BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1432 (Bonta) - Harbors and ports:  Monterey Bay and the Bays  
          of San Francisco, San Pablo, and Suisun:  pilotage rates
          
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          |Version: July 16, 2015          |Policy Vote: G.O. 9 - 3         |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 24, 2015   |Consultant: Mark McKenzie       |
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          This bill does not meet the criteria for referral to the  
          Suspense File. 







          Bill  
          Summary:  AB 1432 would increase bar pilotage rates paid by  
          commercial vessels that are piloted through the Golden Gate and  
          into or out of the Bays of San Francisco, San Pablo, and Suisun  
          by specified rates in each year over the next four years.  The  
          rate increases would also apply to vessels piloted in Monterey  
          Bay.  The bill would also impose an additional "technology  
          navigation surcharge" on those vessels until January 1, 2020.


          Fiscal  
          Impact:  No direct state impacts, but the bill would result in  
          unknown indirect surcharge revenue gains to the Board of Pilot  







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          Commissioners' Special Fund.  

          Pilotage fees and surcharges, including the "technology  
          navigation surcharge," are paid directly to the San Francisco  
          Bar Pilots (SFBP) and are not deposited into the State Treasury.  
           Staff notes, however, that specified surcharges for the  
          operations of the Board of Pilot Commissioners and for pilot  
          training and continuing education programs are transferred by  
          the SFBP to the Board for deposit into the Board of Pilot  
          Commissioners' Special Fund.  Since the "board operations  
          surcharge" is based upon the pilotage fee rates, this bill would  
          technically make an appropriation by impacting the amount of  
          fees deposited into a continuously appropriated fund.  The Board  
          has the authority to reduce the rate of the surcharge, with the  
          approval of the Department of Finance, if revenues are out of  
          balance with expenditures.


          Background:  Existing law requires inward or outward bound vessels to pay a  
          specified rate of bar pilotage through the Golden Gate.  Vessels  
          that use a pilot while navigating Monterey Bay pay the same  
          pilotage rates as vessels piloted through the Golden Gate.  The  
          Board of Pilot Commissioners (Board) regulates pilotage and  
          licenses, regulates, and manages the maritime pilots who guide  
          these vessels.  Existing law prescribes pilotage rates based  
          upon a vessel's gross registered tonnage and draft, and  
          authorizes the Board to adjust those rates under specified  
          circumstances.  Specifically, current law requires an adjustment  
          to rates when the number of pilots falls below 60 or rises above  
          60, and authorizes an additional incremental rate as necessary  
          to recover pilots' costs of new pilot boats and modifications to  
          existing pilot boats.  For general pilotage rate adjustments,  
          however, the Board makes recommendations based on proposals by  
          the SFBP and responses from the shipping industry, and the  
          adjustments must be adopted through legislation.  The last  
          statutory increase to pilotage rates was enacted by SB 1353  
          (Perata), Ch. 765/2002, which included incremental increases  
          through 2006 based upon the Board's May 2002 adoption of rate  
          recommendations.
          In addition to the pilotage rates, vessel operators pay a "board  
          operation surcharge" on pilotage fees, a "pilot trainee  
          surcharge," and a "pilot and inland pilot continuing education  
          surcharge" to be deposited into the Board of Pilot  
          Commissioners' Special Fund.  This fund is continuously  








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          appropriated to pay expenses and compensation of the board, its  
          officers and employees, and pilot training and continuing  
          education programs.  The "board operation surcharge" is imposed  
          by the Board in an amount not to exceed 7.5 percent of all  
          pilotage fees, unless the Board establishes a lesser percentage,  
          as specified.  This surcharge is currently set at a rate of 1.0  
          percent of the pilotage fees.


          Existing law also authorized the Board to charge an additional  
          navigation technology surcharge to recover pilots' costs for the  
          purchase, lease, or maintenance of navigation software,  
          hardware, and ancillary equipment purchased from November 5,  
          2008 until January 1, 2011.


          There are currently 58 pilots licensed by the Board who are  
          members of a private unincorporated association, the SFBP, which  
          functionally operates as a "regulated monopoly" whose services  
          must be used by all vessels entering the San Francisco Bay  
          through the Golden Gate.  Pilotage fees are fixed by statute and  
          used by the SFBP to pay for all expenses related to the conduct  
          of the private business of providing pilot services, including  
          pilot boats, rents for office space, dispatch and billing  
          services, and  hiring pilot-boat crews and office staff.  The 58  
          licensed bar pilots share equally in the net proceeds of  
          pilotage revenues, after deducting all of these necessary  
          business expenses.




          Proposed Law:  
            AB 1432 would incrementally increase bar pilotage fees imposed  
          upon commercial vessels traveling through the Golden Gate (and  
          by cross-reference, those navigating Monterey Bay), and increase  
          specified fees for ship movements or special operations that do  
          not constitute bar pilotage, according to the following  
          schedule:
           The minimum rates in effect on December 31, 2015 would  
            increase by three percent on January 1, 2016.
           The rates in effect on December 31, 2016 would increase by  
            three percent on January 1, 2017.
           The rates in effect on December 31, 2017 would increase by two  








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            percent on January 1, 2018.
           The rates in effect on December 31, 2018 would increase by two  
            percent on January 1, 2019.


