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Hearing on Harbor Maintenance Funding and Maritime Tax Issues
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HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND SUBCOMMITTEE ON SELECT REVENUE MEASURES OF THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION February 1, 2012 SERIAL 112-OS09 & SRM06 Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
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DIANE BLACK, Tennessee
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JOHN LEWIS, Georgia XAVIER BECERRA, California RON KIND, Wisconsin JIM MCDERMOTT, Washington
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COMMITTEE ON WAYS AND MEANS |
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PETER J. ROSKAM, Illinois |
RICHARD E. NEAL, Massachusetts MIKE THOMPSON, California JOHN B. LARSON, Connecticut SHELLEY BERKLEY, Nevada |
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JON TRAUB, Staff Director
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C O N T E N T S
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WITNESSES
The Honorable Michael Strain
Commissioner of Agriculture & Forestry
Mr. Gary LaGrange
President and Chief Executive Officer of the Port of New Orleans
Mr. Steven A. Fisher
Executive Director, American Great Lakes Ports Association
Mr. Morten Arntzen
President and Chief Executive Officer, Overseas Shipholding Group
Mr. James C. McCurry, Jr.
Director of Administration, Georgia Ports Authority
Mr. Michael Leone
Port Director, Massachusetts Port Authority
Hearing on Harbor Maintenance Funding
and Maritime Tax Issues
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.
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The subcommittees met, pursuant to notice, at 9:34 a.m., in Room 1100, Longworth House Office Building, Hon. Charles Boustany [chairman of the Subcommittee on Oversight] presiding.
[The
advisory of the hearing follows:]_____________________________________
*Chairman Boustany. We will get started. Good morning to everybody, and thank you for joining us for this morning’s joint hearing of the Subcommittees on Oversight and Select Revenue Measures.
Today’s hearing will take a closer look at the underfunding of the nation’s maritime transportation infrastructure, specifically the Harbor Maintenance Tax and the Harbor Maintenance Trust Fund, and the tax treatment of foreign shipping operations.
While this might sound like an arcane subject, I think what you will see, as we go through the course of this hearing, is that this has ‑‑ these issues have a huge economic impact on this country on its ability to receive imports, to export, our trade competitiveness, as well as the general economic impact and the job impact that this all has.
The Harbor Maintenance Trust Fund was created in 1986 to provide a stable, long‑term source of funding to pay maintenance costs in federally‑maintained harbors, the taxes imposed on users of the system, particularly shippers of goods passing through those harbors. The revenues, which total as much as $1.3 billion to $1.6 billion annually, are placed in the Harbor Maintenance Trust Fund and exist to fund harbor maintenance costs.
In the past decade we have seen growing disparities between the Harbor Maintenance Tax revenues and spending. Because the revenues and expenditures of the Harbor Maintenance Trust Fund are part of the overall budget, if the trust fund does not spend all of its revenues, the surplus goes toward offsetting and unrelated spending. Many see this as an abuse of a dedicated funding stream.
As a result of chronic underfunding of critical harbor maintenance ‑‑ as a result of this chronic underfunding, critical harbor maintenance has suffered. The uncommitted balance of the trust fund continues to grow, reaching $6.1 billion at the beginning of fiscal year 2012. This means that there are billions of unused dollars belonging to the trust fund, even though there are significant harbor maintenance needs, hurting U.S. competitiveness.
Because of this underfunding, the full channel dimensions of America’s busiest ports are available only a third of the time, and their increased risk of grounding and collision, and certainly an adverse economic impact to this.
To combat the chronic underfunding of federally‑maintained waterways, I have introduced H.R. 104, the Realize America’s Maritime Promise Act. The bill requires that the total amount of available spending from the Harbor Maintenance Trust Fund each year be equal to the trust fund receipts, plus interest, as estimated by the President’s budget for that year. This will ensure that taxes paid into the Harbor Maintenance Trust Fund will be used for their intended purposes, and not for other outside spending.
As we strive toward economic growth and job creation, we must recognize the importance of our maritime infrastructure. The President has set a goal of doubling American exports by 2015. If we are going to even come close to achieving this goal, we have to have the infrastructure to handle increased maritime traffic. This is not just a Mississippi or Calcasieu River problem, nor is it exclusively a Great Lakes problem. This is a nationwide transportation and economic problem. We ought to be spending these user fees on projects that improve our nation’s critical transportation infrastructure, and make the American economy more competitive.
As Congress begins consideration of the surface transportation and reauthorization bill this week, I look forward to hearing from our witnesses today about their ports and businesses and communities, and what changes are needed to bolster American jobs and competitiveness.
Before I yield to the ranking member, the esteemed ranking member of the Subcommittee on Oversight, Mr. Lewis, I ask unanimous consent that all Members’ written statements be included in the record.
[No response.]
*Chairman Boustany. And without objection, so ordered. Mr. Lewis, I now yield to you, sir.
*Mr. Lewis. Well, thank you very much, Mr. Chairman. Mr. Chairman, I want to thank you for holding this hearing today. And I also want to thank Chairman Tiberi and Ranking Member Neal.
Many of you know that I began my congressional career on what then was known the Public Works and Transportation Committee. One of the main reasons for my move to the Ways and Means Committee center on this committee’s work to finance our nation’s transportation system, roads, transit, airways, and ports.
Transportation has always been a bipartisan issue in Congress. We see this in the legislative proposal before us today. This hearing provides us with an opportunity to hear about the needs of our nation’s waterways. Transportation is the key to jobs, not only in the state of Georgia, but all around our country.
My congressional district is home to the largest passenger airport in the world, with nearly 90 million passengers each year. My district is only a few hours away from the Port of Savannah, the fourth largest and fastest‑growing container port in the nation. In 2010, $8 billion in cargo good moved through the Port of Savannah to and from Metro Atlanta.
Across the state of Georgia there are almost 300,000 port‑related jobs. The ports also contribute over $62 billion in revenue to Georgia’s economy.
After the earthquake in Haiti, the Georgia Port Authority contacted us to see how they could support the relief effort.
Today I want to learn more what improvement should be made to the Harbor Maintenance Trust Fund. We must make sure that it is used for intended purpose. Our ports must be able to compete internationally. We must move goods, service, and people safer and efficiently.
I look forward to hearing from all of the witnesses. I would like to extend a special welcome to Mr. Jamie McCurry, a former congressional staffer for my good friend and colleague, Congressman Jack Kingston.
And, Mr. Chairman, thank you very much again.
*Chairman Boustany. I thank the esteemed ranking member of the Oversight Subcommittee. And now I yield to Mr. Tiberi, the chairman of the Subcommittee on Select Revenue Measures. Mr. Tiberi has been a staunch advocate of our maritime industry, and a member of this committee who has really worked hard to promote job growth and American competitiveness.
Mr. Tiberi?
*Chairman Tiberi. I should just end and not even begin, after that introduction. I thank you, Mr. Chairman. It is a pleasure to have the opportunity to hold this joint hearing with you today with our subcommittee. Our members have a lot of interest, as well, in the maritime industry and the maritime issues, and believe today’s hearing is an excellent chance to examine how to strengthen our U.S. maritime industry.
I am glad to have the opportunity to join with my friends on the Oversight Subcommittee in examining the Harbor Maintenance Trust Fund. I too agree that it has been mismanaged, and appreciate immensely the leadership shown by Dr. Boustany on this particular issue and issues related to it.
Today’s hearing also examines the policy issues surrounding the unique tax structure of the maritime industry. In the past, the Internal Revenue Code has unnecessarily, in my opinion, hindered the growth of the U.S. maritime industry, putting it at a competitive disadvantage, internationally. And while Congress has taken measures over the last decade to correct some of these problems, I believe there is much work to be done.
The Short Sea Shipping Act and the American Shipping Reinvestment Act are two pieces of legislation that stand to improve the maritime industry, help our economy, and create jobs. I look forward to exploring them further with our witnesses today. I thank you again, Dr. Boustany, for your leadership. And I yield back.
*Chairman Boustany. Mr. Tiberi, I thank you for your leadership in introducing these very important bills and bringing my attention to those particular tax structure issues that need to be addressed to enhance maritime competitiveness.
And now I yield to my friend from Massachusetts, Mr. Neal, who has also been a staunch advocate of our maritime competitiveness, and improving our trade competitiveness for this country. Mr. Neal?
*Mr. Neal. Thanks very much, Dr. Boustany, and I want to thank you and Mr. Tiberi and Mr. Lewis for calling this hearing today on maritime tax issues. It is a topic that is particularly important to my home state of Massachusetts.
The ports of Massachusetts have played an important role throughout our history. Plymouth, sometimes known as America’s Hometown, is where the Mayflower and the pilgrims landed in 1620. Gloucester is an important fishing port, both today and throughout our history. It is reportedly noted that the first schooner was built in 1713 in Gloucester. And, of course, the Boston Tea Party occurred in the Boston Harbor in 1773.
And today, Massachusetts seaports continue to play an important role as economic drivers. According to my guest this morning, Mike Leone, the director of the Port of Boston, who is testifying with us, American ports help generate almost 30 percent of America’s GDP, and support more than 13 million jobs. America’s ports provide a vital gateway to international trade by facilitating the transport of cargo around the world. I am delighted that Gulf Stream is locating a presence now in Westfield, Massachusetts. And the role that Westover Air Force Base plays in commercial activity is helpful to this argument today, as well.
I am pleased that we are examining the Harbor Maintenance Trust Fund tax today. Many ports around the country, including in Massachusetts, are in need of maintenance. In fact, the U.S. Army Corps of Engineers estimates that full channel dimensions at the nation’s busiest 59 airports are available less than 35 percent of the time. However, even though users of our nation’s waterways are paying significant amounts of money into the trust fund to maintain our ports, these dollars are not being spent on the ports and trust fund that last year had a surplus of almost $6.5 billion.
A very key item that needs to be noted as well this morning. I am excited about the prospects of the expansion of the Panama Canal, which will be completed in 2014. What that is going to mean for East Coast shipping is really very exciting. We need to ensure that we will be ready to handle the increased flow of trade and exports that this project is certainly going to generate.
To address this situation I am glad that I put my name as a cosponsor with Chairman Boustany and Representative Courtney’s Realize America’s Maritime Promise Act. This important legislation will ensure that the revenue from the Harbor Maintenance Tax is used exclusively for harbor maintenance projects.
Again, I want to thank Mike Leone this morning, for coming down from Boston. I was there yesterday to pay my regards to one of the great legends in Massachusetts’s recent political history ‑‑ where we pay great attention to that skill ‑‑ the passing of Mayor Kevin White, who for 16 years governed one of the most exciting cities in all of the world, Boston. So, I want to thank Mike for his presence today.
