Wednesday, April 20, 2005

Bill before the CA State Assembly would Pave the Way to Fund Port of LA Operations by Diverting Taxes Away from City Services


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Originally uploaded by Decay, Rattle and Hum.
States allow local governments to access different types of tax diversion mechanisms to fund specific types of local projects. These tax mechanisms are known as tax increment finance or TIFs. This is not a tax abatement. The property owner still has to pay out an amount equal to the assessed property tax level. Originally, TIFs were primarily used for infrastructure. An example being the new taxes created through the development of a new industrial park could be diverted to pay bond debt service on the new roads and sewers for that same industrial park.

In California, these actions are permitted under Health & Safety Codes for the elimination of "blight." After an area has been assessed and determined to meet the state set criteria for "blight", a redevelopment plan is created to identify how the blighting influences can be eliminated. A local Redevelopment Agency, with the proper local supporting legislation, can then begin implementing the redevelopment plan in the Redevelopment Zone and utilizing the resulting net increase in tax revenues to fund the plan. California state law further proscribes that a significant portion of the diverted net tax proceeds be used to fund affordable housing opportunities.

On February 22, 2005, California State Assembly Member Karnette (oddly, of Long Beach not Los Angeles) introduced Assembly Bill 1330 (click on the word Link below for the complete Bill ). This bill, if passed, would amend various sections of California's Health and Safety Code to allow for the Port of Los Angeles to be declared "blighted", become a Redevelopment Zone and access tax increment finance to fund port infrastructure and safety improvements.

We all want our airports and sea ports to be protected from terrorism and we all want to see infrastructure improvements to decrease truck traffic on Los Angeles County's freeways... so, why do I think this is a bad idea? Because... ports have the ability to generate revenue from other sources.

Ports charge a variety of fees, which are set locally and outlined in each port's Tarriff. Fees are charged per container handled; for the time the container sits on the dock; berthing fees for the time a ship is berthed at the dock; more fees per each ton of bulk cargo; etc... Additionally, some ports, like Los Angeles, are "landlord ports." This means that they own most, if not all, of the land, facilities, cranes and ship loaders within the harbor district. And... everyone using the land, facilties, cranes and ship loaders must pay rents and fees if they want to operate their businesses at the port.

California state law protects the revenues a port generates by declaring them "enterprises." This means that revenues generated by the port must be used for port purposes. Those revenues, for example, legally can not be used to fund a city's parks and recreation programs.

The Port of Los Angeles is the busiest cruise ship port on the West Coast of the United States. The Port of Los Angeles also handles more container business than any other port in the US. Its traffic, taken in combination with the container traffic of its twin port of Long Beach, ranks it as one of the top five busiest container ports in the entire world. With a well thought out business plan, it ought to be able to generate all the funding it needs through rents and Tariffs. The Port of LA should be regularly reviewing its operating costs and ensuring that its Tariff and rents are set accordingly. If it is burdened with a legacy of long-term leases that include rents that are below market rate, the Port of L.A. should invest in legal counsel to assess the lease language and advise it if the legal grounds exist to renegotiate any of those rents.

Should, for some reason, those measures fail to generate the revenue needed to operate the port... I still say Assembly Bill 1330 is a bad idea. As California's population has grown, so have the demands on tax proceeds. The State of California and many local governments have had to cut their budgets, reduce services and lay-off employees. So, are California taxes like Port of L.A. rents and Tariffs set just too low to cover expenses? Sort of...

A ballot measure, commonly referred to as Proposition 13, passed by the California electorate in the 1970s, caps the taxable value of residential property at what the property was worth when it was purchased or if new, built. That means that owners of two identical houses, built at the same time, right next door to each other, could be paying vastly different tax bills if one property has remained under a single owner while the other has changed hands a number of times. These houses are right next to each other so, we can assume that the occupants, over time, will benefit equally from government services funded by tax proceeds such as street repairs and police and fire service. However, the owner of the property that transferred most recently, and therefore best reflects taxes paid upon a true market value, is paying his share plus subsidizing the costs of those tax-funded benefits received by his neighbor. Doesn't quite sound fair, does it?

I don't see how, on top of the current tax climate, I as an L.A. County resident and registered voter could even fathom supporting an effort to divert tax dollars away from the city's general fund where it could be used to hire additional police, fund the library system, better equip the city's firefighters...

OK, so then what? The Port of L.A. still needs money for security and infrastructure improvements and Proposition 13 isn't going away tomorrow, right? Well... has the Port of L.A. exhausted all possibilities for the grant funding of these projects from foundation, state and federal sources? Or, providing that the Port of L.A. is already operating in a fiscally efficient manner and unfortunately, news reports on its audit findings suggest it is not, did anyone bother to look into a teeny, tiny new tax levy spread across all of Los Angeles County, thereby minimizing its impact on any one person or population? The levy could even be written with a sunset clause causing it to expire in a specified number of years once absolutely needed infrastructure and safety upgrades to each of Los Angeles County's airports and sea ports were completed.

Unfortunately, this is an Assembly Bill that so far is not attracting much public or media attention. I can only hope that the level of attention and public debate over this issue increases before it is voted into law.

If you are an insomniac or a policy wonk like I am, I encourage you to read the actual wording of the bill. An additional item, which I found interesting, is that the Port of Los Angeles is named outright within the bill. It is very common for state legislation to be introduced that is designed specifically to benefit a single city or public facility. However, this type of legislative "targeting" is usually accomplished through creative verbiage crafted so narrowly that only the intended beneficiary of the bill could possibly benefit. In the case of the Port of LA, such language might have instead read "all sea ports located within a chartered city with a population of over two million and a poverty rate in excess of the national average." So, while I still disagree with the bill's objective, I do applaud its author's blatantness of intent...

LINK

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