America’s ports were brought to the forefront of infrastructure news this week, as members of the Congressional PORTS Caucus highlighted the pressing need for additional Customs and Border Protection resources. Ports are often overlooked in the broader infrastructure conversation, yet hundreds of ports across the country are responsible for $4.6 trillion in economic activity, or approximately 26 percent of the United States economy. Ports also create 23.1 million jobs and provide $321.1 billion in federal, state, and local taxes. With freight traffic expected to increase by 45 percent by 2045, ports will continue to be crucial linkages in our nation’s freight network, facilitating the movement of goods and driving economic growth. A study by the American Society of Civil Engineers found that failing to invest in the deepening and maintenance of port navigation channels will result in a $9.3 billion annual trade loss to U.S. businesses.
It is important for policymakers to consider the challenges and constraints ports face in operating and updating their land and water infrastructure.
As Congress and the administration work on creating a comprehensive infrastructure plan, it is important for policymakers to consider the challenges and constraints ports face in operating and updating their land and water infrastructure.
Two types of ports exist in the United States today: operational ports and landlord ports.
Operational ports follow a more traditional model in which a state or local government-run port authority owns the port infrastructure and is in charge of all elements of the port including full operation of the terminals and port related services. Some smaller auxiliary tasks can be done by a private entity, such as a labor management company hiring dockworkers to lift cargo, but for the most part the port and its terminal functions are publicly operated. Examples of this include the Ports of Houston, Savannah, and Charleston.
Landlord ports, on the other hand, have become increasingly common over the last 40 years. In this model, the public governing agency (typically the port authority) owns the land and basic infrastructure of the port itself, and leases out this property to different private operators. These private companies maintain their own buildings and cargo, handle equipment, and usually pair with the public governing agency for major infrastructure improvements. These cooperative agreements between the public owner and private operator often resemble public-private partnerships (P3s). Examples of this include the Port of Los Angeles and Long Beach in California and the Port of Newark in New Jersey.
Funding and Financing for Ports
In 2014, spending on ports and inland waterways comprised 2.4 percent of all federal spending on transportation and water infrastructure. Of all public funding for ports, the federal government contributed 43 percent. The rest of the funding, which is separated into categories for water and land infrastructure, came from states and ports themselves.
The federal Harbor Maintenance Trust Fund (HMTF) was created in 1986 and updated in 2014 and 2016. It was designed to help pay for channel and jetty dredging and general harbor maintenance. A harbor maintenance fee of $1.25 per $1,000 of imported cargo provides the HMTF a steady source of revenue. Unlike other transportation trust funds, the HMTF can only be used with a congressional appropriation. Authorized projects are carried out by the Army Corps of Engineers and can be used on three categories of harbors based on their depth: less than 25 feet, 25 to 50 feet, and 50 feet and greater. The HMTF can cover up to 100 percent of costs of maintenance for harbors ranging up to 50 feet in depth and 50 percent of maintenance for deeper harbors.
HMTF does not cover projects that deepen or widen a channel to a larger federally authorized dimension. These projects, which are becoming increasingly common due to the Panama Canal expansion, are only partially funded by congressional appropriations, with the remaining costs covered by states or ports. Federal cost-sharing for these projects is currently capped at 80 percent for depths of 20 feet, 65 percent for 20 to 50 feet, and 40 percent for 50 feet and greater.
The primary source of investment for intermodal connectors to rail and trucking routes that comprise the land infrastructure of ports comes from the Transportation Investment Generating Economic Recovery (TIGER) grants, with 11 percent of its funding going to 48 port projects. Port funding for land infrastructure was greatly increased with the 2015 Fixing America’s Surface Transportation Act (FAST Act), which allocated $6.2 billion over five years to fund improvements on the National Highway Freight Network. Congress allocated 10 percent of these funds to freight rail and intermodal projects, including land infrastructure projects at ports. The FAST Act also created a new discretionary grant program (dubbed FASTLANE by the Obama administration and INFRA by the Trump administration) to fund large transportation projects. Up to $500 million of the $4.5 billion authorized to this program may be used for freight rail, intermodal, or port projects over the next five years. In September 2016, the Department of Transportation announced the first round of these grants, awarding 18 grants, which included five port projects.
