Federal User Fees: Substantive Reviews Needed to Align		 
Port-Related Fees with the Programs They Support (22-FEB-08,	 
GAO-08-321).							 
                                                                 
America's port infrastructure is vital to U.S. foreign trade and 
a bulwark for national security. One way the federal government  
funds port-related programs is to levy user fees. GAO was asked  
to examine (1) what is known about the way selected fees assessed
on air and sea port users are set, collected, used, and reviewed 
and (2) the effects of these attributes on program operations.	 
GAO examined the Harbor Maintenance Fee (HMF), the Merchandise	 
Processing Fee (MPF), and the Customs, Immigration, and 	 
Agricultural Quarantine Inspection (AQI) user fees assessed on	 
air and cruise passengers and commercial vessels using criteria  
that have often been used to assess user fees and taxes--equity, 
efficiency, revenue adequacy, and administrative burden.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-321 					        
    ACCNO:   A80973						        
  TITLE:     Federal User Fees: Substantive Reviews Needed to Align   
Port-Related Fees with the Programs They Support		 
     DATE:   02/22/2008 
  SUBJECT:   Administrative costs				 
	     Airports						 
	     Cost effectiveness analysis			 
	     Federal funds					 
	     Fees						 
	     Financial analysis 				 
	     Financial management				 
	     Homeland security					 
	     Interagency relations				 
	     Noncompliance					 
	     Port security					 
	     Program management 				 
	     Rates						 
	     Schedule slippages 				 
	     User fees						 
	     Program costs					 

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GAO-08-321

   

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material separately. 

Report to Congressional Requesters: 

United States Government Accountability Office:
GAO: 

February 2008: 

Federal User Fees: 

Substantive Reviews Needed to Align Port-Related Fees with the Programs 
They Support: 

GAO-08-321: 

GAO Highlights: 

Highlights of GAO-08-321, a report to congressional requesters. 

Why GAO Did This Study: 

Americaï¿½s port infrastructure is vital to U.S. foreign trade and a 
bulwark for national security. One way the federal government funds 
port-related programs is to levy user fees. GAO was asked to examine 
(1) what is known about the way selected fees assessed on air and sea 
port users are set, collected, used, and reviewed and (2) the effects 
of these attributes on program operations. GAO examined the Harbor 
Maintenance Fee (HMF), the Merchandise Processing Fee (MPF), and the 
Customs, Immigration, and Agricultural Quarantine Inspection (AQI) user 
fees assessed on air and cruise passengers and commercial vessels using 
criteria that have often been used to assess user fees and 
taxesï¿½equity, efficiency, revenue adequacy, and administrative burden. 

What GAO Found: 

The port-related fees GAO examined vary in how they are set, collected, 
used, and reviewed, creating misalignments between the fees and 
corresponding services, as well as administrative and oversight 
challenges. 

* Although the customs, immigration, and AQI inspections have largely 
been consolidated under U.S. Customs and Border Protection (CBP), the 
corresponding fees remain separate and distinct and differ in how the 
rates are set and adjusted, the portion of costs they recover, and on 
whom the fees are levied (see table below). For example, overtime 
charges are handled differently for each type of inspection, creating 
confusion about the circumstances under which overtime must be paid, at 
what rate, and for which services. 

* Certain collection methods increase administrative costs and reduce 
compliance. For example, quarterly remittance delays availability of 
funds and failure to charge interest and penalties on certain late 
payments is costly and discourages compliance. Further, lack of 
coordination between CBP and the U.S. Army Corps of Engineers inhibits 
oversight of certain HMF payments. 

* All of the fees GAO reviewed suffer from some misalignmentï¿½for 
example, with their respective costs or activitiesï¿½which affects how 
the fees are used. For example, since 2003, HMF collections have far 
exceeded funds appropriated for harbor maintenance, resulting in a 
large and growing surplus in the trust fund. Also, not all MPF and 
customs inspection activities are reimbursable and not all reimbursable 
activities are inspection related. 

* Finally, agency user fee reviews are not always comprehensive. For 
example, CBPï¿½s review of the MPF does not detail program costs, project 
collections, or provide enough information to determine if the amount, 
structure, or authorized uses of the fee should be updated. Further, 
limited opportunities for substantive communication with HMF 
stakeholders hamper their understanding of the fee. 

Select Fees Levied on Vessel Owner/Operators and Passengers: 

Payer: Vessel owners/operators (for inspection of vessel and vessel 
crew); 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: [Check]; 
Inspection fees: Immigration: By statute, no fee, although the crew is 
inspected. 

Payer: Sea passengers; 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: Costs of inspecting sea 
passengers are charged to vessel owners/operators as part of the vessel 
fee; 
Inspection fees: Immigration: [Check]. 

Payer: Air passengers; 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: [Check]; 
Inspection fees: Immigration: [Check]. 

Source: GAO analysis of information from the Departments of Homeland 
Security and Agriculture. 

[End of table] 

What GAO Recommends: 

GAO suggests Congress review the link between the HMF fee and 
expenditures, and establish an HMF stakeholder advisory body. GAO is 
making eight recommendations to the Secretaries of Homeland Security, 
Agriculture, and the Army to better align the fees with the activities 
they support, and to improve collections, oversight, and reporting. All 
three agencies generally agreed with our findings and recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-321]. For more information, contact Susan 
J. Irving at (202) 512-9142 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

The Inspection Process Is Largely Consolidated but the Inspection Fees 
Vary in How Rates Are Set and Adjusted, the Portion of Costs Recovered, 
and How Costs Are Assigned to Users: 

Costly, Ineffective Collection Methods and Lack of Interagency 
Coordination Increase Noncompliance for Harbor Maintenance and Vessel 
Inspection Fees: 

Misalignments Exist between Fee Collections and Activities for Which 
They May Be Used: 

Lack of Substantive Review and Mechanisms for Substantive Stakeholder 
Input Impede Agency and Congressional Oversight and Ability to Align 
Program Costs and Activities: 

Conclusions: 

Matters for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Summary of Fees by Payer: 

Appendix III: Comments from the Department of Homeland Security: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Comparison of Selected Port-Related Fees: 

Table 2: Inspection Fees Levied on Vessel Owner/Operators and 
Passengers: 

Table 3: Fees Charged to Vessel Operators: 

Table 4: Fees Charged to Passengers: 

Table 5: Fees Charged to Shippers: 

Figures: 

Figure 1: Fees Levied on Commercial Vessel Operators for CBP 
Inspections: 

Figure 2: Collection Methods for the Customs, AQI, and Immigration 
Inspection Fees: 

Figure 3: Collection Methods for the Harbor Maintenance and Merchandise 
Processing Fees: 

Figure 4: HMF Collections Increasingly Exceed Program Expenditures: 

Figure 5: HMTF Actual and Projected Year-End Balances: 

Figure 6: Total Annual Merchandise Processing Fee Collections and 
Program Costs: 

Abbreviations: 

APHIS: Animal and Plant Health Inspection Service: 

AQI: Agricultural Quarantine Inspection: 

CBP: U.S. Customs and Border Protection: 

CFO Act: Chief Financial Officers Act of 1990: 

CMTS: Committee on the Marine Transportation System: 

Corps: U.S. Army Corps of Engineers: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

FDA: Food and Drug Administration: 

HMF: Harbor Maintenance Fee: 

HMTF: Harbor Maintenance Trust Fund: 

ICE: U.S. Immigration and Customs Enforcement: 

IOAA: Independent Offices Appropriation Act of 1952: 

MPF: Merchandise Processing Fee: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

RABA: Revenue Aligned Budget Authority: 

USDA: U.S. Department of Agriculture: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

February 22, 2008: 

Congressional Requesters: 

The United States has long depended on its port infrastructure to 
facilitate both the import and export of manufactured goods; 
agricultural products; and other commodities such as gravel, oil, and 
liquefied natural gas. Access to world markets is important to the 
nation's economy: for example, more than 80 percent of U.S. foreign 
trade flows through the nation's 361 seaports.[Footnote 1] Port 
infrastructure is also important to America's national security: 
transportation of personnel and supplies supports America's military 
services during national emergencies. At the same time, ports are 
potential targets for terrorists and potential conduits for weapons 
concealed in cargo. 

One of the means by which the federal government generates funding to 
support and secure America's port infrastructure is by levying 
assessments, including user fees, on port users. These fees include 
ship registry fees, commercial fishing fees, and inspection charges; 
they are levied on various air and sea port users, including shippers, 
vessel owners and operators, brokers, and individual 
passengers.[Footnote 2] 

In response to your request and to provide context and insights as you 
consider funding options for port programs, we examined (1) what is 
known about the way selected fees assessed on air and sea port users 
are set, collected, used, and reviewed (including the views of 
stakeholders) and (2) the effects of these attributes on program 
operations. 

To achieve our objectives, we examined several fees assessed on air and 
sea port users--which vary in the ways in which they are set, 
collected, used, and reviewed--related to maritime, safety, and 
homeland security programs. Specifically, we examined the Harbor 
Maintenance Fee; the Merchandise Processing Fee; and the Customs, 
Immigration, and Agricultural Quarantine Inspection (AQI) user fees 
assessed on air and cruise passengers and commercial vessels.[Footnote 
3] We examined the fees using the following criteria that have often 
been used to assess user fees and taxes.[Footnote 4] 

* Efficiency: By requiring identifiable beneficiaries to pay for 
services, user fees can simultaneously constrain demand and reveal the 
value that beneficiaries place on the service. If those benefiting from 
a service do not bear the full social cost of the service, they may 
seek to have the government provide more of the service than is 
economically efficient. User fees may also foster production efficiency 
by increasing awareness of the costs of publicly provided services, and 
therefore increasing incentives to reduce costs where possible. 

* Equity: Equity has multiple facets, in part because beneficiaries and 
users may not be the same. Under the benefits-received principle, the 
beneficiaries of a service should pay for the service. Under the cost-
imposed principle, fees should be designed to impose a cost on the user 
in proportion to the cost that that user imposes on the program. Under 
the ability-to-pay principle, those who are more capable of bearing the 
burden of fees should pay more in fees than those with less ability to 
pay. 

* Revenue Adequacy: The extent to which the fee collections cover the 
intended share of costs. It encompasses the extent to which collections 
may diminish over time relative to the cost of the program. For the 
purposes of our work, revenue adequacy also incorporates the concept of 
revenue stability, which generally refers to the degree to which short-
term fluctuations in economic activity and other factors affect the 
level of fee collections. 

* Administrative Burden: The cost of administering the fee, including 
the cost of collection and enforcement, as well as the compliance 
burden (the administrative costs imposed on the payers of the 
fee).[Footnote 5] 

These criteria interact and are often in conflict with each other; as 
such, there are tradeoffs to consider between the criteria when 
designing a fee. Every fee design will have pluses and minuses, and no 
design will satisfy everyone on all dimensions. The weight that 
different policymakers may place on different criteria will vary, 
depending on how they value different attributes. Focusing only on the 
pros and cons of each element of reform could make it difficult to 
build the bridges necessary to achieve consensus. Policymakers will 
ultimately have to balance the relative importance they place on each 
of these criteria and focus on the overall fee design. To that end, 
understanding the tradeoffs associated with different aspects of a 
fee's design can provide decision makers with better information and 
support more robust deliberations about user fee financing. 

We reviewed user fee legislation, implementing regulations, agency 
documents and guidance, and literature on user fee design and 
implementation characteristics. To better understand the programs and 
services on which the fees are levied, as well as how the fees are 
administered, we observed vessel, passenger, and cargo inspection 
processes at eight U.S. seaports.[Footnote 6] We also interviewed 
officials at the Department of Homeland Security's (DHS) U.S. Customs 
and Border Protection (CBP), U.S. Army Corps of Engineers (Corps), and 
the U.S. Department of Agriculture's Animal and Plant Health Inspection 
Service (APHIS) involved in administering these fees[Footnote 7] and 
the programs the fees support, including regional officials at the 
ports we visited. CBP administers the Merchandise Processing and 
Customs inspection fees, and it collects the Harbor Maintenance Fee on 
behalf of the Corps. CBP administers the immigration user fees jointly 
with U.S. Immigration and Customs Enforcement (ICE) and the 
Agricultural Quarantine Inspection user fees jointly with APHIS. To 
obtain stakeholder perspectives on the impacts of the designs of the 
fees, we interviewed entities involved with the fees and the programs 
that they support, including cruise lines, shipping lines, customs 
brokers, shipping agents, and port authorities. In addition, we spoke 
with national organizations, including the American Association of Port 
Authorities, the World Shipping Council, and the Cruise Lines 
International Association. We asked questions about APHIS, CBP, and 
Corps internal controls for the data we used and determined that the 
data were sufficiently reliable for the purposes of this report. 

We performed our work from February 2007 through February 2008 in 
Washington, D.C.; Los Angeles and Long Beach, California; Miami and 
Port Everglades, Florida; Baltimore, Maryland; Boston, Massachusetts; 
Newark, New Jersey; New York, New York; Charleston, South Carolina; and 
Seattle, Washington, in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 
For more information on our scope and methodology, see appendix I. 

Results in Brief: 

Although all of the fees we examined vary in how they are set and 
adjusted, these differences are a particular issue with the inspection 
fees. Specifically, the passenger and vessel inspection processes in 
both the air and sea environments have been largely consolidated within 
CBP, but the legacy fees for passenger and vessel inspections remain 
separate and distinct, which increases administrative costs and creates 
confusion. In addition, the fees are not uniform in terms of the 
portion of costs they recover or on whom the fees are levied. For 
example, the Agricultural Quarantine Inspection (AQI) fees are adjusted 
through the regulatory process and the customs and immigration fees are 
set in statute. According to APHIS officials, the AQI fee rates are set 
to recover all program costs except for certain indirect and imputed 
costs.[Footnote 8] In contrast, the customs and immigration inspection 
fees are structured to recover partial costs. Furthermore, the 
statutory authorities governing overtime charges are different for each 
type of inspection, creating confusion about the circumstances under 
which vessel owners/operators must pay overtime charges, at what rate, 
and for which services. This complicates how and when overtime charges 
are both calculated and paid. 

Collection methods for some of the fees not only increase 
administrative costs but also may reduce compliance. Specifically, 
ineffective and outdated collection methods for vessel inspection fees 
increase administrative costs for both agencies and payers. This is 
exacerbated by the recent increase in the customs vessel inspection fee 
rate without a corresponding increase in the annual fee cap (maximum 
payment). A quarterly remittance schedule delays the availability of 
certain passenger inspection fees. Furthermore, a lack of coordination 
between the Corps and CBP inhibits oversight of Harbor Maintenance Fee 
(HMF) payments made by passenger vessel owners/operators, domestic 
shippers, and importers shipping into foreign trade zones. When these 
HMF payments are late, CBP does not charge interest or penalties, 
therefore failing to use an important tool to encourage timely payment. 
Collection methods function best when they minimize administrative 
costs and maximize compliance, as seen in the automated system CBP uses 
to process the Merchandise Processing Fee (MPF) as well as HMF assessed 
on imports. This system allows entry summaries to be electronically 
transmitted, validated, confirmed, corrected, and paid. 

