary partner that works with the Army Corps of Engineers out of Wilmington district to get this dredging accomplished so that why we're here talking about this today. So this is what I am going to talk about. First of all I am going to give you some brief background about the types of inlets we have here in North Carolina, the types of channels. I talk a little bit about the State and Federal funding that we have for dredging operations. I'll talk about memorandums of agreement we have with the Army Corps, how you get those in place and why they're so important. Then I'll talk about some of the other issues and alternatives we're facing today in the dredging arena. So why do we need dredging in the first place? Well this is really simplistic but just a starting point. These inlets and channels, like the Chair just said, are vital to our economy. Unfortunately the coast is a very dynamic system and they constantly fill in with sand, they shoal as they call it, with sand. So only with this routine maintenance can we keep these channels and inlets and costal highways open to support North Carolina's economy. So there's two types of Federally authorized inlets in North Carolina and the word Federally authorized is key because the Feds can't spend any money on an inlet or channel unless it's Federally authorized. So the only way you get the feds to spend money on dredging your inlets and channels is to have those inlets and channels be Federally authorized. Otherwise it's State money alone. So we have two types of Federally authorized channels. You've got your shallow draft inlets, which are inlets of fifteen feet or less. Most of the inlets in North Carolina are shallow draft. And those have historically been the biggest problem in North Carolina. But you also have deep draft inlets that are Federally authorized. And we have two of these in North Carolina. One in Wilmington Harbor and one in Morehead City. Wilmington Harbor is authorized to 42 feet in depth, Morehead City is authorized to 45 feet in depth and right now it's around 30 some odd feet. Maybe 30, 31, 32 feet in depth until it gets dredged and that's why were having the crisis there right now. Historically this has not been as big of problem in North Carolina as the shallow draft channels, however the Morehead City channel has be come a real crisis this year. And I'm going to talk about that a little more later. This is a map of the shallow draft inlets, they go all the way from Oregon inlet in the North down to Lockwood's Folly in the South. But just to give you an idea, if you are a charter fisherman or a commercial fisherman, and you depend upon the New River inlet to get out to the ocean and the Coast Guard takes the buoys out of that which they do when it shoals too much, then you have to go to either New Topsail inlet or Bogue inlet to get out to the ocean to do your business. So you can imagine what a strain that is for somebody that depends on these inlets when they close up. The extra fuel cost, the extra time lost, the fact that you might lost some of your charter fishing business because the inlets closed, these thing have to remain open. We have so much of our economy that depends on these shallow draft inlets. [SPEAKER CHANGES] Let me ask you a question. Are any of those currently closed? [SPEAKER CHANGES] All of them are currently open now but we are having a problem with New River inlet, it does need to be dredged. And they're open because of our shallow draft MOA and the dedicated funding source that you all put into place about a year ago. And I want to talk a little more about that. Yes sir, representative Tine. [SPEAKER CHANGES] Oregon inlet, [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] You're saying, [SPEAKER CHANGES] I forgot about Oregon, I'm sorry. Oregon inlet is closed. Right, yes sir. [SPEAKER CHANGES] How long has Oregon inlet been closed? [SPEAKER CHANGES] I don't know, probably, what would you say representative Tine, about a year now? Maybe nine months. Six months. [SPEAKER CHANGES] Well, probably for all intents and purposes at least six months steady. Before that off and on 40 percent of the time the last five years. [SPEAKER CHANGES] Right the problem with Oregon inlet is it's such a unique location, it needs about 340 days of dredging a year to stay full open year round. And I'll talk a little more about that. That is a real problem for that part of the state. [SPEAKER CHANGES] Second question on the fly if you don't mind. [SPEAKER CHANGES] I don't mind. [SPEAKER CHANGES] ?? I appreciate that Mr. Chairmen you started something here from a

