09 Nov Commission Meeting Minutes 10-25-21
PORT COMMISSION OF THE PORT OF EDMONDS MINUTES OF REGULAR MEETING
(Via Zoom) October 25, 2021
Angela Harris, President
David Preston, Vice President
Steve Johnston, Secretary
Bob McChesney, Executive Director
Tina Drennan, Finance Manager
Brittany Williams, Manager of Properties and Marketing
Vivian Olson, Edmonds City Council
Jordan Stephens, Port Attorney
CALL TO ORDER
President Harris called the meeting to order at 7:00 p.m.
PLEDGE OF ALLEGIANCE
All those in attendance participated in the Pledge of Allegiance to the American Flag.
COMMISSIONER ORVIS MOVED THAT THE CONSENT AGENDA BE APPROVED TO INCLUDE THE FOLLOWING ITEMS:
A. APPROVAL OF AGENDA
B. APPROVAL OF OCTOBER 11, 2021 MEETING MINUTES, AS SUBMITTED.
C. APPROVAL OF PAYMENTS IN THE AMOUNT OF $302,622.13
COMMISSIONER PRESTON SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
There were no general public comments.
PUBLIC HEARING ON 2022 PRELIMINARY BUDGET
Ms. Drennan noted that the budget that is currently before the Commission has been available on the Port’s website since October 21st. She advised that a few changes were made to the 2022 Preliminary Budget since it was last reviewed by the Commission on October 11th. As discussed by the Commission, property taxes were increased from $600,000 to $606,000 and Washington State Archives Technical Tool Grant funds of $30,000 were added. These changes resulted in a $36,000 increase in net income.
Ms. Drennan explained that, during the hearing, the public will be invited to make comments on any elements of the 2022 Preliminary Budget packet, and the comments should be taken under consideration by the Commission. At the close of the public hearing, the Commission may discuss the public comments. She reported that formal notification of the hearing was made in the appropriate publications and posted in the appropriate locations. Staff will be recommending that the Commission approve the final budget on November 8th. The Port does not intend to have another public hearing before the final budget approval. The budget is to be delivered to the Snohomish County Treasurer by November 30th.
The Commission officially opened the public hearing.
Mr. McChesney read the following letter from Jack Bevan, dated October 24, 2021, into the record:
“The owners of the Port of Edmonds, being the US Taxpayers, have a suggestion for the Commissioners. For many years, we the taxpayers have asked for you to reduce the tax to zero, as the assets of the Port are sufficient for it to be self-sustaining.
Harbor Square was acquired when the Port was engaged in an undesirable court decision and the solution was for the Port to purchase Harbor Square. The taxpayers were not sufficiently advised of the purchase of Harbor Square. The taxpayers have sat patiently until the bonds were paid off because the tax income was responsible for a large portion of the bond enabling payment.
The new budget is now “rewarding” the Port District taxpayers with the recommendation of increasing the tax by fifty percent. The taxpayers understand the need for the expenditure for the North Seawall and Portwalk rebuilding at a cost of $2 million for year 2022 and a total of $9 million to year 2025. The bigger burden is the $7.25 million cost of the new Administration Building, shop and furnishings.
A solution would be to delay any new construction of the Administration Building, shop and furnishings until we have a plan. Real estate is HOT and probably the best time to SELL Harbor Square. Harbor Square is estimated to be worth approximately $20 million, and selling this property will reduce overhead and cover the major expenditures that are confronting our Port.
The taxpayers have made it possible for the Port of Edmonds to float bonds at a favorable level, so don’t ask us for a lot of money, particularly when the original charter called for the management and marine economic development of the Port.”
There were no other public comments, and the public hearing was closed.
In response to Mr. Bevan’s written comment, Commissioner Orvis explained that the existing Administration Building must be removed in order to complete the proposed plan for the Portwalk. The intent is that this area will become a public space, and the property will serve as a laydown area for the project during construction. He also clarified that $9 million is likely 50% of the anticipated cost ($18 to $20 million) for the combined North Seawall and Portwalk Project. The project is currently at 60% design, and permits will be submitted within the next few months. The intent is to use taxpayer money to help fund this project.
