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Newport Beach Tideland Fees, A Fresh Perspective

A Different Take on Assessing Harbor Fees – Sept. 23, 2010

There’s been a lot of talk lately about the need to raise harbor fees. In fact, the city council has formed an ad-hoc subcommittee to look into the matter. And whether they know it or not, council members Henn, Selich, and Rosansky will be wading into the murky waters of a debate that has gone on since the 60’s. At issue: How does the City fairly value and charge for the tidelands it manages in order to cover the costs?

To answer that question, it’s a big help to know what the law says. It turns out that the City doesn’t actually own the harbor or the ocean beach; the state does. However, the State, through a legislative “tidelands grant”, allows the City to fully administer those tidelands for the benefit of all Californians. Among other things, the City is allowed to set rates and collect revenues in order to cover the costs of administering and maintaining the tidelands. But the law is also very clear in that all direct and indirect revenue generated must go back into the tidelands fund, and not toward local projects such as street repair or a new civic center. Any excess revenue must be returned to the State.

Most people would agree that Newport does a pretty good job of providing both locals and all Californians with a great place to live, visit, and enjoy. The question is: who pays? The summer tourist provides some revenue in a number of ways. Bed taxes on rentals, sales taxes, parking meters, and fines are all substantial sources of revenue for the City, but those monies go into the general fund. Unfortunately, the only substantial revenue from beachgoers that finds its way into the tideland fund is from the Balboa parking lot.

But another “parking lot” that generates a huge amount of revenue is the harbor itself. People pay big money to dock their boats there, and the council will be looking into whether they should be paying more. At issue is the fees paid by various tidelands permit holders.

Generally speaking, there are three types of permits issued by the City in order to be able to “park” a boat in Newport. The first is a commercial dock permit. This is what a marina owner has in order to build boat slips out over the city tidelands that he then rents out for profit. The marina operator must own the upland property in order to provide amenities such as parking and restrooms for their customers. The current charge for this type of permit is 36 cents per square foot per year.

The second category of tidelands permit is for residential docks. Once again, the permit holder must own the abutting property in order to have a private dock. The property owner pays a fee of slightly less than $100 per year for this use of City tidelands.

And the third type of tideland permit is issued to mooring owners. The permit enables a person to keep their privately owned “tackle” (weight, chain, and buoys) in the harbor for the purpose of mooring their boat. The fee for an offshore mooring permit is $20 per foot of mooring capacity per year.

To be accurate, there are various sub-categories in the permits I’ve identified. For example, commercial permits are also issued to fuel docks and boatyards. There are some private docks that are partially or wholly over submerged private property, and there are shore moorings in addition to the offshore moorings described above. But for simplicity I’m limiting the discussion to the three basic categories. In addition, we’ll need some examples for comparison.

For the sake of discussion, I’m going to use a hypothetical boat and marina that some may find unrealistic. Again, it’s for discussion only.

My hypothetical boat is going to be a 50 footer that’s 20’ wide and has a “footprint” of 1000 square feet. In reality, most boats this size aren’t that wide, and they’re certainly not rectangular, but the slip they fit in is pretty close to that description. My marina is going to be along 200 feet of waterfront and extend out into the harbor 100 feet, thereby covering 20,000 square feet. Now, let’s take a look at the revenues generated by this hypothetical boat, along with various berthing scenarios.

My marina over City tidelands is pretty simple. 20, 000 square feet times the commercial rate of $.36 per square foot is $7200 of revenue to the city, per year. But Newport is famous for its exorbitant slip rates. A slip renter with a 50’ boat would probably feel lucky if he were paying “only” $30 per foot per month, or $18,000 per year! So, if my marina can hold, say, 14 of these boats (we have to devote some of the square footage to the docks), then the marina generates $252,000 per year. Wow, some profit! Now we can see why the City might want to take a closer look at commercial fees.

