Port District Doesn't Clearly Lay Out Losses

ALAN RAY (Host): You're listening to These Days on KPBS. I'm Alan Ray, in for Maureen Cavanaugh. The Port of San Diego, five cities on the water, brought together in a loose configuration established by the State of California. Port member cities get banana boats, auto storage, hotels, a convention center, apparently lots of grief but apparently not much voice in Port operations, and to borrow the line from Mick Jagger 'they can't get no satisfaction.' KPBS reporter Amita Sharma couldn't get much either. She spent months looking into Port operations, Port accounting, and the history of how we got here. Today, we began her three-part series on accounting and accountability at the Port of San Diego. And Amita joins us on These Days. Good morning.

AMITA SHARMA (KPBS Reporter): Good morning.

RAY: So the real question here is what's working and what's not and apparently you found out that what's not working as well as it looks like it should be are Maritime Operations. So what are Maritime Operations?

SHARMA: Well, Maritime Operations are one of the core missions of the Port of San Diego. And, as you know, maritime involves getting people and cargo to shore by sea. And at the Port of San Diego, they've got three terminals to do this. They've got the Cruise Ship Terminal in downtown San Diego, the 10th Avenue Marine Terminal right near Barrio Logan, also in downtown San Diego, and they have the National City Marine Terminal in National City.

RAY: So they are making a ton of money, right?

SHARMA: Well, that's just it. I looked at the budgets dating back to 1993, and two things were revealed. One is that they've lost a lot of money, and we can get into the exact figure in a moment. And the second thing is, is that in the seventies, eighties and nineties, those losses were very apparent when you looked at the budgets that the Port presented to the public. But in 2000, something changed. You really couldn't tell exactly how much money the Port was losing, and that is because the Port didn't include certain expenses for general and administrative costs as well as depreciation. I spoke with the Port's Chief Financial Officer, Jeff McEntee, and he explains why.

JEFF MCENTEE (CFO, Port of San Diego): Yeah, what we decided in '99-2000 was that within the budget there really wasn't adding value to have general administrative and depreciation expenses in the budget. Depreciation is a non-cash item. And general administrative are expenses that are allocated to the various departments.

RAY: But can you get a true accounting? Can you get a true idea of how much you're making or how much you're losing if you don't include those things?

SHARMA: No, you absolutely cannot. And the public is left with the impression that Maritime Operations are actually making more money than they are, and I want to give you an example. In 2005, the Port's budget presented to the public says that it had income or revenue of $24 million and that its expenses were about $16 million. It does not include costs for general and administration as well as depreciation, which totaled, that year, $13 million. So if you add that expense of $13 million to $16 million, you get around $29 million, so you actually have a loss of $5 million but the public doesn't get that. It is important to point out that in those public budgets, the Port does state that those – the expense figures don't include costs for GNA and depreciation but it doesn't just – it just doesn't say what those expenses are.

RAY: Now you say in the public budgets, are – they're keeping two sets of books.

SHARMA: Well, that's – they nev – those expenses are now contained in what are called management reports. Those are internal documents. The public can view them if they'd like to but it's unlikely that the public knows that they exist and, therefore, the public is unlikely to ask for them.

RAY: If I were, as a member of the public, to try to go and – what kind of hoops would I have to go through to get them, to find them?

SHARMA: You would have to ask for them. Whether you would have to submit a Public Records Act request, as I did, I’m not sure. But, again, I think the key is, is that the public doesn't know that those expenses aren't being included. I mean…

RAY: But why are the numbers really important?

SHARMA: The numbers are important because Maritime Operations is one of two main revenue generators for the Port and, you know, you're not going to understand how Maritime Operations is doing unless you have all of the expenses. I spoke about this issue with Frank Partnoy, who is a law professor at USD and he teaches corporate finance and he recited the adage of profit is fiction and cash is a fact. Here's more of what he said.

FRANK PARTNOY (Law Professor, University of San Diego): We certainly need to see more about cash in order to know the health of marine operations or any institution. That's what people actually care about if they're looking at the health of the Port.

RAY: So what is the cash situation at the Port?

SHARMA: Well, for the past 15 years, if you look at those internal management reports, it shows that Maritime Operations has lost $15 million. Now, the fact that the public hasn't gotten to see all of those losses because, again, the Port hasn't included the expenses for the public, really irks people outside of the Port like former Port commissioner Peter Q. Davis.

