ITEM FOR CONSIDERATION

ITEM FOR CONSIDERATION=

BY THE PORT COMMISSION=

February 28, 2005

SUBJECT: PORT ANGELES BOAT HAVEN RATES REVIEW

The Commission has d= irected staff to analyze rates at both Port Angeles Boat Haven (PABH) and John Wayne Marina (JWM) during the first quarter of 2005. Staff has prepared this PABH repor= t for presentation at the February 28, 2005 commission meeting; similar review of= JWM rates will be available for consideration at a meeting in March.=

BACKGROUND:

The last comprehensi= ve review of Port Angeles Boat Haven (PABH) rates and charges was presented at= the October 27, 1997 commission meeting. Since then the Port has annually adjusted rates by a price index, as directed by Port Commission. =

The current rates, a= s of January 1, 2005, were increased by 2.4 % over 2004 rates. This inflation index was based on = the increase from September 2003 through August 2004 in the Bureau of Labor Statistics, West Coast version, size B/C.&= nbsp; This adjustment was discussed throughout the preparation of the 2005 Budget.

ANALYSIS:

This review has cons= idered all PABH rates and charges. Speci= al emphasis was placed on permanent moorage rates since income from this source composes 75 % of PABH gross revenue. Another area which was given special analysis is the Electrical Serv= ices charges because of the directive that the Port should attempt to break-even= on these services.

1. Permanent Moorage Rates=

Moorage Rates Sur= vey

A survey comparing c= urrent PABH rate of $3.32/lf/mo moorage rate to 19 other marinas around the Puget Sound area has been finished. It is noted that most marinas (12 o= ut of 20) have progressive moorage rates which increase with the length of the boat. PABH is one of the 8 wh= ich have uniform rates which means that all boats pay the same rate per lineal = foot. In making our comparisons, we have standardized the various rates from other marinas to five lineal foot ranges: 20’, 30’, 40’, 50’, and 60’.

The current PABH rat= e of $3.32/lf/mo is the lowest rate among the 20 marinas surveyed.

The average moorage = rate is $ 6.10/lf/mo – for a 40’ boat.= Therefore, PABH is approximately 55 % below ($ 2.78/lf/mo or $1,335 = per year) the average for the surveyed marinas. Attached to this Item are the moor= age rate survey results and a graph of how PABH moorage compares to the survey’s low, average, and high rates.

PABH Financial Su= mmary

This section present= s a financial summary of PABH over the six year period, 2000 through 2005. The summary indicates that PABH in= its current configuration earns about $ 52,300 annually after depreciation and allocated expenses. This retu= rn translates into a return on investment of 2.3 % when compared to the $2,270= ,000 original book value of PABH.

Projected PABH Ca= pital Expenditures and Funding Process

During discussion of= the PABH “Master Plan” at the December 13, 2004 commission meeting,= the Port’s consultant referred to several levels of cost which might be incurred in the partial reconfiguration and reconstruction (East End) of PABH. The exact cost will be determined by the commission at a later meeting. For this analysis we are using a r= ough estimate of $5,000,000 as our point of reference.

During the December = 2004 presentation the consultant outlined a process whereby the reconstruction c= ould be funded. Because of the lar= ge cost of this project, it was suggested that the Port issue bonds in the amo= unt of $5,000,000 (to fund the actual construction costs) and then pay debt ser= vice on the bonds using revenue from increased marina rates. A copy of the minutes from this me= eting is attached.

This rate analysis concentrates solely on the effect of east end partial reconstruction on moo= rage rates. It is recognized that rehabilitation of the west end of PABH will probably be needed during the period assumed to be the useful life of the east end reconstruction (30 yea= rs). West end rehabilitation costs will probably be reflected in moorage rate increases at the time those costs are analyzed.

PABH Moorage Rate Projection

Throughout the remai= nder of this analysis it is assumed that all moorage rate discussions reflect the r= ate per lineal foot per month, unless otherwise noted.

There are two separa= te dimensions to be considered in analyzing moorage rates: (1) Average moorage rate to be implemented and (2) Structure of moorage rates; that is, use of a uniform r= ate or use of a progressive schedule. This section deals with the average moorage rate to be charged and the next section deals with the possibility of progressive moorage rates.

