Harbor Tax Rebate Could Help Seattle, Tacoma Ports Attract Business


By Kyung M. Song, May 20, 2014, Seattle Times

From the time in 1986 when Congress created a tax on goods imported on cargo ships, lawmakers from the Pacific Northwest feared it would push business away from Seattle and Tacoma to Canada.


Today, Washington’s two biggest ports are losing market share, and they lay part of the blame on the harbor-maintenance tax. Importers and shippers can bypass the levy — $1.25 per $1,000 in cargo — by entering through or Mexican ports and moving the goods to final U.S. destinations by truck or rail.


Now the tax’s most-aggrieved critics are about to get relief — though not the solution they preferred.


Republicans and Democrats in the House and the Senate last week finalized a long-sought agreement to renew the Water Resources Reform and Development Act, the law governing the nation’s ports, dams, locks and maritime transportation and infrastructure needs. For the first time, the legislation reserves a portion of the pooled harbor-tax revenues for high-volume ports such as Seattle and Tacoma to give to their customers as rebates.


That provision, authored by Democratic Sens. Patty Murray and Maria Cantwell of Washington, was tailored to aid “donor” ports that remit much more taxes to the federal Harbor Maintenance Trust Fund than they get back for needed dredging and maintenance work. But it’s unclear how much — or if — that would help reverse the fortunes for Seattle and Tacoma, which have lost freight business to domestic as well as foreign ports.


The House is expected to approve the water-resources bill Tuesday, and Senate passage is likely later in the week.


Port officials had unsuccessfully backed separate, related bills introduced by Murray, Cantwell and U.S. Rep. Jim McDermott (D-Seattle) to do away with the harbor tax. It would have been replaced with a fee on all U.S.-bound international cargo at the point of origin, not at port of entry.


Nonetheless, port authorities called the compromise measure a key step in rectifying inequities that hurt the nation’s busiest commercial ports.


Small ports such as Grays Harbor, for instance, contribute relatively little in harbor taxes but receive disproportionately higher amounts from the trust fund to pay for maintenance projects. And deep-water ports on the West Coast require far less money for dredging than silt- and mud-laden channels in Houston or New Orleans.


There are nearly 1,100 ports in the United States. Fifty-nine percent of the nation’s busiest ports handled 90 percent of the freight in 2013 but received 66 percent, or $483 million, of the harbor taxes disbursed. The return is far more lopsided for Seattle and Tacoma; port officials say they get back pennies for each dollar in harbor taxes. In 2011, Port of Seattle collected $36.2 million in harbor taxes, but requested just $1.86 million in eligible operations and maintenance costs.


Under the new water bill, Congress would set aside a total of $25 million for each of the next four fiscal years for ports that collect more than $15 million annually in harbor- maintenance taxes and get back less than 25 percent of it from the trust fund. Eligible ports would have to be located in states that unloaded more than 2 million cargo containers in fiscal 2012.


The number of ports that would qualify as such “donor” ports was unavailable, but Murray’s office said the list includes Seattle, Tacoma, Los Angeles and Long Beach, Calif. In addition to rebates, ports could spend the money for infrastructure improvements, which is now not allowed under the trust fund.


Sean Eagan, government-affairs director for the Port of Tacoma, called it a welcome expansion of use of harbor taxes beyond simply maintaining waterways.


“This is an enormous shift in policy for Congress,” Eagan said.


Tacoma is Washington’s largest port and the nation’s seventh largest by cargo value. Last year, it handled 1.89 million TEUs (20-foot equivalent units) of containers. That was 10 percent more than in 2012, but 10 percent below the recent peak of nearly 2.1 million TEUs in 2006.


The falloff has been even steeper for the Port of Seattle. Its container volume shrank by 35 percent to 1.59 million TEUs from 2010 to 2013, and the Port handles less cargo now than it did a decade ago.


Peter McGraw, a spokesman for the Port of Seattle, said the harbor tax was a part, but not necessarily the main reason, behind the decline. Tacoma has lured away shipping lines from the Port of Seattle. The ports of Vancouver and Prince Rupert, 450 miles north of the U.S. border in British Columbia, are key rivals.


Canada’s Pacific Coast ports are targeting top trading partners in China, Japan and South Korea, playing up their proximity to north Asia and generally lower freight costs to reach the American Midwest via U.S. West Coast ports.


The Port of Prince Rupert, which opened in 2007, is set up for streamlined transfer of cargo off ships to trains. It has on-dock rail that connects to the Canadian National Railway, so shipments of electronics, furniture, automobiles and other goods can leave the terminal within hours instead of days.


“Frankly, they’ve got a national strategy for growth that the United States would do well to emulate,” McGraw said.


Still, the diversion of U.S.-bound cargo to Canada is a relatively small, albeit growing, threat. In 2010, West Coast Canadian ports handled 236,000 TEUs, or 2.6 percent, of U.S. import containers that came through the West coasts of North America, a 2012 study for the Federal Maritime Commission found. Without the harbor tax, as much as half of that traffic could revert to U.S. ports, according to estimates by Robert Leachman, at University of California, Berkeley.


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