13 Nov Commission Meeting Minutes 10-26-20
PORT COMMISSION OF THE PORT OF EDMONDS MINUTES OF MEETING
(Via Zoom) October 26, 2020
Jim Orvis, President
Angela Harris, Vice President
David Preston, Secretary
Bob McChesney, Executive Director
Brandon Baker, Marina Manager
Tina Drennan, Finance Manager
Brittany Williams, Manager of Properties and Marketing
Bradford Cattle, Port Attorney
CALL TO ORDER
President Orvis 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 FAIRES MOVED THAT THE CONSENT AGENDA BE APPROVED TO INCLUDE THE FOLLOWING ITEMS:
A. APPROVAL OF AGENDA
B. APPROVAL OF OCTOBER 12, 2020 MEETING MINUTES, AS MODIFIED.
C. APPROVAL OF PAYMENTS IN THE AMOUNT OF $178,822.38
COMMISSIONER PRESTON SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
There were no general public comments.
PUBLIC HEARING ON 2021 PRELIMINARY BUDGET
Commissioner Orvis noted that the Port of Edmonds 2021 Preliminary Budget packets have been available on the Port’s website since Thursday October 22nd, and one change was made to the packet since the October 12th meeting. On Page 22, Note O22, Membership Dues were reduced from $20,000 to $19,000 to reflect the actual Washington Public Port Association (WPPA) dues. He advised that formal notice of the public hearing was made in the appropriate publications and notification was also posted in the appropriate locations. Staff will be recommending the Commission approve the final budget on November 9th. As discussed previously, the Commission does not intend to have another public hearing before final budget approval, and the budget will be delivered to the Snohomish County Treasurer by November 30th. He reviewed the rules and procedures and then opened the public hearing.
Commissioner Johnston referred to a letter the Port received from the WPPA, advising that the Port’s 2021 WPPA dues would be $14,159. He noted that this number is different than the $19,000 discussed earlier. Ms. Drennan clarified that $19,000 represents the total of all membership dues the Port will pay in 2021.
There were no public comments, and Commissioner Orvis closed the hearing.
APPROVAL OF GANGWAY PROJECT AS COMPLETE (CONTRACT NO. 2020-343)
Mr. McChesney reviewed that, after a competitive bid process was completed on June 4th, the Commission authorized staff to enter into a contract with Neptune Marine LLC on June 8th to replace the Travelift Area Gangway at a cost of $47,000 plus sales tax. A change order of $3,735 was required to address the existing mounting plate, as it was insufficient to attach the ramp. The budgeted amount was $150,000, which included engineering. The work was completed on October 7th and approved by the Facilities Maintenance Manager. Retainage will be dispersed following formal written approval by the three state agencies that govern retainage releases from completed public works contracts over $35,000 (Labor and Industries, Department of Revenue, and Employment Security). He recommended the Commission accept the contract as complete.
Commissioner Orvis asked about the engineering costs, and Mr. McChesney agreed to provide that number at a later date. However, he noted that, even with the engineering costs, the total project costs were well below the $150,000 budget.
COMMISSIONER JOHNSTON MOVED THAT THE COMMISSION ACCEPT THE GANGWAY REPLACEMENT CONTRACT NO. 2020-343 AS COMPLETE. COMMISSIONER HARRIS SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
CONTINUATION OF RESOLUTION NO. 20-03 DECLARING LOCAL EMERGENCY AND DELEGATION OF AUTHORITY
Mr. McChesney reported that there has been no action taken by the Executive Director under the special emergency authority to date.
HARBOR SQUARE 3RD QUARTER REPORT
Ms. Williams shared the Harbor Square 3rd Quarter Report, noting that Gross Projected Revenue was down 6.55% or roughly $35,000 over the same period in 2019. The occupancy rate at the end of 3rd Quarter was 91.02%, which is down 7.35% from the same period in 2019. Three leases ended in Quarter 3, and there were immediate tenants for two of the spaces.