          The bill would also reauthorize the imposition of an additional  
          navigation technology surcharge to recover pilots' costs for the  
          purchase, lease, or maintenance of navigation software,  
          hardware, and ancillary equipment purchased from January 2, 2016  
          until January 1, 2020.  This new surcharge would be reviewed and  
          adjusted by the Board at least quarterly.  




          Related  
          Legislation:  AB 907 (Ma), of the 20011-12 Session, would have  
          increased pilotage fees and rates, based upon recommendations of  
          the Board in April of 2011, for Monterey Bay and the Bays of San  
          Francisco, San Pablo, and Suisun, and would have established a  
          fuel surcharge for all vessel moves using pilotage service, to  
          be determined by the board.  AB 907 failed passage in the Senate  
          Governmental Organization Committee and was subsequently amended  
          for other purposes.
          SB 300 (Yee), Ch. 497/2009, authorized the Board to charge a  
          navigation technology surcharge to recover pilots' costs for  
          navigation software, hardware, and ancillary equipment purchased  
          from November 5, 2008 until January 1, 2011.


          SB 1353 (Perata), Ch. 765/2002, increased pilotage fees through  
          a schedule of incremental rate increases over four years, based  
          upon recommendations of the Board in May of 2002, for Monterey  
          Bay and the Bays of San Francisco, San Pablo, and Suisun.




          Staff  
          Comments:  This bill is intended to implement the recommended  
          pilotage rate increase approved by the Board in April of 2015.   
          The Board cannot approve the increases directly, but must  
          instead submit recommendations for pilotage rate changes to the  
          Legislature for approval, pursuant to statute.  The Board  








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          rejected the SFBP's initial proposal for rate increases of five  
          percent in both 2016 and 2017, followed by subsequent increases  
          of four percent in 2018 and 2019, respectively, noting that rate  
          increases of this size could be unwarranted because the  
          aggregate gross registered tonnage of vessels piloted has  
          trended upward since 2012, and pilot net income may increase  
          somewhat even if the rates remain what they are now.  The Board  
          subsequently approved a recommendation for increasing rates in  
          the amounts specified in this bill, and to re-authorize a  
          navigation technology surcharge.  
          With respect to the surcharge, the Board noted technological  
          advances in navigation equipment, including incorporation of  
          independent Differential GPS receivers and Rate of Turn  
          generators, as well as precision equipment used to pilot  
          Ultra-Large Container Vessels, necessitates the lease or  
          purchase of new hardware and software at a considerable cost to  
          the pilots.  The SFBP anticipates spending a total of  
          approximately $1.86 million to upgrade, augment, and replace  
          navigation equipment over the next four years.  AB 1432 would  
          authorize the Board to establish a fee sufficient to cover the  
          costs for the pilots' equipment purchases and upgrades.


          Regarding the percentage increases in pilotage rates, the Board  
          used 2006 as a baseline year, noting the rising costs of  
          providing pilot services, relatively flat growth in gross pilot  
          revenues, and reductions in pilot net revenues since that year.   
          Staff notes that 2006 was in some ways an outlier year in that  
          net revenue per pilot was at a historic high, the ratio of pilot  
          expenses as a percentage of pilotage fees was at a historic low,  
          and it was just prior to a significant economic downturn.  The  
          Board also found that increasing rates by the recommended amount  
          would not appear to have any negative economic effect on the  
          local shipping industry, jobs, or the State's economy.   
          According to the Board's findings, the pilotage rate increases  
          would not negatively affect the volume of shipping traffic  
          because oil tanker traffic is generally not divertible, and  
          although container traffic is more divertible, the recent trend  
          of yearly increases in aggregate gross tonnage of vessels  
          piloted is likely to continue for the four years over which the  
          rate increases would be effective.


          Staff notes that the recommendations of the Board are focused  








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          solely on matters pertaining to piloting vessels through the  
          Golden Gate, but the rate increases would also apply to vessels  
          that use a pilot to navigate Monterey Bay.  Regardless of  
          whether changes to rates are justified for piloting vessels in  
          the Bays of San Francisco, San Pablo, and Suisun, it is unclear  
          if the increases are justifiable for Monterey Bay.


          Average net income per pilot is dependent upon the pilotage  
          rates set by statute, the ships that call on the San Francisco  
          Bay Area (in both number of vessels and gross registered  
          tonnage), and the expenses related to offering pilotage  
          services.  At historic peak levels in 2006, net income per pilot  
          was $491,892, dropping to a low of $393,207 in 2010 at the low  
          point during the recession, and rebounding to $453,766 in 2014.   
          Staff notes that although pilot expenses are expected to  
          increase over the next four years, the recent trend of annual  
          increases in aggregate gross tonnage of vehicles is also likely  
          to continue over this same period, according to the Board's  
          findings.  While there is some uncertainty in predicting future  
          shipping volumes, the trend in recent years (since 2012) has  
          been that gross revenues based upon current pilotage rates have  
          increased at a faster pace than expenses (which have actually  
          decreased since 2012).  While this trend is not likely to apply  
          to 2015 because of protracted labor issues at west coast ports,  
          the rate increases in this bill would directly result in  
          significant increases to the average net income per pilot.




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