Harbor Maintenance Tax: A competitive challenge

cargo ship
The Harbor Maintenance Tax was designed to help ports in need, but Washington maritime stakeholders argue it falls short of helping highly competitive ports such as the ports of Tacoma or Seattle. Photo: Craig Wyzik

The Harbor Maintenance Tax (HMT) is just one reason why Washington ports have been losing business to competition in Canada or other West Coast ports. Labor and maritime stakeholders agree the tax hinders the state’s competitiveness, threatens the local workforce and needs revamping to make sure donor ports such as the ports of Seattle or Tacoma can receive more than a fraction of the money collected from visiting shippers.

“If you are bringing cargo up the Strait of Juan de Fuca you can hang a right and enter U.S. waters and pay taxes, or hang a left and go into the Port of Vancouver and the Port of Prince Rupert and not have to pay those taxes,” said Sean Eagan, Director of Government Affairs for the Port of Tacoma. “At the end of the day, if the goal is to get product to the American Midwest then both gateways will get you there, and Canada would be the cheaper option.”

The tax charges importers .125% of the value of each container after clearing customs. The fee is collected on cruise ship passengers, imports, domestic shipments and Foreign-Trade Zone (FTZ) admissions.

The HMT added $74.3 million in fees to the cost of goods entering the ports of Seattle and Tacoma last year, according to Eagan.

HMT is also responsible for pushing 50 percent of shippers to route through Canada instead of the West Coast, a 2012 Federal Maritime Commission study found. On average, the tax increases shipping fees by $109 per container.

According to a Northwest Seaport Alliance summary paper on HMT, the tax offers a poor return on investment for Washington ports, as one-fifth of the money spent goes to dredging – a benefit that deep water ports like Seattle have no need for. In addition, the ports of Seattle and Tacoma only end up receiving a little over a penny for every dollar charged to incoming shippers using those ports.

Eagan told Lens the Alliance has been working with the congressional delegation over the past 30 years to find a solution to the HMT’s competitive crutch.

To address part of the issue with the tax, Congress passed the Water Resources Reform and Development Act (WRDA) of 2014.

“For the first time in the history of HMT, Congress recognized the impact it was having on donor ports like the Port of Seattle. They set up a program by which some of the money being collected in HMT revenue could go back into the ports to be used as rebates to go back to the customers.”

The bad news, he added, was that the money is not guaranteed and isn’t very large. Plus, the rebate program is temporary.

“We have been working with the congressional delegation to fix those problems…and make sure not to subject it to appropriations, but make it automatic and make sure the dollar amount is larger. We want to make the temporary rebate program permanent,” he added.

This summer, U.S. Senators. Patty Murray (D-Washington) and Maria Cantwell (D-Washington), along with Congressman Dave Reichert (R-8) introduced the Harbor Maintenance Trust Fund Reform Act of 2017.

“For more than a decade, a number of U.S. ports have been operating at a competitive disadvantage, which is a drag on our economy and on thousands of good-paying jobs,” said Murray in an online statement. “The bipartisan bill we are introducing would be a critical step toward restoring investments in our ports, jobs, and economic development in Washington state and around the country.”

The bill would add a direct spending mechanism for money collected from the Harbor Maintenance Trust Fund annually and make sure donor ports would receive separate allocations. The legislation would also add investments so that donor ports can provide rebates for shippers delivering goods through their ports.

Said Eagan, “(The lawmakers) are trying to get to that issue of trying to make that rebate program automatic, permanent and of a larger dollar value. We are very appreciative of the work they are doing in this area.”

Eagan added that the pieces of legislation would likely not move as standalone bills, and that Congress would probably embed ideas from the legislation into the new WRDA bill expected within the next year.

Labor also has a unique stake in HMT and its influence on business choice when shipping to the U.S.

“We are concerned about jobs,” said Herb Krohn. “The thing about HMT is that you’re taking ports that could be competitive like ours and subsidizing ports that require ongoing dredging that are not as competitive.”

Krohn is Washington Director of the International Association of Sheet Metal, Air, Rail and Transportation (SMART) Workers Union, Transportation Division.

“It puts a strain on the labor force and it reduces jobs,” he told Lens. “The one thing I think people don’t understand is that this end of transportation is designed to fluctuate. When it fluctuates downward, people get furloughed. When it fluctuates upward, people get called back to work.”

Krohn used the example of the railroad labor system to illustrate why this is problematic. That system is set to move back and forth to furlough people when the work is slow and then call them back; sometimes it takes 3 to 5 years working at a railroad to gain the seniority not to get furloughed in the wintertime.

The situation could quick snowball if the economy tanks, where layoffs could extend even further, he added. In that scenario, engineers could return to work as trainmen and push the junior trainmen out of their jobs.

“I know longshoremen are very concerned about it and concerned about shipping on the West Coast because of movements…railroads are cutting prices to move stuff through the L.A. Basin instead of Washington. Our rates are high and that’s not good.”

 

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