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Changes to federal port fund are helping some major ports

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On May 14, the ports of Los Angeles and Long Beach were awarded record funding from the federal Harbor Maintenance Trust Fund—$54 million for Long Beach and $58 million for Los Angeles.

In 2023, the Port of Los Angeles received only $6 million. West Coast ports have always been heavy contributors to the Harbor Maintenance Trust Fund but received little of the revenue generated in return because their naturally deep harbors needed less maintenance dredging funding. These larger appropriations, enabled by 2020 reforms to the Harbor Maintenance Trust Fund’s (HMTF’s) appropriations formula, ensure that the users of these ports receive the benefits. 

The Harbor Maintenance Trust Fund is a transportation fund that receives revenue from an ad valorem harbor maintenance tax levied primarily on imports entering the United States. The HMTF funds maintenance dredging, dredged material disposal sites, and jetties for domestic operations. The annual amount of spending is appropriated by Congress, but Congress has run into problems spending the money due to caps limiting government-wide spending. 

Throughout most of the Harbor Maintenance Trust Fund’s history, revenue outpaced spending, as shown in Figure 1. Because of this, the fund built up a large revenue surplus with no way to spend it. 

Figure 1: Harbor Maintenance Trust Fund Cash Flow, FY 1987-2019

Source: Jeff Davis, “History of the Harbor Maintenance Trust Fund,” Eno Center for Transportation, 2019.

Over the past two decades, Congress has tried to spend down the growing balance via efforts to move the HMTF “off-budget” so the trust fund’s revenue could be spent down. The first stand-alone bill trying to do so died in the Senate, and reform proponents realized they had to try something different. Reform efforts were relegated to the biennial Water Resources Development Act (WRDA) bills, though none saw any success in spending down the balance. The main impediment was government-wide caps on annual discretionary appropriations enacted in 1990. These caps were implemented as a means of curtailing runaway spending to address the federal deficit by limiting federal discretionary appropriations. The result was that HMTF spending was not able to increase as rapidly as revenue was without going over the caps.

With these funds trapped behind federal discretionary appropriation caps, the backlog for the U.S. Army Corps of Engineers water projects has continued to build. For example, the Great Lakes’ navigation channels had a $1.26 billion backlog of maintenance dredging, breakwater and jetty repair alone. The effect of these caps is that users continue to be taxed only for their dollars to languish behind budget caps while system needs continue to grow.

Until 2020, efforts to align spending with revenue failed. In March 2020, when the COVID-19 pandemic hit and Congress responded with the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, many spending limitations were temporarily rescinded to stimulate the economy. Section 14003 of the CARES Act provided that 2020 HMTF funding for harbor operations and maintenance could match 2019 HMTF revenue without counting against annual government-wide discretionary budget caps. 

In Dec. 2020, the budget cap in the CARES Act was adjusted again when Congress reauthorized the Water Resources Development Act. Section 101 of WRDA 2020 created a new discretionary budget cap formula under which the annual cap is determined principally by 1) HMTF receipts from two years prior and 2) an adjustment starting at $500 million in 2021 and increasing by $100 million annually until it reaches $1.5 billion in 2030. 

In addition to changes to budget enforcement rules, WRDA 2020 also built on reforms initially made in WRDA 2014. Section 104 of WRDA 2020 amended existing definitions for donor ports, medium-sized donor ports, and energy transfer ports. Donor ports are ports that:

  1. Are subject to the Harbor Maintenance Tax;
  2. Collect at least $15 million in Harbor Maintenance Tax revenue annually;
  3. Have received less than 25% of HMTF revenue collected at the port; and
  4. Are located in a state in which more than two million cargo containers were loaded on or unloaded from vessels.

Under this definition, the ports of Los Angeles and Long Beach both qualify as donor ports. Donor ports are a small group of high-traffic ports located on naturally deep harbors that require little maintenance dredging. As a result, as Pacific Maritime Magazine reported, donor ports “provide half of the [HMTF] revenue but only receive about 3% of that money.” WRDA 2020 set a minimum funding floor for these ports, setting aside 10% of annual HMTF expenditures to donor ports.

WRDA 2020 also expanded eligible project types to the benefit of donor ports, which lack the dredging needs that the traditional Harbor Maintenance Trust Fund’s eligibility criteria aimed to address. Newly eligible projects include:

  1. Maintenance dredging of a berth in a harbor that is accessible via a federal navigation project and benefits commercial navigation in the harbor;
  2. Maintenance dredging and placement of legacy contaminated sediment and sediment unsuitable for open water disposal;
  3. An in-water improvement if the improvement is for seismic reinforcement of a wharf or berth, repair or replacement of a deteriorating berth or wharf, benefits commercial navigation at the harbor, and is located in, or adjacent to, a berth that is accessible to a federal navigation project; and
  4. An activity to maintain slope stability at a berth in a harbor that is accessible to a federal navigation project if such activity benefits commercial navigation at the harbor.

The third and fourth points are the most essential for naturally deepwater donor ports such as Los Angeles-Long Beach. Instead of limiting the Harbor Maintenance Trust Fund’s funding requests for dredging projects that these ports rarely need, the two ports can now fund improvements to their existing infrastructure. 

Changes to budget cap formulas for the Harbor Maintenance Trust Fund and added spending criteria benefit donor ports that have bankrolled the fund. With these changes, donor ports may finally start to see some benefit from the harbor maintenance tax revenue they generate. 

The post Changes to federal port fund are helping some major ports appeared first on Reason Foundation.


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