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HomeMy WebLinkAboutRes2004-128 I I I Sponsored by: Shealy Passed Motion to Reconsider filed CITY OF SEWARD, ALASKA RESOLUTION 2004-128 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, AMENDING THE PORT AND HARBOR TARIFF WHEREAS, the East Harbor Expansion project has begun with the dredging and construction of a new breakwater; and WHEREAS, the Seward Small Boat Harbor has been one of the main economic engines driving Seward's economy for many years, promoting industry and tourism; and WHEREAS, it is in the city's economic interests to seek funding to aid in the East Harbor Expansion project to alleviate overcrowding in the harbor, improve harbor infrastructure, and promote economic expansion; and WHEREAS, the 2005 proposed Operating Budget recommends a rate increase to $35.80 per linear foot per year, which represents a 12.96% increase over the current rate of $31.69, and this rate increase impacts both moorage rates and dockage rates; and WHEREAS, there is also proposed an increase in the water rates from $4.25 to $6.02 per 1,000 gallons, to be consistent with the Water Tariff increase approved by the Seward City Council in Resolution 2004-106 on November 22, 2004; and WHEREAS, the Port and Commerce Advisory Board, at its meeting of December 1, 2004, approved Resolution 2004-08 recommending an increase in rates of 10%. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, that: Section 1. The City Council of the City of Seward resolves to amend the Port and Harbor Tariff to increase the moorage rates and dockage by 12.96%, increasing the linear foot rate from $31.69 to $35.80, and increasing the water rates from $4.25 to $6.02 per 1,000 gallons. Section 2. The increase in the harbor tariff rates shall be effective take January 1, 2005. Section 3. This resolution shall take effect 10 days after adoption. CITY OF SEWARD, ALASKA RESOLUTION 2004-128 PASSED AND APPROVED by the City Council of the City of Seward, Alaska this 14th day of December, 2004. THE CITY OF SEWARD, ALASKA JL1;/ ~ Vanta Shafer, Mayo~ AYES: NOES: ABSENT: ABSTAIN: Branson, Va1datta, Clark, Shafer Lorenz Dunham, Amberg None ATTEST: ~~) "' ,J --(-e~~L:~(~C'~ ~J ity Clerk J <<n~I"", ('''.\~\...~<''''~ (~" I" (City Seal) .....~"" '1/.~~ ~~;~. CJ~.'c;,'c;;'.;;G,~+~~~'~~,~~ -..~...;.:.; -. - '., \".,:, ~ ~~ .",,- '\"",,'" ::.. ~ ';'J~ II!" ,., .: C""'!"':"~'t ~ I" ; ~ ~,~ : C.&"~ ',J : .. '_'1l " "4 "''''''-1 ,,0 '11 ~I~ ~ I:: ~.. ,4t" , """,v,. /,t"e ,i: ': ":, ...:...-!,.... t'":,f'!..,,.~, /~ , ,.' ,,'1 ,\".., ~,. ", ; <-'I"" ....,.~1.... ('''''-q, :!'t" " <.' ,-j- ",\..p.;"", .... '.o"'t v~... I""\. . "'''''.', f"\'.~ " CAS OUNCIL GENDA TATEMENT Meeting Date: December 13, 2004 From: Kristin Erchinger, Finance Director Through: Phil Shealy, City Manager Subject: Harbor Tariff Increase for Moorage, Dockage and Water BACKGROUND & JUSTIFICATION The East Harbor Expansion project is underway with the Army Corps of Engineers ’ dredging and construction of the new breakwater. In the past year, numerous public meetings have been held to finalize a plan for construction of harbor floats and amenities within the newly constructed harbor basin, as well as plans to revitalize portions of the existing harbor. At its meeting of October 11, 2004, the Seward City Council unanimously agreed to proceed with the proposed Seward Small Boat Harbor Float Plan dated September 16, 2004, consisting of 148 additional floats and 2981 feet of additional linear moorage, at a total estimated cost of $7,843,941. Part of this total cost increase includes revitalizing portions of the existing harbor (i.e. rehabilitate D float at a cost of $712,500, extend E float at a ‘’‘’ cost of $450,050, etc.), which are not expected to generate significant added revenues. Based on the current estimated costs of the federal portion of the breakwater construction, the City has $1,719,645 in remaining funds to pursue the East Harbor expansion project ($1.3 million EDA grant funds and $419,645 remaining from the DOT $2.9 million grant after construction of the breakwater). Assuming that the City Council intends to construct the entire list of improvements contained in the $7.8 million cost estimate, this leaves the project underfunded by $6,124,296. At its meeting of December 1, 2004, the Port and Commerce Advisory Board (PACAB) addressed the issue of the administrations proposed 12.96% increase in harbor moorage ’ rates to fund improvements for the East Harbor Expansion. PACAB voted in favor of a 10% increase in rates rather than the proposed increase of 12.96%. Most commissioners agreed that they needed more information to determine the exact scope and cost of the project. There appeared to be a consensus that in the initial phase of the project, emphasis should be on pursuing components of the project that generate added revenues, with non-revenue- generating