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December 20, 2017

Port ponders use of university study for lease rates, comparisons

PTLeader.com

Chris Tucker

The Port of Port Townsend is considering hiring an outside consultant to determine how to price lease rates, yard rates and other rates so the port can both cover its costs and compete with other ports in the market.

Earlier this year, members of the marine trades expressed dismay about the port's plans to increase lease rates. The port contends that increases are needed to pay to replace or repair aging infrastructure, such as the Boat Haven breakwater, the Point Hudson jetties, Marine Travelifts, and other facilities and equipment.

Port Commissioner Stephen Tucker said a rate study by either commercial real estate company Kidder Mathews or by Western Washington University (WWU) would help eliminate uncertainty about determining lease rates. Rates need to factor in the "carrying costs" for the port and not just be in line with area market rates, he said.

Sam Gibboney, port executive director, said other ports face the same challenges as the Port of Port Townsend: "A significant change in public policy over the past few decades, where very expensive infrastructure was paid for by federal government and/or state funding, and those funding sources have dwindled, if not completely evaporated. There's lots of people out there trying to look at this problem."

As state and federal dollars have been curtailed, infrastructure costs have shifted to other sources.

Gibboney said it would cost $12,500 for Kidder Mathews to update an earlier study it did in 2006. The WWU study would cost $15,000-$20,000.

Greg Englin, director of operations, said he reviewed notes from port meetings at Edmonds and Port Angeles, and found that commissioners at those ports had concerns about how they were going to be able to afford to rebuild their facilities at the rates they charged.

"A lot of people are in the same situation that we are," Englin said.

Tucker said area ports are all competing for the same business while at the same time struggling to maintain infrastructure.

"Everyone else is saying the same thing: 'But I have to go to the [low] rate because my commission told me we had to be the cheapest.'"

"It's a race to the bottom. It really is," Tucker said.

Tucker said a market study would be preferable to a "back of the napkin" estimate.

"Not knowing what your break-even point is, I think, is a horrible mistake. If you just go on saying, 'Well, in order to get the business, we've got to charge this rate because everyone else is charging this rate,' but if we're losing $20 every time we charge that rate, then it's just prolonging the slow death," Tucker said.

"It's like the car salesman saying, 'I lose money on every car, so I'm going to make it up on volume,'" he said.

During public comment, Ernie Baird with Baird Boat Co. spoke in "defense of markets" and said the Kidder Mathews 2006 study should be updated. He said higher rates would lead some port customers to move.

"Some people will move on. The most mobile ones ... the haulout customers ... they're going to make a choice based on price, often. Some of us are kind of planted here, and I'm one of them, and we'll find a way to deal with it as long as we can," Baird said.

Baird said he appreciated the financial and infrastructure challenges the port is dealing with, but "the market's indifferent to those needs. It simply wants to know what we're going to charge," Baird said.

Commissioner Peter Hanke said he understood Baird's point.

"You have to factor in the private industry. Like Ernie [Baird] is saying, if I'm going on an airplane ride, if I'm going whale watching, if I'm doing whatever, I'm going to figure out what's the best value for my dollar," Hanke said.

"I'm not going to go to Port Townsend because they feel like, 'Well, we've got to charge for our infrastructure, so we're going to charge 50 percent more,'" Hanke said.

Englin said customers don't like to see rate increases, but would be more amenable to the increases if they see increased value for them.

"You have to also make sure they have to see some of the result. They do have to see results, ultimately, or you'll get further backlash if you try to keep escalating rates over time," Englin said.

Christopher Sanok, a member of the Port Townsend Shipwrights Co-op, criticized the potential study. He said the co-op leases 21,000 square feet at the port.

"If I was in a position of having to explain to existing tenants or prospective tenants why they should pay five times or 10 times fair market rates or 10 times what they're going to pay at other ports for comparable facilities, I would want a very expensive university study to hide behind. Because I think that's an uphill battle," Sanok said.

STORMWATER WORK

In other business, Gibboney thanked Terry Khile, yard manager, and Larry Aase, maintenance manager, for their work in helping the port save $1 million with the new stormwater system, which is nearly complete.

Gibboney said the new system is "beautiful" and that she has seen sheets of water flow across the newly graded yard, hit a curb and go into the treatment system.

Hanke said Khile and Aase's work was "outstanding."

"It's pretty amazing because for those of you that aren't aware, we're saving $1 million here," Hanke said.

For the full story, go to PTLeader.com.

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