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.

City Hall to Receive $40M In Long Beach Port Oil Income

A 2010 Long Beach city charter amendment that stripped the Port of Long Beach of its control of port-area oil properties and was presented to voters as having no fiscal impact, could cost the port more than $40 million in 2011, according to port projections.

In addition to putting oil properties in the port area under City Hall control, the charter amendment also redirected all oil revenues generated in the port to the City Hall-controlled Tidelands Oil Revenue Fund (TORF). Known as Measure D, the amendment was passed by Long Beach voters in November 2010 by a 55.6 percent to 44.4 percent margin.

In the lead up to the November 2010 election both Mayor Bob Foster and City Attorney Robert Shannon repeatedly emphasized that the portion of Measure D related to oil properties was merely a clarification of charter language related to control of the port-area oil properties and not an attempt to divert port revenue to City Hall.

While City Hall has said that it will most likely return the FY2011 oil revenues to the port since the port had already included these projected funds in the port FY2011 budget prior to the passage of Measure D, the final disposition of the FY2011 oil revenues appears to be up in the air at the moment.

"I don't know that the city has made any firm and final decisions on oil revenues and what might be remitted to the port and what they will be retaining," Port Executive Director Richard Steinke told the Harbor Commission on Monday.

Members of the shipping industry have raised concerns with the State Lands Commission about the transfer of oil revenues from the port to City Hall, arguing that Measure D is shifting significant portion of the port's revenue to City Hall, threatening the financial security and competitiveness of the port. The SLC, which has oversight of the state's ports, has said in the past that they are carefully watching Measure D impacts on the port.

While no analysis was conducted by City Hall before placing the measure on the ballot, port financial staff estimated that Measure D would shift more than $100 million in oil revenues to the City Hall-controlled TORF over the next five years.

However, due to the rise in the price of oil, the latest projections are much higher.
"For the full fiscal 2011," Port Finance Director Sam Joumblat told the Harbor Commission on Monday, "I project that probably the net oil income would be over $40 million, if oil prices continue to be anywhere near their lofty present levels.

If oil prices remain near their current levels, this amount of oil revenue shifted to the control of City Hall could rise to more than $200 million over five years.

Nearly all the major stakeholders involved in the local international trade business community expressed opposition to Measure D, including: the Long Beach Chamber of Commerce; the Los Angeles Customs Brokers and Freight Forwarders Association; the LA/LB Propeller Club; the Pacific Merchant Shipping Association; the Harbor Association of Industry and Commerce; FuturePorts; and the California Marine and Intermodal Transportation System Advisory Council, or CALMITSAC.

A major concern raised by the PMSA and other opponents of Measure D is what the Tidelands Oil Revenue Funds are actually funding.

By state law, the funds can only be spent in the tidelands on oil production-related expenses. However, a caveat in the city charter allows the City Council to shift funds from the TORF to the general Tidelands Operating Fund (TOF). Monies in the City Hall-controlled TOF, which come from non-oil revenues generated in the city tidelands including port profits, must still be spent in the tidelands and then only on very specific uses such as maritime, navigation, recreational, environmental, fisheries and the promotion of maritime commerce.

Long Beach Voters Okay Taking More Funds From Port

Long Beach voters on Tuesday passed a city charter amendment that will shift an estimated 20 percent of the Port of Long Beach's annual profits to the control of City Hall.

Measure D passed by a 55.6 percent to 44.4 percent margin. Authored by Long Beach Mayor Bob Foster and Councilmember Gary DeLong, the measure alters the formula for calculating an annual port-to-city transfer from 10 percent of port net income to 5 percent of port net and turns control of all port oil property over to City Hall.

While no analysis was conducted by City Hall before placing the measure on the ballot, an estimate by port financial staff concluded that the measure would transfer an additional $133 million to City Hall over the next five years, or about 20 percent of the port's annual net income.

Under Measure D, the city will receive an added $6.6 million per year due to the transfer formula change – in addition to the estimated $12.4 million the port will already transfer. The port will also see an estimated $20 million a year in port oil revenue head to the City Hall-controlled Tidelands Fund. The port paid roughly $55 million for the mineral rights to the oil property in question back in 1994 and will not be compensated for the loss.

The measure was opposed by nearly the entire Southern California shipping and trade industry. The California State Lands Commission – the state watchdogs overseeing port authorities – was also highly critical of the way the measure was crafted and placed on the ballot with no economic impact study.

