Harbor Maintenance Tax Reform Factsheet

Reform the harbor maintenance tax Policy Factsheet

Photo Courtesy: Port of Tacoma

Background The Harbor Maintenance Tax (HMT) is a federal tax paid by shippers based on the value of the imported goods. The tax was created in 1986 to fund the cost of operations and maintenance, primarily dredging of federal navigation channels serving the nation’s deep draft ports. However, there are three important aspects of the HMT that negatively impact Washington state’s international competitiveness: 1) Diversion of HMT Revenues: Only about half of the funds collected from HMT are spent on harbor maintenance, leaving full channel dimensions at the nation’s busiest ports available less than 35% of the time.1 2) Misallocation of HMT Revenues: Even though a large portion of HMT revenues are collected at Washington ports, the majority of HMT expenditures go to fund work on Gulf Coast and East Coast ports. Consequently, the ports of Seattle and Tacoma receive only around a penny for every dollar generated through use of those ports.2 3) Disincentive from Puget Sound Ports: The tax is not charged when cargo travels to Canadian, Mexican, and other non-U.S ports, and then is shipped to the U.S via rail or roads. This incentivizes cargo away from U.S. ports, costing jobs and revenues.

1 Port of Seattle, 2013 | 2 John Fritelli, Congressional Research Service, “Harbor Maintenance Trust Fund Expenditures,” January 2011

Harbor Maintenance Tax

Policy Factsheet Why it matters to

WASHINGTON Each of these three HMT issues has a significant impact on the ability of Washington ports to be competitive:

1) Diversion of HMT revenues underfunds vital WA port infrastructure: The lack of full expenditure of HMTF leaves critical Washington navigation projects unfunded; this shortfall particularly impacts those Washington businesses and ports that rely on navigation in places where dredging is essential for effective mobility.

2) Misallocation of HMT revenues funds Washington port competitors at our expense: As the Panama Canal expands, ports in the U.S. South and COSCO importing cargo at Prince Rupert, Canada. Cargo is East are preparing for additional cargo by transferred to rail on its way to the U.S. developing their infrastructure. Increasingly, HMT funding is being used to maintain these new investments—stretching already limited HMTF dollars further and leaving less funding available for West Coast projects. Furthermore, by making debatable assumptions about post-Canal-widening cargo flows, the United States is picking winners and losers between Washington ports and our competitors across the country.

3) Disincentivizing Puget Sound ports costs jobs and export capacity: Imports support jobs at ports and associated logistics providers; the ports of Seattle and Tacoma together directly and indirectly support 52,000 employees statewide, plus thousands more jobs with importers and exporters that depend on Puget Sound ports. Considering that approximately 70% of the cargo arriving at the two ports is discretionary, many companies are free to import through other non-U.S ports such as the Port of Prince Rupert, which does not charge an HMT. Without inbound cargo, the Puget Sound region not only loses revenues, but also vessel capacity and the supply of containers to sufficiently serve its export customers.

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Seattle-Tacoma and British Columbia port TEU volume trends 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2005

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Port of Seattle chart shows growth of cargo traffic at British Columbia ports

what are the solutions?

The Maritime Goods Movement Act, legislation introduced to reform the HMT by U.S. Senators Patty Murray and Maria Cantwell in the Senate and Representatives McDermott, DelBene, Heck, Kilmer, Larsen and Smith in the House, would resolve the problems associated with HMT in the following ways: 1. Reduce the incentive to move cargo through foreign ports The Maritime Goods Movement Act would replace the HMT with a Maritime Goods Movement User Fee that shippers must pay on non-North American-originated cargo arriving in the U.S., regardless if it arrives via rail, road or sea. This removes the incentive for shippers to route cargo through foreign ports and keeps jobs and revenue in Washington state.

2. Ensure funds collected from the Maritime Goods Movement User Fee are fully utilized for intended purposes The legislation mandates that all funds collected through the Maritime Goods Movement User Fee must be spent on port operation and maintenance projects. This would double the amount of funds available for American ports, which will help our trade economy thrive.

3. Expand funds available for port maintenance and freight mobility infrastructure projects The Maritime Goods Movement Act would increase funding for projects other than dredging, such as intermodal freight mobility projects that help our ports be more competitive. This will increase the return on investment for major donor ports such as Seattle and Tacoma, which do not need much dredging. It would also expand funding available for smaller ports that are generally at a competitive disadvantage for federal funding.

3 Representative Laura Richardson, “Letter to Federal Maritime Commision,� September 2011

POLICY FAQs 1) Do Washington ports use HMT funds?

Yes, many river and coastal ports throughout the state use federal navigation channels and jetties that require maintenance. However, some of the state’s largest ports—such as those in Seattle, Tacoma, and Everett—are naturally deep harbors and do not need extensive dredging. Yet, these ports are top contributors to the HMTF.

2) What is the cost of cargo lost to foreign ports?

The Harbor Maintenance Trust Fund is expected to lose hundreds of millions of dollars over the next ten years due to cargo diversion to Canada and other foreign competitor ports. The Panama Canal expansion in 2014 will attract additional business to other U.S. ports from larger vessels that would otherwise come to West Coast ports.3 3) How does the HMT lower export capacity?

Cargo that goes through foreign ports instead of those in Washington causes less import containers to arrive in our state. With less containers at the ports, there is a limited amount of capacity to export Washington products.

4) Will MGMA violate NAFTA? No, the Maritime Goods User Fee will only be applied to cargo originating outside the U.S., Canada and Mexico.

Photo courtesy: Port of Seattle

Washington Council on International Trade www.wcit.org @WashingtonTrade 1301 Fifth Avenue, Suite 1500 Seattle, WA 98101