Barge Firms Force Fuel Tax to Sail Against the Wind : Lobbying: Operators mount massive effort to kill the proposed $1-a-gallon levy. They say it would ruin them.

Several hours before Bill Clinton unveiled his economic plan to the nation, Jeffrey Smith received a call from a fellow lobbyist who warned that the President’s “Vision of Change for America” included a whopping 526% fuel tax increase on barge and towboat operators.

“It was like a big millstone rolling right at our industry,” said Smith, vice president of the American Waterways Operators, a small trade organization that represents the barge and towing industry in Washington. “It was a little thing in comparison to all the things that are on the President’s agenda, but to us it’s a monster, an absolute monster.”

While Smith cursed his fate, environmental organizations celebrated. The fuel tax increase was something they had sought for more than a decade in an effort to end what David Conrad of the National Wildlife Federation calls “one of the great scams in American history,” a federal subsidy that contributes to environmental degradation.

So the battle began on an issue that may seem obscure to most Americans, but one that resonates loudly in some parts of Washington. “I think I’ve gotten more calls about it than any other issue in the budget,” said Barry Toiv, spokesman for the White House Office of Management and Budget.

In an initial showdown last week, the barge operators persuaded lawmakers to whack Clinton’s proposal in half. They hope to finish it off entirely as the President’s economic agenda winds its way through the legislative process.

The tale of Clinton and the towboats has become a case study not only in the kinds of problems the President is having with his economic program, but of modern lobbying tactics in general. It illustrates the powerful interests that sometimes lie behind small--and seemingly unreasonable--features of the U.S. tax code. For what hurts the little barge operators also threatens the big companies that own their cargoes, not to mention the millions of people who produce and consume those commodities.

A century and more ago, America’s mighty rivers were untamed mazes of snags and reefs and sandbars. Passengers and cargo moved by water in constant peril--saved from disaster only by the memory and skill of the steamboat pilots immortalized by Mark Twain.

Today, the Mississippi and its ilk have been tamed, transformed by dikes and dams into placid superhighways that carry 1 billion tons of wheat, corn, coal, fertilizer and other bulk cargoes to market every year in almost perfect safety. Best of all for the 30,000 barges and 7,000 tug and towboats that use it, the whole system is operated almost entirely at government expense by the Army Corps of Engineers.

To the operators of small barge lines, it has been something of an article of faith that they would always have the right to ply the nation’s 11,000-mile network of inland waterways at almost no additional charge to themselves. It was not until 1978 that the inland waterway operators were asked to pay a supplemental fuel tax designed to help defray the cost of operating the system. Under current law, the 17-cent-a-gallon tax on diesel fuel used by barge and towboat operators is set to rise to 19 cents next year and 20 cents in 1995.

The industry was completely unprepared for the proposal Clinton included in the economic plan he announced in February. He asked Congress to boost the inland waterway fuel tax by a whopping $1, to a total of $1.19 a gallon. The proposed increase is in addition to the new “BTU tax” the Administration wants to impose on all forms of energy.

No one seems to know exactly whose idea it was to take on the inland waterway operators. Possibly, White House budget-cutters were inspired by a 1992 Congressional Budget Office report arguing that it was time “to explore ways of placing a larger share of the burden on the users.” Now, the government pays about 87% of the cost of maintenance and new construction on the system--which amounts to $745 million in federal spending this year.

To the AWO, a small and sleepy trade organization with a staff of only 15, the President’s proposal was nothing short of a declaration of war. “We got that call, and we went to general quarters,” Smith recalled.

Its smaller members, such as the Arkansas River Co. in Greenville, Miss., warn that the tax could drive them out of a business in which they already operate on razor-thin margins. “When I first opened my doors in 1980, there were 1,800 towing companies and barge lines out there. Today, there are 800,” said Arkansas River Co. owner Billy Harbison. “I’m like all the rest of them, in a deep hole and trying to climb out.”

Large members argue that it would put a sharp dent in America’s exports, as well as their own bottom lines. Continental Grain Co.’s Robert Gardner speaks in apocalyptic terms: “America’s done as an exporting nation. You might as well just stick a fork in Uncle Sam and turn him over, because he’s done.” For his own company, the $1-a-gallon increase would cost an estimated $1.3 million a year.

Putting the barge industry out of business has environmental consequences as well, operators argue. They say that taking one 16-barge tow out of operation makes it necessary to put another 960 tractor-trailers on the highway. Overall, they say, they carry 15% of the nation’s freight for 2% of total transportation costs.