A projection of rate= s which would support an additional $5,000,000 investment in PABH indicates that an= average rate of $ 5.23 would be necessary to (a) recover the reconstruction cos= t (over 30 years); (b) earn 4 % on the new investment of $5,000,000; and (c) mainta= in the current level of earnings of $637,000 on current investment.=

4 % Return on Investment (ROI)

Current Moorage Revenues/Rate	$ 637,000	$3.32/lf/mo
Cost Recovery ($5,= 000,000/30 years)	$ 166,667	<= /span>
Return on Investme= nt (4 % of $5,000,000)	$ 200,000	<= /span>
<= /span>	<= /span>	<= /span>
Pro Forma Revenues=	$1,003,667	$5.23/lf/mo

An average moorage r= ate of $ 5.23 per lineal foot is significantly below the average moorage rate indica= ted by the rate survey (average moorage rate is $ 6.10). A new rate of $5.23 translates = into an increase of $ 1.91 above the current rate; in percentage terms, this is = a 58 % increase in rate. =

Return on investment= is calculated using the estimated $5,000,000 additional cost of east end reconstruction.

Other Returns on = Investment

We have analyzed the= impacts of various other ROI assumptions on moorage rates. The following table indicates the required moorage rates at different ROI:

ROI Assumption	Required Average Moorage Rate

5.6 %	$5.65/lf/mo
5 %	$5.49/lf/mo

3 %	$4.97/lf/mo
2 %	$4.71/lf/mo
1 %	$4.45/lf/mo

A moorage rate of $5= .23/lf (4 % ROI) is significantly below the average moorage rate indicated in the moo= rage rate survey ($6.10 on average) but is close to the current moorage rate cha= rged by the Port of Port Townsend ($5.25/lf, effective January 1, 2005).

Therefore, throughou= t the remainder of this section, a ROI of 4 % on new construction will be assumed= for analysis.

PABH Progressive = Rate Alternative

In the moorage rate = survey, 60 % (12) of the responding marinas indicated that they use a progressive r= ate structure where smaller boats pay a smaller rate per lineal foot.

If the commission wi= shes to implement a progressive rate structure, the following permanent moorage rat= es could be roughly equivalent to the progressive schedule used at Port Townsend (fo= r comparison the Port Townsend rates are presented below):

Length of Boat	Proposed PABH Rate= s (4 %)	Current Port Townsend Rates
	<= /span>	<= /span>
20’ and unde= r boats	$ 4.02 per lineal = foot	$ 5.00 per lineal = foot
21’ to 30= 217; boats	$ 4.31 per lineal = foot	$ 5.05 per lineal = foot
31’ to 40= 217; boats	$ 4.76 per lineal = foot	$ 5.15 per lineal = foot
41 to 50’ bo= ats	$ 5.23 per lineal = foot	$ 5.25 per lineal = foot
51’ and over= boats	$ 5.65 per lineal = foot	$ 5.36 per lineal = foot

The ratios of differ= ent sized boats’ rates were derived from the data collected from 12 marin= as which have progressive rates. The $5.23/lf/mo average rate, using a 4 % ROI, has been assigned to the 41’ – 50’ range rather than the 31’ – 40’ range. The effect of this assignment is to reduce progressive rates to all categories.

2. Other PABH Rates and Charges<= /o:p>

Transient Moorage=

The current transient moorage rates are: (a) $14.00= per day for boats under 30’; and (b) $14.00 per day for boats over 30R= 17; plus an additional $.25/lf for excess over 30’.

A recommendation is = made to simplify implementation of transient moorage by using the following schedule. The schedule provid= es for relatively minor incremental increases up to the 50’ length of vessel= . Vessels larger than 50’ beco= me progressively harder to accommodate and therefore a larger incremental rate= is applied:

T= ransient Moorage Rates
	<= /span>
L= ength of Boat	M= oorage Rate
20’ and under boats	$16.00 per day
21’ to 30’ boats	$18.00 per day
31’ to 40’ boats	$20.00 per day
41’ to 50’ boats	$22.00 per day
51’ to 60’ boats	$24.00 per day
61’ to 70’ boats	$30.00 per day
71’ to 80’ boats	$40.00 per day
81’ to 90’ boats	$50.00 per day
91’ to 100’ boats	$60.00 per day

Boats over 100’= ; in length will pay transient moorage using the formula of $60.00 per day, plus $10.00 per day for every 10’ increment. As an example, a 145’ boat w= ould pay: $60.00 plus (5 * $10.00) for a total payment of $110.00 per day.<= /o:p>

Electrical Rates = Analysis

The most recent PABH electrical rate analysis covered the years 1996 through 2000. Presented below is a schedule which updates return on electrical services:

