[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HEARING ON HARBOR MAINTENANCE FUNDING AND MARITIME TAX ISSUES
=======================================================================
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
U.S. GOVERNMENT PRINTING OFFICE
78-178 WASHINGTON : 2012
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COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman
WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky XAVIER BECERRA, California
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana MIKE THOMPSON, California
PETER J. ROSKAM, Illinois JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania EARL BLUMENAUER, Oregon
TOM PRICE, Georgia RON KIND, Wisconsin
VERN BUCHANAN, Florida BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York
Jon Traub, Staff Director
Janice Mays, Minority Staff Director
______
Subcommittee on Oversight
CHARLES W. BOUSTANY, JR., Louisiana, Chairman
DIANE BLACK, Tennessee JOHN LEWIS, Georgia
AARON SCHOCK, Illinois XAVIER BECERRA, California
LYNN JENKINS, Kansas RON KIND, Wisconsin
KENNY MARCHANT, Texas JIM MCDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota
______
Subcommittee on Select Revenue Measure
PATRICK J. TIBERI, Ohio, Chairman
PETER J. ROSKAM, Illinois PRICHARD E. NEAL, Massachusetts
ERIK PAULSEN, Minnesota MIKE THOMPSON, California
RICK BERG, North Dakota JOHN B. LARSON, Connecticut
CHARLES W. BOUSTANY, JR., Louisiana SHELLEY BERKLEY, Nevada
KENNY MARCHANT, Texas
JIM GERLACH, Pennsylvania
C O N T E N T S
__________
Page
Advisory of February 1, 2012 announcing the hearing.............. 2
WITNESSES
The Honorable Michael Strain, Commissioner of Agriculture &
Forestry....................................................... 8
Mr. Gary LaGrange, President and Chief Executive Officer of the
Port of New Orleans............................................ 13
Mr. Steven A. Fisher, Executive Director, American Great Lakes
Ports Association.............................................. 19
Mr. Morten Arntzen, President and Chief Executive Officer,
Overseas Shipholding Group..................................... 27
Mr. James C. McCurry, Jr., Director of Administration, Georgia
Ports Authority................................................ 36
Mr. Michael Leone, Port Director, Massachusetts Port Authority... 43
MEMBER SUBMISSIONS FOR THE RECORD
The Honorable Kevin Brady, Statement............................. 68
The Honorable Wally Herger and Earl Blumenauer, Statement........ 70
The Honorable Brian Higgins, Statement........................... 72
PUBLIC SUBMISSIONS FOR THE RECORD
AGL Resources, Statement......................................... 73
American Association of Port Authorities, Statement.............. 75
American Road and Transportation Builders Association, Statement. 78
Big River Coalition, Statement................................... 81
Carrix Inc., Statement........................................... 86
Coastwise Coalition 1, Statement................................. 91
Coastwise Coalition 2, Statement................................. 94
Florida Ports Council, Statement................................. 95
Horizon Lines Inc., Statement.................................... 98
Jersey Harborside Transport LLC., Statement...................... 106
Lake Charles Harbor, Statement................................... 108
APL Limited and affiliated companies, Maersk Inc. and
Subsidiaries, Sealift Incorporated, and Hapag-Lloyd AG and
affiliated companies, Statement................................ 112
Port Freeport, Statement......................................... 122
Port Metro Vancouver, Statement.................................. 124
Port of Seattle, Statement....................................... 127
Port of Tacoma, Statement........................................ 130
Shipbuilders Council of America, Statement....................... 136
Tonnage Tax Coalition, Statement................................. 140
West Gulf Maritime Association, Statement........................ 143
American Maritime Labor Organizations, Statement................. 157
HARBOR MAINTENANCE FUNDING AND MARITIME TAX ISSUES
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WEDNESDAY, FEBRUARY 1, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Subcommittee on Select Revenue Measures,
Washington, DC.
The subcommittees met, pursuant to notice, at 9:34 a.m., in
Room 1100, Longworth House Office Building, the Honorable
Charles Boustany [Chairman of the Subcommittee on Oversight]
presiding.
[The advisory of the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
SUBCOMMITTEE ON SELECT REVENUE MEASURES
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 1, 2012
OS-09 & SRM-06
Chairman Boustany and Chairman Tiberi
Announce Hearing on Harbor Maintenance Funding and Maritime Tax Issues
House Ways and Means Subcommittee on Oversight Chairman Charles
Boustany, Jr, MD (R-LA) and Subcommittee on Select Revenue Measures
Chairman Pat Tiberi (R-OH) today announced the Subcommittees will hold
a hearing on harbor maintenance funding and maritime tax issues, with a
focus on the Harbor Maintenance Trust Fund and Harbor Maintenance Tax,
maintenance underfunding, and the tax treatment of foreign shipping
operations. The hearing will take place on Wednesday, February 1, 2012,
in Room 1100 of the Longworth House Office Building, beginning at 9:30
a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.
BACKGROUND:
The Harbor Maintenance Trust Fund (HMTF) provides funds for the
United States Army Corps of Engineers (Corps) to dredge federally
maintained harbors to their authorized depths and widths. The HMTF is
funded by the Harbor Maintenance Tax (HMT), under which certain users
of U.S. coastal and Great Lakes harbors pay a tariff of $1.25 per
$1,000 in cargo value passing through these waters. The tax applies to
imported and domestic waterborne cargo, as well as the ticket value of
cruise ship passengers.