Some specific ports can also receive funding from the Railroad Rehabilitation and Improvement Financing (RRIF), Small Shipyard Grant Program, and Transportation Infrastructure Finance and Innovation Act (TIFIA).
If all possible federal public funding was given to ports from 2016 to 2020—including FAST Act provisions, 25 percent of potential TIGER grants, and projected Army Corps of Engineers navigation appropriations to aid in freight movements through ports—it could total nearly $24.825 billion.
This sum, however, will still not be enough to pay for necessary infrastructure improvements and maintenance. According to the American Society of Civil Engineers’ 2016 Failure to Act report, from 2016 to 2025, the average annual gap between federal funding and port infrastructure need is estimated at $1.5 billion. Landside port connections are scheduled to receive only $11 billion in federal funds through 2020, but have a projected need of $29 billion. This could lead to 440,000 fewer jobs in 2025 and almost 1.2 million fewer jobs in 2040. By 2025, the nation will have lost almost $800 billion in GDP due to the funding deficit.
Three Constraints on Federal Programs
While America’s ports face funding shortfalls, they also face three other key constraints:
1. Revenue generated by the Harbor Maintenance Fee (HMF) is scored as a federal receipt, and the appropriation of those receipts is considered a current expenditure. Essentially, this means that if there is a surplus of HMF receipts the HMTF’s excess balance will be used for federal deficit offsets, rather than paying for additional port improvements. Over the past 10 years, Congress has only appropriated 60 percent of its revenues. Congress tried to address this problem in the Water Resources Reform Act of 2014. They set a series of target goals aimed at providing “100 percent of the total amount of harbor maintenance taxes received in the previous fiscal year” by fiscal year (FY) 2025. However, these goals are not mandatory, so other options—such as taking HMTF off-budget or moving spending from the discretionary side of the budget to mandatory spending—have been suggested. According to the Army Corp of Engineers, full navigation channels at the busiest 59 ports are available less than 35 percent of the time. The projected cost to achieve and maintain constructed widths and depths is estimated at $20.3 billion over the next 10 years. Many port officials cite harbor maintenance as the largest issues plaguing the industry, but say that if HMT revenues were fully appropriated these funds would be adequate to finance needed dredging and maintenance.
2. In a 2016 survey conducted by the American Association of Port Authorities, nearly 80 percent of member ports revealed that they would need at least $10 million each for port intermodal transportation projects through 2025, and 30 percent reported needs of at least $100 million. But in the same survey, only 13 percent of ports applied for multimodal financing in RRIF and only 8 percent used TIFIA loans. RRIF’s difficult application process, categorization and interpretation of port applications, and credit risk premiums have discouraged applicants. The program has only approved three loans since 2012, and in its lifetime, used only $5.6 billion of its $35 billion authorized loan authority. TIFIA and RRIF do not seem to be receptive to port projects even though ports qualify for funding for their landside connectors. Revisiting these programs to increase ease of application, accessibility to ports, and possible consolidation could have significant effects on improving intermodal infrastructure in ports.
3. Over the last two years, federal legislation such as the FAST Act has worked to try to coordinate and streamline freight planning and funding. The National Freight Strategic Plan (NFSP), the first national plan to coordinate freight movements beyond highways, is currently being finalized and is expected to be released by the end of 2017. The initial NFSP draft proposal raised concerns that it failed to adequately address collaboration between the Department of Transportation and the Army Corp of Engineers. This lack of coordination is significant because it will continue to lead to delays in funding and inefficiency between the coordination of water and land infrastructure. Another concern is that the NFSP and its mapping element, the Multimodal Freight Network, do not account for emerging ports as part of the broad freight network, hindering their growth and trading access.
