BILL ANALYSIS Ó Bill No: AB 907 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2011-2012 Regular Session Staff Analysis AB 907 Author: Ma As Amended: June 8, 2011 Hearing Date: June 14, 2011 Consultant: Art Terzakis SUBJECT Bays of Monterey, San Francisco, San Pablo & Suisun: pilotage rates DESCRIPTION AB 907 makes the following changes to various provisions of the Harbors and Navigation Code relating to bar pilotage rates for Monterey Bay and the Bays of San Francisco, San Pablo and Suisun: 1. Establishes a fuel surcharge for all vessel moves using pilot services that shall be determined by the Board of Pilot Commissioner's (Board) executive director according to specified criteria. Also, requires the amount of any fuel surcharge to be posted on the Board's Internet Web site. 2. Increases the draft foot and mill rates in effect under Harbors and Navigation Code Section 1190(a)(1) as follows: those rates that are in effect on December 31, 2011, shall be increased by 1.5% on January 1, 2012; those that are in effect on December 31, 2012, shall be increased by 1.5% on January 1, 2013; those that are in effect on December 31, 2013, shall be increased by 1.5% on January 1, 2014; and those that are in effect on December 31, 2014, shall be increased by 1.5% on January 1, 2015. 3. Provides that effective January 1, 2012, the schedule of pilotage rates for ship movements and special operations in effect under Section 1191 of the Harbors and Navigation Code shall be those in the AB 907 (Ma) continued Page 2 Appendix to the Board's findings and Recommendations to the Legislature, dated May 25, 2011, with additional increases of 1.5% effective January 1, 2013, January 1, 2014, and January 1, 2015. Also, requires the Board to post the schedule of rates on its Internet Web site. 4. Increases the current charge against the owner, operator, or agent of any vessel that carries a pilot to sea against his will or unnecessarily detains a pilot when a pilot vessel is standing by to receive to $2,058 per day with additional increases of 1.5% effective January 1, 2013, January 1, 2014, and January 1, 2015. 5. Makes other minor, technical and conforming changes. EXISTING LAW Existing law establishes in state government the Board of Pilot Commissioners, with jurisdiction over Monterey Bay and the Bays of San Francisco, San Pablo, and Suisun. Existing law directs the Board to regulate pilotage and provides for the licensing, regulation, and management of pilots in these Bays. The Board consists of 7 members appointed by the Governor, with the consent of the Senate, as follows: (1) two members must be licensed pilots; (2) two members must represent the industry and be substantial users of Monterey Bay and any of the waters of the Bays of San Francisco, San Pablo, or Suisun; and, (3) three must be "public" members. Existing law prescribes pilotage rates for vessels and requires vessels spoken inward or outward bound to pay a specified rate of bar pilotage through the Golden Gate and into or out of the Bays of San Francisco, San Pablo and Suisun and vessels navigating the waters of Monterey Bay are also required to pay a specified rate. Existing law requires the Board to adopt a schedule of pilotage rates applicable to pilots and inland pilots for those operations that are not otherwise provided for under existing law. Existing law also requires the board to establish a surcharge for each movement of a vessel using pilot services to be used for the pilot and inland pilot AB 907 (Ma) continued Page 3 continuing education program established by the board. Under existing law, whenever suspected safety standard violations concerning pilot hoists, pilot ladders, or the proper rigging of pilot hoists or pilot ladders are reported to the Board, the Board's executive director is required to assign a commission investigator to personally inspect the equipment for its compliance with specified safety standards. This requirement applies to vessels in certain defined pilotage grounds. Existing law makes the owner, operator, and agents of a vessel jointly and severally liable for $600 per day when a pilot is unwillingly carried out to sea or unnecessarily detained on board a vessel. BACKGROUND Brief Historical Perspective: Bar pilots have been guiding ships into San Francisco Bay, one of the most treacherous passages in the world, since at least 1835. The work that bar pilots performed was so important that one of the first legislative enactments by the newly formed California Legislature that met in San Jose in 1850 was to address the regulation of bar pilots. California's history of piloting parallels to a large extent the history of pilotage throughout the United States. Prior to the American Revolution, pilotage was regulated by colonial legislatures. They generally provided for the commissioning of pilots, apprenticeship requirements to become a pilot, specified the type and size of pilot boats used in the service, and established fees to be charged. When the United States Constitution was adopted, it recognized that pilotage fell within the domain of the federal government because it involved regulation of instruments of foreign commerce. One of the first acts of the newly formed Congress in 1789 was to recognize the existing state laws regulating pilots and delegate to the states the authority to continue to regulate pilotage because of its unique character. Bar pilots are responsible for steering an arriving vessel through