Segment 2 Of 2     Previous Hearing Segment(1)

SPEAKERS       CONTENTS       INSERTS    
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ADMINISTRATION'S HARBOR SERVICES FUND PROPOSAL

Wednesday, May 26, 1999
House of Representatives, Subcommittee on Water Resources and Environment,
Committee on Transportation and Infrastructure, Washington, D.C.

    The subcommittee met, pursuant to call, at 2:00 p.m., in room 2167, Rayburn House Office Building, Hon. Sherwood L. Boehlert [chairman of the subcommittee] presiding.

    Mr. BOEHLERT. This hearing will come to order. Let me just outline the situation.
    We are going to have a series of votes on the floor momentarily. So I will try my opening statement. Mr. Borski will have his. Chairman Shuster will join us. By then we will probably hear the bells and off we go. So let's get this moving.
    The subcommittee meets today to receive testimony on the Administration's proposed Harbor Services Fund and Harbor Services User Fee. Over 1 year ago as the subcommittee was conducting a hearing on the Water Resources Development Act of 1998, the U.S. Supreme Court announced its opinion in U.S. v. U.S. Shoe Corporation. That case, which invalidated the harbor maintenance tax as applied to exports, prompted an enormous amount of attention and activity in the maritime transportation community.
    That attention continues today and for a good reason. The stakes are enormously high. How the Administration and Congress respond will have major repercussions for ports, carriers, shippers, laborers, and others involved in maintaining a healthy U.S. economy at home and abroad with our trading partners.
    At the outset, let me commend Dr. Westphal for his leadership in working with this committee on a variety of issues, including the Water Resources Development Act of 1999 which Chairman Shuster and I hope will reach the President's desk in the coming weeks. I also want to acknowledge the difficult task of attempting to assemble an acceptable package on harbor financing in response to the U.S. Shoe ruling.
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    Dr. Westphal, based on the testimony of our second panel of witnesses, you and the Administration still have quite a bit of work to do. There are many questions and concerns raised by the proposed Harbor Services Fee and Fund User Fee.
    At the same time, though, there are problems or significant issues with remaining options. I am hopeful that this hearing, as well as additional hearings, will shed light on the Administration's controversial proposal and also prompt stakeholders to pursue all viable options as aggressively as possible. Our ports, our gateways to commerce and world trade, are too vital to be left in the lurch for long while the Administration and Congress decide on the right mix of financing tools.
    With that introduction, let me turn to the Chairman of the full committee, the distinguished gentleman from Pennsylvania, Mr. Shuster.
    Mr. SHUSTER. Thank you very much, Mr. Chairman.
    I must leave for another meeting, but before I do, I want to focus on what I think are some very important issues.
    First of all, I believe, and—if these hearings should prove otherwise I would be happy to know it. I believe that the needs are greater than they have ever been for providing increased productivity for ocean shipping and that means ports and harbors among other things.
    Indeed, the Harbor Maintenance Trust Fund collects about $500 million a year. I am told the needs substantially exceed that. I know that great opposition has been expressed to the Administration's proposal for user fees, and in its place there has been a proposal that money should come from the General Fund.
    If the needs are there, I can tell you, not much money, if any, is going to come from the General Fund. That is a reality, in my judgment, and therefore, we have our head in the sand, if we really want to address these needs. We must come up, therefore, with some form of dedicated fee.
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    I am not here to either support or oppose the Administration's position, but I think it is a starting point. And I think I certainly have an open mind to any other proposal, but I think it is very important to recognize that if we want to focus on improving ocean shipping in our ports and our harbors, we have got to find the money to do it, and in this climate here today, not much of that money is going to come from a General Fund, and the reality is we have got to figure out how to develop a dedicated fee.
    I am committed to working to try to accomplish that in the fairest possible way, and I am looking forward to the results of this hearing, and thank you, Mr. Chairman.
    Mr. BOEHLERT. Thank you very much, Mr. Chairman. You said it so eloquently. This committee is committed to that proposition.
    The Chair now recognizes the distinguished Ranking Member, Mr. Borski of Pennsylvania.
    Mr. BORSKI. Thank you, Mr. Chairman, and I want to thank you for scheduling this afternoon's hearing on the Administration's Harbor Services User Fee Proposal, and I look forward to the testimony.
    Mr. Chairman, I am a strong supporter of the Nation's navigation system. My home city of Philadelphia grew as one of the major seaports on the east coast. As early as 1735, over 400 vessels called into Philadelphia annually. Federal improvement at the port of Philadelphia date back to 1828 and continue.
    Today the Delaware River and the port of Philadelphia remain a vital transportation hub for the mid-Atlantic region. Last year, Congress approved the initiation of construction of a critical deepening project for the Delaware River, assuring that Philadelphia will continue to meet national and regional transportation needs, but as we all know, the construction of projects is not the major need facing ports.
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    It is the maintenance of those projects at the authorized depth that is so critical to maintaining both domestic and international commerce. Without regular maintenance, many of our east coast ports would have channel depths no more than 20 feet. That simply is not feasible, and that is why Federal support for the Nation's navigation system is so critical.
    Ports are the Nation's gateway to domestic and international trade. U.S. ports and waterways handle more than two billion tons of domestic and international cargo annually. In addition to a central role in commerce, ports serve a critical national defense role. The Department of Defense used many U.S. ports to support naval installations and designated two dozen ports to support U.S. forces during large-scale mobilization such as Operation Desert Storm.
    In addition, U.S. ports are vital to the economy. Ports contribute nearly $800 billion to the gross domestic product, and they provide 16 million Americans with jobs that generate $210 billion in Federal, State and local taxes. Ports also serve multiple other uses such as recreation and fishing interest.
    In 1986, Congress approved a series of cautionary proposals put forth by the Reagan Administration to ensure that beneficiaries of water projects pay a portion of the cost of those projects. Ports would be required to contribute as much as 65 percent of the cost of construction for new projects.
    And a new tax was established to pay for up to 100 percent of the course of operations and maintenance. The cost sharing for construction has been a success and continues today. However, the tax to finance operations and maintenance has been declared unconstitutional as applied to exports. It is a replacement for this tax that is the subject of today's hearing.
    Mr. Chairman, I am proud to have introduced legislation to return responsibility for operation and maintenance to general revenues. I believe that the cost sharing for construction is appropriate and should continue, but ports are too critical to our national economy to risk putting U.S. products at competitive disadvantage for an imposition of a fee on harbor users.
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    In addition, I am deeply concerned that the Administration's proposal would seek to recover the full Federal share of the cost of the construction, completely ignoring the value of U.S. ports to Federal interests such as defense and also to the general economy.
    However, notwithstanding my reservations, I look forward to hearing today's testimony and particularly that of Dr. Westphal on the Administration's proposal. I believe that the Administration should be given every opportunity to present its proposal and convince this committee and the Congress of the need to have it enacted.
    I look forward to the testimony.
    Thank you.
    Mr. BOEHLERT. Thank you very much, Mr. Borski.
    A very good statement I might add. We share some of those reservations, and we also are determined to work cooperatively with the Administration to resolve this in a satisfactory manner.
    First witness on panel one, Dr. Joseph Westphal, Assistant Secretary of the Army for Civil Works.
    Dr. Westphal, the floor is yours.
TESTIMONY OF DR. JOSEPH W. WESTPHAL, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS), WASHINGTON, DC.