components being pursued at a later time. Ultimately, the Commission was hesitant to increase rates beyond 10% until they had more firm data on which elements of the project would be pursued, and what the net costs of pursuing those elements would be. Harbor Tariff Increase December 13, 2004 Page Two The administration continues to support a rate increase of 12.96%. First, we recognize that a primary component of funding the East Harbor Expansion project will be the issuance of revenue bonds. In order to issue revenue bonds, it is important to demonstrate that the existing Harbor Enterprise Fund is financially sound and that the City is committed to sound financial planning by incrementally increasing rates each year rather than imposing large rate increases on users in a single year. We believe that in addition to an increase in rates that is necessary to fund the capital costs of the East Harbor Expansion, rates must also increase slightly to offset inflationary cost increases. In the past few years the Harbor Enterprise Fund has had to dip into cash reserves to fund operations. This means that the Harbor is bringing in less cash than it is spending on 1 existing harbor operations. In addition, the Harbor currently has no funds available in the depreciation reserve account to cover the costs of major repairs and or renovation. As of December 31, 2003, the Harbor Enterprise Fund had a total cash balance of $190,329 which, when compared to its annual operating costs of approximately $1.5 million, leaves it with just 1.5 months worth of cash to cover operations. This also leaves no funds available ’ to provide matching funds for any grants that the City may successfully obtain. These factors will weigh heavily on the bonding agencys determination of the feasibility of issuing ’ revenue bonds to fund the expansion project. It is for this reason that the administration recommends a rate increase of 12.96%. We believe that it is important to demonstrate that the current Harbor Enterprise Fund is able to cover its costs of operations, and to recognize the true impact of inflationary cost increases on the Enterprise. It is also important to acknowledge that the East Harbor Expansion project will generate added operating costs (estimated at approximately $165,000 per year), and a rate increase will have to cover not only debt service costs, and debt service coverage rates, but added operating costs as well. While we agree with PACAB 2 that it is important to identify which specific components of the expansion project will be pursued in this initial construction bond, we also believe that we must do everything possible to enhance our chances of obtaining revenue bond financing. 1 While cash balances have increased in the financial statements, that is entirely attributed to . capital project grant funding 2 Debt service coverage requirements are assumed to range from 1.2 to 1.5. This essentially means that the revenues generated by the expansion project must be sufficient to generate revenues 20% to 50% higher than the annual debt service payments, representing insurance to the bond issuers that the “” Harbor Enterprise Fund will generate sufficient revenues to cover bond obligations. Harbor Tariff Increase December 13, 2004 Page Three Upon further review of the tariff, it was discovered that in order to maintain consistency between the rates being charged within the harbor and outside of the harbor, a change should also be made to the Dockage rates, and these rates have been upward adjusted by 12.96%. In addition, the rate charged for water has been adjusted to reflect the revised water tariff passed by the City Council in November, 2004. Neither of these rate changes were discussed with PACAB. CONSISTENCY CHECKLIST Yes No N/A 1. Comprehensive Plan X 2. Strategic Plan X FISCAL NOTE The 2005 Preliminary Budget includes a proposed 12.96% increase in the harbor moorage rates, estimated to generate $117,288 in additional revenues from existing slips and transient moorage. This increase equates to an increase in linear moorage from $31.69 per foot to $35.80 per foot ($4.11 per foot increase). If this entire rate increase were available to fund debt service on new construction, it would be sufficient to fund approximately $1.5 million in construction costs. 3 ___________________________ Finance Approval RECOMMENDATION Council approve Resolution 2005-____ amending the Port and Harbor Tariff for 2005. 3 It is not realistic to assume that all of the additional revenue could be utilized to pay debt service. The bonding agencies would require debt service coverage of approximately 1.2 to 1.5 which would erode a portion of the revenues available, and they would realistically assume that a portion of the new revenues would be needed to support operating costs such as utilities, snow removal, insurance, meter reading, billing, and maintenance.