Ms. Williams reported that one new lease was in Building 4 for 62 months for a value of approximately $220,000. Two months of rent abatement were granted to the new tenant to allow the tenant to make improvements such as repairing the flooring and upgrading to both restrooms. When Gallagher’s was sold, it made the most sense for the Port to let the previous owners out of their lease early. The Port then set up a lease with the new owners with a higher value and longer term. The business will still operate under the same name, but with a different owner. The upgrades look great, and the business is open again. Commissioner Faires asked if the new owner of Gallagher’s changed the business permit. Ms. Williams said it was changed to a restaurant permit, and the new owner offers simple food items.
Ms. Williams said there were three lease extensions in Quarter 3. The major project was completing Building 3 Renovations. As soon as the project was finished, the maintenance crew completed relandscaping all the way around. Parking lot striping was done at the end of summer, and most of the new tenants in Building 3 received new blinds, which were installed in-house. There were no incidents to report in Quarter 3.
Commissioner Faires asked if staff has any sense that the occupancy rate will recover in the next nine months. Ms. Williams said a large part (about 4,000 square feet) of the unoccupied area is the Hart Crowser space that was kept open for the duration of the Building 3 Project. Rather than marketing this space, the current Building 3 tenants were allowed to use the space during the construction project. The intent is to market that space soon. Of the three leases that ended, two were businesses that have converted to work from home. She anticipates that two additional tenants will do the same in Quarter 4. Her forecast for the next year is that the occupancy rate will remain about the same.
PORT OPERATIONS 3RD QUARTER ACTIVITY REPORT
Mr. Baker reviewed that the Port instituted a “no mask, no service” policy in the touchpoint areas (operations window, fuel dock and dry storage). The policy aligns with the governor’s mandate, and the Port believes it creates the safest environment for both Port staff and customers. The policy will remain in place for the foreseeable future. In addition to that measure, the Port increased signage along the boardwalk and promenade, which resulted in an increase in compliance with the mask policy.
Mr. Baker reported that there was a 7% decrease in saltwater fishing boat purchases in Washington. However, purchases in all other boat categories in Washington State were triple the national averages.
Mr. Baker announced that a new Port Utility Worker was hired and is being trained in Dry Storage and Marina Operations.
Mr. Baker reported that there were 26 terminations and 24 assignments in Water Moorage, and the waitlist continues to grow. At the end of Quarter 3 there were 234 total applications on file, compared to 134 at the same point in 2019. At the end of Quarter 2 there were 223 total applications on file. Commissioner Faires asked about the rate of turn down. Mr. Baker answered that there were 13 turn downs during Quarter 3. In the same quarter in 2019, there were 2 turn downs. He summarized that some of the people were expecting liveaboard status, and some had length-overall issues. Lastly, he suggested that some people are a little uneasy and not ready to move or commit to new moorage situations given the pandemic.
Mr. Baker said the total number of boats in Guest Moorage was up 34% from 2019, and total number of nights increased by 29%. There were 10 more reservations in 2020 compared to the same time period in 2019. He reminded them that Dry Storage was managed slightly different in 2020, and staff has been enforcing the in-the-water policies. Part of the large jump can be attributed to dry storage tenants. These numbers are now being recorded separately, allowing for better data going forward.
Mr. Baker said staff continues to work with tenants on document compliance. Registrations always expire on June 30th, and July through September is a busy time for staff as they work to collect documents. As fall approaches, staff will continue its work to get compliance into the 90% range.
Mr. Baker reported that physical occupancy in Dry Storage was 94% in 2020 compared to 98% in 2019. However, 50 of the 51 trailer spaces are currently rented. Launch activity was down 2.5% compared to 2019, but call-ahead service increased 99% due to the pandemic policy that requires launch appointments from 7 a.m. to 3 p.m. From 3 p.m. to 5 p.m. the service is offered on a first-come-first-serve basis. Commissioner Orvis summarized that the call-ahead policy did not have a significant impact on the number of launches. However, it required some forethought on the part of tenants, and the boat launch operated in a more orderly fashion. Mr. Baker said Dry Storage staff liked the call-ahead system, as it helped them delegate labor appropriately but still remain flexible at the end of the day.
