BOARD OF PORT COMMISSIONERS
REGULAR MEETING
WEDNESDAY – October 8, 2008
MINUTES
I. CALL TO ORDER
8:00 A.M.: Vice Chairman Garcia, presiding
Commissioners Present: Lorianna Kastrop; Larry R. Aikins; Secretary Richard S. Claire; and, Vice Chairman, Ralph A. Garcia, Jr.
Commissioners Absent: Chairman Richard A. Dodge
Staff Present: Executive Director, Michael J. Giari; Special Counsel to Port, Francois X. Sorba; Director of Finance & Administration, Cynthia D. Hampton; Manager of Operations, Donald K. Snaman; Assistant Manager of Operations, Eric Napralla; Accounting Clerk, Linda Hawkins; and, 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 September 10, 2008 was made by Commissioner Claire and Seconded by Commissioner Aikins. The motion passed by a unanimous voice vote of all Commissioners present. Chairman Dodge was absent.
III. CLAIMS
Commissioner Aikins commented on a payment made to Industrial Railways Company and asked if it is the Port’s responsibility to repair the spur track. Don Snaman explained that is the Port’s responsibility to repair the spur track located on Port property. This track repair was made at a crossing on Herkner Road.
Vice Chairman Garcia commented on a payment made to California Typewriter and expressed his surprise that the Port has a typewriter.
A Motion to Approve Claims was made by Commissioner Aikins and it was seconded by Commissioner Kastrop. The motion passed by a unanimous voice vote of all Commissioners present. Chairman Dodge was absent.
IV. RESOLUTION
A. RESOLUTION APPROVING FIRST AMENDMENT TO SUBLEASE AGREEMENT – (Portside Investors – Phase I Lease Agreement) – (CONNECT TECH WEST, INC.)
B. RESOLUTION APPROVING STANDARD SUBLEASE AGREEMENT – (Portside Investors – Phase I Lease Agreement) – (THE FABRIC PALETTE)
Items IV-A and IV-B were discussed and handled as one item. A Motion to Adopt was made by Commissioner Claire. It was seconded by Commissioner Aikins. The motion passed by a unanimous voice vote of all Commissioners present. Chairman Dodge was absent.
C. RESOLUTION CANCELLING BIDDING PROCESS AND RE-APPROVING CONTRACT DOCUMENTS FOR THE HINMAN ROAD PAVEMENT IMPROVEMENT PROJECT AND AUTHORIZING AND DIRECTING ADVERTISEMENT FOR BIDS THEREFOR
Executive Director Giari stated that on August 27, 2008 the Board approved contract documents for the Hinman Road Paving Improvement Project and asked Manager of Operations, Donald Snaman, to explain today’s item. Snaman said the project was advertised for bid requiring contractors to possess a Class B (General Building Contractor) contractor’s license in order to be qualified for this project. Several contractors questioned the need for a Class B license and, after consulting with the Port’s engineer, BKF Engineers, it was determined that contractors would need to possess a Class “A” (General Engineering Contractor) contractor’s license. The Port revised the Notice to Bidders to reflect the change in the required contractor’s license, due dates for questions pertaining to the project, and the bid due date. No other changes to the contract documents have been made.
A Motion to Adopt was made by Commissioner Kastrop. It was seconded by Commissioner Claire. The motion passed by a unanimous voice vote of all Commissioners present. Chairman Dodge was absent.
D. RESOLUTION ACCEPTING BID FOR THE E DOCK IMPROVEMENT PROJECT AT THE PORT OF REDWOOD CITY; AUTHORIZING EXECUTION OF AGREEMENT FOR SAID WORK; AND DIRECTING RETURN OF SECURITY DEPOSITS
Executive Director Giari presented the staff report on this item involving the E Dock Improvement project. Bids were received from five contractors including one from the low bid contractor, Valentine Corporation of San Rafael, CA for $249,369. The Port’s engineer, TranSystems Corporation, has reviewed the bids and is recommending award of the contract to the low bidder, Valentine Corporation. Port staff has reviewed the status of the contractor’s license and bid bond and recommends execution of an agreement with Valentine Corporation. The project is expected to be completed by February 15, 2009.
A Motion to Adopt was made by Commissioner Kastrop. It was seconded by Commissioner Aikins. The motion passed by a unanimous roll call vote of all Commissioners present. Chairman Dodge was absent.