PETER Q. DAVIS (Former Commissioner, Port of San Diego): It looks very much like Enron. It looks like they're doing their budgets in an effort to convince us of something rather than to explain to us what they're doing, and that's just simply wrong.

RAY: In the report this morning, you talked about the Port in 2004 beginning to transfer money from Real Estate Operations into maritime. Why do they do that?

SHARMA: Well, they say that in 2004 they created a Real Estate Division within Maritime, so they transferred those millions of dollars in real estate revenue into Maritime. The Port says the leases that they transferred were truly Maritime related and that they relied on the water for their business. They include leases for the shipbuilder NASCO, for Knight & Carver Yacht Repair. The Port says the decision was made because the Real Estate folks thought that this would be the most effective way to manage those leases. But critics say the test of that argument is that if you were to shut down Maritime Operations tomorrow, would those leases, would those businesses still exist? And for the most part, the answer is yes. Peter Q. Davis sees another motive for the transfers. He says this practice started right around the time people started questioning how the 10th Avenue Marine Terminal was doing, how operations were doing. And they were looking at using the 10th Avenue Marine Terminal for other purposes. He believes that the Port transferred the money from Real Estate into Maritime to make Maritime look more profitable than it was and, therefore, be less vulnerable to a takeover.

RAY: Now, as I think I recall – Go ahead.

SHARMA: Well, I just wanted – It's very, very important to note that if the Real Estate money hadn't been transferred into Maritime, the Port's, the division's losses would have totaled $106 million since 1993 instead of $80 million.

RAY: Now one of the things I found interesting was that you – your investigation into the documents of budgets for the Port actually showed profit in some years that they didn't know they had?

SHARMA: Well, yeah. It's funny. The head of Maritime, Ron Popham, said that for the first time in the Port's history, Maritime Operations had a profit as of three years ago but if you go back and you look at the budgets from the seventies and the eighties, there were a couple of years here and there that they actually did have a profit.

RAY: Hmm.

SHARMA: And that was actually without the transfer of Real Estate money.

RAY: Okay, you have another story coming on tomorrow on the accounting and marine operations, talk about that a little bit.

SHARMA: That is – it's just more about the accounting and it's about people questioning why the Port did it, which is what I've alluded to here.

RAY: And the third piece on Wednesday?

SHARMA: Yes. That is about the Port Commissioners. The Port of San Diego has seven Port Commissioners, and those commissioners answer to the State of California. And some wonder if there's really any accountability. And this has been a criticism that's existed for a heck of a long time.

RAY: Okay, now let me ask how long, in dog years, you've been working on this story.

SHARMA: I've been on since December.

RAY: Okay, and this did not come easily.

SHARMA: It did not come easily. I mean, you know, I talked to a lot of people on background and there was a lot of criticism of the Port for a variety of reasons: accountability, accounting. And a lot of the member cities feel like their interests simply aren't being served by the Port of San Diego. So there was that process and then it was, you know, looking at a variety of documents and then figuring out where exactly the story was.

RAY: All right. The reports – Actually, you'll hear it again, the first report, again this afternoon at 4:45, then tomorrow morning and on Wednesday morning, Amita Sharma talking about accounting and accountability in the Port of San Diego. Thank you.

SHARMA: Thank you.

RAY: You're listening to the Morning Ed – you're – These Days on KPBS. And when we come back, we're going to talk with the mayor of one of the cities in the Port of San Diego and we'll also talk with a representative of the Port about what Amita found, what they think and where we should go from here. You're listening to These Days on KPBS. I'm Alan Ray, in for Maureen Cavanaugh. We'd be happy if you'd join the conversation, 1-888-895-5727 or 1-888-895-KPBS.

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RAY: You're listening to These Days on KPBS. I'm Alan Ray, in for Maureen Cavanaugh. As you heard when we talked with reporter Amita Sharma, there are some questions about the Port of San Diego about its existence as – and the entity that we have right now and maybe some questions that need to be addressed in public about its accounting. And we're joined now by National City Mayor Ron Morrison. Good morning, sir.

RON MORRISON (Mayor, City of National City): Good morning.

RAY: And by Irene McCormack, who is an Assistant Vice President with Port of San Diego. Good morning.

MCCORMACK: Good morning.

RAY: Okay, let me get, first of all, your reactions, each of you, if I could, to the report and the conversation with Amita. Mr. Morrison first.

MORRISON: Well, like I say, the actual details, I have not looked through the report and seen, you know, where exactly the numbers are at. But I think one of the things you need to realize with any kind of Port activity, you still have to have Maritime and there's going to be, if you want to call it subsidization and…

RAY: Umm.

