Ports handle more than 35% (by value) of the Nation's imports and exports, and the role of water transport in the national economy is growing as trade policies increase the quantity of goods transported. A recent assessment of the U.S. marine transportation system by the Department of Transportation predicts that the total tonnage of U.S. domestic and international marine trade will more than double by 2020. Ocean carriers are deploying larger ships with deeper drafts to handle the robust growth in maritime trade. The Harbor Maintenance Tax (HMT) was instituted by the Water Resources Development Act of 1986 (WRDA 1986, P.L. 99-662 ) to pay for routine maintenance and operations costs of harbors. The funds are deposited in the Harbor Maintenance Trust Fund (HMTF). Numerous legal challenges to the HMT raise questions about its future and possible legislative changes. Harbor maintenance dredging requirements are expected to increase in the near-term due to current channel deepening projects at many ports. This report reviews recent developments in harbor maintenance legislation and the current status of harbor maintenance funding. Recent trends in container shipping and their impact on port dredging requirements are discussed. The report also describes alternative funding proposals that have been considered. The last section examines the impact these and other funding alternatives may have on the geography of U.S. maritime commerce. The decision on how best to finance harbor dredging requires balancing national economic efficiency concerns with local port economic development concerns. Two points of clarification are helpful in a discussion about the HMT. The first is the distinction between harbor maintenance and harbor-deepening projects. These projects are approved under different procedures and are funded from separate appropriations accounts. Harbor maintenance refers to the routine dredging of harbor channels to their existing depth. Funds in the HMTF are used to pay the federal portion of routine dredging which Congress makes available through Energy and Water Development Appropriations. Harbor-deepening (or widening) projects are new projects that increase the authorized depth/width of harbor channels. Congress authorizes new channel depths through the biennial Water Resources Development Act. Funds for the federal share of harbor-deepening projects are provided from U.S. Treasury general funds. The U.S. Army Corps of Engineers has the responsibility for both the maintenance and deepening of federal waterway channels. Funding for dredging harbor berths, the waterside area along the wharf where a vessel is docked, is the responsibility of state or local port authorities. A second useful point of clarification is the distinction between "shipper" and "carrier". In everyday usage, the term "shipper" can refer to both the cargo owner and the transporter of goods. In the transportation industry, the term "shipper" is used to identify the owner of the cargo in motion, e.g. the party that pays the freight bill. The term "carrier" is defined as the party providing the transportation service. In a maritime context, the carrier would be the shipowner or operator. Under the current HMT scheme, the shipper is liable for payment of the tax resultant from cargo vessel movements. For passenger vessels, the carrier is liable for the tax. Prior to 1986, U.S. Treasury general funds were used to pay the federal share for operation and maintenance (O&M) of harbors and for the deepening of channels. In 1986, Congress enacted cost-share requirements for harbor deepening and maintenance (as shown in Table 1 below). The HMT was devised to provide stable federal funding for this purpose. The tax was originally applied on an ad valorem basis on commercial cargo for any use of federally-maintained ports (e.g., the loading of exports and unloading of imports, domestic as well as international cargo). In 1986, the HMT was established at 0.04% of the cargo value. This revenue was intended to pay for 40% of O&M costs incurred by the Army Corps of Engineers and 100% of O&M costs of the St. Lawrence Seaway. Section 11214 of the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) increased the HMT from 0.04% to 0.125% in order to recover 100% of the Corps' port O&M expenditures. In March 1998, the U.S. Supreme Court struck down the application of the HMT with respect to exports, finding that it violated Article I, Section 9, Clause 5 of the Constitution which states that, "No tax or duty shall be laid on articles exported from any state." Exports generated about a third of the fund's revenues. Other court decisions (including decisions by the U.S. Court of International Trade (CIT), the U.S. Court of Appeals, and the U.S. Supreme Court) have established that HMT is constitutional as applied to domestic shipments and the embarkation of cruise line passengers. Cases