Port a further drag on pinched Mat-Su budget

Zaz Hollander

PALMER--As Mat-Su Borough managers began what was already projected to be a difficult budget process this week, an auditor said an almost $8 million shortfall at the port threatens its bond rating.

The borough, which provides services to 96,000-plus people in the fastest growing part of Alaska, is predicting a budget that cuts into programs that have already faced cuts over the past few years.

The borough's total proposed budget this year is a little more than $403 million. The budget adopted last year was nearly $423 million. The borough this year is juggling increased costs including a proposal to hire more full-time emergency responders while facing cuts to state revenue sharing programs and hikes in state public employee retirement costs.

The port isn't the biggest expense but it's a sore point for the borough.

An audit last year revealed the need to pay down $7.8 million in accumulated deficit spending over the last 14 years at Port MacKenzie. The port's is losing $400,000 a year as bond payments and operational costs outpace sparse ship traffic and few tenants.

An auditor told officials this week that the port losses could endanger the borough's bond rating, triggering higher interest rates the next time managers use bonds to pay for big projects like roads or schools.

Another drag on borough coffers is the ferry, M/V Susitna, that's still costing tens of thousands of dollars every month as it sits at a dock near Ketchikan rather than running back and forth between Anchorage and the port like had been originally planned.

"We are facing growing pains," Borough Manager John Moosey told the Assembly during a budget-setting session Tuesday. "Our needs are outstripping the financial ability to meet them all."

The manager gave strict marching orders to department directors: No increases from this budget year to next.

Directors predicted fewer port-a-potties at trailheads, trouble keeping up with timber sales and firewood permits -- stalled for years until now -- and too few employees to keep up with workloads.

The borough's fiscal year begins July 1. A series of public hearings on the budget start May 1.

The port expenses loom large. The port is funded through an enterprise fund that hinges on a nearly $10 million bond issued in 2000 to build the port's deep-draft dock.

The state gives the borough a 100 percent reimbursement on the bond debt every year, or about $754,000, but the money doesn't come until 12 months after the borough makes the actual payment, according to borough finance director Tammy Clayton. The money goes into the enterprise fund. The fund's continued losses are what alerted the auditor last year.

"The port's not operating at a profit. They've had some income throughout the years -- I want to say $1 million in the last 10 years," Clayton said in an interview last week. "What the auditors are saying is that the deficit is becoming larger. Since the deficit is becoming larger, they want to require that we fund it out of the general fund."

During Tuesday's budget presentation, Clayton told the Assembly she's looking into the possibility the borough could pay down the amount slowly rather than in one lump sum.

Not everyone in borough government thinks the port's situation is so terrible.

Port director Marc Van Dongen said in an interview this week that he thinks the auditor's concerns about the losses are overblown and overlook the promise of a new railroad line linking Port MacKenzie with the Parks Highway.

The state has paid for $171 million of the rail project, with another $101 million still needed, port officials say.

Van Dongen sees three ways to make a profit at the port: truck 500,000 tons of a commodity like wood chips, sand and gravel or coal every year; bring in at least 750,000 tons a year by train; or have a large liquefied natural gas plant locate at the port, as officials are discussing with various entities.

The construction of the rail link is key to most of those, he said, estimating as much as $4 million in annual profits if the port can export up to 3 million tons of something every year.

"We're never going to be profitable until we can do things in large volumes and we need the rail to do that," Van Dongen said. "Everything I've done in the last 14 years is pointed toward getting a rail down to the port."

The port has proved it can import or export houses, wood chips, saw logs, sand and gravel, coal, cement, cable for the Fire Island wind project, scrap metal, heavy equipment and barge cargo, Van Dongen said.

Officials had hoped to start importing fuel next year for a new tank farm built by Central Alaska Energy, though that company is currently grappling with bids that came in much higher than expected, he said.

Activity at the port this year includes a project loading concrete-coated pipe for an underwater pipeline -- Van Dongen guesses that could bring in $90,000 to $120,000 -- and several tenants such as Alutiiq's modular building manufacturing plant and WestPac Logistics. The tenants lease space but don't bring in revenues from wharfage or dock payments though Van Dongen notes the tenants do create jobs.

Van Dongen said the port was profitable one year -- fiscal year 2008-- and that was mostly thanks to one big job: a three-week, $832,000 sand and gravel shipping contract to the Port of Anchorage.

"That shows the potential," he said.

For more information on the Mat-Su Borough budget, go to http://www.matsugov.us/budget