And I look forward to hearing from our witnesses. And I want to thank you, Chairman Boustany, for conducting the hearing.
*Chairman Boustany. Thank you, Mr. Neal. Now I would like to welcome our very distinguished group of panelists here today, our witnesses.
First we have Mr. Michael Strain. He is commissioner of agriculture and forestry in Baton Rouge, Louisiana, a personal friend of mine and a staunch advocate not only for the agricultural sector, a national leader in agriculture, but he has also been one who has recognized the importance of our maritime commerce, so that we can ship these agricultural products to foreign destinations.
Next we have Mr. Gary LaGrange, president and chief executive officer of the Port of New Orleans. He is no stranger to this committee. He has testified on our ‑‑ in our hearings on trade agreements, and certainly understands the importance of all of this with regard to American competitiveness.
Very pleased to have Mr. Steven Fisher as the executive director of the American Great Lakes Port Association. Mr. Fisher, I have been working with Chairman Upton, chairman of the Energy and Commerce Committee. He has spoken very highly of you. And we are pleased that you can be here today to give that Great Lakes perspective on this.
Mr. Morten ‑‑ is it Arntzen? Mr. Arntzen is president and chief executive officer of the Overseas Shipping [sic] Group, and we are very pleased to have your perspective, as well.
Mr. James McCurry is director of administration for the Georgia Ports Authority. And Mr. McCurry, thank you for being here. We understand the importance of the port in Savannah, and of the work that is being done in Georgia.
And Mr. Michael Leone is port director for the Massachusetts Port Authority. And I want you to know, Mr. Leone, Mr. Neal pushed very hard for you to be a part of this panel today, and I am very pleased that you are here today to give us an East Coast perspective, as well.
So, with that, you will each have five minutes to present your testimony, as is customary, with your full written testimony submitted for the record.
And Mr. Strain, we will begin with you.
STATEMENT OF MICHAEL STRAIN, COMMISSIONER OF AGRICULTURE AND FORESTRY, LOUISIANA DEPARTMENT OF AGRICULTURE AND FORESTRY, BATON ROUGE, LOUISIANA
*Dr. Strain. Good morning, Mr. Chairman, Members. First of all, thank you for the opportunity to come and spend some time and talk with you. I am testifying today on behalf of the Louisiana Department of Agriculture and Forestry.
My statement is also consistent with the position of the National Association of the State Departments of Agriculture, NASDA, which represents the commissioners, secretaries, and the directors of the state departments of agriculture in all 50 states and in 4 territories. We are, combined, responsible for a wide variety of things such as food safety, but also for fostering the economic vitality and growth in our rural communities.
I am also president of the Southern United States Trade Association. It is a regional trade group that markets products from 14 southern states to foreign markets. We commend you for holding this hearing to discuss the Realize America’s Maritime Promise Act, and express our appreciation for allowing us to do this.
I am going to give you compelling reasons to continue to fund efforts to do this. This will boost America’s food and agriculture products, our exports, but also will support our small businesses and Americans throughout the United States.
The Mississippi River is the lifeline of transportation for agricultural products in our nation. It’s been called America’s Superhighway. More than 30 states and 2 Canadian provinces ship products: grain, coal, steel, petroleum, and aggregates, and many other products. It and its tributaries form one of the largest critical inland waterway systems in the nation, supporting about 50 percent of the nation’s soybean exports and 60 percent of the total U.S. corn exports. Annually, more than 400 million bushels of soybeans, 1.1 billion bushels of corn, and more than 30 million bushels of wheat are moved by barge to ports along the lower Mississippi River.
As one of the largest single contributors to the nations’ gross domestic product, agriculture is critical to our economy. The inability to maintain the Mississippi River at sufficient depths and widths by dredging will have significant impacts to Louisiana agriculture. Agriculture represents more than 85 percent of the surface area of our state, 10 percent of our workforce, 243,000 jobs. The exports from Louisiana grew by more than 15 percent last year, over $20 billion, accounting for more than 16 percent of America’s total exports.
In the United States we are speaking about the golden age of agriculture. Last year the American farmer had a profit of over $100 billion, increased exports by almost 20 percent. A positive balance of trade of $37 billion and growing, expected to hit $45 billion. We expect to have $148 billion to $150 billion. One of the only sectors in America with a positive balance of trade.
We look at what’s going on worldwide, worldwide: an increase in population of 2.2 billion people, and a greater need of all the products we produce. When you look at food and fiber and energy, these products are shipped worldwide via our water resources.
The great potential for the growth in the economy of America lies in our ability to compete worldwide. We see a growing middle class. The growth in the middle class will almost double in the next 15 years; 95 percent of that growth is outside of the United States, where real incomes are growing. They need our products. We have the products. We can grow those products. But failure to maintain our water systems severely limits our ability in trade.
When you look just at the Port of South Louisiana, one of the largest port systems in the world, over $200 billion in activity when you look from the bridge at the bottom of Baton Rouge to the mouth. When you look at this, three feet now, we have to short‑load these ships by three feet of silt. Six thousand ships. That is $18 billion lost, just to those shippers.
Look at the Port of Lake Charles. The waterway gets down to 150 feet wide.
When you look at this, we must invest and dredge these rivers if we are going to double our exports. We have a market that needs our products. We are growing our products. We are selling our products. The shippers are paying the fees to do this.
We have the greatest potential for economic growth and agriculture and in industry we have ever seen in our lifetimes. And what can inhibit it is our inability to move these products. Thank you.
[The statement of Dr. Strain follows:]
*Chairman Boustany. Thank you, Commissioner Strain.
Mr. LaGrange, you may proceed.
STATEMENT OF GARY LAGRANGE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE PORT OF NEW ORLEANS, NEW ORLEANS, LOUISIANA
*Mr. LaGrange. Chairman Boustany, Chairman Tiberi, and members of the subcommittee, as the president and chief executive officer of the Port of New Orleans and a former chairman of the American Association of Port Authorities, I appreciate the opportunity that you provided us to highlight the importance of fully accessing the Harbor Maintenance Trust Fund to empower the Army Corps of Engineers to adequately maintain America’s ports and harbors.
I want to tell you that the Port of New Orleans enthusiastically supports the Realize America’s Maritime Promise, or RAMP, Act. We would like to sincerely thank Chairman Boustany for introducing this legislation. And once enacted, will ensure that the revenue generated through the Harbor Maintenance Tax is used for maintenance of the nation’s ports and harbors.
Regrettably, decreased funding for dredging has limited the navigation capacity of the lower Mississippi River, including the New Orleans Harbor, thereby impeding the flow of imports and exports across the United States. In the past year, unusually high water led to the unfortunate flooding of many communities and the settlement of millions of tons of silt and settlement at the mouth of the Mississippi River.
Draft restrictions on vessels transiting the river were imposed, and some vessels ran aground. In fact, 41 vessels ran aground in the last 3 years, and 5 already this year in 2012, in the first 25 days. We worked closely with Congress, the Corps of Engineers, and the shipping community to address this crisis. But one lesson was clear: the Corps of Engineers does not have sufficient funds to properly maintain the lower Mississippi River and other key waterways in this country. The RAMP Act, in our opinion, will go a long way towards addressing the problem and its passage is critical to the nation and the economic recovery of the nation.
I would like to talk for a moment about the economic importance of the Port of New Orleans. As you know, through its direct facilitation of trade and commerce, the Port of New Orleans is one of the primary commercial engines of America. As a container and as a general cargo port, the Port of New Orleans serves the American Midwest through the 14,500‑mile inland waterway system of the Mississippi River, and its most critical component, connecting approximately 30 states in the Heartland to international markets.
Our port is served by 50 ocean carriers, 16 barge lines, 75 trucking lines, and all 6 truck‑line railroads. And in the past year we have invested a little over a half‑a‑billion dollars in improvements, in infrastructure improvements.
Because of its geographic location and modern facilities, the Port of New Orleans is uniquely positioned to provide access for American exports for the global market, and to receive imports of the goods and the commodities on which our economy relies. However, our efforts to facilitate international trade are being severely hampered by the lack of reliable dredging of the navigation channels on the lower Mississippi River and throughout the country, completely throughout the country.
The Corps of Engineers estimates that some 30 percent of port calls by commercial vessels are negatively impacted in this manner. To make matters worse, due to the Corps of Engineers’s budget constraints, there have been discussions to dredge certain areas of the lower Mississippi River to only 38 feet, where the traditional draft and the project draft is 45 feet. The negative economic impact of such a reduction in draft at the mouth of the Mississippi would be profound.
According to a recent study by Professor Tim Ryan of the University of New Orleans, Louisiana alone could be subject to spending losses of up to $423 million, the elimination of more than 3,800 jobs, and nearly $28 million in state and local tax revenue loss. At the national level, remember, 20 percent plus of all the cargo coming into the United States comes into the lower Mississippi River and the Port of New Orleans.
That said, Professor Ryan estimates that the U.S. economy would face potentially losses of almost $14 billion in spending. More importantly, 38,000 American jobs could lose their jobs [sic]. These losses don’t even speak to the greater threat the national economy faces from an inability to maintain America’s other maritime transport arteries, which you are going to hear in a minute.
The President has made a strong commitment through his national export initiative to double American exports over the next five years. However, we cannot double exports if we do not have the infrastructure in place.
The users of the nations ports and harbors for years have been paying in to the Harbor Maintenance Trust Fund with the belief that these funds would be used to dredge our waterways. In fiscal year 2010 total receipts of the fund were $1.363 billion. Sixty percent of these receipts were actually used, with a balance of $535 million left over last year. In fact, the fund’s uncommitted balance has risen to an estimated $6.1 billion, leaving us in harm’s way of losing our trading edge.
I assure that proper use of this surplus, together with the annual revenues deposited to the fund, would solve many of our nation’s commercial navigation needs.
So it is imperative that the RAMP Act be enacted into law as soon as possible. Thank you very much.
[The statement of Mr. LaGrange follows:]
*Chairman Boustany. Thank you.
Mr. Fisher, you may proceed.
STATEMENT OF STEVEN A. FISHER, EXECUTIVE DIRECTOR, AMERICAN GREAT LAKES PORTS ASSOCIATION, WASHINGTON, D.C.
*Mr. Fisher. Thank you, Chairman Boustany, Chairman Tiberi, Ranking Member Lewis, and Ranking Member Neal. And I appreciate this opportunity to appear this morning before the subcommittees to discuss the Harbor Maintenance Tax, and specifically to discuss its impact on the development of short‑sea shipping services.
As you mentioned, I am Steve Fisher, executive director of the American Great Lakes Ports Association. Our organization represents the major commercial ports on the U.S. side of the Great Lakes. Maritime commerce plays a critical role in the economy of our region.
