BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           AB 1432          Hearing Date:    7/14/2015
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          |Author:    |Bonta                                                |
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          |Version:   |6/29/2015    Amended                                 |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          SUBJECT: Harbors and ports: Monterey Bay and the Bays of San  
          Francisco, San Pablo, and Suisun: pilotage rates


            DIGEST:    This bill increases pilotage fees and rates, as  
          specified, for commercial vessels calling on ports (inbound and  
          outbound transits) in San Francisco, San Pablo, Suisun, and  
          Monterey Bay, including the Sacramento River to the Port of  
          Sacramento and the San Joaquin River to the Port of Stockton.   
          This bill also reinstitutes a navigation technology surcharge  
          for the purchase or lease by the pilots of new navigation  
          hardware and software to enhance navigation safety.

          ANALYSIS:
          
          Existing law:
          
          1)Provides for the regulation and licensure of pilots for  
            Monterey Bay and the Bays of San Francisco, San Pablo, and  
            Suisun by the Board of Pilot Commissioners (Board) within the  
            Transportation Agency.

          2)Specifies that the Board shall consist of seven members  
            appointed by the Governor and one ex-officio non-voting member  
            (the Secretary of the Transportation Agency).  Two members are  
            pilots licensed by the Board; two are industry members (one  
            from the tanker industry and one from the dry cargo industry);  
            and, three public members who are neither pilots nor work for  
            companies that use pilots.







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          3)Prescribes the rates of pilotage fees required to be charged  
            by pilots and paid by vessels.  The rates involved are set  
            forth in Sections 1190 and 1191 of the Harbors and Navigation  
            Code.  Section 1190 relates to bar pilotage for every vessel  
            inward or outward bound over the San Francisco Bar, which lies  
            west of the Golden Gate Bridge, and charges vary, depending on  
            a vessel's gross registered tonnage and draft.  Section 1191  
            of the Harbors and Navigation Code relates to charges for  
            transits that originate and are concluded inland of Golden  
            Gate Bridge - charges for these transits are flat amounts,  
            with the amounts varying with the places at which the transit  
            begins and ends.   

          4)Stipulates that the Board shall recommend that the  
            Legislature, by statute, adopt a schedule of pilotage rates  
            providing fair and reasonable return to pilots engaged in ship  
            movements or special operations if rates for those movements  
            or operations are not specified in Section 1190 of the Harbors  
            and Navigation Code.

          5)Provides that a vessel using pilots for ship movements or  
            special operations that do not constitute bar pilotage shall  
            pay the rate specified in the schedule of pilotage rates  
            adopted by the Legislature.  

          6)Provides for a movement fee as is necessary and authorized by  
            the Board to recover a pilot's costs for the purchase, lease,  
            or maintenance of navigation software, hardware, and ancillary  
            equipment purchased after November 5, 2008 and before January  
            1, 2011.  

          This bill:

          1)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, 2015, shall be  
            increased by 3% on January 1, 2016; those in effect on  
            December 31, 2016, shall be increased by 3% on January 1,  
            2017; those in effect on December 31, 2017, shall be increased  
            by 2% on January 1, 2018; and those in effect on December 31,  
            2018, shall be increased by 2% on January 1, 2019.

          2)Increases the minimum schedule of pilotage rates for ship  
            movements and special operations in effect under Section  








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            1191(c) of the Harbors and Navigation Code as follows: those  
            rates that are in effect on December 31, 2015, shall be  
            increased by 3% on January 1, 2016; those in effect on  
            December 31, 2016, shall be increased by 3% on January 1,  
            2017; those in effect on December 31, 2017, shall be increased  
            by 2% on January 1, 2018; and those in effect on December 31,  
            2018, shall be increased 14% on January 1, 2019.

          3)Reinstitutes, until January 1, 2020, a navigation technology  
            surcharge for the purchase or lease by the pilots of new  
            navigation hardware and software to enhance navigation safety.  
             

          
          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 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  








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          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.

          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.  