Commissioner Orvis pointed out that the Port hasn’t raised taxes since 2008. The proposed Portwalk and amenities are intended for public use, and the Commission believes the public will get fair value for the taxes they pay. The current Portwalk is heavily used by Edmonds residents and people outside of the Port District, and the Port would prefer to rebuild it in a manner that it is convenient and enjoyable to the entire area, and not just the marina tenants. If the project was being done simply for the marina tenants, it would be a lot simpler and probably less welcoming. Commissioner Harris acknowledged that marina tenants have requested some of the upgrades that are being proposed as part of the project.
Commissioner Faires commented that safety is a primary concern when it comes to replacing the current Administration Building. It is 40 to 50 years old and has somewhat been retrofitted once with earthquake mitigation. However, it is still a cement block building that will likely come down if there is an earthquake of catastrophic magnitude. He emphasized that the Commission, with advice from staff, must still figure out what portions of the North Breakwater and Portwalk Project costs will be attributed to the marina versus the taxpayers. Rehabilitation of the Portwalk will result in better community value, including the marina tenants. His hope is that they can account for the funds necessary for the enhancement of the public marina separately from the rest of the revenue. When the community’s portion of the project is paid off, his hope is that taxes will be reduced. He said he agrees with the budget that as presented, as well as the plan for the North Breakwater and Portwalk Project and the sequence of its implementation.
Commissioner Preston asked Ms. Drennan to explain how the dollar amount of the tax revenue collected by the Port has stayed the same over the past several years, but the net effect to homeowners has gone down. Ms. Drennan referred to the chart on Page 50 of the Staff Report, which illustrates the actual tax levy amount and actual levy rate from 1990 to 2022. She summarized that the tax levy rate was $0.294/$1,000 in 1990 and $0.058/$1,000 in 2021. The proposed tax levy amount of $606,000 will increase the tax levy rate to $0.080/$1,000. She also pointed out that the value of the dollar decreases due to inflation. She referred to the graph on Page 54 of the Staff Report, which illustrates the value of property taxes in 2008 dollars. A $400,000 property tax levy amount in 2022 would be equal $292,157 in 2008 dollars.
Commissioner Preston referred to Mr. Bevan’s letter and said he likes the idea of having zero tax, too. However, he believes taxpayer funding is necessary to fund the two large projects that are currently being designed. If the Port were to fund the projects with loans or bonds, the taxpayers would be responsible for paying them back. As per a Finance Committee discussion, Ms. Drennan pointed out that, by issuing bonds, the Port would end up in a lesser position based on the amount of interest it would have to pay.
Commissioner Preston asked if the budget could include a placeholder with a small amount of funds to help the City support a proposed emergency dive team. Mr. McChesney answered that the Port has not been asked for funds. Commissioner Orvis commented that the budget is intended to lay out how the Port will pay for known costs. He reminded them that the Commission has the ability to adjust the budget during the year, if necessary.
Commissioner Orvis emphasized that the Commission is scheduled to formally approve the 2022 Preliminary Budget on November 8th.
HARBOR SQUARE ASPHALT REPAIR CONTRACT NO. 2021-388 ACCEPT AS COMPLETE
Mr. McChesney reviewed that, after formal bidding took place, the Commission directed staff to enter into a contract with the low bidder, Northwest Asphalt, Inc., on July 26th for $47,754 plus tax. The budgeted amount for 2021 work on Harbor Square asphalt repairs was $50,000. He reported that work began on the project in September, and final punch list items were completed on October 18th. The Maintenance Manager signed off on the work as complete on October 19th, and a Notice of Completion of Public Work will be filed with the State of Washington to begin the retainage release process. Staff worked with the contractor to mitigate parking inconveniences and traffic flow at Harbor Square during the project. He recommended the Commission accept the Harbor Square Asphalt Repair Contract No. 2021-388 as complete.
