31 Dec Commission Meeting Minutes 12-9-19
PORT COMMISSION OF THE PORT OF EDMONDS MINUTES OF REGULAR MEETING December 9, 2019
Steve Johnston, President
Jim Orvis, Vice President
Angela Harris, Secretary (by phone)
Bob McChesney, Executive Director
Marla Kempf, Deputy Director
Tina Drennan, Finance Manager
Bradford Cattle, Port Attorney
CALL TO ORDER
President Johnson 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 NOVEMBER 25, 2019 MEETING MINUTES
C. APPROVAL OF PAYMENTS IN THE AMOUNT OF $186,709.73
COMMISSIONER PRESTON SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
Council Member Teitzel said it has been a pleasure interfacing with the Commission for the past several years. They are a professional organization that does a great job. He has used the Port’s services at the boatyard, as well as the new Travelift. He applauded the Commissioners for their contributions and encouraged them to keep up the good work. The Commissioners thanked Councilmember Teitzel for his support of the Port.
Denise Miller, Edmonds, reported that she attended the Sierra Club’s Christmas Party where she sang the Port Commission’s praises, noting that they have amended the Comprehensive Scheme of Harbor Improvements and are working to implement solar energy. Those in attendance were glad to hear her report. Commissioner Faires asked that Ms. Miller encourage people to get involved by attending Port Commission meetings and providing feedback. Commissioner Johnston thanked Ms. Miller for her willingness to attend the Commission meetings and provide helpful and supportive comments.
ELECTION OF 2020 OFFICERS
COMMISIONER FAIRES MOVED TO ELECT COMMISSIONER ORVIS SERVE AS PRESIDENT OF THE PORT COMMISSION FOR 2020, COMMISSIONER HARRIS TO SERVE AS VICE PRESIDENT OF THE PORT COMMISSION FOR 2020, AND COMMISSIONER PRESTON TO SERVE AS SECRETARY OF THE PORT COMMISSION FOR 2020. COMMISSIONER ORVIS SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY.
2020 COMMISSION MEETING SCHEDULE (to be approved January 13th)
Mr. McChesney presented a proposed meeting schedule for 2020 and invited the Commissioners to provide feedback in preparation for final approval at the January 13, 2020 meeting.
Commissioner Harris questioned if the 2020 Commission Retreat should also be scheduled on the agenda. Commissioner Orvis responded that the retreat would be scheduled separately, and would likely occur in early 2020. Commissioner Johnston noted that the retreat may replace one of the Commission’s regular meetings.
2020 COMMITTEE ASSIGNMENTS (to be approved January 13th)
Commissioner Orvis invited the Commissioners to submit their preferences for committee assignments to him, and he would finalize the assignment list for the Commission’s approval on January 13th.
GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) 87 LEASE ACCOUNTING
Ms. Drennan announced that the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 87 pertaining to leases in June 2017. For the Port, the statement will become effective on January 1, 2020 and will require a major change in how leases are recorded and reported on the financial statements.
Ms. Drennan explained that, currently, the Port records lease revenue upon billing monthly and cash upon receipt of payment. To implement the new standard, the Port will need to record a lease receivable and a deferred inflow at the commencement of a lease. The lease receivable value will be the present value of the stream of future revenues over the lease term. The Port will need to complete the same transaction monthly to bill the tenant and receive payment, and then it will have to reduce the lease receivable at the present value of the payment, record interest income for the difference between present value and the payment, and record lease revenue, which will also be the present value of the payment.
Because this new requirement is difficult to understand, Commissioner Orvis said it would be helpful for staff to prepare a simple monthly report showing what is due and what has been paid. He cautioned that it is important that the financial reports are transparent and easy for everyone to understand.
Ms. Drennan explained that instead of showing the Harbor Square Property and the other six leases in the Rental Properties section of the Income Statement and Balance Sheets, the financial reports will show the Harbor Square Lease Revenue, West Side Lease Revenue, Harbor Square Lease Interest Revenue and West Side Lease Interest Revenue. The total of this new method should be the same as using the current method.
Commissioner Faires asked if the new method would require significantly more staff time, and Ms. Drennan answered affirmatively. She explained that, in the past, just two transactions were required, and the new method will require four. She said she has had to be creative in implementing the required changes so that the current billing system and new accounting system work together.
Commissioner Johnston asked how much extra work would be involved with preparing two reports: one that meets the GASB requirements and another standard report for the benefit of the public. Mr. McChesney commented that the intent of the new requirement is to isolate the implicit interest that is imbedded in a lease agreement and report it on the Income Statement. However, the Port has never considered the interest component of a lease, and the requirement would simply be an academic exercise for the Port.
Commissioner Orvis said his main concern is the Anthony’s lease, which is the only lease that is variable (percentage rent). He suggested it would be easy for staff to identify what each of the other leases are worth and compile the information into one report at year end that is easy to understand. This simple report could be separate from the GASB report. Mr. McChesney advised that a separate report may not be necessary since the requirement is simply a bookkeeping change, and the numbers shown on the income statement will remain the same.
Commissioner Orvis voiced concern that, using the reporting method required by GASB, lease revenues and expenses would make the statements less transparent to the Commission, and certainly to the casual observer. This runs counter to the Commission and staff’s effort in recent years to make the statements more transparent. Somehow, they must have a way to present the financial statements in a way that can be easily understood by a lay person.
