By Erik Olson, February 9, 2014, Longview Daily News
Port of Longview officials were between a dock and a hard place in November 2011. Their greatest recent coup, the EGT grain terminal, was their greatest public-relations headache because of a violent longshore union labor dispute. They needed to generate goodwill.
Their solution: Cut property taxes 45 percent and promise to look at further reductions for taxpayers. They reasoned that the revenue from EGT, once it started up, would replace the $1.5 million annual hit in tax revenue.
It was difficult “to take so much pressure from what was going on,” and it was nice to give something back to the community, Commissioner Darold Dietz said at a recent interview.
It seemed a good move at first. At the end of 2012, with EGT operating only a half-year, the port reported a record $33 million in revenue and $8 million in net income, the equivalent to profit in the private sector.
Then, with new leadership in key positions, port officials evaluated their assets, and they didn’t like what they saw. Aging equipment, docks and buildings needed to be repaired or replaced. Two older berths, 4 and 1, needed about $20 million to be redeveloped to attract new business and create jobs. At the vacant 275-acre Barlow Point industrial park, the port would need to spend another $11 million just to get it ready to woo industrial tenants and become the economic dynamo the public expects it to be.
The findings, though, presented a touchy political dilemma. All these improvements would cost more than $86 million, and port officials couldn’t raise that money in a reasonable time without rescinding the 2011 tax cut.
In retrospect, “lowering the taxes was a big mistake,” Dietz said.
In December, Dietz and new Commissioner Lou Johnson voted to reinstate the port’s full taxing authority, effectively doubling its tax for property owners but restoring it to the 2011 level.
The port’s tax levy increased from 23 to 45 cents per $1,000 assessed valuation starting this year. For a $150,000 house, the port’s property tax increased $33 from $34.50 to $67.50. The hike would generate an additional $2.1 million for the port annually, which is reserved for maintenance and redevelopment costs.
Port officials downplayed the impact on taxpayers, with Johnson now famously saying the hike would cost most people no more than “a couple of pizzas” annually. This angered members of the public struggling in a difficult economy.
Nevertheless, “I have thought, and still think, we’re doing the right thing,” port CEO Geir Kalhagen said.
That sentiment was not unanimous at the port. Commissioner Bob Bagaason voted no, saying he wasn’t convinced a tax hike is the right way to address the port’s needs.
“The bottom line is, what other business is subsidized by property taxes? And we are. When we start taking tax money and counting it as revenue, that’s government. And people are getting tired of government taking revenue,” Bagaason said.
Other revenue sources?
Kalhagen, who replaced Ken O’Hollaren when he retired in 2012, requested the internal evaluation of the port’s assets last year. According to an internal staff review, more than 100 facilities required some sort of repair, including docks, roads, buildings environmental systems and offices. This represented more than half of the port’s total assets.
Port officials estimate they need to spend $75 million on repairs and redevelopment. Larger projects include the $12 million redevelopment of an abandoned grain terminal at Berth 4 and the $9 million redevelopment of Berth 1, which port officials say would attract new businesses and create jobs. Other looming expenses include a $16 million upgrade of the port’s stormwater system to meet new state water pollution control requirements.
Additionally, they need to spend about $11 million to get the 275-acre Barlow Point industrial park ready for development, which includes extending sewer lines, building roads and bringing other utilities to the area.
Port officials have not set a timetable to complete these projects or conducted a detailed cost analysis.
Bagaason, the lone holdout to the tax hike, agrees that these projects are necessary, but port officials are putting the cart before the horse by asking taxpayers to foot the bill. Instead, they should attract more industries to broaden the port’s revenue base, seek federal and state grants and look to share development costs with private industries, he said.
And, if the port doesn’t have the money, that means some projects should wait, he said.
“We don’t want to push everything down the road, but we have made great strides on coming up with fixes,” he said.
Unlike Dietz, Bagaason said he doesn’t regret his 2011 vote to cut taxes.
“We’re not going to be paying for all of that out of our pockets. We need to expand the tax rolls to draw in that kind of money. There has to be other sources,” he said.
One thing both sides agree on: Port officials did a poor job explaining the tax hike proposal to the public back in December. While it was discussed at open budget meetings in December, almost no members of the public attended. Public notice was sent to local media only a few days before the vote, and citizens at the morning meeting said they felt blind-sided.
“I don’t think everybody understands our need. And that falls on me, because we didn’t explain it very well,” Kalhagen said.
Johnson, like Dietz, is a retired longshoreman, and he said he understood the need years ago when he was still working on the docks. One log stacker was “falling apart,” and the port has since bought a used one as a replacement, said Johnson, who was elected in 2012.
He said he understands that people are upset at paying more taxes, but they would be more upset if the port didn’t take steps to protect the millions they’ve already invested on the waterfront to create jobs.
Big revenue, big expenses
Since 2008, the port has posted record years of revenue by riding a string of hot commodities. First there were the imports of gigantic wind-farm equipment to support the wave of renewable energy construction. That bubble popped about 2010, only to be replaced by the sudden re-emergence of log exports to feed China’s growing construction industry.
When EGT finally started exporting grain in the summer of 2012, the revenue pushed Longview past Vancouver to become the third largest port in the state behind Seattle and Tacoma.
However, port officials point out, expenses have also risen, nearly doubling since 2005 primarily for workers to handle the increasing ship traffic. And while EGT helped power the port to $8 million in net operating income in 2012 (akin to profits in the private sector), that net income is estimated to have fallen 16 percent to $6.7 million last year.
Port officials add that the longer they wait to start on some of these projects, the higher the final price tag will be.
“We wanted to do things … to use the public’s money as effectively as possible,” Kalhagen said.
On billboards and banners around town, the port proudly touts that it’s responsible for one in 10 jobs in the area. According to an economic study the port commissioned last year, 817 jobs are directly tied to the port, including longshore workers and factory employees at the port’s tenants. An additional 1,241 jobs depend on port activity, such as truckers and tug boat operators, and 962 jobs are supported by industrial purchases made at the port.
However, the port’s success in attracting industries and jobs in recent years has been mixed, and even the victories carry black marks. The clearest example is the $200 million EGT terminal, a cash cow that was delayed for more than six months because of the labor dispute. Many union dock workers are still upset at the port, and the terminal only employs about 35 workers.
The port’s 275-acre Barlow Point industrial park was another big win. At the bargain price of $2.45 million at a foreclosure auction (or $8,900 an acre), the property was a steal in a prime waterfront spot for shippers. More than three years later, the port still hasn’t gotten the mostly agricultural land ready for developers, potentially missing out of big projects that could generate dozens of jobs.
Port officials said they weren’t even in the position to lure developers of a proposed billion-dollar methanol plant, who are now planning to build at the Port of Kalama and Port Westward near Clatskanie.
The biggest problem-free development in recent years was pipe manufacturer Skyline Steel, which built a $9 million plant at the port in 2011 and created 90 family-wage jobs.
Despite their struggles, port officials are optimistic about the future. They said they expect a slight uptick in business this year, and log and grain exports are both expected to hold strong.
In the next few months, the port will receive its second mobile harbor crane, which commissioners bought last year for $3.9 million with loans. The 481-ton crane, which is coming from Europe, will help the port better compete for new business, including the import of large-scale refinery equipment needed in the booming oil fields of North Dakota and Montana.
“Right now, we are as competitive as we can be,” Kalhagen said.