Last year we completed a massive economic impact analysis of the entire Great Lakes navigation system, both in the U.S. and Canada. It’s a binational system. That study revealed that there are 227,000 jobs supported in the navigation system in our region; 128,000 of those jobs are in the United States, the rest in Canada. The navigation system generates $33.5 billion in business revenue; 18.1 billion of that amount is in the United States. So it has a significant impact on the region, and it is an economic driver in the region.
Before I discuss the Harbor Maintenance Tax and its impact and relationship to short‑sea shipping services, Chairman Boustany, I want to thank you for your considerable efforts on the RAMP legislation. H.R. 104 is critically important to all the ports who are represented here today, and the Great Lakes ports, as well. In the Great Lakes region, we are experiencing a dredging crisis. There is a $200 million dredging backlog at Great Lakes ports throughout the region. That amounts to more than 16 million cubic yards of sand and silt that are choking our harbors and our region that still needs to be removed.
Last year, in fiscal year 2012 [sic], of the 52 federally‑authorized harbors in our region, 34 required dredging. Only 11 were budgeted to be dredged by the Corps of Engineers. The rest were left to silt up with sand, and that affects their draft and the efficiency of those harbors.
Last year we had two small ports, one in Michigan and one in Illinois, almost close. In fact, the Corps of Engineers had notified local officials that those harbors would be closing last year. Fortunately, the Corps found some last‑minute end‑of‑year money and was able to come in at the last minute and do some dredging and keep those harbors open.
There is still commercial businesses on those two small harbors. There is still industries on those harbors. And I am pleased they were able to keep them open. But next year will be another challenge.
As you mentioned, the Harbor Maintenance Tax was enacted by Congress in 1986 to be a user fee on the maritime industry for maintenance of our nation’s ports by the U.S. Corps of Engineers. The tax was originally set at $.04 per $100 of cargo value. It is a value‑based tax, it is an ad valorem tax. In 1990, the tax was increased to $.125 per $100 of cargo value. The tax is not paid by the port, nor is it paid by the ship owner. The tax is paid by the owner of the cargo in the ship. In 1998 ‑‑ the tax originally applied to both exports, imports, and domestic cargo. In 1998 the U.S. Supreme Court struck down the tax as it applies to exports. So today it applies to imported cargo and cargo moved domestically between U.S. ports.
The structure of the tax has had ‑‑ it is an important tax, and it is important for the maintenance, as my colleagues have mentioned, of our nation’s ports. But the structure of the tax has had some unfortunately side effects. In a sense, the user fee has created a disincentive, in some regards, for greater use of our nation’s waterways. The United States is blessed with more than 25,000 miles of waterways, navigable waterways. This is a tremendous transportation asset for our country.
At the same time ‑‑ many of these waterways, unfortunately, are under‑utilized. At the same time, our country is blessed with about 100 ‑‑ several hundred thousand miles of highways. These highways, unfortunately, are over‑utilized, and are characterized by a lot of severe highway congestion.
Transportation planners in recent years have been trying to look at ways to make better use of our under‑utilized waterways to relieve some of the highway congestion that we experienced in most major American cities. One of the greatest impediments to making better use of our waterways is the U.S. Harbor Maintenance Tax.
Throughout the nation there are entrepreneurs in the maritime industry trying to establish new short‑sea shipping services. These are regional shipping services between U.S. coastal ports that are being explored as a means of relieving highway congestion. The Harbor Maintenance Tax, as I mentioned, acts as a disincentive to use waterborne transportation, and private companies that have to ship goods tend to prefer road and rail transportation in lieu of water transportation for the movement of domestic cargo.
The tax also has a discriminatory double‑taxation effect on trans‑shipped cargo. For example, a shipping container brought into a coastal port is assessed the Harbor Maintenance Tax when it is offloaded from a ship. If the transportation company would like to then reload that shipping container onto a second vessel for delivery to a second coastal port, that same cargo is taxed a second time. And thus, the transportation company is encouraged, in fact, to not move that cargo by water. But rather, once it arrives in the United States, to keep it on road. That simply exacerbates highway congestion and leads to greater gridlock in our major cities.
Chairman Tiberi, we very much support your legislation, H.R. 1533, which will provide a narrow exemption to the U.S. Harbor Maintenance Tax for short‑sea shipping services in the United States, specifically for non‑bulk cargo.
The legislation has been scored by the Joint Committee of Taxation, and it has a de minimum impact on revenue into the trust fund. To give you a relationship, there was more than $1.4 billion collected from the Harbor Maintenance Tax last year. This bill, Chairman Tiberi’s bill, will result in the loss of only $2 million a year of revenue to the trust fund.
I would like to recognize the strong support the legislation has had by many members of this committee and the House Transportation Committee, including Chairman Camp, Ranking Member Levin, Chairman Mica of the Transportation Committee, and Ranking Member Rahall. Tremendous support for the legislation.
We believe enactment of your bill, sir, will help remove the impediment, help relieve highway congestion, help create more maritime services and more jobs in the maritime industry, and help relieve highway congestion, and enable our economy to grow.
Thanks very much for letting me join you today.
[The statement of Mr. Fisher follows:]
*Chairman Boustany. Thank you, Mr. Fisher.
Mr. Arntzen, you may now proceed.
STATEMENT OF MORTEN ARNTZEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, OVERSEAS SHIPHOLDING GROUP, NEW YORK, NEW YORK
*Mr. Arntzen. Chairman Boustany, Chairman Tiberi, Ranking Member Neal, Ranking Member Lewis, and members of the subcommittee, thank you for convening this important hearing on tax matters facing the maritime industry. My name is Morten Arntzen, I am president and chief executive officer of Overseas Shipholding Group. We are, by far, the largest U.S. shipping company, a global leader in energy transportation. At the end of this last year we owned 116 U.S. flag and foreign‑flagged ships. We employ about 3,600 people, and last year had revenues in excess of $1 billion.
The U.S. maritime industry is critical to our economic well‑being. Today there are more than 40,000 vessels in the domestic maritime fleet, comprised of some of the most technologically‑advanced vessels in the world. It is estimated that the U.S. maritime industry currently employs approximately 500,000 workers.
The participants in the U.S.‑flag industry continue to invest in the expansion and modernization of the U.S. fleet. We are not sitting still. For example, during the past year, OSG took delivery of the last of a series of 12 double‑hulled Jones Act anchors constructed for us at Aker Philadelphia Shipyard, a huge investment that created thousands of shipbuilding jobs, and will create thousands more relating to the vessels’ operation, maintenance, and commercial use.
This 12‑ship vessel series that we had constructed at the Aker Philadelphia yard, the site on which the original Philadelphia Naval Yard was founded by Benjamin Franklin in 1787, constituted the largest commercial shipbuilding order in the United States since the end of World War II.
Despite the successes of the U.S. maritime industry, we face severe competition and difficult market conditions. The last three years have been very challenging. Moreover, as a highly capital‑intensive industry, we have very substantial funding needs. U.S. shipping companies simply cannot thrive if we are burdened with tax code provisions which do not apply to other U.S. corporations, or if access to capital, particularly our earnings, is impeded.
The American Shipping Reinvestment Act, or ASRA, would correct a decades‑old provision in our tax code law that singles out U.S. shipping companies for less favorable treatment than other U.S. businesses, and impedes our access to our own earnings. As a result, shipping companies like OSG have been denied access to their own capital that could be used here in America.
The technical aspects of ASRA are detailed in the written testimony which I have submitted to the subcommittee. In short, due to tax code provision enacted in 1975, U.S. shipping companies must keep the amounts earned by their foreign subsidiaries between 1975 and 1986 invested in foreign shipping assets or face a severe tax penalty. ASRA would repeal this.
Enactment of ASRA will allow U.S. shipping companies to redeploy funds currently sent abroad for use here at home. ASRA will help U.S. shipping companies make investments in their U.S.‑flags fleet, as well as vessels that support home and security in the military.
Prior to the passing of the Jobs Creation Act of 2004, we committed to a significant U.S. investment program if the Act passed, which it did. Since that Act was passed, we have invested close to $2 billion in new and upgraded double‑hull tankers and articulated tug barges. As we have discussed, as with members of the committee the last couple of years, we committed to continuing to invest in our U.S.‑flag business. And we have. Since January 2009 we have invested approximately $500 million in our U.S.‑flag segment. The proof is in the pudding.
I am deeply grateful for the leadership of Chairman Tiberi and Congressman McDermott, the lead sponsors of ASRA, as well as Chairman Boustany, Congressmen Roskam, Larson, Herger, Nunes, Rangel, Schock, who all have cosponsored the legislation.
We in the maritime sector look forward to working closely with the chairman and members of this subcommittee to ensure prompt passage of this important legislation.
Thank you again for the opportunity to testify today.
[The statement of Mr. Arntzen follows:]
*Chairman Boustany. Thank you, Mr. Arntzen.
Mr. McCurry.
STATEMENT OF JAMES C. MCCURRY, JR., DIRECTOR OF ADMINISTRATION, GEORGIA PORTS AUTHORITY, GARDEN CITY, GEORGIA
*Mr. McCurry. Chairman Boustany, Ranking Member Lewis, Chairman Tiberi, and Ranking Member Neal, distinguished members of the subcommittees, my name is Jamie McCurry, director of administration for the Georgia Ports Authority. I am very pleased to offer comments on behalf of the GPA regarding harbor maintenance funding and, in particular, the Harbor Maintenance Trust Fund.
If I had to summarize my presentation in the shortest way possible, it would be to say that this issue is about jobs. It is about preventing the waste of federal tax dollars already invested. And it is about opening the door to a proven pathway to economic growth.
The world economy today is driven by international trade, and the U.S. economy is heavily dependent on exports and imports. We cannot win in that marketplace if we do not have 21st century resources. To be competitive in international commerce, our U.S. port infrastructure must itself be competitive in its ability to handle the current generation of ships in the most efficient way, and to be able to accept the new generation of vessels that will come to dominate world trade.
As Mr. Lewis noted, in Georgia deepwater ports and inland barge terminals support approximately 300,000 jobs annually and billions in revenue, tax income, and personal income to Georgians. Beyond the state, Georgia’s port activity is a critical economic driver for the southeast, sustaining tens of thousands of jobs in the neighboring states of South Carolina, North Carolina, Tennessee, Alabama, Florida, and beyond.
Georgia’s ports contribute to over 3.5 billion in federal tax generation annually. Significantly, the Port of Savannah was the second‑busiest U.S. container port for the export of American goods by tonnage in fiscal year 2011. It also handled 8.7 percent of all U.S. containerized cargo volume, and 12.5 percent of all containerized exports.