    Mr. WESTPHAL. Thank you, Mr. Chairman and Members of the committee, delighted to be here and represent the Administration's proposal for a new harbor services fund.
    Mr. Chairman, I think we have submitted a statement for the record, and I want to summarize that with your permission.
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    Mr. BOEHLERT. That would be appreciated. Thank you.
    Mr. WESTPHAL. As Chairman Shuster mentioned, this now comes to the Congress. I think this is the appropriate place to discuss, debate, examine, modify where needed and make this proposal a viable proposal for the Congress and for the American people. So I am delighted to be able to come here and testify and start the discussion which I am sure we will all have, and I look forward to working with you and the Members of the committee to do whatever we have to do to answer your questions and get you the information you need.
    Mr. Chairman, Members, as you, Mr. Borski, mentioned, March 31, the Supreme Court did rule that the harbor maintenance tax on exports was unconstitutional. In that ruling, the court concluded that the tax which imposed a charge based on the value of commercial cargo being shipped constituted a tax on goods in export transit and, therefore, violated the export clause of the Constitution. And because of this ruling the tax is no longer being collected on exports. Collection of the tax on imports and domestic traffic continues as required under the existing statutory regime.
    The United States has been under criticism from abroad that the harbor maintenance tax violates the General Agreement on Tariffs and Trade, and consultations have been held on the harbor maintenance tax under the World Trade Organization dispute resolution procedure.
    Last May, the Administration proposed general principles for a new harbor services user fee to replace the harbor maintenance tax, and since then, I have worked to develop a strong, legislative proposal for the Administration to replace the harbor maintenance tax. Early last fall I held a series of outreach meetings with port, industry and trade interests. A summary of that draft legislative proposal was presented at that time. The legislative proposal that was transmitted to Congress on April 30th, 1999, reflected revisions resulting in part from the input provided by the stakeholders at those meetings.
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    The port and harbor system of the United States is critical to the Nation's economy and to international trade. A secure funding mechanism is needed to ensure that adequate funds are available for port and harbor development and maintenance. The Administration's legislative proposal adheres to the following principles. The proposal satisfies the Supreme Court test for constitutionality and establishes a close link between revenue collected and services to vessels.
    It is consistent with the General Agreements on Tariffs and Trade and other U.S. international obligations. It is formulated on a nationwide basis. It causes no significant alteration to the existing U.S. port competitiveness and U.S. competitiveness with foreign ports, and it provides funds for continued operation and maintenance of ports and harbors now funded by the harbor maintenance tax and also supports harbor construction activities.
    These principles ensure that the Administration's proposal for the harbor services fund is constitutional, equitable and sufficient to finance harbor activities. Moreover, because the spending is offset by user fee receipts, this proposal allowed the Administration to support a higher level of spending for port and harbor activities in fiscal year 2000 budget than would have been possible in the absence of that proposal.
    Revenues in the harbor services fund can be used for three purposes. Like the Harbor Maintenance Trust Fund, the harbor services fund would finance the cost of operating and maintaining the Nation's ports and harbors. Unlike the existing trust fund, however, the new harbor services fund would finance new investments needed to ensure orderly and efficient development of the Nation's ports and harbors. These expenses are the Federal share of the cost construction projects to widen and deepen ports.
    The third purpose, also new, would finance up to a hundred million dollars per year for eligible activities of ports where the average amount of revenue collected exceeds the amount spent on harbor service activities by $10 million in 3 consecutive years. The legislation defines eligible activities at these ports to include the dredging of berthing areas, the construction and maintenance of bulkheads, and the credits towards the non-Federal share of Federal harbor development or operation and maintenance activities.
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    The assessment under the harbor services fund is a user fee, not a tax. The fee is based on the harbor benefits and services vessel operators receive and it is assessed on the commercial vessel, not on its cargo.
    Vessels are divided into four service categories: general, bulker, tanker, and cruise. The principal factors used to determine the level of harbor services required by each category were ship size, movement frequency, and operational characteristics of particular vessels. The four vessel categories were chosen because each category has different operational characteristics, and each requires a significantly different level of service.
    The required level of service vary in the extent of the use of the port system, the channel accessibility required, and demand for new harbor development projects. The characteristics used to measure ship size is vessel capacity, expressed as vessel capacity units or VCUs. VCUs are a volumetric measurement of ship size.
    Now, my complete statement contains examples that illustrate how these rates are used to compute the fees, and these examples also compare the amounts that would be collected to the amounts collected under the Harbor Maintenance Tax. The harbor service fee would be collected once per voyage. For administrative ease, the assessment of the fee will be made at the first U.S. port of entry with a commercial vessel coming from a foreign port as part of a vessel clearance process.
    I would like to point out, Mr. Chairman and Members, that assessing the fee once per voyage on all ship categories represents a significant change from last fall's draft proposal. It was made in response to feedback from stakeholders. The change is intended to avoid impacts on the number of U.S. port calls made during the voyage.
    The exemptions and exclusions in the proposed legislation mirror those contained in the legislation for harbor maintenance tax. For example, intraport movements are exempt as are vessels transporting commercial cargo from the U.S. mainland to Alaska and Hawaii or to possessions of the United States. Examples of exclusions by definition are vessels on the Inland Waterway System and vessels less than 3,000 gross tons. A full list of exemptions and exclusions can also be found in my complete statement.
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    The proposed legislation provides for a periodic review of the rates and adjustments, if necessary, to ensure that the fees fairly approximate the cost of services provided. The legislation also has an automatic mechanism that prevents the harbor services fund from amassing a surplus. If amounts appropriated in any year are less than the amount collected in fees for the prior year, the fee rates will be reduced in the year of the appropriations to ensure that collections did not exceed the total amount appropriated from the harbor services fund for that year.
    The Customs Service will be responsible for collecting the user fee, as in the case of the harbor maintenance tax. The Army Corps of Engineers will be responsible for the administration of the harbor services fund.
    The Administration's proposal is an important step forward to ensure that adequate funding is available to meet the critical needs of the ports and harbors of the United States, not only for operation and maintenance, but for construction of port and harbor projects.
    Mr. Chairman, Members, long-standing, general principles underlie this proposal. These general principles are consistent with those that were pioneered in the House of Representatives nearly a decade and a half ago when the historic agreement was reached between Congress and the Executive Branch in the enactment of the Water Resources Development Act of 1986.
    That agreement recognized that the costs of Federal port and harbor projects should be shared by direct beneficiaries. These principles also have been applied to highway and air transportation financing for many years. This proposal places a cost of harbor services fairly and equitably on the user of these service, and it remedies the constitutional problems of the harbor maintenance.
    And as I said earlier, Mr. Chairman, this is now the appropriate place, I believe, to further discuss, elaborate on this proposal in the legislative process in the House and Senate, and we in the Administration look forward to giving you and the Members all the support you need to examine this proposal, to study it, to analyze it and discuss it in preparation for your debate.
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    Thank you, Mr. Chairman.
    Mr. BOEHLERT. Thank you very much.
    I agree with you. This is the place, and ordinarily this would be the time, but we now will have to take leave, and for planning purposes, we will probably be in recess for about a half hour because there are a series of votes.
    So we will get back here as soon as we possibly can, recognizing the demands on your schedule, but you also appreciate our obligations.
    So this hearing stands in recess pending our return, probably in about 30 minutes.
[Recess.]
    Mr. BOEHLERT. We resume, and I am sorry for the delay but duty called.
    Dr. Westphal, why do you support funding harbor operations and maintenance through a dedicated revenue stream instead of funding these activities out of general revenues?
    Mr. WESTPHAL. Mr. Chairman, when I first came on board, this proposal had begun to emerge from a task force that was put together by the Administration to look at a replacement for the tax.
    And as I became more involved in the development of a 2000 budget to send to the OMB and to Congress, as I looked at the tremendous competition out there for water projects and for money for water development in general, whether you talk about flood control or navigation or hydroelectric or whatever, it became increasingly clear to me. At first, I was not very supportive of this idea, thinking that perhaps we were going in the wrong direction, but it became clearer and clearer to me personally that we needed to find a dedicated source of funding for our port development activities because the competition for funds was getting much, much tighter.
    I saw the competition getting tighter both within the Administration as we prioritized but also within the Congress. And I think you are seeing that today with the effect of the caps in the House and the Senate, and I believe and I think the President believes very strongly that our opportunities in the global trade markets are very, very important and are there and we need to capture them and that our ports are increasingly becoming more sophisticated. They are increasingly demanding more and more dredging, more and more development to deeper channels to compete with other ports around the world and to be able to get cargoes here.
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    So I saw a need to somehow ensure that we would have what my staff, and folks tell me in the year 2000 and above, is probably to be about a billion dollars a year to do this work, both to do the O&M and construction on port development, and I saw that we needed to have a sole source like this to do that.
    Mr. BOEHLERT. I assume you considered some other options. Did you consider a straight tonnage fee or a port specific fee?
    Mr. WESTPHAL. We did, Mr. Chairman. I have been given a whole list of things that were considered. The task force, originally made up of various Federal agencies, looked at a range of user fees on the ship owners that would be based on gross tonnage, net tonnage, that would be based on draft of the vessels or tonnage carried by the vessels. I could go on. The list is extensive of the various different user fees that could be applied.
    They also looked at basically turning that responsibility over to the ports and saying, you do it, you develop, you come up with a funding, essentially no longer a Federal role here or a kind of a grant cost sharing type of opportunity. They looked at other port specific fees that are used in some other countries. They looked at fuel taxes. So there were a variety of other alternatives explored.
    In general, I think that most of these failed a constitutional test or many of them did, and in addition, they also created problems among and between the ports, I think probably developing port competitiveness at levels we didn't want to really propose. So we came back to this fee.
    Mr. BOEHLERT. Mr. Borski.
    Mr. BORSKI. Thank you, Mr. Chairman.
    Dr. Westphal, can you tell me how other countries finance their harbor and port-related activities?
    Mr. WESTPHAL. Well, Mr. Borski, last week I was in Europe and I asked that question to a number of port directors in Rotterdam and Antwerp and Zeebrugge and other places in Europe.
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    The port directors themselves had a very difficult time explaining to me—and I don't think they were trying to hide anything—exactly how they got their money to do this. Essentially, in most of these countries, a variety of port fees and taxes collected, both at the port and in the general revenue, would come to their central governments and be redistributed back for port maintenance and development.
    While there is a linkage there, there was never an ability of any of them to tell me, this fee pays this item. They did say, however, that they did have all the resources that they needed and weren't suffering any shortages of resources to do their dredging. At least, that is what they told me.
    It's my understanding that Canada, under a law passed a couple of years ago, has designated 18 ports as ports of great national importance or priority. And these ports essentially now have to come up with their own way of financing port development.
    Now, my understanding is that the Canadian parliament may be exploring some other prioritization among those ports, looking at some other ways to secure some funding. But generally speaking, it is very confused when I had my people look at what other ports and other countries were doing, it was very difficult to find out a direct linkage.
    Mr. BORSKI. So does your proposal compare to anywhere else we can look at?
    Mr. WESTPHAL. I would say that there are certainly countries that collect user fees that use the same variables that we use in determining this fee. Whether that money as it is collected and goes to a central government and comes back directly for port development and for these uses exclusively, I couldn't tell you. But there are countries that collect fees either that use some or all of the variables that we are using to develop our fee structure.
    Mr. BORSKI. All right. So in Europe you would suggest that it is not general revenues, that some kind of——
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    Mr. WESTPHAL. No, there are definitely port fees, I don't know if you call them taxes, but they are fees that are going to the government and coming back.
    Mr. BORSKI. Now, you mentioned Canada, and some of my concern is about potential or possible diversion. In fact, I am informed that Vancouver is running ads saying come to our port; we don't have this tax.
    Do you have any concern about that at all?
    Mr. WESTPHAL. Well, we have a lot of concern about that, and we had a lot of concern in the development of this proposal, and it is one of the reasons this proposal did not come forward to you last September when it was ready. The Administration, was ready to move it forward to Congress, and the concern was, have we really done an impact analysis, have we really looked at the situation and assured that we can reasonably answer for you at this point in time those kinds of questions.
    Now, we believe that under this proposal we have taken care of that problem. We do not believe that there would be any substantial changes in diversion of traffic to Canada. There are a variety of reasons for this. I think it is partly the fact that the way we structured our fee, a ship coming from another country, coming into or towards North America with a substantial amount of cargo to the United States essentially at some point is going to have to come in the United States and pay that fee regardless of how much of the cargo it has dedicated to United States versus Canada.
    We believe that this proposal may actually increase traffic to the United States because it will be an incentive for ships to come fully loaded and visit several U.S. ports before going anywhere else.
    Now, we believe also that our ports have the infrastructure, the rail, and the trucks and the other infrastructure, intermodal systems that are far more sophisticated and advanced than in many parts of Canada or Mexico. So we believe that we are not going to see that diversion.
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    Mr. BORSKI. Mr. Chairman, if I may for one second, I just wanted to ask if you have any studies or data that would demonstrate what you just told us about diversion?
    If you do, would you please submit those.
    Mr. WESTPHAL. We have some analysis of that. We do not have, as comprehensive a study as I would like to be able to send you, but we will send you whatever we have, and for the record, we will give you a more complete answer to that question.
    [The information follows:]

Attached is the 'Proposed Harbor Services User Fee Impact Assessment.' Your attention is directed to pages 30–38, under the heading 'Potential Impacts on Ports.'