The misalignment between fees and the services for which they are 
charged reduces both equity and economic efficiency and does not 
provide policymakers with information on the level of service for which 
users are willing to pay. All of the fees we reviewed suffer from some 
misalignment--although the nature of that misalignment varies--which 
affects how the fees are used. For example, as is the case with the 
airline passenger inspection fees,[Footnote 9] not all authorized, 
reimbursable activities for the sea passenger and vessel inspection 
customs fees are associated with conducting inspections, and not all 
inspection-related activities may be charged to these fees. 
Furthermore, the difference between HMF collections and funds 
appropriated for harbor maintenance has resulted in a large and growing 
surplus in the Harbor Maintenance Trust Fund (HMTF). Although both 
Corps officials and port stakeholders say many federally managed 
harbors and channels are undermaintained, the Corps has not yet 
completed cost estimates or time frames for addressing the backlog, and 
according to Corps officials, they do not know when these estimates 
will be finalized. Each fiscal year, CBP receives approximately $3 
million in appropriated HMTF funds for its costs to collect the HMF, 
but preliminary CBP estimates indicate that it only costs $2 million to 
collect the fee. 

Without regular, substantive fee reviews, agencies, stakeholders, and 
Congress lack complete information about changing program costs and 
whether authorized, reimbursable activities align with program 
activities. We have previously reported that agencies with shared 
responsibilities for common outcomes or related functions should 
reinforce agency accountability for collaborative efforts through 
common agency planning and reporting.[Footnote 10] However, CBP and 
APHIS report separately on the customs, immigration, and AQI vessel 
fees, and the reviews generally do not reflect input from the other. 
Furthermore, CBP's review of the MPF does not detail program costs and 
project fee collections, or provide enough information to determine if 
the amount, structure, or authorized uses of the fee should be updated. 
Because user fees represent a charge for a service or benefit received 
from a specific government program, payers may expect a tight link 
between payments and services, including expectations about the quality 
of the related service. We have previously reported on both the need to 
accommodate stakeholder input as well as various models for doing 
so.[Footnote 11] Although there are opportunities at the local level 
for payers to provide input on fees and the services they support, 
opportunities for payers to communicate with the Corps and CBP at the 
national level are either limited or do not encourage substantive, two-
way communication. Ineffective communication may reduce stakeholder 
cooperation and support for the fees, contribute to misunderstandings 
about how the fees work and what activities they may fund, and inhibit 
the agencies' ability to obtain input from stakeholders. 

In light of these challenges, we suggest Congress review the link 
between the Harbor Maintenance Fee and expenditures, and establish a 
harbor maintenance advisory committee to improve communication with 
stakeholders. Further, we are making eight recommendations to the 
Secretaries of Homeland Security, Agriculture, and the Army to improve 
the cost estimates, collection, distribution, remittance, compliance, 
and review of these user fees. 

We provided a draft of this report to the Secretaries of Homeland 
Security and Defense and to the Acting Secretary of Agriculture for 
review. We received written comments from the Department of Homeland 
Security (DHS), which are reprinted in appendix III, and oral comments 
from the Departments of Agriculture (USDA) and Defense (DOD). In 
addition, each agency provided technical comments, which we 
incorporated as appropriate. We also provided portions of the report to 
nonfederal stakeholders for their review and made technical corrections 
as appropriate. 

DHS characterized the report as balanced and accurate and agreed with 
the overall substance and findings of the report. Of the six 
recommendations directed at DHS, DHS concurred with five of them and 
partially concurred with the sixth. Specifically, DHS concurred in part 
with our recommendation to automate collections of the customs and AQI 
fees assessed on commercial vessels, stating that the agency will 
analyze the feasibility of this approach and work to identify and 
obtain funding to implement the recommendation if it is deemed cost 
beneficial. We appreciate that DHS recognizes the importance of using 
cost-effective methods to collect fees and look forward to receiving 
regular updates on DHS's and CBP's progress in this area. 

In its oral comments, USDA noted it was impressed with the level of 
explanatory detail and analysis contained in the report and said it 
generally agreed with our recommendations. Regarding our recommendation 
that USDA include certain indirect and imputed costs when setting the 
AQI fee rates, the agency said it will review the fee and seek guidance 
from its Office of the Chief Financial Officer and Office of General 
Counsel on this issue. 

USDA noted that it has been APHIS's position that because USDA receives 
appropriations to pay for departmental and staff office costs, and the 
U.S. Office of Personnel Management (OPM) receives appropriations for 
imputed costs such as future retirement benefit expenses, APHIS did not 
have the authority to include those costs in the fee. We interpret the 
AQI user fee statute, however, as permitting USDA to recover all costs 
associated with its program, including imputed and indirect costs. We 
recognize that imputed costs such as retirement and unfunded pension 
liabilities may be more directly linked to the fee-funded activity and 
more easily calculated than seeking to allocate departmental and staff 
office costs. Further, "full cost recovery" should be viewed from a 
governmentwide perspective. Even though USDA would have to deposit 
those portions of user fee collections as miscellaneous receipts in the 
general fund of the Treasury, and therefore would not directly 
reimburse the relevant appropriation account under a specific statute, 
it would still defray a cost that Congress determined should be paid 
for by the user fees. If USDA believes that the statutory authority 
does not permit it to cover such indirect and imputed costs, then we 
believe USDA should seek additional authority from Congress consistent 
with our recommendation. 

USDA also noted that it will need to (1) work with DHS to identify 
DHS's imputed costs for the AQI program and (2) consider the impact of 
the fee increase on payers. We recognize that if incorporating these 
costs will substantially increase the AQI fees, a measured approach 
that incorporates the costs gradually may be appropriate. 

DOD provided oral comments, and concurred with the findings, 
conclusions, and recommendations of the report related to the Army 
Corps' Harbor Maintenance Fee. 

Background: 

User financing-in the form of user fees, user charges, or targeted 
excise taxes-is one approach to financing federal programs or 
activities. User fees assign part or all of the costs of the benefits 
and services derived from these programs and activities--above and 
beyond what is normally available to the general public--to readily 
identifiable recipients of those benefits and services. 

Definition of User Fees: 

We have defined "user fees" or "user charges" as fees assessed on users 
for goods or services provided by the federal government.[Footnote 12] 
Some excise taxes, however, can also be described as a form of user 
financing.[Footnote 13] For example, the excise taxes on motor fuels, 
tires, and heavy vehicles accrue to the Highway Trust Fund, from which 
Congress appropriates funds for the interstate highway system, mass 
transit, and transportation projects. Similarly, Federal Aviation 
Administration (FAA) operations are funded in part by excise taxes 
assessed on airline tickets, aviation fuel, and certain cargo.[Footnote 
14] 

Requirements for Reviewing Fees: 

Both the Chief Financial Officers (CFO) Act[Footnote 15] and the Office 
of Management and Budget (OMB) Circular No. A-25 provide that agencies 
review their user fees biennially and make recommendations about any 
needed cost adjustments.[Footnote 16] Circular No. A-25 also states 
that each agency should review its programs to determine whether it 
could charge fees for any of its services, noting that if imposing such 
fees is prohibited or restricted by law, agencies will recommend 
legislative changes as appropriate.[Footnote 17] OMB encourages 
agencies to examine potential effects of design alternatives when 
reviewing and proposing changes to regulations, even when the 
regulations are mandated by statute. 

The user fees considered in this report, and summarized in table 1, are 
assessed under specific statutory authority and levied on air and sea 
passengers, vessel operators, or shippers (see app. II for a summary of 
the fees by payer). The fees vary in the way they are set, collected, 
used, and reviewed, which may affect their efficiency, equity, revenue 
adequacy, and administrative costs. 

Table 1: Comparison of Selected Port-Related Fees: 

Fee: Harbor Maintenance Fee[B]; 
Fee-setting authority: Congress; 
Administering agency: CBP, Army Corps of Engineers; 
Fee amount: 0.125% of vessel passenger tickets and declared value of 
commercial cargo[C]; 
Fee maximum/minimum: None[D]; 
Payer: Importers, domestic shippers, 
and passenger vessel operators; 
Amount collected[A]: $1.4 billion. 

Fee: Merchandise Processing Fee; 
Fee-setting authority: Congress; 
Administering agency: CBP; 
Fee amount: Formal entries:[E] 0.21% of declared value of cargo; 
Informal entries: generally $2-$9; 
Fee maximum/minimum: Formal entries: minimum $25, maximum $485 per 
entry; Informal entries: none; 
Payer: Importers; 
Amount collected[A]: $1.4 billion. 

Fee: Customs Passenger Inspection Fees; 
Fee-setting authority: Congress; 
Administering agency: CBP; 
Fee amount: $5.50/passenger with limited exceptions; 
Fee maximum/minimum: None; 
Payer: International air and sea passengers; 
Amount collected[A]: $285.7 million. 

Fee: Customs Vessel Inspection Fees; 
Fee-setting authority: Congress; 
Administering agency: CBP; 
Fee amount: Commercial vessels of 100 net tons or more: $437/arrival; 
Barges and bulk carriers from Mexico and Canada: $110/arrival[F]; 
Fee maximum/minimum: Commercial vessels: $5,955/year[G]; Barges and 
bulk carriers: $1,500/year[G]; 
Payer: Commercial vessels owners/operators; 
Amount collected[A]: $21.4 million. 

Fee: Immigration Inspection Fees [H]; 
Fee-setting authority: Congress; 
Administering agency: CBP, ICE; 
Fee amount: $7/passenger with limited exceptions[I]; 
Fee maximum/minimum: None; 
Payer: International air and sea passengers[I]; 
Amount collected[A]: $586.3 million. 

Fee: Agricultural Quarantine Vessel Inspection Fees [J]; 
Fee-setting authority: USDA; 
Administering agency: CBP, APHIS; 
Fee amount: $492 per arrival[K]; 
Fee maximum/minimum: 15 payments per calendar year (equal to $7,380); 
Payer: Owners/operators of commercial vessels of 100 net tons or more; 
Amount collected[A]: $27.3 million. 

Source: GAO analysis. 

[A] Total collections data are for fiscal year 2007. 

[B] This fee is called both the Harbor Maintenance Tax and the Harbor 
Maintenance Fee. The authorizing legislation--The Water Resources 
Development Act of 1986, Pub. L. No. 99-662--named it a "tax" and 
codified it in the Internal Revenue Code, but specified that it be 
considered a "customs duty," not a tax, for jurisdictional, 
administrative, and enforcement purposes. However, the label is not 
legally determinative. Instead, federal courts examine the assessment's 
structure and the context of its application to determine if, as 
applied, it is a fee or a tax. It is called a "fee" in agency 
regulations and in our prior work (GAO, U.S. Customs Service: 
Limitations in Collecting Harbor Maintenance Fees, GAO/GGD-92-25 
(Washington, D.C.: Dec. 23, 1991)). OMB's Analytical Perspectives also 
calls it a fee and lists it in the President's annual budget proposal 
to Congress under user charges, which the report defines as excluding 
taxes (Analytical Perspectives, "User Charges and Other Collections", 
Budget of the United States Government for Fiscal Year 2008, ch. 18 
(Feb. 5, 2007)). 

[C] The HMF is applied based on the value of the cargo (ad valorem) to 
cargo transported on a commercial vessel, including passengers 
transported for compensation, and loaded or unloaded at certain ports. 
CBP defines and administers the list of ports subject to the HMF. These 
ports include those receiving federal funding for construction or 
operation and maintenance since 1977. The fee is not imposed on any 
cargo associated with vessel movements on the inland waterways system, 
which is supported by a fuel tax. Ferry passengers and certain cargo 
are also exempt from the HMF. 

[D] The HMF is not assessed on domestic cargo valued at less than 
$1,000, and quarterly payment is not required if the total value of all 
shipments for which a fee was assessed for the quarter does not exceed 
$10,000. No payment is required for imported cargo that is entitled to 
be entered under informal entry procedures. 

[E] Merchandise entries are foreign shipments that require evidence of 
the importer's right to bring the merchandise into the United States. 
Formal entries generally refer to merchandise with a value over $2,000. 
Informal entries generally refer to merchandise with a value of less 
than $2,000 or personal importations regardless of value. 

[F] The $110 fee rate only applies to barges and bulk carriers from 
Canada and Mexico that are either in ballast or transporting only cargo 
laden in Canada or Mexico. 

[G] The annual cap is based on the calendar year. 

[H] The immigration air and sea passenger inspections are designed to 
prevent passengers from entering the United States without legal entry 
and immigration documents. CBP officers provide immigration inspections 
to individuals entering the country at all U.S. Ports of Entry--
airports, seaports, and land borders--as well as pre-inspection 
services at select locations outside of the U.S. The immigration 
inspection user fee is charged for air and sea passengers, but in 
general, not for people who arrive across the land border, by ferry, or 
via a vessel that operates on a regular schedule on the Great Lakes or 
connecting waterways. Fees are charged for certain land border 
inspection programs. 

[I] A $3 per passenger immigration inspection fee is charged to certain 
commercial vessel passengers whose journey originated in Canada; 
Mexico; the United States, including territories and possessions of the 
United States; or specified adjacent islands. 

[J] The agriculture vessel inspections are designed to prevent harmful 
pests or prohibited agriculture products from entering the United 
States. Agriculture inspection services are also provided at land 
border ports of entry and fees for the services are charged to 
commercial trucks and railcars, but not to private vehicles and 
individuals. AQI fees are also charged to arriving international air 
passengers and commercial aircraft. 

[K] The AQI vessel fee is scheduled to increase by $2 each fiscal year, 
through fiscal year 2010, when it will be $496. 

[End of table] 

The Inspection Process Is Largely Consolidated but the Inspection Fees 
Vary in How Rates Are Set and Adjusted, the Portion of Costs Recovered, 
and How Costs Are Assigned to Users: 

Although all of the fees we examined vary in how they are set and 
adjusted, these differences are a particular issue with the inspection 
fees. Specifically, the passenger and vessel inspection processes in 
both the air and sea environments have been largely consolidated within 
CBP, but the legacy fees supporting these inspections are still 
governed by separate, dissimilar authorizing legislation and vary 
significantly in how they are set and adjusted and how they link fee 
rates to the cost of services. APHIS uses the federal regulatory 
process to propose rate increases and invites comments on its proposals 
and implementing regulations via a public notice and comment in the 
Federal Register. Although various Congressional committees oversee 
this process, Congress has delegated to APHIS the authority and 
responsibility to set and adjust AQI fee rates to match program costs 
over time. In contrast, both the immigration and customs fee rates are 
set in statute. These fees can only recoup authorized program costs to 
the extent that total reimbursable program costs do not exceed the rate 
caps prescribed in statute. 