Regrettably, in Georgia we have seen the direct consequences of not fully utilizing the Harbor Maintenance Trust Fund with the needed maintenance dredging. One year after completing a $120 million project to deepen the Brunswick Harbor to 36 feet, inadequate federal O&M funding resulted in channel dimensions of less than authorized depth and width. If not for the availability of stimulus funds in 2010, the Brunswick Harbor would likely be at pre‑deepening dimensions today, thereby wasting the federal and state investment in a project completed just five years ago.
Auto makers exported and imported over 465,000 vehicles through the Port of Brunswick in fiscal year 2011, and the port serves as a major conduit for the export of bulk agricultural products throughout the southeast. Nonetheless, save for the 2010 stimulus money, Brunswick remains substantially underfunded annually, and harbor depth and width again risk deterioration if operations and maintenance funding is not increased. The Army Corps of Engineers estimates current Brunswick Harbor maintenance needs to be about $16 million annually. Yet typically, annual funding has been $3 million.
Additionally, the Port of Savannah has experienced challenges due a lack of adequate O&M funding, where the Corps estimates current Savannah maintenance needs to be approximately $30 million annually, yet typical annual O&M funding has been about $13 million annually.
With such limited resources available, the Corps has at times only been able to maintain the center portion of the channel in faster shoaling areas, and for maintaining the primary turning basins. If the typical recent funding levels in Brunswick and Savannah are not increased, shoaling may ultimately result in channel restrictions being imposed by the U.S. Coast Guard. Such restrictions would limit access to large military and commercial vessels into the port.
Beyond simply maintaining our harbors, we must also recognize the pressing need to invest in harbor‑deepening projects required to serve the increasing size of vessels calling on U.S. ports.
Completion of the Savannah Harbor Expansion Project, or SHEP, as we call it, is critically important to the continued economic recovery and growth in the southeastern U.S. and the country, as a whole. Savannah serves a large percentage of the U.S. population, including some 21,000 companies, with operations collectively in all 50 states. In fact, Savannah was responsible last year for moving more than 18 percent of all East Coast containerized trade. In addition, more than 50 percent of all containers going through Savannah are exported U.S. goods.
The Savannah project has a projected benefit‑to‑cost ratio that well exceeds four to one. And the Corps study has shown that it will create $150 million in annual benefits to the nation. That is a perfect example of a way to leverage taxpayer dollars to provide both new jobs, new tax revenue, all through increased economic activity.
Today, due to the restricted depth, nearly 80 percent of container ships calling the Port of Savannah are forced to take on a lighter load or wait for high tide to sail into and out of port, and sometimes both. This already challenging situation will soon worsen, when the Panama Canal expansion is complete, and begins sending ships to Savannah and other East Coast ports. They are as much as three times the capacity of those current ‑‑ those ships currently able to transit the canal.
In closing, I submit that we cannot take for granted the importance of our nation’s ports and harbors. They have too often been the invisible infrastructure that is easily forgotten in times of economic stress. However, their importance to the U.S. economy cannot be overstated. We must not only continue to invest in their ongoing maintenance, but also in the expansion programs necessary to ensure their competitiveness in the modern global marketplace.
Again, I appreciate the opportunity to be with you today, and I look forward to any questions.
[The statement of Mr. McCurry follows:]
*Chairman Boustany. Thank you, Mr. McCurry.
Mr. Leone?
STATEMENT OF MICHAEL LEONE, PORT DIRECTOR, MASSACHUSETTS PORT AUTHORITY, EAST BOSTON, MASSACHUSETTS
*Mr. Leone. Chairman Boustany, Chairman Tiberi, Ranking Member Lewis, Ranking Member Neal, distinguished members of the committee, for the record my name is Michael Leone. I am the port director of the Massachusetts Port Authority, which owns and operates the public marine facilities within the Port of Boston. Thank you for this opportunity to testify in support of H.R. 104, the Realize America’s Maritime Promise Act.
As the title of the proposed new act implies, the promise that America’s maritime industry is asking Congress to realize is the same promise that Congress made 26 years ago, when it first established the Harbor Maintenance Tax. That is to fully utilize the taxes which have been levied on port users for the maintenance dredging of our ports and harbors.
I know, from the two terms I served as chairman of the American Association of Port Authorities, that ever since the trust fund’s inception in 1986, port operators and customers have consistently raised concerns that Harbor Maintenance Tax revenues have been used for other programs, or never fully appropriated for their intended purpose of maintenance dredging of federal channels. As a result, only about 35 percent of America’s navigation channels are currently at their authorized depth and width, which means that vessels calling our ports cannot be fully loaded, or maybe restricted to a one‑way transit.
The entire maritime industry, therefore, is grateful for the oversight provided by your committees to ensure that the tax on port users is used for its intended purposes, ensuring that navigation channels leading to our ports are regularly dredged to their authorized dimensions so that vessels calling our ports can deliver essential commodities and can take American‑made products to its global customers. Only with regular investments in dredging can these critical parts of our national transportation system continue to serve as gateways for the more than two billion tons of domestic import and export cargo that are expected to be handled each year, which in turn helps keep American businesses, both large and small, competitive in world markets.
As Congressman Neal has stated, this concern is even greater today, as East and Gulf Coast ports prepare for the larger vessels that will be transiting through an expanded Panama Canal.
What is frustrating for many port directors who have dredging needs that go unmet is that the money for these projects is available. The users of our ports and harbors still pay their full share for maintenance dredging, over $1 for every $1,000 worth of imported and domestic cargo they move, while only getting back half as much in benefit. Current estimates are that users of our nation’s waterways are paying approximately $1.4 billion each year in Harbor Maintenance Taxes, which is about the amount the Army Corps of Engineers has determined is the annual need for maintenance dredging.
Yet this past fiscal year, only about 820 million was appropriated for channel maintenance. That still leaves, according to most estimates I have seen, a surplus in the Harbor Maintenance Trust Fund of over $6 billion and growing. This shortfall in funding is of particular concern to regional or niche ports, which are usually not included in the President’s budget, because they generally handle less tonnage than the major container and bulk cargo ports.
There are many ports in Massachusetts in need of maintenance dredging, for example, which could be completed if all of the Harbor Maintenance Tax was appropriated each year. Not every port will need to have channels that are 50‑feet deep in order to handle larger ships that will traverse the expanded Panama Canal when that modernization program is set to be completed in 2014. But many will. And others will need to be dredged to handle larger vessels that will be used in moving cargo from the larger ports to regional ports.
In the meantime, individual ports have been dredging our own berths at our own costs, buying cranes that can handle these larger vessels, and investing in terminal infrastructure. Indeed, it is estimated that seaports invest more than 2.5 billion every year to maintain and improve their infrastructure, which is why ports are often discouraged that federal investments in maintenance dredging have not kept pace with their own.
The larger issue with the spending on maintenance dredging is particularly critical at this time, and not only because of the larger ships that ports will soon be expected to handle, but to ensure that the administration’s national export initiative, doubling U.S. exports within five years, can be fulfilled. U.S. ports are the gateways of international trade. And having a modern, reliable, and cost‑effective marine transportation system will expedite the delivery of U.S. exports to the global marketplace. Delays in the movement of exporter cargo will only hurt the competitiveness overseas.
As it true throughout the country, the Port of Boston is a vital economic engine for the New England region, carrying cargo, opening markets for domestic goods, creating jobs, and generating economic prosperity for our citizens. American seaports carry all but one percent of the country’s overseas cargo. They help generate over 30 percent of gross domestic product, and support more than 13 million jobs.
America’s economic future depends on modern ports with facilities adequate enough and channels deep enough to keep pace with the demands of the global economy. It is now critical that Congress honor its pledge to maintain the nation’s ports and harbors with the revenue provided by users. This can be accomplished through a shift in funding priorities in both the Congress and with the administration, given that annual revenue is available and adequate to meet current needs.
I would also urge the passage of H.R. 104 that would require that the annual Harbor Maintenance Tax revenue be made fully available to the Corps of Engineers for maintenance dredging in its annual appropriation. I, along with many other port directors, strongly support passage of H.R. 104, so that our marine transportation system can remain efficient and continue to serve as a national and regional economic engine.
I commend the efforts of Representative Boustany and the over‑100 cosponsors in pressing for this important piece of legislation. And I urge the committee to support H.R. 104.
This completes my prepared testimony. I am pleased to answer any questions you may have.
[The statement of Mr. Leone follows:]
*Chairman Boustany. Thank you, Mr. Leone. We will now proceed with questions. And I just want to thank all of you for very eloquent testimony about this problem.
At a time when our country, everyone in our country, is concerned about jobs and the high level of employment, about the future of American competitiveness and global leadership, it is remarkable that we got Members on both sides of the aisle on this dais and in this House that see a way forward on this particular issue. And we are ‑‑ with many of the problems that we are faced with, we don’t see ready solutions. There is one here. And I think there is, you know, a recognition that we should go forward.
But clearly, Americans are fed up with budgetary gimmicks and games and some of the arcane budget practices that occur here in Washington.
So, I have a simple question and I would like each of you to answer it. Do you consider this a blatant abuse of a dedicated federal tax or user fee? Commissioner Strain?
*Dr. Strain. Yes, I do. And when you look at this, it is ‑‑ the dollars are being collected to dredge and to clean out our harbors. If you look at the Port of New Orleans and the Port of South Louisiana alone, failure to maintain short‑shipping these loads, just short‑shipping these loads, will result, at the Port of South Louisiana, in a $22 million decrease in the Harbor Maintenance Trust Fund in itself.
And if you look at the alternative, we are paying to have this done. The ships that use this, pay for this, they want to have this done. They need to have it done. Failure to do this will result in just ‑‑ in what comes through the mouth of the river, at a cost of $150 million to the farmers throughout the Heartland of America. And so when ‑‑ it is very, very simple: 1 15‑barge tow, 1 tow, is the equivalent of 261 rail cars, or over 1,000 trucks.
So, it is. It is an abuse of it. And we need to get it right. But the thing of it is, this is an all‑win for everybody.
*Chairman Boustany. Thank you. Mr. LaGrange?
*Mr. LaGrange. Yes, sir. Absolutely an abuse, without a question. At a bare minimum, the $14 billion in spending loss, the 38,000 U.S. jobs, potentially, at a bare minimum, but also the flip side, as I alluded to, 41 groundings on the lower Mississippi in the last 3 years, 5 already in the first 25 days of this year, not to mention the environmental hazards and the potential hazards that are there, another Alaskan Valdez.
Homeland Security issues come into play, as well, when you have ships aground. In the shipping industry, transportation logistics times money. The cost of tug boats to come on the scene and spend four, five, six, eight hours to get that ship back into the main channel, whatever main channel might remain. In our case, a 750‑foot‑wide channel silted in recently to 115 feet. These ships are 143 feet wide. That is absurd. Yes, sir.
*Chairman Boustany. Thank you. Mr. Fisher?
