The Panama Canal, U.S. 460 and the Public Fisc

MSC Bruxelles entering the port of Charleston

by James A. Bacon

The anticipated opening of the Panama Canal expansion in three years represents a tremendous opportunity for East Coast ports to capture new business. Massive post-Panamax vessels will sail from the Far East directly to eastern seaborne destinations rather than unloading their cargo on West Coast ports and shipping it across country by rail. The ports of Virginia want to get in on the action.

“This project has the potential to be the biggest game-changer in transportation since the intermodal container or the hybrid car,” Virginia Business magazine quotes David T. Matsuda, the maritime administrator for the Obama administration. But as VB makes clear, there will be plenty of competition.

In theory, Norfolk, Portsmouth and Newport News should enjoy a tremendous competitive position: They are served already by the 50-foot-deep channels that the massive new vessels require.  But that advantage may be ephemeral. Writes Jessica Sabbath:

That 50-foot depth is critical for post-Panamax ships, and East Coast ports are racing to dredge sand and rocks from their harbor bottoms to accommodate them. For example, the Georgia Ports Authority is seeking federal money for a $625 million plan to dredge the 30-mile-long channel to its terminal. The Port of Miami, expecting to benefit from being the closest U.S. East Coast port to the canal, is dredging its channel to 50 feet and building a $1 billion tunnel to connect the port to interstate highways. The Port of Baltimore has leased one of its terminals to Ports America Chesapeake to build a 50-foot ship berth.

The largest port on the East Coast — the Port of New York/New Jersey — is undergoing a $2.3 billion project to dredge its rocky harbor to 50 feet. Plus, it plans to spend $1.3 billion to raise the Bayonne Bridge which is too low for today’s large ships.

Take note of a key component of the Miami and New York capital improvement plans: Miami is building a $1 billion tunnel and New York is spending $1.3 billion to raise the Bayonne Bridge. There is little chance that those expenditures have escaped the notice of Transportation Secretary Sean Connaughton who, before he joined the McDonnell administration, served as MARAD administrator under President Bush…. which helps explain why the McDonnell administration is so determined to build a new U.S. 460 limited access highway between Petersburg and Suffolk that would allow trucks to avoid the bottleneck of Interstate 64. The administration is planning to contribute hundreds of millions of dollars of public funds to a public-private partnership that will build the roughly $2 billion project.

That’s a lot of money for a 55-mile, Interstate-grade highway running through rural hamlets and peanut fields, but Connaughton believes it’s the only way to accommodate the anticipated surge in truck traffic that will occur when the post-Panamax vessels begin regularly unloading containers at the rate of 6,000, 7,000 and even 9,000 per ship. (The MSC Bruxelles, which visited the ports of Virginia in July is capable of carrying 9,200 twenty-foot equivalent units, or TEUs). Indeed, the economic stakes extend far beyond the Hampton Roads port and maritime community. Connaughton sees the new U.S. 460 as critical for attracting a complex of new warehouse and distribution centers that will create jobs and generate taxes.

In sum, there are substantive reasons for contemplating a massive injection of state funds into the new U.S. 460. But it’s not a slam dunk. The project represents a huge obligation and needs to be fully aired and debated. However, the Virginia Department of Transportation has gotten as far as soliciting and receiving conceptual proposals from three building consortia and no meaningful public debate has yet to take place.

I’m neither for nor against the project, but I do have a lot of questions. Here are some of them:

    •  If the new U.S. 460 project is economically justified, why does the state need to contribute hundreds of billions of dollars to help build it? Why won’t shipping companies willingly pay the tolls?
    • What development will occur around the new U.S. 460 interchanges, and what infrastructure obligations will the state and localities (Isle of Wight, Surry and Prince George counties) incur to accommodate that growth?
    • What assumptions regarding port-cargo and truck-traffic volume is the McDonnell administration making? Given the falling value of the dollar and retrenchment of the U.S. consumer, can we count on foreign imports increasing for years to come? What happens if those projections don’t pan out? Who will bear the risk?

Meanwhile, Virginia has begun subsidizing port operations by means of three tax credits that Gov. Bob McDonnell signed into law in June: (1) a $25 per TEU income tax credit for shippers transferring their containers by barge or rail ; (2) a $50 per TEU income tax credit for manufacturers and distributors of manufactured goods that increase their port cargo volume by 5 percent in a single year; and (3) a $3,000 income tax credit for every employee hired by a Virginia shipper that results from increased cargo moving through the port or an income tax credit of 2 percent of the cost of any capital improvement that facilitates increased cargo moving through the port. (See the press release.)

How much will those tax expenditures cost the state treasury? Do we have any idea? If legislators and the McDonnell administration want to subsidize port operations, why not do it through the appropriations process, in which expenditures can be measured precisely and reviewed annually?”

Let’s get all the numbers out on the table. The Ports of Virginia are a vital economic asset — not just to Hampton Roads but to the many businesses whose manufacturing operations depend upon it. But the ports are only one asset among many. And every “investment” of public funds represents resources not “invested” somewhere else. Please, let’s have a thorough vetting of these issues.

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5 responses to “The Panama Canal, U.S. 460 and the Public Fisc”

  1. why would increased truck traffic on I-64 not chase car traffic to the parallel toll facility instead of the trucks?

    observation: how does truck traffic from Norfolk make it north of DC or are we basically assuming that – that shipping will use the ports of Baltimore and New York?

    I would think that a shipper would look at how much it costs to unload at Norfolk and ship north via existing and new roads verses how much time and money would be required to not port at Norfolk but head north to Baltimore or New York?

    I’m not sure in the geographic scheme of things that Va is the optimal location given the difficulties of moving truck traffic north.

    and why are we only thinking of truck traffic instead of rail?

    At the LA Port – rail is a significant percentage of the shipping.

  2. Peter Galuszka Avatar
    Peter Galuszka

    I saw the Virginia Business story too and dismissed it as so much wishful thinking, Imports at Hampton Roads have really gone down with the recession. Exports are up for paper and coal. But if we keep following the economic remedies you suggest, Americans will be too poor to import anything. They won’t have the jobs to make anything to export. But they may have a balanced budget (Big Whoop!)
    So, you see, it really won’t matter what happens to the Panama Canal or deepening the port.

    Peter Galuszka

  3. Peter, If we follow the economic remedies *you* suggest, the economy will limp along for a few years more… then drop dead of a heart attack. We’ve reached a point where there are no easy or painless solutions. To suggest otherwise is insanely irresponsible.

  4. wait! hold the presses! Virginia has apparently received permission to TOLL I-95….!!!!

    Makes one wonder what impact this will have on the potential to toll I-64 on a similar criteria…..

  5. oh wait.. McDonnell supported this? umm… is this a tax increase?

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