Funding port-related infrastructure and development: the current debate and proposed reform.

Author:Cook, Christopher T.

Introduction I. Constitutional and Statutory Restrictions on Port Operations A. The Tonnage Clause B. The Shipping Act C. Plaquemines. Courts' Exacting Standard Under the Shipping Act II. Addressing the Funding Problem A. Congressional Proposals 1. H.R. 526: ON TIME Act 2. H.R. 2355: MOVEMENT Act of 2009 3. H.R. 2707: National Freight Mobility Infrastructure Fund 4. Congressional Analysis B. National Infrastructure Bank C. Structured User Fees 1. PierPASS 2. Security-Related Fees 3. Clean Truck Program D. Port Authority Cargo-Based Fees 1. Ports of Los Angeles/Long Beach--Infrastructure Fee 2. Port Authority of New York & New Jersey--Cargo Facility Charge 3. Analysis of Cargo-Based Fee Validity III. Proposed Reform Conclusion INTRODUCTION

"[W]e can put Americans to work today building the infrastructure of tomorrow. From the first railroads to the interstate highway system, our nation has always been built to compete." (1)

"Our infrastructure used to be the best, but our lead has slipped.... [W]hen our own engineers graded our nation's infrastructure, they gave us a D.'" (2)

President Barack Obama's State of the Union Addresses in 2010 and 2011 focused on the need to rebuild trade-related infrastructure as an aspect of revitalizing the United States' economic condition. (3) American seaports are a central component of the President's discussion. (4) Port (5)-related activities contribute more than $649 billion annually to the U.S. Gross Domestic Product, sustain more than thirteen million jobs, and contribute over $212 billion annually in federal, state, and local taxes. (6) United States seaports--much like the rest of the United States' infrastructure--are in desperate need of improvement. (7) Federal, state, and industry actors agree that freight rail and roadways servicing seaports require significant repair and expansion. (8) What they cannot agree upon, however, is how to generate the funds necessary to meet current and future capacity needs. (9)

Modern container ports (10) have witnessed a sea change in how global trade is conducted. (11) From 1990 to 2007, trade in containerized cargo--i.e., cargo transported in a truck trailer body that can be detached from the frame of the truck for loading into a vessel or rail car (12)--in the United States' four largest container ports increased as follows: Ports of New York and New Jersey (279%), Port of Los Angeles (395%), Port of Long Beach (456%), and Port of Savannah (621%). (13) Driven by the surging market in containerized trade, the size of ships calling on U.S. ports has grown from 4500 twenty-foot equivalent units ("TEUs") (14) to 12,000 TEUs, (15) which has increased the number of trucks and miles of freight rail necessary to transport cargo from seaports to interior manufacturing and distribution points. (16) Consequently, many roadways have become inadequate, (17) resulting in roadway congestion, (18) increased fuel emissions, (19) and related environmental and public health concerns. (20)

Additionally, East Coast ports are uniquely concerned with port-related capacity and infrastructure issues. (21) Historically, the largest ships transporting containerized cargo have been unable to pass through the Panama Canal in calling on East Coast ports. (22) This is about to change. The Panama Canal is currently being expanded to accommodate ships carrying up to 12,000 TEUs. (23) The anticipated completion of the Panama Canal Expansion Project in 2014 has forced ports on the eastern seaboard to dredge channels deeper to accommodate the larger ships (24) and expand intermodal facilities (25) to transport containerized cargo quicker and more efficiently. (26)

Containerized cargo is here to stay, but what is less certain is how the United States will fund new infrastructure and development to accommodate its proliferation within the shipping industry. (27) In recent years, members of Congress have proposed legislation to fund infrastructure and development at U.S. seaports. (28) Three of these proposals create a fund based on a tax or fee assessed on the value of goods entering or leaving the United States. (29) A separate proposal concerns the creation of an infrastructure bank that, with an initial government contribution of $10 billion, would "leverage private-public partnerships and maximize private funding" to fund infrastructure and development projects. (30) Two of these proposals died in committee during the 111th Congress, (31) and the other two have been reintroduced in the 112th Congress after failing to be enacted in previous legislative sessions. (32)

