Auditor Says Harbor Terminals Don’t Pay a Fair Share of Taxes

LONG BEACH —  It is one of the nation’s busiest ports.

Giant cranes lift a steady stream of shipping containers from ships to waiting yard trucks. Tractors weave through forests of containers stacked two and three high on acres of docks. Ships loaded with cargo ranging from bananas to cement to cars come and go in a matter of hours, their lines wrestled to the wharves by teams of longshoremen.

The terminals generate millions of dollars of revenue every year. Yet the terminal operators pay minuscule business license taxes to the city, according to a city audit.

Last year, the International Transportation Service terminal had estimated gross revenues of $32.4 million, for which it paid $2,062 in city business taxes. The Long Beach Container Terminal had revenues of $29.6 million, and paid business taxes of $639, the audit showed.

Saying they are not shouldering their fair share, City Auditor Robert E. Fronke has proposed changes that could raise the taxes paid by the 29 terminals to more than $1 million a year. The terminals last year paid a total of about $15,000, a “small portion” of the $5 million that the city collects from business license taxes, Fronke said in the audit.

The terminals’ taxes currently are determined by their number of employees, but many workers are excluded because of independent contracts, he said. Fronke suggested that the city switch to a tax on revenues, which would be comparable to taxes on tenants at the neighboring Port of Los Angeles. In Long Beach, owners of apartment buildings also pay taxes on revenues, Fronke said.

.5% Used as Example

He estimated that terminal operators would pay more than $1 million a year if the City Council placed a tax of 0.5% on revenues. He emphasized that the computation was intended only as an example.

The terminal operators also pay a county possessory interest tax--similar to a property tax, but only 27.9% of the revenues are passed along to the city, Fronke said.

Terminal operators met recently to discuss the audit and how to organize opposition to Fronke’s proposal. The auditor said he was upset that he was not invited to explain his recommendation.

The operators apparently will be joined by port and Chamber of Commerce officials in opposing the proposed tax change.

“The port tenants are working together with the port and Chamber of Commerce to present a very intelligent approach to this thing,” said Joseph F. Prevratil, the port’s executive director, who also heads the chamber.

Competitive Edge

Prevratil said that Fronke’s proposal would make the port less competitive. He warned that other West Coast ports might try to lure away Long Beach’s tenants. He also pointed out that the port contributes to the city’s economy in other ways.

“People forget the enormous impact this port has on the city as a whole,” he said. Benefits range from the dollars spent by port tenants who live in the city to port visitors who stay in local hotels.

Fronke pointed out, however, that the port also has some negative impact. For example, he said, the heavy truck traffic from the terminals has created the pothole-riddled pavement on the Long Beach Freeway south of Pacific Coast Highway, a section maintained by the city.

Fronke’s proposal is being studied by city financial analysts. City Financial Management Director James Algie said he expects to submit a report by Jan. 1.

Port Creates Jobs

Mayor Ernie Kell and City Council members agree that the port brings important economic benefits to the city.

“It has created a lot of jobs and has helped us with our convention center,” Kell said. He said he wants a further study of taxes based on revenues, but that the increase could not be as dramatic as in Fronke’s example.

Councilwoman Jan Hall said she, too, wants to know more, but “the critical bottom line is our port needs to remain competitive.”

Councilman Warren Harwood said he likes the idea of the proposed tax, but that he wants to consult with the Harbor Commission.

Councilman Ray Grabinski said he worries whether a tax based on gross revenues would be difficult or expensive to administer.

HOW FIRMS WOULD FARE IF LICENSE FEE IS RAISED

1987 Gross Annual * Proposed Revenue License Fee License Fee Employees International $32.4 million $2,062 $162,000 256 Trans. Service Long Beach 29.6 million 639 148,000 66 Container Terminal California United 24.7 million 444 123,500 40 Terminal

* 0.5% of gross revenues, the same rate charged to apartment building owners Source: Long Beach City Auditor