BILL ANALYSIS Ó
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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