Keith Higginbotham wrote a great piece on this topic last week, but I thought I would throw in my $0.02 as well. On October 6th, the City Council held a study session investigating the share of net profits from the Port of Long Beach that is transferred to the City for use in the tidelands area. Some councilmembers have proposed to place a measure on a future city ballot asking us residents if we’d like to take a larger share. Most voters would probably say, “Heck, yeah!” – but I hope to offer a little more food for thought.
For more than a decade now the City has requested, and the Port has agreed, to transfer ten-percent of the Port’s net profits each year to a tidelands fund. This fund is used to support police and fire services, recreation, and beach maintenance, among other items, in the near-shore areas. The Port transfer currently supplies about a third of the fund revenues, which also come from tidelands oil sales and a number of other sources. Under state law, the funds can’t be used outside this area, but to some extent they offset other city funds that would go for services near the coast.
What I learned from observing the study session is that there is a two-year lag in the fund transfer. Port container volumes, and profits, were going nowhere but up for most of this decade, and the City’s ten percent was growing accordingly. City staff project that the fund transfer will drop from a high of $16 million in the 2010 fiscal year, based on 2008 container volumes, to about $8 million in 2012. This loss of revenue could take resources away from many tidelands fund uses, including operational items like cleaning the beaches and capital items like upgrading beach restrooms. (There’s apparently $185 million in deferred maintenance and capital needs just within the tidelands area. Wow.)
Keith said he was of two minds about the City Council’s interest in the port profits, and I would have to say I am as well. On the one hand, city officials are not wrong to desire predictable revenue streams. Since there are substantial ongoing uses for the tidelands funds, the city staff is rightly projecting future fund balances and alerting the Council and Mayor that red ink lies ahead.
On the other hand, I understand the points made by members of port-related industries, who turned out to the study session expressing opposition to a larger share for the fund transfer. They pointed out that the Port of Long Beach (along with other West Coast ports) faces growing competition elsewhere in the country and the continent, and must continue to invest in much-needed infrastructure. Transferring a larger share of profits from the port to the city could send a discouraging message to shippers that the port is not an investment priority. Another critical consideration is the continued “greening” of the port, which also relies on investment of funds in upgraded and more efficient equipment.
At heart, this is a question of “opportunity cost”: dedicating resources (like money) to one use means you cannot dedicate them to any other use. Another name for this is prioritizing: which use do we place at the top of our list? Port pollution reduction? Port competitiveness? Trash-free beaches?
It seems to me that the current structure of the transfer – 10% of port profits – should serve as an incentive to the City to help the Port maximize its profits. The better the Port does, the better the City does. The current downward trend projected by the City staff is a short-term resource crunch. If we invest sufficiently in efficient, clean port facilities and supporting infrastructure, we’ll see container volumes rebound and the transfer amount start to rise. I hope that the City Council – and Long Beach voters, if they are asked – will consider not only short-term needs but long-term returns on potential investments as they think about this issue.