COMMISSIONER ORVIS MOVED THE COMMISSION ACCEPT THE CONTRACT NO. 2021-388 WITH NORTHWEST ASPHALT, INC. IN THE AMOUNT OF $47,754 PLUS TAX FOR THE HARBOR SQUARE ASPHALT REPAIR 2021 CONTRACT AS COMPLETE. COMMISSIONER JOHNSTON SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
HARBOR SQUARE 3RD QUARTER 2020 REPORT
Ms. Williams presented the Harbor Square 3rd Quarter Report, specifically noting the following:
• Gross projected revenue was down 1.12% or roughly $5,500 compared to the same time period in 2020.
• The occupancy rate at the end of Quarter 3 was 90.33%, which is down .69% compared to the occupancy rate at the same time in 2020. However, it was equal to Quarter 2 2021.
• No leases ended or began in Quarter 3, but there were three lease extensions. All were for a 1-year period.
• The major project for the quarter was asphalt resurfacing in the northeast parking lot of Building 2.
• There were no incidences to report.
Commissioner Faires asked for more information about the current vacant space at Harbor Square, and Ms. Williams answered that it is primarily two, 3,000 square foot spaces.
3RD QUARTER FINANCIAL STATEMENTS
Ms. Drennan presented the 3rd Quarter 2021 Financial Statements, providing a graph showing 3rd quarter revenues and expenses for the current 9-month period, as well as the previous four years. She noted that revenues and expenses are generally trending upwards, with a slight drop in 2020 due to the pandemic. She advised that net income is generally trending upwards, as well, with a slight blip in 2020. Actual to budget, revenues were $706,000 greater than budget, and expenses were $154,000 less than budget. She reminded them that some of the numbers are budgeted evenly over all quarters, and she expects that revenue will drop off in the 4th quarter. Some of the anticipated projects were not completed this year, either.
Ms. Drennan advised that gross profit for the 9-month period was $6.7 million, which was $382,000 greater than budget. Net income for the same period was $2.7 million. She highlighted the following items:
Marina Operations Revenue Actual to Budget
• Net Fuel Sales were about $295,000, which was about 47% or $94,000 greater than budget.
• Launcher Revenue was about $102,000, which is a positive variance of $15,000 or 18%.
• Net Guest Moorage revenue was approximately $233,000, which was about $75,000 or 48% greater than budget.
• Permanent Moorage revenues were about $2,931,000, which is approximately $85,000 greater than budget and a variance of about 3%.
• Passenger Fees were $37,803, a variance of approximately $28,000 or 278%. Going into budget time last year, they weren’t sure how the pandemic would affect Puget Sound Express in 2021, but they did exceedingly well.
• Dry Storage revenue was about $626,000 or $50,000 greater than budget. This will likely decrease in the last three months of 2021 as they move to the off-season rate and some tenants will decide to take their boats home.
• Parking revenue was about $97,000, or $22,000 (30%) greater than budget.
• Travelift revenue was $127,000, which was about $32,000 greater than budget.
• Workyard revenue was $130,000, which was about $51,000 greater than budget.
• Financial occupancy for Permanent Moorage was 99%, and 96% was budgeted for the year. Financial occupancy for Dry Storage was 96% and 88% was budgeted for the year.
Commissioner Harris asked if the increased revenue in Parking, Travelift and Workyard could be attributed to pandemic impacts. Ms. Drennan said part of the increase in Travelift and Workyard revenue was due to the fact that the Port’s rates were a lot lower than some of the other marinas. She noted that compared to the same time in 2020, the Travelift revenue increased by about $20,000 and the Workyard revenue by about $37,000. However, it is important to note that both were closed down for a time in 2020. She summarized that some of the disparity is due to conservative estimates due to the pandemic.
Rental Properties Revenue Actual to Budget
• Total Rental Property revenue to date was $1,966,000, about $72,000 or 4% less than budget.
