BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 974
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: lowenthal
VERSION: 4/9/07
Analysis by: Jennifer Gress FISCAL: yes
Hearing date: April 17, 2007
SUBJECT:
Fees on containerized cargo
DESCRIPTION:
This bill imposes a fee on container cargo imported and exported
through the ports of Long Beach, Los Angeles, and Oakland in an
amount not to exceed $30 for twenty-foot equivalent unit (TEU).
The bill requires that 50% of fee revenues be used to develop
infrastructure projects that reduce congestion and 50% of
revenues be used to mitigate the air quality impacts associated
with the movement of freight in and out of the three ports.
Finally, the bill specifies the processes for determining which
congestion relief and mitigation projects shall be funded with
fee revenues.
ANALYSIS:
Ports are local government agencies governed by port commissions
that are responsible for developing, maintaining, and overseeing
the operation of shoreside facilities for the intermodal
transfer of cargo between ships, trucks, and railroads. In some
cases, certain ports have jurisdiction over affiliated airports,
build and maintain terminals for the passenger cruise ship
industry, or manage marinas and other public facilities.
Existing law establishes 11 ports in the state: Hueneme,
Humboldt Bay, Long Beach, Los Angeles, Oakland, Redwood City,
Richmond, Sacramento, San Diego, San Francisco, and Stockton.
The law allows each port to establish a general plan and port
system improvements and prescribe the specifications for such
improvements.
Existing law requires, pursuant to the Coastal Act, that each
port governing body prepare and adopt a port master plan that
includes:
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a) Proposed uses of land and water areas;
b) Projected design and location of port land areas, water
areas, berthing, and navigation ways and systems intended
to serve commercial traffic within the area of jurisdiction
of the port governing body;
c) An estimate of the effect of development on habitat
areas and the marine environment, a review of existing
water quality, habitat areas, and quantitative and
qualitative biological inventories and proposals to
minimize and mitigate any substantial adverse impact; and
d) Adequate public hearing and public participation in port
planning and development decisions.
This bill does all of the following:
Establishes in the State Treasury the following four funds for
infrastructure projects to reduce congestion and mitigation
projects to reduce the air quality impacts of the movement of
container cargo in northern and southern California: Southern
California Port Congestion Relief Trust Fund, Southern
California Port Mitigation Trust Fund, Northern California
Port Congestion Relief Trust Fund, and Northern California
Port Mitigation Trust Fund.
Requires, by January 1, 2008, the Ports of Long Beach, Los
Angeles, and Oakland to develop a process for collecting a fee
from the owners of cargo container and to notify cargo owners
of the fee.
Requires, by June 1, 2008, the Ports of Long Beach, Los
Angeles, and Oakland to notify cargo owners that it will be
assessed a fee not to exceed $30 per TEU. The notice shall
include the process for payment, the frequency of payment, and
a statement describing that the purpose of the fee is to fund
infrastructure projects that relieve congestion and reduce the
air quality impacts associated with the movement of container
cargo in and out of the three ports.
Requires, by January 1, 2009, the ports of Long Beach, Los
Angeles, and Oakland to charge a fee not exceeding $30 per TEU
imported and exported through the ports, and specifies the
following parameters for doing so:
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o Fifty percent of the fee revenue collected by
the Ports of Long Beach and Los Angeles and 50 percent
of the fee revenue collected by the Port of Oakland
shall be remitted to the Southern California Port
Congestion Trust Fund and the Northern California Port
Congestion Trust Fund, respectively. Upon
appropriation from the Legislature, these funds are
available for allocation by the California
Transportation Commission (CTC) for the exclusive
purpose of funding projects that improve the flow and
efficiency of container cargo moving to and from the
Ports of Long Beach, Los Angeles, and Oakland.
o Fifty percent of the fee revenue collected by
the Ports of Long Beach and Los Angeles and 50 percent
of fee revenue collected by the Port of Oakland shall
be remitted to the Southern California Port Mitigation
Trust Fund and the Northern California Port Mitigation
Trust Fund, respectively. Upon appropriation from the
Legislature, these funds are available for allocation
by the California Air Resources Board (ARB) for the
exclusive purpose of mitigating the environmental
pollution caused by commercial motor vehicles,
oceangoing vessels, and trains moving container cargo
to and from the ports.
o The fee shall be collected from cargo owners a
minimum of two times per year.
o Fee revenue collected by the ports and
remitted to the respective funds in the State Treasury
may not be loaned or otherwise transferred to the
state General Fund.
o The ports may contract with PierPass for the
collection of the fees required by this bill.
