Thursday, June 30, 2011

Battle Over Long Beach Port Funds Continues

The ongoing enmity between Long Beach City Hall and the semi-autonomous city department that runs the Port of Long Beach continues, with a recent budget move by the port governing board raising the hackles of the city mayor.

On June 20, the four sitting members of the five-member Board of Harbor Commissioners gave final approval to the port's fiscal year 2012 budget.

Commissioner Mario Cordero recently resigned from the board to join the Federal Maritime Commission, leaving a vacant seat on the panel.

The $822 million port budget, according to port officials, "reflects the port’s strategy to boost its business activities by investing aggressively in environmental and capital improvement projects while keeping operating costs in check."

The port does not use tax dollars and operates on revenue mainly generated by docking fees charged to vessels and the leasing of port property to private interests.

Contained within the budget are projected expenditures of $59 million for pollution cutting shore-side electrical power for ships, $109 million for the Gerald Desmond Bridge Replacement Project and $231 million for the construction of the Middle Harbor Redevelopment Project.

In total, the capital improvement projects contained in the budget amount to about $630 million.

The port's FY2012 budget also cuts the non-personnel cost of port operations by 7 percent, following a 12 percent reduction in fiscal year 2011 and a 4 percent reduction in fiscal year 2010.

“We are seeing some signs that the global recession is easing and our revenues are beginning to recover,” Port Executive Director Richard Steinke said in a statement.

”We are investing in our future, while living within our means today. Our prudent fiscal management is what gives us the ability to invest and to stay competitive in our industry. We must continue to modernize and ‘green’ our operations,” Steinke said.

The port's FY2012 budget represents a 26-percent increase from FY2011, mainly as a result of an increase in capital spending.

However, it is what was not in the budget that drew the ire of Long Beach Mayor Bob Foster – namely no funds to cover the annual transfer of port funds to the city for FY2012.

Each year, under the City Charter, the city can request that 5 percent of the port's gross operating revenue to be transferred to the city's Tidelands Operating Fund.

The Tidelands transfer was devised as an emergency measure more than 15 years ago to help the financially strapped city. The city has requested the transfer, which has ranged from the low single-digit millions to more than $12 million, every year since and the port has never refused.

These transferred funds are controlled by City Hall but must be spent in the city tidelands areas on specific and well-defined maritime and maritime-related uses. The tidelands funds, by law, cannot be co-mingled with the city's general revenue funds.

Until a voter approved initiative passed last year, the amount of the transfer was set as 10 percent of the port's net revenue – basically the port's profit after excluding all expenditures.

The passage of the November, 2010, initiative – called Measure D – also shifted control of all oil revenue generated on port property to City Hall.

City Hall, at the time, repeatedly claimed that the new transfer formula within Measure D would only shift an additional $1 million to $1.5 million away from the port per year.

However, port financial staff, at the time, estimated that Measure D would shift more than $130 million from the port to City Hall over the next five years – $100 million in oil revenues and $33 million in added port-to-city annual transfers. This represents roughly 20 percent of the port's average net income per year.

Officials at City Hall said the added transfer funds were necessary because the Tidelands Operating Fund, which is used by the city to bankroll services and projects within the tidelands that would normally come out of the general fund, was projected to be broke by 2013.

On August 3, 2010, the final day for considering ballot measures for the November 2, 2010, ballot, the City Council approved Measure D for the ballot. The measure had been devised so quickly that at the August 3, 2010, council meeting, the city attorney was still tweaking the measure's language, only moments before the vote to place it on the ballot.

Not presented at the August 3, 2010, city council meeting was any study, report or analysis of how Measure D would impact the port. It was later learned that one was never done.

A study of Measure D by the California State Lands Commission – released shortly before the November, 2010, election – stated that state lands staff, despite numerous requests to Long Beach City Hall for such a fiscal impact study, report or analysis, was "unaware of any evidence that the City Council analyzed and considered any potential impacts to port operations when it voted to place [Measure D] on the November [2010] ballot."

Several port commissioners appeared at the August 3, 2010, City Council meeting and questioned the rapidity in which the measure was drafted. They asked the Mayor and City Council to slow down the ballot process and for the potential financial impact to the port to be studied.

Mayor Foster, the City Attorney, and several City Council members publicly dressed down both the commissioners for questioning the measure and the process bringing it to the ballot, saying the port was fostering an "us-versus-them" atmosphere between City Hall and the port.

Since then, tensions have smoldered off and on between City Hall and the port.

When Mayor Foster learned that the port had not included any amount in the port's FY2012 budget for the annual transfer of port gross operating revenue to the city, City Hall sources who declined to be identified said the mayor contacted port officials and expressed his anger about the exclusion of the estimated $17.4 million transfer (based on the port's FY2012 projected operating revenue).

For their part, the port commissioners said that they assumed the city would not be asking for the transfer in FY2012, as no request from City Hall had been made during the port's lengthy budget preparation process.

There is also little doubt that the port belief that no transfer would be sought was bolstered by the fact that the Tidelands Operating Fund, which was nearing insolvency prior to the passage of Measure D, is projected to reap nearly $100 million in port funds between November, 2010, and the end of FY2012, from both the new transfer formula and the added port oil revenues.

In a June 20 port board meeting agenda item bringing the FY2012 budget to a final commission vote, port staff said as much: "We have assumed that the city will continue to direct the port's oil revenue to the Tidelands Operating Fund and as a result the Tidelands Operating Fund will not need a Tidelands transfer."

The day after the port passed the FY2012 budget in committee on June 13, the city manager informed the port in writing that a formal request for the annual transfer from the port would be presented to the port in July. However, the port is required to pass its budget and forward it to City Hall no later than July 3. With no city request for the transfer in hand, the port passed the FY2012 budget, first in committee on June 13 and then in whole on June 20, without an allocation for the transfer.

Mayor Foster later told the local Grunion Gazette newspaper that it was not up to the port to determine if the city needed the transfer funds and that the only reason in the City Charter for the port to not make the transfer is if the transfer would represent an economic burden to the port.

The Mayor, who has line item veto power over city department budgets, also said that he and the City Council, who must also sign off on the port budget as a whole, would be asking a lot of questions about the port budget when it comes before them.

Last year, Mayor Foster vetoed a $300 million port budget item for the replacement of the port's more than 50-year-old and seismically unfit headquarters with a state-of-the-art "green" building. The port is now looking to relocate its headquarters to leased or purchased space near the port.

Port officials have said they will reconsider the inclusion of the transfer in the FY2012 budget if a formal request by City Hall is made.