Operating Expenses Actual to Budget
• Operating expenses before depreciation for the 9-month period were about $3.4 million, which was approximately $379,000 or 10% less than budget.
• Employee Benefits were about $528,000 or $37,000 below budget.
• Payroll Taxes were about $206,000 or about $17,000 greater than budget. This is primarily because the Labor and Industry and Unemployment Taxes increased by about 18% over 2020 amounts. The rates for the upcoming year are not announced prior to budget approval.
• Repair and Maintenance expenses were about $173,000, which is about $111,000 less than budget.
• Salaries and wages were about $1,590,000 or $77,000 less than budget.
• Supplies were about $167,000 or $86,000 less than budget.
• Net income for the 9 months ending September 30th was about $2.7 million, which was about $859,000 greater than budget.
Marina Actual to Budget
• Revenues and expenses are generally trending upward, with a slight drop in 2020 due to the pandemic.
• Net income is trending upwards.
• Revenues were about $811,000 greater than budget and expenses were $7,000 less than budget.
• Operating revenues were approximately $5.9 million, about $777,000 or 15% greater than budget.
• Operating expenses before depreciation and overhead were about $1,997,000, about $146,000 or 7% less than budget.
• Net income was about $1,835,000 or about $819,000 greater than budget.
Commissioner Faires said it should be noted that in 2021 and 2020, expenses were the same and he agreed they should try to budget on the conservative side. However, they should expect that expense budgets will tend to be higher going forward because the facility is aging. Revenue is about $1 million higher than budget, which is explainable by looking at the impacts of the pandemic and the conservative approach the Port took.
Rental Property Actual to Budget
• Rental property revenues trended upwards to a high of $1.5 million in 2018, dropping to $1.3 million in 2021. Expenses don’t appear to have a trend.
• Net income trended upwards to $1 million in 2019, dropping to $485,000 in 2020 and up to $874,000 in 2021. Without the property tax subsidy, the net income would have been $633,000 in 2017, $892,000 in 2018, and $941,000 in 2019. In 2020, there was a drop in net income when the old Harbor Square Building 3 remaining asset was replaced by the major building renovation.
• Actual to budget revenues were about $72,000 less than budget and expenses were $114,000 less than budget.
• Operating revenues were $1,966,000 or $72,000 less than budget, and operating expenses before depreciation and overhead were $441,000 or 8% less than budget.
• Net income was about $874,000 or about $41,000 greater than budget.
Ms. Drennan reviewed the investing summary, noting that as of September 30th, the Port had 23 long-term investments. No bonds matured or were called during the 3rd Quarter. The Capital Replacement Reserve is currently at $15,826,301, the Environmental Reserve is currently $1,061,765, and the Public Amenities Reserve is currently $61,463. The details of the Port’s bond maturity and calls were attached to the Staff Report. As bonds mature or are being called, the Port is retaining the funds in an interest-baring account in preparation for funding the Administration/Maintenance Building and North Seawall and Portwalk Projects.
Commissioner Faires asked Ms. Drennan to explain which of the reserves are under Commission control and which ones are required by law. Ms. Drennan reviewed that the State recommends that you keep three months of expenses in the Operating Reserve to avoid a “Going Concern Finding.” The Port Commission decided to increase this to a 6-month reserve. The Tenant Security Deposit Reserve cannot be spent. While the Governmental Accounting Standards Board (GASB) doesn’t require ports to reserve cash in the Environmental Reserve, they do have to account for the liability. The Capital Replacement and Public Amenities Reserve are determined by the Commission. Commissioner Orvis summarized that the Port Commission has chosen to keep $1 million in the Environmental Reserve and an additional three months in the Operating Reserve. They have also chosen to maintain Capital Replacement and Public Amenities Reserves.
Commissioner Orvis commented that the Commission intentionally created the $16 million Capital Reserve, anticipating the cost of future capital replacement projects. Commissioner Faires added that the Port has a 40- to 50-year forecast relative to cash, as that is the life expectancy of the marina assets. The intent is to have both cash and bonding capability to replace the marina without assessing the public.