the Golden Gate of San Francisco Bay, the Bay waters and adjoining navigable waters, which include San Pablo Bay, Suisun Bay, the Sacramento River and its AB 907 (Ma) continued Page 4 tributaries. When a vessel approaches the "SF" buoy several miles west of the Golden Gate Bridge, a bar pilot boards the ship and takes navigational control. (Pilots in San Francisco are called "Bar Pilots" because they board and disembark ships just beyond a treacherous sand bar which provides a natural obstacle to shipping.) It becomes the pilot's responsibility to guide the ship to its berth. The bar pilots provide service to all types of vessels, from 100-foot tugs to 1000-foot supertankers. Purpose of AB 907: Pilots are generally mandatory in every major port throughout the world and their pilotage service is paid for by the vessel owner/agent. As noted above, the San Francisco Bar Pilots (SFBP) have been state regulated and licensed since 1850 to pilot vessels to various ports in the Bay Area such as San Francisco, Oakland, Redwood City, Martinez, Richmond, Pittsburgh, Vallejo, Rodeo, Antioch, Stockton, Sacramento and more recently including Monterey. According to the author's office, this measure is intended to implement pilotage rate recommendations issued by the Board of Pilot Commissioners (Board) for Monterey Bay and the Bays of San Francisco, San Pablo and Suisun. The SFBP estimate that for bulk cargo, the increase proposed by this measure will result in $0.08 per ton; for tankers, $0.04 per barrel; for containers, $0.16-$0.18 per container. On February 11, 2011, the Pacific Merchant Shipping Association (PMSA) and the SFBP filed separate petitions for adjustment of pilotage rates under Chapter 6, Sections 1200-1203 of the Harbors and Navigation Code. In early April 2011, in response to the petitions from the PMSA and the SFBP, the Board held a hearing to consider possible recommendations to the legislature concerning adjustments in pilotage rates. Such hearings are authorized by Sections 1991 and 1200-1203 of the Harbors and Navigation Code. In summary, the Board recommended: Adoption of a quarterly fuel surcharge that would be implemented if and when average per-gallon fuel costs to the pilots in a preceding three-month period have exceeded a benchmark level. The surcharge would be a flat amount for each vessel move during the following quarter. AB 907 (Ma) continued Page 5 Adoption of four new charges in the rate schedule authorized by Harbors and Navigation Code Section 1191. Three of the charges involve use of an additional pilot in situations where safety requires it. The fourth charge is for late cancellation of pilot services for vessel departures from the Ports of Sacramento and Stockton. The Board recommended that these four new charges be incorporated in a restated Schedule of Pilotage Rates for Ship Movements or Special Operations, in furtherance of Harbors and Navigation Code Section 1191(a) which provides that the Board "shall recommend that the Legislature, by statute, adopt a schedule of pilotage rates providing fair and reasonable return to pilots and inland pilots engaged in ship movements or special operations where rates for those movements or operations are not specified in Section 1190." There is currently no such schedule that sets forth current rates. Adoption of four successive annual increases of 1.5% each year in the rates provided for in Sections 1190 and 1191 of the Harbors and Navigation Code. The first increase would be effective January 1, 2012 and the last would be effective January 1, 2015. Please note that the pilotage fees currently set forth in Harbors and Navigation Code Sections 1122 and 1190 are not the current fees. The current fees are higher, reflecting intervening legislative increases. Arguments in Support: Proponents point out that the SFBP move $1.2 billion in cargo every day and help sustain over 44,000 jobs in Northern California. Proponents note that state pilotage is fundamental to the safe and efficient flow of commerce in Northern California and in order to ensure the region has the best qualified pilots to fulfill this mission it is critical that California remain competitive with comparable ports. Proponents also contend that this measure is not about pilot income, which rises and falls based on shipping traffic calling at various Bay area ports. Proponents emphasize that the Board has carefully reviewed all of the evidence and economic factors and has concluded that a modest increase in rates is necessary. Proponents claim that the proposed pilotage service increases are insignificant (approximately $0.16-$0.18 per container) - AB 907 (Ma) continued Page 6 particularly at a time when shipping companies are reaping average profits of approximately $560 per container. Arguments in Opposition: According to PMSA, this measure would impose higher pilot rates on vessels, create new surcharges and allow for levies of arbitrary additional charges of 50% to 100% on large vessels calling the Ports in San Francisco Bay and River system. PMSA believes these pilot rate increases are "unjustified, ill-timed and, in the context of the greater economy, state budget and existing pilot incomes, outrageous giveaways to the extent of being oppressive and confiscatory." PMSA also claims that AB 907 does not reflect the Board's "full and unadulterated recommendation - rather this bill has selectively incorporated the recommended language and seeks to hide the language