“The harbor revitalization plan identified many possible marketing opportunities and scenarios. The concept of Humboldt Bay becoming a container port was identified as a “weak competitive position,” “unattractive,” and of the “lowest priority,” even if rail service to this region were to be restored.”

Grand Jury Report #2007-CD-01 Humboldt Bay Harbor Recreation and Conservation District

Executive Summary:

In 1970 California State Legislature drafted legislation to create Humboldt Bay Harbor, Recreation and Conservation District for the regulation and economic development of Humboldt Bay. In their wisdom and foresight, they included promotion and protection of recreation and conservation as statutory requirements of the District’s functions. The reasoning was to preserve the rural uniqueness of Humboldt Bay, its tidelands and estuaries, while promoting economic development of the harbor. This legislation created a check-valve to keep heavy commercial marine shipping/harbor development from dominating or diminishing conservation and recreational activities in Humboldt Bay, as it did in the Ports of Oakland and Long Beach.

In 1973 the voters of Humboldt County ratified the founding act. The District is a countywide public agency with specific boundaries of jurisdiction, governed by a board of five elected commissioners. The Harbor District receives statutory authority from the California Harbors & Navigation Code, Appendix 2, which is the District’s enabling legislation (charter). The District has the additional right to pass ordinances and enforce regulations within its boundaries. The agency is funded by a combination of property taxes, grants, permit fees, tideland leases, enterprise funds (rents, leases, etc.), and harbor tariffs. The mission of the Harbor District is “to serve all the people of Humboldt County by promoting harbor use, enhancing recreational opportunities, and protecting bay and tidal environments.” An informative District overview can be found on the District’s website http://www.humboldtbay.org.

Who Shall Respond:

Pursuant to California Penal Code Sections 933 and 955.05, responses to the Findings and Recommendations of the Grand Jury Report #2007-CD-01 shall be as follows:

The Humboldt Bay Harbor, Recreation and Conservation District shall respond to findings and recommendations 1, 2, 3, 4 and 5.

Report:

In August, 2006, a staff member from the Harbor District gave a district overview presentation to the members of the Grand Jury. The District’s mission, functions, and jurisdictional authority were outlined. Additionally, the Grand Jury received information regarding an upcoming maintenance-dredging project around the bay. This project was scheduled to begin in November, 2006, and expected to be completed by late March, 2007. The project is a cost-share with the City of Eureka.

There was testimony the maintenance-dredging project was delayed one year when Humboldt Baykeeper brought environmental concerns to the attention of the California Coastal Commission; it should be noted the District’s share of cost for the dredging project is $2,060,110. The delay added more than $440,000 to the District’s costs, a sum that could have been used for other District-funded projects.

The Grand Jury reviewed the Harbor District in 1983, 1989, and 1996 with results of their investigation published in Final Reports. In the course of the 2006-2007 Grand Jury inquiry of the District, the Grand Jury attended a District board meeting; reviewed meeting minutes; visited some of the District’s facilities; and interviewed District staff and several citizens. Additionally the Grand Jury interviewed a retired Bar Pilot who had worked Humboldt Bay for many years. The Grand Jury reviewed the District’s budget, studied audited financial statements, and reviewed other supporting documentation. The Port of Humboldt Bay Revitalization Plan and the Humboldt Bay Management Plan were also reviewed. The Grand Jury observes that a considerable amount of time and money have been spent on these plans. The Grand Jury commends the Harbor District for its effort in producing the Humboldt Bay Management Plan. The Port of Humboldt Bay Harbor Revitalization Plan was co-funded by the Harbor District, the City of Eureka, and Humboldt County in an effort to identify ways to infuse new economic development in and around Humboldt Bay. This plan, developed with the premise of Humboldt Bay becoming a deep-water port, was drafted by PB Ports & Marine Inc, a private consulting firm, and released in February, 2003, without soliciting public input or review. Subsequently, the Institute for Study of Alternative Dispute Resolution (ISADR) contacted the Harbor District to present its concept of a “visioning” process to include public input. A visioning forum was held in April, 2004, which did allow for public input.