    Mr. BORSKI. Thank you, sir. Thank you, Mr. Chairman.
    Mr. HORN. [Presiding.] May I ask the gentleman if you are thinking of an economic analysis on this?
    Mr. BORSKI. Yes.
    Mr. HORN. Because I had certainly the same question, what are the results of your economic analysis of the proposals as how it affects carriers and U.S. trade.
    Mr. WESTPHAL. Well, we gathered a significant amount of information from as many sources as we could, including U.S. carriers and U.S. ports.
    Some of the information was very difficult to obtain. It is sometimes difficult to even find out what ports charge across the country, but we tried to get that information, and we did do an impact analysis, and I have a report on that that I would be glad to provide to the members of the committee.
    Mr. HORN. Well, we would like to have it in the record at this point.
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    [The information follows:]

Attached is the 'Proposed Harbor Services User Fee Impact Assessment.' Impacts on Carriers (Vessel Operators) are covered in pages 5–21 under the heading 'Potential Impacts by Vessel Category.' U.S Trade is covered in pages 27–29, under the heading 'Potential Impacts on Trade.'

    Mr. HORN. Without objection, Mr. Borski's question and mine would be combined together there. Are you done, Bob?
    Gentleman from Virginia, Mr. Bateman.
    Mr. BATEMAN. Thank you. Most of the questions I would have raised are encompassed in what you have already been requested to do and which you promised to provide because I do think we need a firm handle on what port charges and how ports are going to be vis-a-vis ports of Canada especially and, perhaps, Mexico in being able to determine the best route to go.
    Another question that hasn't been raised or I didn't hear it raised is the matter of, under your proposal, we have what are called fees, but I think some argue at least that they are really not fees, they are taxes.
    What analysis has been done on that in terms of any authoritative legal opinion as to is this a fee, is this a tax? Are we going to be right back into litigation and perhaps a high risk of an adverse result?
    Mr. WESTPHAL. Well, that is a very good and fair question, Mr. Bateman.
    The simplest answer I can give you, first of all, is that this is a fee because it is constructed exclusively on the relationship between the service provided to the vessel. It is a fee on the vessel itself, not on the cargo, but on the vessel, and the fee is structured so that you are taking into consideration not only the size of the vessel, the capacity of the vessel, but you are also taking into account the uses of the port by that vessel, that is, how many times it travels in and out of the ports. And you are taking into consideration essentially the type of service that has to be provided to that vessel. So it is a fee based on that, and so those vessels that use that service more extensively will pay a higher fee than those that use it less extensively, and for that reason, I believe this is not a tax.
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    Mr. BATEMAN. Well, I have become aware of the new term or phrase ''vessel capacity unit,'' VCUs. I am not sure that it is very apparent to me that the number of VCUs really translates into any consistent, logical pattern to how much or how little services the vessel may require on whatever its VCU.
    Could you help me with that?
    Mr. WESTPHAL. Sure, sure. Well, keep in mind that we were trying to construct a national system here or a national program, so to speak, and so we understand that there are going to be variances. And we are applying sort of an average to the equation to make it consistent around the country and to diminish any competitive advantage that what we do might give to one port over another. So that was another factor we had to take into account.
    The equation that we are using is as follows, and let me see if this gets the answer to your question. If it doesn't, I will come around and address it again. But we are using the rate per movement. This is a factor which involves a variety of variables based on the movement of ships in and out of ports. Then we are doing the movements per port used times port uses per voyage.
    So you have a ship coming in one voyage, how many port uses—how many times is that ship going to use various ports, how many movements in and out of ports, and you multiply all these factors, and you come up essentially with a fee, which then you multiply times the VCU.
    Now, the VCU is the volumetric measure of the carrying capacity of the vessel.
    Mr. BATEMAN. I know you didn't do that to confuse me, but there are unintended consequences of what you just said.
    What I would very much recommend, not because of the inadequacy of your explanation but my perceptiveness, is send me or everybody on the committee something in writing that gives us analyses and examples of how this user fee is, in fact, going to be implemented, if this is approved.
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    Mr. WESTPHAL. I will do that
    Mr. HORN. Without objection that exhibit will be in the record at this point.
    [The information follows:]

    [insert here]

    Mr. WESTPHAL. I am sorry I was so confusing on that, but I will get you a succinct and clear explanation of that.
    Mr. BATEMAN. I am very aware of the fact that we are dealing with something that is very, very complex. I don't expect an eloquent and ringingly clear presentation off the cuff, but it is the very essence of what we have got to probe into on this.
    Mr. WESTPHAL. Yes.
    Mr. HORN. I yield 5 minutes to the gentleman from Minnesota, Mr. Oberstar.
    Mr. OBERSTAR. Thank you, Mr. Chairman, and thank you, Mr. Secretary, for being with us for a valiant defense of a, I think, rather indefensible idea.
    You are doing your job, and I admire your persistence and creativity in presenting this idea and a terrific new term that has entered the lexicon that will, I hope, occupy an appropriate footnote in the history of water resources and navigation, ''volume metric units.'' It is a marvelous—some green eyeshade character over there at OMB cook up this idea?
    Mr. WESTPHAL. I am a political scientist. I only understand political terms. That is what they told me to say.
    Mr. OBERSTAR. Then you understand what I just said.
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    Mr. WESTPHAL. Loud and clear.
    Mr. OBERSTAR. Well, the idea of a fee that has—we have wrestled with this idea of fee on this committee and in other committees for many years. The green eyeshade folks at OMB have always said they want to be involved irrespective. I can go back to the Johnson Administration, the same message today, that a fee, to be a fee, has to have a direct link to the user and a direct relationship to the need for the service. So they cook up fees to get into the National Park Service and cook up fees to use campgrounds and the national forest system and fees for a whole lot of other things.
    One principle that has dominated our navigation was enunciated by a Member of Congress in 1848 that remains true to this day. If you first impose a fee to develop the channel, you will never be able to generate the cargo to put into it, and that was Abraham Lincoln, advocating a system of canals to be funded out of the general revenues of the United States government. And that principle dominated or drove our whole inland coastal navigation port development system until this harebrain scheme came up in 1986.
    I voted against it, said it was wrong. We are going to see another trust fund with surpluses built up that won't be used for the purpose for which this tax was intended, just as the highway and the aviation trust fund, and that is exactly what happened.
    Didn't take a whole lot of foresight to see that. So, now that the Supreme Court has appropriately driven a wooden stake through the heart of that creature, let's not create another one.
    Let's just go back to a very simple basic principle. All Americans benefit from water transportation, the lowest cost, lowest fuel consumption means of delivering goods in the Nation's marketplace—least polluting, most available, belongs to all Americans, the common heritage of all people, our inland waterways, our coastal waters, our Great Lakes navigation system, and stop loading a direct cost on to the shipper of grain which moves in international commerce for as little as a quarter of a cent a bushel.
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    You shift a dollar cost on to a bushel of grain, you are going to kill the grain shipment of this country, the grain trade of the United States, hurt soybean farmers, wheat farmer, corn farmers, shift an enormous advantage to Canada.
    I noted with interest my colleague, Mr. Borski, referencing the port of Vancouver, British Columbia. I was in Seattle a month ago. I saw those ads by the port of Vancouver. They are principally directed at the congestion land-side in Seattle where you have this enormous rail-highway-port congestion which the State and the port authority are attempting to address.
    There is also this hidden message about the tax, and Halifax has Mother Nature clean its harbor out every day, once in the morning, once in the evening, 1200 foot channel—1200 foot deep, and so with Vancouver, on the Great Lakes the Thunderbay, in Montreal all with minimal dredging compared to ports on the U.S. side.
    So the bill that Mr. Borski and I have introduced would generate—would call for $600 million a year. That is about what has actually been spent out of general—and to do it out of general revenues for navigation and maintenance and for new channel construction, and without getting into an enormously complex formula that is going to take supercomputers to figure it out and without disadvantaging domestic producers. All America benefits from our ports, our waterways, our navigation system. And in a very general way, all Americans ought to shoulder that cost as they enjoy its benefits.
    Thank you, Mr. Chairman.
    Mr. HORN. I thank the gentleman. When you started, you said you were going to take us back to the Johnson Administration. And I thought, at the time, do you mean Andrew or Lyndon? And then, when you got back to 1848, I thought I ought to ask the question. He was a little after Lincoln, right. So is that Lincoln in Congress that said that, 1848?
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    Mr. OBERSTAR. Abraham Lincoln as a first term Member of Congress.
    Mr. HORN. An only term Member of Congress, and he was there when President Polk was in, and C-SPAN, this week, is emphasizing Speaker Polk who became President of the United States. He is the only President that ever kept all his promises to the electorate, four things, big vision things. Everything was done.
    Mr. OBERSTAR. And to whom we owe the first return message on the Morse code.
    Mr. HORN. Yeah, right, and Mr. Morse' famous painting is in this town of the night when the congressional group in the statuary hall, and it is a great painting down at the Corcoran gallery.
    So anyhow I am glad to clarify that.
    Mr. OBERSTAR. Indeed.
    Mr. HORN. And I wouldn't get into a history problem with you either. OK. We now have Mr. Gilchrest, the gentleman from Maryland.
    Mr. GILCHREST. And in 1840—no, you guys have captivated the audience with this exchange, and I am afraid I am going to lose them here when I get back to the harbor maintenance tax of 1999. I could have just kept listening to you for the next hour.
    Mr. WESTPHAL. That was great. I was enjoying that myself.
    Mr. GILCHREST. Herb Bateman said it will take us 12 years to resolve this issue so we have plenty of time for these interesting history tidbits. Thank you, Mr. Chairman.
    Mr. Secretary, just briefly, different countries around the world do various things to dredge their channels and their ports. I guess if we went to Rotterdam, there is no maintenance tax, I don't think. It is just done by, the Dutch get in there, spend the money, do the dredging, do the infrastructure needs. It is a Federal issue to them.
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    I think in England they decided that it is not a Federal issue, that the ports, if they are going to survive, will do it themselves, and the market will take cake care of which ports will be successful and which won't. And here in this country, we are sort of, is it a Federal issue that funds these projects? Do we issue a harbor maintenance tax? How is this going to be accomplished?
    This, I think, is an interesting question to ask you. How should we go, in your opinion, as responsible Members of this government? Harbor maintenance tax in some capacity like you have described? Federal funds deal with these issues totally? We don't have—we agree with Abraham Lincoln or the ports will do it themselves and a free market economy, the best ports will survive, the best intermodal system, the best tapping into the concept of a maritime transportation system? So which one of those three do you think we ought to pursue, A, B or C, because I have several more questions?
    Mr. WESTPHAL. OK. Well, I think ultimately, in most of these kinds of scenarios whether you have a fee or a tax, whether the Federal Government pays for it, ultimately the American taxpayer, the American individual will foot the bill, things are passed on.
    If we levy a fee on the vessel, it is likely that some or all of it will be pushed on to the shipper. The shipper will push it on to the commodity and prices will flow down. Eventually, I will pay for it when I go buy the product. If we do it out of general revenues, I am paying for it as a taxpayer. So either way, ultimately the American individual taxpayer citizen will pay for this development.
    And the question for all of us, and for Congress in the future is going to have to be to look at what is the least expensive? What is the most efficient? What gets us the best position out there in terms of trade and development? What allows our communities to grow and to develop? And what keeps all of our ports competitive, not just those that are big and large in big cities but the smaller ports, the Baltimores as well as the Los Angeleses? What do we have to do to make ourselves both competitive and have least cost to the taxpayer?
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    That would be the way I would go.
    Mr. GILCHREST. If I could just interrupt for a second, is it possible to estimate over a period of, let's say, 20 years the steadily increasing cost for the infrastructure needs of all our ports based on future projections of the size of ships which is going to require increased dredging and increased infrastructure demands.
    Mr. WESTPHAL. I would think that it would be.
    Mr. GILCHREST. And can you calculate that into this harbor maintenance tax proposal?
    Mr. WESTPHAL. Yes. I think the answer is yes to both of those. However, we need two things. We projected about a year or two ahead, 2000, 2001, 2002, but we were not able to get—do not have the data from the ports and from the industry that we need to be able to make that projection.
    The other thing that I became aware of in looking at this issue and in travelling to the ports—I must say the port authorities and the folks and the stakeholders have been terrific in helping us and in giving us information even though they oppose this proposal. I want to thank them for their help and their willingness to share their views with us, but you know, the thing I became aware of is a tremendous change is going on in this industry.
    And you saw it in your communities in Baltimore with the competition with New York and New Jersey over SEA-LAND and MAERSK. Tremendous changes, tremendous developments, and technology is improving at dramatic rates. So predicting in the long term is going to be difficult because we don't know exactly where everything is going, but I think we can have a good idea if we got the information. And I think we can link it up to this fee if we do that now.
    We did some impact analysis and I agreed, Mr. Horn, to give that to the committee right away. It does some assessment of what you are asking for.
    Mr. GILCHREST. Thank you, Mr. Chairman.
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    Mr. HORN. I thank the gentleman and now yield to Mr. Baird of Washington.
    Mr. BAIRD. Thank you, Mr. Chairman.
    Mr. Westphal, when I hear people talking about competition with the port of Vancouver, I am reminded that people need to be aware there are two Vancouvers, America—as we call it America's Vancouver, which also has a port, and I have here a copy from the port of the ad from the other Vancouver, Vancouver, Canada, a far less beautiful and compelling place.
    Mr. WESTPHAL. I have seen that.
    Mr. BAIRD. And I would like to ask unanimous consent that we read this into the record.
    Mr. HORN. Without objection.
    Mr. BAIRD. Thank you, Mr. Chairman. What concerns me about this is that the advertizing says we save you time with Canada's favorable currency and no harbor maintenance tax.
    Well, it is not just the port of Vancouver, Washington, that is of concern here. It is the port of Olympia, Washington; the port of Tacoma, Washington; the port of Seattle, Washington. And sure enough it is a free market competitive environment. But this is not one shipper going to another American port, this is a ship going to another foreign nation's port. And when you assert that, it might actually increase traffic.
    I am circumspect about that and would like to ask, in addition to the question that was asked earlier—when you get us those cost estimates, I hope and will ask you to see if they can include the added cost to the grain growers, the wheat growers. And let me emphasize that this is not just the port of Vancouver, which, by the way, 43 percent our Nation's wheat crop goes out—is exported out of the port of Vancouver.
    This is all the grain growers in the entire inland rocky mountain western region. They will all be impacted by this. If you can also get us the estimate of the costs in terms of longshore jobs if business goes elsewhere and trucking jobs if the business goes elsewhere.
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    I raise those points because it is not simply the shippers per se that would be impacted by this. It is the entire economic infrastructure. Some poor farmer down the road is going to be paying more money or is going to have to ship through Canada, and I don't want to see American grain going out through Canadian ports if we can help that.
    So could you get us that information if you can?
    Mr. WESTPHAL. Absolutely.
    Mr. OBERSTAR. Would the gentleman yield?
    Mr. BAIRD. Yes.
    Mr. HORN. Without objection that will be put in the record at this point.
    [The information follows:]

