BOARD OF PORT COMMISSIONERS
REGULAR MEETING
WEDNESDAY – November 14, 2007
MINUTES
I. CALL TO ORDER
8:00 A.M.: Chairman Miller, presiding
Commissioners Present: Commissioner Richard S. Claire; Commissioner Ralph A. Garcia, Jr.; Secretary Larry R. Aikins; Vice Chairman, Richard A. Dodge; and, Chairman, Lewis D. Miller
Commissioners Absent: None
Staff Present: Executive Director, Michael J. Giari; Special Counsel to Port, Francois X. Sorba; Director of Finance & Administration, Cynthia D. Hampton; Assistant Manager of Operations, Eric Napralla; Executive Assistant, Rita F. Artist
Commissioner Aikins led the Pledge of Allegiance.
II. APPROVAL OF MINUTES:
A Motion to Approve Minutes of Regular Meeting of October 24, 2007 was made by Commissioner Aikins and Seconded by Commissioner Claire. The motion passed by a unanimous voice vote of all Commissioners.
III. CLAIMS:
A Motion to Approve Claims was made by Commissioner Dodge and it was seconded by Commissioner Aikins. The motion passed by a unanimous roll call vote of all Commissioners.
IV. ORDINANCE
A. ORDINANCE OF THE BOARD OF PORT COMMISSIONERS OF THE CITY OF REDWOOD CITY APPROVING AND AUTHORIZING EXECUTION OF LEASE AGREEMENT WITH DIVERSIFIED COMPUTER CONSULTANTS OF CALIFORNIA (aka Seaport Conference Center) – INTRODUCTION
Click here to view the staff agenda sheet and documents for this item
Executive Director Giari explained that Diversified Computer Consultants of California (DCC) has been the tenant for the Seaport Conference Center for the last ten years. The original lease agreement was for a term of five years with two options to renew for five years. When the second option was up for renewal, Richard Ferrari, owner of DCC, requested an extension of the lease agreement and a new, updated lease agreement.
Under the new lease agreement, the initial term of the lease is for five years with an option to renew for an extended term of five years. The rent starts at $11,100 per month, or 6% of gross sales, whichever is higher. The rent would increase on an annual basis according to the change in the CPI. At the start of the extended term, the rent would be $13,200 per month, or 6% of gross sales, whichever is higher, and would be subject to CPI increase on an annual basis for the remainder of the extended term. Currently the rent is $10,800 per month or 5% of gross sales, whichever is higher
Giari stated that under the existing and new lease agreements, DCC is responsible for all utilities, building maintenance and landscaping, including landscaping adjacent to the building, which is not part of the leasehold.
DCC, under Ferrari’s management, has been an exceptional and reliable tenant and Port staff recommends adoption of this Ordinance.
Commissioner Dodge questioned a discrepancy in the percentage amount of gross sales that was listed in the Agenda Sheet, the Ordinance, and the lease agreement. Attorney Sorba stated that the correct amount is 6% and that the 10% amount in the Ordinance would be corrected to read 6%; and the clause “6% of the yearly gross sales, …” would be added to the lease agreement.
Commissioner Aikins stated that the street address listed on Exhibit “D” of the agreement should be changed from 1925 Taft Lane to 1925 Terry Lane.
A Motion to Introduce the Ordinance subject to correcting language in Section 1 of the Ordinance to “6% of the yearly gross sales of Tenant”; and, adding/correcting language in the Lease Agreement to include the “6% of the yearly gross sales, …” clause; and, to correct the address in Exhibit “D” to read 1925 Terry Lane; and, Waive the Reading Thereof was made by Commissioner Dodge. The Motion was seconded by Commissioner Aikins and was passed by a unanimous roll call vote of all Commissioners.
V. RESOLUTION
A. RESOLUTION APPROVING STANDARD SUBLEASE AGREEMENT – (PORTSIDE INVESTORS – PHASE I LEASE AGREEMENT) – (SHOE CARE INNOVATIONS, INC.)
B. RESOLUTION APPROVING FIRST AMENDMENT TO SUBLEASE (PORTSIDE INVESTORS – PHASE I LEASE AGREEMENT) – (Dr. Edward Duncan)
C. RESOLUTION APPROVING STANDARD SUBLEASE AGREEMENT (PORTSIDE II DEVELOPMENT) – (ConforMIS, Inc.)
Items V-A, V-B, and V-C were handled as one item.