MORRISON: …just there are in City Services, some things pay for themselves, some things don't, but some things are necessary. And within a port, Maritime is, you know, the key to the idea of a Maritime Port.

RAY: Well, it is kind of the reason that it exists at all.

MORRISON: Exactly.

RAY: Okay, let me ask if, and we can go back to this a little bit later on, are you pleased with the way National City is being served by the Port of San Diego?

MORRISON: Okay, let me just say that—and I've been a critic of the Port as far as past practices toward National City. There's a lot of, if you want to call it, the sins of the past. We have come to some conceptual agreements recently that will help start addressing some of those and we're going to see how those go and if these actually come to fruition.

RAY: Okay, Irene McCormack, Assistant Vice President with the Port of San Diego, from the Port's position, what voice does the public or what voice should the public have in the operations of the Port, in your relations with National City, in your relations with the City of San Diego, in relation to the City of Chula Vista?

MCCORMACK: We're very aware of what the public thinks about the Port of San Diego and we do understand that sometimes it's difficult to understand how Maritime Operations work. First, I think you got to under – you got to know that the Port of San Diego is on state tidelands and that means the State of California has a very keen interest in how we do our business. Maritime is the number one reason that we exist in order to make sure that the deep water port, with really deep water that the ships can come to, can operate. Maritime Operations up and down the state are not profitable but we're kind of in that position that it is more advantageous for the region to have Maritime because it creates jobs in the region. It creates economic impact in the region that you wouldn't have otherwise.

RAY: Now it's my understanding that the Ports of Los Angeles and Long Beach have profitable Maritime Operations, is that incorrect?

MCCORMACK: No, that's not incorrect. But there are times when it is very difficult when you're a smaller port like we are to have a profitable situation because we do not bring in containers at this point. Most of Long Beach and Los Angeles' operations is done through container ports. And they have terminal operators that run their terminals for them. We, the Port of San Diego, operate our own terminals.

RAY: Okay. Mayor Morrison, as you know, the Port's commissioners are appointed by the mayors and the councils of the five member cities. There's been some criticism of how accountability (sic) the commissioners really are and I'd like you to hear something that Commissioner Stephen Cushman said and then get your thoughts about the accountabilities.

MORRISON: Certainly.

STEPHEN CUSHMAN (Commissioner, Port of San Diego): We certainly are accountable in my eyes. We do not represent the citizens of San Diego or the member cities. We are trustees of the State of California. We are overseen by the State Lands Commission. Now we are appointed by our respective cities and we are obviously always available to meet with any of the council members, to meet with the mayor, to appear in public in front of city councils if they have questions.

RAY: Okay, yes, but it doesn't sound right to me to say that you're not accountable or the Port's not accountable to the citizens. Is that correct?

MORRISON: Yeah, I would have to agree with you on that. And I think I understand where Steve's coming from on there from a definitional standpoint. But still, at the same time, they are appointed by the mayor and councils of the individual cities and I know it's certainly our case. Our commissioner Dukie Valderrama is extremely accountable to us. He reports back to us on a regular basis. He has weekly meetings. We go through all of this and – and I would say that, you know, I have certainly no problem with Dukie and from the understanding that he does represent the City of National City and, therefore, is accountable to the elected officials and does that at the Port.

RAY: Okay. Irene McCormack, from the Port's position or the Port's perspective, even if the accountability is adequate, is there enough, do you think, transparency? I mean, you're involved in government relations and communications.

MCCORMACK: I do believe there's enough transparency. And we welcomed Amita coming in and looking at all our books over the last forty-five years that we've been in existence, and we do that for anybody. How you – You know, what the public sees is what they want to get to know. We've never denied any Public Records Act request. We've offered tours. We ask people to come down. It's really something that we really love doing.

RAY: Okay, San Diego City Councilman Carl DeMaio, among others, has expressed some concern about how much money the City of San Diego gets. Mayor Morrison, are you satisfied with what National City gets out of the Port?

MORRISON: Oh, absolute…

RAY: In return for what it gives?

