The Port of Nome

Port panel looks to crystal ball for port development

The Nome Port Commission took delivery on a draft port and harbor development analysis during an April 20 work session.
Lorraine Cordova, familiar to City of Nome administration through her work at U.S. Army Corps of Engineers’ deep-draft port study, prepared the report using information supplied by the port administration.
The draft financial analysis aimed at predictions of future trends in terms of flat growth forecasts, moderate growth forecasts and high growth forecasts, gleaning clues from historic traffic growth to provide revenue and expense assumptions.
The analysis makes recommendations for rate structure modifications, including those for capital infrastructure, staff services, City services and partnering up with private entities for investments in infrastructure improvements.
“If there are changes in the rate structure, varied assumptions for future vessel traffic, or modifications to operations at the Port of Nome, the baseline will allow decision makers to gauge impacts to revenues and expenses as a result of those changes,” Cordova said in the report.
The Commission in the annual revision of the port tariff did not raise rates. The revenues have been covering expenses in recent years, but the Commission agreed that there needs to be funds under lock and key for capital asset replacement.
Two types of funds cover the port: the enterprise fund to cover operations and the Port of Nome capital projects fund for constructing or acquiring major assets. There are also various other sources such as grants, contributions, bond proceeds and operating transfers from other funds.
The report shows negative net revenue in the years 1989 through 1994 with grants and depreciation taken out of the picture. Fiscal year 2013 shows negative net revenue because of property purchases for additional uplands, reduced causeway revenue and a 50/50 grant match with state Dept. of Transportation for harbor improvements.
Otherwise, “the port historically has done very well ensuring that revenues exceed expenses for operations,” according to the draft analysis.
The analysis focuses on port operations to make sure revenues from operations cover the expenses. The forecasts present three growth scenarios: flat, in cases based on an average of the last 10 years; moderate, some growth, about 2 percent plus one employee; and high with about 5 percent growth annually. 
Cordova’s draft analysis shows historical commodity movements of gravel, cargo and fuel with projections to the year 2035, based on current rates. Forecasts for other vessels are to remain constant annually, moderate forecast for unique vessels to grow by 2 percent, and high by 5 percent.
Revenues as portions for various harbor accounts over time have changed. The causeway has historically brought the largest share of total revenues, but the percentage has shifted in recent years with the industrial pad and other facilities within the port making up more of the total.
The first-phase development analysis cost $20,000 and forms a baseline for future work. A second phase may follow at a similar cost, according to Joy Baker, port director.  Sitnasuak Native Corp. pitched in $5,000 of the cost through a partnership with the City on port expansion. The City conducted and commissioned the analysis in cooperation with SNC to evaluate the long-term development of a hoped-for expanded deep-draft port facility at Nome that would allow vessels drafting to minus 36 feet.
Cordova of Cordova Consulting went through the 25-page analysis during the session via telephone. The study used 20 years of data on historic and predictive revenues and expenses comprising in part rates and fees by vessel types—cargo, fuel, gravel, government vessels and dockage—and different data groups, backed up by 29 tables of information.  Fourteen tables of figures showed information on revenue and expenses separated into commodities going across the port and separate facilities at the port—causeway, harbor, inner harbor docks, as an example.
“Lorraine Cordova and I are both very detail oriented,” Baker said.
The Nome Port and Harbor Development Analysis, draft copy, makes the following recommendations:
• Put a fee in the tariff for capital replacement. While the City takes depreciation on infrastructure investment which minimizes losses, when the capital infrastructure is fully depreciated, the City would have to have grants or need to raise funds to be prepared, if necessary, to replace the infrastructure.
• Add a cruise ship per passenger fee to recoup necessary expenses associated with police, fire, transportation and other services due to climate change making the Arctic accessible to an increasing number of tourists.
• Change line handling, security and other staff rates to cost-plus to meet future changes in personnel and equipment costs.
• Allow dockage, wharfage and storage fees to automatically increase in concert with the Anchorage Consumer Price Index. The reasoning: Regular small increases will be more palatable to port customers and will allow the City to recoup ever-increasing operations at the port.
• Look into partnering with other entities for infrastructure and port improvements and expansion—public and private partnerships, P3 for short.
Commissioner Scot Henderson had another idea for the capital replacement fee, noting there was not a capital asset replacement schedule, a critical component as the facility ages. Depreciation was a finance figure, not a schedule of capital asset replacement. He suggested that the life expectation of separate parts of the facility be investigated and users of these facilities be charged the fees.
“We’ve been lucky to get grants to pay for repairs,” Julie Liew, City’s finance director said.
The capital replacement plan would come along with the second phase of the study.
For the long-term plan, there would be a strategic development plan to determine what capital money to set aside versus tariff rate changes, Baker said.
Perhaps the City had become complacent about repair money as the port had been for a large part grant dependent, Tom Moran, city manager, observed. That might change. Administration was going to ask the Nome Common Council to hold the mill rate the same as last year, but the grants are not coming in.
Henderson thought that port facility sector fees would make fees palatable.
“To me, it is much more transparent to users, rather than a flat blanket capital replacement fee charged across the board,” he said. “ It leaves use of the increases less to speculation.”
Moran agreed that compartmentalizing causeway and small boat harbor capital replacement fees was a good idea.
“We need to have goals, not just repairs—port pad development, small boat harbor upgrades,” Commissioner Charlie Lean interjected.
He found Cordova’s analysis “quite interesting” as regards where growth was likely. As storage pads had shown some of the largest growth and increased revenue, the port pad deserved more attention, Lean said, adding that fuel facility use had been quite constant, but “more and more, people want to store their stuff on our port pad.”
Henderson wanted to know whether the City could set up maintenance reserve accounts and restrict them to only that use.
“Yes,” Liew said. “The Port Commission can tell the Nome Common Council and the Council can restrict the accounts.
 It would bring a lot more comfort to the users.
“If paying an increase, they would know it was going for facility replacement,” Liew said.
“In the very near future, grants are not going to be available,” Cordova agreed. Capital replacement fees and passenger fees and automatic tariff increases tied, for example, to the Anchorage Consumer Price Index would be a way to replace and repair the port’s capital infrastructure assets, she said.
Jim West Jr., commission chairman, found the analysis and planning session a good start on “proactivity and opening the eyes of the Council on what we are planning.”
The Nome Port Commission members reached consensus that Cordova’s analysis would serve as a useful tool.
No problem, Henderson offered at one point of the discussion.
“The Council can assign the sales tax revenue to the port,” he said.
Lorraine Cordova, economist and project manager, worked as economics section chief at U. S. Army Corps of Engineers Alaska District from 2005 until January 2016 when she established Cordova Consulting. At U.S.ACE Cordova provided economic expertise in support of the civil works mission.

 

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