The harbor revitalization plan identified many possible marketing opportunities and scenarios. The concept of Humboldt Bay becoming a container port was identified as a “weak competitive position,” “unattractive,” and of the “lowest priority,” even if rail service to this region were to be restored.

The Harbor District continues to promote and support the concept of a deep-water modern industrial container port in Humboldt Bay, a position for which there is both praise and criticism. Perceptions on the positive side include the idea that a container port would create jobs; on the negative side it is seen as potentially “increasing air/water pollution.”

Members of the Grand Jury visited the Redwood Dock property and the Fields Landing Boatyard in November, 2006. The Redwood Dock property (now known as Redwood Marine Terminal) is part of the old Louisiana Pacific lumber mill complex in Samoa. The District recently acquired this property through a one-time lease buy-out. The District received $558,364 and the real estate, which is valued at $3,508,038. The property consists of about 84 acres, a water storage tank, warehouses, large shop buildings, an old railroad roundhouse and a 1,064-foot-long wooden dock. The buildings, warehouses, and dock are all in a state of significant disrepair due in part to age and neglect. Engineering services will need to be utilized to fully access the condition of the buildings, dock and overall infrastructure of this facility. There have been allegations that the District always hires the same engineering firm and/or consultants without going through a competitive bidding process. The District has received a $200,000 grant from the Headwaters Fund for a feasibility study to aid the District in deciding the best options for the use of this property.

The Grand Jury visited the Fields Landing Boatyard, a public semi-self-service operation catering to the commercial boat operator. This facility is owned and operated by the District. A user fee is charged for boat storage and other related services. In the past, a private contractor has operated this facility through a lease agreement. The Harbor District has been seeking another private contractor to lease and operate the facility as a boat repair business. The boatyard appeared clean, well kept, well maintained and under-utilized. There is an 8,600- square-foot metal building that can be used for boat repair; it houses a 150-ton travel lift used to remove and return boats to the water. This facility has a 900-foot-long dock that is very old and in disrepair. The 1996 Grand Jury reported the District had a 5-year plan that included renovating this dock, however, it is currently being dismantled because of deterioration and storm damage.

Members of the Grand Jury did not tour the Woodley Island Marina. This is a full-service facility, owned and operated by the District. Hosting 237 slips, it has been in service since 1981. Woodley Island Marina is a compliment to the efforts of the Harbor District and the Board of Commissioners (current and past) in fulfilling the District’s mission and functions. The Grand Jury studied the District’s budgets and financial statements for the fiscal years 2004, 2005 and 2006. FY ’04 had a budget deficit of $451,366. FYs ’05 and ’06 showed a surplus of $3,451,500 and $284,697 respectively. If not for the lease buy-outs of ’05 and ’06, these two years would have shown a budget deficit, as well.

Tideland leases are required for dock operators and mariculture operations within the jurisdictional boundaries of the Harbor District. These leases are a source of operating income for the District. The steady decline of the forest and fishing industries in Humboldt County has resulted in a reduction of revenue to the District due to lease terminations and non-renewals. Annual tideland lease revenues have continually spiraled downward from $405,000 (02/03) to $152,000 (06/07).

Two recent tideland lease buy-outs (Redwood dock property-Chemical dock) have increased the Districts assets with cash in the amount of $1,399,828 and properties valued at $3,508,038. These leases that were once an ongoing source of operating revenue now have become an added expense to the District. This is due to the financial liability created by the accumulation of these properties through the lease buy-outs. These newly acquired docks, buildings and property will require repairs, maintenance, security, insurance, etc. This will result in additional annual budget expenses until these costs can be off-set by these facilities becoming once again revenue producing.

In examining the financial records, the Grand Jury found that the District’s enterprises are operating at a loss. The District’s operating expenses exceed its operating income, but other sources of revenue (taxes, interest, tideland leases, and so forth) have in the past more than offset this shortfall. The District has moderate long-term debt, offset by ample cash reserves. Longterm liabilities are reasonable and decreasing, while equity is increasing. The District has a positive net worth and appears to enjoy good financial health.