*Mr. Fisher. Yes, sir. It is absolutely an abuse of Congress’s commitment to users when the original agreement was reached in the mid‑1980s to assess a fee on users to pay for harbor maintenance.
Congress has even acknowledged that it is an abuse. We had this same problem with the highway trust fund and with the aviation trust fund. And Congress fixed it in those two instances. Those two trust funds had excess balances, as well, huge excess balances. And Congress enacted legislation to make sure those trust funds and those user fees were properly spent. Why wouldn’t we do the same with the Harbor Maintenance Trust Fund?
*Chairman Boustany. Thank you. Mr. Arntzen?
*Mr. Arntzen. Mine is a little bit different. It really isn’t an abuse, it is an oversight. We are seeking to correct something that was not included in the 2004 Act. I have discussed it with many congressmen and senators on both sides of the aisle. I have not had one that objected. And we have very strong bipartisan support.
We have agreed to put in provisions that, if we did not maintain employment, in fact we would take penalties for that. So this is just correcting a mistake which would enable us to continue to invest in the country. And I think it is broadly supported by Democrats and Republicans, alike.
*Chairman Boustany. Mr. McCurry?
*Mr. McCurry. Mr. Chairman, I think it goes without saying that if users of our ports are paying the required Harbor Maintenance Tax, the revenue generated from the tax should, in turn, be used to maintain the ports and harbors that those users are paying to access.
*Chairman Boustany. Thank you. Mr. Leone?
*Mr. Leone. I absolutely agree, sir. It is ‑‑ the user fees should be paid. The users are paying the fee. It is the only mode of transportation that does not have the fees used for its intended purposes. And there are many ports that are ‑‑ have accumulated ‑‑ in the Port of Boston itself, we generate ‑‑ we only use 30 percent. We are a donor port. And we have unmet needs in our port, and yet we are only using 30 percent of the amount that is collected. I think it is absolutely an abuse, and it should be corrected.
*Chairman Boustany. Thank you. I have one final question I want to ask Commission Strain, and that is you focused a lot on agriculture, and the importance for U.S. competitiveness. And I think you made a very eloquent statement. But could you further elaborate on why maintaining these waterways are so important to a farmer who might live remotely from a waterway?
*Dr. Strain. Well, if you look at the waterways, if you look just at the inland system ‑‑ and we have seen and there is discussions in recent reports about the fact that many of our inland waterways are in desperate need of maintenance and repairs.
To move that product, first of all, if you just look at that cost, $.10 a bushel, additional cost to move that product, say from Kansas to the coast. But also the infrastructure. If you look at the entire infrastructure along the systems that are in place, you are talking about billions of dollars of investment. If you don’t have this, that similar infrastructure does not exist to move these products by different overland routes. And we are talking about efficiencies.
And when you look at using waterways, they can move, you know, a ton of materials 576 miles on 1 gallon of diesel. So it is critical, especially when you look at economic competitiveness, and look at the commodity market: number one, increased cost not to do this; two, the availability to move this in an efficient manner and in a consistent manner.
And it is about economics, but it is also about getting the products, raw products, up river, the products that we import to make the fertilizers, to make fuel components, and about all the other things.
*Chairman Boustany. Thank you. Mr. Lewis?
*Mr. Lewis. Thank you very much, Mr. Chairman. Again, I want to thank you for holding this hearing, and I want to thank each member of the panel for your testimony. I think you have been very convincing.
I was joking with Mr. Tiberi a moment ago. I said seems like the chairman is no longer playing the role of a good doctor, but he is playing the role of a lawyer, he seems to be leading the witness.
[Laughter.]
*Mr. Lewis. I think you have been very convincing. But I want to ask each one of you. How does the funding or underfunding of a navigational channel affect the ability to create more jobs and move produce and goods? Could you just elaborate?
*Dr. Strain. Yes, sir. If you look at the underfunding of this, and when you don’t have the ability to fully load these vessels, start off with that. We look at 35 percent of all of the ports and the waterways are not adequately funded. You are talking about the economics in shipping. And if you start short‑loading, first of all, it costs more money. When you cost more money, there is less dollars. And those dollars go all the way back to the first point of production, in the farmers’ hands, in the manufacturers’ hands. These are American dollars.
And what we talked about is the tremendous potential for growth, worldwide, to sell these products in the raw state and in the processed state. And along with that, all the technologies included. Not to do this will hamper our ability of this tremendous amount of growth throughout the heartland and throughout the United States, and will cost us the jobs that not only would have been generated, but also, when you start looking at ‑‑ just talk about the cost on a ship, short‑loading a ship. It is a $1 million per foot, per foot, to short‑load these ships. If you look at the Port of New Orleans, 6,000 vessels, more than 400,000 vessel movements.
And so, we are creating an inherent inefficiency that makes us non‑competitive worldwide. And so this costs jobs dramatically, and it costs jobs all over the United States.
*Mr. Lewis. Thank you.
*Mr. LaGrange. Yes, sir. I totally agree. At present we know that there is somewhere between a 30 and 40 percent loss in jobs due to the inability of ships to come in fully loaded, come in light.
In looking at the future, though, the President’s national export initiative, in looking at your wise passage of the free trade agreements with Panama, Colombia, and South Korea, and in looking at the expansion of the Panama Canal, threefold by the year 2014, all of these are perfect examples of the incremental new jobs that we will lose if we don’t make ready our channels and dredge them appropriately.
In three different studies recently completed by Parsons Brinckerhoff, Booz Allen Hamilton, and A.T. Kearney, all three studies indicated that the incremental growth from the Panama Canal, by the year 2025, should be in the area of 20 to 25 million new TEUs a year, with about 75 to 80 percent of that going to the East Coast ports, Savannah included, and the other 20 or 25 percent coming to the Gulf Coast ports. East Coast ports, because that is where the people live, the consumers consume.
All of that said, this incremental growth is unbelievable, and we are just not ready to handle it. And that is just the Panama Canal, not the NEI and not the free trade agreements that were recently passed.
*Mr. Lewis. Thank you.
*Mr. Fisher. Sir, it makes no more sense to operate a ship partially loaded than it makes sense to operate an aircraft half full of people. And if you can imagine the inefficiencies to an airline if it only flew its planes half full, it is the same thing with a shipping company operating a ship only partially loaded. It creates an inefficiency and it hits the bottom line of the shipping company and makes their asset, their investment in their ship, less competitive.
A more direct impact, as far as jobs, to answer your question, we actually have some ports, as I mentioned in my testimony, in the Great Lakes that are on the cusp of actually closing, small ports that are actually on the cusp of actually closing. And there is active industries, maritime industries, still in those harbors. They are small companies, but these jobs are precious in those small communities up in Michigan and Wisconsin and Illinois.
And so, if those harbors close and those industries are forced to close because they can’t get delivery of raw materials, that is devastating to the local economy of those small communities.
*Mr. Arntzen. My perspective is a little bit different, but I would like to talk a little bit about a success story. About four years ago we exported no refined petroleum products from the United States. This year I think we will be exporting about 800,000 barrels of refined petroleum products, mainly diesel, to Latin America and to Europe. This is an enormous growth market. It is because we have invested in refineries and we have accessed the cheap shale oil and gas.
This is going to be growing dramatically, and it is going to put a real strain on the facilities we have down in the Gulf. So there is real opportunity and real growth. It is ‑‑ there are some good stories out there.
*Mr. Lewis. Thank you. Mr. Chairman, I noticed my time is up, but if ‑‑
*Chairman Boustany. Yes, the gentlemen, if they have comments to add to this, please proceed.
*Mr. McCurry. Very briefly, if I may. I will say ‑‑ and Mr. LaGrange mentioned ‑‑ the exacerbation of this issue that will come with the Panama Canal. At the end of the day, vessels waiting cost the ship lines money. That money rolls into their operations and, therefore, their cost to the customers, which are our exports and our consumers.
Using, in Georgia, just the example of the poultry industry, where Georgia ‑‑ we are the largest poultry exporting port in the country, which is a huge industry for Georgia. It is also an industry with very, very thin margins. And if the shipping cost fluctuates even $100 on a box of poultry, that is absolutely the difference between producers in Georgia versus producers in another country securing business to export to Asia and other parts of the world.
*Mr. Leone. And just briefly, I concur with my colleagues, certainly, from Louisiana and Georgia. But the key element for every single port, the common theme for every port, is they need to have the highway ‑‑ the channels into the terminals deep enough to handle the business they have. And the fastest growing portion of kind of the container business has been exports. We have seen that in Boston. And I understand from the Port of Georgia, the growth that they have seen.
And it is the jobs, not necessarily the maritime jobs that I am concerned ‑‑ I think we need to focus on those manufacturing jobs. If they can’t get to market, that is the key to it. It is that area and those jobs that are created outside of the area in the inland portions that keeps those regional economies alive. And without deep channels, they are not going to get to their marketplace.
*Chairman Boustany. Thank you, Ranking Member Lewis. Chairman Tiberi?
*Chairman Tiberi. Mr. Fisher, you verbalized at the very end of your testimony the example that you gave with respect to why the tax needs to be fine‑tuned with respect to short‑sea shipping. And I see nods heading [sic] here, as in agreement. And you gave this general example of the taxes paid, once it comes into port in the United States. And then, if it is transported again on a ship to another port, it is taxed yet again. So the incentive is for me, as the user, to put it on a truck or on rail, rather than to put it on a ship. Correct?
From your spot where you sit today in your job, can you give some specific examples of people who have said to you, “Wow, we lost this because it is going by rail, by truck,” or different ports within the Great Lakes that have seen a decline over the time that this has been instituted? And what are happening to those ports? Can you give us some more specifics?
*Mr. Fisher. Chairman Tiberi, transportation shipping companies throughout the United States would like to establish their operations in the most efficient way possible. In some places, that is establishing a service that is similar to what we are all familiar with with the airlines, a hub and spoke system, where essentially you go to a major hub first, and then you take a smaller aircraft, for example, to a secondary city.
The same thing should be happening along our coasts. Cargo coming in to major hub ports, and then transferring cargo to smaller ‑‑ what we call feeder ‑‑ vessels to then make the journey to secondary ports. That is efficient.
Unfortunately, the tax discourages that, and it doesn’t generally go on. Yet, at the major hub ports in this country, which tend to be in the major cities, we have severe traffic congestion. So we are essentially forcing that second leg of commerce off the ships and on to the highways.
Well, the highways are already congested. And most of the gentlemen at this table will tell you that they have congestion issues at their ports where they cannot move the cargo. Once it is off the ship, they have trouble moving it out into the hinterlands because there is so much congestion in their local city.
So, this tax actually acts as a disincentive to allow the shipping industry to do what is most efficient to be done.