(PierPass is a nonprofit organization created by
marine terminal operators operating at the Ports of
Long Beach and Los Angeles to develop programs that
reduce congestion and improve air quality in and
around the ports. PierPass operates a program known
as "OffPeak," which provides an incentive for cargo
owners to move cargo at night and on weekends in order
to reduce truck traffic and pollution during peak
daytime traffic hours.)
Specifies the process by which the CTC shall select eligible
congestion relief infrastructure projects to fund using fee
revenues from the Southern and Northern California Port
Congestion Relief Trust Funds. This process includes the
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following components:
o Beginning January 1, 2008, the CTC shall
develop a list of projects that improve the overall
efficiency of container cargo movement by improving
the rail system and container transportation systems.
In selecting projects, CTC is required to consult with
specified entities (e.g., regional transportation
commissions), to conduct at least one hearing at or
near the Ports of Long Beach and Los Angeles and in
the City of Oakland, and to consider the entire rail
and trade corridor servicing each port.
o The CTC shall finalize the list of projects in
Southern California to be funded by the Southern
California Congestion Relief Trust Fund and the list
of projects in Northern California to be funded by the
Northern California Congestion Relief Trust Fund
during public hearings no later than September 1,
2008. The bill specifies that projects in Southern
California may only be funded by the Southern
California Congestion Relief Trust Fund and projects
in Northern California may only be funded by the
Northern California Congestion Relief Trust Fund.
o The CTC shall give priority to those projects
that have been designed to measurably reduce
environmental impacts and to assist in attaining state
and federal air quality standards.
o The Ports of Long Beach and Los Angeles are
required to report to the CTC on the emission
reductions achieved through the implementation of the
San Pedro Bay Clean Air Action Plan. The CTC may not
allocate funds for future infrastructure projects if
the emission reductions specified in the Clean Air
Action Plan are not met. (The San Pedro Bay Clean
Air Action Plan is an emission reduction plan
developed jointly by the Ports of Long Beach and Los
Angeles, in collaboration with the South Coast Air
Quality Management District and ARB. The Clean Air
Action Plan specifies numerous strategies and targets
for reducing emissions associated with goods
movement.)
o All off-road diesel construction equipment
used on projects funded pursuant to this bill must be
equipped with an ARB-verified diesel particulate
filter that obtains at least an 85 percent reduction
in emissions, unless specified conditions are met.
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o Eligible projects include grade separations
(in general, but bill specifies projects known as
Alameda Corridor East and Colton Crossing in Southern
California), enhancing rail capacity by adding tracks,
and developing ondock rail facilities. The
construction, maintenance, or improvement of a highway
is not an eligible project unless the highway
improvement is part of a rail grade separation or is
done to separate container cargo from other motor
vehicle traffic.
o Once the congestion relief infrastructure
projects identified have been completed, the CTC shall
notify the ports to inform them not to collect the
one-half of the fee dedicated to infrastructure
projects.
Specifies the process by which ARB shall select port
mitigation projects for funding from the Southern and Northern
California Port Mitigation Trust Funds. This process entails
the following components:
o Beginning January 1, 2008, ARB is required to
develop a list of projects that reduce air pollution
caused by the movement of container cargo. In
selecting projects, ARB shall select projects that are
designed to meet the goals specified in the ARB's
Emission Reduction Plan, the South Coast Air Quality
Management Plan, and the San Pedro Bay Clean Air
Action Plan, consult with specified entities (e.g.,
local air districts), and conduct public hearings with
at least one occurring at or near the Ports of Long
Beach and Los Angeles.
o ARB is required to work with specified
entities with emission reduction/clean air plans to
ensure that projects included in those plans are
implemented. The bill allows ARB to provide funds to
these entities for the purpose of implementing those
plans.
o No later than September 1, 2008, ARB, at a
public hearing, shall finalize a list of projects for
Southern and Northern California that meet its
emission reduction goals to meet federal air quality
attainment standards.
o Only funds in the Southern and Northern
California Port Mitigation Trust Funds may be used for
mitigation projects in the respective regions.