The AQI fee statute grants the Secretary of Agriculture broad 
discretion to prescribe and collect fees sufficient to cover the cost 
of providing agricultural quarantine and inspection services.[Footnote 
18] In spite of this, in 2006 we reported that financial management 
issues at CBP and APHIS adversely affect the AQI program's ability to 
perform border inspections and that, in fiscal years 2003 through 2005, 
user fees were not sufficient to cover program costs. Moreover, prior 
to fiscal year 2006, CBP was unable to provide APHIS with information 
on the actual costs of CBP's portion of the AQI program broken out by 
user-fee type--for example, fees paid by international air passengers 
or vessels.[Footnote 19] In 2007, APHIS and CBP further improved the 
AQI cost estimates by agreeing on a common set of assumptions used to 
forecast the cost of AQI activities.[Footnote 20] 

According to APHIS finance officials, the fee rates are now set to 
recover all program costs except for certain indirect and imputed 
costs, such as the cost of employee retirement benefits. We have 
previously found that OMB Circular No. A-25 guidance and USDA policy 
require the inclusion of indirect and imputed costs in setting full-
cost recovery fees, and that unless otherwise specified in statute such 
collections should be deposited in the Department of the Treasury's 
general fund.[Footnote 21] However, APHIS finance officials said that 
because the AQI authorizing statute does not authorize APHIS to spend 
fee collections on such expenses, APHIS does not include these costs 
when calculating the fee rate. APHIS also does not list these costs in 
the Federal Register when proposing rate increases, but noted that more 
transparency in this area could better inform users of the full cost of 
the program. APHIS estimates that these indirect and imputed costs for 
the AQI user fee program totaled approximately $18.9 million in fiscal 
year 2006. 

In contrast, the customs and immigration inspection fees are structured 
to recover partial costs. While both the immigration and customs 
statutes contain language that fees equal or be reasonably related to 
the cost of services, the two statutes actually prescribe an exact 
amount in law to be charged for their respective inspection services. 
That is, the immigration and customs user fees actually limit cost 
recovery to a sum certain. The customs statute further restricts cost 
recovery by limiting the set of activities for which collections may 
reimburse appropriations. The immigration statute makes immigration 
user fee collections available to refund any appropriation for expenses 
incurred in providing immigration inspection and pre-inspection 
services as well as certain other expenses, at least one of which--
administration of debt recovery--is not directly related to immigration 
inspections according to CBP officials. 

According to CBP data, in fiscal year 2006, commercial vessel customs 
inspections fee collections covered about 66 percent of related program 
costs.[Footnote 22] DHS does not know the portion of total immigration 
inspection costs covered by immigration fee collections. CBP and ICE 
share responsibility for reimbursable, immigration-related inspection 
activities and, to date, DHS has not reported final costs for ICE's 
inspection-related activities. According to CBP data, in fiscal year 
2006, CBP's portion of vessel inspection fee collections covered about 
67 percent of CBP's share of immigration vessel inspection costs, but 
until ICE's cost data are finalized, DHS will not know the total 
portion of immigration costs covered by total fee collections, or 
whether the fees are properly divided between CBP and ICE. 

Since the fees can pay for only some inspection activities and only 
under certain circumstances, ensuring proper use of fee collections can 
require detailed cost data. Collecting these data, however, can be 
particularly costly given the disparate fee structures. For example, to 
be reimbursed for time spent on authorized activities for various fees, 
CBP must track the time spent on these activities. Because the 
inspection processes have been largely combined but the separate 
distinct fees supporting these activities are not uniform, correctly 
tracking which activities can be reimbursed by which fees can be 
difficult. To help address the concern that timekeeping was taking time 
away from officers' inspection duties, CBP implemented a standard 
process for tracking time in early 2007. The process includes 
estimating the amount of time officers conducting different functions 
(e.g., vessel or passenger inspections) spend on different activities, 
including customs, immigration, and agriculture inspections. This 
process, however, has not completely addressed the problem. At one port 
we visited, on each shift, a full-time CBP officer was assigned solely 
to tracking staff time. Even with an efficient process for tracking 
time spent on different activities, the need to separately track three 
inspections that have largely been consolidated adds complexity and 
increases the potential for error. 

In general, the three fees are not levied uniformly, and sometimes 
involve cross-subsidization (see table 2). For example, although air 
passengers are charged an AQI fee, sea passengers (generally cruise 
ship passengers) are not. According to APHIS finance officials, the 
costs of these passenger inspections are imbedded in the cost of the 
AQI fee levied on vessel owners and operators. 

Table 2: Inspection Fees Levied on Vessel Owner/Operators and 
Passengers: 

Payer: Vessel owners/operators (for inspection of vessel and vessel 
crew); 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: [Check]; 
Inspection fees: Immigration: By statute, no fee, although the crew is 
inspected. 

Payer: Sea passengers; 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: Costs of inspecting sea 
passengers are charged to vessel owners/operators as part of the vessel 
fee; 
Inspection fees: Immigration: [Check]. 

Payer: Air passengers; 
Inspection fees: Customs: [Check]; 
Inspection fees: Agricultural quarantine: [Check]; 
Inspection fees: Immigration: [Check]. 

Source: GAO analysis of information from the Departments of Homeland 
Security and Agriculture. 

[End of table] 

According to APHIS finance officials who calculate the fee rates, the 
costs of inspecting sea passengers, fee-exempt vessels, and vessels 
that have met the annual fee cap are spread among all payers of the AQI 
vessel fees. They said that although it is rare for most commercial 
vessels to exceed the annual fee cap of $7,380--a total of 15 payments-
-cruise ships routinely exceed the cap because they arrive in the U.S. 
far more than 15 times each year. According to CBP data, fiscal year 
2006 CBP costs for the AQI commercial vessel inspections were 
approximately $35 million, and included about $2.2 million for 
passenger inspections and about $4 million for inspections of exempt 
private vessels. The cost data that CBP provides to APHIS does not 
indicate what portion of the $35 million is associated with inspecting 
cruise ships that have exceeded the fee cap. 

Sea and air passengers pay an immigration inspection fee, but no such 
fee is levied on vessel crew although they must undergo inspection. As 
a general rule, the costs of crew inspection are not charged to vessel 
owner/operators, although they may be charged for overtime immigration 
inspections of vessel crew at some ports. This makes fees 
unpredictable. Predictability of inspection fees enables users to plan, 
charge clients for, and account for related costs, but inconsistent 
rules for overtime inspections lead to uncertainty. The separate 
statutory and regulatory structures of the three overtime inspection 
charges are not aligned and overtime is not handled uniformly within 
some of the fees (see fig. 1). For immigration inspections conducted on 
a Sunday, holiday, or between the hours of 5:00 p.m. and 8:00 a.m. and 
when a given inspector is working overtime, CBP must charge a vessel 
operator, owner, or agent for the overtime cost of the immigration 
inspections. Because regular business hours vary by port, the hours 
during which an inspector might be working overtime vary. In addition, 
the amount charged depends on the number and pay grade(s) of the 
officer(s) performing the inspection and the amount of time spent on 
the inspection, adding to unpredictability and increasing DHS's costs 
to administer the fee. Overtime charges for agriculture vessel 
inspections must, by regulation, be applied at an hourly rate for 
overtime inspections on a Sunday or holiday, or whenever the individual 
inspector is working overtime. According to CBP officials, collections 
for reimbursable overtime agriculture inspections total about $1.2 
million annually. Moreover, although vessels must be charged for 
overtime inspections, AQI regulations explicitly prohibit charging for 
similar overtime inspections of aircraft when passengers have already 
paid an AQI fee for that flight.[Footnote 23] 

Lastly, according to CBP officials, CBP has limited authority to charge 
for overtime for customs inspection services. CBP officials told us 
that as a result, in practice, overtime charges are not assessed for 
most customs overtime inspections. 

Figure 1: Fees Levied on Commercial Vessel Operators for CBP 
Inspections: 

[See PDF for image] 

This figure contains an illustration: Vessels are boarded by CBP 
officers and agricultural specialists, who perform customs, AQI, and 
immigration inspections. Also contained in the illustration is the 
following information: 

Agricultural quarantine and customs inspections fees: 
Regular port hours: 
CBP officers review the vesselï¿½s payment receipts to determine if caps 
have been reached. 
* AQI cap: 15 payments per year; 
* Customs cap: approximately 13.6 payments per year. 
If payment is due, vessel operator or agent pays officer by check or 
cash, and receives a paper receipt. 
Overtime hours: 
* AQI: Overtime charges are assessed for inspections done on a Sunday 
or holiday, or if the individual inspector is working overtime, 
regardless of the time of day or the operating hours of the port. 
* Customs: According to CBP officials, CBP has limited authority to 
charge for overtime for customs inspection services. 

Immigration inspection fee: 
Regular port hours: If inspection is done during regular port hours, no 
fee is charged. 
Overtime hours: If inspection is done on a Sunday, holiday, or between 
5:00 p.m. and 8:00 a.m., and the inspector is working overtime, the 
vessel operator or agent must reimburse CBP for the actual overtime 
costs. 

Source: GAO analysis of CBP information. 

[End of figure] 

Some payers told us that they often do not know whether or when they 
will incur overtime fees and what the charges will be.[Footnote 24] 
They said that consistent fees would offer predictability and reduce 
confusion. CBP officials also told us that billing vessel owners for 
overtime inspections is administratively burdensome. According to CBP 
estimates, CBP's costs to process and bill immigration and agriculture 
inspection overtime charges totaled 26 percent of those collections in 
fiscal year 2007. The statutory authorities governing immigration 
overtime inspection charges mandate that the amount of the charge be 
dependent upon the amount paid to the inspector, subject to specified 
limitations. However, CBP officers are paid under a different statutory 
scheme, which does not contain the same limitations. Therefore, 
according to CBP, the agency cannot automatically bill the vessel 
operator or shipping agent for immigration overtime services. Instead, 
CBP must make calculations manually based upon the limitations 
contained in the immigration overtime authorities and the amount 
actually paid to the CBP officer performing the inspection services. 
CBP officials said that although charges for overtime inspections make 
sense because the inspections are more costly, a consistent set of 
overtime charges for customs, immigration, and agriculture inspections 
that did not vary by port or the rank of the inspecting CBP officer 
would increase revenue, decrease administrative costs, and improve 
CBP's relations with the trade community. 

Costly, Ineffective Collection Methods and Lack of Interagency 
Coordination Increase Noncompliance for Harbor Maintenance and Vessel 
Inspection Fees: 

Ineffective and outdated collection methods for vessel inspection fees 
increase administrative costs for both agencies and payers. 
Furthermore, a lack of coordination between the Corps and CBP inhibits 
oversight of HMF payments for passenger vessels, domestic shipments, 
and shipments into foreign trade zones. Also, when these HMF payments 
are late, CBP does not charge interest or penalties and is therefore 
not using an important tool to encourage timely payment. Collections 
methods function best when they minimize administrative costs and 
maximize compliance, as seen in the automated system CBP uses to 
process the MPF as well as HMF assessed on imports. This system allows 
entry summaries to be electronically transmitted, validated, confirmed, 
corrected, and paid. 

Vessel Fee Collection Methods Are Ineffective and Outdated: 

The method of collecting the customs and AQI commercial vessel fees 
imposes unnecessary administrative costs on CBP and payers and may 
increase the likelihood of over-or underpayments. User fees function 
best when they minimize, to the extent practicable, administrative 
costs. Recognizing this, Treasury's Financial Management Service has 
made it a priority to increase the use of electronic collection methods 
for government collections. CBP is automating collections for several 
user fees but to date, the commercial vessel fees may still only be 
paid in person by check or cash (see fig. 2). Moreover, payers must 
retain each paper payment receipt and present them at each entry so 
that CBP can determine whether that particular vessel has reached the 
annual fee cap. If a payer misplaces the receipt proving that the 
vessel has reached the fee cap, the fee must be paid. The payer may 
request a refund if the receipt is later found, although several 
stakeholders told us this process is lengthy and burdensome. Some 
stakeholders and CBP field office staff expressed frustration with the 
paper-based system and told us that an automated payment and record-
keeping system would speed the collection process, reduce the 
likelihood of payment errors, and reduce administrative costs for both 
parties. 

These administrative challenges are exacerbated by the recent increase 
in the customs vessel inspection fee rate without a corresponding 
increase in the annual fee cap. Before the fee was raised in April 
2007, the annual cap was equal to 15 payments. Some CBP officers told 
us that for both the customs and AQI fees, they simply counted the 
number of times the fee was paid within a given year to determine if a 
vessel had reached the cap. The AQI vessel fee is paid at the same time 
as the customs vessel inspection fee and is capped at an amount 
equaling 15 payments per year. Because the customs fee was increased 
but the cap was not, the cap is now equal to approximately 13.6 
payments, meaning that the 14th payment is less than the standard, per 
arrival fee amount.[Footnote 25] CBP officers must be aware when 
processing payments that the 14th payment will be for a different 
amount than the typical fee rate, and that the fee cap is now 
structured differently than the AQI vessel fee. 

Figure 2: Collection Methods for the Customs, AQI, and Immigration 
Inspection Fees: 

[See PDF for image] 

This figure contains an illustration of fee collections as well as the 
following information: 

Vessels: 
Customs inspection fee: Vessel operator or agent pays CBP by check or 
cash at the time of the inspection and receives a paper receipt; 
Agricultural quarantine inspection fee: Vessel operator or agent pays 
CBP by check or cash at the time of the inspection and receives a paper 
receipt; 
immigration inspection fee: Not charged under these scenarios. 

Sea passengers: 
Customs inspection fee: Fees are paid quarterly to CBP; 
Agricultural quarantine inspection fee: Not charged under these 
scenarios; 
immigration inspection fee: Fees are paid quarterly to CBP. 

Source: GAO analysis of CBP information. 

[End of figure] 

Quarterly Remittance Schedule Delays Availability of Certain Passenger 
Inspection Fees: 

According to CBP officials, the quarterly remittance schedule for the 
passenger inspection fees contributes to a several month delay between 
the use of appropriated funds and receipt of reimbursement from the 
immigration and AQI user fee accounts, which has delayed CBP's ability 
to spend funds on critical mission areas such as hiring personnel, 
purchasing equipment, or travel. To address this challenge, CBP told us 
it has developed a legislative proposal that would, in part, require 
monthly instead of quarterly remittance.[Footnote 26] A representative 
of a cruise line industry association we spoke with noted that monthly 
payments would increase the administrative costs to the cruise lines, 
but that if a steadier supply of funding helped CBP to provide better 
service, it would be worthwhile.[Footnote 27] 

Oversight of Certain HMF Collections Is Insufficient: 

Insufficient coordination between CBP and the Corps inhibits CBP's 
ability to ensure that certain HMF payments are properly made; without 
this information CBP cannot verify compliance with the fee. HMF 
payments for passenger vessels, domestic shippers, and shipments into 
foreign trade zones are paid quarterly by check to CBP (see fig. 3). 
According to Corps officials, the Corps gathers information on domestic 
vessel movements and could provide this information to CBP. However, 
CBP does not request and the Corps does not share information with CBP 
on these types of domestic freight movements, which would help ensure 
that proper payments are made. An official from CBP's Revenue Division 
said if CBP had information on freight movements it could reconcile 
them to HMF payments in order to monitor compliance rather than relying 
on self-reported payer information. The Revenue Division receives this 
type of "front-end reporting" for other, similar fees and, the official 
noted, front-end reporting is one of the best ways to establish a 
receivable and ensure proper payment. 

