LCA Testifies In Opposition To Navigational Assistance Tax
The following is Testimony given by Mr. Glen G. Nekvasil Communications Director, Lake Carriers’ Association.
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION HEARING ON FY99 UNITED STATES COAST GUARD BUDGET MARCH 4, 1998.
Thank you very much for the opportunity to address this subcommittee. Lake Carriers’ Association represents 11 American corporations operating 58 U.S.-Flag vessels exclusively on the Great Lakes. During the recently concluded 1997 navigation season, our members and other Jones Act carriers on the Lakes moved more than 125 million tons of dry- and liquid- bulk cargo, the most in any single navigation season since the early 1980s. To put it another way, the 67 ships and large tug/barge units in service on the Lakes last year carried the equivalent of 1/2 ton of cargo for every man, woman, and child in this country in a 328-day shipping season.
To meet the needs of commerce, U.S.-Flag carriers on the Great Lakes have assembled what is incontestably the world’s most efficient fleet of self-unloading vessels. Our largest ships discharge 70,000 tons of iron ore or coal in 8 hours or less without any
assistance from shoreside personnel or equipment. To meet the needs of customers who require cargo in smaller quantities, we offer other self-unloading vessels with per-trip capacities ranging from 12,000 to 44,000 tons.
While our members earn their living carrying cargo, the value of Jones Act shipping on the Great Lakes extends far beyond the 67 or so large hulls and 2,500 shipboard billets. The efficient movement of Minnesota and Michigan iron ore supports more than 100,000 steel mill jobs and 8,000 miners in the Great Lakes Basin. The low-cost delivery of low-sulfur coal mined in Montana and Wyoming and shipped from Superior, Wisconsin, keeps industrial and residential electric bills as low as possible. Likewise, the efficient carriage of limestone and cement keeps our construction industry vibrant.
We have many partners in accomplishing this transportation marvel called Great Lakes shipping, but none is more important
than the United States Coast Guard. At the beginning and end of the navigation season, it’s U.S. Coast Guard icebreakers that keep the shipping lanes open to commerce. Once the ice clears, it’s the U.S. Coast Guard that places and maintains the Aids to Navigation that keep the ships on a safe course. It’s the U.S. Coast Guard that ensures the safety of navigation by inspecting our vessels and licensing and documenting our shipboard personnel to standards without equal in the international maritime industry. And although our members have not had need of this service for more than two decades, and hopefully never will again, it will be U.S. Coast Guard vessels and helicopters that come to the aid of a foundering ship or crew members who have abandoned a stricken vessel.
As this Subcommittee well knows, the budgetary realities of recent years have forced the U.S. Coast Guard to do more with less. I can assure you that the Ninth Coast Guard District personnel have performed their many missions with the same high level of commitment and expertise, even though their ranks and resources have been reduced in size. In fact, these budgetary pressures may be one of the reasons for the excellent communication between industry and the U.S. Coast Guard — finding new efficiencies is the order of the day in industry as well. We are all now truly in the same boat. Lake Carriers’ Association is deeply concerned that the preceding glowing report will be dimmed in the not-too-distant future by the Administration’s ill-conceived proposal to institute a Navigation Assistance Tax. Although the Office of Management and Budget terms these new taxes User Fees, let’s not kid ourselves. Our industry, and therefore our customers and their employees, will be burdened with additional taxes if this proposal becomes law.
The Navigation Assistance Tax is like the iceberg that sank the TITANIC. At first sighting, it seems small and potentially harmless, but it’s what lies below the waterline that could damage or even sink waterborne commerce on the Great Lakes and other U.S. waterways. In its first full year, the Navigation Assistance Tax would raise $176 million, but what will the next year or years hold? Look at the tax that funds the Harbor Maintenance Trust Fund. It tripled overnight and has never come down, even though it is generating a surplus year after year.
The Navigation Assistance Tax should be rejected as poor public policy to start with for it takes too narrow a view of U.S. Coast Guard functions. Earlier, I stated that Aids to Navigation help keep ships on a safe course, but a safe transit protects the marine and surrounding environment. And why must commercial navigation bear all the pain? Aids to Navigation are used by fishermen, pleasure boaters, cruise and gaming vessels, ferries... as well as by government ships, including U.S. Coast Guard and U.S. Navy. Since not all the users are included, this new tax doesn’t even comply with the theoretical model for a user fee.
