With all of the talk of political dysfunction and Constitutional Conventions amidst a gathering budget storm and deepening recession, there is at least one good deed from 2008 for which Governor Schwarzenegger should be applauded – with one stroke of a pen, he stopped a multi-million dollar backdoor raid on the General Fund and local government revenues in September when he vetoed SB 974, the Container Tax.
For those unfamiliar with the current state of California’s trade economy, here are a few statistics that may help clarify the current challenges we face – and the "robbing Peter to pay Paul" raid on the General Fund that would have resulted to the current year budget if the latest container tax had been implemented.
- First, the Ports of Los Angeles and Long Beach, which comprise the single largest seaport complex in the United States, have seen their volumes drop -9.7% year to date in 2008. Of that drop, export containers fell by -18.2%. Export activity had been growing through August, but in September the bottom fell out – and the Southern California export market relies primarily on Californian agriculture, manufacturing and recycling industries. In Oakland, the Port itself has slipped out of its position as the 4th largest container port in the country to 5th, losing ground to the Port of Savannah. The latest industry report from trade consultant Drewry’s says that these changes are not just reflective of the recession, but of the rising costs of doing business in California, and that in the long term we stand to lose 25% of our cargo volumes even after the economy recovers.
- Second, for the first time in over a decade there has been a slip in average longshore wages. In 2007, our terminals and carrier companies paid a total longshore payroll of $1.22 billion in California alone. But, this year, longshore jobs have been steadily declining.
- Third, direct longshore wages are just the tip of the economic benefits iceberg from our port operations and international trade. For every job created at the ports, another job is created outside the ports – leading to employers near or at the ports providing over $3 billion in wages and benefits per year. And the economic multiplier effects of these jobs and California trade is huge, as total statewide business sales directly or indirectly related to port activities were estimated at $84.5 billion annually in 2005. Before the economy turned, these multiplier effects ultimately supported 95,000 jobs – a number that is no doubt dropping as we speak.
The bottom line for the state is that these Port activities generate at least $3.6 billion annually in tax revenues for state and local governments, school districts and other special districts in California. In addition, we generate for the municipalities and local governments that run our ports over $800 million a year in direct lease payments and legal, negotiated port user fees through federally-approved tariffs.
To avoid a tax label (although it is still a tax on interstate commerce), a "container fee" creates a new special fund that pays for specific environmental and infrastructure projects and initiatives. The $60 per container "fee" would have generated some $360 million a year for this special fund – but at the expense to the General Fund and local government revenues. In 2006, one study estimated that a $60 charge would result in 6.3% short-term diversion – that alone is an impact on the General Fund and local governments of $226.8 million.
As the study points out, any increases in the cost of container transport over $200 per container, even with congestion relief, are "dangerous." Our volumes will become even more tenuous starting in 2014 when the new, widened Panama Canal will open ahead of schedule and under budget. Take into account as well the fact that, since the elasticity study was completed the Ports have adopted their own fees (whose implementation has been delayed to avoid diversion), Cosco Busan related pilotage and insurance costs have increased, and the state Air Resources Board has made the cost of operating an intermodal supply chain in California more expensive than anywhere else in North America, the current 10% drop in volumes seems to bear out the inevitable.
So, with all the bad news and dangerous volume drops, where’s the silver lining? Why the kudos for the Governor?
It’s simple. Instead of a new special fund draining revenues away, we have at the very least $225 million more in the 2009-2010 general fund and local tax revenues than we would have if Governor Schwarzenegger had signed the container tax legislation.
Now, the economic benefits from our trade community and infrastructure will continue to help pay for schools, MediCal, our universities, law enforcement and we will remain committed to moving containers in the cleanest, greenest, most efficient intermodal supply-chain in the country, as opposed to having fewer union jobs, less trade and a pot of money in a special fund to pay for grade separations and Magnetic Levitation demonstration projects.
So, a "thank you" to Governor Schwarzenegger is in order. It’s not everyday that our elected officials get recognized for stopping the Sacramento merry-go-round of robbing Peter to pay Paul budgeting. And, in this instance, I would guess that most Californians would agree with the Governor and pick funding schools for our kids over raising money for MagLev experiments as well.