“While we are disappointed with the election results this morning, we are pleased that such a large percentage of the voters of Long Beach agreed that Measure D is an ill-fated attempt to further burden the Port and is the wrong way to address City Hall’s budget challenges," said John McLaurin, president of the Pacific Merchant Shipping Association, in a post-election statement. "Thousands of voters joined with the chorus of voices that view Measure D as a deceptive measure that was rushed on to the ballot literally in the dark of night in order to pass.”

The actual ballot tally was 39,135 votes for Measure D and 31,492 opposed. Voter turnout was just over 32 percent.

Measure author Councilmember Gary DeLong told LBReport.com that voters were sending two messages with the passage of Measure D.

"First, while Long Beach residents value the many contributions the Port makes to our local economy, residents also are willing to invest in improving our beaches and coastal area," said DeLong. "Secondly, don’t mess with the City Auditor."

City Auditor Laura Doud, while never conducting an economic impact study of Measure D on the port, concluded that the transfer formula would only result in an additional $1 million to $1.5 million in port revenue heading to the city each year.

The PMSA's McLaurin said his organization and others in the shipping and trade industry would "hold the City to this estimate and fight any transfers of property or money as a consequence of Measure D over and above the amounts that were the basis on which this measure was sold to the voters.”

State Officials Criticize Long Beach City Hall Handling of Measure D, Warn of Impacts to Port

The California State Lands Commission on Thursday issued an analysis critical of the way in which City of Long Beach officials pushed Measure D onto the November ballot.

The analysis found that while Measure D does not, on its face, violate the state trust that allows the city to operate the Port of Long Beach, CSLC officials concluded that the city failed to analyze "any potential fiscal implications and impacts to Port operations that may result," from the measure.

The state report also criticized Long Beach City Hall officials for offering no rationale under state law for authorizing "significant diversions" of port funds for non-port related city expenditures. The report singled out recent expenditures of port funds such as contribution to the City Municipal Band and the Fourth of July Fireworks show as examples of expenditures not consistent with state law.

The CSLC functions as the state's watchdog over the various port authorities throughout the state, assuring that the port authorities and their city hall bosses adhere to state laws requiring the ports to be operated for the benefit of all the citizens of California and not just local interests. Under the Public Trust Doctrine, the state-owned ports are granted to the various cities to be operated in trust for the citizens of the state.

State law also requires that all funds generated by the various ports be used for very specific maritime-, navigation-, and water recreation-related uses within the city tidelands – that area below the high tide mark in 1911 when the first part of the trust doctrine was approved. In Long Beach, this area is basically anything south of Ocean Boulevard.

Under state law, port funds cannot be used for general fund purposes. However, the city maintains a Tidelands Operating Fund that is separate from the General Fund. Port funds, such as the annual transfer of port profits requested by City Hall, are allowed to be placed into this fund and spent on the state-defined uses within the tidelands. City Hall can in turn offset General Fund expenses that would have been spent in the tidelands, such as police and fire service, with money from the Tidelands Fund.

Measure D, which was rushed onto the ballot at the eleventh-hour, seeks to make two changes to the City Charter regarding the port. One change would alter the formula for how the annual transfer of port profits are calculated – from the current 10 percent of port net income to 5 percent of port gross revenue. The second part of the measure would remove the port's authority over port-area oil property, and the resulting profits, and give it solely to City Hall.

A fiscal analysis presented by port officials last week found that an approval of Measure D would shift $133 million over the next five years – $100 million in oil revenue and $33 million in additional transfers – from the port to the City Hall-controlled Tidelands Fund. This would in turn lower port net income by $148 million over the same five-year period and necessitate the port borrowing an additional $151 million for various capital projects.

"Over the five years, this accounts for approximately 15 percent of the Port’s annual net income," said the CLSC report. "When combined with the increase in transfer formula, the impact of Proposition D could account for approximately 20 percent of the Port’s annual net income.

The report goes on to state that the long-term financial draining on the port due to the passage of Measure D could have a significant impact on port operations.

"The impacts to Port operations may include a reduction in the Port’s credit rating due to anticipated reductions in its annual cash flow," said the report. "...If the Port’s credit rating is downgraded, the Port will pay more in interest."

The port analysis estimated that downgrades to the port's currently high bond rating could result in an additional $39 million to $158 million in interest expense over the next 30 years, depending on the severity of any downgrade.

Despite these estimates of potential loss for the port, the CSLC was unable to find that Measure D, on its face, violated either the Public Trust Doctrine or land use laws.

"However," said the CSLC report, "the City has a fiduciary duty, as the State’s trustee, to balance competing public trust needs and to carefully consider any potential impacts to Port operations that any change to the City Charter may have. The issue in diverting revenues from the Port is whether the City would be impairing Port operations of statewide and even national importance to fund less critical operations.