Furthermore, CBP does not systematically review late or improper HMF 
payments for passenger vessels, domestic shippers, and shipments into 
foreign trade zones or charge interest for these late payments and 
therefore is not using an important tool to encourage timely payment. 
CBP's Revenue Division does not track whether these HMF payments are 
paid on time or late. During the course of our work, CBP officials said 
that CBP should be tracking and assessing interest and penalties on 
these late payments. CBP reviewed recent payment history and found that 
42 percent of payments--representing approximately 18 percent of the 
total dollar value--were late. According to these officials, they are 
taking steps to begin collecting interest on past and future late 
payments. They estimate interest collections for last year to be about 
$182,000; they do not yet have an estimate for annual penalties. 
Further, they said that they have begun reviewing the authority related 
to penalties in order to determine an appropriate dollar threshold that 
would trigger assessment and collection actions. 

Figure 3: Collection Methods for the Harbor Maintenance and Merchandise 
Processing Fees: 

[See PDF for image] 

This figure contains an illustration of agents at a harbor, as well as 
the following information: 

Formal customs entry: 
Harbor maintenance fee: Fees are generally paid electronically, along 
with customs duties, by a customs broker; 
Merchandise processing fee: Fees are generally paid electronically, 
along with customs duties, by a customs broker. 

Informal customs entry: 
Harbor maintenance fee: Not charged under these scenarios; 
Merchandise processing fee: Fees are paid to CBP by cash, check, or at 
some ports, credit card. 

Imported merchandise enters the U.S. through a foreign trade zone: 
Harbor maintenance fee: Fees are paid quarterly to CBP; 
Merchandise processing fee: Fees are generally paid electronically, 
along with customs duties, by a customs broker. 

Sea passengers: 
Harbor maintenance fee: Fees are paid quarterly to CBP; 
Merchandise processing fee: Not charged under these scenarios. 

Domestic shipments: 
Harbor maintenance fee: Fees are paid quarterly to CBP; 
Merchandise processing fee: Not charged under these scenarios. 

Source: GAO analysis of CBP information. 

[End of figure] 

Finally, CBP's Regulatory Audits division has not conducted any audits 
specific to the HMF since 1996; rather, the fee is audited incidentally 
during the course of audits related to other fees or duties. Although 
CBP's audit selection strategy includes referrals from within and 
outside CBP,[Footnote 28] CBP has not requested and the Corps has not 
offered any HMF-related referrals. 

In contrast to the HMF collections process for passenger vessels, 
domestic shippers, and shipments into foreign trade zones, CBP's 
collection process for both the MPF and HMF assessed on formal customs 
entries has several advantages.[Footnote 29] CBP accepts electronic 
payment for these fees along with customs duties, which are typically 
paid by a customs broker on behalf of an importer. CBP's automated 
system allows entry summaries to be electronically transmitted, 
validated, confirmed, corrected, and paid, which expedites the release 
of merchandise. Customs brokers we spoke with said that the system 
works well, is efficient, and imposes minimal administrative costs. It 
is less costly for the government and payers of the fee for CBP to 
collect the fee as part of the formal entry process than it would be 
for the Corps or another entity to establish a new collections process 
because CBP already values cargo for the assessment of duties, so there 
is no duplication of effort. Further, when CBP conducts audits on the 
value of cargo to determine if the declared value of the goods is 
correct, CBP also determines if the correct amount was paid for HMF and 
MPF. Because these are ad valorem fees, if the value of the goods is 
understated, additional HMF and MPF fees may be due.[Footnote 30] 

Misalignments Exist between Fee Collections and Activities for Which 
They May Be Used: 

All of the fees we reviewed suffer from some misalignment--although the 
nature of that misalignment varies--which affects how the fees are 
used. Similar to the airline passenger inspection fees,[Footnote 31] 
not all authorized, reimbursable activities for the sea passenger and 
vessel inspection customs fees and MPF are associated with conducting 
inspections, and not all inspection-related activities may be charged 
to these fees. HMF collections far exceed funds appropriated for harbor 
maintenance, resulting in a large and growing surplus in the Harbor 
Maintenance Trust Fund (HMTF), while Corps officials and port 
stakeholders assert that many federally managed channels are 
undermaintained. 

For Customs Inspection and Merchandise Processing Fees There Are 
Disconnects between Reimbursable Activities and Activities Involved in 
Inspections: 

The customs inspection activities and the authorized uses for the 
customs passenger and vessel fee collections are misaligned. For 
example, under the customs authorizing statute, passenger inspection 
fee collections are only available to reimburse appropriations for a 
limited, prioritized set of activities--including foreign language 
proficiency awards and transfers to the Treasury's General Fund of not 
more than $18 million for the purposes of deficit reduction.[Footnote 
32] Further, as we discussed earlier, by statute customs inspection-
related activities that occur while a CBP officer is earning overtime 
or premium pay, or during preclearance,[Footnote 33] can be funded by 
the user fees, but the same activities conducted during regular time 
cannot be funded by the fee. Therefore, not all of the activities that 
may be funded from the customs fee are associated with conducting 
customs inspections, and not all customs inspection activities are 
reimbursable (i.e., can be covered by funds from the user fee account). 
Moreover, use of the customs vessel and sea passenger fee collections 
is not restricted to vessel and sea passenger inspections. Rather, they 
may be used to reimburse authorized inspection activities conducted at 
air, sea, or land ports of entry. 

Similar alignment issues exist with the MPF. CBP officials said that 
since the events of September 11, 2001, the focus of merchandise 
processing has shifted toward security and away from the original focus 
on trade compliance.[Footnote 34] They said that certain activities 
associated with merchandise processing and performed by CBP officers, 
including screening and inspecting conveyances (including nonintrusive 
searches), processing seized narcotics, and inspecting vessels and 
containers, are not reimbursable MPF activities, but should be. 
According to CBP officials, the legislation governing the MPF should be 
explicitly consistent with CBP's mission--that revenue and commercial 
functions should include commercial as well as security and 
antiterrorism elements. 

There Is No Link between the Amount of Annual HMF Collections and 
Expenditures: 

Since 2003, HMF collections have significantly exceeded funds 
appropriated for harbor maintenance, resulting in a large and growing 
surplus in the trust fund. This may be inconsistent with users' 
expectations of the fee's purpose as laid out in statute and the 
principles of effective user fee design. Specifically, the authorizing 
legislation generally designates the use of HMF collections for harbor 
maintenance activities.[Footnote 35] Furthermore, according to 
stakeholders, this misalignment between fee collections and 
expenditures undermines the credibility of the HMF. According to CBP 
data and Treasury reports, in 2001 HMF collections exceeded 
expenditures by about $44 million, and by 2007 that gap had grown to 
over $506 million (see fig. 4).[Footnote 36] 

There are several reasons why growth in collections has outpaced growth 
in expenditures. Total collections grew 101 percent from $704 million 
to $1.416 billion from 2001 to 2007. Corps officials told us this was 
driven by the ad valorem nature of the fee--receipts grow with both 
volume and value of shipments. Annual harbor maintenance project 
expenditures, which are subject to annual appropriation, grew more 
slowly--from $660 million in 2001 to $910 million in 2007 (38 percent). 

Figure 4: HMF Collections Increasingly Exceed Program Expenditures 
(dollars in millions): 

[See PDF for image] 

This figure is a multiple line graph depicting the following data: 

Fiscal year: 2001; 
Total collections: $704; 
Total expenditures: $660. 

Fiscal year: 2002; 
Total collections: $685; 
Total expenditures: $656. 

Fiscal year: 2003; 
Total collections: $771; 
Total expenditures: $586. 

Fiscal year: 2004; 
Total collections: $889; 
Total expenditures: $648. 

Fiscal year: 2005; 
Total collections: $1048; 
Total expenditures: $706. 

Fiscal year: 2006; 
Total collections: $1207; 
Total expenditures: $798. 

Fiscal year: 2007; 
Total collections: $1416; 
Total expenditures: $910. 

Sources: GAO analysis of total HMF collections data from the CBP 
Revenue Division and expenditures data from Department of the Treasury 
HMTF Annual Reports, 2001-2007. 

Note: Total collections exclude HMF assessments on exports, which were 
declared unconstitutional in 1998 and for which refunds and adjustments 
of collections were still being processed during these years. Total 
expenditures include an annual payment to CBP for its costs for 
collecting the HMF. 

[End of figure] 

The difference between the amount collected and the amount expended has 
led to a growing balance in the HMTF. In addition, the HMTF is credited 
with interest on its surplus. Between fiscal years 2001 and 2007, the 
balance in the HMTF grew from $1.8 billion to $3.8 billion and Corps 
officials told us they expect it to reach $8 billion in fiscal year 
2011 (see fig. 5). 

Since 1996, the President has included in his annual budget requests 
and Congress has appropriated $3 million from the HMTF to compensate 
CBP for costs associated with collecting the fee. However, CBP finance 
officials told us that they estimate the annual cost of collecting the 
HMF to be approximately $2 million. Officials at the Corps and CBP were 
unable to explain why the President's budget request for this activity 
was higher than the estimated cost of collecting the fee. The Corps 
prepares an annual report to Congress on the Harbor Maintenance Trust 
Fund, which includes a substantive review of the fee, but does not 
include information on these costs. 

Figure 5: HMTF Actual and Projected Year-End Balances (dollars in 
millions): 

[See PDF for image] 

This figure is a line graph depicting the following data: 

Fiscal year: 2001; 
Balance: $1819. 

Fiscal year: 2002; 
Balance: $1873. 

Fiscal year: 2003; 
Balance: $2092. 

Fiscal year: 2004; 
Balance: $2366. 

Fiscal year: 2005; 
Balance: $2783. 

Fiscal year: 2006; 
Balance: $3306. 

Fiscal year: 2007; 
Balance: $3812. 

Fiscal year: 2008; 
Balance: $4728. 

Fiscal year: 2009; 
Balance: $5624. 

Fiscal year: 2010; 
Balance: $6704. 

Fiscal year: 2011; 
Balance: $7947. 

Sources: GAO analysis of total HMF collections data from the CBP 
Revenue Division and expenditures data from Department of the Treasury 
HMTF Annual Reports, 2001-2007. 

Note: The annual balances and projections include interest accrued 
during each fiscal year. 

[End of figure] 

The HMTF is not the only fund for which revenues flow in automatically 
from earmarked taxes or fees and spending must be appropriated. In the 
1990s the Highway Trust Fund also built up a surplus. At the time, 
Congress and the President modified the discretionary spending caps to 
provide for a separate cap on highway funding. In 1998, Congress 
specified a more automatic link between spending from the Highway Trust 
Fund and receipts into the Trust Fund. The experience with these annual 
adjustments, known as Revenue Aligned Budget Authority (RABA), 
highlights some problems with such links. Spending was tied to 
estimated receipts with a retroactive adjustment; this worked only as 
long as the adjustments were positive--when receipts came in below 
estimated levels and would have resulted in an automatic cut in highway 
program funding levels, the cut was overridden.[Footnote 37] A 
different mechanism is used for the Food and Drug Administration (FDA) 
prescription drug user fee: if actual FDA fee collections are higher 
than the amount appropriated, FDA must adjust fee rates in a subsequent 
year to reduce its anticipated fee collections by that amount.[Footnote 
38] 

Even if there were a tighter link between collections and expenditures, 
the HMTF should not necessarily aim for a zero balance. Corps officials 
and some stakeholders agreed that there are good reasons to consider 
maintaining a positive balance in the trust fund.[Footnote 39] Where 
fees are expected to cover program costs and program costs do not 
necessarily decline with a drop in fee revenue, a reserve can be 
important. For example, the AQI fees are maintained with a reserve of 
approximately 3 months worth of program costs in case of emergency. 
According to APHIS, the reserve is necessary because the AQI program is 
funded solely through user fee collections. 

As with similar situations, deciding whether and how to link HMF 
collections with expenditures is complicated. On the one hand, aligning 
collections and expenditures can promote economic efficiency and 
enhance stakeholder support for the fee.[Footnote 40] On the other 
hand, increased spending on harbors or reduced fee collections would 
increase the federal deficit, unless spending in other areas was 
decreased or other collections or revenues were increased. Moreover, 
our prior work shows that providing guaranteed funding levels to any 
one activity in the budget protects that activity from competition with 
other areas for scarce resources and limits Congressional discretion to 
make trade-offs in spending priorities.[Footnote 41] Regardless of the 
approach taken, a reduction in fee receipts or an increase in 
appropriations--absent offsetting changes elsewhere--will increase the 
federal deficit.[Footnote 42] Given the fiscal pressures imposed by the 
nation's large and growing structural deficits, decisions about 
changing the HMF should consider its continued relevance and relative 
priority within the context of reexamining the base of all major 
federal spending and tax programs. 

Despite the Harbor Maintenance Trust Fund Balance, Backlogs Result in 
Costly Delays and Could Affect Shipping Conditions: 

Despite large and growing balances in the harbor maintenance trust 
fund, both Corps officials and other stakeholders told us that there is 
a backlog of harbor maintenance, which can result in costly delays and 
more dangerous shipping conditions. A recent Corps analysis of the 59 
busiest commercial federal channels in the U.S. found that the 
authorized depth was available in the middle of the channel only 
approximately 35 percent of the time in fiscal year 2005 and 33 percent 
of the time in fiscal year 2006.[Footnote 43] Although ships continue 
to use these channels and harbors, not maintaining them to their 
justified design dimensions can cause problems. For example, according 
to Corps officials in one port we visited, some vessels are delayed 
because they have to wait for high tide in order to pass through the 
channels. They also reported instances where ships skipped a port of 
call altogether if such a delay would have caused the ship to miss its 
scheduled appointment at the Panama Canal. These types of disruptions 
affect both regional commerce and port profits. A 2007 report by the 
U.S. Committee on the Marine Transportation System (CMTS) found that 
vessels often deal with the challenges of poorly dredged and maintained 
channels and harbors by "light loading," i.e., loading less cargo than 
their full capacity, in order to reduce their sailing draft[Footnote 
44]; this in turn increases shipping costs. Furthermore, if a port is 
not well maintained, it may lack the capacity to handle increasingly 
larger vessels and therefore lose business or drive up costs. For 
example, according to South Carolina State Ports Authority officials, 
the authorized depth of the Port of Georgetown is 27 feet, but the 
channel has silted in to 25 feet on numerous occasions over the past 
several years. With the channel at only 25 feet, a company bringing in 
rock for the regional construction industry can only bring in about 
24,000 tons per vessel, down from 28,000 tons with a 27-foot channel. 
They said that this "light-loading" of vessels significantly drives up 
its operating cost and impacts construction costs. 