Using an input-output model, both the Harbor Maintenance Tax (HMT) and the proposed Harbor Services User Fee (HSUF) impacts on national out put, income, and employment levels within the major industrial sectors were examined. The results indicate that the effects of the HMT and the HSUF are exceedingly small, with the HSUF having slightly less of a negative impact. Replacing the HMT with the HSUF, therefore, would not result in any significant national level economic impacts. Details behind these conclusions can be found in pages 39–41 and Appendix D under the heading 'National Economic Impacts' of the attached 'Proposed Harbor Services User Fee Impact Assessment.' State or regional effects of the proposed fee are beyond the scope of the analysis and are not evaluated.

    Mr. OBERSTAR. A footnote to my colleague's request is in preparing that information make very clear the distinction between a fee and a general tax. A fee generally has more direct, immediate, and significant difference and impact upon jobs and trade than a general tax does.
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    Make that calculation as well.
    Mr. WESTPHAL. Will do.
    Mr. BAIRD. Thank you very much. I would concur with that, and let me just point out, in the last 2 months three new or expanded shipping line services have announced that they will not call on my ports in my State, Washington, but instead they will go through Vancouver, B.C.
    When I am seeing an ad on one hand that says we have no tax, and I am seeing people actually moving to another State or actually another country to transport goods, I become very concerned that we are, in fact, seeing adverse impacts from these fees. And I personally have grave concerns about it, and I hope you will provide that information to the committee to edify us.
    Thank you.
    Mr. WESTPHAL. I will do that.
    Mr. BAIRD. Thank you, Mr. Chairman.
    Mr. HORN. Are you done? OK.
    Gentleman from Pennsylvania, Mr. Sherwood.
    Mr. SHERWOOD. Thank you, Mr. Chairman. With the seasoned members of the committee and their raconteur-type performance here, I am almost afraid to go here, but we understand that the Administration would like to put a fee on because that raises the money without us finding it in the general budget. So I will take that as a given.
    Now, I would ask you to please help me understand how the different ways that fee is structured impacts on our commerce. In other words, a tax on a fee or on capacity of the vessel is one thing, but I think what you are trying to get at is draft of the vessel. And draft has more, unless I don't understand, more to do with whether it is loaded or empty, and why did you attempt to do it this way?
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    There must be various impacts. If you would have it per vessel, obviously you would only get large vessels, you wouldn't get small vessels. And if you have it by ton, it has different impacts. And if you have it on capacity, it has a different impact.
    I think we need to understand how all those things impact on our competitiveness.
    Mr. WESTPHAL. OK. Well, the fee—I am going to try not to complicate the way I did with Mr. Bateman and give you maybe a simpler answer.
    Size of the vessel—size of the vessel, frequency of port use, and the operational practices of the various categories of vessels, those three things are what we factor into the equation to determine the fee.
    So you are looking at three variables which determine to what extent we have to provide a service to that vessel in a port and directly link that fee to that service.
    So that is how we do it. Now, we believe that using that fee and the way that fee was calculated and we will give you—and we will give the committee, and we have briefed the staff, and we will give you all the information you need in terms of how we arrive at that calculation and what went into it and all the rationale, but we believe that that equation satisfies one very important aspect of this whole debate, first of all, we do not want to create competition between our ports. We don't want to create a fee or set up a fee mechanism that will give advantage to the Port of Charleston over the Port of Savannah or vice versa. So we have to devise a fee very carefully not to do that.
    In the initial attempts to look at this, for example, would have been a fee that simply, if the ship comes into a port, it gets charged; then it goes out to another port, it gets charged again. That would create competition between ports. Some fees might be higher than others. So we created a fee that would be established on a national basis that would not create that competitive advantage from one port to another.
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    We also wanted to create a fee that would minimize diversions, that would create, in fact, incentives if the fee were in place for ships to come fully loaded into U.S. ports first. We reconstructed the fee in ways, as we developed it over the course of the last 6 to 8 months, in ways to avoid any kind of diversions that we could see would happen under the original proposal that we were looking at.
    So we took great pains to avoid those two things. And we wanted to meet the constitutional test by simply not levying this on cargo or having any relationship to cargo, but on the vessel and the service provided to the vessel. We think we meet those three parameters.
    I don't know if that answers your question, but——
    Mr. SHERWOOD. And do you think that your proposal impacts our international competitiveness less than doing it another way?
    Mr. WESTPHAL. This is an opinion that I have based on my general observation and reading of the information of the reports that I have received from staff. So this is not a comprehensive, overwhelming study with conclusions that I am telling you here. But I believe that under the general revenue, it creates a whole different picture in terms of diversion and competitiveness outside the United States. I do believe that the fee we have structured may actually help in that area. So I think under the fee we will not suffer any competitive disadvantage overseas.
    Mr. SHERWOOD. See, I am a rank amateur in this thinking, but I can't understand that statement. It seems to me that there will be far-reaching consequences if the way we used to do it was out of general revenues, that would—there would be no impact on our competitiveness elsewhere. But the minute we impose a fee, it seems that that will discourage commerce. And any time you discourage commerce, it hurts the whole thing down the chain.
    Mr. WESTPHAL. No, I know what you are saying, but perhaps this goes back to my initial statement that I think if you have to rely on the general revenues, we may not be able to come up with the funding necessary to dredge all of our ports and to be as competitive nationwide as we would like to be. I mean, that demand today, Mr. Oberstar said it was around 600 million, that demand is probably going to go up to probably close to a billion in the year 2000 and 2001. And as more ports want 50- or 55-foot channels, that demand is going to get higher all around. And the question is if we don't have the resources to do that, then we are at a disadvantage, because we do have ports in Canada, for example, that are naturally deep and don't require the maintenance that ours do.
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    So I think we have got to guarantee that the funds are there, first of all, to make sure that we remain competitive. And I do believe that we have structured a fee that for the most part protects that advantage.
    Mr. SHERWOOD. Thank you.
    Mr. WESTPHAL. Yes, sir.
    Mr. HORN. I thank the gentlemen. I now yield myself 5 minutes and see if we can't cover a few questions that at least I didn't hear the answer, it might be because I came in at a different time. But in a few questions back, we talked about the services some ships would need versus services other ships would need. Let's take the example of a container ship versus a bulker. Did anybody do an analysis or a list of what are the services those two would need that would qualify for this fee?
    Mr. WESTPHAL. Anticipating some of those questions, I asked the staff to give me some examples. And if you give me a second here. You asked about a bulker.
    Mr. HORN. And a container ship. The Port of Long Beach is the part of—longest container ship port in the country.
    Mr. WESTPHAL. Well, for example, let's say if you had a bulker loaded with grain going out of New Orleans to Japan, and it was going to go to Japan via the Panama Canal, and let's say that that bulker had a net tonnage of 20,000 VCU, and it was carrying cargo at a value of about $5 million. Now, under the harbor services user fee that we are proposing, that vessel would pay $2,400. Under the harbor maintenance tax, it would pay $12,500. The ocean waterborne operating costs of that bulker we estimate to be about $557,000. So the harbor services user fee of $2,400 is approximately 0.4, four tenths of one percent of the ocean operating costs of that vessel. The Panama Canal charges for this vessel would be about $78,000. It is a rate of about $2.57 for the total net tonnage of the vessel.
    Now, comparing that to a containership, here is one from Los Angeles, coming in from the Far East to L.A., then to Seattle, and then back to the Far East, containing general cargo, 65,000 gross tonnage, about $190 million value of the cargo. As you know, under the harbor maintenance tax, we were taxing the value of the cargo. So the harbor maintenance tax on that vessel for those port calls would have been $237,500. And that, of course, is a cost to the shipper. Under the harbor services user fee, it would be $178,100, and that is a charge to the vessel operator. The ocean operating costs of that vessel we estimated to be about 1,685,000. So the harbor services user fee is about 11 percent of the ocean operating cost of that vessel.
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    In both those examples under this fee, and, of course, it is someone different paying the fee, the vessel operator will pay substantially less than under the existing tax.
    Mr. HORN. Without objection, those exhibits will be put in the record at this point.
    Mr. WESTPHAL. Yes, sir.
    [The information follows:]