But nothing is ever quite as simple as it appears on first glance. OK, subtracting the City’s permit fee, my marina makes almost $245,000. But there’s that expensive upland property I have to own, and there’s the marina I had to build and maintain. What if that 200’ of waterfront property and my marina cost me “only” $4,000,000? (Everyone knows that’s way too low for Newport, but let’s use it anyway). If my interest on that loan were 5%, I’d be paying $200,000 per year, interest only, to the bank! That wouldn’t leave much with which to maintain or manage my marina. And this can partially explain why restaurants and other “mixed uses” proliferate at water’s edge…marina’s alone don’t necessarily generate all the profit people think they do.

The private docks are also pretty simple. If my dock can accommodate my 50’ boat, I pay the city $100 per year. Now, some docks are much smaller and can’t hold a 50’ boat, while some are much larger and can accommodate up to 100’ and even larger. The permit fee is the same for all. The owners do have to pay somewhat higher property taxes on their waterfront homes, but that money, once again, goes to the general fund and is not counted as tideland revenue. All the tideland fund sees from the residential pier permit fee is about $100 per year.

Moving on to the moorings, an owner with a 50’ boat pays the city $20 per foot, or $1000 per year. Like the private dock and marina owners, he too must pay to maintain the equipment that holds his boat in place. In fact, in no case does the city pay to maintain any of the private structures for which it issues permits. However, unlike the marina and private docks, the City will rent a private mooring to a visiting boat if the mooring’s owner is away. This is the City’s only source of berthing space to accommodate visitors to the harbor, and of course, the City keeps the money. Maybe that’s why they’re sometimes referred to as “City” moorings, even though they’re privately owned and maintained.

As we’ve seen, charges for tidelands use vary widely. The council sub-committee is studying this, and we can probably assume they’re not going to the trouble in order to lower fees. So again, for discussion, what would happen if all permit holders paid the same rate, and what if that rate were almost triple the current commercial rate, to $1 per square foot of covered tidelands?

Our hypothetical marina would now pay $20,000 per year, rather than $7200. The private docks are harder to calculate since there is no uniform size. So, for example only, we’ll use a typical dock on Balboa Island or the peninsula. The pier and float might occupy 700 square feet, and the slip will accommodate the 50’ boat in the previous example (though not all docks would). That would be about 1700 square feet in total, and would generate $1700 for the tidelands fund rather than the $100 per year a residential slip now provides. Some docks would be less, and some would be much more.

The funny thing about a mooring, though, is that even at our “new” rate of $1 per square foot, the owner of the 50’ boat would pay the same $1000 per year he pays now. How can this be? The simple answer is that even though that $1000 is considered a good deal in Newport, it’s still almost three times higher than the current rate a commercial permit holder pays, and ten times higher than a residential permit. Yet the council subcommittee wants to start off by tripling the mooring rates. The moorings have always been a cash cow for the city.

The subcommittee is looking at all these rates because city staff asserts that the tidelands cost the City millions more than it generates every year, and that “shortfall” is paid out of the general fund. However, as we’ve seen, many revenues attributable to the tidelands get stashed into the general fund. But this creates only some of the shortfall. There’s another problem with the city’s accounting procedures: Expenses.

While the City “charges” many of its services to the tidelands fund, the one that virtually jumps off the ledger is Public Safety. In 2009, the city “billed” the tidelands fund over $20 million to provide police and fire service to the ocean beach and harbor. That’s over 27% of the Public Safety budget for the entire city. Does that seem right, especially in light of the fact that the County provides and pays for the Sheriff’s Harbor Patrol at virtually no cost to the City? Of course not. But through creative accounting and cost allocations, the City is calling the tidelands a major drain on the general fund and pushing for higher harbor fees.

What should be happening before any fee increases are considered is a thorough review of the revenues and expenses attributable to the City’s tidelands fund. Over the years, Newport has gotten sloppy with their book keeping which, among other things, invites a State Lands Commission audit. No one would be happy about that. So let’s first clear the murky waters of this discussion by examining the books; then we can discuss the possibility of raising fees.

Mark Sites, resident