Thursday, June 17, 2010

City Hopes to Grab More Long Beach Port Profits

The City of Long Beach is seeking a change in the way the Port of Long Beach transfers profits to city coffers – a change that could cost the port an extra $12.4 million this year.

The Long Beach City Council on Tuesday adopted a motion to receive and file the City Auditor's recently completed analysis of the city Harbor Department's annual transfer to the city Tidelands Fund. The transfer is permitted by the city charter and capped at a maximum of 10 percent of port profits per year.

The transfer, which must be requested each year by City Hall and approved by the Harbor Commission, was originally approved by city voters in the early 1980s as an emergency bulwark against temporary financial problems in the city. In 1995, following a devastating one-two punch of a general decline in the national economy and the closure of the Long Beach Naval Station and Shipyard – a major source of direct and indirect jobs for the city – city officials began requesting the 10 percent to boost city revenues. The city council has made the request every year since.

While the semi-autonomous Harbor Department, which manages the port for the city, has the option to deny the request, it has never done so in the past. State law mandates that the port money going to the city must be retained in a separate Tidelands Fund that can only be used in the tidelands and port areas. However, by diverting funds that would be spent in the tidelands areas for services such as police, fire and maintenance, the city can offset general treasury funds that might otherwise be spent there. The adjacent port of Los Angeles, managed by a similar Los Angeles City Hall department, has a similar port-to-city fund transfer procedure.

The city auditor's analysis presented Tuesday details how the Harbor Department determines the 10 percent of annual port profits that are transferred to the city and what the city then spends the money on. In the most recent full year, the port transferred just over $16 million to the city in four quarterly payments.

In addition to the Tidelands transfer, the analysis found that port is also directly charged more than $21 million a year by the city for police and fire service within the port area.

City Auditor Laura Doud explained to the Council that because the 10 percent transfer is based on the port's independently audited financial reports, there is a lag time of over a year between when the port makes the profits and the transfer to the city based on those profits. For example, the most recent transfer was actually based on profits during the port's 2008-2009 fiscal year.

Doud recommended that this accounting time line be changed immediately to provide the city with a more "real-time" transfer. Under her recommendation, the Harbor Department will immediately transfer about $12.4 million to the city for the port's 2009-2010 fiscal year. At the start of the city's next fiscal year in October, the Harbor Department will also transfer 80 percent of the port's unaudited 2010-2011 fiscal year profits. The remaining 20 percent of the transfer for FY2010-2011 would be determined after the port's finances were independently audited. The recommendations suggested by Doud would essentially boost the city Tidelands Fund by $12.4 million during the current year.

Doud also recommended that the Council request that the Harbor Department eliminate its accounting practice of deducting the previous year's transfer to the city from the port's total profits, a move Doud said has reduced the previous transfer amounts to the city by about $1 million a year.

It was also revealed during the City Council discussion that while the city charter allows for 10 percent of the port's "net income" to be transferred to the city each year, "net income" as defined in the city charter is a vague term. According to the City Attorney, the City Auditor is the ultimate authority over the definition of "net income" as it applies to the port.

The Council unanimously approved the motion including all of Doud's recommendations, which must now be approved by the Harbor Commission before any transfer can occur.

Immediately after approving the accelerated port transfer schedule, the Council moved to spend nearly all of the extra funds by approving $9.5 million in Tidelands funds to repair about 20 percent of the Naples Seawall. The man-made Naples community, bisected by a canal, is protected from the ocean by a concrete seawall that lines canal and ocean front property. The city has said that about 900 feet of the seawall surrounding Naples is danger of failing in the very near future and needs immediate repair.

The Council approved the motion with the caveat that the $9.5 million can only be spent on the seawall repairs if the Harbor Commission approves the accelerated Tidelands transfer.