Public Will Have Opportunity to Review & Comment
By Dick Kauffman
June 25, 2006
Ketchikan City Mayor Bob Weinstein said, "Speaking for the City I think that we're very please to be at this point. We think that this is not only good for the port and the City itself, but for the fact that we are bringing potentially large private investment both to the dock side and other developments north of the tunnel leading to redevelopment of that entire section."
The public will have an opportunity to learn more about the proposed Berth IV lease agreement at a special City Council meeting scheduled for Monday at the Sunny Point Conference Center at The Landing. The Sunny Point Conference was chosen because the Local Boundary Commission is in Ketchikan and will be utilizing the City Council Chambers. Monday's public meeting is scheduled to begin at 5:00 pm. A special City Council meeting is also scheduled for Wednesday in the City Council Chambers at 7:00 pm at which time the City Council will consider approving the lease agreement. Both meetings will allow public comment.
Under the proposed lease agreement with the City, Berth IV will be constructed on property owned by Survey Point Holdings, Inc. at 1007 Water Street . This property is often referred to as the "Taquan Property". According to Bob Berto, a representative of Survey Point Holdings, a new corporation called Ketchikan Dock Company will build Berth IV. Survey Point Holdings, the parent company of Southeast Stevedoring, will be the majority owner of Ketchikan Dock Company.
Berto said, "We own the property, we'll build the dock and we'll be soliciting investment from partners in the cruise lines so they can come in and invest in the facility." He indicated his company plans to offer the investment option to each of the cruise lines that currently come to Alaska.
In December 2000, Southeast Stevedoring Corporation purchased the "Taquan Property" for the sole purpose of constructing a deep-water cruise ship dock and marine facility to service the cruise ship industry. Southeast Stevedoring Corporation transferred ownership of the "Taquan Property" to its parent company Survey Point Holdings, Inc. who continued with the design and development of a deep-water dock and marine facility. Over the last three years, Survey Point Holdings, Inc. and the City of Ketchikan have had periodic discussions regarding the possibility of a cooperative private-public arrangement to construct and manage a dock from the "Taquan Property", referred to as the Berth IV Project.
The City of Ketchikan and Survey Point Holdings, Inc. earlier this year executed a Memorandum of Agreement, providing for the company to construct the fourth berth and ground transportation area and for the City to lease the facilities for a period of thirty years. This Memorandum of Agreement was approved by the Ketchikan City Council on January 17, 2006.
It was announced during a press conference Friday afternoon that as of June 22, 2006, the principle points of the Berth IV lease have been agreed to with the term of the Berth IV lease to be thirty years with two ten-year renewal options. The principle points of the tentative agreement were briefly explained Friday.
Speaking for the City, Ketchikan City Manager Karl Amylon briefly explained the terms of the proposed lease agreement. He began by stating that the annual base rent the City would pay to Ketchikan Dock Company was established with a minimum payment cost of $1.8 million. According to the agreement, the annual base rent throughout the term of the lease would be based on passenger counts from the preceding year until the passenger count reaches 1,100,000. To determine passenger counts, billing manifests submitted by the cruise lines that either berth at, or lighter to, City owned or City leased Port facilities would be utilized.
City Manger Amaylon said, "In the negotiations, both parties concluded that there was a need for incentive to try to get the passenger count back up to previous levels as quickly as possible." He said the parties agreed to adjustments to the annual base rent under certain conditions. If the number of passengers exceeds 820,000, the annual lease payment by the City would be adjusted upward by the amount equal to the percent of increase in passenger wharfage fees generated from an increase in passengers from 820,000 to 900,000. The adjustments made under this provision would not exceed $600,000, or $7.50 per passenger. In the year that the number of passengers reaches 900,000, the annual lease payment made by the City would increase to $2.4 million.