Mr. Baker reported that Travelift roundtrips increased by 49%, and stall usage was up 63%. The sling times, both with and without pressure washing, decreased but pressure wash treatments increased. Commissioner Faires commented that the decrease in sling time implies that there were fewer boats being pressure washed. Mr. Baker clarified that every roundtrip Travelift requires pressure washing. Sling time is where they are only scheduling the boat to be hauled to the slings and then go back in. Examples of sling time without washing would be a prop change or to examine the hull for damage.
Mr. Baker advised that there was a slight increase (1.1%) in total gallons of fuel sold. Gasoline increased by 23% but diesel was down by 24%. Puget Sound Express did not operate on a full schedule due to the pandemic, and cruisers are staying closer to home because the border was closed. Pay-at-the pump usage accounted for 57% of the total gallons pumped, which is down from 63% in 2019. As per the survey, the Port’s fuel prices are very close to the average for the area.
Mr. Baker reported there was a 10% increase for round trips at the public launch, for a total of 188 more in 2020. One-way launches were up 5%, totaling 13 more trips.
Mr. Baker advised the Port did not sponsor any activities, due to the pandemic. However, the Edmonds Coho Derby and Everett Coho Derby were hosted at the Port of Edmonds, and the both events went well.
Commissioner Preston noted that the water samples that were collected in July, August and September for the treated pressure wash water indicate that the parameters for copper, zinc lead and PH levels were all below the threshold requirements of the Boatyard General Permit. Commissioners Orvis and Faires commented that the numbers are great considering the large number of boats that were served.
3RD QUARTER 2020 FINANCIAL STATEMENTS
Ms. Drennan presented the 3rd Quarter Financial Statements, noting that revenues trended up to 2019, with a high of $8 million, and dropped to $7.6 million in 2020. Expenses trended up to $5.7 million in 2019 and dropped to $5.6 million in 2020. Net income has been trending between $1.6 million and $2.3 million. Actual-to-Budget Revenues were $81,000 less than budget and expenses were $198,000 less than budget. Gross profit for the 9-month period was $6.3 million, which was $21,000 less than budget. Net income for the same period was $1.9 million. Highlights include:
Marina Operations Revenue Actual to Budget
• Net Fuel Sales were about $194,000, which was about $8,000 or 4% greater than budget.
• Launcher revenue was $99,000, which was about $9,000 or 10% greater than budget.
• Net Guest Moorage revenue was $179,000, which was about $24,000 or 15% greater than budget.
• Permanent Moorage revenue was $2.9 million or about $58,000 or 2% greater than budget.
• Passenger Fee revenue was $6,500 or about $18,000 less than budget as Puget Sound Express ran on a limited schedule.
• Dry Storage revenue was about $560,000, which was about $11,000 less than budget. This is primarily due to the pandemic. The Port reduced rents to the pay-per-move rate when the launcher was closed and continued the off-peak rate for an additional month.
• Workyard revenue was $93,000, which was $10,000 or 13% greater than budget.
• Financial occupancy for permanent moorage was 98%, which is greater than the budgeted 97%. Financial occupancy for dry storage was 87%, compared to a budgeted amount of 89%. This is a result of the rate reductions that were put in place early in the pandemic.
Rental Properties Revenue Actual to Budget
• Total Rental Property revenue was $1,978,000, which is about $91,000 or 4% less than budget. This is primarily because tenants in Building 3 received construction credits while their spaces were disrupted. Revenue from restaurant parking was also down, as the restaurants were closed and didn’t need the space. In addition, Anthony’s percentage rent did not exceed the minimum annual guarantee for the first time in years. In 2019, their percentage rent was approximately $56,000.
Operating Expenses Actual to Budget
• Operating expenses before depreciation for the 9-month period were about $3.4 million, which was approximately $476,000 or 12% less than budget. Some of the projects that were budgeted for 2020 have been postponed due to pandemic closures and delays in getting materials and supplies.
