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Port Juggles Projects, Reduction in Revenue by Shelley Strom, Business Journal staff writer Portland Business Journal, April 29, 2005

A year of belt-tightening, smart fiscal policy

Less than one year after losing $12 million in business that supported 10 percent of its work force, the Port of Portland continues to balance needed capital projects with a revenue decline.

A budget being drafted by the port for fiscal 2005-2006 is markedly leaner but reflects increasing expenses and costly capital expenditures.

"This year's budget represents a lot of belt-tightening and smart fiscal planning, while demonstrating that we still have a tough road ahead in terms of meeting our long-term capital needs," said Port of Portland Executive Director Bill Wyatt.

The budget includes $162 million for capital expenditures -- the highest in port history.

Ports nationwide are investing heavily in infrastructure and other capital projects.

"Each year of this decade, ports have been either equaling or setting capital expenditure records," said Aaron Ellis, spokesman for the American Association of Port Authorities.

The Port of Portland will pay for capital projects with funds it receives from customers and from bonds, as well as with state and federal grants to cover a small portion.

The agency also is facing increased costs, with a state-mandated, 8 percent hike in contributions to the state employee retirement fund among the most onerous. In 2005-2006, the port will make a PERS contribution equal to 14 percent of its total payroll.

All told, port leaders are proposing a $722 million budget, down from $764 million planned originally for the current fiscal year. The budget projects $150 million in operating expenditures, down from $215 million originally planned for this fiscal year.

Revenue from the port's aviation and maritime divisions is forecast to decrease from 2004. Marine and properties revenue is projected to decrease approximately 11 percent from the current fiscal year to $38 million in the upcoming year.

The marine division experienced a drastic decline last year in a single but significant line of its cargo business.

Two of four containerized marine cargo carriers halted service at the end of 2004. The reduction left Hanjin as the only carrier providing containerized cargo service to Asia, with CP Ships providing weekly service to Europe.

To compensate, the port cut the equivalent of 81 full-time jobs from its employment base of approximately 800 people in order to slash costs.

Although officials expect to rebuild in coming months at least a portion of that cargo service, the proposed budget is more conservative.

"We've chosen to budget for no additional container service, but we hope that we are incorrect in that assumption," said Port of Portland CFO Steve Schreiber.

The budget predicts the volume of containerized cargo that crosses its docks in 2005 will decline by 19 percent from 2004 levels. The budget also emphasizes lines of trade that are strong today. In recent months, the port inked long-term deals with customers that ship autos into its terminals.

The category, according to the budget, has reached a mature phase. The port has forecast 395,000 autos will be handled in 2005-2006 at its terminals, representative of an approximate 5 percent decline from the current fiscal year. Still, auto-handling is considered a steady source of revenue.

Bolstered by a weaker dollar, break-bulk and bulk cargo in recent years has moved swiftly into and out of the port, generating record volumes in some categories. For the upcoming fiscal year, the port predicts volumes of mineral bulks will increase 10 percent to 4.6 million metric tons.

"The wild card is container volumes," Schreiber said.

Regardless of whether those volumes spike as budgeted, the marine and properties division plans to move ahead with multiple projects, including:

• $16.5 million as final payment for acquiring real estate formerly home to Reynolds Aluminum in Gresham;
• $15 million for rail improvement projects at Rivergate Industrial District; and
• $10 million for cranes to move containerized cargo at Terminal 6.

That decline is part of a new agreement with airlines serving PDX. By reducing fees charged to the airlines that serve PDX, the port got the airlines to agree to spend as much as $299 million in capital expenditure projects over the next several years, said Schreiber.

That agreement, reached in principal, is expected to be finalized in coming weeks.

The first of those projects, expected to be completed throughout several years, should generate up to $75 million worth of improvements in 2005-2006.

They include:

• $10 million for taxiway improvements;
• $4.5 million for a concessions expansion aimed at boosting airport revenue;
• $8 million toward an $88 million proposed parking structure; and
• $2 million to cover a portion of an explosive detection system required by federal rules.

Staffers presented a proposed budget in mid-April to the nine-commissioner board governing the port. The commission is expected in June to finalize the budget, which would take effect in July.