    [insert here]

    Mr. HORN. Let me ask you this: Has the Administration done a legal analysis of the proposal, and does the administration think that analysis will hold up when you are dealing with the World Trade Organization?
    Mr. WESTPHAL. Yes, we have. We have done that. And we do believe that it will hold up. And we do believe that this issue has to be addressed fairly soon before we have, you know, a more serious trade problem with GATT with the existing harbor maintenance tax.
    The harbor maintenance tax, Mr. Chairman, as you know is now only being applied to imports. And that is where GATT has a serious problem with that tax. So something has to be done with that to address that problem.
    Mr. BORSKI. Would the gentlemen yield for a second?
    Mr. HORN. Certainly.
    Mr. BORSKI. I wonder, Dr. Westphal, if you could provide that opinion to us as well.
    Mr. HORN. Without objection that will be put in the record at this point.
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    [The information follows:]

    [insert here]

    Mr. HORN. When I first heard of this situation a year or so ago, my instant reaction was why don't we just call it Customs and get the services out of the Customs money?
    Mr. WESTPHAL. Well, you probably can't call it that, Mr. Chairman, because a Customs fee is essentially on the commodity, and we are in no way under this fee attempting to either tax or levy any kind of fee on the commodity. This is on the operation. This is on the service that we are providing to the vessel coming into the port. So a Customs fee would normally be on a commodity on the goods being shipped.
    If I understood your question, that is probably why we looked at a range of fees including port fees and things like that.
    Mr. HORN. When I listened to some of your testimony on all the things that might happen to a ship in a harbor, and we are going to bill them for that, it seems to me that you don't have the port pilot come on board, you have the accountant come on board. And they are sort of checking off things; wait a minute, that is seven buoys you have passed, and, gee, we have a lower rate here for six buoys, and whatever.
    It just seems to me it would simplify it, because the Customs levy, granted we are going down, down and down, still have some commonality based on value of what is coming into the country. And, of course, that used to be all of our revenue in the Federal Government until the First World War essentially and the Civil War when they imposed the income tax, and then the Court threw that out until the 16th amendment or so. But have you looked at that?
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    Mr. WESTPHAL. Mr. Chairman, you make a good point. And again, the way we structured this fee, we tried to address that issue to an extent by coming up with a fee that was very simple and straightforward, and when Customs goes to collect the fee at the vessel, the data is all there. There is nothing that has to be researched, and we think we will have better compliance with this. We think we will be able to collect the fees that we are indeed required to collect. We think that there will be very little in the way of having to enforce or go out and collect the fee under this mechanism. It will be very, very simple to collect, we think.
    Mr. HORN. I guess my feeling is that Customs are already known to people. Sometimes they try to cheat on them. We know that. But it just seems to me the question of competitiveness that was brought up by Mr. Bateman, Mr. Gilchrest, Mr. Sherwood, a number of them, that that could be a problem in terms of the fees we levy. You have looked at maybe the highest fee you might have in a typical situation of a container or the bulker I mentioned or other types of ships?
    Mr. WESTPHAL. Yes, sir. We have those examples.
    Mr. HORN. Without objection, they will be put in the record at that point.
    [The information follows:]

    [insert here]

    Mr. HORN. Now, during the dialogue you had with some of the Members, you noted the rates are based on the average number of stops compared to the actual number of stops.
    Mr. WESTPHAL. Yes, sir.
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    Mr. HORN. And when you say stops, you are talking about different harbors; is that it?
    Mr. WESTPHAL. Yeah, different calls in different ports.
    Mr. HORN. Different calls in different ports.
    Mr. WESTPHAL. Right.
    Mr. HORN. And then you also said another criterion was the category of vessels and then the operational characteristics of how deep or wide the channel is. And obviously in some ports we have real problems in needing to dredge and go lower and lower as the ships get larger and larger and draw more. And I just wondered do you have exhibits on those that would give us some feeling for what the end result would be when you take those factors into consideration? Did anybody do some pilot projects there, if you will?
    Mr. WESTPHAL. Let me make sure I understand your question.
    Mr. HORN. Well, the average number of stops compared to actual, that is one. You can just figure existing traffic right now and say, you know, if I were developing a fee structure, I would go out and maybe pick every 10th vessel or do a random sample or whatever.
    Mr. WESTPHAL. Actually we have data on every vessel. For example—well, I don't know if I have it in front of me, but if you look at bulkers, for example, or refrigerated ships or whatever type of vessel you are looking at, we can tell you essentially how many of those vessels called on how many ports in the United States. And based on that number we were able to calculate an average number of stops. We were able to determine generally how many stops does a cargo vessel make based on the data that we have. So we have that information.
    Mr. HORN. Could we put that in the record at this point?
    Mr. WESTPHAL. Yes, sir.
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    Mr. HORN. Without objection it will be.
    [The information follows:]

Since different types of vessels tend to make a different number of port calls per voyage, the proposed fee has been calibrated to equate to the average number of port calls per voyage for each vessel category. This refinement to the proposal helped ensure that the existing competitive balance among ports will not be upset, and that the user fee is imposed equitably across vessel categories. General vessels tended to make the greatest number of port calls, averaging 2.25 port calls per voyage. Cruise ships made 1.67 calls per voyage, while bulkers and tankers generally operate point-to-point thus making about one port call per voyage. These average numbers of port calls are reflected in the base rates of the various vessel categories.

