New Tax Threatens Lakes Shipping
06/07:
The Clinton Administration has proposed a Harbor Services User Fee (HSUF) which would replace and expand the existing Harbor Maintenance Tax to not only fund Operation and Maintenance dredging (O&M) of the nation's deepdraft ports and waterways, but also the Federal government's share of new construction projects. This new tax represents an unwarranted increase in the cost of moving cargo . Even with the Supreme Court’s decision to repeal the Harbor Maintenance Tax (HMT) as applied to exports, tax revenue generated by imports and domestic cargos adequately funds the nation’s annual Operation and Maintenance (O&M) dredging requirements. There is no urgent need to institute a new tax. In fact, the problems inherent in developing an alternative to the HMT that meets Constitutional standards and will not distort trade patterns are so gargantuan that the Federal Government must abandon this failed scheme and again fund O&M dredging from General Revenues. The Administration has proposed a Harbor Services User Fee (HSUF) to replace the existing Harbor Maintenance Tax (HMT). The HMT was instituted in 1987 to recover a portion of the cost of Operation and Maintenance (O&M) dredging of the nation’s deep-draft ports and waterways. Prior to 1987, the nation funded O&M dredging and new construction projects from General Revenues.
The HMT originally recovered approximately 40 percent of O&M costs, but the tax was tripled in 1991, ostensibly to fully fund O&M dredging, but revenues raised exceeded expenditures and the Harbor Maintenance Trust Fund began to amass a significant surplus.
Following a legal challenge to the HMT, the Supreme Court repealed the tax as applied to exports in 1997. The Administration quickly proposed a Harbor Services User Fee to replace the HMT, but this first proposal was so roundly criticized by shippers, carriers, port authorities, and Congress that it was never formally introduced.
The Administration has now formally introduced the HSUF. The HSUF will not only fund 100 percent of O&M dredging for large commercial ports (and for small harbors whose users are exempt from paying into the HSF), but also, the Federal Government’s share of new dredging projects. (Since 1986, the Federal Government paid 50 to 65 percent of the cost of most new deep-draft dredging projects, with a "local sponsor" funding the remainder.) The tax is projected to raise $950 million annually. The President’s budget for FY2000 proposes to then spend $693 million for O&M dredging ($513 million deep-draft port O&M; $80 million shallow-draft O&M; $100 million offset for ports not needing dredging) and $300 million for new construction projects.
The HSUF fee also represents a complete abdication of the Federal Government’s role in building and maintaining the system of ports and waterways that is so vital to the nation’s economic well-being and national defense capabilities. By volume, more than 95 percent of the nation’s imports and exports move in vessels. Domestic waterborne commerce has grown to more than 1 billion tons a year. There is hardly an American business or citizen who does not benefit from efficient waterborne commerce. In fact, the importance of waterborne commerce to our society was long the rationale for full Federal funding of O&M dredging and new construction projects, and today even more justifies a return to that policy.
The Harbor Services User Fee will significantly increase the cost of moving cargo on the Great Lakes. Since the tax is based on a vessel’s net registered tonnage (n.r.t.) and n.r.t varies even with vessel classes, it is difficult to develop an across-the-board tax for the various commodities, but initial analysis indicates that the HSUF will equate to roughly $0.06 per ton on the iron ore, coal, and stone - the primary commodities moving on the Great Lakes.
The Harbor Maintenance Tax was based on the value of the cargo. With iron ore and coal valued at roughly $30 - $35 a ton, those commodities were taxed at the rate of $0.04 ton. The cost of moving these commodities under the proposed HSF could increase by 50 percent.
The HMT was paid by the shipper (owner or purchaser of the cargo); the HSUF would be paid by the carrier (the vessel owner or operator). The competition among vessel operators and with the railroads has produced low freight rates, but also, extremely thin margins. No vessel operator can completely absorb these additional costs. Yet, while the HSUF should be passed along in the form of higher freight rates, given the depressed state of the primary customer, the steel industry (competing with dumped foreign steel that has depressed prices), it is unlikely that these new taxes can be fully passed along. A major portion of the loss will be borne by the carriers. The balance will lead to increased freight rates and the possibilty that vessels lay-up or are sent to the scrap yard.
The outcome of these higher freight rates is not difficult to determine. It is reported that in at least some trades, the difference between vessel and rail freight rates is just pennies a ton. Those steelmakers and utilities with rail access could well switch to unit train delivery of their raw materials. The environment would bear the brunt of this modal shift. It takes 6-plus 100-car unit trains to deliver one boatload of iron ore or coal carried in a 1,000-foot-long U.S.-Flag laker. The powerplants on locomotives are much less environmentally-friendly than vessels, so emissions into the atmosphere will increase dramatically. [ A study performed by the Great Lakes Commission documents the environmental disadvantages of cargo shifting from water to land. For example, vessels delivering iron ore from Duluth/Superior to Lorain, Ohio use 9.6 million gallons of fuel to deliver 8 million tons in a typical year. Were these cargos to switch to rail, locomotives would burn more than 14 million gallons of fuel.]
Not all consumers have rail access (this is particularly true for steel), so ultimately the final result is higher delivered costs for raw materials. For steelmakers battling dumped foreign steel, these additional costs will only further weaken their ability to maintain marketshare. [ Steel imports to the United States set an all-time record in 1998 - 42 million tons. Much of this steel was dumped (sold below the cost of production). The unfair competition cost 10,000 steelworkers their jobs and shortened the 1998 navigation season for a number of U.S.-Flag lakers.]
The impacts on limestone are even more dramatic. With a value of approximately $6 a ton, limestone is currently taxed at the rate of $0.0075 a ton. The increased costs under the HSUF could rise as much as 500 percent!
Limestone is one of the most widely-consumed raw materials. National Stone Association calculates that, on average, each American uses 8,000 pounds a year. The HSUF will raise the cost of steel (fluxstone is used a purifying agent in the steelmaking process); construction projects such as highways, parking lots..., chemicals, and even commercial grade paper (limestone is used to create the glossy finish on paper).
From our nation’s earliest days until 1987, the United States funded O&M dredging from General Revenues in recognition of the vital role of waterborne commerce. To a degree, we still recognize this principle - Congress appropriates funds to dredge the Inland Waterway System, Hawaii, Alaska, Guam, and Puerto Rico without imposing any tax to recover these expenditures. It is time to level the playing field and return to full Federal funding for O&M on all U.S. waterways. We sould all write our representitives in Washington and ask them to support the Borski/Oberstar bill (H.R. 1260).
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