The 2007 CMTS report found that channel limitations may lead to unsafe 
conditions and interaction with other vessels. Consistent with this 
finding, according to a Corps after-action report, a full oil tanker 
ran aground in East Rockaway, New York, in 2006 due in part to a lack 
of maintenance. Corps officials said the Corps now uses a performance-
based budgeting model to set harbor maintenance priorities, in which 
projects are prioritized primarily by the amount and value of 
commercial tonnage moving through the harbor or channel.[Footnote 45] 
As part of this effort, the Corps is developing a national estimate of 
the cost to make the 59 busiest channels available 95 percent of the 
time at their full-use dimensions, but there is no timeline for 
completing that study.[Footnote 46] 

Lack of Substantive Review and Mechanisms for Substantive Stakeholder 
Input Impede Agency and Congressional Oversight and Ability to Align 
Program Costs and Activities: 

Without regular, substantive fee reviews, agencies, stakeholders, and 
Congress lack complete information about changing program costs and 
whether authorized, reimbursable activities align with program 
activities. For example, CBP and APHIS report separately on the 
customs, immigration, and AQI vessel fees, and the reviews generally do 
not reflect input from the other. Furthermore, CBP's review of the MPF 
does not detail program costs and project fee collections, or provide 
enough information to determine if the amount, structure, or authorized 
uses of the fee should be updated. Because user fees represent a charge 
for a service or benefit received from a specific government program, 
payers may expect a tight link between payments and services, including 
expectations about the quality of the related service. Although there 
are opportunities at the local level for payers to provide input on 
fees and the services they support, opportunities for payers to 
communicate with the Corps and CBP at the national level are limited. 
Ineffective communication may reduce stakeholder cooperation and 
support for the fees, contribute to misunderstandings and confusion 
about how the fees work and what activities they may fund, and inhibit 
the agencies' ability to obtain input from stakeholders about fees and 
the programs that they fund. 

CBP Reviews of Inspection Fees Do Not Include Information from APHIS 
and ICE: 

Congress does not have a comprehensive view of the vessel and passenger 
AQI, customs, and immigration inspection fees and how they work 
together, and may therefore lack important context for reviewing them. 
As we found in our recent review of the related air passenger 
fees,[Footnote 47] despite integration of the inspection processes for 
the three sea passenger and vessel fees, the administering agencies 
report separately on their respective fees. DHS has acknowledged that 
the challenges described in our previous work extend beyond air 
passenger inspections to other fees managed by the agency. In the case 
of the AQI, customs, and immigration vessel and sea passenger fees, the 
agencies and Congress lack information on the total costs of the 
combined inspections, and therefore do not know whether fee collections 
cover the costs of the consolidated inspection program. We have 
previously reported that agencies with shared responsibilities for 
common outcomes or related functions should reinforce agency 
accountability for collaborative efforts through common planning and 
reporting.[Footnote 48] CBP prepares a biennial report with summaries 
and key points for each of the user fees that it administers. CBP's 
user fee review includes the customs fee, the portion of the AQI fee 
CBP receives, and the immigration fee. However, the information 
provided about the immigration fee did not include any input from ICE, 
which did not have cost information about its portion of the 
immigration fee at the time.[Footnote 49] APHIS's review includes the 
entire AQI fee, but does not include any information from CBP on its 
portion of the agriculture inspections and is based only on APHIS's 
analysis of the fee collections and inspection costs. 

CBP Reviews of the MPF Do Not Provide Sufficient Information on 
Collections and Program Costs: 

Although CBP includes the MPF in its biennial user fee review, the 
information provided is not sufficient to project fee collections or to 
provide assurance that the amount of the fee is aligned with program 
costs. Without this information, CBP is not able to determine if the 
amount, structure, or authorized uses of the fee should be updated or 
to recommend changes to the fee statute. According to CBP Office of 
Finance officials, CBP has reliable information on the extent to which 
MPF collections cover the costs of related activities only for the past 
few years. These officials noted that as recently as 2003, cost 
calculations have included activities that are not directly associated 
with processing cargo or that are covered by other fee programs. 
Furthermore, CBP cannot reliably project future MPF collections because 
the agency has not estimated the effects of exemptions, entries made 
through foreign trade zones, the decline in the constant dollar value 
of the minimum and maximum fees, or changes in import demographics on 
total MPF collections. CBP data on MPF collections and program costs 
indicate that since fiscal year 2004 collections have increased 
relative to program costs and in fiscal years 2006 and 2007 collections 
exceeded costs by a total of approximately $221 million (see fig. 6). 

Figure 6: Total Annual Merchandise Processing Fee Collections and 
Program Costs (dollars in millions): 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Fiscal year: 2004; 
Collections: $1134; 
Costs: $1359. 

Fiscal year: 2005; 
Collections: $1261; 
Costs: $1310. 

Fiscal year: 2006; 
Collections: $1350; 
Costs: $1334. 

Fiscal year: 2007; 
Collections: $1434; 
Costs: $1229. 

Source: GAO analysis of CBP data. 

[End of figure] 

CBP's most recent biennial report notes that a detailed analysis of the 
current and projected effects of MPF exemptions and an accurate cost 
estimate for processing merchandise is needed. CBP officials told us 
that they plan to conduct a detailed review of the MPF in the second 
phase of a three-phase review of the agency's user fees. They said that 
they estimate beginning the MPF review in early 2008, but the timeline 
depends on when the first phase is completed.[Footnote 50] 

Stakeholders Have Limited Opportunities for Input on Fee Programs: 

Agencies can accommodate stakeholder input in various ways. We have 
previously reported on both the need to accommodate stakeholder input 
as well as various models for doing so.[Footnote 51] Some Corps and CBP 
officials have established successful, two-way communication practices 
at the local level. For example, some Corps division offices publicly 
post survey results and maps showing the controlling depth reports for 
local harbors and channels. One local Corps official said this practice 
encourages more dialogue with stakeholders, noting that they will e-
mail the office to find out when highlighted areas will be dredged. 
Also, several of the CBP field offices we visited hold regular meetings 
with port stakeholders to share information and address stakeholder 
concerns. 

However, there is currently no formal vehicle for payers of the HMF and 
other port stakeholders to provide input to the Corps on the HMF itself 
or on national harbor maintenance projects and priorities supported by 
the fees. The HMF authorizing legislation did not establish an HMF 
advisory committee, though it did establish an advisory committee for a 
similar program that funds new work construction and rehabilitation on 
inland waterways. The purpose of this Inland Waterways Users Board is 
to make recommendations on priorities and spending for inland waterway 
construction and rehabilitation projects. 

As we have previously reported, both the customs and immigration 
passenger inspection fee statutes required the establishment of 
advisory committees consisting of industry representatives to advise 
the agency on issues related to inspection services, including fee 
levels.[Footnote 52] CBP's Airport and Seaport Inspections User Fee 
Advisory Committee meets biannually to advise the commissioner of CBP 
on issues related to the performance of airport and seaport 
agriculture, customs, or immigration inspections. The committee members 
represent entities subject to the fees, including airlines, airports, 
cruise lines, and industry associations. We recently reported that 
stakeholders felt that the advisory committee provided only limited 
opportunities for substantive two-way communication.[Footnote 53] As a 
result, they said they lack data necessary to know whether the 
passenger inspection fees are set fairly or accurately, or are being 
spent on the appropriate activities. 

Our prior work found that federal advisory committees play an important 
role in shaping public policy by providing advice on a wide array of 
issues.[Footnote 54] Their advice can enhance the quality and 
credibility of federal decision making. Despite the strengths 
associated with the federal advisory committees as a means to 
facilitate effective stakeholder input, agencies also need to be 
careful to maintain their mission to promote the public interest and 
take measures to safeguard against actual or perceived agency capture 
by the entities paying the fee. According to a Congressional Research 
Service report on the FDA prescription drug user fees, some critics 
said that giving the pharmaceutical industry a role in setting program 
performance goals creates conflicts of interest and gives the industry 
too much influence over FDA actions.[Footnote 55] Agencies also need to 
ensure that all stakeholders are given the opportunity to engage 
substantively. Some smaller businesses have raised concerns that FAA 
only consults with selected major airlines and manufacturers, ignoring 
commuter airlines and smaller businesses also affected by FAA 
regulations. 

Stakeholders Have Concerns about Port-Related Fees and the Services 
They Support: 

Many of the stakeholders we spoke with said that although the ad 
valorem structure of the HMF makes it relatively easy to administer, it 
raises concerns about equity. Specifically, they noted there is no link 
between the value of their cargo and the depth or width of the harbor 
needed by the ship on which it is carried. For example, importers of 
high-value goods, such as natural gas and pharmaceuticals, told us they 
essentially pay a much greater share of dredging costs than importers 
of low-value cargo. Stakeholders said that a ship's size and draft 
combined with harbor conditions drive harbor maintenance costs, and 
therefore may more closely link benefits received with the cost of 
providing the benefits. Other stakeholders noted that a benefit of the 
ad valorem structure is that it may better reflect the users' ability 
to pay. 

Some stakeholders also said that because the HMF fee structure does not 
reflect the individual dredging needs of ports, i.e., lower for 
naturally deep west coast ports that require very little dredging and 
higher for shallower eastern seaboard and river ports that require 
annual dredging, the overall cost of moving goods through the nation's 
marine transportation system is artificially high. On the other hand, 
applying the fee equally to all eligible ports offers a relatively 
simple collection mechanism and helps to create a level playing field 
for all ports, which in turn helps minimize competition between 
individual ports.[Footnote 56] Even so, officials from ports located 
near international borders told us the HMF disadvantages them relative 
to nearby foreign ports. For example, Seattle Port Authority officials 
consider the HMF to be a "punitive assessment" because they said it 
decreases Seattle's competitiveness against Canadian ports (which do 
not charge the fee). These officials said that the Port of Vancouver 
actively promotes itself as not charging the HMF, and said this partly 
explains why the Port of Vancouver is growing at a faster rate than the 
Seattle port. 

Whether the fee is based on the value of the cargo (ad valorem) or on 
the size and draft of the ship is a separate decision from whether fees 
should vary by the dredging needs and condition of a given port. In 
other words, Congress could decide to impose a uniform fee structure at 
all ports even if it chooses to change the design of that fee from ad 
valorem to one based on a ship's size or draft. 

Stakeholders expect that inspections will occur in a timely manner. 
Cruise lines, importers, and ships' agents all said that delays for 
passenger and vessel inspections are costly to industry. Because crew 
members cannot disembark and, in some ports, the cargo cannot be 
unloaded until a ship is cleared, these delays can be expensive. One 
agent said that a 1-hour delay can cost a carrier $15,000 in 
longshoreman labor costs. Another agent said that crew changes cannot 
occur until a vessel has cleared its immigration inspection. During 
this time, the ship must pay expenses for two crews. Stakeholders told 
us that when multiple ships arrive at the same time, ships have waited 
up to 4 hours before being cleared. CBP officials told us that these 
types of inspection delays are generally caused by staff shortages, 
outdated or crowded facilities, clustered arrivals, or some combination 
of these factors. We recently reported similar findings related to 
delays for arriving international air passengers.[Footnote 57] 

Conclusions: 

Although the need to address some of the user fee challenges presented 
in this report may appear obvious, how to accomplish this is less 
clear. Where appropriate, changes made to one fee should be designed to 
complement rather than conflict with the other fees. The separate, 
disparate fees supporting the largely consolidated inspection process 
appear to aggravate disconnects between the customs passenger and 
vessel fees and the corresponding inspection activities, and do not 
adequately account for the costs imposed by different users. Unless 
remedied, differences such as the way overtime charges are assessed for 
commercial vessel inspections, as well as misalignments between actual 
and reimbursable inspection activities, will persist, causing confusion 
and raising equity concerns. Moreover, unless CBP automates its 
collection methods, requires monthly remittance, and aligns fee rate 
increases with the annual fee caps, CBP will continue to incur 
unnecessary administrative costs and needlessly expose itself to 
delayed remittance and potential errors that can result in revenue 
losses. Similarly, until CBP fully implements a system to assess and 
collect interest and penalties on late HMF payments, the federal 
government will continue to incur revenue losses. 

The extent and nature of the link between HMF collections and 
expenditures are policy choices only Congress can make. However, vital 
information about the tradeoffs associated with such a link is lacking. 
Further, absent a vehicle for substantive HMF stakeholder input and 
two-way communication at the national level, stakeholder cooperation as 
well as support and understanding of the fee will continue to suffer. 
Moreover, funds requested and appropriated in excess of CBP's 
collection costs for the HMF reduces the amount of money available in 
the HMTF to be appropriated for other purposes. 

Unless agencies present a comprehensive picture of the customs, 
immigration, and AQI fees, including the full scope of inspection 
activities and their costs, Congress will continue to lack a complete 
picture of whether the fees work in concert or conflict with each 
other, which could hamper oversight. Furthermore, agencies will be less 
able to develop and maintain the partnerships necessary to collect and 
distribute the fees as efficiently and effectively as possible. 

The lack of complete, transparent cost and collections data for the MPF 
and AQI fees, and regular, formal opportunities to share such 
information can prevent the agencies from addressing existing issues, 
including possible misalignments between fee collections and program 
costs. More broadly, if agencies cannot determine the extent to which 
these fees are recovering costs, Congress cannot be sure that resources 
are allocated to the activities it most values. 

The principles of effective user fee design discussed earlier in this 
report can both offer a framework for considering the implications of 
various statutory structures and help clarify and illuminate the 
tradeoffs associated with various policy choices available to Congress 
associated with amending the individual statutes related to the fees 
discussed in this report. Such a framework could also provide the basis 
for future reviews of federal user fees as Congress works to ensure 
that user fee financing mechanisms remain relevant and up-to-date. 

Matters for Congressional Consideration: 

To support the efficiency and equity of the Harbor Maintenance Fee as 
well as its credibility among stakeholders, Congress should consider: 

* reviewing the link between the amount of the HMF and the amount of 
expenditures for the harbor maintenance program; and: 

* establishing an advisory committee on the HMF and the activities that 
it funds, that includes payers of the fee. 

Recommendations for Executive Action: 

We recommend that the Secretary of Homeland Security take the following 
four actions: 

* Develop a legislative proposal, in consultation with Congress, to 
harmonize the customs, immigration, and agricultural quarantine 
inspections fees. Harmonizing the fees could include: 

- eliminating the differences in the way charges for overtime 
inspections are assessed to commercial vessel operators; 

- raising the cap on customs inspection fees for commercial vessels, in 
line with the 2007 increase in this fee, so that the cap once again 
corresponds to a whole number, rather than a fraction of payments; 

- revising the customs passenger and vessel inspection fees so that the 
inspection activities the fees are authorized to fund are more closely 
aligned with actual inspection activities; and: 

- requiring monthly, rather than quarterly, collection of the customs 
and immigration inspection sea and air passenger fees. 

* Direct CBP to automate its systems for collecting commercial vessel 
fees to reduce the reliance on paper receipts for tracking payments and 
to support electronic payments, rather than payment by check or cash. 

* Direct CBP to include in its biennial report on the Merchandise 
Processing Fee information on total program collections relative to 
total program costs, over time, as well as any recommendations for 
updating the amount and authorized uses of the fee. 

* Assess interest and penalties on late HMF payments for domestic 
shipments, shipments into foreign trade zones, and sea passengers. 

We recommend that the Secretary of Agriculture take the following two 
actions: 

* Improve the transparency of the regulatory process of setting the AQI 
fee rates by providing clearer information about how the rates for each 
of the fee types (vessel, air passenger, aircraft, etc.) are 
determined. 

* In accordance with OMB Circular No. A-25 guidance and U.S. Department 
of Agriculture policy, include in AQI fees the indirect and imputed 
costs currently not considered when setting AQI fee rates and either 
transfer the appropriate portions of those collections to the general 
fund of the Treasury as required, or seek Congressional approval to 
spend these monies on related AQI program costs. 