• Economic Development and Tourism expenses was significantly affected by the pandemic.
• The differences in Employee Benefit and Salaries and Wages are related to timing issues.
• Professional fees were about $59,000 or about $23,000 less than budget.
• Repair and Maintenance expenses were about $170,000 or about $140,000 less than budget.
• Supplies were about $123,000, which is about $159,000 or 56% less than budget.
• Travel expenses were impacted by the pandemic.
• The difference in Utilities expenses was related to a timing difference.
Commissioner Faires asked if it is fair to tell a constituent that, throughout the pandemic, the Port has maintained productive employment at the Port without exception. Mr. McChesney agreed that is true.
• There was a $496,000 loss on fixed assets, which is the undepreciated portion of Building 3 that was written off while capitalizing the 2020 renovations. This was offset by a $15,000 gain on the sale of the Forklift and a $19,000 error correction of an asset that was written off but still in use.
• Change in fair value of investments is $10,000 that was not budgeted.
• Interest income was $186,000 or about $16,000 greater than budget. Interest income is definitely dropping.
• Net income for the 9-months ending September 30th was $1.9 million or approximately $116,000 greater than budget.
Marina Actual to Budget
• Revenues trended upward to $5.3 million in 2019 and dropped to $5.1 million in 2020 and expenses ranged between $3.3 million and $4.1 million.
• Net income is trending upwards.
• Operating revenues were $7,000 less than budget and expenses were $527,000 less than budget.
• Operating revenues were $5,039,000 or approximately $22,000 less than budget.
• Operating expenses before depreciation and overhead were about $1,937,000 or about $177,000 less than budget.
• Net income was about $1.5 million or about $519,000 greater than budget.
Commissioner Harris asked if the Communications, Economic Development and Tourism line items is where the cost of some of the Port events would have been recorded. Ms. Williams responded that $15,000 was earmarked for a spring mailer that the Port did not go forward with. A smaller portion of funding has been set aside for the holiday mailer. In the Tourism line item, a few projects were cancelled due to the pandemic, one being SeaTac advertising.
Commissioner Faires requested more information about why expenses were significantly less than budget. Mr. McChesney responded that most of the variance is related to the pandemic. Staff got behind on some projects due to the hard shut down, and they are trying to catch up now. Commissioner Johnston asked if staff expects a surge in expenses over the next quarter. Mr. McChesney said he expects a measurable increase.
Rental Property Actual to Budget
• Operating revenues have ranged between $1.9 million and $2.2 million, but are down in 2020 because the property tax income of $42,500 is now coded to Public Amenities instead of Harbor Square. There were also some construction credits and loss of parking revenue.
• Operating Expenses have ranged between $1.2 million and $1.5 million.
• Net income has ranged between $485,000 and $1 million. This is partially due to a nearly $500,000 loss in disposal of assets.
• Actual to budget, revenues are $91,000 less than budget and total expenses are $312,000 greater budget.
• Operating revenues are about $2 million, or about $91,000 less than budget.
• Operating expenses before depreciation and overhead were about $397,000, which is $66,000 less than budget.
• Net income was $485,000, or about $403,000 greater than budget.
Commissioner Faires asked if it was reasonable to expect the decrease of net income to carry through to the end of the year, or if they should be prepared for a bigger decrease. Ms. Drennan answered that she doesn’t expect further large decreases. There will be a decrease in revenues at the end of the year, as she has to review some of the rental deferrals and determine how many will be unable to pay.