Commissioner Faires commented that there is information the Commission wants to know that the auditors do not care about. The Commission may require additional information pertaining to leases in the future that isn’t required by GASB. He asked how they can work flexibility into the process so the Commissioners and Port management receives the information they need and the GASB requirements are met. Ms. Drennan responded that this would be difficult to do, as it would require twice as many accounts.
Mr. McChesney suggested that the Commission allow staff additional time to perfect the technique, implement the software and consider ways to improve transparency.
Commissioner Preston questioned how the required GASB changes would benefit the public. Ms. Drennan answered that there are no benefits. Commissioner Preston asked what would happen if the Washington Public Port Association (WPPA) decided to push back and ports continued with their current method of reporting. Ms. Drennan emphasized that GASB 87 is a federal requirement, and if ports don’t implement the change, they will receive material findings that they failed to comply with generally-accepted accounting principles. Commissioner Preston asked if there is a way for all the ports to push back against the rules, and Ms. Drennan answered no.
Commissioner Preston asked who made the decision, and Ms. Drennan answered that the decision was made by GASB, which is a federal agency that is overseen by the Financial Accounting Standards Board (FASB). The requirement will not go away and represents the biggest change in accounting that she has ever seen. Because the Port has a lot of leases, the requirement will be more difficult to implement.
Ms. Drennan advised that the Port has purchased a new software called UGAAP to assist with recording and tracking approximately 50 leases monthly. The software was received last week, and staff is in the process of entering all of the leases.
Even with the new software, Commissioner Johnston said he anticipates it will still require a fairly robust process to come up with the assessments on a monthly basis. Ms. Drennan agreed. She is working to implement the requirement so that the tenants do not see a difference because they don’t need to be bothered with accounting. But in order to do that, she has to do extra work on the back end. The process will be cumbersome, and providing a separate report, as discussed earlier, would require her to keep two sets of books.
Commissioner Orvis asked if it would be reasonable for staff to prepare the financial statements per the GASB requirements, but then prepare a separate report at the end of the year that is consistent with the current method, showing total revenues and expenses. Ms. Drennan answered that it would be reasonable for staff to prepare a separate report at the end of each year.
Commissioner Harris voiced concern that GASB is taking accounting to such a level that the details are harder to see and understand. She agreed that a separate report at the end of the year would be helpful.
Commissioner Faires said he finds it useful, but not critical, to have information about the Port’s leases, particularly Anthony’s, throughout the year. However, he would support having a separate report on a yearly basis. If he is interested in learning more about a particular lease, he can approach staff with a request for information at any time.
EXECUTIVE DIRECTOR’S REPORT
Mr. McChesney reported that the permit application for the Harbor Square Building 3 Project was resubmitted this week. The Edmonds Planning Department wanted to see an artist rendering of what the building would look like. There was concern that if the appearance of the exterior of the building is changed significantly, the project would have to go before the Architectural Design Board for review. The resubmittal was an attempt to avoid that step. He expects a quick turnaround on the permit approval.
Mr. McChesney further reported that staff conducted a pre-bid walk through for the Harbor Square Building 3 Project on December 6th. There were no real surprises, and he anticipates a number of competitive bids. The bid opening is scheduled for December 30th at 2:00 p.m. He summarized that it is difficult to determine a timeline for the project until the building is opened and they have a clear understanding of what needs to be done. He anticipates the project will take about three months to complete.
Mr. McChesney announced that the Commission’s last meeting in 2019 will be on December 30th at 9:00 a.m. for accounts payable and other housekeeping items. At this time, he does not anticipate any business items to discuss. It was confirmed that a quorum of Commissioners would be present or available by phone.
Mr. McChesney also announced that the Port’s new Travelift arrived last week. It is put together and operational now, and everyone is happy with it. The old Travelift has been declared surplus and sold. It will be picked up soon. The new Travelift will enable the Port to achieve a higher level of reliability.
Mr. McChesney reminded the Commission that Commissioners Preston and Orvis need to be sworn in. Mr. Cattle said it could occur after the first of the year, but no sooner than 10 days before the Commission’s first meeting. They agreed that Mr. Cattle would perform the swearing-in ceremony just prior to the Commission’s first meeting in January.
COMMISSIONER’S COMMENTS AND COMMITTEE REPORTS
Commissioner Faires reported that he met with Mayor Earling to discuss his vision for Harbor Square and what he believes the Port’s role should be.
Commissioner Preston said he is glad to see progress being made with the crosswalk project. He also reminded everyone of the Holiday on the Dock event on Wednesday night when the Argosy Christmas Ship visits the marina. Mr. McChesney advised that a press release announcing the event went out today. Ms. Kempf advised that the event starts at 6:30. In addition to the lights on the Edmonds Yacht Club boats, there will be a band, hot cider and cookies, and Santa will make an appearance. Puget Sound Express will also conduct an open house on their boat from 6:30 to 8:00 p.m. Commissioner Preston asked Council Member Teitzel to announce the event at the City Council meeting. Mr. McChesney advised that the Employee Recognition event is scheduled to take place earlier that same evening.
Commissioner Johnston announced that he would attend the Edmonds outgoing mayor soiree on December 12th, as well as the holiday party at Anderson Hunter.
The Commission meeting was adjourned at 7:45 p.m.
Respectfully submitted, Steve Johnston for Angela Harris, Port Commission Secretary