(August 6, 2008) The California Chamber of Commerce is urging Governor Arnold Schwarzenegger to veto a “job killer” bill that would impose a $400 million per year tax on all containerized cargo moving in or out of the state’s three largest ports.

SB 974 (Lowenthal; D-Long Beach) increases the cost of shipping goods and makes California less competitive by imposing an illegal per-container tax in the ports of Long Beach, Los Angeles and Oakland.

The CalChamber believes that a one-size-fits-all approach, such as that established in SB 974, is inappropriate for financing the infrastructure improvements and environmental mitigation projects created by California’s growing population and economy. 

The ports of Los Angeles and Long Beach have jointly adopted two separate container fees — a $35 per 20-foot equivalent unit (TEU) fee intended to reduce environmental impacts by replacing port trucks, and a $15 per TEU fee aimed at funding necessary infrastructure improvements.

These new fees combined total $50 per TEU, or nearly double the $30 per TEU container tax proposed by SB 974, of which 70 percent is devoted to environmental mitigation in the form of truck replacement. The ports of Los Angeles and Long Beach are scheduled to begin collecting the fees earlier than the tax contained in SB 974, and they will raise more funds on an annual basis.

Diversion of Cargo

Proponents of SB 974 insist that cargo won’t be diverted to other ports if a $30 per TEU tax is imposed at the state’s three largest ports. International trade follows the path of least resistance, however, and when California piles on additional costs, discretionary cargo is likely to flow into competing ports.

For example, an 8,000 TEU cargo ship that drops off a full load, and then picks up a full load, will be saddled with an additional shipping cost of $480,000. California’s ports are already more expensive than competitors, and an additional cost of $480,000 per 8,000 TEU vessel is likely to add to other cost pressures and lead to diversion of cargo.

In fact, the Port and Modal Elasticity Study (Leachman Study) prepared for the Southern California Association of Governments found that container fees which combined to total more than $100 per TEU could cause the Southern California ports to lose up to 1 million TEUs per year.

With SB 974, the combined container fees in Southern California would be $130 per TEU, well above the threshold in the study — the total of the $50 per TEU pier pass fee, the $35 per TEU truck replacement fee, the $15 per TEU infrastructure fee, and the $30 per TEU fee contained in SB 974. 

Problems with SB 974

The CalChamber and a sizable coalition of companies and organizations have been pointing out to legislators the many problems with SB 974. The bill threatens to:

• Put port economic benefits at risk;
• Divert cargo;
• Hurt the state’s agricultural industry;
• Make California’s manufacturing industry less competitive;
• Compromise recycling;
• Enact an illegal tax;
• Violate the commerce clause;
• Violate numerous trade agreements;
• Prompt litigation; and
• Freeze private investment in port infrastructure.

Other Solutions Exist

The claimed purpose of SB 974 is to finance infrastructure improvements and environmental mitigation projects. Despite suggestions to the contrary, acceptable alternatives to this illegal solution do exist, the coalition has pointed out.

Ports are financed with billions of dollars in private sector investments, paid for mostly through revenue bonds financed by port terminal operators and others through true user fees. California ports are carrying close to $3.5 billion in revenue bonds for maritime infrastructure improvements, and these funds continue to be spent on updating and building new roads, rail capacity and a variety of other projects.

In addition, public-private partnerships offer a viable way to fund goods movement-related projects outside of the ports. In principle, a public-private partnership must provide real and tangible benefits to all who contribute funds. This concept is most applicable to individual projects because funding sources may derive varying levels of benefit from each specific project and, therefore should have varying levels of financial involvement in those projects. The one-size-fits-all approach offered by SB 974 does not constitute a true public-private partnership.

Action Needed

Governor Schwarzenegger has 12 days to sign or veto the bill. The CalChamber is strongly urging businesses to send Governor Schwarzenegger a letter asking that he veto SB 974. For a sample letter, visit www.calchambervotes.com.

Staff Contact: Jason Schmelzer