BILL ANALYSIS Ó AB 2395 Page 1 Date of Hearing: April 23, 2014 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair AB 2395 (Lowenthal) - As Amended: April 10, 2014 SUBJECT : Oxnard Harbor District: infrastructure projects: funding. SUMMARY : Raises, for the Oxnard Harbor District (District), the amount it can borrow and incur indebtedness from $1 million to 15% of the District's total assets. Specifically, this bill : 1)Prohibits the District from borrowing an amount over 15% of its total assets, as determined based on the estimated values of the assets included in the Port of Hueneme Comprehensive Annual Financial Report (CAFR). 2)Requires the District, prior to commencing any action to borrow funds, to conduct a public hearing to consider the proposed borrowing. 3)Prohibits the District from borrowing any funds unless the proposed borrowing is approved by a two-thirds vote of the board. 4)Authorizes the District to expend any funds made available by borrowing pursuant to 1), above, for the acquisition of any interest in lands pursuant to current law, for the acquisition, construction, development, ownership, and leasing of port facilities, infrastructure and, other projects, including, but not limited to, harbor deepening, and for any other buildings, plants, equipment, aids, facilities, and improvements necessary for, or incident to, the accommodation and promotion of commerce and fisheries in the District. 5)Authorizes the District to borrow money and incur indebtedness and to accept financial or other assistance from the state or federal government. 6)Finds and declares that the District owns and operates the Port of Hueneme (Port), and that the District needs to finance several significant infrastructure projects over the next several decades to expand the limited capacity of the port. AB 2395 Page 2 7)Finds and declares that the existing one million dollar limit on the borrowing of money impedes the District's ability to develop the infrastructure and systems necessary to continue the development of the Port to expand the Port's limited capacity and meet anticipated demands. 8)Finds and declares that the District does not levy, or expend funds generated by local taxes as most of its operations are funded directly through fees and other revenue that the port generates from its users or tenants, and from occasional state and federal grants. 9)Makes other findings and declarations regarding the District's activities. 10)Finds and declares that a special statute is necessary because of the unique circumstances applicable only to the District. EXISTING LAW : 1)Authorizes the board of a harbor district to borrow money, up to one million dollars, by issuance of promissory notes, or execute a conditional sales contract to purchase personal property for the purpose of acquiring land for and constructing or operating any work project, or facility, as specified or for making improvement or the purchase of equipment or for the maintenance. 2)Requires the indebtedness to be authorized by a resolution adopted by a two-thirds vote of the board of a harbor district. Prohibits any moneys borrowed from being borrowed for a term exceeding five years and from incurring a rate of interest exceeding 12%. FISCAL EFFECT : None COMMENTS : 1)Purpose of this bill . This bill changes the borrowing cap for the District from a hard cap of one million dollars to 15% of the District's total assets as determined based on the estimated value included in the District's CAFR (Port of Hueneme Comprehensive Annual Financial Report). For example, in the most recent financial AB 2395 Page 3 report the District's total assets are listed at $95,306,826. Under this bill, the District's borrowing cap would then be $14,296,023. Current law allows the District to incur indebtedness with a two-thirds vote of the board. This bill will not change that requirement. This bill is sponsored by the District. 2)Oxnard Harbor District : The District was created in 1937 and is a political subdivision of the state operating as an independent special district. The District owns and manages the commercial Port and is governed by a five-member Board of Harbor Commissioners elected at large to four-year terms from the District's service area. The District's boundaries are comprised of the City of Oxnard, the City of Port Hueneme, and some unincorporated areas within Ventura County. The Port is empowered to acquire, construct, own, operate, control or develop any and all harbor works or facilities necessary to the efficient undertaking of its mission. The Port prepares and controls its own budget, administers and controls its fiscal activities, and is responsible for all Port construction and operations. The Port does not assess taxes for operations or capital expansion. Its operating expenses are funded by the revenues generated by tariff charges, leases and other contract revenues assessed upon Port users. The Port's commercial facilities are primarily located within the City of Port Hueneme, with one facility located in the City of Oxnard. Pursuant to current law the District publishes an annual CAFR, including audited financial statements within a six-month period of the close of each fiscal year. According to the District's most recent Comprehensive Annual Financial Report for the Fiscal Years Ended June 30, 2013 and 2012, "The Port has a $12.9 million operating budget and $6 million in available unrestricted reserves to support critical capital repairs for the Port's $70 million in net capital assets. Major capital investments of the Port have been historically financed throughout the use of revenue bonds issued by the Port pursuant to the California Harbors and Navigation Code. At the close of the fiscal year 2013, the Port holds $21.2 million in outstanding revenue bond debt. The fiscal years 2013 and 2014 Capital Outlay Program calls for $12.2 million to support various infrastructure projects. AB 2395 Page 4 The sources of funds for this year's capital program include: (1) General Fund 55% (2) Revenue Bonds 8% and (3) State/Federal Grants 37%." 3)Author's statement . According to the author, "This bill authorizes the District to incur indebtedness beyond a $1 million cap set in statute 30 years ago. This limitation does not accurately or adequately account for the needs and escalated project costs of a modern port competing in a global market. "The Port of Hueneme is the only deep water port on the Pacific between the major ports of southern and northern California. Although a deep water port, at a depth of only 35 feet MLLW (mean lower low water), the Port is limited in its activities and applications. At least 40 feet MLLW is necessary to accommodate the Port's anticipated needs into the next several decades. "The Port has identified the following growth goals, all of which are attainable and will result in the noted job growth if the Port could undertake several significant infrastructure projects, including harbor deepening. Containers (50,000 Units) 836 jobs, $6.5m in taxes, $69.4m in local revenue Break-bulk (350,000 tons) 114 direct jobs, $15.6m in local revenue Auto/Roll-on Roll-off (120,000 autos) 724 jobs, $6.0m in taxes, $36.5m in local revenue Liquid Bulk (50,000 tons) 80 jobs, $600,000 in taxes, $3.2m in local revenue Aggregate (200,000 tons) 56 jobs, $464,000 in taxes, $72m in local revenue Fish (Existing Operation) 1,375 jobs, $10.8m in taxes, $55.5m in local revenue "Meeting these goals will require that the Oxnard Harbor District execute several critical infrastructure projects, all of which will require debt financing well beyond the limitation set forth in existing law." According to the District, estimates for the following infrastructure projects, exemplifies the need to raise the borrowing cap. Deepening dredge and associated wharf AB 2395 Page 5 improvements at $8 to $12 million, shore power phase 2 at $2 million, dockside/ tank farm rail at $1 to $3 million, life cycle repairs costs to restore capability to wharfs, parking areas and structures at $10 million, and high mast lighting upgrades at $500,000. 1)Policy considerations . a) The Committee may wish to consider if it is appropriate to base the amount that the District can borrow on a percentage of total assets that are estimated in a CAFR. This amount of total assets does not reflect the capacity for the District to repay debt or loans because the assets may not be liquid or disposable and the amount of total assets does not include any outstanding debt or liabilities of the District. Additionally, the Committee may wish to consider if it is appropriate to base the amount the District can borrow on an estimate that changes from year to year. b) The author may wish to clarify that the most recent annual financial report should be used to determine 15% of total assets for the borrowing cap. 2)Arguments in support . Supporters argue that this bill will adjust the 30-year-old debt limitation set forth in existing law and will allow the District to undertake vital and necessary projects, including an anticipated harbor deepening project. 3)Arguments in opposition . None on file. REGISTERED SUPPORT / OPPOSITION : Support Oxnard Harbor District [SPONSOR] Opposition None on file Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916) 319-3958 AB 2395 Page 6