Nearly 80% of the Fiscal Year 2019 budget for the Long Beach Harbor Department, which operates the Port of Long Beach, is dedicated to capital improvement projects. As the city’s budgeting process moves forward, the port looks toward a year full of monumental capital project milestones: the opening of the port’s new headquarters at the Long Beach Civic Center, the completion of the replacement for the Gerald Desmond Bridge, and the completion of the redevelopment of the port’s Middle Harbor into a state-of-the-art facility for Long Beach Container Terminal.
The Port of Long Beach is investing more in capital improvements than any other port in the nation, according to Sam Joumblat, managing director of the port’s finance and administration bureau. “That’s a testament to where our focus is: on the future,” he said in an interview with Executive Director Mario Cordero and the Business Journal. “We want to make sure that we are staying ahead of the competition by investing in our port.”
“We’re in a very good position in my mind, both in terms of our budget and our 10-year forecast of our financial sustainability, or stability,” Cordero said.
This year, the harbor department’s proposed budget totals $982 million, 31% more than the 2018 budget. This is primarily due to the $215 million payment for the port’s new headquarters, Cordero and Joumblat explained. “The port opted to make a payment at the time the building is complete because the port can borrow money in the municipal market much cheaper than the builder,” Joumblat said.
Additionally, $181 million is budgeted for the third and final phase of the Middle Harbor Redevelopment Project, and $154 million for the Gerald Desmond Bridge Replacement Project. The port is receiving $68.9 million in grants from governmental agencies, in part due to the bridge project, which has statewide and national significance.
Due to capital improvement investments, the port is projected to take on additional bonded debt of $600 million over the next three years, including $300 million in 2019.
The port has AA ratings from major credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings, Joumblat noted. “It’s very important to keep these metrics because that allows us to borrow at a cheaper rate on the market. The Port of Los Angeles and Port of Long Beach are the highest rated ports in the nation,” he said.
The budget projects a revenue growth of 5% compared to the prior fiscal year due to conservative estimates for growth in cargo trade, according to the port executives. The port also collects revenues from its leases to marine terminal operators, and does not collect any tax revenues. “We like to conservatively estimate revenue because it’s not exactly within our control. We don’t want to base our budget on inflated numbers,” Joumblat said. “We intentionally make sure that those numbers are conservative. And if we exceed it, hey, great.”
Cordero said the port is likely to exceed the projected 5% growth in cargo. Through the first six months of the year, overall cargo traffic at the port was pacing 11.7% ahead of 2018. The implementation of $50 billion in tariffs on Chinese imports – and China’s retaliatory imposition of in-kind tariffs on U.S. exports – have not had much effect on these figures, according to Cordero. However, he said that port staff are making plans in case tariffs continue to escalate.
“One of the reasons our domestic economy is very good is we have strong consumer demand,” Cordero said. “Those goods, that commerce, comes through this port. It remains to be seen what course this tariff discussion will take – whether this is a long-term geopolitical discussion or application of tariffs,” he said. “We’re ready to prepare for whatever that course takes.”
Because of positive projections, the harbor department is expected in 2019 to make its largest-ever transfer of revenue to the city’s Tidelands Fund: $20 million. The city and its harbor department have an agreement by which 5% of the port’s revenue is transferred to the Tidelands Fund each year (approved by voters in 2010 as a change to the city charter). The fund benefits projects in the city’s tidelands, or coastal, areas. Additionally, the port has budgeted $1.3 million for community grants this year, Joumblat noted.
The harbor department has maintained a headcount of 583 employees for the past three years, and is adding 10 new positions in Fiscal Year 2019. The port has budgeted approximately $86 million for personnel costs. New positions include two in information management, two in security for the new headquarters, two in business development, one in human resources, one in environmental planning and one in engineering, according to Joumblat.
“The great commentary for this port is, if you go back 10 years, whether it is the Great Recession or whether it’s the bankruptcy of a major carrier tenant that we had, Hanjin, we have been able to withstand those types of crises,” Cordero reflected. “Potentially there could be some things that are unforeseeable in the future, but again, we have been able to handle our commitments to the environment, our commitments to operational excellence and our commitment to the overall management of this port. And again, we have a very good padding in terms of our budget.”
He added, “This is because of the history of the people who have led this port over the past years. I think it’s a great story.”