Innovative Funding Strategies
The annual gap between federal funding and port infrastructure needs has caused many ports to search for innovative financing solutions. This includes looking to states and the private sector. Between 2012 and 2016 private sector capital expenditures on ports were estimated at a little over $27 billion. These private investments are expected to spike to $132 billion from 2016-2020.
This surge in private investment includes many P3s, in which public-sector partners work with private companies to share the risks and responsibilities of delivering infrastructure projects. P3s can take a variety of forms along a spectrum of responsibility and risk-sharing. When the private sector partners with state and local leaders to address their growing infrastructure needs, they bring capital, specialized project expertise, and cost-saving ideas and innovations. Some examples of P3s in ports and other innovative financing solutions include:
|Long Beach||Long Beach Port is a public agency managed and operated by the City of Long Beach. It is currently going through a $4.5 billion infrastructure improvement plan including advancements of its Middle Harbor Project. Long Beach Port is providing $1.2 billion of the project's upfront costs and the private terminal company, Orient Overseas Container Line (OOCL), is providing an additional $500 million. OOCL has also agreed to pay $4.6 billion to lease out the Middle Harbor for the next 40 years. OOCL will maintain and operate the harbor during that time. This project will fill in a waterway that separates two older terminals, add on-dock rail, and create one of the highest capacity terminals in the United States.|
|Newark||In 2011, the Port Authority of New York and New Jersey restructured their lease with the Port Newark Container Terminal (PNCT) to have a long-term extension through 2050. With this restructuring came a partnership between the port authority and PNCT to help expand and enhance port facilities. PNCT will invest $500 million for these improvements and the Port Authority of New York and New Jersey will loan an additional $150 million for improvements. As a result, PNCT has been able to double its on dock rail capacity, purchase three post-Panamax ship-to-shore cranes, and expand and improve container holdings. These changes have helped catapult the Port of Newark to record cargo numbers and the largest east coast port.|
|Baltimore||In 2010, the Maryland Port Administration (MPA) and Ports America Chesapeake, LLC entered into a P3 agreement for the 284-acre Seagirt Marine Terminal. The main value to the MPA is the $105.5 million effort to build, equip, and have operational a new 50-foot berth, which includes the acquisition of new cranes. This berth allows the Port of Baltimore to become more competitive and capitalize off the increased shipping market of the Panama Canal. The real value of this project over its lifetime is expected to be around $1.3 billion to $1.8 billion.|
|Florida Seaport System Plan||Florida is one of the only states with a consistent funding stream to pay for port and multimodal infrastructure. They finance this through a documentary stamp tax, an excise tax imposed on certain documents executed, delivered, or recorded in Florida,. that raises approximately $55 million per year. These funds go toward the Strategic Intermodal System that was established in 2003 to enhance Florida’s competitiveness by investing in critical transportation and freight facilities. The State Transportation Trust Fund is also required to allocate $100 million annually to various seaport programs such as the Strategic Port Investment Initiative, Florida Seaport Transportation and Economic Development program, debt services, and Strategic Port Investment Initiative Grant Program. By having a leading state funding mechanism, Florida has been able to circumvent a lack of federal funding and position Florida ports to increase capacity. These funds were used to help offset costs in the deepening of the Port of Miami and are currently being used in Jacksonville. Because of these crucial investments the Port of Jacksonville has seen its Asian cargo load increase by 19 percent and the Port of Miami (known as the cruise capital of the United States) has not only expanded its cruise industry, but has seen its total cargo tonnage jump 12 percent since 2014.|
As talk about federal infrastructure funding continues, it is crucial to consider the federal role in funding for both water and land infrastructure in ports. Funding for ports does not meet the current need, and there has been significant difficulty in ensuring that the HMTF is being properly appropriated. In the meantime, ports and state governments will need to continue to find innovative financing solutions to meet the crucial infrastructure needs of our nation’s ports.