Recommendation to receive and discuss an Overview of the Proposed Fiscal Year 2017 Budgets for the following Departments: Harbor, Water, and Civil Service; and
So that is the the order. It's going to be a longer night, but it's budget season and that's kind of how it goes sometimes. So let me start with the harbor presentation, which will take up immediately. So if there's no objection, I'm going to begin with that and let's turn our attention to our chief executive, Mr. John Slinger. Actually, let me say one thing, John, before you speak, Mr. Senator, it has to be at the study session as well. And so it may be that some of the questions or during the Q&A part, some of the staff might chime in if he's got to leave a little bit early. So we understand that. Well, thank you very much, Mr. Mayor, and city council members. Very good to be with you again. It's my third budget with you. And and it's as, as usual, an exhaustive effort just as the city budget process is this year. Before we get started, I want to introduce a couple of the folks that may be answering questions later. Steve Rubin is our managing director of finance and administration. Steve led this entire process. It's an excellent job this year as usual. Sad news is that Steve is retiring this year. So we're going to be missing Steve very, very much. Marina Lee is his number two. She's the director of finance. Will is here as well, along with Jason Brode. Jason is the manager of financial planning and analysis that put all all of the detail together. So let me start by saying that our proposed budget is really a very conservative budget. It reflects the financial challenges and the uncertainty that our entire industry is facing at the moment. The budget calls for modest increases in revenue while keeping our operating expenses and our headcount at bay. A few of the highlights and I'm going to go into greater detail later in the presentation. But the budget totals $774 million, which includes about $500 million in planned capital investments, representing about two thirds of our total budget. And this is not unusual. We also plan, as I said, for modest revenue growth. But that growth is subject to change given the conditions in the marketplace and the aggressive effort that our commercial teams are undertaking to bring business to the Port of Long Beach. We also have a $200 million in planned borrowing through bond issuance this coming fiscal year. And of course, we have our annual planned tidelands transfer, which we're estimating to be $17.8 million next year in fiscal 17. Now I mentioned. Investing in our capital programs. It is really about being big ship ready as you as you remember earlier this year. We we christened the ship that's on this screen here called the Benjamin Franklin, an 18,000 TEU vessel, the largest that serves in the maritime industry today. To give you a sense of this, we expect more than 20 of this size of vessel to be to be deployed over the next 15 to 20 months into the Trans-Pacific Trade Line. Most of these will be coming to San Pedro Bay. So we must be ready for these massive ships. And our investment strategy goes a long way towards achieving that end. We also are looking at often optimizing our terminal operations along with the entire supply chain. So we we have invested enormous amounts of time and effort to create the kinds of improvements in velocity and speed through our system that would be expected of a port of our caliber. And we'll continue to make those kinds of investments. One of the big capital projects is one you see going up every day. The Gerald Desmond Bridge replacement project. And this is going on schedule very, very well. It includes about $266 million in expenditures this coming fiscal year, which is more than half of our total budget. So it's a very big component and we're working very hard to complete that in 2018. The westbound traffic will be flowing across the bridge and then by 2018 both lanes will be open and the old bridge will start to come down. So we're really moving smartly forward on this project. And it's a is a critical, critical and and really urgent project for the for the city and for the port. Another key project, as you are well aware, is our Middle Harbor project going along very, very well. We released phase one of a multi-phase project in April of this year, and the results of this operation have been really breathtaking. They are they are progressing very rapidly against their goals. It is clearly the most advanced port technically in the world and the greenest. It's the world's first all electric cargo container handling facility. And it is one of a kind in the world. And everybody is looking to this terminal as the as really the the model for the future of terminal development. We expect this entire project, all four phases of it, to be completed by 2020. So it's moving along smartly for completion, by and large this decade. About 91, almost $100 million will be spent on this project in fiscal 17. We also have very, very critical plans to expand our on rail capabilities. And we're calling it America's Green Gateway, because it is we we are investing over the next few years more than $1,000,000,000 in expanding our rail operations. And why is this important? Well, first and foremost, it's the fastest pathway we have to going green or to reducing emissions. Just to give you a sense of it. One of these trains completed trains holds anywhere from the equivalent of 750 to 1000 truckloads. And so we eliminate 750 to 1000 trucks every time we build a full train and move it off of property. So it's very, very critical for us to expand that capability. We're currently at less than 30%. We expect to be over 50% with this America's Green Gateway Project. And we're and we're not stopping there. We expect to go beyond that if if at all possible, and moving as much truck traffic off the roads locally as possible. As you know, we're known as the Green Fort, and it's well-deserved. We are totally focused on environmental sustainability. Everything we do starts with the view that what can we do to improve our environment? And we've been very, very aggressively pushing this for some time for over 11 years now. And we've achieved remarkable things relative to emissions reductions. But, you know, the tough part is we've we've done the 80%. The real tough part is the next 20%. And that's what we're focused on with our cleaner action plan, version 3.0 that's going to be released in the next few months. And we are absolutely developing a pathway to getting as close to zero emission as possible technically. And this is and we won't