The Navigation Assistance Tax will be applied to icebreaking in FY2000. Again, while U.S. Coast Guard icebreakers do what their name implies, the icebreaking mission is not solely related to commercial navigation. The U.S. Coast Guard also performs icebreaking to prevent flooding, but where’s the bill for riparian dwellers? Again, commercial navigation would be footing the bill for all beneficiaries.
What will be the impacts of this foot-in-the-door tax on Aids to Navigation and Icebreaking? Higher costs for American industry competing on a global basis. Our customers will likely react in one of two ways. They will either switch to Canadian ports to avoid the tax, or switch to a land-based mode of transportation. Yet, let’s not forget that these options are presently available, but remain unused. Why? Because waterborne commerce via American ports is the most cost-effective means of transportation. No matter what option industry pursues, the result is a higher delivered cost for raw materials and goods. That benefits no one.
Our environment will suffer too from these modal and source shifts. Vessels are the greenest form of transportation. Their powerplants burn significantly less fuel and produce much less emissions than trains or trucks. Just to give you an example from the Lakes, were a steel company to switch from vessels to trains, it would take six 100-car unit trains to equal one trip in a 1,000-foot-long self-unloader.
There are legal grounds for rejecting the Navigation Assistance Tax. As my examples illustrated, the tax is not specifically targeted to all users of a requested service, something the Supreme Court has ruled unconstitutional. Nor will the revenue generated be applied to the cost of those services, again a violation of a valid tax or user fee.
But let’s not engage a team of lawyers to debate these points. It boils down to this. Waterborne commerce directly or indirectly impacts the economic livelihood of nearly every man, woman, and child in this nation. That’s why the vast majority of U.S. Coast Guard functions have been funded from general revenues. This Subcommittee and this Congress must retain the policy of funding U.S. Coast Guard missions from general revenues and amend our laws to state that there will be no taxes on Aids to
Navigation or Icebreaking. These are services to the entire nation. As our logo says ... NO NAT!
If, for some reason, these arguments have failed to persuade you, then Congress must consider making the Navigational Assistance Tax a fair one. You should direct the U.S. Coast Guard to establish a cost accounting system which determines costs directly attributable to the services commercial navigation needs, and you should direct the U.S. Coast Guard to only provide services the commercial navigation interests ask for. You then should direct the U.S. Coast Guard to develop a means to recover costs from recreational boaters, fisherman, and other beneficiaries of these functions. Somehow, I don’t think these steps will be necessary. I trust this Congress will continue to recognize that U.S. Coast Guard functions are services to the entire nation. All the funds for U.S. Coast Guard services and equipment should be drawn from general revenues. We ask
Congress to appropriate full funding to the Acquisition Construction & Improvements Account.
This Subcommittee and Congress can perform another service to the Nation by including $6 million in the U.S. Coast Guard’s budget to develop detailed design proposals for a multi-purpose vessel with heavy icebreaking capabilities to replace the U.S. Coast Guard Cutter MACKINAW. The MACKINAW is the only heavy icebreaker stationed on the Lakes and for 53 years she has kept commerce moving through the harshest conditions. While her hull is still sound, she is technologically outdated and, thus, expensive to operate. The U.S. Coast Guard has concluded that the cost of modernizing the MACKINAW nearly equals the cost of a new build. Furthermore, a new build would be a multi-mission vessel, something no amount of modernization can
achieve with the MACKINAW.
I cannot stress the importance of maintaining heavy icebreaking capability on the Great Lakes. During the winters of 1994-96, more than 45 million tons of dry-bulk cargo moved during the ice season. Although this past December and January were virtually ice-free — thanks, we gather to El Nino, this is an aberration. Great Lakes steel mills account for more than 70 percent of our nation’s steelmaking capacity and they cannot be operated efficiently unless they receive iron ore from early March until late January. The requested $6 million will move forward the process of maintaining the icebreaking capability
needed on the Great Lakes, and in the long term, reduce Federal expenditures, as the replacement vessel(s) will require less crew and be much more fuel efficient.
Thank you for this opportunity to appear before this Subcommittee. I will be pleased to try to answer any questions you may have.
Reported by: The Lake Carriers' Association