Further, we recommend that the Secretaries of Agriculture and Homeland 
Security conduct joint reviews of the customs, immigration, and 
agricultural quarantine inspection fees and consolidate reporting, to 
include the activities and proportion of fees for which CBP, ICE, and 
APHIS are each responsible, to provide a comprehensive picture of the 
user fees supporting the sea passenger and vessel inspections 
processes. 

Further, we recommend that the Secretaries of Homeland Security and the 
Army direct CBP and the Corps to improve oversight of the HMF 
collections by working together to develop: 

* a method for the Corps to provide information on domestic vessel 
movements to CBP; 

* a method for the Corps to provide referrals of audit candidates to 
the CBP Office of Regulatory Audit to be considered in the context of 
CBP's risk-based system for selecting audit candidates; 

* information on CBP's costs to collect and administer the HMF, for 
inclusion in the Corps' annual report to Congress on the Harbor 
Maintenance Trust Fund; and: 

* an annual budget request for CBP-related salaries and expenses equal 
to, rather than in excess of, CBP's actual costs associated with 
collecting the HMF. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretaries of Homeland 
Security and Defense, and to the Acting Secretary of Agriculture for 
review. We received written comments from the Department of Homeland 
Security (DHS), which are reprinted in appendix III, and oral comments 
from the Departments of Agriculture (USDA) and Defense (DOD). In 
addition, each agency provided technical comments, which we 
incorporated as appropriate. We also provided portions of the report to 
nonfederal stakeholders for their review and made technical corrections 
as appropriate. 

DHS characterized the report as balanced and accurate and agreed with 
the overall substance and findings of the report. Of the six 
recommendations directed at DHS, DHS concurred with five of them and 
partially concurred with the sixth. Specifically, DHS concurred in part 
with our recommendation to automate collections of the customs and AQI 
fees assessed on commercial vessels, stating that the agency will 
analyze the feasibility of this approach and work to identify and 
obtain funding to implement the recommendation if it is deemed cost 
beneficial. We appreciate that DHS recognizes the importance of using 
cost-effective methods to collect fees and look forward to receiving 
regular updates on DHS's and CBP's progress in this area. 

In its oral comments, USDA noted it was impressed with the level of 
explanatory detail and analysis contained in the report and said it 
generally agreed with our recommendations. Regarding our recommendation 
that USDA include certain indirect and imputed costs when setting the 
AQI fee rates, the agency said it will review the fee and seek guidance 
from its Office of the Chief Financial Officer and Office of General 
Counsel on this issue. 

USDA noted that it has been APHIS's position that because USDA receives 
appropriations to pay for departmental and staff office costs and OPM 
receives appropriations for imputed costs such as future retirement 
benefit expenses, APHIS did not have the authority to include those 
costs in the fee. We interpret the AQI user fee statute, however, as 
permitting USDA to recover all costs associated with its program, 
including imputed and indirect costs. We recognize that imputed costs, 
such as retirement and unfunded pension liabilities, may be more 
directly linked to the fee-funded activity and more easily calculated 
than seeking to allocate departmental and staff office costs. Further, 
"full cost recovery" should be viewed from a governmentwide 
perspective. Even though USDA would have to deposit those portions of 
user fee collections as miscellaneous receipts in the general fund of 
the Treasury, and therefore would not directly reimburse the relevant 
appropriation account under a specific statute, it would still defray a 
cost that Congress determined should be paid for by the user fees. If 
USDA believes that the statutory authority does not permit it to cover 
such indirect and imputed costs, then we believe USDA should seek 
additional authority from Congress consistent with our recommendation. 

USDA also noted that it will need to (1) work with DHS to identify 
DHS's imputed costs for the AQI program and (2) consider the impact of 
the fee increase on payers. We recognize that if incorporating these 
costs will substantially increase the AQI fees, a measured approach 
that incorporates the costs gradually may be appropriate. 

DOD provided oral comments, and concurred with the findings, 
conclusions, and recommendations of the report related to the Army 
Corps' Harbor Maintenance Fee. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its date. At that time, we will send copies to the Secretaries of 
Homeland Security, Agriculture, Army, and Defense and interested 
Congressional committees. We will also make copies available to others 
on request. In addition, this report will be available at no charge on 
the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me on (202) 512-9142 or [email protected]. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix IV. 

Signed by: 

Susan J. Irving: 
Director for Federal Budget Analysis Strategic Issues: 

List of Requesters: 

The Honorable Bennie G. Thompson: 
Chairman: 
The Honorable Peter T. King: 
Ranking Member: 
Committee on Homeland Security: 
House of Representatives: 

The Honorable Charles B. Rangel: 
Chairman: 
The Honorable Jim McCrery: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

In order to provide context as Congress considers funding options for 
port programs, we examined (1) what is known about the way selected 
fees assessed on air and sea port users are set, collected, used, and 
reviewed (including the views of stakeholders) and (2) the effects of 
these attributes on program operations. 

To meet this objective, we examined selected fees that are assessed on 
port users; specifically the Harbor Maintenance Fee (HMF), Merchandise 
Processing Fee (MPF), Customs Inspection Fees, Immigration User Fee, 
and Agricultural Quarantine Inspection (AQI) User Fees. In selecting 
the fees, we reviewed relevant policy and economic literature, 
interviewed user fee experts, and examined Office of Management and 
Budget data on user charges. We chose these fees because they are 
levied upon port users, and are related to maritime, safety, and 
homeland security programs. Additionally, we chose them because they 
vary in their key design characteristics, specifically in the way in 
which they are set, collected, used, and reviewed. 

In examining the fees, we reviewed user fee legislation and guidance, 
agency documents, and literature on user fee design and implementation 
characteristics. We interviewed officials responsible for managing the 
selected user fees at the U.S. Army Corps of Engineers (Corps), the 
U.S. Department of Agriculture's Animal and Plant Health Inspection 
Service (APHIS), and the U.S. Customs and Border Protection (CBP) 
offices in Washington, D.C. CBP administers the MPF and Customs 
inspection fees, and it collects the HMF on behalf of the Corps. CBP 
administers the Immigration user fees jointly with U.S. Immigration and 
Customs Enforcement (ICE) and the AQI user fees jointly with APHIS. 

To select the ports that we visited, we consulted with port security 
experts from within and outside of GAO, with CBP and Corps officials, 
and with outside stakeholders, in order to choose ports that varied in 
their type and volume of trade and commerce (including cruise lines, 
container ships, petroleum products, and liquefied natural gas); 
maintenance dredging needs, and specific issues facing them such as a 
high volume of commercial cargo, security challenges, or proximity to a 
land border or intricate river system. We also considered travel costs 
in selecting the site visits. In light of the significant amount of 
ongoing audit work in the Gulf region, and because other ports in our 
selection are representative of important characteristics associated 
with Gulf ports, we did not include a Gulf port in our selection so as 
not to unnecessarily burden an area in crisis. The ports we selected 
include medium and large ports, natural deepwater ports, and those that 
require frequent dredging. We visited the ports of Boston, 
Massachusetts; Charleston, South Carolina; Newark, New Jersey/New York, 
New York; Baltimore, Maryland; Miami, Florida; Port Everglades, 
Florida; Seattle, Washington; and Los Angeles/Long Beach, California. 
At these ports, we observed passenger, vessel, and cargo inspections, 
and interviewed officials from CBP and Corps field offices. At each 
port, we spoke with various stakeholders, including port authority 
officials, customs brokers, shipping agents, harbor pilots, importers, 
and cruise line officials. We also met with the following national 
stakeholder organizations: the American Association of Port 
Authorities, the Cruise Lines International Association, the 
Association of Ship Brokers and Agents, the National Association of 
Maritime Organizations, and the World Shipping Council. We coordinated 
our work with another GAO team that was examining the customs, AQI, and 
immigration air passenger inspection fees, and drew upon their audit 
findings as appropriate. 

In addition, we reviewed collections and cost data for each of the 
fees, data on balances in the Harbor Maintenance Trust Fund, and data 
on channel availability provided by the Corps. We asked questions about 
APHIS, CBP, and Corps internal controls for the data we used and 
determined that the data were sufficiently reliable for the purposes of 
this report. We performed our work from February 2007 through February 
2008 in accordance with generally accepted government auditing 
standards. 

[End of section] 

Appendix II: Summary of Fees by Payer: 

Table 3: Fees Charged to Vessel Operators: 

Design elements/selected fees: Authorizing legislation; 
Customs Inspection Fees: Consolidated Omnibus Budget Reconciliation Act 
(COBRA) of 1985; 
Agricultural Quarantine Inspection Fees: The Food, Agriculture, 
Conservation, and Trade (FACT) Act of 1990; 
Immigration Inspection Fees: No commercial vessel fee for immigration 
inspection, except overtime charges. 

Design elements/selected fees: Fee-setting authority; 
Customs Inspection Fees: Congress; 
Agricultural Quarantine Inspection Fees: APHIS, via regulation. 

Design elements/selected fees: Administering agency/agencies; 
Customs Inspection Fees: CBP; 
Agricultural Quarantine Inspection Fees: CBP, in coordination with 
APHIS. 

Design elements/selected fees: Fee amount; 
Customs Inspection Fees: Per arrival: commercial vessels of 100 net 
tons or more: $437; barges and bulk carriers from Mexico and Canada: 
$110[A]; 
Agricultural Quarantine Inspection Fees: $492 per arrival[B]. 

Design elements/selected fees: Fee maximum/minimum; 
Customs Inspection Fees: Commercial vessels: $5,955 annually; barges 
and bulk carriers: $1,500 annually;
Agricultural Quarantine Inspection Fees: 15 payments per year (equal to 
$7,380). 

Design elements/selected fees: Payer; 
Customs Inspection Fees: Vessel operator or agent; 
Agricultural Quarantine Inspection Fees: Owners/operators of commercial 
vessels. Payment is typically made by a shipping agent on behalf of the 
vessel owner/operator. 

Design elements/selected fees: Collecting entity; 
Customs Inspection Fees: CBP; 
Agricultural Quarantine Inspection Fees: CBP collects the fee on behalf 
of APHIS. 

Design elements/selected fees: Remitting process; 
Customs Inspection Fees: Payment is made to CBP at the time and place 
of inspection, usually by check; 
Agricultural Quarantine Inspection Fees: Payment is at the time and 
place of inspection, usually via check to CBP. 

Design elements/selected fees: Authorized uses of fee collections; 
Customs Inspection Fees: Fee collections are authorized to reimburse 
appropriation for a prioritized set of activities--including general 
deficit reduction, overtime and premium pay, retirement and disability 
contributions, preclearance services, and foreign language proficiency 
awards; 
Agricultural Quarantine Inspection Fees: The fee is designed to cover 
the cost of providing agriculture inspections of commercial vessels. 

Design elements/selected fees: Overtime; 
Customs Inspection Fees: According to CBP officials, CBP has limited 
authority to charge for overtime for customs inspection services; 
Agricultural Quarantine Inspection Fees: AQI overtime charges for 
vessel inspections must be applied at an hourly rate specified in 
regulation whenever inspection services are provided on a Sunday or 
holiday, or whenever the individual inspector is working overtime; 
Immigration Inspection Fees: For inspections conducted on a Sunday, 
holiday, or between the hours of 5:00 p.m. and 8:00 a.m. and when the 
inspector is working overtime, CBP must charge vessel operators for 
overtime costs. The amount charged depends on the number and pay 
grade(s) of the officer(s) performing the inspection and the amount of 
time spent on the inspection. Because regular business hours vary by 
port, the hours during which an inspector might be working overtime 
vary. 

Source: GAO analysis. 

[A] The $110 fee rate only applies to barges and bulk carriers from 
Canada and Mexico that are either in ballast or transporting only cargo 
laden in Canada or Mexico. 

[B] The AQI vessel fee is scheduled to increase by $2 each fiscal year, 
through fiscal year 2010, when it will be $496. 

[End of table] 

Table 4: Fees Charged to Passengers: 

Design elements/selected fees: Authorizing legislation; 
Customs Inspection Fees: Consolidated Omnibus Budget Reconciliation Act 
(COBRA) of 1985; 
Immigration Inspection Fees: The Department of Justice Appropriation 
Act of 1987; 
Harbor Maintenance Fee: Water Resources Development Act of 1986. 

Design elements/selected fees: Fee-setting authority; 
Customs Inspection Fees: Congress; 
Immigration Inspection Fees: Congress; 
Harbor Maintenance Fee: Congress. 

Design elements/selected fees: Administering agency/agencies; 
Customs Inspection Fees: CBP; 
Immigration Inspection Fees: CBP, in coordination with ICE; 
Harbor Maintenance Fee: Collected by CBP on behalf of the Corps. 

Design elements/selected fees: Fee amount; 
Customs Inspection Fees: $5.50 per passenger, but sea passengers whose 
journeys originate in certain locations are charged $1.93; 
Immigration Inspection Fees: $7.00 per passenger, but sea passengers 
whose journeys originate in certain locations are charged $3.00; 
Harbor Maintenance Fee: 0.125% of the price of sea passenger ticket. 

Design elements/selected fees: Fee maximum/minimum; 
Customs Inspection Fees: No; 
Immigration Inspection Fees: No; 
Harbor Maintenance Fee: No. 

Design elements/selected fees: Payer; 
Customs Inspection Fees: International air and sea passengers; 
Immigration Inspection Fees: International air and sea passengers; 
Harbor Maintenance Fee: Commercial vessel passengers. 

Design elements/selected fees: Collecting entity; 
Customs Inspection Fees: Ticket sellers; 
Immigration Inspection Fees: Ticket sellers; 
Harbor Maintenance Fee: Vessel operators remit to CBP. 

Design elements/selected fees: Remitting process; 
Customs Inspection Fees: Payment is made quarterly to CBP via cash, 
check, or money order; 
Immigration Inspection Fees: Payment is made quarterly to CBP via check 
or money order; 
Harbor Maintenance Fee: Payment is made quarterly to CBP by check. 

Design elements/selected fees: Authorized uses of fee collections; 
Customs Inspection Fees: Fee collections are authorized to reimburse 
appropriation for a prioritized set of activities--including general 
deficit reduction, overtime and premium pay, retirement and disability 
contributions, preclearance services, and foreign language proficiency 
awards; 
Immigration Inspection Fees: The fee is authorized to cover expenses 
incurred in providing inspection and preinspection services and other 
costs specified in statute; 
Harbor Maintenance Fee: Fee collections are authorized to be used, 
subject to appropriation, to recover 100 percent of eligible operations 
and maintenance expenditures for commercial navigation in harbors and 
the St. Lawrence Seaway and administration of the fee. 

Source: GAO analysis. 

Note: There is no AQI fee charged to commercial vessel passengers, 
though commercial air passengers pay a fee. 

[End of table] 

Table 5: Fees Charged to Shippers: 

Design elements/selected fees: Authorizing legislation; 
Harbor Maintenance Fee: Water Resources Development Act of 1986; 
Merchandise Processing Fee: Omnibus Budget Reconciliation Act of 1986. 

Design elements/selected fees: Fee-setting authority; 
Harbor Maintenance Fee: Congress; 
Merchandise Processing Fee: Congress[A]. 