    Mr. HORN. Before you go, Dr. Westphal, I will mention two other things. The subcommittee on both sides might well submit additional questions to be answered for the record. And if you don't mind.
    Mr. WESTPHAL. Delighted to do that.
    Mr. HORN. Certainly appreciate that.
    I am told that Chairman Shuster and Ranking Member Oberstar have introduced your bill by request, and its number is H.R. 1947.
    Mr. WESTPHAL. Thank you, Mr. Chairman.
    Mr. HORN. That is 99 years after Abraham Lincoln's pronouncement, I might add.
    Mr. WESTPHAL. I especially thank Mr. Oberstar for doing that then.
    Mr. HORN. Representative Kelly has come in.
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    Are there some questions you would like to ask? The distinguished gentlewoman and great legislator from New York.
    Mrs. KELLY. Thank you, Mr. Chairman. I happened to be here earlier when you were talking about a little bit of history. I want you to know that I sit in a chair that my husband's great uncle occupied in 1847, and when he was finished with that stint, he went on to be the chairman of the Port Authority of New York. So I obviously have some small interest.
    Mr. WESTPHAL. I can see that.
    Mrs. KELLY. One of the ports of the United States.
    And actually when you were talking earlier, when I believe it was someone mentioned the fact that the Canadian ports, the harbors are dredged out. Mr. Oberstar was saying the harbors are naturally dredged out all of the time. I am wondering about what is happening in the New York ports because they are silting up. Maybe Canada is leaking into our harbors.
    I am thinking, though, that I look at some of the things that we have here, and I am a little concerned about a couple of things. I want to know what criteria you are going to use to allocate that $100-million-a-year fund. How are you going to use that? How are you going to allocate that?
    Mr. WESTPHAL. Well, that fund will be allocated and there will be criteria for using it. It essentially says that we will estimate how much we collected from those ports and over a 3-year period, and then based on that, we will then make those funds available. But the only answer I can give you at this point is what happens after this bill, if this bill is passed, we will then have to do a significant amount of rulemaking. So we will have to establish a mechanism for how to be able to tell you how we will distribute, how the Port of New York, New Jersey or the Port of Los Angeles or any other port will be able to compete for those funds. We will have to do that in rulemaking, and we will do that with the advice of Congress, and we will work with the stakeholders to determine that.
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    Mrs. KELLY. So at this point you really have no stated purpose for this 100-million-a-year.
    Mr. WESTPHAL. We do have a purpose for it. We intend to use those resources. We intend to make them available for construction activities that are normally the responsibility of the port. For example, the ports would be able to use those funds for berthing areas and bulkheads associated with the harbor.
    So we do have an intended purpose. What we don't have is the mechanism for how those funds will be distributed between all those who will want to compete for it.
    Mrs. KELLY. So in terms of the equity question, amongst the ports you haven't worked that out yet; is that correct?
    Mr. WESTPHAL. No, that will be resolved during rulemaking.
    Mrs. KELLY. But when you talk about rulemaking, you will have the stakeholders involved in that.
    Mr. WESTPHAL. Yes.
    Mrs. KELLY. Meaning the stakeholders being not only the people who are involved with the ports themselves, but will you also have the shipping trades involved?
    Mr. WESTPHAL. Absolutely.
    Mrs. KELLY. OK. Again, I am interested in that harbor services fee. Does that apply to vessels that are subject to paying that inland waterway fuel tax, the harbor services fee?
    Mr. WESTPHAL. It doesn't apply to any vessel under 3,000 gross tonnage. So that means that almost every vessel that travels on the inland waterways would not have to pay the user fee. Does that answer your question?
    Mrs. KELLY. Well, yeah, sort of. I am thinking in terms of the supertankers, where you are going to pick them up, because I think they are over that 3,000 gross tonnage some of them, aren't they?
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    Mr. WESTPHAL. Right.
    Mrs. KELLY. So my concern is that that may have the effect of diverting supertankers or, you know, those superships that are—they are talking about bringing in some of the harbors. We have been told, for instance, in New York Harbor that unless we dredge that harbor, we cannot have these large ships, and I am concerned that if that—if you are charging a special tax on ships that are 3,000 gross tonnage, that that may divert some of those large ships. If we go to the effort of dredging that harbor, would we get those ships, or would they be diverted actually to Canada, off-load, and bring their stuff down by rail?
    Mr. WESTPHAL. We don't believe that they would be diverted. And I think the case in New York, New Jersey is a very good example of it. These companies like MAERSK and SEA-LAND and others are very shrewd, and they are looking forward, they are looking ahead. The New York market is a huge market.
    I don't know what went into that decision, but the decision to continue to locate in New York/New Jersey, is an indication that regardless of harbor maintenance tax, harbor users fee, or general revenue, they needed to be there because of the importance of that port, the importance of that port to their future economic posture in this country.
    And I think it is important that, this Administration is wholeheartedly supporting the dredging of New York/New Jersey Harbor. The Vice President and I, in fact, went to New York to sign the project cooperation agreement that makes it possible to do that.
    So I think that we are doing everything we can to make sure that our ports remain competitive. Those big ships are the ships of the future, and they are moving, and all our ports want those deeper channels. And we are trying to do the best we can to supply that opportunity for every port whether it is New York, New Jersey or Savannah or Houston or wherever they may be.
    Mr. HORN. While Mrs. Kelly is conferring, let me just ask one question on this. Have you thought the degree to which you should give a percent to the port complex based on the revenue generated, whether it be your fee, or Customs or whatever?
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    Because, see, these ports are investing in infrastructure, and often they have been subsidized by some of their city governments, and vice versa, I might add. But we depend on the Army engineers to come in and dredge some of those ports out, and that might not be possible to get to all ports in a timely way.
    Mr. WESTPHAL. I don't know of any analysis we have done on that, but hopefully they are taking notes, and we will do some examination of that.
    Mr. HORN. Yeah. I would think it is an incentive to all the ports if they knew off the top some percentage of what they generated might encourage it.
    Do you have any last question on that?
    Mrs. KELLY. Actually I think maybe I can submit them in writing.
    Mr. HORN. Certainly. Without objection it will be at this point in the record.
    And Mr. Borski.
    Mr. BORSKI. Thank you, Mr. Chairman.
    I have one last question for you, Dr. Westphal, please explain to me if you can, as I understand your testimony today, would the fee be the same in every port? Is that correct?
    Mr. WESTPHAL. Well——
    Mr. BORSKI. Same ship coming into different ports.
    Mr. WESTPHAL. The fee would be the same—the fee to a vessel—and remember the fee is on the vessel. If you have, let's say, a——
    Mr. BORSKI. Let me ask it this way. Maybe I can get—the same vessel would pay the same fee to different ports. My question——
    Mr. WESTPHAL. It will pay it once.
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    Mr. BORSKI. No, I understand that.
    Mr. WESTPHAL. Whatever port he comes into first, that is where he pays it.
    Mr. BORSKI. I understand that, but my question is the operation and maintenance of all these ports are different.
    Mr. WESTPHAL. Yes.
    Mr. BORSKI. Therefore how is this not a tax rather than a user fee?
    Mr. WESTPHAL. Well, because we have calculated that fee to be based on that vessel's use of a port. Now, granted that vessel goes into the Port of Los Angeles versus the Port of, let's say, Charleston, there are going to be differences in those two ports, but we have to establish a national program. If we did it on a port-by-port basis, then you would definitely get into the competitive advantages of one port over the other.
    Mr. BORSKI. I appreciate that.
    Mr. WESTPHAL. I wanted to try to avoid that. So we think that we have established a fee that on the average will compensate for the work of the service provided to that ship across the country.
    Mr. BORSKI. And do you believe that that is constitutional?
    Mr. WESTPHAL. We believe that it is.
    Mr. HORN. You mentioned Los Angeles. I represent Los Angeles and Long Beach. Now, these are two very competitive ports, and that is for good for both, because L.A. was a very sleepy port; Long Beach was a very aggressive port. Now they are neck and neck, but Long Beach is one right now. In containers they are number 2. And they come in in a common channel there and peel off to the Port of Long Beach or peel off to the Port of Los Angeles. Now, did we ever look at what that might do when you have two ports back to back, and does one sort of cost more than the other in terms of the fees? That might be something worth taking a look at.
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    Mr. WESTPHAL. I don't know that we did, but I will take a look at that as well.
    Mr. HORN. Without objection, the answer will be at this point in the record.
    [The information follows:]

The proposed Harbor Services User Fee would be collected upon the first port of call for each voyage, and would be the same for a given vessel no matter what the order of port calls is. This would hold true for ports served by a common channel, as the fee would be imposed during the vessel clearance process at the port which is called first. The fee collected at the first port of call would be prorated between all the ports of call in a given voyage.

    Mr. HORN. If my colleagues have no more questions, I want to thank you. You have been an excellent witness. You have had a lot of understanding of this situation. I hope you have—I know you have listened to the concerns Members have, because it is what we will have if we go on the floor.
    Mr. WESTPHAL. Yes, sir.
    Mr. HORN. And we need all the help we can get. So thanks a lot for coming.
    Mr. WESTPHAL. Thank you. And thank you to the members of the committee.
    Mr. HORN. All right. We are now on panel two, and panel two is Mr. Peter J. Finnerty, the Carriers Against the Harbor Tax; Mr. Thomas A. Allegretti, the American Waterways Operators; and Mr. Edward M. Emmett, the National Industrial Transportation League. And we also have Mr. Kurt Nagle, the American Association of Port Authorities.
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    We will begin as the agenda lays it out. Mr. Peter Finnerty is Vice President of public affairs of SEA-LAND Service and Vice President maritime affairs of the CSX Corporation based in Washington, D.C.
    Mr. Finnerty, it is—as you know, your formal written presentation is automatically in the record at the time you are introduced, and we would like you to summarize it if you could, because we would prefer to have the dialogue going on and spend the time on that. And you noticed the Assistant Secretary, we had a lot of dialogue time. So we will see how things go here.
    Mr. Finnerty.

TESTIMONY OF PETER J. FINNERTY, CARRIERS AGAINST HARBOR TAX, VICE PRESIDENT, PUBLIC AFFAIRS, SEA-LAND SERVICE, INC., AND VICE PRESIDENT, MARITIME AFFAIRS, CSX CORPORATION; THOMAS A. ALLEGRETTI, PRESIDENT, AMERICAN WATERWAYS OPERATORS; EDWARD M. EMMETT, PRESIDENT AND CHIEF OPERATING OFFICER, NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE; AND KURT J. NAGLE, PRESIDENT AND CEO, AMERICAN ASSOCIATION OF PORT AUTHORITIES