guy who's inland and who is learning about dredging, I want to make sure I understand this, this is a natural occurrence? [SPEAKER CHANGES] Yes sir, these inlets are federally authorized channels, they were there naturally, basically, to begin with and then in order to maintain those so we can keep them there open for the boat traffic, they shoal in with sand, we have to continually dredge those out or they become unusable to boat traffic [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Follow-up, Senator Ford. [SPEAKER CHANGES] So this is a natural occurance in our oceans, along our coast, and because we want to use it for recreation and commerce we're going to have to continously dredge in order for it to be used in a recreational and in a commercial matter? Is that correct? [SPEAKER CHANGES] That is correct, sir. All channels have to be dredged no matter where you are. If you're up in Norfolk, if you're in Savannagh, Georgia, Charleston, all ports have to have dredging to remain open. That's why the feds have traditionally provided so much money to keep these channels open beause you just have to do it, there's no other way around it. Just like you have to maintain highways, you have to re-asphalt highways and things like that. [SPEAKER CHANGES] Representative Tine. [SPEAKER CHANGES] It's not exactly right, today in time, yes, we have three issues with dredging and I always appreciate my friend from Mecklenburg, his constant concern for my district. There's three issues that we have, short term and long term. Short term is caused by the fact that we haven't been able to replace Bonner Bridge. The span is currently in the wrong place because it was built in the sixties and that's where the channel was. The new bridge actually spans deep water than you can get boats in and out without any problem. But since we're about 20 years behind on Bonner Bridge because of the lawsuit from the Southern Environmental Law Center, we can't actually access that deep water portion. [SPEAKER CHANGES] You seem like I brought the lawsuit. [SPEAKER CHANGES] No, no, I love you, that's why I'm looking right at you. So, that's the short term, the mid term, even when we get it moved over we're going to have some time that we are going to have to do some maintenance dredging, just like you would do any other, not the 340 days a year as time changes. The long term, then we need to do some sort of stabilization as we have in many other ports that allow us to protect that movement. Just for your reference, because you made it seem like there wasn't much commerce going on there, we're looking at about a $550 Million economic impact and 450 jobs today, which that's only open at 40%. If we're able to open it much longer, then of course that impact goes up. [SPEAKER CHANGES] It's called maximizing one's assets, Senator Ford. [SPEAKER CHANGES] Mr. Chairman, may I? [SPEAKER CHANGES] Absolutely. [SPEAKER CHANGES] Thank you, maybe, perhaps Senator Tine should be giving the presentation since he has so much information. So I want to thank him personally for giving me that lesson. [SPEAKER CHANGES] He's our [??] of the coastal area. Representative Iler. [SPEAKER CHANGES] While we're on this issue, I'd like to point out that this naturally occurring phrase, if you'll confirm this, is not 100% true. Isn't some of this a result of the dredging of the intercoastal waterway by the federal government back in the day? [SPEAKER CHANGES] Certainly the intercoastal waterway fills in the landward portion of these inlets, yes sir, there's not doubt about that. So when the feds dredge the intercoastal waterway, we have to go in a clean up what they put into the inlet channels that connect to that intercoastal waterway. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] As one who's relative goes up and down the waterway frequently, Lockwood Folly, that is the biggest problem in Lockwood Folly is the landward side. [SPEAKER CHANGES] Yes sir, definitely. [SPEAKER CHANGES] Along that coastal waterway you can hardly get down past that inlet on the waterway. [SPEAKER CHANGES] When the feds dredge the intercoastal waterway, Lockwood Folly, the landward side of that, it can go down to two, maybe even one feet in depth, so you have to go in and clean that out. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] The map showing Lockwood Folly is only, you said federally- [SPEAKER CHANGES] These are the federally authorized shallow-draft inlets in North Carolina. [SPEAKER CHANGES] There's only one in my district and we have the Shallotte River and a couple of others that are used heavily by particular recreational and commercial fishermen, so they're not federally authorized. [SPEAKER CHANGES] Yes, they are. This map isn't meant to be all inclusive, I should mention that. We have a lot of other channels in North Carolina, particularly in the southern part of the state that are also federally authorized, including the Shallotte River. So they're able to access the shallow-draft MOA and the state dredging fund. [SPEAKER CHANGES] Thank you, didn't mean to interrupt. [SPEAKER CHANGES] No problem, sir. So this is Morehead City Harbor

