BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1432| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1432 Author: Bonta (D) Amended: 9/4/15 in Senate Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE: 9-3, 7/14/15 AYES: Hall, Block, Galgiani, Glazer, Hernandez, Hill, Hueso, Lara, McGuire NOES: Gaines, Runner, Vidak NO VOTE RECORDED: Berryhill SENATE APPROPRIATIONS COMMITTEE: 6-1, 8/24/15 AYES: Lara, Beall, Hill, Leyva, Mendoza, Nielsen NOES: Bates ASSEMBLY FLOOR: Not relevant SUBJECT: Harbors and ports: Monterey Bay and the Bays of San Francisco, San Pablo, and Suisun: pilotage rates SOURCE: San Francisco Bar Pilots 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. Senate Floor Amendments of 9/4/15 delete the pilotage rate increases of 2% in each of 2018 and 2019. AB 1432 Page 2 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. 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. AB 1432 Page 3 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; and those in effect on December 31, 2016, shall be increased by 3% on January 1, 2017. 2)Increases the minimum schedule of pilotage rates for ship movements and special operations in effect under Section 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; and those in effect on December 31, 2016, shall be increased by 3% on January 1, 2017. 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 AB 1432 Page 4 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 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 subsequently filed its opposition AB 1432 Page 5 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 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." AB 1432 Page 6 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." Comments Purpose of AB 1432. According to the author's office, this bill is intended to implement only the 2016 and 2017 across-the-board pilotage rate increases of 3% in each year as recommended by the Board on April 10, 2015. 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 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, 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. Prior Legislation 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 the Senate Governmental Organization Committee and was subsequently gutted AB 1432 Page 7 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 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. 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 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. FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No AB 1432 Page 8 According to the Senate Appropriations Committee this bill will have no direct state impacts, but will result in unknown indirect surcharge revenue gains to the Board of Pilot Commissioners' Special Fund. SUPPORT: (Verified 9/8/15) San Francisco Bar Pilots (source) Bay Institute California Labor Federation Sailors' Union of the Pacific OPPOSITION: (Verified 9/8/15) California Chamber of Commerce California Farm Bureau Federation California Fresh Fruit Association California Manufacturers & Technology Association California Rice Cruise Lines International Association Maersk Lines Pacific Merchant Shipping Association Western Agricultural Processors Western Plant Health Association Western States Petroleum 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." AB 1432 Page 9 ARGUMENTS IN OPPOSITION: Opponents argue that evidence does not provide a reasonable justification for rate increases and claim that growth in pilotage fee revenues actually outpaced growth in pilot expenses. Opponents contend 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. In addition, opponents emphasize that this bill might appear to reflect a compromise between industry and the SFBP when in fact it does not. According to the Pacific Merchant Shipping Association (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 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." Prepared by:Arthur Terzakis / G.O. / (916) 651-1530 9/9/15 9:38:02 **** END ****