MORRISON: Absolutely not, not even close. You know, we've been told a number of things both, you know, from the revenue standpoint, jobs standpoint, things on that line. As far as acreage, we make up 12% of the Port and almost every inch of that is industrial and is, most of it, a good amount of it, Maritime-based. Some of it's not Maritime-based. But at the same time, so you can imagine that we would receive a good amount of revenue off of that. Actually, the revenue generated on the Port, we get 2.8%. We also get – And most of that's off sales tax from Dixieline, is where that comes from. And the other thing is on jobs, so you think, okay, well, we got a jobs-base, got a lot of industrial. Of the jobs that's directly on Port land, 2.6%. So, I mean, there's almost no job base, there's almost no revenue. And the other thing is, of all the five cities, you know, that have waterfront, public access, we have not one inch of public access to the waterfront. We do now have a marina on a flood control channel, and so that part's good and we're appreciative of that. But not one inch of public access.

RAY: Irene McCormack, do you and Mayor Morrison get along on a personal level? Do you deal – Is it his level at which you're dealing when you deal with the member cities, the government?

MCCORMACK: We get along fine, Ron and I do. We really do. We have no problems that way. We do sometimes agree to disagree. One of the things you have to understand about the Port District and being a State Tidelands Trust District is that we are accountable to the State Lands Commission and, ultimately, the State of California so most of the money, almost all of the money except for the Dixieline down in National City, that we generate goes back into our infrastructure here at the – on the Port District on the tidelands, whether it's in any of our five member cities. And sometimes in National City's case, for over a hundred years, their waterfront has been mostly industrial and has been occupied by the Navy and by the Port District so it has been difficult for the City of National City to generate TOTs from hotels because there are no hotels down there like there are along the San Diego waterfront. However, we are working with the City of National City to see what we can do to reconfigure some of the areas, not on the waterfront, however, because that is a marine terminal, but along the fringes of that terminal. And I think we're doing an okay job and while it does take time to get those things done, there are a lot of decisions that are made that need to be overseen by the State of California because that, ultimately, is the authority we see to.

RAY: Okay, let's look at San Diego operations for just a second, if we might. Former Port Commissioner Peter Q. Davis has been critical of the Port's Maritime losses and he thinks the property, for instance at the 10th Avenue Marine Terminal, has been, so far, underutilized.

DAVIS: It just never has really reached the kind of scale that I think was hoped for. It hasn't run in a profitable way. It can't really keep up with Long Beach and Los Angeles when it comes to maritime business. I'd just like to see the 10th Avenue Terminal open to the public. It's probably one of the prettiest places in our entire area, especially at sunset. To be down there on the water at sunset as it sets below the Point Loma peninsula, it's just a great place and it should be open to the public through promenades, through parks, and through public uses like restaurants and others.

RAY: Now, Irene McCormack, that actually sounds like an echo of what Mayor Morrison was saying about the problem in National City, just give the people a little more access to their waterfront.

MCCORMACK: You know, for me when I hear things like that, and it's perfectly acceptable because it really is beautiful down there at sunset but let me tell you, what you're doing is deciding the future of San Diego County and its economic success. Having a port in town is extraordinarily necessary for a region that's at a cul-de-sac of the state. If you don't have ships coming in, a lot of those products are going to come in by truck. So there's a – you have to balance. Everything that the Port does is a balance. And the Port was created 45 years ago in order to have a holistic look at the bay so you didn't have certain projects going that cities would – were like competing with each other. So, for us, we look at it as we have to maintain Maritime. If it's not as profitable as it could be, we'll make it profitable and…

RAY: How can you do that?

MCCORMACK: …we're working towards that.

RAY: How can you do that?

MCCORMACK: We have a Mari…

RAY: My understanding is that there are problems, for instance, in terms of large container cargo, that the – you know, there are dredging problems with the bay itself. You don't have the kinds of cranes you need to do that sort of thing. And the question that arises, whether or not there really is any way that even if there's some spillover when LA and Long Beach get to capacity, that we could deal with it.

MCCORMACK: There's ways of taking the 10th Avenue Marine Terminal and National City Marine Terminal and reconfiguring those areas. 10th Avenue's 96 acres, National City is 130 or so, and making it so that it works quicker. The key to Maritime cargo operations is not what you bring in, it's how quickly you get it out. It's through-put on and off the terminal. Bringing in a ship, unloading it and getting it out and to its destination is more important than bringing in a ship and unloading cargo. So working on our infrastructure outside the terminals and how we interact with the highways and the rail is just as important, and we have a Maritime business plan that the Port of San Diego put together that is a blueprint for how we're going to keep our operations growing over the next 20 to 30 years.

RAY: Mayor Morrison, there has been talk in some quarters, even in some member cities, of simply disbanding the Port of San Diego and leaving the individual cities to manage their parts of the waterfront on their own. Is that a satisfactory solution or a preferable future to you?

