Tidelands Users Group Concerns with the Harbor Fees Study
Statement of Concerns With the Economic Analysis of Financing
Improvements to Tideland Services in the City of Newport Beach
August 15, 2008
Newport Beach Tidelands User Group
Presented by Bill Moses, December 16, 2008
Newport Beach City Council Finance Committee Meeting
The Newport Beach Tidelands Users Group (TUG) has reviewed Professors De Shazo and Hanemann’s Economic Analysis. This final component of the Harbor Fees Study was two years in the making and has now been public for only 12 days.
According to statements made in the Economic Analysis, the professors critically evaluated and integrated the findings of the Maximus Cost of Services Report and the Netzer Appraisal to generate their recommendations which could result in substantial increases to fees associated with Tidelands permits and activities.
TUG believes that in addition to incorporating dated and inappropriate appraisals, there are serious flaws with the Fees Study as it applies to the nexus between fees and the allocation of costs. It appears that overstatements of costs are coupled with an understatement of direct, and indirect, revenues attributable to the tidelands. These inaccuracies yield the misconception that the Greater Newport area tidelands are a liability rather than a self-sustaining asset used by thousands annually.
Along with reviewing the Maximus, Netzer, and Professors’ reports, we studied the California Tidelands Grant which provided a clear statement of the city’s duties under the grant, in particular:
(i) "The city shall establish a separate tidelands trust fund or funds in such a manner as may be approved by the State Lands Commission, and the city shall deposit in the fund or funds all money received directly from, or indirectly attributable to, the granted tidelands in the city."
With that quote in mind, TUG believes the following concerns should be considered by City Staff, as well as elected officials, as they evaluate the Harbor Fees Study and its usefulness in establishing fee adjustments. The following is a summary of our concerns – we are prepared to discuss each of these in more detail at a later meeting:
- Our concerns begin with a general comment on the Professors’ Report – We are concerned that the professors did not do any independent analysis of the financial data related to their scope of work; they appear to only restate numbers from the other reports. This is particularly concerning as the Netzer appraisal is very out of date when compared to the current economic environment. Unfortunately, we face a much gloomier economic reality and forecast than we’ve seen for years.
- Expenses – It is apparent that there is a frequent and considerable practice by the city, incorporated in the reports, which inappropriately includes inflated General Fund expenses into the Tidelands account.
- Revenue – There appear to be considerable direct and indirect revenues stemming from the tidelands that are not being correctly attributed, a few examples would be: unsecured property taxes, sales tax, bed taxes, use taxes, grants, and revenue from the Junior Life Guard Program, to name a few we have noticed.
- Errors and Omissions – There is a substantial flaw in the recapture of expenses as relating to the dredging RGP. Apparently the recapture overstates costs to the tidelands by nearly $1,000,000 over a five year period. Commercial vs. non-commercial operations are treated inconsistently as well and excluded docks are included in the analysis inappropriately.
- Inflated Costs Allocations by Maximus – Cost allocations as presented are inflated; a few examples would be the costs associated with Junior Life Guard Program (a 92% over head rate), and the overheads for the sea lion investigations (over $300 per investigation??) and live aboard inspections.
- Economic Analysis – The professors ignore the fact that the general public has widespread use and enjoyment of the tidelands. The report attributes benefits and costs to commercial entities, home and boat owners but the benefits to the general public are not quantified in comparison to costs.
- Comparisons to other Harbors – Do the consultants give adequate consideration to the singularity of Newport Beach? It seems not. Other harbors used for comparison by them ask for a percentage of gross revenues from tidelands businesses. The uplands in those harbors are mainly owned by the city. TUG believes that many of the comparisons with other harbors appear to be flawed and invalid due to different legal ownership of uplands and the values associated with them.
- Moorings Rates – The suggested market rates are flawed due to invalid comparisons. Netzer suggests fee parity of individually permitted moorings to club moorings. Clubs provide value-added services, facilities, and private access to tidelands. They also charge members for this. Non-club moorings do not have these valued added benefits. The city does not provide equity at “value-added rates.”
- Mooring Transfer fees – The appraisal of mooring transfers omits the value of the vessel on the mooring transferred, which varied considerably among the very few (and handpicked) examples cited in the report. The appraiser also cited asking prices rather than the actual transfer prices in his appraisal, which are highly misleading.
- Inequity in permit appraisals – The Netzer Appraisal failed to characterize what value private dock permit transfers bring to waterfront homeowners while focusing solely on mooring transfers.
- Inconsistencies – City year-end financial statements and numbers used in reports are inconsistent bringing flawed conclusions - the numbers don’t track between the reports, and are not supported in back-up documentation available to the public. There exists nearly a $1,000,000 difference between the Maximus accounting and the city’s accounting relating to the tidelands. There are also inconsistencies between the Economic Study and the Netzer appraisal.
To conclude, the Harbor Fees Study, in its present form, fails three tests:
It is not accurate, it is not reasonable, and it is not fair.
For the reasons stated above we would like to see considerably more time and effort given towards this study to bring more accuracy and equity to any future adjustments to harbor fees and permits.