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o ARB shall determine when the emission
reduction goals for 2020 and federal air quality
standards have been met, including the full
implementation of the South Coast Air Quality
Management Plan, and notify the ports to inform them
not to collect the one-half of the fee dedicated to
mitigation projects.
Authorizes the California Infrastructure and Economic
Development Bank (I-bank) to enter into financing agreements
and issue revenue bonds for the purpose of financing or
refinancing port congestion relief and mitigation projects,
and specifies parameters for doing so.
COMMENTS:
1.Purpose . The Ports of Los Angeles, Long Beach, and Oakland
are the nation's first, second, and fourth largest ports,
respectively, accounting for almost half of the nation's
seaborne cargo. The ports are projected to experience
tremendous growth in the coming years, with some estimating
that cargo volumes will triple by 2020. The transportation
system supporting the movement of goods to and from these
seaports are overwhelmed and local communities near the ports
and along trade corridors experience significant pollution and
health impacts associated with goods movement. The author
provides a number of statistics highlighting the growth in
trade activity at the ports, transportation needs, and air
quality impacts associated with goods movement. These
include:
According to the Los Angeles Economic Development Corp.
(LAEDC), Southern California must spend at least $10.5
billion to improve railroads, rail yards and highways to
keep up with surging international trade or risk losing
more than 500,000 new jobs and more than $1 billion of
taxes a year.
Inefficiencies in the freight transport system are
costly to the state. Improving our rail system will reduce
the number of diesel trucks on our freeways and alleviate
congestion. For example, "on-dock rail" is a less
polluting and more efficient alternative to trucking goods
on our freeways. Congestion costs Southern California more
than $10 billion in 2003.
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According to a 2006 report by the State Air Resources
Board, pollution from our state's ports causes 2,400
premature deaths annually.
By 2020, ports and freight transport operations will be
the largest source of diesel particulate matter (PM) and
nitrogen oxide (NOx) emissions in the state, producing more
diesel PM than all passenger vehicles, off-road equipment
and stationary sources combined.
The State Air Resources Board recently estimated that
over the next 15 years, polluting activity from operations
at California's ports will have an aggregate health impact
equivalent to approximately $200 billion in present value
dollars.
A disproportionate number of communities impacted by
port pollution are low-income communities of color, and the
state currently shoulders much of these port-caused health
costs.
Southern California risks losing $12.1 billion in
federal highway funds if federal air quality attainment
standards are not met. So far, the South Coast Air Basin
has failed to meet national standards for ozone and for
particulate emissions.
This bill provides a funding mechanism that allows the ports
to accommodate expected growth and remain an economic engine
in the state's economy, while reducing the negative impacts of
trade on local communities.
1.Supporters . Supporters of the measure, which are generally
environmental, public health, and local government
organizations, contend that goods movement activity has had
negative consequences on transportation infrastructure and air
quality. This bill will provide a way to address those issues
as trade activity in the Bay Area and South Coast regions
increases.
2.Opponents . Opponents of the measure, generally retailers who
own the cargo being imported and exported through the ports,
oppose on two grounds: imposing the fee as proposed in this
bill violates the commerce clause of the United States
Constitution and increasing the costs of importing and
exporting through these ports will cause retailers to ship
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their cargo through other ports. Issues relating to
constitutionality and diversion are each discussed in the
subsequent two comments.