In addition, the state commission found that some expenses being borne by the port may be inconsistent with state law.

"Commission staff has not initiated either an investigation or audit, but has recently become aware, through news sources, of some questionable expenditures and budgeted expenditures of public trust revenues both by the City and the Port," said the report.

"Commission staff has received an explanation of some of these expenditures sufficient to determine that such expenditures are not inconsistent with the common law Public Trust Doctrine and the City’s trust grant. However, staff believes that further information is needed to determine trust consistency, given the Supreme Court [rulings], for other questionable expenditures and budgeted expenditures such as: the Port providing over $200,000 in scholarships since 2007; $50,000 by the Port to fund the Long Beach Municipal Band and $75,000 by the Port to fund the City’s Fourth of July fireworks (Port FY 2011 Budget); and $65,000 by the City’s Tidelands Operating Fund to fund the Long Beach Municipal Band (City FY 2011 Budget).

The State Lands Commission will hold a regular public meeting in Culver City on October 29th. The agenda for the meeting includes a staff report on the “City of Long Beach Public Trust Revenues, Including Proposition [Measure] D.”

SoCal Port Industry Leaders Oppose Measure D

A coalition of leaders representing Southern California's goods movement industry have joined the fray over a contentious City of Long Beach ballot initiative, warning that Measure D threatens the economic well-being of the Port of Long Beach and the positive economic impact the port has on the region.

Measure D, drafted by Long Beach Mayor Bob Foster and Council member Gary DeLong, seeks to turn over control of all port-controlled oil property and revenues to City Hall. The measure also seeks to change the way an annual port-to-city transfer of port profits is formulated, from 10 percent of net income to 5 percent of gross revenues.

In a release issued earlier this week, the coalition unanimously opposed Measure D, arguing that it "threatens local jobs and will make it more difficult for the Port of Long Beach to hold its position as a premiere international port and solid economic engine for the region."

“Measure D is just a bad idea,” said Dan Meylor, President, Los Angeles Customs Brokers and Freight Forwarders Association. “City politicians put it on the ballot without thinking about the negative impact on the local economy, jobs, or important projects ensuring clean air in the Long Beach Community. It will likely affect the Port’s bond ratings and associated borrowing costs, driving up the cost of every project and program and reducing the number of these that can be accomplished, which in turn will drive discretionary cargo to other ports in the United States.”

In addition to the LACBFFA, the coalition includes the LA/LB Propeller Club, the Pacific Merchant Shipping Association, the Harbor Association of Industry and Commerce, FuturePorts, and the California Marine and Intermodal Transportation System Advisory Council, or CALMITSAC. Members of the various groups represent nearly all the major stakeholders in the Southern California shipping industry.

Much of the groups' concern focuses on the potential for the measure to limit the port's ability to invest in development.

“Measure D could put a halt to the continued economic viability of the Port. Failing to invest in the Port only puts us at a greater disadvantage in the years to come,” stated William Lyte, past president of the Harbor Association of Industry and Commerce.

Lyte's concerns were echoed by Sue Dvonch, Vice President, Propeller Club of Los Angeles-Long Beach.

“Those involved in international commerce play a vital and important role in our state’s economic structure, and they are concerned that Measure D will threaten California’s position as a leading global gateway and will negatively impact our economy should we fail to adequately invest in our state’s transportation infrastructure.” said Dvonch.

Long Beach Mayor Foster has argued that the ballot measure is meant to clarify language in the City Charter and is not an attempt to take more money from the port. Despite no analysis being conducted to determine the future financial impacts of the measure, Foster has maintained that the fiscal impacts to the port will be minor.

However, a study conducted by port staff prior to the announcement of the ballot measure estimated that the port expected to make $120 million in oil revenues from existing wells between 2010 and 2014. This would mean, if Measure D is approved by voters, that an average of $24 million a year will be diverted from the port to City Hall coffers.

In addition, based on the net and gross revenues of the port over the past ten years, the city stands to receive an average of $3 million more per year via the annual transfer under the "5 percent of gross" formulation proposed in the ballot measure.

A recent PMM Online analysis found that the long-term impacts of Measure D could include: threats to the port's exceptionally positive bond credit rating; impacts to the port's timely investment in infrastructure; the possibility of increased cargo diversions; and, threats to the autonomy of the port from city politics.

A recent poll of likely Long Beach voters conducted by LBPost.com/Probolsky Research found that 36.6 percent of Long Beach voters oppose the measure, 27.7 percent favor the measure and 35.7 percent are undecided.