that highlights the newest and most controversial surcharges." PMSA points out that in 2010 the average net income per San Francisco Bar Pilot was $393,207 - that figure was down from the average net income of $427,153 per pilot in 2009 because of the overall decline in ship traffic using the San Francisco Bay system as a result of the ongoing recession. PMSA states that "overall tonnage is up 16.5 percent already in 2011, and it is anticipated that pilots' salaries will, once again, exceed $400,000 without any benefit of a rate increase, since the rate increase proposed by this measure will not go into effect until January 1, 2012." PMSA notes that the continuing economic recession, additional regulations, emissions controls, taxes, and fees have proven significant challenges to the health of the industry and that increasing fees makes it more expensive for every ship arriving or departing. This measure could in fact give shippers further incentive to use port facilities elsewhere. PMSA also points out that ultimately, all of the additional costs of doing business in California are not paid by ocean carriers, but rather by their customers. This will impact the agricultural industry in particular which has few choices in how they transport their goods to market for export. Their costs will rise making California produce more expensive and less desirable overseas. To remain viable in international trade, PMSA believes our ports must AB 907 (Ma) continued Page 7 remain cost competitive - and while the many different costs that go into shipping may each seem individually insignificant, considering the massive size of these ships, and on a per ton basis, they all add up. In addition, PMSA argues that these rate increases will also exacerbate the current situation facing the pilot pension program, which currently is facing an unfunded liability of over $250 million. Furthermore, PMSA states that "since the rate portions of this measure are so highly charged and controversial, the non-controversial and non-rate related portions which refer exclusively to Board operations and licensing issues should be removed by this Committee (the Senate G.O. Committee) and placed in AB 1025 (Skinner) - a consensus good government bill supported by the Board, the SFBP and PMSA." Staff Comments: As noted above, vessels entering the San Francisco Bay are required by law to utilize the services of a licensed SFBP and are charged fees for those services. The Board regulates and contracts for the services of the bar pilots who are independent contractors, not state employees. The San Francisco Bar Pilots Association is essentially a "regulated monopoly," with membership and rates fixed by statute. There are no competitive options for ship-owners who use San Francisco Bay ports other than to employ the services of this legal monopoly. The SFBP are the only coastal pilots that have their rates set in statute by the Legislature. For example, the Los Angeles Pilot Service, which dates back to 1907, and ensures a safe flow of ship traffic to and from Los Angeles Harbor, consists of pilots who are employees of the City of Los Angeles. Additionally, the Port of Long Beach contracts with a private pilot service. In 2014, the new Panama Canal, with a modified series of locks capable of handling the world's largest ships is expected to open. With the opening of this new system of locks that will allow ships that exceed 1,200 feet in length and carry three times the cargo of current "Panamax" ships, a greater share of Asian mega container-ships may very well sail directly to the eastern United States, bypassing California ports entirely. PRIOR/RELATED LEGISLATION AB 907 (Ma) continued Page 8 AB 1025 (Skinner) 2011-12 Session. Among other things, would authorize the Board of Pilot Commissioners to charge an examination fee, as specified, to each applicant to the pilot trainee training program to cover administrative costs. Also, would require the executive director of the Board to be responsible for safety investigations and authorizes the executive director to personally inspect equipment involved in the injury of a bar pilot. Additionally, would require that the board's assistant director be appointed by the Secretary of Business, Transportation and Housing, instead of being appointed by the governor, and serve at the pleasure of the secretary. (Pending in this Committee) AB 656 (Huber) 2011-12 Session. Would sunset, as of January 1, 2011, the Board of Pilot Commissioners and transfer, as of that date, the board's duties to the Secretary of Business, Transportation and Housing. (Pending in this Committee) AB 1888 (Ma) Chapter 455, Statutes of 2010. Among other things, revised the terms for members of the board who are licensed pilots and members who represent the industry and exempted from those pilotage fees and surcharges noncommercial vessels that are maritime academy training vessels and vessels owned and operated by nonprofit museums or foundations. These vessels would be subject to the board operations surcharge. SB 300 (Yee) Chapter 497, Statutes of 2009. Established a surcharge for payment of navigational aids for bar pilots and revised the pilotage rate based upon the current number of bar pilots. SB 1627 (Wiggins) Chapter 567, Statutes of 2008. Made numerous substantive, clarifying and technical changes to the body of law relating to the Board of Pilot Commissioners. Specifically, injected ongoing and continuous legislative