rest until we achieve this. We also announced earlier, and most of you are aware of this, a $46 million community mitigation grant program, which goes above and beyond the mitigation programs we have with our big projects like Middle Harbor, like the Bridge. All of those come with a mitigation budget, but we're going beyond that with about a $4 million a year plan over the next ten years to reach out to the community at large and fund important mitigation programs around the environment. So we're very excited about the first such program in the world that we're aware of, and it's very consistent with our green strategy. Also to to focus on business continuity and and being a good neighbor. We continue to be the leader in C seaport, security and safety. Now, this is a picture of our latest addition called The Protector. It's the world's most advanced firefighting vessel. It's remarkable. It's the biggest, fastest, most technically advanced. And it's one of two that we have built and one, one, one now delivered and the second soon to be delivered. We are focused in 2017 on additional security projects and safety projects totaling almost $20 million in expenditures. Now when it gets down to the community level, we have really reached out and upped the ante here. You know, we partner with full hearts and tremendous, tremendous effort on the community in the city making Long Beach what it is the best place to work and live. One way we do this is through our community sponsorship program, and that's where we work with local groups to help reach residents and provide information that's critical for their knowledge of what we do at the port. This fiscal year, we received 273 sponsorship applications, the highest number in our history, and we awarded 161 of those sponsorships for a total of $745,000. In fiscal 2017, we increased that budget to $1,000,000 and our Board of Harbor Commissioners were adamant that this become a an ever strengthening program. And the first round of calls for this fiscal year is starting September one. So it is now actively engaged. Now what I want to do is talk for a moment, a little bit more about the details of the budget. This is a breakdown of our sources of fund. And as you can see, the first two lines are operating revenue and our non-operating revenue, which if you add those numbers out, they're basically slightly increasing revenue over what we actually achieved in fiscal 16 to what we're proposing in fiscal 17. We're also, as you can see, significantly increasing the amount of debt that we intend to bring online as as available for capital projects, as well as our fund project, our harbor fund balance. So we're that's which is reducing. So our total sources of funds for doing all that we do is going to increase by nearly $100 million that's represented in this chart, which shows you how this kind of breaks down. Operating revenue and non-operating revenue represents about two thirds of what we fund, and the rest comes from debt service, which is about 31% and some small amounts coming out of our treasury. Now on the expenditure side, our personal expenses are just slightly increasing to $62 million and our non-personal expenses are declining. So there's a net reduction by a small amount of our overall expenses related to operations at the port. The Tidelands transfer is is flat. The proposed amount will be 17.7 million. And the debt service, because of a tremendous paydown in our debt in the last year, reduces from $185 million down to $113 million. So a substantial improvement there. But where you see the big increase is in capital expenditures, you know, about $150 million in increased capital spend, which means jobs. And with our port wide play that we implemented earlier this year, that represents about 5500 new jobs through the life of that program. So we're very excited about it. And we're certainly primarily focused on the capital side, which is exactly what our core mission is. When you look at it from a from a graphic standpoint, you can see clearly that capital expenditures is our business. We build infrastructure. That's what we do. We serve the maritime industry by building the critical things, the critical infrastructure they need to do their jobs. So that's our primary mission and investing our revenue to increase the port's competitiveness and continually enhance our our commercial value proposition is what we're all about. So with that, I'm happy to answer any questions that you might have. We have I have a few minutes. I can get over to the other meeting. Thank you. And you, Mr. Schlanger, you know that I think that you're doing an excellent job, and we're very thankful for the work that you do, your leadership team and of course, the work that the commission does every single day, just to ensure that Long Beach continues to lead not just the nation but the country when it comes to a green port, being responsible, being good neighbors with the community and moving America's cargo. So thank you for all your work on that. Thank you. Councilwoman Price. Thank you. And I, too, want to thank you and your team for the excellent work and the presentation, and especially Steve Rubin and his team for putting together the budget briefings for the council members. I always find those to be very helpful. So a couple of things that I just wanted to highlight in the budget that that really stood out for me. And I think they're of very broad interest to the residents of Long Beach, given that we are in fact a port town. Is that obviously the partnership of the port with various community organizations and various community projects is huge. I think it's it's something that I agree with the harbor commissioner, something that that should continue because it shows our partnership in making the city better, making our community stronger and having reached the threshold of $1,000,000 in community sponsorships is something to really be proud of. And I want to thank you for investing in so many community programs that would not otherwise be able to get off the ground without the port support. So thank you for that. I also think, you know, you made a comment about getting big ship ready. And I think it's important to note that $500 million has been allocated in the budget to capital infrastructure projects, and that's more than any port in the U.S. And I think that's definitely worth noting. We're not just talking the talk about getting ready for the changes in the industry, but we're actually investing in that. And sometimes that investment process can be very painful because 65% of the budget is allocated to capital