CITY OF EDMONDS REPORT
Council Member Olson advised that there is a proposal to allocate $70,000 in the City’s 2022 budget to provide training and equipment for a five-person, certified dive team, and she has discussed partnership opportunities with the City Administration. As Commissioner Preston indicated earlier in the meeting, the Port could become a partner. Washington State Ferries and other stakeholders that would benefit could also be approached.
Commissioner Faires asked where the equipment necessary to support the dive team would be stored. Council Member Olson advised that Police Chief Bennett submitted the proposal, and she anticipates the equipment would be stored somewhere at police headquarters. However, this could be negotiated if the Port indicates a vested interest in having it located closer to the waterfront. Commissioner Preston suggested that future Commissioner Jay Grant and Chief Bennett should discuss options for ensuring the dive team can provide service in the water as quickly as possible. Commissioner Orvis recalled that when an emergency-response team on the waterfront was contemplated years ago, one of the biggest hurdles was how to store and maintain the valuable equipment. He suggested the most important thing is to store the equipment in proximity to those who are responsible for maintaining it. Commissioner Preston suggested that the Fire Department should be part of the discussion, and Commissioner Orvis agreed, noting that the Port provides moorage for the fire rescue boat via an interlocal agreement with the Fire Department.
EXECUTIVE DIRECTOR’S REPORT
Mr. McChesney reported that the marina experienced a power outage for several hours on October 24th. There were no major issues to report, but they did have to bring in the IT expert to get the server up and running again.
Mr. McChesney recalled that Port staff has been working with teams of consultants to keep the two large projects on track. There are five consulting firms working on various aspects of the North Seawall and Portwalk Reconstruction Project. In addition, there are ten consulting firms working on the Administration/Maintenance Building Project, including a few related to Leadership in Energy and Environmental Design (LEED) Certification. Both projects are generally on schedule.
Mr. McChesney reported that he attended the Washington Public Port Association’s (WPPAs) Marina Committee Meeting, where the Port of Kingston made a good presentation about moorage rates. He noted that the Port of Edmonds was recognized several times as the leader in the philosophy of establishing moorage rates at a level necessary to create reserves to replace assets in the future. Many ports in the industry are now coming to the awareness that, as painful as it may be in the short-term, ports will be in trouble in the long term if moorage rates are not set at a level sufficient to generate surplus revenues to build reserves. He summarized that the discussion was a reaffirmation of the Commission’s policy over the last 10 to 12 years, and the Cash Flow Model that was put together by Ms. Drennan has become a model for the industry.
COMMISSIONER’S COMMENTS AND COMMITTEE REPORTS
Commissioner Orvis reported that he attended the Economic Alliance of Snohomish County’s (EASCs) Coffee Chat about diversity. He observed that there are so many different views on diversity and inclusion. It is important to understand that you can’t please everyone, but you must try your best to make people feel welcome. To do that, you have to anticipate differences in language and culture, which is difficult because individual groups within each cultural group can have very different views of what is acceptable and unacceptable.
Commissioner Orvis reported that the EASC’s Public Official Reception was a good chance to exchange ideas. Attendees were assigned break-out groups, with all of the port commissioners in one group.
Commissioner Orvis said he also attended the Washington Public Port Association’s (WPPAs) Legislative Committee meeting, where they were preparing for the upcoming legislative session. A few items of note:
• Model Toxic Control Act (MTCA) is still struggling with the fact that the Department of Ecology (DOE) can’t award cleanup grants until all of the permits have been obtained, and getting all of the permits sometimes means that you don’t get the grant because you waited too long for the permit and the money has expired. Only the legislature can fix this problem, and it will be worked on by a number of people in 2022.
• The Recreational Boaters Association has recommended that the excise taxes be changed so they go towards the removal of derelict vessels.
• The Community Economic Revitalization Board (CERB) is seeking the authority to be the permanent administrator for rural broadband. There is a lot of money that needs to be regulated intelligently, and the CERB Board has done reasonably well over the years.