oversight and administrative responsibility within the existing pilot licensing framework, without altering the Board, its charge, or composition and without changing current pilotage rates, pilot pension benefits, or duties and responsibilities of current, past or future licensed pilots. Also, directed the Bureau of State Audits to conduct a comprehensive AB 907 (Ma) continued Page 9 performance and financial audit of the Board. SB 1217 (Yee) Chapter 568, Statutes of 2008. Required the Board of Pilot Commissioners to appoint a physician or physicians who are qualified to determine the suitability of a person to perform his or her duties as a pilot, an inland pilot, or a pilot trainee in accordance with specified requirements. Also, required the Board to terminate a pilot trainee or suspend or revoke the license of a pilot or an inland pilot who fails to submit the prescribed medication information required by these provisions. AB 852 (Leno) Chapter 129, Statutes of 2005. Among other things, authorized revenue generated by the pilot boat surcharge to be used to pay for pilot boat design and engineering modifications intended to extend the service life of existing boats, in addition to the existing purpose of purchasing new pilot boats. SB 1303 (Torlakson) Chapter 560, Statutes of 2004. Made a minor change to an existing provision of law relative to representation on the Board of Pilot Commissioners by clarifying that the Board's two industry members must be substantial users of any of the waters of the Bays of San Francisco, San Pablo, Suisun, or Monterey. SB 1353 (Perata) Chapter 765, Statutes of 2002. Established a schedule of incremental changes (through January 1, 2006) to the rates and special surcharges that bar pilots may impose on vessels that move in and out of the Bays of San Francisco, San Pablo and Suisun. SB 637 (McPherson) Chapter 177, Statutes of 2001. Allowed San Francisco bar pilots to pilot commercial vessels calling on ports in "Monterey Bay" by including Monterey Bay within the system of state regulated pilotage for the Bays of San Francisco, San Pablo and Suisun. SB 2177 (McPherson) 1999-2000 Session. Would have applied existing provisions of law relative to the regulation, licensing, and management of pilots for the Bays of San Francisco, San Pablo and Suisun to persons who pilot vessels into or out of the waters of Monterey Bay. (Held in Assembly policy committee at author's request) SB 2144 (Perata) Chapter 394, Statutes of 2000. Made AB 907 (Ma) continued Page 10 various modifications to provisions of law governing the licensing of bar pilots. SB 1109 (Burton) Chapter 786, Statutes of 2000. Among other things, required a vessel owner and its operators to defend, indemnify, and hold harmless, a bar pilot from any liability and expenses in connection with any civil claim suit as action arising out of the pilot's performance of the pilotage services, except for acts of willful misconduct. AB 951 (Wiggins) Chapter 261, Statutes of 1999. Codified the agreement on bar pilot rate increases reached between the San Francisco Bar Pilots and the Pacific Merchant Shipping Association. SB 1741 (Johnston) Chapter 1115, Statutes of 1996. Among other things, established a schedule of bar pilotage rate increases that were phased in over a three-year period (1997-99). SB 496 (M. Thompson) Chapter 711, Statutes of 1995. Revised the formula the fiduciary uses to calculate the quarterly adjustment for pilotage rates. Also, changed the schedule of pilotage fees for ship movements and internal operations, as specified. SB 2068 (Johnston) Chapter 385, Statutes of 1994. Increased the pilotage rate from 60.70 mills to 64.88 mills and required the board to temporarily reduce the additional charge, as specified, if maintenance and repair costs of two pilot boats are less than $200,000. SB 238 (Lockyer) Chapter 1192, Statutes of 1993. Increased the rate of the additional pilotage charge from 60.56 mills per high gross registered ton to 60.70 mills. Also, included inland pilots, as defined, in the pension benefit program. AB 1768 (Papan) Chapter 1653, Statutes of 1984. Among other things, established a unified system of state regulated pilotage whereby inland pilots became members of the San Francisco Bar Pilots Association and the combined group assumed joint responsibility for all pilotage moves on the pilotage grounds (e.g., San Francisco, San Pablo, and Suisun Bays and all other ports included therein.) AB 907 (Ma) continued Page 11 SUPPORT: As of June 10, 2011: American Maritime Officers California Labor Federation International Boatmen's Union International Longshore and Warehouse Union International Organization of Masters, Mates & Pilot Marine Engineers Beneficial Association Marine Firemen and Oilers Union Masters, Mates and Pilots San Francisco Bar Pilots Sailors' Union of the Pacific Seafarers International Union OPPOSE: As of June 10, 2011: Pacific Merchant Shipping Association California Chamber of Commerce California Citrus Mutual California Cotton Ginners and Growers Associations California Farm Bureau Federation California Grape and Tree Fruit League California Grocers Association California Manufacturers & Technology Association California Rice Industry Association California Trade Coalition Cruise Lines International Association Nisei Farmers League Western Agricultural Processors Association FISCAL COMMITTEE: Senate Appropriations Committee ********** AB 907 (Ma) continued Page 12