3.Constitutionality . An oft-cited concern with imposing a
container fee on container cargo is that the state would be
violating the commerce clause of the U.S. Constitution, which
allows the federal government "to lay and collect taxes,
duties, imposts and excises" in order to "regulate commerce
with foreign nations, and among the several states, and with
the Indian tribes." In the case of a container fee, many
believe that the fee is really a tax in disguise and that only
the federal government, under the commerce clause, has the
authority to impose a tax.
In response to this concern, the author of this measure sought
an opinion by the Legislative Counsel regarding
whether a container fee such as the one proposed by SB 974
violates the commerce clause. In forming its opinion, the
Legislative Counsel addressed two questions. First, because
the "courts distinguish between state taxes and state-imposed
fees when examining a state-imposed charged under the commerce
clause," the Legislative Counsel considered whether the fee
imposed under this bill constituted a tax or a regulatory fee.
Referring to case law that established criteria for
distinguishing between taxes and fees (i.e., Sinclair Paint
Co. v. State Board of Equalization, 1997), the Legislative
Counsel concluded that the container fee described in this
bill is a regulatory fee, explaining:
Thus, we conclude that, in accordance with the requirements
of the Sinclair decision, the charged that would be imposed
by Section 1745 on marine terminal operators at the ports
would not be levied for unrelated revenue purposes, and
that a nexus would exist between those operators as payers
of the charge and the programs and projects that would be
funded by the revenues generated by the charge?it is our
opinion that a court faced with the question would find
that a charge proposed under Section 1745 is a valid
regulatory fee imposed under the police powers of the
state, as long as the amount of the charge assessed does
not exceed the reasonable cost of providing the services
described, and that amount bears a reasonable relationship
to the burdens created by the marine terminal operators.
The second question the Legislative Counsel considered
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concerned whether the state had the authority to impose the
fee. According to the Legislative Counsel, while the commerce
clause grants to the federal government the power to regulate
commerce, the states retain the power to legislate in absence
of federal legislation "in matters of local concern, even
though the legislation may indirectly affect interstate
commerce." Further, in determining whether this particular
fee might be preempted by the commerce clause, the Legislative
Counsel applied criteria established in Pike v. Bruce Church,
Inc. to the container fee. These criteria included whether
there is a furtherance of a legitimate local public interest;
whether the statute regulates evenhandedly; and whether the
statute places an undue burden upon interstate commerce. In
its opinion, the Legislative Counsel explained in detail why
she believes the container fee similar to the one proposed in
SB 974 would indeed "survive scrutiny under the commerce
clause of the United States Constitution as a legitimate
regulatory fee imposed under the police power of the state."
4.Diversion . The second concern levied by retailers is that a
fee would dampen the economic competitiveness of the ports,
causing many retailers to divert their cargo to other port
facilities and thus undermining the economic benefits that
trade activity brings to California. Several facts contradict
this concern. First, other major west coast ports are also
considering port-related fees. A bill to impose a $50/TEU
container fee on cargo processed at seaports in the state of
Washington was introduced in that state's Legislature in
January of this year. In addition, according to a news article
dated April 2, 2007, the Port of Vancouver in British Columbia
will begin to charge fees on ships on the basis of a vessel's
smokestack emissions. This fee was expected to have begun
Sunday, April 8, 2007.
In addition to other ports' efforts to impose fees, the
results from two research studies examining the potential for
diversion expressly due to container fees suggest that
significant diversion is unlikely with a $30/TEU container
fee. A study commissioned by the Southern California
Association of Governments between 2003 and 2005 found that
cargo volumes are more sensitive to congestion than to cargo
fees. Without congestion relief, the study found that even a
modest container fee would result in the diversion of some
cargo. With congestion relief, however, volume cargos would
remain constant with a container fee up to $200/TEU. A study
titled "Cargo on the Move in California: Evaluating Container
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Fee Impacts on Port Choice" conducted by Energy and
Environmental Research Associates LLC found that a $30/TEU fee
at the Ports of Los Angeles and Long Beach would increase a
shipper's voyage costs 1.5% to 2.5%, but given the high demand
for those ports, diversion is estimated to be less than 1.5%.