our deep draft channels and as the Chairmen referenced earlier we have really sever problems with that. Originally the Feds only authorized four million dollars this year to keep that channel open. You probably need at least 10 million dollars a year to keep that channel open and operating to it's maximum level of efficiency. This is so bad right now, the Morehead City channel. PCS Phosphate alone is losing two million dollars a month because they have to light load their ships to get them out of the harbor. Nucor also heavily depends on this Morehead City harbor and they are also having the same problems. In fact it's gotten so bad that PCS says that if we don't fix the problem they're going to ship all of their shipping business to Norfolk which stays open all the time because the feds put a lot of money into it. So Morehead City we've got a real problem there and we still haven't dredged it yet. In fact I just got an email as I was sitting in my chair over there that the Corps finally found a dredger to come and dredge for the amount of money we have, but they haven't awarded a contract yet. So we're still looking at maybe another month or two before we get a contractor on site and get Morehead City dredged. So that's a real serious problem right there. [SPEAKER CHANGES] Can I interject something? I just happened to be on site one day at Morehead City when the phone call came in and it essentially went like this. It was the US Army Corps of Engineers making the call to our port saying, you need to call your customers and tell them they can't bring you as much stuff, simply because of the shoaling and they had to light load their ships coming in. Those of you in the business world can you imagine having to call your customers and saying by the way, you can't order as much. Some of these things are just fascinating. But it's high time we talk the helm and get it corrected. [SPEAKER CHANGES] This is Wilmington Harbor of course and as the Chairman said the biggest problem we have there right now is we have a lot of shoaling in the ?? areas that are making those inaccessible or inefficient to operate. So there's also dredging problems there although the main channel has been maintained by the Army Corp so that's in pretty good shape. We don't have the same problems there we're having in Morehead right now. And then we have some other dredging requirement in North Carolina and these are your not Federally authorized channels. The Feds don't provide any money at all for this type of dredging. You have your ferry channels, those are maintained pretty much exclusively by NC DOT. ?? hasn't really had much of a role in there, we've passed through from DOT to the Corps sometimes, for the Corps to do the dredging. The connecting channels from the Federally authorized inlets to the ferry channels also are federally authorized, so we've done dredging in those in the past. And then the ?? areas which the Chairman mentioned earlier, those are exclusively maintained by State Ports Authority and NC DOT, I believe on a 50/50 basis. [SPEAKER CHANGES] Let me ask something right here. To bring that into perspective, the State has been keeping the port area dredged and clean for ship depth. The Feds have not been keeping access to that area clean. So although we were keeping our depth it would do absolutely no good if the Feds allow the channel to fill up. So this is how comical some of these issues have become. [SPEAKER CHANGES] So where do we get all the money for this dredging that we have to do. Well like I said earlier if the inlets are Federally authorized the Feds give us money if they have it available. We used to receive substantial Federal funding to maintain our shallow draft and deep depth inlets in North Carolina, maybe up in the 40 to 50 million dollars a year range. We don't get that money any more. We've supplemented in the past for the shallow draft channels and now we're finding that we have to supplement it for the deep draft channels. This is a snapshot of the last five years. This really doesn't tell you the whole problem though because if you go back into the 2005, 2007 range we were probably getting 40 million to 50 million dollars a year for dredging and you can see we're getting no where near that. As you can see that 8.9 million for Morehead City actually, that was 4.9 million until like the Chairman said, we had all these people raise a ruckus up in Washington D.C. and the Feds kicked in an extra four million. So you have a channel in Morehead City that takes about 10 million dollars to maintain and the Feds were giving us about four and a half million dollars to maintain that for 2015. There's just no way that was going to work. In fact we couldn't even get a contractor to come to North Carolina to dredge the channel for that amount of money. No contractor would take the contract to come and dredge for 4.5 million dollars. So until we got that extra four million dollars we were completely out. We weren't going to get it dredged at all.