The tax was intended to provide a sufficient, stable long-term
source of funding to pay for harbor dredging to maintain authorized
depths and widths. In recent years, HMTF expenditures have remained
flat while HMT collections have increased with rising imports, creating
a large surplus in the trust fund. The HMTF's uncommitted balance
continues to grow and reached an estimated $6.1 billion at the
beginning of fiscal year 2012. In fiscal year 2010 alone, $1.2 billion
in Harbor Maintenance Taxes were collected, while only $793 million was
spent on dredging and related maintenance. Despite the accumulating
balances in the HMTF, many U.S. harbors are under-maintained, resulting
in the full channel dimensions of America's busiest ports available
less than 35 percent of the time. Reduced channel dimensions could
increase both the cost of shipping and the risk of grounding or
collision.
Another potential concern with the structure of the HMTF arises
with respect to what is known as ``short sea shipping.'' Some have
argued that the HMT itself is a major reason why very little non-bulk
commercial cargo is transported using inland and coastal waterways.
Currently, the use of short sea shipping, which involves the movement
of cargo along coastal and inland waters, is primarily limited to bulk
cargo while commercial non-bulk cargo is moved throughout the U.S. via
other modes of transportation.
Finally, and unrelated to the HMTF, U.S. shipping companies must
maintain investments in qualified shipping assets made between 1975 and
1986 to avoid subPart F (anti-deferral) tax treatment for their
qualified foreign shipping income. Some have questioned whether this
requirement with which U.S. shipping companies must comply has
encouraged these companies to invest capital in their foreign
operations--capital that otherwise could have been used to expand
domestic operations and to create U.S. jobs.
In announcing the hearing, Chairman Boustany said, ``Our nation's
harbors are a lifeblood of commerce. Years of chronic underfunding have
severely limited ship traffic, prevented valuable cargo from moving
efficiently, and adversely affected national, regional, and local
economies. Funds collected by the HMTF should be utilized promptly and
exclusively to keep our harbors open for business. The Subcommittees
will conduct oversight of this critical problem and consider what
solutions might better help American goods to compete in the global
economy.''
Chairman Tiberi added, ``The U.S. maritime industry is vital to our
economy and national security. Today's Tax Code places preference on
investment in foreign shipping operations over investment in domestic
operations. The Tax Code also discourages the use of local shipping
channels as a means to move non-bulk cargo throughout the United States
and the Great Lakes region. The Subcommittees should examine how to
design tax policies that help create U.S. maritime jobs and that ensure
the long-term growth of the domestic maritime industry.''
FOCUS OF THE HEARING:
The hearing will examine the structure of the Harbor Maintenance
Trust Fund and the Harbor Maintenance Tax, with an emphasis on
investigating whether the structures of the Trust Fund--including both
its financing source and the expenditure of its balances--are
appropriately structured. Similarly, the hearing will consider whether
U.S. anti-deferral rules inhibit the expansion of the U.S. shipping
industry.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee website and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``Hearings.'' Select the hearing for which you would like to submit,
and click on the link entitled, ``Click here to provide a submission
for the record.'' Once you have followed the online instructions,
submit all requested information. ATTACH your submission as a Word
document, in compliance with the formatting requirements listed below,
by the close of business on Wednesday, February 15, 2012. Finally,
please note that due to the change in House mail policy, the U.S.
Capitol Police will refuse sealed-package deliveries to all House
Office Buildings. For questions, or if you encounter technical
problems, please call (202) 225-1721 or (202) 225-3625.
FORMATTING REQUIREMENTS:
The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
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relies on electronic submissions for printing the official hearing
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Note: All Committee advisories and news releases are available on
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The Committee seeks to make its facilities accessible to persons
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call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
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materials in alternative formats) may be directed to the Committee as
noted above.
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 there is 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 as 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 its 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 prepared statement of Dr. Strain follows:]
[GRAPHIC] [TIFF OMITTED] 78178A.001
[GRAPHIC] [TIFF OMITTED] 78178A.002
[GRAPHIC] [TIFF OMITTED] 78178A.003
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 prepared statement of Mr. LaGrange follows:]
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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 unfortunate 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 prepared statement of Mr. Fisher follows:]
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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 provisions 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 homeland
security and 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 prepared statement of Mr. Arntzen follows:]
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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 to 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 prepared statement of Mr. McCurry follows:]
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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 prepared statement of Mr. Leone follows:]
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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 [continuing]. 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 northernmost 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 anybody 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've got a lot of
oil and gas activity going on. And if you look at the 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 shipload.
Mr. MCCURRY. Just to tack on to that, really the obvious,
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 for the Record follow:]
The Honorable Kevin Brady, Statement
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The Honorable Wally Herger and Earl Blumenauer, Statement
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The Honorable Brian Higgins, Statement
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[Public Submissions for the Record follow:]
AGL Resources, Statement
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American Association of Port Authorities, Statement
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American Road and Transportation Builders Association, Statement
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Big River Coalition, Statement
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Carrix Inc., Statement
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Coastwise Coalition, Statement 1
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Coastwise Coalition, Statement 2
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Florida Ports Council, Statement
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Horizon Lines Inc., Statement
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Jersey Harborside Transport LLC, Statement
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Lake Charles Harbor, Statement
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APL Limited and affiliated companies, Maersk Inc. and Subsidiaries,
Sealift Incorporated, and Hapag-
Lloyd AG and affiliated companies, Statement
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Port Freeport, Statement
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Port Metro Vancouver, Statement
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Port of Seattle, Statement
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Port of Tacoma, Statement
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Shipbuilders Council of America, Statement
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Tonnage Tax Coalition, Statement
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West Gulf Maritime Association, Statement
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American Maritime Labor Organizations, Statement
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