          Board of Pilot Commissioners Recommendations.  In February 2015,  
          the SFBP filed a petition for an increase in pilotage rates  
          under the provisions of Section 1200 through 1203 of the Harbors  
          and Navigation Code.  Under these provisions, the Board itself  
          does not set pilotage rates but instead makes recommendations to  
          the Legislature concerning adjustment of pilotage rates.  The  
          SFBP petition requested a 5% increase in rates in 2016 and 2017  
          and a further increase of 4% each in 2018 and 2019.  The Pacific  
          Merchant Shipping Association (PMSA) subsequently filed its  
          opposition to the petition requesting that the Board reject the  
          increases submitted by the SFBP.

          On April 10, 2015, the Board, in accordance with the  
          Bagley-Keene Open Meeting Act voted on two different rate  
          adjustment proposals.  In the first vote (a 2-4 vote), it  
          declined to recommend approval of the rate increase proposed by  
          SFBP in its petition.  In the second vote (6-0 vote), the Board  
          recommended that the Legislature adopt across-the-board pilotage  
          rate increases of 3% in each of 2016 and 2017 and 2% in each of  
          2018 and 2019.  The Board also recommended reinstitution of the  
          navigation technology surcharge so that pilot's may recover  
          their costs for the purchase, lease, or maintenance of  
          navigation equipment. 

          The Board stated, "The last time the Legislature authorized an  
          increase in pilotage rates was in 2002, 13 years ago.  At that  
          time, the Legislature approved a phased annual percentage  
          increase in rates, ending with a final percentage increase in  
          2006.  In the nine years since that last increase in 2006, the  








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          cost to the pilots of providing pilot services has risen by 33%.  
           During that same period, due to a reduction in the number and  
          size of the ships calling in the Bay Area during the economic  
          downturn, the gross revenue to the pilots has dipped as much as  
          13% from a high in 2006.  Only recently has gross revenue  
          reached and slightly exceeded the 2006 total.  The overall net  
          increase in gross revenue over that nine-year period is 1.3%."

          Additionally, the Board noted, "Pilot net income is what is left  
          for division among the pilots after the cost of providing pilot  
          services is subtracted from gross revenue.  There have been  
          significant drops in pilot net income since 2006.  In 2010,  
          pilot net income was 26% less than in 2006.  Overall, the  
          decrease in pilot net income between 2006 and 2014 has been  
          9.5%.  Although pilot net income has increased from the low in  
          2010, it is still short of where it was in 2006 because of  
          increases over the last nine years in the cost of providing  
          pilot services.  In early 2015, pilot net income has dipped  
          nearly 50% from 2014 levels because of the slowdown associated  
          with the labor dispute between the Pacific Merchant Shipping  
          Association and the International Longshore and Warehouse  
          Union."

          Furthermore, the Board found that "since the last increase in  
          2006, the consumer price index for the San Francisco-Oakland-San  
          Jose area has risen 20.5%.  Of the 10 ports deemed comparable to  
          one another in the Board's regulations, the San Francisco Bay  
          Area trails only New York City in the cost of living."    

           

          Purpose of AB 1432.  According to the author's office, this  
          measure is intended to implement the April 10, 2015 pilotage  
          rate recommendations issued by the Board.   

          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 58  
          pilots currently licensed by the Board are members of a private  
          unincorporated association (the San Francisco Bar Pilots  
          Association) which is essentially a "regulated monopoly," with  
          membership and rates fixed by statute.  Among other things, the  
          San Francisco Bar Pilots Association maintains pilot boats,  








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          rents office space, provides dispatch and billing services, and  
          hires pilot-boat crews and office staff.  After the expenses of  
          running the business are subtracted from the revenue that the  
          pilots generate with their services, the pilots share equally in  
          the net proceeds.  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.  

          Suggested amendment. As currently drafted, this bill does not  
          fully reflect the Board's recommendations.  The author may wish  
          to consider amending this bill as follows:  On page 5, line 39,  
          strike "14 percent" and insert "2 percent."