*Chairman Tiberi. And if you corrected that, then there would also be an increase in jobs in the maritime industry?
*Mr. Fisher. Absolutely. All those feeder vessels that I mentioned, we would see the establishment of these services. That would create additional jobs in the maritime industry. It actually also would make the general economy more competitive and more efficient, because it would relieve some element of highway congestion, and that is good for the economy. We have a lot of waste in our economy, as commerce sits clogged in traffic jams, and isn’t getting to its destination.
*Chairman Tiberi. Dr. Strain, would you agree with that?
*Dr. Strain. Yes, I would. When you look at all of the ways that we move product, and if you are looking at this particular example, we are only talking about $2 million in something where we are collecting, like, $1.5 billion. We must be competitive. We must also have a fair playing field, as well.
But if you look at the tremendous inland waterway systems that we have ‑‑ and you talk about short‑shipping ‑‑ we must utilize those. But there is also something alarming that, as I have been reading in the last few weeks, there is such a deterioration of potential on our inland waterway systems. Many of those systems, locks and dams and others, are reaching past their 50‑year life span.
And if you look at ‑‑ for instance, if one major system breaks down on those inner waterway systems, it could cost $50 million to $100 million in lost economics. To tie up a ship, just a vessel, any vessel, unnecessarily, is $50,000 an hour.
*Chairman Tiberi. Thank you.
*Dr. Strain. An hour. So we must find all efficiencies possible.
*Chairman Tiberi. Thank you. Mr. Arntzen, you are the man who builds these ships on the panel. Can you talk about what you did last year, and why ASRA would help stop a perverse reality from occurring in the marketplace, and what you would do, in terms of ‑‑ if we could pass this bill, what you would do, in terms of investment in jobs?
*Mr. Arntzen. Yes, I would love to. Last year for us was a really big year of pride, because we took delivery of our second Jones Act shuttle tanker. These are specially modified tankers that take oil from the ultra‑deepwater Gulf and bring them into the refineries in the Gulf. We have the first two and we are now working on the third. And the second of those two did help clean up the BP spill. When they needed a ship to take the oil off the field after they finally capped it, they brought in our OSG shuttle tanker to do that. So we are very proud of that.
We see that as a big, new, exciting market. In fact, it is the fastest ‑‑ it is really the first really big new market in the Jones Act tanker market in many decades. We are working on one such project today. Those ships will cost you somewhere between $100 million and $150 million: 1 ship. We will have to employ 50 crew, 25 on and 25 off on those ships. We think there is a possibility of 18 to 25 shuttle tanker demand in just the U.S. Gulf in the next decade. We want to play a big role in that.
So, at $100 million‑plus a pop, these are very big capital equipment. This is why we have been pushing to be able to repatriate our foreign profits. It is a continuation of what we have been doing, and it is a very exciting market. And they are really well‑paid secure jobs with pensions and medical benefits and training and the kind of jobs we want to create in the United States.
*Chairman Tiberi. Well, my time is expired. Thank you very much. Chairman, thank you for a great panel today.
*Chairman Boustany. Thank you. Mr. Neal?
*Mr. Neal. Thank you, Mr. Chairman. Mr. Leone, the Commonwealth of Massachusetts offers a dollar‑for‑dollar tax credit to corporations moving goods from Massachusetts ports to offset the federal Harbor Maintenance Tax. And the credit can be applied against current and future taxes in the Commonwealth. Jim Brett, who is an old friend of mine, is now president and CEO of the New England Council, was one of the leaders when this tax credit was established during the time he was chairman of the Massachusetts House Taxation Committee.
The state seems to be unique in our approach to the Harbor Maintenance Tax. And can you tell us a bit about the policy behind the Commonwealth offering this tax credit? And, in your opinion, has the credit been successful in expanding harbor business in Massachusetts? Are you familiar with any other states that try a similar approach? And would you lay that out for us?
But one of the reasons behind this tax credit was because of the close proximity of Massachusetts to Canada. Some companies were shipping to Canada instead of Boston to avoid the Harbor Maintenance Tax. Has the state tax fixed this problem? And are there other reasons for companies still shipping to Canada instead of Massachusetts?
And lastly, seaports like Boston are certainly gateways to domestic and international trade, connecting us to the rest of the world. In your testimony you stated that U.S. ports and waterways handled more than two billion tons of domestic and import‑export cargo annually. You also note that the Port of Boston is a vital economic engine for the New England region. Carrying cargo, opening markets for domestic goods, and creating jobs is certainly part of your mission. And perhaps then you could describe for us how much cargo goes through the Port of Boston, and how this translates into many of the jobs that we enjoy across the Commonwealth and New England because of that port.
*Mr. Leone. Thank you, Congressman Neal, for that question. I think that the legislature and certainly the Government of Massachusetts understood kind of the threat that was going to happen with the Harbor Maintenance Tax, and the fear that being adjacent to Canada, whether it was Montreal or whether it was Halifax, that certain freight would be able to move over those gateways in lieu of Boston, and it was concerned that certainly we would lose business in Boston. So they offered the dollar‑for‑dollar tax credit.
And it has been very, very successful. A lot of different Massachusetts companies have utilized that particular plan to be able to offset the diversionary impact of HMT. And I know this is an ongoing problem in the western part of the state. Certainly in the Puget Sound it is an ongoing issue there as well. But I think this state tax credit has been effective.
But it is limited, as well. It has been limited in the fact that it only applies to, obviously, those individuals or those companies that file a Massachusetts income tax, and not everyone would have that benefit, depending on what their business model is, depending on who the beneficial cargo owner is, eventually.
So ‑‑ but it has been effective in retaining business. And Boston’s business had grown consistently to the point that it actually ‑‑ we are handling well over 12 million tons of cargo, we are generating 34,000 jobs. It has also ‑‑ has over $2 billion in economic impact. And that has been growing until some of this recent recessionary impacts.
But the Harbor Maintenance Tax credit not only has its limitations internationally, but we lost one large account several years ago, when Volkswagen moved about 100,000 of its automobiles from Boston to Rhode Island. In that particular circumstance, the Port of Davisville in Rhode Island does not have to assess a Harbor Maintenance Tax on the cargo that moves in and out of that port because it was a former Army base and hadn’t been dredged. And back in the days when I was practicing law for the port authority, we had drafted a letter asking customs to reinterpret the law to say we shouldn’t be allowing this tax to create a competitive advantage from one state to the other.
But the customs basically thought that my opinion was contrary to the initial interpretation and didn’t change it. But Volkswagen clearly said moving 100,000 cars saved them at that point in time, back when the value of the car was less, about $3.5 million a year, pure savings from going from one port to the other.
I don’t know if there is any other ports ‑‑ I believe ‑‑ and maybe my colleague from Louisiana ‑‑ there is another port in the Gulf, I think, that has a similar issue, as well.
But that has been an issue for us. I don’t know if other states has created a credit. I think maybe North Carolina was looking at it. I don’t know if they still have that. But it has been an issue. So you not only have an HMT that you ‑‑ you know, in Boston you are collecting a tax that you are getting 30 percent of the benefit of it, the money goes elsewhere. Yet an adjacent state doesn’t have to pay the tax, even though they may receive other federal benefits as EDA grants. I mean I know they are getting Tiger grants to build cranes down there to compete against you. But, you know, they have a ‑‑ there is no tax assessed or user fee assessed to that, and that has created a competitive disadvantage between those particular ports.
*Mr. Neal. Quickly, could you talk a little bit about your preparation, anticipation of the expansion of the Panama Canal, and what it is going to mean to the Port of Boston?
*Mr. Leone. Well, we have done many things in anticipation of this. We have added new cranes, at a cost of $15 million to the facility. We have purchased an adjacent oil facility for expansion of our container facility. We have added a bunch of equipment to our facility, spending close to $100 million on new terminal operating systems, training programs for longshoremen to be prepared for.
You know, we don’t expect to be seeing the largest of ships, but we need to have deeper water. And I know this isn’t exactly an HMT issue, but our improvement dredging project, which I know that Georgia alluded to as well, has been stalled for almost 20 years, moving forward, trying to get authorization for deeper channels to handle the larger vessels.
So I know that necessarily isn’t the subject of this, but that is kind of another frustration for ports, where you are making the investments in shore, but essentially, the major channel, the major access road to your facility, to a modernized facility, may not be available for you when the ships are ‑‑ need to come there.
*Mr. Neal. Thank you.
*Chairman Boustany. Thank you, Mr. Neal. Ms. Jenkins?
*Ms. Jenkins. Thank you, Mr. Chair. And thank you, Chairmen Boustany and Tiberi, for holding this hearing on a very important issue. Thank you, panel, for participating.
Mr. Arntzen, we have heard a lot of talk lately here in Washington about shipping jobs overseas. And no one is suggesting such a concern as it relates to this particular industry, but a general principle of deferral. And as you know, last fall the Ways and Means Committee released a discussion draft that would reform our system of international taxation. And while academics, economists, politicians can disagree about the pros and the cons of eliminating deferral, as your testimony references, the U.S.‑based shipping industry gives us a real‑life illustration of the peril of adopting such a policy.
It appears that the U.S. industry in shipping has been hurt following the repeal of deferral back in 1986, leading to foreign acquisitions of American businesses and loss of jobs. According to a 2002 Treasury report, immediate taxation put the shipping industry at a disadvantage relative to the foreign competitor, leaving less income to reinvest in its business, which can mean less growth and reduced future opportunities.
So, based on this real‑life experiment in tax policy, can you elaborate on the lessons learned from the shipping industry’s experience, particularly with regard to competitiveness, foreign acquisitions, and investments here at home?
*Mr. Arntzen. Yes, I think the history is very clear on this. This is textbook. In 1986 they ended deferral for foreign‑flagged shipping for U.S. companies. And you saw basically the diminishment of the U.S. fleet from 1986 all the way to 2004. The biggest two container lines, one was acquired by a Danish company, one was acquired by a Singapore company. We ended up being practically the only U.S. company that remained that was both in the international flag and the U.S. flag. We were paying tax at that time. But there is no question that was what essentially stopped investment in U.S.‑flag blue water shipping.
The 2004 act got passed, and we, along with other of our competitors in the industry, started investing in new double‑hull tonnage, as required by the Coast Guard, as required by the Oil Pollution Act of 1990. We couldn’t have done that without the changes to deferral. And we said if we got that we would invest. And, in fact, we did. And it wasn’t just OSG, it was the rest of the industry. So, what you have now in the U.S. is a very modern double‑hull tanker and large barge fleet operating along our coast, much safer than the older single‑hull ones that we replaced.