Design elements/selected fees: Administering agency/agencies; 
Harbor Maintenance Fee: Collected by CBP on behalf of the Corps; 
Merchandise Processing Fee: CBP. 

Design elements/selected fees: Fee amount; 
Harbor Maintenance Fee: 0.125% of declared value of commercial cargo 
entering the U.S. and domestic cargo on vessels using federally 
maintained harbor projects; 
Merchandise Processing Fee: 0.21% of declared value of formal 
merchandise entries[A]. 

Design elements/selected fees: Fee maximum/minimum; 
Harbor Maintenance Fee: No[B]; 
Merchandise Processing Fee: Minimum payment of $25 and maximum of $485 
per entry. 

Design elements/selected fees: Payer; 
Harbor Maintenance Fee: Passenger vessel operators and shippers of 
imported and domestic cargo; 
Merchandise Processing Fee: Importers of cargo. 

Design elements/selected fees: Collecting entity; 
Harbor Maintenance Fee: Usually customs brokers; 
Merchandise Processing Fee: Customs brokers may pay on behalf of 
importers. 

Design elements/selected fees: Remitting process; 
Harbor Maintenance Fee: Payments for imported cargo are generally made 
electronically to CBP, due within 10 days of merchandise's release. 
Payments for other cargo are made quarterly; 
Merchandise Processing Fee: Payments are generally made electronically 
to CBP, within 10 working days of cargo's release. 

Design elements/selected fees: Authorized uses of fee collections; 
Harbor Maintenance Fee: Fee collections are authorized to be used, 
subject to appropriation, to recover 100 percent of eligible operations 
and maintenance expenditures for commercial navigation in harbors and 
the St. Lawrence Seaway and administration of the fee; 
Merchandise Processing Fee: The fee is designed to offset the cost of 
"customs revenue functions," as defined in statute, as well as the 
automation of customs systems. 

Source: GAO analysis. 

[A] The Secretary of the Treasury may adjust the fee within certain set 
limits. 

[B] The HMF is not assessed on domestic cargo valued at less than 
$1,000, and quarterly payment is not required if the total value of all 
shipments for which a fee was assessed for the quarter does not exceed 
$10,000. No payment is required for imported cargo that is entitled to 
be entered under informal entry procedures. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 
[hyperlink, http://www.dhs.gov]: 

January 24, 2008: 

Ms. Susan J. Irving: 
Director, Strategic Issues: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Irving: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO) draft report entitled, "Federal User 
Fees: Substantive Reviews Needed to Align Port-Related Fees with the 
Programs They Support," GAO-08-321. GAO was asked by the House 
Committee on Homeland Security and the House Committee on Ways and 
Means to examine (1) what is known about the way selected fees assessed 
on air and sea port users are set, collected, used, and reviewed and 
(2) the effects of these attributes on program operations. GAO examined 
the Harbor Maintenance Fee (HMF), the Merchandise Processing Fee (MPF), 
and the Customs, Immigration, and Agricultural Quarantine Inspection 
(AQI) user fees assessed on air and cruise passengers and commercial 
vessels using criteria that have often been used to assess user fees 
and taxes ï¿½ equity, efficiency, revenue adequacy, and administrative 
burden. 

GAO found that the port-related fees examined vary in how they are set, 
collected, used, and reviewed, creating both misalignments between the 
fees and corresponding services, as well as administrative and 
oversight challenges. 

The U.S. Customs and Border Protection (CBP) appreciated the 
opportunity to work with the GAO team in developing a balanced and 
accurate report. DHS and CBP agree with the overall substance and 
findings of the report. CBP is pleased that the report highlights the 
same operational and coordination problems that CBP has identified and 
has been working to resolve. 

As GAO noted in its most recent report on air passenger user fees, 
[Footnote 58] the fact that the primary inspection process has been 
integrated under the One-Face-at-the-Border Initiative, but the 
unification of the user fees that financially support this function has 
not occurred yet, has created additional administrative and oversight 
problems for CBP and federal and non-federal stakeholders. These 
problems have been echoed in a recent study by the Discovery America 
Partnership, a policy institute. The report asked for single fee to 
provide more transparency to CBP's cost of operations and to minimize 
the cost of collection and accounting for the fees." [Footnote 59] 
Representatives from the American Air Transport Association have also 
expressed their desire to streamline the current user fee scheme. 
[Footnote 60] 

To address some of the challenges described in the draft report, CBP in 
consultation with the Department of Homeland Security (DHS), U.S. 
Immigration and Customs Enforcement (ICE), and the U.S. Department of 
Agriculture/Animal and Plant Health Inspection Service (USDA/APHIS), 
initiated an effort to develop a legislative proposal to consolidate 
the authorities that govern the customs, immigration, and agriculture 
inspection user fees for passengers, conveyances, plants, animals, and 
agriculture goods entering the United States. CBP's original proposal 
included the consolidation of the customs, immigration, and agriculture 
inspection user fees authorities into a single law. However, CBP 
decided to restructure its proposal due to the expressed opposition by 
USDA/APHIS and the House Agriculture Committee to any effort aimed at 
transferring the agriculture inspection fees authority to DHS. The 
resulting proposal's main goal is to create DHS/CBP user fees that 
recover, to the extent possible, the inspection services, detention and 
removal, and investigative costs attributable to CBP and ICE. Under 
this proposal, USDA/APHIS retains the authority to set and adjust user 
fees to recover their costs associated with agriculture inspections. If 
the legislative proposal is enacted, USDA/APHIS will no longer have to 
transfer a portion of their user fee collections to CBP. Meanwhile, CBP 
will split a portion of the consolidated user fees with ICE to ensure 
that both agencies fully recover the costs related to immigration 
inspection at airports and seaports. 

In its report, GAO suggests Congress review the link between the HMF 
fee and expenditures, and establish an advisory committee for the HMF 
to improve stakeholder communication. GAO also makes eight 
recommendations to the Secretaries of Homeland Security, Agriculture, 
and the Army to better align the fees with the activities they support, 
and to improve collections, oversight, and reporting. 

Six recommendations were directed to CBP. Regarding the report's 
recommendations on the HMF, CBP will conduct a comprehensive cost 
review to estimate the Agency incurred and projected cost in collecting 
and administrating HMF. On the MPF, CBP agrees with the need to conduct 
a comprehensive study on this fee. Changes in import trends, the 
expansion of Free Trade Agreements, and the expansion of pre-clearance 
and risk based inspection programs may have an impact on MPF 
collections and costs. 

The six recommendations and CBP's corrective actions to address these 
recommendations are included below: 

Recommendation 1: 

GAO recommends that the Secretary of Homeland Security develop a 
legislative proposal, in consultation with Congress, to harmonize the 
commercial vessel inspections fees. Harmonizing the fees could include: 

* Eliminating the differences in the way charges for overtime 
inspections are assessed to commercial vessel operators; 

* Raising the cap on customs inspection fees for commercial vessels, in 
line with the 2007 increase in this fee, so that the cap once again 
corresponds to a whole number, rather than a fraction of payments; 

* Revising the customs passenger and vessel inspection fees so that the 
inspection activities the fees are authorized to fund are more closely 
aligned with actual inspection activities; and; 

* Requiring monthly, rather than quarterly, collection of the customs 
and immigration inspection sea and air passenger fees. 

Response: 

Concur. The DHS/CBP proposal to consolidate the customs, immigration, 
and agriculture inspection user fees for passengers, conveyances, 
plants, animals, and agriculture goods entering the United States 
includes legislative language to change and consolidate current 
Reimbursable Overtime (ROT) authorities. The proposal aims at striking 
current legislation on ROT and inserts a provision that will authorize 
CBP to bill for ROT in cases where a carrier's pattern of arrivals is 
continually outside the port regular hours of operation. CBP wants to 
retain the authority to charge ROT under certain conditions to provide 
commercial vessel operators with an incentive to align their arrival 
schedules with the port regular hours of operation. Costs related to 
overtime inspection services, previously subjected to ROT, will be 
recovered by a consolidated DHS/CBP commercial vessel user fee. 

The DHS/CBP proposal to consolidate certain inspection user fees 
includes legislative language that will authorize the Agency to adjust 
the fee caps in proportion to changes to proposed DHS/CBP commercial 
vessel user fee. 

The DHS/CBP proposal to consolidate certain inspection user fees 
includes legislative language to align the current customs passenger 
and vessel fees with the inspection services provided at ports of 
entry. If enacted, the proposed legislation will strike the
spending hierarchy established in 19 USC 58c (f)(3)(A) [Footnote 61] 
and replace it with a provision that authorizes DHS/CBP user fees to be 
set at a level that recovers the full cost of providing passenger and 
vessel inspections. 

The DHS/CBP proposal to consolidate certain inspection user fees 
includes legislative language to amend the current quarterly remittance 
schedule in order to establish a monthly remittance mandate. The 
proposal states that DHS/CBP passenger inspection fees shall be remit 
thirty days after the end of the month in which the fees were required 
to be collected from the individual passengers. 

Due Date: September 30, 2009. 

Recommendation 2: 

GAO recommends that the Secretary of Homeland Security direct CBP to 
automate its systems for collecting commercial vessel fees to reduce 
the reliance on paper receipts for tracking payments and to support 
electronic payments, rather than payment by check or cash. 

Response: 

Concur in part with this recommendation. CBP will conduct a feasibility 
analysis to determine whether this recommendation is cost beneficial. 
CBP has consistently worked to automate many of our collection 
processes and to convert revenue streams from cash and checks to 
electronic means. However, system changes to fully implement this 
recommendation will be extensive. Within the next few months, CBP will 
conduct a detailed analysis of requirements and constraints, develop 
cost estimates, and evaluate the economic feasibility of automating its 
system for collecting commercial vessel fees. If this analysis shows 
that implementation of the recommendation is cost beneficial, CBP will 
work to identify and obtain funding to implement the recommendation. 

Due Date: September 30, 2008. 

Recommendation 3: 

GAO recommends that the Secretary of Homeland Security direct CBP to 
include in its biennial report on the MPF information on total program 
collections relative to total program costs, over time, as well as any 
recommendations for updating the amount and authorized uses of the fee. 

Response: 

Concur. CBP will include a section on the MPF in the next biennial 
report due later this year. Meanwhile, CBP will initiate a 
comprehensive study on MPF collections and costs. Based on the findings 
derived from the study, CBP will recommend that Congress take the 
necessary corrective action(s) to ensure that the fee charges are 
commensurate with the costs of processing merchandise entering the 
United States. 

Due Date: December 30, 2008. 

Recommendation 4: 

GAO recommends that the Secretary of Homeland Security assess interest 
and penalties on late HMF payments for domestic shipments, shipments 
into foreign trade zones, and sea passengers. 

Response: 

Concur. CBP has commenced with implementation of this recommendation. 
CBP has developed procedures and plans to immediately begin billing for 
current delinquencies on a quarterly basis. We expect to assess 
interest and penalties for an estimated 4,000 prior year delinquencies 
over the next twelve months. 

Due Date: September 30, 2008. 

Recommendation 5: 

GAO recommends that the Secretaries of Agriculture and Homeland 
Security conduct joint reviews of the customs, immigration, and 
agriculture quarantine inspection fees and consolidate reporting, to 
include the activities and proportion of fee for which CBP, ICE, and 
APHIS are each responsible, to provide a comprehensive picture of the 
user fees supporting the sea passenger and vessel inspections 
processes. 

Response: 

Concur. In keeping with CBP's Memorandum of Agreement with APHIS, CBP 
shares the costs of our agriculture fee activities with APHIS on a 
periodic basis, which they can use in their reports. Also, in Fiscal 
Year 2008 APHIS and CBP submitted a joint report to the Office of 
Management and Budget on the AQI user fees for use in evaluating the 
agencies' budget requests. This report included current and projected 
collections and costs by activity, full-time equivalents to be funded 
from the user fees, and performance measures on the effectiveness of 
the Agriculture Quarantine Inspection program. 

In the past, CBP has only reported its own costs and collections in its 
reports, in part because ICE did not have data available on the costs 
of their activities. When this data is available from ICE, CBP will 
consider submitting a joint Immigration User Fee (IUF) report to 
Congress. For the required biennial user fee review, we will continue 
to follow DHS's guidance by submitting CBP's fee costs and collections 
to DHS, which will issue a consolidated user fee report for the entire 
Department. 

Due Date: March 30, 2008. 

Recommendation 6: 

GAO recommends that the Secretaries of Homeland Security and the Army 
direct CBP and the U.S. Army Corps of Engineers (Corps) to improve 
oversight of the HMF collections by working together to develop: 

* A method for the Corps to provide information on domestic vessel 
movements to CBP; 

* A method for the Corps to provide referrals of audit candidates to 
the CBP Office of Regulatory Audit; 

* Information on CBP's costs to collect and administer the HMF and 
include it in its biennial user fee review; and; 

* An annual budget request for CBP-related salaries and expenses equal 
to, rather than in excess of, CBP's actual costs associated with 
collecting the HMF. 

Response: 

Concur. CBP plans to contact the Corps and schedule meetings to discuss 
the exchange of information. CBP will subsequently work with the Corps 
to implement an oversight system of the HMF collections. 

CBP will conduct a comprehensive review of the costs the organization 
incurs when collecting and administering the HMF. The results from the 
review will be included in the biennial user fee review. 

Based on the results derived the aforementioned review CBP will adjust 
its budget request in relation to the costs CBP expects to incur in 
collecting and administrating the HMF. 

In an effort to improve oversight of HMF collections, the Office of 
International Trade, Office of Regulatory Audit (OT RA) will work 
together with the Corps to develop a method for the Corps to provide 
referrals of audit candidates to OT RA. These audit candidates will be 
considered in the context of the OT Risk Based System for selecting 
audit candidates and referrals. 

RA's Program Manager User Fees initiated discussions on January 14, 
2008 with RA's Field Oversight Director East and the Annual Audit 
Planning Team Representative for Oversight East on the development of 
the referral process. The Program Manager will formally meet with the 
Annual Audit Planning Representative to develop a method of 
incorporating the Corps into our Risked Based process. The due date for 
completion of this section of the process is a proposed date of 
February 11, 2008. We will then meet with Field Oversight Director East 
for final approval of the proposed audit referral process. The due date 
for this final approval process is a proposed date of February 29, 
2008. 

RA's Program Manager User Fees initiated contact on January 14, 2008 by 
telephone and email with Corps POCs to start the process in developing 
a method for the Corps to provide audit candidates as per the 
recommendation above. The proposed due date for an initial meeting with 
the Corps is set as March 14, 2008 and a follow-up meeting of April 30, 
2008. 

Final approval of the method for the Corps to provide referrals of 
audit candidates to the CBP Office of Regulatory Audit to be considered 
in the context of CBP's risk-based system for selecting audit 
candidates is the proposed due date of June 13, 2008. 

Due Date: September 30, 2008. 

We thank you for the opportunity to review the draft report and provide 
comments. 