The same fee imposed at the Port of Oakland would increase
voyage costs 1.5% to 2.7%, and diversion is estimated to range
from 2% to 4.7%. Given that trade activity at the ports is
expected to double or triple by 2020, the authors conclude
that any diversion that occurs as a result of a $30/TEU
container fee would be rendered "unobservable."
5.Clean Air Action Plan Accountability? The provision of the
bill prohibiting CTC from allocating funding if the Ports of
Long Beach and Los Angeles fail to attain the emission
standards specified in the Clean Air Action Plan raises a
number of questions. If funding is withheld because the ports
fail to attain these standards, and projects are not completed
as a result of projects not being completed, what trigger
would exist to stop the port from collecting the fee? In the
current version of the bill, the trigger to stop the
congestion relief portion of the container fee is the
completion of all the projects on the final list. If those
projects are not completed because funding is withheld, the
congestion relief portion of the fee would continue to be
imposed. Would the excess revenues being collected during the
time that funding is withheld be saved for the unfunded
projects on the list until the emission goals are achieved?
In addition, given the fact that the Ports of Long Beach and
Los Angeles are the only ports in the state to have developed
an emission reduction plan, is it fair to hold those two ports
to a higher standard than the Port of Oakland? Would this
provision inadvertently encourage the Port of Oakland to avoid
developing a comprehensive plan or to establish artificially
low emission standards to avoid the risk of losing funding.
The author may wish to clarify how the trigger to end the fee
would work under this provision and how to encourage the ports
to strive for high emission reductions.
6.Clarifying Amendments .
A. As the bill is currently written, congestion relief and
mitigation projects would not be eligible to receive funding
from other sources, such as local, state, federal, or private.
The author may wish to clarify that while fee revenues
collected at the Southern California ports fund projects only
in Southern California and that fee revenues collected at the
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Port of Oakland fund projects only in Northern California,
container fee revenues may be leveraged with local, state,
federal and private sources.
B. The author may wish to clarify that the mitigation portion
of the fee may only be used to fund the goods movement related
strategies of the Air Quality Management Plan in order to
avoid violating the "nexus" test of constitutionality.
Similarly, the author may wish to clarify that only the
attainment of emissions reductions associated with goods
movement may trigger the end of the container fee, as opposed
to the attainment of federal air quality standards generally.
A region's air quality is determined by pollution from many
sources; goods movement-related sources constitute only a
portion.
RELATED LEGISLATION
SB 760 (Lowenthal, 2005) and SB 927 (Lowenthal, 2006) were
similar, though not identical, measures to impose a $30/TEU fee
on container cargo. SB 760 was held in the Assembly
Appropriations Committee and the content of the bill was then
amended into SB 927. SB 927 was vetoed by the Governor.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 11, 2007)
SUPPORT: Alameda Corridor - East Construction Authority
American Lung Association
Asthma Coalition of Los Angeles County
Breast Cancer Fund
Breathe California
California Natural Gas Vehicle Coalition
California Nurses Association
City of Burbank
City of Lakewood
City of Long Beach
Coalition for Clean Air
Coalition on the Environment and Jewish Life of
Southern California
Environment California
Environmental Defense
Friends of the Earth
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Interfaith Environmental Council
Los Angeles Alliance for a New Economy
Los Angeles County Metropolitan Transportation
Authority
Natural Resources Defense Council
Plug in America
Progressive Christians Uniting
San Gabriel Valley Council of Governments
Santa Barbara County Air Pollution Control
District
Service Employees International Union
Sierra Club California
South Coast Air Quality Management District
Teamsters Union
Union of Concerned Scientists
OPPOSED: California Chamber of Commerce
California Cotton Ginners and Growers
Associations
California Farm Bureau Federation
California Retailers Association
Central Purchasing LLC
Chamber of Commerce of Hawaii
Circuit City
Crate & Barrel
Leading Lady
Liz Claiborne, Inc.
Michaels Stores, Inc.
National Retail Federation
New Balance
Newell Rubbermaid
Nike, Inc.
Payless ShoeSource, Inc.
Pier 1 Imports
Stop Hidden Taxes Coalition
Wine Institute
Wolverine World Wide, Inc.