V. REPORT/PRESENTATION:
A. PRESENTATION OF ANNUAL AUDITED FINANCIAL STATEMENTS by Ahmed Badawi, CPA, Partner, Caporicci & Larson
Mr. Badawi identified the Port’s responsibilities, Caporicci & Larson’s responsibilities and summarized the audit procedures that were followed. He reported that C&L issued an unqualified opinion on the Fiscal Year 2008 financial statements, which is the best opinion possible. Mr. Badawi stated that the financial statements prepared by the Port are fairly presented in all material respects, disclosures are properly reflected, significant accounting policies have been consistently applied, and management’s estimates are reasonable. He said there were no disagreements with management, no material weaknesses in internal accounting controls, and there were no indications of fraudulent or inappropriate activity.
Mr. Badawi addressed potential future risk areas. These include loss in value of Pension Plan assets which would cause Port contributions to the Pension Plan to increase, and recognition of a liability for post-employment benefits other than pension (OPEB) as required by GASB 45. He commented that the Port is in the process of determining its liability and future cost for post employment benefits other than pension.
Mr. Badawi also addressed the Liquid Bulk Terminal. As of June 30, 2008, $19,950,712 of the clean up cost has been capitalized. The Government Accounting Standards Board (GASB) issued Statement No. 49 Accounting and Financial Reporting for Pollution Remediation Obligations, which the Port must implement in fiscal year 2009. Mr. Badawi stated that Caporicci &Larson is of the opinion that in order for the Port to comply with GASB No. 49, the entire capitalized cost of the clean up will need to be written down; it would be recorded as an extraordinary item with a corresponding reduction in equity. However, because of the significance of the subject matter and the uniqueness of the Port’s situation, the Port and C&L are seeking the opinion of the Government Accounting Standards Board.
Commissioner Kastrop asked over how many years the write down would occur. Mr. Badawi replied that the write down would be recorded in fiscal year 2009.
Mr. Badawi briefly reviewed GASB 43, GASB 45, and GASB 49, which will be implemented by the Port in fiscal year 2009. This concluded his presentation.
Vice Chairman Garcia asked if losses in CalPERS pension plan assets would cause increases in the required funding from the Port. Commissioner Aikins asked what the timing would be to make up any shortfall.
Ms. Hampton commented that dramatic changes in the market definitely have an impact on required funding, and that due to the timing of the actuarial valuation there is a two year lag before significant effects are felt. The market downturn in 2003 caused resumption of employer contributions in 2005; prior to 2005, it had been many years since CalPERS had required an employer contribution to the pension fund. She said that the actuarial valuation smoothes out the changes in the market over time. Mr. Badawi added that the valuation uses a 15 year period to spread market fluctuations.
Ms. Hampton, addressing post-employment benefits other than pension, commented that the Port currently has two retirees who are receiving post- retirement medical benefits. Prior to GASB 45, those benefits were accounted for on a pay-as-you-go basis: the expense was recognized as it was incurred and there was no liability recorded for the future obligation. While the monthly premium expense will continue to be recorded on a current basis, GASB 45 requires that the liability for the future obligation also be recorded. Now post-retirement benefits other than pension will be accounted for in basically the same manner as pension.
Ms. Hampton explained that she is performing an archives search back to the mid-1970’s regarding provision of post-retirement medical benefits; there is a good possibility that while that benefit was offered many years ago, it may have since been rescinded. The search is necessary in order to determine the future OPEB liability as required by GASB 45.
Commissioner Kastrop commented that she had noted that LAIF’s current fair market value factor is below 1.0, and inquired what impact that has on the Port’s investments, especially if LAIF’s portfolio includes asset backed securities and mortgages.
Executive Director Giari explained that Ms. Hampton has been following LAIF’s announcements closely and will present the Port’s Quarterly Investment report at the next Commission meeting. While the majority of the Port’s money is in LAIF, the Port has no funds in the San Mateo County Investment Pool which has recently experienced a significant loss.
Mr. Badawi commented that within the past year LAIF increased its holdings of asset backed securities from 3.4% to 14.7% of its portfolio. LAIF has stated that the asset backed securities in which it has invested are secure – rather, it is structured investment notes which are at significant risk and LAIF does not invest in them.
