Oakland port faces $18.6 million budget shortfall, plans staff cuts

Oakland port faces $18.6 million budget shortfall, plans staff cuts Port of Oakland officials said the sagging U.S. economy, bad investment decisions, and environmental expenses will require about $18.6 million in cuts from the port's fiscal year 2009 budget — including cutting about 10 percent of its staff.
   The port authority, which oversees the maritime port and Oakland International Airport, said it is 'facing a number of serious issues and challenges in developing its operating budget for fiscal year 2009.'
   Documents received from the port authority from a May 20 budget workshop for its seven-member Board of Commissioners, said revenue projections have been revised downward, citing significant increases in its debt service over the next four to five years as it nears its limits of borrowing capacity; as well as burgeoning expenses for environmental remediation including air quality and truck replacement programs.
   'Expenditure growth rate is outpacing the growth rate of revenues,' said a presentation on the port's financial situation to commissioners May 20. In addition, the port's desired capital improvements programs for infrastructure and facilities 'far outpace the port's projected revenues and funding.'
   Port officials are projecting the need to cut about $18.6 million from the fiscal year 2009 budget In order to absorb the additional costs, maintain the current level of infrastructure maintenance and improvements, and move forward to produce an acceptable debt service coverage ratio.
   The port authority originally projected net revenue of $117.4 million, based on operating revenue of $305 million and operating expenses of $200.4 million. However, debt service was projected at $105.4 million, providing the port with a debt coverage ratio of 1.11. To obtain the targeted debt coverage ratio of 1.30, the port authority needs to trim operating expenses, which include labor costs, from $200.4 million to $181.8 million.
   The May 20 budget workshop proposed 34 percent in cuts to the port authority's five-year capital improvement budget, to $637.3 million from $967.6 million. These cuts include:
   ' Nearly 30 percent from projected aviation capital improvements to $497.7 million from $703 million for fiscal years 2009 through 2013.
   ' A nearly 62 percent cut in maritime capital improvement projects for the five-year budget, to $89.9 million from $232.1 million.
   ' Cutting more than 10 percent of the port authority's workforce of 600 within the next 30 days, or 'between 60 and 70 positions.' The May 20 presentation estimated that it may be necessary over the next two to five years to slash overhead of 'staffing and resources' by as much as 50 percent.
   Port commissioners at the budget workshop heard four main reasons for the authority's financial situation, most pointing to decisions based on faulty economic projections:
   ' Costly airport and the maritime port investments 'failed to yield returns we expected.'
   ' At the same time, the port authority borrowed heavily for more development on the strength of revenue projections that did not materialize.
   ' The port authority deferred principal payments on these borrowed funds. The interest-only period on this arrangement runs out this year and the port authority will have to begin making payments on the principal in 2009.
   ' The port authority did 'not adequately account for the funding necessary to renovate and maintain certain facilities,' which led to increased expenses.
   Commissioners were told the authority essentially needs to get out of the development business and refocus on being an asset manager, possibly looking to private/public partnerships for future development.
   Major financial goals for the port authority will be completion of a restructuring of the port authority's existing bond debt, payoff of $15 million in senior lien debt, and refinancing another $503 million in senior lien debt.
   The next steps for the port authority, according to the presentation, will be to adopt the finalized fiscal year 2008-09 budget, implement the reductions in the workforce, and implement cost-saving programs such as reduced borrowing and a financial restructuring.
   Commissioners are expected to vote June 3 to authorize Executive Director Omar Benjamin to issue notices required by state and federal governments of the cuts.
   Oakland's port authority oversees activities of three active divisions: aviation, which oversees Oakland International Airport; maritime, which oversees the commercial maritime port; and real estate, which oversees various commercial properties in the port area.
   The Oakland airport is one of three international airports serving the San Francisco area, while the Port of Oakland is the third-busiest container port in California and the fourth-busiest in the nation, handling nearly 2.4 million TEUs last year. ' Keith Higginbotham