Sincerely, 

Signed by: 

Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Susan J. Irving, (202) 512-9142 or [email protected]: 

Staff Acknowledgments: 

Jacqueline M. Nowicki (Assistant Director) and Susan E.M. Etzel managed 
this assignment. Jessica Nierenberg, Kathleen Padulchick, and Amy 
Rosewarne made key contributions to all aspects of the report. Jay 
Cherlow, Chelsa Gurkin, Terrance N. Horner, Alessandra Rivera, and Jack 
Warner also provided assistance. In addition, Pedro Briones and Carlos 
Diz provided legal support and Donna Miller developed the report's 
graphics. 

[End of section] 

Footnotes: 

[1] See GAO, Maritime Security: The SAFE Port Act and Efforts to Secure 
Our Nation's Seaports, GAO-08-86T (Washington, D.C.: Oct. 4, 2007). 

[2] See GAO, Commercial Maritime Industry: Updated Information on 
Federal Assessments, GAO/RCED-99-260 (Washington, D.C.: Sept. 16, 
1999). 

[3] The rates for all but the AQI fees are set in statute; the AQI fee 
rates are set by the Department of Agriculture through regulation. 
Further, some of these fees are a flat dollar amount and some are ad 
valorem (i.e., a percentage of value). For more information on these 
fees, see table 1 in this report. 

[4] See GAO, Understanding the Tax Reform Debate: Background, Criteria 
& Questions, GAO-05-1009SP (Washington, D.C.: September 2005). 

[5] An important factor to consider when establishing a fee to recover 
costs associated with an agency program or service is the agency's 
capability to record and accumulate timely, reliable data relating to 
those costs, consistent with applicable accounting standards, and 
analyze that data. The costs associated with financial management 
systems needed to provide this capability must be considered. According 
to the Statement on Federal Financial Accounting Standard 4 (July 31, 
1995), reliable information on the costs of federal programs and 
activities is crucial for effective management of government 
operations, which includes setting user fees. 

[6] To select the ports that we visited, we consulted with port 
security experts from within and outside of GAO, with CBP and Corps 
officials, and with outside stakeholders, in order to choose ports that 
varied in their type and volume of trade and commerce (including cruise 
lines, container ships, petroleum products, and liquefied natural gas); 
maintenance dredging needs; and specific issues facing them such as a 
high volume of commercial cargo, security challenges, or proximity to a 
land border or intricate river system. We also considered travel costs 
in selecting the site visits. In light of the significant amount of 
ongoing audit work in the Gulf region, and because other ports in our 
selection are representative of important characteristics associated 
with Gulf ports, we did not include a Gulf port in our selection so as 
not to unnecessarily burden an area in crisis. The ports we selected 
include medium and large ports, natural deepwater ports, and those that 
require frequent dredging. The eight ports at which we conducted site 
visits were (1) Los Angeles/Long Beach, California; (2) Miami, Florida; 
(3) Port Everglades, Florida; (4) Baltimore, Maryland; (5) Boston, 
Massachusetts; (6) Newark, New Jersey/New York, New York; (7) 
Charleston, South Carolina; and (8) Seattle, Washington. 

[7] By "administer" we mean that the agency has some administrative 
responsibility for the fee, which could include collecting the fee, 
adjusting the fee, tracking program costs, or reporting requirements. 

[8] Imputed costs of an agency are costs of goods or services incurred 
on behalf of the agency that are paid by another federal entity, such 
as certain retirement benefits paid to retirees by the U.S. Office of 
Personnel Management. 

[9] See GAO, Federal User Fees: Key Aspects of International Air 
Passenger Inspection Fees Should Be Addressed Regardless of Whether 
Fees Are Consolidated, GAO-07-1131 (Washington, D.C.: Sept. 24, 2007). 

[10] See GAO, Results-Oriented Government: Practices That Can Help 
Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15 
(Washington, D.C.: Oct. 21, 2005). 

[11] See GAO, Reexamining Regulations: Opportunities Exist to Improve 
the Effectiveness and Transparency of Retrospective Reviews, GAO-07-791 
(Washington, D.C.: July 16, 2007) and Federal Advisory Committees: 
Additional Guidance Could Help Agencies Better Ensure Independence and 
Balance, GAO-04-328 (Washington, D.C.: Apr. 16, 2004). 

[12] See GAO, A Glossary of Terms Used in the Federal Budget Process, 
GAO-05-734SP (Washington, D.C.: September 2005). 

[13] The legal distinction between a "fee" and a "tax" can be 
complicated and depends largely on the context of the particular 
assessment. Generally, a tax arises from the government's sovereign 
power to raise revenue, need not be related to any specific benefit, 
and its payment is not optional, whereas a user fee is typically 
related to some voluntary transaction or request for government goods 
or services above and beyond what is normally available to the public. 
For more information see GAO, User Fee Design Guide, GAO-08-386SP. 

[14] See GAO, Aviation Finance: Observations on the Current FAA Funding 
Structure's Support for Aviation Activities, Issues Affecting Future 
Costs, and Proposed Funding Changes, GAO-07-1163T (Washington, D.C.: 
Aug. 1, 2007). 

[15] The CFO Act of 1990 requires an agency's CFO to review on a 
biennial basis the fees, royalties, rents, and other charges for 
services and things of value and make recommendations on revising those 
charges to reflect costs incurred. 31 U.S.C. ï¿½ 902(a)(8). 

[16] OMB Circular No. A-25 provides that each agency will review user 
charges biennially to include (1) assurance that existing charges are 
adjusted to reflect unanticipated changes in costs or market values and 
(2) a review of other programs within the agency to determine whether 
fees should be initiated for government services or goods for which it 
is not currently charging fees. Circular No. A-25 further states that 
agencies should discuss the results of the user fee reviews and any 
resultant proposals in the CFO annual report required by the CFO Act. 

[17] User fees may be assessed under specific statutory authority or 
under the broad authority of the Independent Offices Appropriation Act 
(IOAA) of 1952, 31 U.S.C. ï¿½ 9701. IOAA requires that agency regulations 
establishing a user charge be subject to policies prescribed by the 
President. OMB provides such guidance to executive branch agencies 
under this authority through Circular No. A-25. User fees assessed 
under specific statutory authority should also be construed consistent 
with IOAA (the general, governmentwide user fee authority) to the 
extent possible as part of an overall statutory scheme. Thus, OMB 
Circular No. A-25 provides guidance regarding assessments of user 
charges not only under IOAA, but also under other more specific fee 
statutes to the extent permitted by law--that is, the provisions of a 
more specific user fee statute take precedence over the Circular's 
guidance, and indeed over the more general provisions of IOAA itself. 

[18] 21 U.S.C. ï¿½ 136a(a)(1). 

[19] See GAO, Homeland Security: Management and Coordination Problems 
Increase the Vulnerability of U.S. Agriculture to Foreign Pests and 
Disease, GAO-06-644 (Washington, D.C.: May 19, 2006). 

[20] See GAO-07-1131. 

[21] See GAO, Managerial Cost Accounting Practices: Department of 
Agriculture and the Department of Housing and Urban Development, 
GAO-06-1002R (Washington, D.C.: Sept. 21, 2006). 

[22] According to CBP, the balance of the related program costs are 
covered by appropriations. 

[23] 7 CFR ï¿½ 354.3(f)(8). 

[24] Payers also noted that CBP does not bill for these charges in a 
timely manner, which exacerbates this uncertainty and undermines the 
payer's ability to account for these costs. 

[25] During 2007, this issue was particularly problematic. Because the 
fee increase took effect April 1, 2007, vessels arriving before and 
after that date paid two different rates. Since the fee cap applies to 
payments received within a calendar year, it was even more difficult 
for CBP officers to calculate the total amount paid in order to 
determine if a vessel had reached the cap. This increased the burden on 
CBP officers (who must calculate payments by calculator or by hand), as 
well as the potential for errors. 

[26] We have not reviewed or evaluated this proposal, although we have 
been briefed on elements of it. 

[27] Airline officials also noted that changing to a monthly remittance 
schedule would not be a problem. 

[28] For example, referrals for value and classification audits can be 
made by CBP's Office of Field Operations and Office of International 
Trade when they have concerns that importers or brokers may be 
reporting erroneous values on imported goods, and referrals for 
passenger user fees are made by agencies involved with passenger 
processing, including APHIS, CBP, and ICE. 

[29] As noted, the electronic payment system works well once goods have 
been formally entered into U.S. commerce. However, we recently reported 
on problems with CBP's management of the in-bond system--a system which 
allows importers to delay formal entry of goods into U.S. commerce. 
These problems may affect CBP's ability to ensure proper collection of 
trade revenue, including fees. See GAO, International Trade: Persistent 
Weaknesses in the In-Bond Cargo System Impede Customs and Border 
Protection's Ability to Address Revenue, Trade, and Security Concerns, 
GAO-07-561 (Washington, D.C.: Apr. 17, 2007). 

[30] According to a CBP official, of the over 200 value and 
classification of goods audits conducted between 2004 and 2007, the 
importer had paid the HMF incorrectly more than 60 percent of the time. 

[31] See GAO-07-1131. 

[32] The first use in the list of activities for which customs user 
fees are legally available is transfers to the Treasury's General Fund 
for deficit reduction purposes, of the difference between estimated 
overtime compensation for customs inspections and actual overtime, 
premium pay, agency retirement contributions, and foreign language 
proficiency awards, or $18,000,000 whichever is less. 

[33] Precleared passengers are inspected in the departing country 
rather than in the United States. 

[34] The Homeland Security Act of 2002 required DHS to maintain at 
least the March 2003 level of staff in each of nine specific customs 
revenue positions and their associated support positions. Pub. L. No. 
107-296, ï¿½ 412, 116 Stat. 2135, 2179. The nine designated customs 
revenue positions are import specialists, entry specialists, drawback 
specialists, national import specialists, fines and penalties 
specialists, attorneys of the Office of Regulations and Rulings, 
customs (regulatory) auditors, international trade specialists, and 
financial systems specialists. In recent work, we found that although 
many staff other than those in the nine covered positions perform tasks 
related to customs revenue functions, overall staff resources 
contributing to customs revenue functions have declined since the 
formation of DHS. See GAO, Customs Revenue: Customs and Border 
Protection Needs to Improve Workforce Planning and Accountability, 
GAO-07-529 (Washington, D.C.: Apr. 12, 2007). 

[35] The authorizing statute limits expenditures from the HMTF to (1) 
eligible harbor operations and maintenance costs assigned to commercial 
navigation, (2) eligible operations and maintenance costs of certain 
portions of the Saint Lawrence Seaway, (3) certain rebates of tolls or 
charges, and (4) administrative expenses related to the administration 
of the fee, but not in excess of $5 million for any fiscal year (26 
U.S.C. ï¿½ 9505 and 33 U.S.C. ï¿½ 2238). 

[36] CBP provided us with HMF collections data, by type (imported 
cargo, shipments into foreign trade zones, domestic movements, and 
vessel passengers) beginning with fiscal year 2001. 

[37] See GAO, Highway Financing: Factors Affecting Highway Trust Fund 
Revenues, GAO-02-667T (Washington, D.C.: May 9, 2002). To even out the 
swings when calculating RABA, the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) 
now "looks back" at the average of the past 2 years of revenue. Also, 
SAFETEA-LU allows a negative adjustment only when the balance of the 
Highway Trust Fund highway account is less than $6 billion. 

[38] 21 U.S.C. 379h(g)(4). 

[39] As we have previously reported, the vast majority of dedicated, or 
"earmarked" trust funds take in more than their current needs. See GAO, 
Federal Trust and Other Earmarked Funds, Answers to Frequently Asked 
Questions, GAO-01-199SP (Washington, D.C.: January 2001). 

[40] See GAO-08-386SP. 

[41] See GAO-01-199SP and GAO, Budget Issues: Trust Funds in the 
Budget, GAO/T-AIMD/RCED-99-110 (Washington, D.C.: March 1999). 

[42] Trust fund surpluses add to the unified budget totals (increasing 
a surplus or reducing a deficit), and any trust fund deficits subtract 
from them (GAO-01-199SP). 

[43] The study analyzed federal channels through which 10 million tons 
of cargo or greater are moved annually. 

[44] A ship's "draft" is the depth of the vessel in the water. 

[45] Secondary criteria the Corps uses to set harbor maintenance 
priorities include whether or not the harbor is a subsistence harbor or 
a critical harbor of refuge. 

[46] Although each port and district can report on what it would cost 
to complete all backlogged work, these estimates cannot be summed 
because all projects identified by the regions could not be completed 
simultaneously. 

[47] See GAO-07-1131. 

[48] See GAO, Results-Oriented Government: Practices That Can Help 
Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15 
(Washington, D.C.: Oct. 21, 2005). 

[49] As we recently reported, ICE does not have finalized cost 
calculations for inspection-related activities. As a result, neither 
agency is aware if collections cover program costs, or if collections 
are appropriately shared between the two agencies. 

[50] According to CBP officials, in the first phase of the user fees 
review, CBP is examining and proposing changes to the customs, 
immigration, and AQI inspection fees. 

[51] See GAO-07-791. 

[52] See GAO-07-1131. 

[53] CBP officials said that in the post-September 11 environment, 
airport inspector staffing information is "law-enforcement sensitive" 
and therefore not shared with airports and airlines. 

[54] See GAO-04-328. 

[55] See Congressional Research Service, The Prescription Drug User Fee 
Act (PDUFA): Background and Issues for PDUFA IV Reauthorization, 
(Washington, D.C:. Apr. 30, 2007). Under the framework established by 
the Prescription Drug User Fee Act, FDA works with various 
stakeholders, including representatives from consumer, patient, and 
health provider groups and the pharmaceutical and biotechnology 
industries, to develop performance goals for the FDA prescription drug 
review program. See GAO, Food and Drug Administration: Effect of User 
Fees on Drug Approval Times, Withdrawals, and Other Agency Activities, 
GAO-02-958 (Washington, D.C.: Sept. 17, 2002). 

[56] The HMF is not assessed on shippers entering into ports that have 
not received federal funding for construction, maintenance, or 
operation since 1977. Some Port Authority officials said that these 
ports enjoy a competitive advantage over those ports that are subject 
to the HMF. 

[57] See GAO, International Air Passengers: Staffing Model for Airport 
Inspections Personnel Can Be Improved, GAO-05-663 (Washington, D.C.: 
July 15, 2005) and Border Security: Despite Progress, Weaknesses in 
Traveler Inspections Exist at Our Nation's Ports of Entry, GAO-08-219 
(Washington, D.C.: Nov. 5, 2007). 

[58] U.S. GAO, Federal User Fees: Key Aspects of International Air 
Passenger Inspection Fees Should Be Addressed Regardless of Whether 
Fees Are Consolidated, GAO-07-1131, September 2007. 

[59] Discover America Partnership, A Blue Print to Discover America, 
January 30, 2007, page 18. 

[60] Visit [hyperlink, http://www.regulations.gov] and conduct a search 
for Document ID APHIS-2004-0023-0313 and APHIS-2006-0096-0067. 

[61] Under the authorizing statute, the customs inspection fees 
collected are only available to reimburse appropriations for a limited 
set of activities (i.e., overtime and premium pay, retirement and 
disability contributions, preclearance services, foreign language 
proficiency awards, and enhanced positions and equipment). 

[End of section] 

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