regarding the constitutionality of the HMT on imports remain in litigation. The federal government is statutorily required to continue collecting the HMT from non-export cargo and passenger categories. The European Union sees the application of the HMT to imports as a discriminatory import tariff that violates U.S. obligations under the World Trade Organization (WTO). Approximately 80% of HMT collections in FY 1999 were derived from imports, with the remaining revenue coming from collections on domestic cargo (11%), foreign trade zone cargo (8%), and cruise ship passengers (1%). In February 1998, the European Union requested WTO consultations on the issue. A first round of consultations took place in March 1998. Second round negotiations, which included Japan, Norway, and Canada, took place in June 1998. The European Union indicated that if satisfactory legislation was not passed by January 1, 2000, it would ask for a dispute resolution panel. As of December 2003, however, the European Union has not requested a panel. The revenues collected from the HMT are deposited into the HMTF. Much uncertainty about the future of the HMTF exists because of the various legal challenges. The HMTF balance was $1.85 billion at the end of FY2002, as shown in Table 2 . Currently, revenue deposited into the HMTF exceeds transfers out of the fund. The HMTF balance increased in FY 1999 as a result of the Energy and Water Development Appropriations Act of FY 1999 ( P.L. 105-245 ), which did not require the recovery of Corps of Engineers O&M expenditures from the fund for that year. The current HMTF balance, in conjunction with the revenue stream from the remaining HMT collections and interest payments, are considered sufficient to recover expenditures for the foreseeable future. However, the results of the aforementioned legal and trade challenges could reduce or halt incoming revenue. Should that occur, the fund could quickly be depleted at which point policymakers would have to decide whether the federal government would continue to fund harbor maintenance and if affirmative, would have to develop a mechanism to do so. There are a number of significant channel deepening (or widening) projects nearing completion, under way, or in the planning stage. An obvious concern is the effect these deepening projects will have on future harbor maintenance costs. The DOT expects maintenance costs will likely increase, at least in the near term: Overall, however, the Nation's future dredging requirements can be expected to grow above recent highs following the completion of current and future deepening projects and the ongoing maintenance requirements associated with these deeper channels.... Upon completion of justified deepening work, an initial increase in maintenance dredging requirements can be expected until the hydrodynamics of the deeper channels begin to stabilize to the new dimensions. The long-term impacts of deeper channels on annual maintenance dredging is somewhat more uncertain, with dredging needs highly specific to each project location and subject to a complex set of variables involving the natural coastal and river processes that affect sediment movement. In addition to the total amount of material dredged, total expenditures may increase due to an increase in the per unit cost of dredged material. The port industry cites U.S. Army Corps of Engineers' figures which show that over the last 30 years, the total cost of dredging has increased while the volume of material dredged has actually decreased. A review of the Corps O&M budget on dredging for fiscal years 1990 to 1999 shows a steady increase in total expenditures from $370 million in 1990 to $684 million in 1999. The yearly amount of material dredged for maintenance over this same period fluctuates around an average of 236 million cubic yards. Complicating the dredging process is the fact that ports are often located in or near environmentally sensitive areas such as wetlands, estuaries, and fisheries. A growing concern is a shortage of disposal sites and a lack of disposal options. The volume of sediments classified as contaminated has increased but this may be due to new testing requirements. In the early 1980s, deep draft colliers (coal ships) fueled debate over U.S. port dredging needs. Today, however, ever-larger containerships are the primary driving force behind current dredging activity. Although oil tankers are among the largest vessels in the world fleet, their size peaked in the 1970s and 1980s. A supertanker often transfers its cargo at sea rather than in port. Typically, a supertanker stays at sea for extended periods, loading at offshore platforms or single-point moorings and discharging at designated "lightering" zones offshore where a supertanker transfers part of its cargo to a smaller shuttle tanker. The shuttle tanker delivers the crude oil to the refinery on shore.