    Mr. FINNERTY. Thank you, Mr. Chairman. I will summarize and be brief.
    Mr. Chairman and members of the subcommittee, my name is Peter Finnerty, and I am Vice President of public affairs for Sea-Land. Sea-Land is the largest U.S.-flag shipping company. It offers ocean liner carrier service in the U.S. foreign and domestic trades. Many of our 100 container ships call at numerous U.S. ports on the east, west and gulf coasts in addition to ports in Alaska, Hawaii, Guam and Puerto Rico.
    Thank you for the opportunity to discuss the Administration's harbor services fund proposal. Sea-Land is strongly opposed to the Administration's dredging proposal and is pleased to advise that more than 40 vessel owners, operators and organizations also oppose this new tax. Collectively these commercial shipping companies would pay approximately $700 million per year of the proposed billion-dollar harbor tax. A detailed statement submitted for the record by Carriers Against Harbor Tax, to which Sea-Land belongs, more fully explains our many objections to the proposal.
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    This afternoon I will briefly summarize our views on why the Congress should reject the Administration's new tax. The Administration's radical tax proposal would impose approximately $1 billion per year in new harbor taxes on commercial shipping companies while continuing to collect about $15 billion per year in Customs duties at U.S. seaports. Sea-Land calculates that this new tax would cost our company alone about $30 million per year. Some other ocean common carriers have estimated that the new tax would cost them more than $40 million per year.
    This new tax proposal would fall most heavily on the liner segment of the industry, which is already chronically unprofitable. For example, during the first quarter of this year, liner carriers collectively lost $30 million per week in the Transpacific trade. On major trade lanes the industry during 1998 lost about $3.4 billion. In light of this bleak picture, our industry simply cannot afford a new tax of this magnitude.
    This new tax, moreover, represents a major and destabilizing shift in Federal policy. Never before have vessel owners been required to pay for harbor maintenance or the Federal share of port construction projects. It is noteworthy that the Administration's proposal would double the amount of tax revenue generated by the current harbor tax and completely remove the Federal Government from its long-standing responsibility to fund harbor dredging.
    The Administration has erroneously labeled this new tax a user fee. It is most definitely not a user fee, it is a tax. The Administration's new tax proposal suffers from the same legal infirmities as the harbor maintenance tax, which the Supreme Court declared unconstitutional last year. It does not fairly match the cost of maintaining channels with the tax imposed.
    To appreciate the degree to which the Administration is unable to justify the level of tax with the services rendered, I note that commercial vessels that would be responsible for payment of this tax are arbitrarily separated into four categories. General cargo vessels are the heaviest taxed, paying nearly 10 times more than tankers and over 25 times more than dry bulk ships of the same size.
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    As an owner and operator of numerous U.S. flag vessels, we can tell you with absolute certainty that a general cargo vessel does not require more than 25 times the level of harbor services that the same size bulk ship would require.
    Equally disturbing is that the Administration's proposal exempts every category of port user except commercial vessels larger than 3,000 tons. Government vessels, recreational vessels, fishing vessels, ferry boats, certain cargos, certain trades and ports would all be exempted from payment even they benefit from dredging.
    The Administration has not presented a credible argument as to why they insist upon such blatant discrimination among the four categories of commercial vessels, particularly general cargo vessels. Similarly, no legitimate justification for exempting entire classes of beneficiaries from this so-called user fee have been provided. They have consistently refused to share information with our industry about the underlying data on which this scheme is built or to seek our views on how our industry would react to such massive taxes.
    Mr. Chairman, a safe and efficient port system promotes international trade, increases national security, and helps prevent environmental disasters. Ports and harbors are a vital link in our national defense infrastructure. Customs duties have provided the Federal Government with billions of dollars since the founding of the Republic, and, in return, the Federal Government has been responsible to maintain port channels and aids to navigation.
    I would add, Mr. Chairman, that in addition to the very significant risk of diversion of cargo and ships to Canada, the ultimate diversion will be rendering U.S. exports noncompetitive in foreign markets and diverting ships to trade between other countries.
    Sea-Land and other ocean carriers believe that the maintenance and safe operation of our country's port system should remain an appropriate Federal Government function because it is vital to the national and economic security of the United States and because the benefits of safe and efficient harbors are shared by all Americans.
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    H.R. 1260, introduced by Representatives Borski and Oberstar, represents an appropriate response to the question of who should pay for the safe maintenance of American ports. I thank them and all the cosponsors of the bill for their leadership.
    In conclusion, we urge all the members of this subcommittee to reject the Administration's harbor tax proposal and support H.R. 1260.
    Mr. Chairman, I look forward to your questions, and I thank you for the ability to appear today.
    Mr. HORN. Well, we thank you, Mr. Finnerty.
    We now have to break for a vote on the floor. So we are in session for 20 minutes. And hopefully Mr. Boehlert will come back and preside 20 minutes from now. Thank you.
    [Recess.]
    Mr. BOEHLERT. [Presiding.] Sorry to keep you waiting, but you know the schedule of the House.
    Mr. BOEHLERT. Next up for the American Waterways Operators, the President, Mr. Tom Allegretti.
    Mr. Allegretti, the floor is yours.

    Mr. ALLEGRETTI. Good afternoon, Mr. Chairman. On behalf the 375 members of the American Waterways Operators, I want to thank you for holding this hearing this afternoon and for giving us the opportunity to share our views and to complement the testimony of the other organizations on this panel by giving particular focus to the impact of the Administration's proposal on the domestic marine transportation industry.
    Mr. Chairman, the Administration's user fee proposal is seriously flawed. No matter the perspective from which you view it, it fails to meet the test of sound public policy. You can tell from the organizations on this panel that whether the perspective is one of ports, of shippers, of carriers engaged in the international trade, or of carriers engaged in the domestic trade, this proposal has very little to recommend it. It fails to recognize that an efficient system of ports and waterways is a significant part of the common good that the Federal Government should fund from the general revenues that are produced by an economy that this transportation system supports. It fails to establish a real linkage between the services it purports to provide us and the purported beneficiaries of those services. And in order to give this proposal at least the cast of constitutional permissibility, it imposes the funding burden of maintaining and developing America's port system that benefits each and every American on a tiny group of beneficiaries.
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    Mr. Chairman, the Administration knows all of that only too well. And in our view, the only explanation for how they could understand these flaws and still forward this proposal to you is really a cruel calculus that elevates budget gamesmanship over sound public policy. And the negative consequences of that calculus are every bit as severe for America's domestic transportation industry as they are for the international trade.
    Nearly half of the 2.3 billion tons of waterborne commerce that move through America's port system each year is domestic cargo. In our domestic transportation system, waterborne transportation is the most efficient method of moving bulk freight. It is the lowest-cost alternative, and for that reason a large portion of the domestic commerce in the United States consists of bulk commodities. That is especially so for the domestic coastwise trade and the Great Lakes trade which moves through the ports that are subject to the Administration's proposal, and understanding that, understanding that is central to appreciating the full impact of this proposal.
    Waterborne freight rates tend to be the floor of transportation costs. However, any changes in that floor reverberate through the entire freight transportation system. And an increase in waterborne freight rates creates inevitable upward pressure on the rates in competing modes of transportation as well.
    That has meaning for the American farmer who needs to ship his products competitively on the world market. We heard Mr. Oberstar reference one-quarter cent per bushel as being material in the competitiveness of American farm products. That calculus has meaning for the New England citizen who buys gasoline to fuel his car and home heating oil to warm his home, and whose only transportation alternative is waterborne to receive those commodities. And that also has meaning for the U.S. citizen whose power is provided by barged coal to an electric generating facility.
    Nowhere in its proposal does the Administration acknowledge any of these domestic effects, and indeed, the half dozen examples that it provided to you in the background information only reference trade between the United States and foreign destinations.
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    We think that the Administration had two objectives in mind in developing this proposal. The first was to design a fee that would pass constitutional muster when it is challenged in the future, and the second was to shift the burden of funding onto some entity other than the Federal Government.
    In our view those were the two wrong objectives for them to start their work from. They should have instead begun with a recognition that there truly is a leadership role that the Federal Government can and should fulfill as part of its fundamental responsibility to promote the general welfare and provide for the common defense. Unfortunately we see no evidence of that.
    We would urge the subcommittee, as you begin your assessment of this matter, to begin with that recognition foremost in your mind and consider carefully the alternative of funding harbor maintenance development from either general Federal revenues or from the Customs receipts.
    Thank you for the opportunity to present our views.
    Mr. BOEHLERT. Thank you very much, Mr. Allegretti.
    Now from the National Industrial Transportation League, the president, Mr. Edward Emmett.
    Mr. Emmett.

    Mr. EMMETT. Thank you, Mr. Chairman. I do appreciate the opportunity to appear today.
    The National Industrial Transportation League represents the shippers, the customers, the people who ultimately will pay at least a part of whatever this fee or tax is.
    Earlier in this hearing Mr. Oberstar quoted Abraham Lincoln, and there is another quote from Abraham Lincoln that may be even more appropriate. He used to ask people who came to see him, if you call a horse's tail a leg, how many legs does it have. And, of course, the answer is it still only has four legs no matter what you call the tail.
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    The Administration with this bill seems to want to call this tax a fee, but any way you look at it, it is still a tax, plain and simple. The shippers were the ones who openly opposed the harbor maintenance tax in the first place, who ultimately got the 9-to-nothing Supreme Court vote that it was unconstitutional.
    This tax is every bit as flawed as that one. It defies logic. And the question was asked several times—and with all due respect to Dr. Westphal, his answers just didn't quite make it, for me anyway—as to why a container ship should pay 20 times the rate of a bulk ship. What is it about the operational characteristics of a container ship that would make it pay a rate that much higher? The answer is it is a thinly veiled attempt to put the hit, if you will, on the high-value cargo.
    Now, the other side of that is if you don't do that, and if you try to equalize it somehow, then you run the very real risk of making bulk cargo uncompetitive on the world market, which is another problem.
    Ultimately I think where we have got to end up is a recognition that the ports and the services provided by ocean carriers benefit a lot of interests in this country, a lot more interests than are being taxed in this proposal.
    And Congress does not have an easy task. Certainly we all heard what Chairman Shuster said at the very beginning about his view of how difficult it was going to be to go to general revenue. But if you don't go to general revenue, then the fee has somehow got to reflect the services that are actually provided by the ports.
    This is a complex subject. You are dealing with different commodities. Some ports will benefit more than others. In our conversations with the port authorities, they have a very tough issue to handle just in terms of which port pays how much and which port gets how much back. Should all ports be all things to all people? That is going to be an interesting question that gets addressed.
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    A question to be asked is how did this proposal come about in the first place? It has been said here today that there were outreach meetings. The outreach meetings didn't reach out. Basically the outreach meetings were, ''Here's an outline of the proposal we have; what do you think.'' You are hearing what we think today. Not much.
    We look forward to working with this committee in a true effort of outreach and with the Administration to try and address some of these very, very complex issues, but the main thing the shippers want to leave you with today is the very clear understanding this proposal is a tax. We think it is just as unconstitutional as the tax that we had before, and there is just no reason to go down that road again. So I look forward to your questions.
    Mr. BOEHLERT. Thank you very much, Mr. Emmett.
    Mr. Nagle.

    Mr. NAGLE. Thank you, Mr. Chairman. We appreciate your scheduling this hearing on the Administration's harbor services tax concept. We welcome the opportunity to join our industry colleagues with whom we stand united in opposition to this proposal.
    Congress should reject the Administration's idea, which would replace the 200-year shared Federal role with a crippling and inequitable new harbor services tax. The American Association of Port Authorities, along with a nationwide coalition of over 50 labor, business, agriculture, transportation, and industrial groups, strongly opposes the harbor services tax.
    These coalition members include not just the vessel operators that would pay the proposed tax, but also groups such as the U.S. Chamber of Commerce, National Industrial Transportation League, National Grain and Feed Association, National Mining Association, American Forest and Paper Association, American Waterway Operators and Association of American Railroads.
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    AAPA strongly supports H.R. 1260, legislation to return to funding the costs of operating and maintaining Federal navigation channels from general revenues. We appreciate the leadership of Representatives Borski and Oberstar of this subcommittee, chief sponsors of the bill, and the other members of this subcommittee that have cosponsored it, Mr. LaTourette, Mr. LoBiondo, Mr. Kuykendall, Mr. Lampson and Mr. Baird.
    Ports are vital to our national defense, and ports are vital to our national economy by handling 95 percent of our international trade. And Ports are vital to our industrial heartland by helping bulk exports successfully compete in the world marketplace. For these reasons and more, the Federal Government should continue to pay its fair share for harbor maintenance and improvements. Instead the Administration proposes to raise nearly $1 billion a year in new taxes with the Federal Government completely abdicating its financial responsibility for maintaining or improving Federal navigation channels. Without question, efficient Federal navigation channels benefit the entire Nation by serving as vital import/export links and by pumping nearly $18 billion directly into the general treasury annually.
    The harbor services tax will devastate U.S. small businesses, which account for 95 percent of merchandise exports, as well as agricultural and industrial communities that depend on exports for their survival. American jobs would also be lost under such a tax scheme, as many cargo ships would take their business to non-U.S. ports.
    State and local ports already pay the lion's share of the costs of the infrastructure needed for our Nation's rapidly growing waterborne commerce, and they are willing to continue to pay their fair share. However, because waterborne commerce provides widespread economic and national security benefits to the entire Nation, the Federal Government should not be permitted to abdicate its limited, yet necessary, role in waterside infrastructure funding.
    Also there is no immediate financial crisis. The continued harbor maintenance tax on imports and domestic cargo is more than enough to pay for the maintenance dredging program. The Administration itself estimates that there will be a $1.8 billion surplus in the Harbor Maintenance Trust Fund by the end of this fiscal year. However, in an effort to fix a budget hole, the Administration has crafted an ill-advised proposal that will create havoc in our international trade patterns and will cause much more harm than any budget good.
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    Let me give you just a few examples. At the Ports of Los Angeles and Long Beach alone, the proposed tax would cost container and general cargo operators more than $300 million a year. At the Port of New York and New Jersey, container ships would pay a total of $128 million annually, an average of $70,000 per ship. Ports like Seattle and Tacoma, which need little or no maintenance dredging, have long suffered the inequity of competing for cargos that must pay significant fees for essentially no service.
    As mentioned earlier, the neighboring port of Vancouver, British Columbia, gleefully advertises the fact that no harbor maintenance tax is assessed there and has been successful in attracting some major carrier customers away from U.S. ports. The assessment of new taxes directly on vessel operators will exacerbate the diversion problem even more.
    Canaveral Port Authority, a major cruise port, estimates that the proposed tax on cruise ships based in Port Canaveral would be approximately $6 million. The cost per passenger would essentially triple, and we could see cruise itineraries shifting with more cruises beginning in non-U.S. cities.
    Let me just give you one more example from the Great Lakes. The vessel Walter J. McCarthy is a U.S. flag dry bulk vessel that exclusively serves the Great Lakes. Under the old harbor maintenance tax, revenues from the ship were about $76,000 per year. Under the proposed harbor services tax, taxes generated from this vessel will increase to over $900,000 a year, an increase of over 1,000 percent just on this one vessel.
    Mr. NAGLE. I am sure you will hear similar examples as you continue to consider this issue, but we believe as you examine the options you will come to the conclusion that general revenue funding as provided for by H.R. 1260, is the best and most appropriate funding source.
    The American Association of Port Authorities appreciates the opportunity to be here today. I will be happy to answer any questions.
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    Mr. BOEHLERT. Thank you, Mr. Nagle. I think it is fair to say there is not a great rush on the Hill or from any corner to sign the Administration's dance card on this proposal, but we got to do something. Let me ask all of you, how long is it going to be? How much time do we have before we have a crisis on our hands?
    Mr. FINNERTY. I would respond, Mr. Boehlert, that we have plenty of time. We understand the level of funding in the account today and the level being collected. There is definitely no need to rush forward on this matter, and it should be carefully considered.
    As I listened to the discourse earlier and including my colleagues on the panel, this truly is an instance where we need to be very, very careful before we go forward because if it is done wrong, international trade is going to have a calamity.
    Mr. BOEHLERT. May decay slowly. Does anyone have a timetable? Plenty of time you say, Mr. Finnerty. Mr. Allegretti? Anyone else? Mr. Nagle.
    Mr. NAGLE. The current harbor maintenance trust fund has about $1.8 billion. The current annual expenses on the system are approximately $500-$550 million, so that would essentially be 3 years right there. Also, the tax continues to be collected on imports and domestic cargoes, and those revenues are about 600 or so million dollars a year. So more than enough is being currently collected to continue to fund the maintenance dredging.
    Mr. BOEHLERT. Well, the idea would be for Congress and the Administration to come together on this and there be a meeting of the minds and consensus develop, but I am not very sanguine on that proposal.
    If we don't have funding from general revenue, what is the alternative? Have any of you thought of that possibility?
    Mr. FINNERTY. Several times, Mr. Chairman. There were folks talking about the very, very important fact that over $15 billion a year are collected in customs duties today, and that figure is higher now, of course, than it was many years ago. Fifteen billion.
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    Mr. BOEHLERT. You heard my question.
    Mr. FINNERTY. And we are dealing here with a matter that is estimated at one billion, and it is almost beyond our comprehension why we would risk the possible loss of huge amounts of American exports by imposing new charges on the ships slash those cargoes when, in fact, 15 billion is being contributed to the Federal Government by international trade at sea ports today.
    Mr. BOEHLERT. Anyone else?
    Mr. ALLEGRETTI. Mr. Chairman, I would add to what Peter said from the domestic perspective.
    As severe as the dislocations are in the international trade, they are equally severe in the domestic trade. And so if we go down the path of seeking to develop a fee which attempts to identify beneficiaries, we risk two things.
    One is, we will repeat the cannibalism, the cannibalistic debate that took place in the early 1980's which ultimately led to the harbor maintenance tax because the cost of losing for any particular economic interest is so severe that everybody goes to battle stations.
    And the second thing we end up with is eventual dislocation anyway because someone, some sector of the economy, will lose. And all of that to me argues, given the fact that we have $15.5 billion of customs revenue generated each year from waterborne commerce alone, that that is a debate we don't need to engage.
    Mr. BOEHLERT. Mr. Emmett or Mr. Nagle, do you have anything to add to that?
    Mr. NAGLE. You asked if we had considered other options and alternatives.
    AAPA looked over the past 2 to 3 years as this court case was going through the process to see what options may be available. We did not come to the conclusion that general revenues was the appropriate source lightly or quickly.
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    It was a very deliberative process to look at all alternatives, and we felt, given the wide beneficiaries that do benefit from the system and the complexities inherent in any sort of a fee or tax, and what that would mean as far as either equity or competitiveness of our exports, that general funding was the appropriate mechanism.
    Mr. BOEHLERT. Mr. Emmett.
    Mr. EMMETT. I was just going to quickly add that the magnitude I think Mr. Allegretti referred to of this tax or this fee, compared to the damage that can be done to the overall economy, if the fee goes on and makes U.S. exports not competitive on the world market, I mean it just dwarfs anything we are talking about here.
    So, if you have got this pot of 15.5 billion already there, and you are talking about taking maybe a billion of it, it just makes a lot more sense to try and find that source of revenue rather than run the risk of damaging a sector in this economy.
    Mr. BOEHLERT. Let me ask all of you, what do we need to do for our waterways to accommodate the increasing worldwide trend of building larger shipping vessels, and how much do you think that is going to cost?
    Mr. Finnerty.
    Mr. FINNERTY. Well, I think the first reality is that the competition that is taking place and those advancing economics are taking place by virtue of the competition in places like Asia and in Europe. In fact, that is where those very large ships are being introduced into service first.
    The limitation here, as you know, is port capability and channel depth. The cost will be substantial, but I think it is critical that the American economy remain competitive so that we can continue to dominate international trade as we have been doing.
    Mr. BOEHLERT. Anyone else care to address that? Mr. Nagle?
    Mr. NAGLE. One of the serious concerns we have with the Administration proposal is that it expands what the tax would be used for to include the Federal share of construction projects rather than strictly harbor maintenance. Construction projects are already cost-shared between the local ports and the Federal Government, on a sliding scale since the 1986 Act.
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    Obviously not every port will need to go to the depths necessary to accommodate the largest, new vessels, but those that will need to deal in those trades will be having to put forward significant levels of local cost share to meet that requirement.
    Mr. BOEHLERT. Mr. Emmett.
    Mr. EMMETT. I think what will happen is you will see ports differentiate themselves and the types of ports they are.
    I agree with Mr. Nagle, not every port is going to try to play in that game of the very large vessels. There will be different types of ports, and that will work out in sort of a market-based system, and some of that will be dictated, frankly, by land transportation with the consolidations that have occurred in the railroads. Where is the infrastructure going to be to handle the containers that come off those very large ships? So I don't think we are looking at every port having to dredge to that depth.
    Mr. BOEHLERT. Thank you.
    I want to thank all of you. You are all veterans so you know how this system works. The fact that I am here and there isn't anyone else here doesn't mean there is not a great deal of interest in this subject, and your testimony and your views will be given the careful consideration that they warrant.
    We are handicapped today because of the schedule of the floor. There are people over there who have different ideas on how we should proceed so we have been interrupted several times.
    So let me apologize for the committee, the inconvenience we put all of you to, but once again, you are veterans. You know how the system works.
    I thank each of you for your excellent testimony. I think it is fair to say we will put you down in our scorecard as not very enthused about the Administration's proposal. And this is not the first time we will visit this subject. We will be having extensive conversations. We consider all of you resources for the committee, and you do a fine job of representing your various constituencies, and we welcome your input.
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    We have got to reason together as we develop something to deal with this very important subject. So thank you very much, and with that, the hearing is adjourned.
    [Whereupon, at 5:10 p.m., the subcommittee was adjourned.]

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