MORRISON: I think it's a very difficult solution. It's not as easy as it sounds. There's a lot of contracts that are out there, 5, 10, 20 year contracts that you would still –you're still, quote, unquote, stuck with, you have to deal with. It's not near as easy as it sounds and I think the competition would become, I think, rather unwieldly. But at the same time, you know, and I understand Mr. Davis' comment about how that area looks nice on the 10th Avenue Terminal. That whole area used to be industrial at one time. And if I look at what the Port has done now with the whole Embarcadero project, the cruise ship, with Seaport Village, with all that area that's all public access, and, you know, I'm one of the few people, public, that has got to be out on the 24th Street Terminal, out on the end, and see what it looks like in the evening and it is gorgeous also. We're never going to have that. And what has happened is, they're expanding in National City, decreasing in San Diego and now you want to decrease more. Guess what they're going to do. They want to take over National City for all Maritime so that you can have another spot that can be developed there. And if I could, just one sentence out of the public trust document that the California State Lands Commission put out. It said, Tidelands Trust is intended to promote rather than serve as an impediment to essential commercial services benefiting the public and the ability of people to enjoy Trust lands. So I think there has to be a balance between Maritime and, if indeed, that area's going to be closed off but also areas to allow the public to enjoy and have benefit from.

RAY: Is there a middle – possible middle ground for National City that maybe you'll get a little bit of waterfront access that you don't have now?

MORRISON: Well, we basically have said the waterfront – we have agreed the waterfront will stay Maritime and we've talked that with everybody and that's been our promise. But there are areas outside the tidelands that the Port controls that is outside the tidelands. We're saying those areas should be developed for the public. And, you know, and we think that's being very magnanimous of us to say that but we're willing to do that from a regional standpoint but there has to be some benefit for the people of National City.

RAY: Okay. One more before we – question here before we let you go. The Port of San Diego's representatives say Maritime Operations are critical and we know that. UCSD Professor of Political Science Steve Erie has written about ports and he talks about Maritime trade and he talks about ports.

STEVE ERIE (Professor of Political Science, UCSD): You need Maritime trade. We can't rely upon the ports of LA and Long Beach to be our global gateway in terms of vessel trade. It's not the way to go. We need to carry more of the burden ourselves. It's just that Maritime trade, it's ships which pollute, it's the old smokestacks versus geranium debate in San Diego. They want clean industry, they don't want the kinds of things that built New York, built Los Angeles, built San Francisco and even Chicago, which is Maritime trade. And I've talked to some downtown movers and shakers that would love to see the 10th Avenue Terminal go out of business and turn it over to tourists and well-heeled developers.

RAY: Well, can that ever happen realistically? Or let's try it another way, can the Port of San Diego ever be a clean industrial area?

MCCORMACK: I think you'll find that our tenants, especially our industrial tenants down on the waterfront, shipbuilders and ship repair operations, are working towards that goal of being clean industrial tenants. The Port of San Diego also just recently put upwards of $7 million towards having cold ironing, also known as shore power, at it cruise ship terminal and it's 10th Avenue Terminal so that ships can plug in rather than running their diesel engines. So, yes, we can be that way. It takes time and it takes a lot of planning and it takes a lot of partnering with stakeholder groups and other industries to make that happen but that's definitely something that we're working towards.

RAY: Mayor Morrison, lots of ships coming in to National City, lots of cars getting offloaded, that sort of thing, all of that's highly polluting.

MORRISON: Yes, it is. We're unloading at the rate of a half million automobiles a year just in National City. So, yeah, it's a huge amount of pollution and we're working together with the Port, with the Environmental Health Coalition, to try to work on that. It's a long, slow process, and our deal is, our concern is, if you talk about shutting out 10th Avenue, where's all that going to go? It's all got to go to National City then and we get just that much more. And so it's – we're – You know, we do a lot of our regional share within our city and we're just saying that we should not take on that kind of burden. And every city needs to share in that but every city needs to share in the revenues, also. So can't have one city taking all the negatives and without any positives.

RAY: All right. Assistant Vice President for Port of San Diego, Irene McCormack, thank you.

MCCORMACK: Thank you.

RAY: National City Mayor Ron Morrison, thank you very much.

MORRISON: Thank you very much.

RAY: You're listening to These Days on KPBS. I'm Alan Ray, in for Maureen Cavanaugh.