So, I think it is absolutely textbook. And what we are asking for in the American Shipping Reinvestment Act is just a correction of the 2004 Act that was an oversight and that was sort of an obscure rule that went all the way back to 1986 to 1975. So it is textbook, and I am very proud that we lived up to the commitments we did. And we still see opportunity, such as the shuttle tanker business we talked about before, and other things.
*Ms. Jenkins. Okay, thank you. And then for any member, really, on the panel that would care to comment, under these budget constraints that we are looking at at this point in time, how does the Army Corps of Engineers prioritize which projects get funded and which don’t? Even with full funding, the Corps would continue to prioritize the work. How would you comment?
*Mr. LaGrange. Basically, they use a cost benefit ratio on their projects. And once a project construction, obviously, on a project has begun, obviously they stay the course on that project until its completion. The unfortunate thing with that, because of the lack of funding and due to inflation, we are looking at projects like on the Inland Water System, the Olmsted Lock and Dam, Chickamauga, the Kentucky Lock and Dam, Inner Harbor in New Orleans, all of these prices are escalating.
In our case, with our lock, which connects 3,000 miles of inland waterways from Mexico to Canada, it was a $600 million price tag 10 years ago. It is now $1.4 billion. So we are going backwards, not forward. But it is by cost benefit ratio.
*Ms. Jenkins. Okay.
*Mr. McCurry. If I may, there are ‑‑ clearly are two areas here, one with the Harbor Maintenance Trust Fund, where the country is taking in enough in fees to adequately provide for the maintenance dredging needs. So even with prioritization, the Corps could adequately perform the necessary work.
Then, when you look at the necessary expansion programs, even those that have significantly justifiable benefit‑to‑cost ratios struggle to get funding necessary to complete construction. The only project that I know of with much specificity is our own.
And when you are looking at a 4‑and‑a‑half or greater to 1 benefit‑to‑cost ratio on a project whose life span is 50 years, your return on the investment is in a time period that is approximately 5 years. That is a pretty good investment, pretty good return on your dollar in any business. It is not the kind of project or programs that typically fall into what might look more like a grant. The projects do return to the United States that investment. I think it is important to look at them in that way.
*Ms. Jenkins. Okay. Thank you, Mr. Chairman. I yield back.
*Chairman Boustany. Thank you, Ms. Jenkins. I have received confirmation from the Army Corps of Engineers by mail that if they had the full receipts of the Harbor Maintenance Tax for a given year, they could take care of all the authorized ‑‑ where they have federal authority ‑‑ all the authorized operations and maintenance, and probably still have some left over. So, we repeatedly receive that kind of confirmation from the Army Corps.
Dr. McDermott?
*Mr. McDermott. That is a wonderful segue. This hearing has two issues, and I want to thank Chairman Tiberi for bringing forward the American Shipping and Reinvestment Act. Thank you for your testimony, Mr. Arntzen. It is a bill that ought to pass without anything happening.
Now, as we get close ‑‑
*Mr. Arntzen. Thank you.
*Mr. McDermott. As we get close to throwing off the lines and letting this baby go, we come to the second thing that is being loaded on to it, and that is the Harbor Maintenance Tax. Now, I am probably the only Member of the Congress who has a Z Card. I sailed the merchant marine. I went aground in Great Lakes in Lake St. Clair in 1956. So I know a lot about dredging.
[Laughter.]
*Mr. McDermott. I also feel like the people who put this hearing together think that all the shipping in the world goes out of the south or the east. I would feel a lot better if there was at least one guy here from the West Coast. So I am going to talk ‑‑
*Chairman Boustany. We didn’t think you had any problems with the West Coast ports.
*Mr. McDermott. Oh, yes, we do. We ship ‑‑ 35 percent of the cargo in the country comes in through the West Coast through 5 ports. I happen to represent one of them. Seattle has submitted testimony; I hope the others will do the same.
But we all agree that it needs to be fixed. It is a question of how to fix it. The HMT shouldn’t just sit there while our nation’s ports have problems. I agree to that. And I have talked with the Seattle Port people and they tell me that the HMT makes them uncompetitive. I mean we have got the problem Boston has in spades, with the Canadian ports and what is going to happen in the near future in Prince Rupert and some other things. So, we are talking about a serious economic hit.
But the problem is that we don’t get any of the money. We get $.01 back on every $1 we put into this thing. And 20 percent of it goes to New Orleans. And I understand why the chairman would want to have this hearing and would want to talk about it and want more money for the southern waterways that are all filled. We got 70‑foot draft, okay? We load ships that come out of Portland that can’t fully load because they can’t get over the bar out of the Columbia. They come up to Seattle, they top off, and then head for Asia.
So, I know what the issues here are. And if my state got 20 percent of the money I would probably be advocating for more. What I am interested in hearing you talk about ‑‑ and Mr. Boustany gave me a beautiful segue ‑‑ there would be some money left for some of the things we need.
Now, Seattle has a sea wall. It has been there for 100 years, put in with wood, and the worms have been working on it all this time. We also live in an earthquake zone. We know we live in an earthquake zone. We have watched it. You have watched what happened in the tsunami in Japan. You know what the impacts could be on one of the big ports of this country. And last year, 800,000 HMT‑paying passengers boarded 193 cruise ships going out of Seattle. So this is not a ‑‑ we are not talking a small operation. But if that sea wall goes, we are going to have a big problem.
I have been fighting. In fact, I had a bill in here for 15 years to deal with this. Jennifer Dunn, who is now gone from the committee, and I ‑‑ a Republican and a Democrat; this is not a partisan issue, this is an economic issue that has got to be dealt with. And we can’t get anybody to agree that we ought to use some of that money to study the sea wall and maybe repair it, because they say, “Well, that’s not dredging.”
So, I wonder if the committee would comment on the possibility of maybe broadening the use of the sea wall money ‑‑ or the harbor maintenance money to make it a little bit fairer for those of us who are waiting for a disaster to happen. We know it is going to happen, it is just a matter of time.
*Dr. Strain. Thank you, Mr. McDermott. When you look at the issue here today, we are talking about the whole of America. When we look at the growth in shipping, there is going to be more money coming in. There is $6.1 billion in this trust fund. And so, when you talk about ‑‑ we need to do all the things that we need to do to protect our ports and to expand our ports. And I agree with you. If there needs to a sea wall to protect that port, that should be there. If we need to dredge, we need to do that. If we need to rebuild the inland waterways and those lock systems that are now ‑‑ again, those are ‑‑ yours is 100 years old, these are 50 years old.
But we have a way to generate the dollars. What we are talking about with this is a growth in the overall economy throughout the entirety of the United States. It affects coast to coast. And I think it would be wise to include such measures as that, and the other things that we need to do. Because it is all about our overall economic competitiveness.
And when you talk about coming from a state where sometimes you have to wait for the disaster, they generally catch up with us, so I understand your position on sea walls.
*Mr. McDermott. Well, when we bring this bill for a markup, you would be supportive of an amendment to broaden the use maybe just a little bit?
*Dr. Strain. If you tell me what that dollar figure is.
*Mr. McDermott. Anybody else want to ‑‑ yes, Mr. Leone?
*Mr. Leone. I ‑‑ the concern that I would have, sir, is that what the Corps of Engineers estimates is the need for dredging now. The intended purpose of the Harbor Maintenance was about what they are collecting now.
And so, if we start to see a drift into other uses ‑‑ and I understand, we are certainly a donor port, as well ‑‑ but I think if you ‑‑ then you will find out that you will have ‑‑ the problem will continue. So I think it is very, very difficult to start to see more purposes for the Harbor Maintenance Trust Fund when there is such a backload of dredging work that needs to get done. And I understand the situation you are in, that Boston and others are in, but there are an awful lot of unmet needs over here that need to get dredged.
*Mr. Tiberi. [Presiding] The gentleman’s time has expired. Anyone else want to respond to his question?
[No response.]
*Chairman Tiberi. No takers?
*Mr. McDermott. Thank you.
*Chairman Tiberi. Mr. McCurry? No? Okay. All right, the gentleman from Pennsylvania, Mr. Gerlach, is recognized for five minutes.
*Mr. Gerlach. Thank you, Mr. Chairman. Good morning, gentlemen. I apologize, I was out with a constituent meeting for a few minutes, so this question might have been asked, but I am going to pose it anyhow.
Certainly I think all of us on this panel want to work to try to get released all of that $6 billion that is sitting in the fund so you can undertake the projects that are necessary at your port facilities. My district is just west of Philadelphia, and so the Philadelphia port facility is very important to our neck of the woods.
But also, what seems to occur every now and then in the conversation ‑‑ and I understand back in the Clinton Administration there was a specific proposal to establish a user fee on the ship owners themselves, and somebody alluded to this a little bit earlier in their testimony, about the larger ships that get constructed, get utilized, and certainly come into the port facilities, and then thereby require an expansion of the port facilities, an improvement of the port facilities to handle those larger ships and larger volumes of cargo.
So, I would like to get your thoughts, in addition to our efforts, to try to make sure that $6 billion gets passed back out to you for the projects you need. Should we also be considering some type of user fee on the ship owners, themselves? Not the shippers of the cargo, but the ship owners who have these large vessels that certainly have a cost impact to the facilities themselves?
Or, would a user fee simply be something passed on to the shippers anyhow as customers, and not really have an overall impact the way some might think?
So I would like to get your thoughts on that, whether there should be an additional user fee on the part of the ship owners, as well as those that are owning the cargo that is being taxed when it comes into the port now. And whoever would like to ‑‑ sir, Mr. Fisher.
*Mr. Fisher. Sir, I think the problem we start with that kind of an idea is a lack of trust. The Congress came to the maritime industry in the mid‑1980s and told us that our harbors would be dredged if only we would agree to a new user fee being imposed on the users of our ports. And we agreed, and here we are today, 20 years, 30 years later, discussing why that user fee doesn’t work, and talking about how to fix it.
I think the problem with discussing a new type of user fee is that we feel a little bit hoodwinked from the last one. And moving forward with the discussion of a new one, I think we would want to make sure and look at the last one and get it fixed first.
*Mr. Gerlach. Others?
*Mr. Arntzen. Yes. The idea of a user fee for the shipping industry, which right now on a global and domestic basis is going through one of its more difficult periods in many decades ‑‑ we, as companies, have to make big investments in double‑hull ships. We are going to have to spend $20 million in the next 3 or 4 years on ballast water upgrades on our ships. We are going to have to spend $20 million a year just in mandatory dry docks to keep up with Coast Guard requirements.
The companies that we ‑‑ carry oil refined petroleum products are large refiners, large oil companies, national oil companies which have a much greater capacity to carry those type of costs. The shipping industry ‑‑ we are a big company, by shipping industry standards. But you will find it is a lot of smaller, very lean operators on very tight budgets that are trying their hardest just to keep up with the environmental and safety requirements and equipment investments we have to make. I think it would be a difficult one for the industry.
*Mr. Gerlach. Okay, thank you. One other comment, and then I have one other question.
*Mr. LaGrange. Yes. Quickly, I would like to agree with that. Certainly I think the rate of profit by the carriers is marginal, at best, today. We have employed something I don’t think will ever go away again, and that is slow steaming out in the open water, which ‑‑ time is money, again, in the transportation industry.
I think what this does is it encourages the competition from other countries, both Mexico and Canada, to those ports there and close to the borders, whereby the user fee would not be assessed.
*Mr. Gerlach. Thank you. One other question quickly. In Pennsylvania, you may know, we have a burgeoning natural gas industry in Marcellus shale. Gas is being collected and now being distributed. And that is going to perhaps put a lot of the Philadelphia Port area into a situation where improvements will be needed to the port facilities to handle that type of export.
Should these harbor maintenance funds be used in any way to incentivize improvements to port facilities to handle new types of industry that will be happening in our country, and including the natural gas industry? Should some of these funds be used for things that transform these facilities to better accommodate that kind of new industry?
*Mr. Arntzen. We operate four large LNG carriers. When they were built they were the four biggest in the world. We took the first one into the Houston ship channel and we also took one into Boston.
I mentioned earlier the growth in refined petroleum products, exports from the United States. It is phenomenal. Nobody saw it coming. We think there will be the capacity for the U.S. to export chemicals, ethylene, LPG gases. I think it is going to be a very exciting period, because we are going to be very competitive with the rest of the world in a whole lot of areas where we haven’t been.
So, I would encourage it. And I think there is going to be a big opportunity in that area for the country.
*Mr. Gerlach. Thank you. Any others?
[No response.]
*Mr. Gerlach. Okay. Thank you very much. Appreciate it, Mr. Chairman.
*Chairman Boustany. [Presiding] Thank you. Mr. Thompson?
*Mr. Thompson. Thank you, Mr. Chairman, and thank you for holding the hearing, and for the RAMP Act. And I am pleased to be a coauthor of the bill.
I represent a number of ports in my district on the West Coast. And I have seen firsthand how deferred maintenance and a lack of funding and attention has really hurt our area. I have one harbor in Crescent City in the northern‑most part of California that, until we dredged it last year, was nearly completely silted in. You could ‑‑ if you could walk on mud, you could have walked all the way across the water. And it was terrible for business, it was terrible from a public safety standpoint. The Coast Guard couldn’t even get in and out of the harbor. And that is totally unacceptable.
In Eureka, a deepwater port, the only deepwater port on the north coast, they have been underfunded. I think it is about $18 million short of what the Corps says they need for their O&M requirements in that area. Again, it is terrible for business. And I think that is the emphasis that we really need to focus on.
This is about jobs. It is about the jobs that would be created if we lived up to our responsibility to maintain these ports and harbors. It is about the jobs that will follow because of the added business that these harbors, these ports and harbors, would do. I thought it was ‑‑ I don’t remember who said it, but the lost revenue because you have to short‑load or light‑load these ships, that is an astonishing fact that doesn’t get talked about nearly enough.
And it is about the jobs that will come to the surrounding economies, the surrounding communities, because there is a vibrant economic activity on these ‑‑ at these ports.
And then lastly, it is not about just jobs, jobs, and jobs, but it is about jobs, jobs, jobs, and public safety. It was mentioned the homeland security issue, the oil spill issue. But any ‑‑ I represent an area that has a rich commercial and sport fishing economy. And if something happens to one of those folks and the Coast Guard needs to respond and we don’t have our harbors up to speed, it doesn’t happen.
And this is something that should be a national ‑‑ that is a national embarrassment. We need to live up to our obligation. We need to fund these things. It would be good for the economy. It would be good for business. It would be good for jobs. And I will reserve the rest of my time to ask questions during the West Coast hearing that we are going to have on this issue. Thank you.
[Laughter.]
*Chairman Boustany. I thank the gentleman. Mr. Marchant?
*Mr. Marchant. Thank you, Mr. Chairman. I would like to follow up on a statement Mr. LaGrange made, and any of the panel that can answer this question.
How do the Mexican ports and the Canadian ports pay for their maintenance and dredging?
*Mr. LaGrange. Yes, sir. It varies from country to country. But in Canada and Mexico it is usually a direct appropriation from the Federal Government to the channel and to the port. And it is also subsidized in some instances, not all, by a tariff or a user fee based ‑‑ and placed on the carrier or the customer, one of the two.
But in all cases, I think without exception, it is a direct appropriation from the Federal Government, sometimes subsidized.
*Mr. Marchant. And does that ‑‑ and where does the final decision on where those funds get appropriated rest? Do they have a similar institution like the Army Corps of Engineers that makes that decision? Or is it a purely political decision?
*Mr. LaGrange. It is done at the legislative level. And I would probably like to yield in this case to Mr. Leone, who is a lot closer to the subject matter. But we have some of our friends in Canadian ports, certainly in Mexican ports, and I think it is done at the legislative or congressional level.
*Mr. Marchant. Okay. Thank you. Mr. Leone?
*Mr. Leone. I believe that the ‑‑ I am not exactly sure what the complete process is. I think Mr. LaGrange or myself, you know, have some information regarding it from conversations with our fellow port directors in those countries.
But they have kind of federalized those ports now up in Canada. I am more familiar with Canada. I know our greatest competitor, Halifax, has got the similar situation as the Pacific Northwest, that dredging is not necessarily needed for them. But they generally ‑‑ once the decision is made to get it, how that gets accomplished and how it gets done, I don’t think ‑‑ it is not like a Corps of Engineers. It is done at the port level.
So I don’t know of any body such as the Corps of Engineers that kind of collects money, or it has money, and then responds by doing it, the dredging, in and of itself in those particular ports. I think it is the port asking, and then the port then kind of finds a way to get it done itself in Canada.
And I don’t ‑‑ in Mexico, does anyone have any more information on Mexico?
*Mr. LaGrange. Mexico is federalized totally.
*Mr. Marchant. So how often do you find ‑‑ and since I am from Texas, I am most familiar with the Mexican ports just south of Texas ‑‑ how often do you find competitive advantage is given to those Mexican ports, where they can ship into Mexico and then come across the border with either rail or truck?
*Mr. LaGrange. We haven’t seen it from Mexico that often. And we have an organization, the Gulf Ports Association of the Americas, which consists of the nine ports on the Yucatan Peninsula, basically, from Cancun running west in the other direction, Tampico, Altamira, and so on and so forth. We have not seen that much in the way, due to the lack of overland infrastructure, the availability of it into the United States.
There has been a spike over the last year I am told, with the relaxation of truckers coming in from Mexico to the United States, but it has been very minimal.
*Mr. Marchant. Thank you, Mr. Chairman.
*Chairman Boustany. Thank you. Next ‑‑ let’s see. We have Mr. Berg.
*Mr. Berg. Thank you, Mr. Chairman. From North Dakota we don’t have a lot of ports in our state. Having said that, you know, I guess even though we don’t have a major port, obviously each of you are dealing with local and regional economies that don’t have the port. But I would like you to just maybe just briefly talk about the direct and indirect benefits to those regional areas that don’t have the port, and why it is important for the port, and also to explain why it is important for those constituencies to ensure that there is, you know, adequate money for the Harbor Maintenance Fund.
*Dr. Strain. Yes, sir. In North Dakota, as you know, you have a tremendous agricultural base. And you got a lot of oil and gas activity going on. And if you look at United States, most of our agricultural products are exported. We, you know, feed a great deal of the world.
And so, for you to move your products out of your region, out of North Dakota, whether it is oil and gas, petrochemicals or all the different agricultural products, wheat, beef cattle, et cetera ‑‑ and those markets are growing ‑‑ without an efficient system, at the end of the day it will cost your farmers by not being able to move the products or moving them with greater cost.
And again, the figure that we have seen is you are going to add another $.10‑plus to a bushel of anything you move if we cannot move it efficiently through our waterway systems.
*Mr. Fisher. Sir, the closest port probably to North Dakota is probably the Port of Duluth on the Great Lakes. And I can tell you that North Dakota agricultural products are common cargoes at the Port of Duluth. They are exported ‑‑ they are transported to Duluth and then put on export vessels and sent abroad. And that port essentially allows North Dakota farmers to market their products all over the world, and gives the state access to global trade.
As my colleague has stated, if the Port of Duluth isn’t properly dredged, and the vessel operators who call there to pick up North Dakota farm products and export them, if they can only partially load their vessel because of insufficient channel dredging, those products, on a per‑ton basis, the transportation cost actually goes up, because you are carrying less product on each ship load.
*Mr. McCurry. Just to tack on to that, really the obviously, that if you have got goods that are going to other countries, or consumer goods that are typically coming in from other countries, they are going to go through the point of least resistance and maximum efficiency.
So when you look at the retail import cargoes, most of them are coming in and being trucked or railed, depending on how far the destination is. In our case, having two class‑one railroads on terminal allows us to pretty readily access the Midwestern markets for touching the distribution centers for retailers. And then similarly in the opposite direction for a lot of your agricultural products that, more and more, are going into containers, just as they go down the river on barges and go out of the Gulf.
*Mr. Berg. Thank you. I ‑‑ kind of interesting. In North Dakota we never really talk about trucking it out or railing it out. We always use the word “shipping.” We are shipping our corn, shipping our wheat, doing those things. And yet Duluth would be the first point where they would see a ship.
Thank you. I yield back.
*Dr. Strain. Mr. Berg, if I may just make one short comment.
*Mr. Berg. Sure.
*Dr. Strain. I am sure you are familiar with the term “the basis.” Right? Whenever you sell a product ‑‑ you sell your wheat. If it is running, you know, $5.90, $6, the basis is set to the side. And so, you have a positive or a negative. That positive or negative is one, what is going on in the Chicago Board of Trade, but it is also the transportation cost.
And I can tell you that when ‑‑ you can have wheat get down to $2.80 with a $1 basis the wrong way, and you are getting $1.80 for your wheat. That is a real thing. And we fight hard to make that basis positive and not negative. But shipping costs are a major part of that variable. And when your farmers contract to sell their products, that basis is variable. And so when they bring it and deliver it, when they deliver that product, that is when it is assessed, based on, to a great degree, the current shipping cost to move that to the next point of sale.
*Mr. Berg. Thank you.
*Chairman Boustany. I want to thank all of you for your testimony, your expertise that you brought today to the subcommittees. And please be advised that Members may have some questions that they will submit to you in writing, and I would ask you to respond to those, those questions. And of course your written testimony will be made part of the official record.
And with that, this hearing is now adjourned.
[Whereupon, at 11:17 a.m., the subcommittees were adjourned.]
Member Submissions
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