	2= 001	2= 002	2= 003	2= 004	T= otal
Electrical Services Revenues	$104,674	$129,594	$128,771	$130,537	$493,576
<= /span>					<= /span>
Expenditures:=					<= /span>
Electrical Purchases= **	61,843	68,718	68,203	70,766	269,530=
Electrical Maintenan= ce	27,495	24,200	15,800	10,800	78,295
Depreciation	4,154	4,154	2,998	883	12,189
<= /span>					<= /span>
Total – Dire= ct Expenditures	(93,492)	(97,072)	(87,001)	(82,449)	(360,014)<= /o:p>
<= /span>	&nb= sp;	&nb= sp;	&nb= sp;	&nb= sp;
Direct Margin=	11,182	32,522	41,770	48,088	133,562=
<= /span>					<= /span>
Shop Overhead/A&am= p;G Expenses	(10,560)	(10,774)	(11,675)	(12,500)	(45,509)
Net Return	$622	$21,748	$30,095	$35,588	$88,053

Cumulative Return, 1974 to current=	$(41,685)=	$(19,937)=	$10,158	$45,746	-

For 30 years, 1974 t= hrough 2004, the total cumulative return to the Port on Electrical Services was $4= 5,746 or an average return of $ 1,525 over the 30 years (see attached graph).

Until year 2003 the cumulative return was negative, but large returns in 2003 and 2004 have tur= ned a negative cumulative return into a positive cumulative retur= n.

** Electrical purcha= ses represent 80 % of total electrical expenditures; this adjustment is made to compensate for common area electrical charges. This procedure is consistent with = prior years’ analyses.

Other Charges

One other charge whi= ch should increase with moorage rates is the Port Angeles Boat Yard dry storage charge. The dry storage charg= e is currently $4.50/lf/mo; to maintain equity with moorage charges, dry storage should increase to $5.75/lf/day.

Other charges have b= een reviewed and determined to be appropriate without adjustment. These charges include: Live aboard Permits, Shower Facili= ties, Hoist Facilities, Storage Boxes, and Launch Ramp fees.

FINANCIAL IMPACT:

On an Operating L= evel, if the commission adopts an average moorage rate of $5.23/lf/mo, gross rece= ipts would increase from $637,000 to $1,003,667. This assumes that there will be no= change in occupancy level. Of course= if occupancy levels fall, gross receipts will fall short of $1,003,667 and ROI will fall below 4 %.

On an Overall Por= t Level, generation of gross receipts of $1,003,667 assumes that the Port has invest= ed $5,000,000 in PABH. If this l= evel of investment occurs, the Port will have incurred debt of $5,000,000 and us= ed its entire debt capacity for the PABH project. The debt service on $5,000,000 wil= l be repaid from general Port revenues, over a 20 year period, if Limited Tax General Obligation bonds are issued.

RECOMMENDATIONS:

Permanent Moorage= Rates:

There are two recommendations with respect to permanent moorage rates. The first has to do with Rate I= ncreases: A full adjustment to market rate of $6.10/lf/mo could wait until major configuration and construction projects are complete= d.

An average rate adju= stment discussed in the analysis of PABH Capital Expenditures of $5.23/lf/mo is significantly below market.

Staff recommends ave= rage rate adjustment to mid-point between these two calculations: $ 5.65/lf/mo, effective June 1, 2005; this moorage rate would generate a return on investment of 5.6 %.=

There are two other = reasons for recommending this rate: (= 1) A return of 5.6 % may approximate the interest rate the Port will pay on 20 y= ear bonds; and (2) Increasing moorage rates may decrease occupancy rates at PABH. A rate of $5.65 will pr= ovide some cushion in case occupancy rates do decline and help the Port manage de= bt service on the $5,000,000 project.

If an increase to $5= .65 moorage rate is adopted and vacancy rates do not increase, annual revenues = to the Port will increase from the current $637,000 to $917,384. In addition, the Port will annuall= y recapture $166,667 of the $5,000,000 capital expenditure.

The second recommend= ation with respect to permanent moorage rates has to do with Rate Struc= ture: if commission wishes to implement a progressive moorage rate schedule with an average of $5.65/lf, the rates co= uld be:

20’ boat	$ 4.34 per lineal foot
30’ boat	$ 4.65 per lineal foot
40’ boat	$ 5.15 per lineal foot
50’ boat	$ 5.65 per lineal foot
60’ boat	$ 6.10 per lineal foot

Transient Moorage= Rates:

It is recommended th= at a simplified schedule of transient moorage rates be adopted, such as that discussed on page 4.

Port Angeles Boat Yard Dry Storage:

It is recommended th= at dry storage rate at Port Angeles Boat Yard be increased to $5.75 per day or 110= % of average moorage rate, whichever is higher in order to maintain equity wi= th moorage rates.

Electrical Rates<= /span>:

It is recommended th= at electrical rates not be increased at this time; a follow up analysis will be done in 2006: