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Friday, January 29, 2010

Harbor Maintenance Trust Fund Expenditures

John Frittelli
Specialist in Transportation Policy

In 1986, Congress enacted the Harbor Maintenance Tax (HMT) to recover operation and maintenance (O&M) costs at U.S. coastal and Great Lakes harbors from maritime shippers. O&M is mostly the dredging of harbor channels to their authorized depths and widths. The tax is levied on importers and domestic shippers using coastal or Great Lakes ports. Due to a Supreme Court decision in 1998, exporters no longer pay the tax because it was found unconstitutional. The tax is assessed at a rate of 0.125% of cargo value ($1.25 per $1,000 in cargo value). The tax revenues are deposited into the Harbor Maintenance Trust Fund (HMTF) from which Congress appropriates funds for harbor dredging. 

Despite a large surplus in the trust fund, the busiest U.S. harbors are presently under-maintained. The U.S. Army Corps of Engineers (Corps) estimates that full channel dimensions at the nation's busiest 59 ports are available less than 35% of the time. This situation can increase the cost of shipping as vessels carry less cargo in order to reduce their draft or wait for high tide before transiting a harbor. It could also increase the risk of a ship grounding or collision, possibly resulting in an oil spill. To rectify this situation, some are calling for increasing disbursements from the trust fund. However, Corps data indicate that a significant portion of annual HMTF disbursements are directed towards harbors which handle little or no cargo. The Oregon Inlet in North Carolina, Grays Harbor in Washington, Humboldt Harbor in California, and the Lake Washington Ship Canal in Seattle are some of the harbors or waterways that fit this description. Commercial fishermen and recreational boat (or yacht) owners account for most, if not all, of the vessel traffic in these harbors. Fishermen and recreational boaters do not pay the HMT. Some might argue that to target one group of harbor users for assessing a fee and then to distribute revenues mostly, or entirely, in some cases, for the benefit of other users, undermines the "trust fund" and "user fee" concept. The Administration requested and Congress provided FY2010 funding for a pilot program to investigate the feasibility of having non-cargo harbor users finance the dredging requirements of harbors with little or no commerce. 

In addition to the distribution of HMT revenues for the benefit of non-cargo harbor users, there are also equity issues associated with HMT revenue distribution among the nation's top commercial ports. Due to geological differences, ports vary greatly in the amount of dredging they require. About one-fifth of HMTF expenditures are spent in Louisiana. The ports of Mobile, AL, and Portland, OR also are relatively expensive to maintain. The amount of HMT revenue ports generate also varies significantly due to differences in the amount and characteristics of the cargoes they handle. Consequently, HMT revenues are redistributed from ports that are large import gateways with naturally deep channels to lower volume ports that require frequent dredging to maintain adequate channel depths and widths. The ports of Los Angeles, Long Beach, Seattle, and Tacoma, and to a lesser degree, Boston, New York, and Houston are large net generators of HMT revenue. International cargo predominates at most ports. Ports compete for this cargo, and the growth of containerized cargo and the prospective expansion of the Panama Canal have intensified competition among U.S. ports. 

Legislation has been introduced in the 111th Congress that has varying objectives regarding the HMT. H.R. 3447 would spend down the surplus in the HMTF. H.R. 2355 would increase the tax rate and expand use of the HMTF for landside port infrastructure improvements. H.R. 3486, H.R. 638, S. 551, and S. 1509 would repeal the tax on non-bulk cargo shipped on the Great Lakes and along the coasts in an effort to divert truck cargo from congested highways to waterways. None of these bills have been reported out of committee.


Date of Report: January 25, 2010
Number of Pages: 22
Order Number: R41042
Price: $29.95

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