Commissioner Dodge commented that rent was abated for one month for one of the sublease agreements, and for two months for another sublease agreement. Dodge asked if rent abatement is being used to attract tenants and whether or not this practice is acceptable under the master lease agreement. Giari responded that he would contact Portside I and Portside II regarding the rent abatement question. Attorney Sorba said he will review the master lease agreement for any restriction applicable to rent abatement.
A Motion to Adopt subject to review of the master lease agreement by Attorney Sorba was made by Commissioner Dodge. The Motion was seconded by Commissioner Aikins and was passed by a unanimous roll call vote of all Commissioners.
VI. MOTION
A. MOTION APPROVING AND AUTHORIZING EXECUTION OF EXTENSION OF AUDIT SERVICES AGREEMENT FOR THE FISCAL YEARS ENDING JUNE 30, 2008, 2009, 2010, AND 2011 – (CAPORICCI & LARSON, CPAs)
Click here to view the staff agenda sheet and documents for this item
Executive Director Giari explained that Caporicci & Larson has provided audit services to the Port for the past five fiscal years. This is an agreement to extend C&L’s audit services for the next four years subject to the same terms as the original agreement except for fees. A table of contractual, actual and proposed fees is included in the documents for this item. Giari commented that C&L also provides audit services for the City. It is Port staff’s recommendation that the Board approve the motion to approve and execute the four year contract extension with C&L.
Chairman Miller inquired about C&L’s proposed fees. Ms. Hampton responded that there is a proposed fee for each year, and if the Board approves the extension, then those are firm fixed fees. In the event that we receive a federal grant in excess of $500,000, we would require a single audit at an additional fee.
A Motion to Approve was made by Commissioner Aikins. It was seconded by Commissioner Dodge. The motion passed by a unanimous roll call vote of all Commissioners.
VII. REPORT/PRESENTATION:
By Cynthia D. Hampton, Director of Finance & Administration
Click here to view the presentation slides and reports for this item (Quarterly Investment Report)
Click here to view the presentation slides and reports for this item (Comparative Income Statement)
A. QUARTERLY FINANCIAL RESULTS – (September 30, 2007 Comparative Results)
B. CERTIFIED QUARTERLY INVESTMENT REPORT – (For Quarter Ended September 30, 2007)
Ms. Hampton gave a PowerPoint presentation of fiscal year to date September 30, 2007 financial results. She reported that tonnage was 312,000 metric tons, 20% less than last year and 28% less than budget. The decrease in tonnage translates to a decrease in revenue. Recreational Boating, Commercial, and Other Operating Revenues combined were 6% more than last year and 1% less than budget.
The first quarter generated $1.1 million in total Operating Revenue, 20% less than last year and 22% less than budget. Total Operating Expense was $755,000, 5% less than last year and 12% less than budget.
Operating Income reflects the drop in revenues - $381,000 versus last year’s $621,000 and a budget of $601,000. The ratio of Operating Income to Operating Expense has also fallen - 33.6% versus 43.9% last year and 41.2% budget.
Interest Income and Interest Expense are on par with budget. However, there is a $212,000 variance in Other Non-Operating Income/(Expense) between actual and budget. The budget includes $200,000 in expense for the demolition of the LBT building, whereas only $4,000 has been actually expended.
Fiscal year to date $89,000 has been accrued for Subvention; accrual adjustments will be made as the year progresses.
Net Income After Subvention was $329,000 versus a budget of $334,000 and last year’s $542,000. Net Income after Subvention is closer to budget than Operating Income was to budget because the $200,000 budgeted for the LBT building demolition has not been expended.
Ms. Hampton then discussed actions taken to address the decline in operating revenue. She explained that while staff is working diligently to maximize Port revenues, it has also taken a very close, hard look at the expenses budgeted for FY08. $111,000 in expenses have been identified which are important, but not critical to, Port operations. Those expense cuts will not have a tremendous impact in reducing total overall expense, but will improve the operating margin a bit. Staff will continue to examine and re-evaluate expenses as the fiscal year progresses.
Ms. Hampton then addressed the capital budget, and explained that while capital expenditures have no impact on profit and loss (other than the resultant depreciation expense), they do have an impact on cash reserves. At this point in time it isn’t known whether cash reserves will be needed to cover the Port’s expenses and/or debt service as the year progresses, so staff is in the process of identifying the capital projects that can be postponed without negatively impacting the ability to generate revenue.
Chairman Miller asked when the expense cuts would take effect. Ms. Hampton replied that cuts actually began when August financial results were known. She commented that the line item budget is a valuable tool which allows staff to target and red-line expenses with great specificity.
Ms. Hampton moved on to the Quarterly Investment Report. At the end of the first quarter of FY08 the Port had $15 million in cash reserves; 89% unrestricted and 11% restricted. The restricted cash balance is comprised primarily of funds in trust for the 1999 series bonds; a small portion of the balance is an escrow account established as part of the Pacific Shores exchange agreement for the purpose of mitigating nuisances such as noise and dust.
Chairman Miller asked if the auditors had any objections to the distribution of investment funds; Ms. Hampton replied they did not. She commented that in recent years the Port has expanded its banking relationships with banks having a local presence in Redwood City. If United American Bank, which recently opened a Redwood City branch, meets the investment policy criteria and the Port Commission approves, the Port will likely invest funds there as well. She mentioned that Frank Bartaldo, formerly with Mid-Peninsula Bank, is now with United American Bank.
Chairman Miller asked if that would mean taking funds out of Mid-Peninsula Bank (now Wells Fargo). Ms. Hampton replied that in the past she has not had satisfactory service from Wells Fargo, and has been reducing the amount on deposit there over a period of time.
Commissioner Garcia stated that he assumed any shift of funds would be based on factors such as interest rate, not personnel change. Ms. Hampton replied in the affirmative, and commented that the Port strives to transact as much business as possible within the local community.
Commissioner Aikins asked if the certificates of deposit which matured in October were renewed at higher rates. Ms. Hampton replied that the Federal Reserve Board cut interest rates, which generally caused a slight decline in rates. She commented that First National Bank of Northern California is an exception – it has been holding its rates for the Port at 5%, and recently an additional $400,000 was invested in certificates of deposit with FNB at 5%.
Commissioner Dodge pointed out that it would improve the bottom line if the LBT building were not demolished this year as the Port would not then incur the $200,000 estimated expense included in the budget for that purpose, and suggested that Executive Director Giari give this consideration.
Commissioner Dodge asked why the $200,000 budgeted for demolition of the LBT building is classified as an expense rather than being capitalized, especially since the demolition of the LBT tanks was capitalized. Ms. Hampton replied that tearing down the building is destruction of an asset and does not qualify for capitalization, whereas the tanks were not a recorded asset and were demolished as part of the environmental remediation of the site.
Ms. Hampton mentioned that a new GASB standard has recently been issued pertaining to environmental remediation, and that she and the auditors were reviewing it to determine what impact it might have on the Port.
Chairman Miller thanked Ms. Hampton for the presentation and report.
VIII. PUBLIC COMMENT:
NONE
IX. MATTERS OF BOARD INTEREST:
Chairman Miller commented that he just returned from an American Association of Port Authorities Facilities Engineering Seminar in San Diego and learned that the Port was not listed as a Tier 1 port under the Department of Homeland Security. Giari replied that the Dept. of Homeland Security performed a threat and risk assessment of ports when establishing the programs for port security, specifically the grant programs. Ports are ranked from Tier 1 through Tier 4 and the Port of Redwood City is a Tier 4 port.
X. EXECUTIVE DIRECTOR'S REPORT:
Executive Director Giari commented that former Commissioner Jack Castle expressed his sincere appreciation for the “Thank You” reception that was held in his honor on November 2nd. It was a great night for him and his family. Castle asked that Port Staff, Rita Artist and Margaret Astesano in particular, be recognized for organizing a great event. Giari seconded that and commented that they did a great job. Giari also thanked Commissioner Aikins for being the emcee of the evening. Proclamations were presented by Assemblyman Ira Ruskin, Mayor Barbara Pierce, Cheryl Angeles, President of the Chamber of Commerce, and Commissioner Dodge for Congresswoman Eshoo, and Commissioner Dodge for the Port of Redwood City.
Executive Director Giari also reported that Port staff, Port tenants, members of the Coast Guard Auxiliary, and security personnel will be participating in the 2007 Golden Guardian emergency preparedness exercise immediately following this meeting. Statewide Golden Guardian exercises are held by the Governor’s Office of Homeland Security. Port personnel and tenants have participated in periodic training for emergency preparedness and security and this exercise provides an opportunity to utilize what we have learned. It also meets the requirements under the Port Security Act for ports to participate in an annual training exercise. Commissioners Claire and Garcia plan to attend the exercise as observers.
XI. ADJOURNMENT:
At 8:35 a.m. Chairman Miller requested that the Commission adjourn to its next regularly scheduled Meeting of November 28, 2007. A Motion to Adjourn was made by Commissioner Dodge. It was seconded by Commissioner Aikins. The motion passed by a unanimous voice vote of all Commissioners.
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