Ms. Drennan reported that as of the end of September, there were 27 long-term investments. Previously, the bond ladder rungs consisted of $500,000 investments. However, the Port’s investment portfolio is large enough to begin investing in $1 million rungs. This will be achieved by combining two bonds that mature at similar times or adding funds from the Port’s bank account. Staff is maintaining a cash balance of $4 million, which is an increase of $1 million. Due to business tenant deferrals, she will review during 4th quarter to determine if it that level of still needed. Details of the Port’s bond maturity and bonds purchased was attached to the Staff Report. She summarized that the Capital Replacement Reserve is currently about $13,700,000, the Environmental Reserve is just over $1,051,000, and the Public Amenities Reserve is about $119,000. She referred to a list of the Port’s bonds, noting that everything that is callable has been called, and she anticipates that trend will continue. She anticipated that bond coupons would drop in the second half of 2019, so she purchased more non-callable bonds. This equates to a slightly higher interest rate. Currently, the Federal Reserve is not foreseeing an increase in interest rates until 2024, but even then, the rates will not increase dramatically.
Commissioner Faires asked if staff has any indication as to what the cost of replacement of physical assets will be. Ms. Drennan said the Facilities Maintenance Manager has indicated that the cost of construction and materials is going up.
Commissioner Preston asked what the Capital Replacement Reserve Fund consists of. Ms. Drennan answered that the Capital Reserve is $13.5 million in investments and $150,000 in the bank account. Commissioner Preston requested more information about the investments, and Ms. Drennan referred to the list on Page 13 of the Staff Report. She said she could provide more detailed information at the Commission’s request.
EXECUTIVE DIRECTOR’S REPORT
Mr. McChesney announced that the new Dry Storage Office Trailer was installed last week. It was challenging due to the weather and because they had to hook up power, telephone, and fiberoptic cable. He commended the maintenance staff who performed the work. He commented that the new trailer should serve the Port staff well for a number of years. Maintenance staff will now move forward to complete the Public Plaza Awning and some of the early projects for the Public Access Plan.
Mr. McChesney advised that the Public Access Committee is scheduled to meet on October 29th. The intent is to develop some focus around the anticipated process, which will start with engineering. Once they get to 40% engineering, they can bring in planners to help with the permitting process. While that is all going on, staff will be seeking grant funding to help finance the project. As he mentioned in the past, it is important to get started now by defining the process and selecting the consultant team.
COMMISSIONER’S COMMENTS AND COMMITTEE REPORTS
Commissioner Harris reported that she participated in the Washington Public Port Association’s (WPPA’s) Small Ports Seminar, as well as the WPPA’s weekly sessions. She has also participated in the Economic Alliance of Snohomish County’s (EASC’s) Coffee Chats. At the Small Ports Seminar, there was some discussion about the redistricting process. Ms. Drennan said the Port can’t start this process until the documentation has been received, which she expects next year. The Commissioners won’t be highly involved in the process. Instead, she will work with a consultant who will draw the lines based on population, and then she will bring it back to the Commission for approval. Staff works to keep a Commissioner in his/her district.
Commissioner Harris advised that she would attend the Public Access Committee meeting on October 30th.
Commissioner Johnston said he also attended the WPPA’s Small Ports Seminar. In addition to redistricting, topics of discussion included what the stimulus package might look and what the timing might be. He missed the grant-writing session, but he enjoyed the presentation by Les Reardanz, Attorney at Chmelik Sitkin and Davis Law Firm and former Chief Executive Officer of the Port of Everett, regarding the procedures and requirements for open public meetings. Commissioner Harris noted that the Commissioners should receive a copy of Mr. Reardanz’s presentation, which reiterated the importance of equality and the reasons for holding remote meetings. Commissioner Orvis added that Mr. Reardanz emphasized the need for policies for virtual meetings, which is something the Commission should consider doing. Commissioner Johnston summarized that, from the discussion, it appears that the Port is doing things right. Commissioner Orvis encouraged Port staff to review the presentation when it is made available.
Commissioner Johnston said he has also been participating in the weekly WPPA workshops, which have been very informative. He will also participate in the EASC’s Coffee Chat on October 27th and the Public Access Committee meeting on October 29th.