The hands of local port authorities, however, are tied by constitutional and statutory constraints, rather than a lack of consensus. (33) Port authorities generate revenues through the management of port facilities. (34) The ability of port authorities to assess taxes on shippers "for the privilege of entering, or trading, or lying in a port or harbor" (35) is precluded by the United States Supreme Court's interpretation of the Constitution's Tonnage Clause. (36) The Court has, however, recognized a State's ability to assess a charge on shippers for actual use of port facilities that is fairly apportioned to "opportunities, benefits, or protection conferred or afforded by the taxing [authority]." (37) Congress placed additional constraints on state regulatory authority with the passage of the Shipping Act. (38) The Shipping Act provides that port authorities cannot "fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property [at ports]" (39) or impose "any undue or unreasonable prejudice or disadvantage with respect to any person." (40) Courts and the Federal Maritime Commission ("FMC") have interpreted this as requiring any fee imposed on a shipper, trucker, marine terminal operator, (41) or beneficial cargo owner (42) (collectively "Port Users") to generate actual benefits to the user on a reasonably equivalent basis. (43) The problem with this fee structure is that it limits the ability of port authorities to assess a fee for the construction and development of large-scale, port-related infrastructure and development projects (44)--the benefits of which would accrue to both those paying and not paying the fee, or the costs of which would be incurred by those not enjoying the benefit.

As this Note will discuss, the largest port authorities have proposed or implemented such a fee. (45) These fees are to be assessed on cargo entering or leaving the port and allocated to meet new and existing infrastructure and development needs. (46) The fees are also viewed as necessary revenue generating mechanisms to meet new security mandates adopted by Congress in the wake of September 11, 2001 (47) and environmental initiatives designed to reduce the environmental impacts of port operations. (48) Shipping lines, however, have challenged the validity of port authority fees assessed for port-related freight rail and roadway improvement projects before the FMC. (49) Whether these fees can or will withstand scrutiny under the Tonnage Clause or Shipping Act has yet to be determined.

Given the lack of consensus and certainty in how funding should best be generated to meet critical infrastructure and development needs, this Note proposes an amendment to the Shipping Act to provide port authorities with the express power to impose fees for the construction, operation, and maintenance of qualifying port-related infrastructure and development initiatives. (50) The amendment would effectively spread the costs specific to qualifying initiatives over the useful life of the project. The U.S. Department of Transportation would first be required to approve any project qualifying for funding under the amendment.

Shippers vehemently oppose a congressional green light for port authorities to assess fees for general improvements, (51) but shippers also recognize that there is a significant problem arising out of increasingly modernized and automated shipping operations and the United States' currently outdated and outmoded port infrastructure. (52) A carefully crafted amendment to the Shipping Act can provide the shipping industry with reasonable assurances that a new fee will be accompanied by a proportionate benefit. (53)

Part I discusses the relevant provisions and judicial standards associated with the Tonnage Clause and Shipping Act. Part II addresses the efforts by both Congress and port authorities to generate funding for port-related infrastructure and development initiatives. Part III proposes a legislative amendment to the Shipping Act that provides port authorities with the express power to impose fees on cargo over a reasonable investment horizon for qualifying infrastructure and development projects. This amendment would ensure that port authorities are best able to meet pressing infrastructure and development needs.

  1. CONSTITUTIONAL AND STATUTORY RESTRICTIONS ON PORT OPERATIONS

    The ability of port authorities to assess charges on Port Users is governed primarily by the Tonnage Clause of the Constitution and the federal Shipping Act. Part I first discusses the application of relevant constitutional and statutory provisions, and then illustrates the courts' more exacting standard in evaluating the validity of a fee assessed upon a Port User by a port authority under the Shipping Act. As discussed below, the Shipping Act significantly restrains port authorities' ability to generate funds for general port-related infrastructure and development projects.

    1. The Tonnage Clause

      The Tonnage Clause of the Constitution provides that "[n]o State shall, without the consent of Congress, lay any Duty of Tonnage." (54) It is intended to safeguard the Constitution's general prohibition against states laying duties on imports or exports (55) by preventing states from imposing duties on the ships transporting goods...

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