          Prior/Related Legislation
          
          AB 2287 (Swanson, of 2012) stated the intent of the Legislature  
          to enact legislation that would require a 2nd bar pilot for  
          safety in the San Francisco Bay and its tributaries for ultra  
          large container vessels, and what the appropriate compensation  
          is for the 2nd pilot.  (Held in Assembly Appropriations  
          Committee)  
           
           AB 2042 (Huber, 2012) would have eliminated the Board of Pilot  
          Commissioners, effective January 1, 2022, and transferred the  
          board's functions and duties to the Secretary of Business,  
          Transportation and Housing.  Also, would have recast and  
          reenacted certain provisions that regulate pilots for those  
          bays, as provided.  (Held in this committee at author's request)
           
           AB 907 (Ma, 2011), among other things, would have increased  
          pilotage fees and rates, as specified for Monterey Bay and the  
          Bays of San Francisco, San Pablo and Suisun and established a  
          fuel surcharge for all vessel moves using pilotage service to be  
          determined by the board.  (Failed passage in this committee and  
          was subsequently gutted and amended for other purposes)  

           AB 1025 (Skinner, Chapter 324, Statutes of 2011) made the  
          following substantive changes to existing provisions of law  
          relating to bar pilotage :  (a) modified the definition of  
          "inland pilot" to mean a person holding an inland pilot license  
          prior to January 1, 2011 and deleted all references to inland  








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          pilots, (b) required the Board's assistant director be appointed  
          by the Secretary of Business, Transportation and Housing,  
          instead of the Governor, and to serve at the pleasure of the  
          Secretary, (c) recast certain provisions relating to violations  
          of safety standards to require the executive director instead of  
          an assigned commission investigator to perform investigations,  
          make findings and recommendations and report to the Board, and  
          (d) authorized the Board to charge an examination fee, as  
          specified, to each applicant to the pilot trainee training  
          program.

          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 by injecting  
          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 State Auditor to conduct a  
          comprehensive performance/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.  









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          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, 2000) 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 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  








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          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  
          (San Francisco, San Pablo, and Suisun Bays and all other ports  
          included therein.)  
           
          AB 1061 (Agnos, Chapter 1306, Statutes of 1983) increased  
          pilotage rates and pension benefits, as specified.

          AB 2027 (Felando, 1983), among other things, would have created  
          three classes of pilots (pilots, inland pilots, and company  
          pilots) and would have repealed existing law relative to the  
          Legislature establishing pilotage rates.  (Held in this  
          Committee at author's request)
           
          AB 3603 (Brown, W., 1982) would have provided a unified system  
          of state regulated bar and inland pilotage.  (Dropped at  
          author's request in Senate Finance Committee)

          FISCAL EFFECT:                 Appropriation:  Yes    Fiscal  








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          Com.:             Yes          Local:          No


            SUPPORT:  

          San Francisco Bar Pilots
          Bay Institute
          CA Labor Federation
          Sailors' Union of the Pacific

          OPPOSITION:

          Pacific Merchant Shipping Association

          ARGUMENTS IN SUPPORT:    Writing in support, the San Francisco  
          Bar Pilots (SFBP) state, "We endorse AB 1432 and the Board of  
          Pilot Commissioners findings and recommendations."  The SFBP  
          also point out, "When the maritime industry experiences  
          increased costs, it increases its rates to its customers.  For  
          example, Matson Navigation Company increased rates for its  
          Hawaiian service by an average of 5.4% in each of the last four  
          years.  It reported income of $25 million during the first  
          quarter of 2015, seven times the earnings for the same quarter  
          last year.  The SFBP cannot simply increase rates as a result of  
          an increase in costs or to keep up with inflation.  Our only  
          recourse is through legislation following a hearing before the  
          Board of Pilot Commissioners."   
          
          ARGUMENTS IN OPPOSITION:    The Pacific Merchant Shipping  
          Association (PMSA) has expressed opposition to this bill and  
          emphasizes that evidence does not provide a reasonable  
                                       justification for rate increases.  PMSA argues that growth in  
          pilotage fee revenues actually outpaced growth in pilot  
          expenses.  PMSA claims that pilotage revenues collected by the  
          SFBP in 2014 outperformed even its own stated income goals from  
          2011 - and did so without a rate increase.  

          According to PMSA, "in 2010, the average net income per San  
          Francisco Bay Pilot was $393,207.  This 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.  Overall, today  
          tonnage is up significantly since 2010, and as a result pilots'  
          salaries exceeded $450,000 in 2014 without any benefit of a rate  
          increase thanks solely to increased Bay traffic and ship  








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          tonnage.  It is anticipated that, as the trend towards larger  
          ships being brought into service continues, pilot income will  
          continue to grow accordingly without increasing pilotage rates."