On the other hand, environmental groups argue that there are equally powerful arguments for eliminating or reducing the waterway subsidies. In addition to inflating the deficit, the subsidies encourage additional dredging and development of the nation’s rivers--which often means digging up their bottoms and dumping polluted silt in fragile wetlands.

“There’s an unlimited demand for a free lunch, but when industries are required to pay at least a portion of the cost of water development, we see a lot more careful weighing of the benefits and costs of individual dredging projects,” Conrad said.

The AWO quickly mounted a massive lobbying campaign that persuaded the House Ways and Means Committee last week to chop the President’s proposed tax increase by half, to 50 cents a gallon. But even that much threatens the survival of the industry, barge operators insist, and they plan to continue applying pressure.

“It’s not a victory. It’s far from a victory,” Gardner said. “Fifty cents is going to kill us dead. It will just take twice as long.”

Now the AWO and its members are turning their attention to the Senate, where 88 members already went on record opposing the tax in a non-binding vote March 18. In their floor statements, many of the senators quoted arguments, Smith notes, that came directly from the information packets they had been sent by the AWO.

From the outset, the organization’s biggest asset has been its powerful and wealthy allies. Chief among them is the National Waterways Conference, an organization of shippers that includes some of the nation’s largest corporations. Just a handful of its members--Union Carbide, Dow Chemical, Archer Daniels Midland, ConAgra, Chevron, Continental Grain Co. and Cargill--contributed about $3 million to congressional campaigns in the last three elections, an analysis by The Times shows.

By comparison, the AWO itself is a small player among campaign contributors, having given slightly less than $172,000.

“If the barge industry was in this alone, we would have been dead meat,” Smith conceded.

But with what resources it had, the AWO has been able to generate a remarkably effective effort. For starters, it hired two outside lobbyists, each with expertise in a different house of Congress. One was Daryl Owen, formerly staff director of the Senate Energy and Natural Resources Committee; the other was Wendell Belew, who used to be the top staffer of the House Budget Committee.

To handle the additional work in-house, Smith took advantage of the fact that the election has left Washington awash in job seekers, and hired as interns an out-of-work Capitol Hill press secretary and a former media specialist for the Republican National Committee.

Then, they went to work to build a grass-roots movement from scratch. Smith’s reasoning went this way: “People build towns and cities on rivers, and all those towns and cities have newspapers, and all those towns and cities have congressmen.”

In each, he would call the local paper, giving it the Washington perspective, and then suggest the name of a local river man a reporter could interview about the threat to his business. In all, he figures he generated more than 100 sympathetic articles.

Each of the articles was sent to AWO members, who bundled them together and sent them right back to Washington with their letters imploring their congressmen to kill the tax. No mass-produced postcards, no form letters, no phone banks. “Every letter was an individual letter, and we sent thousands of them,” Smith said.

Many AWO members, including Harbison, have also visited Washington, where they could meet with policy-makers. Harbison pleaded the Arkansas River Co.’s case with Agriculture Secretary Mike Espy, who had been his representative in Congress until being selected for the Clinton Cabinet. “I know he is for us,” Harbison said.

Nor were local television stations neglected. Footage of weathered towboat operators fearing for their futures is “good television and it’s dramatic,” Smith said.

But the most direct hit came when a New Orleans reporter asked Clinton about the tax during an interview. Apparently surprised on hearing the magnitude of his own proposed tax, the President replied: “I think that should be re-examined. I’m not sure that the way that the structure, the plan, was originally designed, that it was supposed to go up that much.”

Although the Administration continues to insist that was precisely its intention, the AWO has used the President’s own words time after time in its appeal.

More recently, as the tax was going before the House Ways and Means Committee, Smith personally toured nine cities, with special emphasis on those that were home to committee members.

Meeting with editorial boards in all of them, “we got every editorial, and they were all against the barge tax,” he said. “There’s not a single editorial out there that says this is a good idea, that it’s good public policy, including--no coincidence--(Ways and Means Committee Chairman) Dan Rostenkowski’s hometown newspaper, the Chicago Tribune.”

Many of the editorials noted that Clinton himself had expressed surprise at the size of his proposed tax. The Peoria Journal Star put it this way: “Somebody in Clinton’s Cabinet wasn’t thinking clearly when making this proposal.”

All of which leaves the National Wildlife Federation’s Conrad unswayed. “The waterway industry has put on a pretty well-choreographed lobbying effort,” he said. “We’re hoping that the traditional parochial lobbying effort won’t dissuade Congress from looking at the real issues involved.”

Times staff writer Dwight Morris contributed to this story.