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Port Of Long Beach Out $41 Million In Redevelopment Agency Payback

Harbor Department Writes Off $27 Million In FY 2011; $14 Million Also Likely Lost

By Sean Belk - Staff Writer

April 24, 2012 – The Port of Long Beach is likely to lose $41 million in loan repayments, an obligation of the dissolved Long Beach Redevelopment Agency (RDA), as port staff expects the funds won’t be paid back.

The port’s auditor, KPMG, found that the former RDA’s financial obligation to the port is “unenforceable” under the state’s dissolution act, AB 1X 26, which officially became law on February 1. During the April 16 Long Beach Harbor Commission meeting, port staff said obligations involving private, commercial third parties that were already under contract remain valid, but the state’s legislation wipes out financial duties between former RDAs and intergovernmental entities.

As a result, the port’s financial management decided to write off $27 million in the port’s budget for fiscal year 2011 that ended last September 30. The former RDA was to pay back the remaining balance of a restructured loan in the 1990s that was used to pay for upgrading the Long Beach Entertainment & Convention Center.

The port is expecting to lose another $14 million that it loaned the city from 2009 to 2011 to assist in paying off debt service on the Aquarium of the Pacific, according to port staff. Although not considered accounts receivable income yet, the Aquarium loans were to be paid back by the RDA as the port pays for improvement projects, such as replacing the Gerald Desmond Bridge and building a new fire station.

“Basically, we’re eating it up,” Daniel Yi, Port of Long Beach spokesperson, told the Business Journal. “We’re not going to see that money as the law stands now.”

Even though the state’s legal definition of third party enforceable obligations is being challenged in court and through proposed “clean up” legislation, Steven Rubin, the port’s director of finance and administration, told the harbor commission that port staff decided to write off the $27 million for the port to maintain a clean bill of health at the suggestion of KPMG.

Writing off the reimbursement avoids the necessity of a “qualified” audit opinion, which he said “raises questions” when bond rating agencies look over financial statements. “Given . . . the unequivocal position of KPMG, we really had no choice,” Rubin said. “It’s really not in the port’s best interest to have a qualified audit opinion for our financials.”

The questionable loan repayments are even more prescient now since the port is planning to issue new bonds and restructure debt service soon to pay for more than $4.5 billion worth of capital improvement projects over the next decade, Yi said.

While the port’s total assets remain “stable” and cash balances remain “strong,” the port’s net income was down 13.9 percent, or about $16 million, last fiscal year compared to fiscal year 2010. This was mainly due to the RDA loan write off, writing off costs for a new administration building, loss of oil revenue due to Measure D (November 2010 measure passed by voters) and reduced grant revenue.

City Manager Patrick West told the Business Journal that the city is taking up the issue with the seven-member “oversight board,” to be made up of appointed members of city management and various local taxing agencies, being established by May 1. The California State Department of Finance is also expected to determine whether the port’s loan repayments, along with various other RDA obligations, are enforceable, he said.

“We’ll take this to the oversight board and see what the department of finance says about it,” West said.

The definition of enforceable obligations is also of grave concern to the city, which is owed more than $120 million in loans given to the RDA to start up the downtown redevelopment area, he said. “This is a very serious position from the state and we’re taking it very seriously,” West said. “We’re going to vigorously pursue it.”

Projects Underway


Meanwhile, the Long Beach City Council, acting as the successor agency to the former RDA, is moving forward with redevelopment projects and contracts that were already underway before RDAs were shutdown by the state this year.

At its April 17 meeting, the successor agency unanimously approved two items to continue the construction of Fire Station 12, which includes a new emergency resource center. The facility is being constructed at 1199 E. Artesia Blvd. on a 1.2-acre site in North Long Beach.

To avoid any further construction delays, the successor agency approved extending a contract with CBM Consulting, Inc. to pay for $333,600 in construction management services for up to an additional 12 months. The original contract had expired on February 1. The successor agency also approved entering into a contract with Mary McGrath Architects for construction of administration services for up to an additional 13 months.

The successor agency also unanimously approved a settlement agreement with Sprint PCS Assets, LLC, in connection with a condemnation action by the former RDA to acquire leaseholds and property at 5870-5874 Atlantic Ave.

The property, which has a cellular communications tower, is the site of a proposed North Long Beach Village Center, a 6.3-acre mixed-use development of multi-family housing, retail, a public library and a community center.

The settlement agreement involves relocating Sprint to a “cell on wheels” temporary site, incorporating the permanent cellular tower in the library site and reimbursing Sprint for relocation costs.

Amy Bodek, director of Long Beach Development Services, said all of these agreements and contract amendments are subject to review by the yet-to-be-established oversight board and the state’s department of finance. She said the city would know whether these items would be approved possibly as soon as mid-May. In related news, Bodek said the successor agency’s annual administrative budget is estimated to be $2.9 million, with $900,000 coming from state distribution, covering all overhead costs in addition to other service payments involving the dissolution process of the former RDA.