Yes, sir? [SPEAKER CHANGES] How much of that was actually, I'm sorry, Mr. Chairman. [SPEAKER CHANGES] Chairman Tine. [SPEAKER CHANGES] Thank you, sir. How much of that was actually budgeted and then how much of those were part of emergency response, I know in '13 that was Isabel response money. [SPEAKER CHANGES] Right, right. [SPEAKER CHANGES] A lot of this is response money, do you have a breakdown- [SPEAKER CHANGES] We've been getting, well in general, on the shallow draft inlet side, we've probably been getting budgeted anywhere from $2-3 Million a year. And for Oregon Inlet, you're looking at, until we get that bridge replaced, in Oregon Inlet you're looking at $7-10 Million a year to maintain that and then for the other shallow-draft inlets you need about $5 Million a year. So you can imagine, if the feds are giving us $2-3 M, we have to make up that difference somehow. So that's the kind of problems we're facing right now. So what alternatives do you have to federal funding? Well, the primary alternative is you develop an MOA, a memorandum of agreement with the army corps and then you provide them state funding and they get the dredging done for you. Why do you use the army corps? Well, there's a couple reasons. They have a lot of experience and they have a management team in place to do this. So you don't have to do any project management, all you have to do is write them a check. So it's a really easy way to get this done. The flip side of that is, of course, the state needs a funding source for the funds to get all this done. A memorandum of agreement with the army corps, the corps can not accept federal funding without an MOA, so you usually draft an MOA with the corps for either a specific project or you can draft it over a number of years. In fact, North Carolina was the first state to ever draft a long term, what we call a long term MOA with the corps that covers multiple years. The big problem with MOA's is they have to go through this extremely byzantine bureaucratic process at Washington D.C. that takes a minimum of six months and in the case of our long-term MOA it actually took us two years to get that approved by the federal government, so it's a long process, you can't just develop these things over night. Like I said, we do have a shallow draft dredging, a long-term MOA with the army corps. The reason we did that is we realized we could no longer depend on the Feds to keep our shallow-draft inlets open. So we developed this long-term MOA, the first of its kind in the country. We provide the corps $4 Million a year, that's made up of state and local funds, 50/50 match, and they keep, basically with that $4 Million a year, they can keep our shallow draft inlets open, except for Oregon Inlet. There's not enough funding availability in the shallow-draft MOA for Oregon Inlet. You need about $7 Million a year to keep Oregon Inlet open until we get that bridge moved. The dredging is normally performed by corps dredges but we can also hire private contractors at our discretion. The big thing is we needed a dedicated funding source to support this MOA, and we got it about two years ago from the General Assembly when they established a shallow-draft navigation channel and lake dredging fund. Basically, what we use that money for is to meet the local match 50/50 so we can get this dredging done in shallow-draft inlets. We get about $6 Million a year from that, we get deposits quarterly, it's about $1.5 Million per quarter. So we've gotten about $8.7 Million in that since its establishment, $6.7 Million is encumbered right now. We have pending requests for about another $800,000 worth, plus we have outstanding requests. So all that money's being put to good use and I will say that we have not denied a single request for the use of this money to date and I don't think we'll have to because it's a very well-funded, successful program that's up and running now for our shallow-draft channels, excluding Oregon Inlet. So what are our outstanding issues? Well, we have a couple, really. One is, if we can't depend upon the Feds to dredge Morehead City or Wilmington Harbor anymore, we're going to have to develop some sort of strategy to do that at the state level. We may have to develop a long-term MOA for the dredging of those channels and we may have to come up with a potential funding source to keep those inlets open. Also, we have the problem, as Representative Tine noted, with Oregon Inlet. Right now, until we get the bridge moved, we need about $7 Million a year to keep that open, that's $3.6 Million in local, $3.6 Million in state match and we need to find a funding source to support that. We're in the process right now of developing another MOA with the corps that will provide 340 days of dredging a year at Oregon Inlet to keep it fully open. Some of the other things we have, you know, when you talk about future funding gaps, that's very difficult to predict because a lot of it is dependent upon what kind of storms do we have? Do we have a hurricane that year? What's the rate shoaling? The rates of shoaling are constantly changing