When the number of passengers exceeds 900,000 up to to 1,100,000, the annual lease payment made by the City will be adjusted upward by an amount equal to 30 percent of the increase in passenger wharfage fees generated from an increase in passengers. This adjustment would not exceed $360,000 and would be in addition to the adjustments previously mentioned. It was also noted that the annual lease payment under the preceding provision and this provision cannot exceed $2.76 million said Amylon.
Amylon said once we exceed the 1.1 million passengers Ketchikan Dock Company would receive an annual 1 percent non-compounding adjustment each year based on an annual lease payment of $2,760,000.
And what happens if the passenger counts go down? "I don't think anybody here thinks it's going to happen once we get the four berths established, but we did feel it appropriate to build a mechanism to deal with that if passenger counts go down," said Amylon. "Essentially it's the reverse of the process."
In the reverse process, if the number of passengers declines form 1,100,000 to 900,001, the annual lease payment will be reduced by an amount equal to 30 percent of the decline in passenger wharfage fees until the number of passengers reaches 900,000. If the number of passengers falls below 900,000, the annual lease payment will be reduced by an amount equal to 100 percent of the decline in passenger wharfage fees until the number of passengers reaches 820,000. The downward adjustment under this provision would not exceed $600,000 or $7.50 per passenger. In the year that the number of passengers reaches 820,000, the annual lease payment would be no more than $1.8 million. According to the tentative Berth IV Project lease agreement, the annual payment cannot drop below $1.8 million unless agreed to by Ketchikan Dock Company. Amylon said they agreed that if the rent goes down to $1.8 million or less, Ketchikan Dock Company reserves the right to terminate the lease.
According to Amylon, over the course of the last couple of weeks the Ketchikan City Council has discussed increasing the passenger wharfage fee to $7.00 and effective January 1, 2007, the City of Ketchikan will enact a $1.00 increase from $6.00 to $7.00 for those passengers that berth at City owned or City leased facilities. The proceeds from the $1.00 increase will accrue to the City for the purposes of repaying outstanding interfund loans owned by the Port Enterprise Fund to General Government. This $1.00 passenger wharfage fee increase is anticipated to sunset on January 1, 2011.
There will be additional annual operation costs that the City will be responsible for such as property taxes/Payment In Lieu of Taxes (PILOT), minor maintenance and repair, utilities, and insurance.
"Obviously over a thirty year term there's going to be wear and tear on the facilities, things will have to be replaced." said Amylon. To address this need, the City and Survey Point Holdings/Ketchikan Dock Company have agreed that a Renewals and Replacement Fund would be a prudent thing to set up. According to Amylon, Survey Point Holdings has prepared a schedule over thirty years of likely things that are going to need to be replaced on Berth IV. To address this need, the City has negotiated a $153,000 annual deposit into a Renewals and Replacement Fund to finance major capital repairs of Berth IV over the course of the lease term. In comparison, the bond ordinance required that the City annually deposit an estimated $330,000, increasing to approximately $500,000, into a Renewals and Replacement Fund to finance major capital repairs of Berths I, II and III over the life of the bond.
To determine capital improvements that might be needed for the following year, annual inspections of Berth IV would be conducted by the City and Ketchikan Dock Company. The City and Ketchikan Dock Company will also conduct a final annual inspection of Berth IV to determine appropriate capital improvements prior to relinquishing the berth to Ketchikan Dock Company.
How will the City pay for the Lease of Berth IV? Amylon explained that in the tentative lease agreement the payment would be paid out of the Port Enterprise Fund. He added, the Ketchikan Dock Company would not be entitled to revenues derived from adjustments to the passenger wharfage fee dedicated to other specific projects and that Ketchikan Dock Company has agreed that the full faith of credit of the City will not be pledged.
Mayor Bob Weinstein clarified "full faith of credit of the City" saying; "There is no ability for KDC to access property tax funds or sales tax funds."