Commissioner Aikins, referring to the LBT cleanup and future write down, asked Mr. Badawi if the auditors’ opinion was that the value of the land was not increased as a result of the cleanup. Mr. Badawi replied that the cleanup expense was incurred to return the land to its original condition before contamination; therefore the expenditures did not result in an increase in the value of the land.
Commissioner Aikins inquired if the land should have been written down had it been determined to be worth less as a result of the contamination. Mr. Badawi replied that was an option, however, had it been written down then the portion of the cleanup attributable to decontamination of the land would be capitalized up to the amount previously written off. Commissioner Aikins commented that, either way, the net effect on the book value of the land would have been zero; i.e. that the original book value of the land did not change as a result of the remediation. Mr. Badawi concurred, clarifying that if the Port had written down the land at the time that it was impaired by contamination, then a portion of the clean up cost equal to the amount written down could have been capitalized.
Mr. Badawi explained that the $20 million on the books for the LBT cleanup represents the cost of the cleanup, but not the value of the asset. Since the tanks were taken down the only remaining asset is the land, and it’s unrealistic to value the land at $20 million and that is the reason for C&L’s opinion regarding the write down.
Vice Chairman Garcia thanked Mr. Badawi for an excellent report.
B. QUARTERLY VESSEL AND TONNAGE REPORT (JULY 1, 2008-SEPTEMBER 30, 2008) by Donald K. Snaman, Manager of Operations
Don Snaman reported that total tonnage for the first quarter of FY 2009 was 340,167 metric tons, which is an increase of about 28,000 MT over the first quarter of FY08. Snaman said we are about 28% below our budget expectations and explained that there was no dredged sand during the first quarter of FY09 and there was about 20,000 MT less of imported gypsum during this period. Due to the recent downturn in the construction industry and being able to handle local demand by rail, CEMEX did not import any cement during the first quarter of FY09. They are not expecting any full vessels for the foreseeable future until the construction ramps up again. Limestone and scrap metal were the main contributors to the increase in tonnage for the first fiscal quarter.
Executive Director Giari commented that it is early in the fiscal year and the reason there is a deviation from budget is somewhat due to a timing issue and because we tend to frontload the budget tonnage earlier in the year rather than later.
Commissioner Aikins asked if PABCO Gypsum had depleted their inventory in order to shut down for plant renovations and improvements, and if so, would that result in an acceleration in the last quarter. Giari explained that PABCO is in the process of closing down their plant in Newark but still has inventory at the Port. We expect them to shut down within a month or two. They may leave a stockpile at the Port until the renovation of the plant is completed so they will have some inventory when they start up again. We are not anticipating any gypsum ships from now until March 2009. Gypsum shipments should start up again in February-March 2009.
17 vessels (13 ships, 4 barges) made calls during the first quarter of FY09 compared to 30 vessels (9 ships, 21 barges) during the same period of FY08.
VI. PUBLIC COMMENT:
NONE
VII. MATTERS OF BOARD INTEREST:
Commissioner Kastrop reported that she came out to the Port on Coastal Clean Up Day, September 20, and was joined by a few local volunteers and three members of the Sea Scouts. We got a lot done that day and Ms. Kastrop suggested that the Port try to encourage a bigger group of volunteers to participate next year.
VIII. EXECUTIVE DIRECTOR'S REPORT:
Executive Director Giari stated that the replica of Columbus’ ship, the Niña, will be at the Port through October 13. The ship has received many visitors including student group tours from Redwood City and other schools on the Peninsula. Giari encouraged everyone that has not toured the Niña to do so.
Giari also reported on the Redwood City Channel Maintenance project saying the U.S. Corps of Engineers issued a Notice to Proceed to the dredging contractor, DDM Crane, on September 29. The material will be dredged from the Channel with a hydraulic dredge and pumped to Inner Bair Island for marsh creation. The contractor has 5 weeks to mobilize equipment, lay the floating pipeline to Inner Bair Island and set up pumps to decant the water to Middle Bair Island. Dredging should start on or before November 3 and must be completed by December 31.
IX. ADJOURNMENT
At 8:46 a.m. Vice Chairman Garcia requested that the Commission adjourn to its next regularly scheduled Meeting of October 22, 2008. A Motion to Adjourn was made by Commissioner Aikins and it was seconded by Commissioner Claire. The motion passed by a unanimous voice vote of all Commissioners. Chairman Dodge was absent.
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