Remarks to Newport BeachCity Council Finance Committee by Mark Sites

16 December 2008

Councilmembers,

About 10 years ago, I was a member of the Harbor Committee, which eventually turned into the Harbor Commission. During that time, I saw several staff reports that showed the tidelands operating at a loss, or cost, to the city. My curious nature led me to explore how a harbor filled with yachts and lined by expensive homes, and with six miles of beachfront lined with equally expensive homes, could possibly cost the city money.

Here is what I discovered: the tidelands (ocean beach and harbor) are StateLand. That State land is granted to the city with the condition that all money raised on those tidelands be used only toward the upkeep and maintenance of those lands for the public benefit. Any excess revenue over $250,000 must be returned to the state. So that answered one of my questions- if the city showed much net income, they would have to give it away. Indeed, I even found a document from the early seventies in which the city staff is discussing a tidelands surplus, and how they might divert that fact from the State’s attention.

After that time, I could find no more mention of a tidelands surplus. Each year more and more charges were allocated to the tidelands fund. From my days on the Harbor Committee, 1999 tidelands revenue was shown as about $6 million, and tidelands expenses at $12 million, for a deficit of $6 million. By the time the city’s 2006-2007 Statement of Revenues and Expenditures was published, revenues were shown as about $9 million, but expenditures had increased to $25.6 million, for a deficit of $16.5 million. That’s a deficit increase of over $10 million in an eight-year period, or put another way, each year, on average, more than a million dollars worth of additional expenses were added to the tidelands account. As it turns out, a very large portion of that deficit was brought about by expensing over $18.2 million worth of Public Safety to the tidelands, and that was caused through using a very out-dated cost allocation plan. As the city grew and management structure changed, the Tidelands kept getting stuck with a fixed percentage of the ever-increasing costs

When staff brought their request for a Harbor Valuation study before the council in June of 2006, I spoke in favor of a Harbor study, because I believed there was something wrong with the way the tideland were being charged. I hoped for an honest and transparent accounting of the tidelands. Instead, the study continued the same old line, and offered only justification for raising fees, and not a true look into revenues that the harbor already generates, but that are not being correctly allocated toward the tidelands. In addition, the Harbor Fee Study’s new Cost Allocation Plan does not instill confidence that the over-charges the tidelands have endured for at least ten years have been corrected.

In many of the areas that I am familiar with, the Maximus study has glaring deficiencies and outright errors that result in many hundreds of thousands, if not millions, of dollars of costs being incorrectly directed to the tidelands. Therefore, I have to ask myself, what about the areas in which I’m not so familiar? How much more unjustified expense might be directed at the tidelands users?

I also have serious reservations about the appraisers methodology and conclusions, which I do not have time to address in a three-minute comment. And as for the “Economic Analysis”, please tell us that the city didn’t pay the contract’s $45,000 for that 26 pages of professorial opinion. In addition to misinformed reasoning, the professors seriously contradict the appraiser, even as they try to support his conclusions.

Up until this point, the city’s assertion that the Tidelands operate at a loss has been only an internal exercise in accounting and misallocation. However, this study attempts to take that fantasy to a higher level, wherein the city will be asking all tidelands residents and business for millions more in higher fees.

I can understand staff trying to generate more revenue. They feel it is their job. However, the council is the citizens’ firewall against overzealous bureaucrats. It is your job to question these reports, rather than accepting them out-of-hand.

Thank you for your time,

Mark Sites

12/16/08