During the review of the financial activities of the Harbor District the Grand Jury became aware of a $170,000 loan made to the North Coast Rail Authority that was not repaid when due. The Board of Commissioners approved this loan in October, 2004, with a due date of December 31,¬†2006. Because the loan was not repaid as promised, the Board voted and approved to extend the due date of the loan for three (3) years. Questions were then raised by the Grand Jury as to the District’s authority to loan money. A review of the District’s enabling legislation revealed that sections in their charter are very specific on the use of money in the District’s fund. The Grand Jury could find no provision in the District’s charter granting statutory authority to use their fund money to act in the capacity of a financial institution.

The hiring of two Bar Pilots at an annual cost of about $393,000, coupled with the reduction in tideland lease income and the added expenses of the lease buy-out properties, will contribute to probable future budget deficits. The District must find increased income and/or reduce expenditures. In an effort to increase revenues, the Harbor District is actively pursuing new marketing and marine industrial opportunities.

The complex federal and state regulations, and the District’s own mandates, make decisions facing the Board of Commissioners difficult and challenging. That board will need the input, cooperation, and support of other public agencies-the commercial fishing industry, sport-fishing and recreational groups, environmental groups, the forest products industry, business and industrial development advocates, and, most of all, the community, in order to make the correct decisions for the future of Humboldt Bay and for the benefit of all the people of Humboldt County.

Finding 1:

Because of a $170,000 loan to the North Coast Rail Authority The Humboldt Bay Harbor, Recreation and Conservation District and its board may appear to be in violation of Sections 32, 50, and/or 52 Appendix 2 of the California Harbors and Navigation code. Section 52 states in part: “The money in or belonging to the fund shall not be appropriated or used for any purpose except those enumerated in this act and such enumeration shall not be deemed to create any priority of one use of purpose over another”.

RECOMMENDATION 1:

The Harbor District’s Board of Commissioners seek independent legal opinion as to whether it is in violation of the sections mentioned or any other regulatory statutes in regards to this loan. If legal opinion confirms the District is in violation, the board must make every effort to have the loan repaid to them immediately. It is recommended and requested that a copy of the independent legal opinion be sent to the Grand Jury on or before January 1, 2008.

Finding 2:

The Grand Jury requested the Harbor District furnish copies of the Commissioners performance bonds as required by Section 6056 of the California Harbors and Navigation Code. The District responded by sending a copy of the District’s certificate of insurance. To date the Grand Jury has not received the requested material and therefore the District may be in violation of Section 6056 “Each commissioner upon taking the oath of office, and for each term, shall file with the county elections official of the county in which the district is situated, a bond in the sum of five thousand dollars ($5,000), made payable to the district and conditioned on the faithful performance of his or her duties; the bonds are subject to approval by the board of supervisors of the county”.

Recommendation 2:

If the District is not in compliance with section 6056 it shall take immediate action necessary to become compliant. It is recommended and requested that the District provide the Grand Jury copies of the requested documents immediately thereafter.

Finding 3:

For many years the Harbor District has been seeking a private contractor to lease and operate the Fields Landing Boatyard. The Fields Landing Boatyard is operating at a monetary loss.

Recommendation 3:

The District review its business operation in an effort to curtail the loss of public funds. Additionally the District actively and aggressively make every effort to recruit a qualified private operator to lease and run this facility. It is requested and recommended that the results of this review be submitted to the Grand Jury by January 1, 2008.

Finding 4:

The Grand Jury finds that the District’s enabling legislation (Appendix 2, Section 36) permits the District to procure specific services on a non-bid basis.

Recommendation 4:

The Board of Commissioners exercise their fiduciary responsibility to the public to insure the charges on a non-bid contract and/or bills are competitive with others for the work, and/or services rendered.

Finding 5:

Tideland leases that in the past provided a reliable revenue stream have declined, resulting in a five-year loss of approximately $649,000. Lease buy-outs have resulted in accumulation of properties with the loss of their tideland lease revenues.

Recommendation 5:

The Harbor District aggressively seek to return the properties acquired to a revenue producing status. If the properties cannot be returned to a positive status within a reasonable time (two to three years), the Grand Jury recommends that the District divest itself of these properties, thus enhancing property tax rolls. It is recommended and requested that the Harbor District report progress, or lack thereof, to the Grand Jury on or before the first day of January each year until the properties are either returned to profitability or sold.

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