Commissioner Faires said he also attended the WPPA’s Small Ports Seminar where it was mentioned that only about one third of the ports do long-range planning. He submitted that is not good at all. Financial planning for the major assets at any port needs to be done on a time scale consistent with the lifespan of the assets. There needs to be a scenario laid out that makes sense and is defensible. He felt the Port has done a good job in this regard, but a lot of ports are not paying attention. The presentation on grant access primarily dealt with federal and state industrial grants, but the content was applicable to the Port and the North Marina Walkway Project. The message was to start thinking about projects three or four years before anticipated construction because it takes a long time to convince the public of the need and to obtain grant funding.
Commissioner Preston said he also attended the WPPA’s Small Ports Seminar, where he heard legislative concerns. Questions were raised about what the general session, which starts in January, will look like if the pandemic continues. For every legislator, there are dozens of support personnel.
Commissioner Preston thanked Commodore Dave Cheeney and John Stannard from the Edmonds Yacht Club for joining the meeting via Zoom.
Commissioner Orvis thanked Ms. Ebel for sending out the list of meetings for the Small Ports Seminar. Receiving a separate email for every meeting is difficult to go through. He felt a combined list of the meetings would be helpful for every WPPA event. Ms. Drennan pointed out that Ms. Ebel had to register the Commissioners separately for each of the sessions. She suggested they raise this issue with the WPPA, because the current format is difficult to manage.
Commissioner Orvis commented that it is imperative for the Port do whatever it can do to support the hatchery. They don’t want to see it fail, and offering support is consistent with the Port’s environmental policy. He suggested the Commission and staff consider how the Port might provide assistance so the hatchery can continue. Commissioner Faires asked for direction from the Port Attorney as to whether or not the Port could contribute to the hatchery’s wellbeing on an emergency or ongoing basis, giving them funding under the auspice of a marine-related endeavor. Commissioner Orvis noted that the Port already provides some financial support by hosting the pen where the smolt grow. Mr. Cattle said it would be appropriate for the Port to provide a location for the hatchery’s t-shirts to be physically displayed and sold. He said he would work with Mr. McChesney to provide a more specific answer as to how and to what extent the Port can offer financial assistance to the hatchery. The Commissioners agreed they should have a discussion about what the Port can legally do to sustain the hatchery.
Commissioner Orvis reported that he attended the WPPA’s Small Port’s Seminar, which was good in general. The only thing lost with the virtual format was the camaraderie and visiting amongst the Commissioners and staff present at the meeting. The presentations were better in many respects due to the virtual format. He said he attended the EASC’s presentation by Boeing. Some of the things he learned address questions that haven’t been covered well by the press. Boeing Vice President Bill McSherry briefed the group for 45 minutes. He said there is no good news for aerospace given the health restrictions and the 737 Max problems. He doesn’t expect any recovery in the aviation industry for the next two or three years. In April, passenger hauling was 94% lower than in 2019, and it is expected the recovery will start with domestic flights, followed by flights to Canada and Mexico. It is anticipated that resuming flights to Europe will be difficult because service is based on reciprocal arrangements rather than an overriding agreement. All of the European countries will need to buy in, and they don’t expect that particular market to recover until 2023 or 2034. He said Boeing’s decisions are based on survival. While production of the 787 will move to Charleston, SC, Boeing is committed that every derivative of the 777 will be made in Everett, as will the 767, which is doing better than expected because of freight hauling. The 747 will be gone by 2022. There is a distinct possibility that Boeing’s commercial airline division will move its headquarters to Everett. They expect to continue to use Boeing Field to deliver, but they are moving offices out. More employees are working from home, and they are looking for opportunities to consolidate. Commissioner Harris noted that many companies are considering extending opportunities for remote work from home. Commissioner Orvis noted that office space in Seattle is in jeopardy.
Commissioner Orvis said he also learned that, when it comes to climate change, the most important component of fuel economy and reducing carbon emissions in commercial aviation is the Federal Aviation Administration. Planes currently spend a lot of time flying circles in the sky because of air traffic control, and the Alaska Initiative, where they cut the engines over Wenatchee and coast into Seatac, will save tremendous amounts of fuel.
The Commission meeting was adjourned at 8:25 p.m.
David Preston, Port Commission Secretary