in infrastructure projects. So that can be a painful process, but I think it's worthwhile for the future. I also want to highlight the the port's consistent support in making sure the mitigation projects that the port participates in are those that benefit the community and the precious resources that we have in the community. The Colorado Lagoon, for example, is one of those resources. It's in my district. It's a it's a major asset to to the city of Long Beach as one of the few remaining areas of wetland habitation in the city. And the ports partnership in regards to the lagoon has made it possible for us to be able to restore it, and we continue to look forward to that partnership with the port. A couple of questions that I had regarding kind of where the industry is heading. So I know that in 2015 we had a relatively strong year and then 2016 it was kind of flat. What is what is the future look like? Can you can you tell I guess I should ask you what the price of oil is going to be in a few years, too, but to the best of your ability , what can you tell us about the future? Well, it's really a you know, a multifaceted answer. But the core issue is that the global economy. Particularly the consumer demand for goods has softened dramatically over the last 18 months. Now, we had we have had good years in spite of that, because the US is the only bright spot in the global economy in terms of consumer demand. So in reality, we continue to grow. We're seeing quite healthy growth through the port complex, keeping pace with the entire industry for imports and exports into and out of the United States. But the the struggle has been that when the industry came out of the Great Recession, the ocean carriers went on a spending spree, planning for tremendous growth going forward. All the forecasts were very robust. And so they started buying these massive ships and building, you know, spending billions and billions of dollars on on new new infrastructure in particularly these ships. And then suddenly, without real warning, the global economy led by Europe started melting down. And then, of course, followed by that would be Asia, led by China. And so in the throes of all that. The prices for the containers or the goods that are shipped by by across the ocean drop through the floor. We literally two years ago during the height we were seeing and it wasn't the highest prices ever, but we saw very high prices around 2000 to 20 $500 per container to move it from Asia to the west coast of the United States. That dropped to as low as $700 in just a few months. And at $700, you're losing tremendous amounts of money in the transport of those goods. And it stayed low and even got lower than that over the course of the last six months. So it's all about the problem of matching capacity to demand, which is an age old challenge for businesses. But this is on a mega scale, right? So you have these massive ships all coming online. They're all being delivered. In fact, 54% of all the ships that are being delivered for the rest of the decade are so big that they won't fit through the Panama Canal. They're massive ships. They're all coming this way. And so what do you do with that? Well, you have to figure out how to match your capacity to the softened demand, and that's what's happening. So we're seeing an advantage to us. We're seeing a tremendous disadvantage in the industry because the markets aren't demanding the goods. So I guess, long story short, I think it's pretty bright for us. I think it's tough for the industry. But the last couple of days as things started to stabilize and even with the changing situation that's been in the news, that's beginning to show some positive signs of resolution, even though, you know, Hanjin has a long ways to go. The good news is prices have been climbing like mad and with increased prices for the goods being shipped, they that will transform the industry in a matter of months. And that's where I see the great opportunity for the industry is in the pricing side. So I hope that gives you a sense of it. It does. It's it's fascinating. And I'm sure you can educate us a lot more about it because it's it's an area that we don't really talk about as much as we should, because it really is a fascinating dynamic for us to have right here in Long Beach. Hard to answer it in less than an hour. I understand. Thank you very much. I appreciate. It. Thank you. Seeing no other questions from the council. Let me just say, you know, John, to you and the whole team that's here. Thanks again for all the work that you do. And as a reminder to the community, one out of every eight jobs in the city of Long Beach, that's one out of every eight jobs, is somehow tied directly back to goods, movement, ports and trade that we do. So it's a huge it is the largest part of our local economy, the largest part of the local economy. And so we're very appreciative to the good stewardship over there. So thank you again. Thank you and appreciate it. Thank you. Let me also a couple of things I forgot to say also that the first item up right before a municipal band is going to be the commission appointments, then municipal band. And as we're going to get the commission appointments ready, let me also just do a quick announcement. We have just Romeo in the audience. I know for sure. Just stand up for a second. I want the council and the community theater to see you. You probably have heard that we have hired a new director of the Long Beach Airport. That's Mr. Jess Romo, who's standing there over here to my left. Mr. Romo is an accomplished aviation professional with 19 years of aviation experience. He went through a very long search, national search through our entire team here at the city for this election. He was the interim deputy executive director for the L.A. World Airports, overseeing the operations and emergency management sector at the L.A. International Airport since July. He was also director of airports and operations over at Ontario International and Van Nuys Airports. Mr. Romo holds a B.A. in psychology from U. C, UCI and M.A. in Industrial Psychology from Cal State, L.A. And he has all the appropriate airport accreditations. There's a lot here, so I won't read all of them, but becomes well qualified. We've heard nothing but great things about you from a variety of different folks in the in the aviation community. And so let's give Mr. Romo a big round of applause and welcome him to Long Beach. And as you've been probably been told, the airport is never a controversial issue in Long Beach. And so you have just great things to look forward to. As we start.