Water Resources Act Offers Limited Improvements in Port Finance

May 19, 2014

This week, the Water Resources Reform and Development Act of 2014 (WRRDA) is likely to be passed by the House and Senate, as a conference committee has come to an agreement on a compromise bill. When this bill was being debate last year, I noted that then-current proposals, like putting a new import tax on Canadian goods shipped through ports with lower fees, were not viable solutions, and identified them as “protectionist throwbacks.” I suggested that, instead, a more efficient port finance system would be more along the lines of what Canada does, with each port essentially having a high degree of financial autonomy.

The new WRRDA loosely incorporates these ideas. Instead of taxing Canadian imports dodging harbor maintenance taxes in Washington State, it provides a rebate for shippers importing through natural deep-water ports (like Tacoma and Seattle) that don’t use much of the harbor maintenance fund for dredging. It also allocates additional resources to ports that handle large amounts of trade in energy-related commodities like oil and natural gas.

This isn’t an ideal solution by a long shot. However, this does take a step towards more market-driven outcomes. It makes sense for shippers using harbors that don’t need as much dredging to not pay the harbor maintenance tax, which is mostly for dredging. But rather than selectively allowing certain ports to offer rebates, a better solution would be just to let each port choose for itself what fees it wishes to charge. There is simply no need for a national fee for what amounts to a very local, user-oriented service. It makes perfect sense for natural deepwater harbors to be able to offer more competitive prices than harbors requiring frequent dredging.

It’s entirely reasonable to charge users a tax or fee in order to use ports. The question is: how much, and how should the revenues be put to use? The answers most supportive of economic growth are, “Only as much as is needed” and “To pay for the services consumed.” This means that the harbor maintenance fund’s massive surpluses are a cause for concern: more is being taxed than is necessary for maintenance. Beyond that, revenues aren’t closely tied to who’s consuming port services, but end up taxing efficient ports to pay for costs in other ports. Allowing select ports to offer tax rebates is one very small (and somewhat complicated) way of mitigating this problem. Perhaps next time the water resources act comes up for renewal, policymakers will look for an even broader solution.

Read more on transportation funding here.

Read more on international taxes here.

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