• HB2449 changed the date for the next inflationary adjustment of commissioner compensation from July 1, 2023 to January 1, 2024. In addition to ports, the legislation also applies to public utility districts and other public entities. The intent was to sync the adjustments to municipal government calendars and budgets. However, they forgot to index from 2008 when they first passed the law, which means that newer commissioners would take a cut in pay. The solution is to pass a resolution saying that you would keep pay and allowances for all commissioners at the same rate as the index rate they are currently served with. In 2024, it should all smooth out. The current consensus from public utility districts and other public entities is to just accept the resolution, and the auditor has accepted that proposal. Mr. McChesney advised that a resolution has been drafted, but it was held back because the WPPA previously suggested there would be a legislative fix. The Commissioners directed staff to bring the resolution forward for approval at the next Commission meeting.
• The Governor’s office is drafting a bill that would allow agencies to take testimony remotely outside of a declared emergency.
• When the legislature changed the prevailing wage law, the process for establishing prevailing wages went from data that was acquired from a multitude of sources to essentially the collective bargaining rate for various unions. This did terrible damage, particularly in the rural areas where small businesses didn’t have the means of competing and small entities didn’t have the ability to pay the prevailing wages. The Governor’s office is drafting a bill to support going back to what was being done in the first place. The issue is in the courts now, and his understanding is that the law required that prevailing wage be determined by sampling rather than simply taking the union scale wage.
• CERB is requesting an additional $25 million for broadband in addition the $25 million that has already been allocated.
• The State Archives is administering a grant program to help local jurisdictions bring their records up to date, and the Port has already applied and received one.
• A lot of work will be done in the next legislative session related to carbon taxing, and it appears that Washington State will follow California and Oregon. It is now a matter of where they will spend the money.
Commissioner Preston reported that he, along with Commissioners Johnston and Harris, attended the WPPA Small Ports Seminar last week. He attended a session where a representative from Enduris and an attorney talked about the pandemic and the complexities related to transition. He also announced that he would attend the EASC’s Coffee Chat on October 26th.
Commissioner Faires advised that he was unable to attend the Edmonds Economic Development Commission meeting on October 20th. He will review the minutes from that meeting when they are available and report back to the Commission.
Commissioner Faires expressed his wish that the Commission and staff continue to maintain the Public Amenities Fund, as he believes it has value in explaining to the public what portions of the North Portwalk Project costs are attributable to marina tenants versus the public. Mr. McChesney agreed that staff could do that, but he cautioned that they won’t know what the cost allocations will be until they have a contract and schedule of values.
Commissioner Johnston said he also attended the WPPA Small Ports Seminar. The information provided was a good split between what small ports need to know and what the bit larger and more sophisticated ports need to be reminded of. At some point, you almost get the recognition that the Port of Edmonds is starting to sneak out of the small ports arena in some respects. He participated in the following sessions:
• A representative from Enduris indicated there are more and more cases related to the pandemic being adjudicated, and many of them are small business cases. People are ill suited to handle them, and they are getting very costly and complex.
• A presentation by the Municipal Research and Services Center and the State Auditor’s Office outlined the various resources and tools available to ports.
• The WPPA’s new Communications Director talked about developing websites, particularly channeled towards small ports that don’t have a robust social media and website presence. One of the new mandates requires ports to have up-to-date websites, and Ms. Williams has done a great job of overseeing this effort.
• There was a good presentation on the ABCs of debt, which outlined different ways to finance large projects via bonding, pay as you go, etc.
• There was a panel discussion on the difference between commissioners and managers and what their respective responsibilities are.
Commissioner Johnston advised that he would participate in a port visit by the WPPA to talk about how the Port could progress their permits as they effect the North Seawall and Portwalk Project.
Commissioner Harris reported that she also attended the WPPA Small Ports Seminar and commented that the WPPA did a good job with the event. The seminar was well attended, and it was good to get back together with people.
The Commission meeting was adjourned at 8:15 p.m.
Port Commission Secretary