How much could the annual lease costs of Berth IV vary? Amylon briefly explained that the annual lease payment to Ketchikan Dock Company for the lease of Berth IV by the City of Ketchikan could range from a minimum of $1,800,000 annually to a maximum of $3,394,800 annually. The average annual lease payment would be $2,943,528.
The basic rent in the tentative lease agreement also allows for two ten-year renewals. Amylon said that at this point the annual base rent would no longer be a passenger driven formula. The annual base rent for the two ten-year renewals would be established by an independent fair market appraisal process for each ten-year extension, but with no pre-established minimum floor set. This Replacement Costs component would remain in effect for each extension.
Regarding the design and construction of Berth IV, both parties have agreed that the City will have the right to review and approve the design of Berth IV. In case there is a dispute between the City and Ketchikan Dock Company over the design, the disputed issue would be submitted to a local arbitrator. Amylon said, "I don't anticipate that there's going to be a lot of issues out there - if any." He noted that Survey Point Holdings Inc./Ketchikan Dock Company and the City are using the same engineer. "But we felt it appropriate to set up a process so we could resolve any issues," he said.
Amylon clarified that if the City and Ketchikan Dock Company are unable to resolve any disputes regarding the design or construction of Berth IV, they have both agreed to mediation/arbitration by a local third party who would be named in advance. Both parties have agreed that the decision of the mediator/arbitrator would be binding.
Amylon said that the City retains its rights to litigation when determined appropriate for all other provisions of the leases and that binding arbitration is available upon the mutual consent of both parties.
Review of the design and construction would be accomplished by the City through a combination of in-house staff and outside consultant services. The City would also have the right to inspect the construction of the facilities and advise Ketchikan Dock Company of any concerns the City has.
Representing Ketchikan Dock Company at the press conference Friday was Bob Berto, a representative from Survey Point Holdings. Berto listened as Amylon explained the Berth IV warranties agreed to by Ketchikan Dock Company. Amylon said Ketchikan Dock Company would maintain and be responsible for the foundation for the duration of the lease and/or extensions. Ketchikan Dock Company also agreed they would be responsible for any design or construction deficiencies for a period of five years from the date of substantial completion of Berth IV. After five years, the City will then accept responsibilities for all repairs to and replacements of the Berth IV facilities with the exception of the foundation.
Regarding environmental management and compliance, Amylon said the City will only be responsible and accept liability for those acts or omissions by the City including those by its employees, agents or contractors. He said the City will not be responsible for third-part acts of omissions.
In the event of damage to Berth IV preventing docking by Panamax cruise ship vessels, Amylon said there would be prorated abatement of rent. This will be calculated on the basis of the total rent owned by the City, prorated on the basis of 180 days in a lease year.
"One of the things that both parties felt was very important was that we provide a policy for the equitable distribution of vessels," said Amylon. The intent of this policy will allow for equitable distribution of the cruise ships and passengers among Berths I, II, III and IV. Amylon said this will provide each of the four berths a fair share of cruise ship passengers each season. Berths I, II, and III would receive 75 percent of docked passengers and 50 percent of lightered passengers. Berth IV would receive 25 percent of docked passengers and 50 percent of lightered passengers.
Regarding the tidelands lease, Amylon said it is a standard tideland lease. It will be a term of fifty years with two ten-year renewal options. He said it was agreed that this annual rent would be based on 10 percent of the fair market value of the tidelands as determined by an appraisal. The tidelands lease would be reappraised every five years relative to establishing the annual rent.
Approval of the lease is contingent upon Ketchikan Dock Company disclosing its corporate structure to the City and approval by the Ketchikan City Council. Construction of Berth IV and any associated improvements cannot begin until Ketchikan Dock Company receives formal approval from the City and the required permitting agencies.
Once these requirements have been met, Bob Berto, of Survey Point Holdings, indicated Ketchikan Dock Company would be working to get Berth IV ready by the 2007 season.
The proposed lease agreement will be available on the City of Ketchikan's web site by Monday, June 26th. The status as of Thursday, June 22, 2006:
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