do we have a hurricane that year, what's the rate of showing? The rates of showing are constantly changing on the coast, so some inlets that didn't fill in as fast in the past are filling in faster now. Federal funding, we can never depend on federal funding, we never know how much we're going to get and we're always disappointed by the amount we do get. And then other issue is about coupling these projects with beach nourishment. We always do that where it's practicable but the big issues there is the dredge sand has to be what's called beach compatible. You can't have a lot of big rocks in it and things like that. Some of the other alternatives you have besides doing an MOA with the core is you can obtain the federal dredge authorizations, get those permits yourself, and the state can go out and enact private contracts with private dredgers to do the dredging. The problem with that is somebody has to manage those contracts,k the core does that for us now. And then, one thing that's always talked about is what if North Carolina procured its own dredges? That was studied extensively in 2005 and they said that it was not a cost-effective alternative and some of the problems with that were the O&M costs of maintaining a dredge, the cost of hiring and maintaining a crew, and all the other overhead and management that goes with a the dredging operations. So that's it, unless you have any more questions, thank you. [SPEAKER CHANGES] Representative Tine. [SPEAKER CHANGES] On the match money that we did last session, you kept saying, "except for Oregon Inlet," that it's not included, I thought we made corrective language in there that allowed Oregon Inlet to participate. [SPEAKER CHANGES] Yes sir, Oregon Inlet is participating and we have $300,000 set aside for that right now, for some work up there, as soon as the locals want us to move forward with that. The issue is that we only get $4 Million a year, well we get $6 Million from the state, the MOA's only authorize a $4 Million a year so we could not keep Oregon Inlet open under that MOA because Oregon Inlet needs about $7 Million a year worth of dredging. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] So the county has asked, and I'll be bringing legislation to authorize the quarter cent that exists to use towards dredging, which then that would provide around $3.7 Million and looking for the match on the other side. [SPEAKER CHANGES] Right. [SPEAKER CHANGES] Are you saying the fund is not big enough for the $3.7 Million? [SPEAKER CHANGES] What we're going to do to accommodate that is we're in the process, right now, of developing a specific MOA, a specific long-term MOA just for Oregon Inlet. That will allow us to spend up to $7-8 Million for Oregon Inlet alone. So if we get the $3.6 Million from the locals, the $3.6 Million from the state, then we could just dedicate it, all move it to that inlet and keep the Oregon Inlet open, so that's what we're doing. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] And this is more of a comment and I'm sorry we don't have many in the room to hear it, but [SPEAKER CHANGES] On the record [SPEAKER CHANGES] What? Yeah. We have, this is how we move goods, this is how we do commerce, it's like roads and trains and everything else across the state for transportation and that impact that I said about 548 was around 900 million about ten years ago, I believe it was, when they last had an independent study on its impact. So I appreciate your willingness to look at it and this is something that we need to make sure, and I've got the phosphate company, too, in my district, trying to move out of Morehead City, so it's an up-and-down, the entire coast, so I appreciate your participation. [SPEAKER CHANGES] I've got a question, and I apologize for the attendance this morning but it is on the record, but a question that continuously comes up in discussions where I'm from, what other states do to address this issue, I know that lots of them use jetties or terminal groins and so forth, has there ever been any study of what terminal growing's impact would be on a one-time investment, lowering the maintenance cost of these inlets has there ever been any kind of study done on that? [SPEAKER CHANGES] Well we have that pilot study that the General Assembly authorized a couple years ago where we're putting in those four terminal groins around North Carolina and the Bald Head Islands, one of them. A groin, in my opinion, some sort of jetty or groin would probably help in the Morehead City case, I think it would help in Oregon Inlet, too, but the problem is is that the closest let where the shoaling's coming from is federal land, like Shackleford Banks in the case of Morehead City. So you got to get the fed permission to build a groin or an inlet or a jetty, I mean a groin or a jetty there, and that's next to impossible to get. So that's the big hurdle, and I think it's the same case in Oregon Inlet, I think the feds own the property where

...park service land where we need to put the [INAUDIBLE] there. [SPEAKER CHANGES] Up to the part as to what other states are doing, is this something that they are doing? [SPEAKER CHANGES] No, other states do this quite a bit. That's how-- Other states are heavily-- They invest a lot in jetties and groins and things like that to keep their channels open. Yes, sir. [SPEAKER CHANGES] [INAUDIBLE] [SPEAKER CHANGES] I apologize for the attendance, but I know that some of the senators are double-booked as well as Representatives are double booked in other committees and meetings. I know Senator [INAUDIBLE] is mightily interested in this and he is at a funeral of a close friend in Southport today. Any other questions or business before the committee? We're adjourned.