Port officials mull tactic to forestall raid by city.

Commissioners might ignore Dec. 31 filing deadline

Officials at the Port of Los Angeles, outraged over being forced by state lawmakers to hand over $44 million to the City of Los Angeles, are considering a maneuver to stall or possibly even scuttle the pending fund transfer, said sources at the port.

Sources said it is likely that L.A. port commissioners will purposely miss the Dec. 31 deadline to certify the amount of the port's discretionary reserves and, therefore, force the city into negotiations, similar to actions taken by port commissioners in San Diego.

During the state's budget crisis, legislators passed Senate Bill 844, which allows cities to raid the coffers of five California ports for the next two years to make up for cutbacks in state property-tax subsidies to cities.

The ports are required to relinquish the greater of $4 million or 25 percent of their discretionary reserves. But that amount is limited to the amount the state has cut from each city's property-tax subsidy.

For years, the state has provided subsidies to local governments to cushion the impact of Proposition 13, the 1978 measure that required a statewide rollback in property taxes. But now, due to the state's ongoing budget crisis, those subsidies are being cut back.

The Port of L.A. is being hit the hardest of any of the five ports because of two factors. First, it has a relatively high level of discretionary income. And second, the state's reduction of the property-tax subsidy to the City of L.A. was relatively large. Since the maximum amount a city can divert from port coffers is limited to the amount the state cut from that city's property-tax subsidy, L.A.'s relatively large subsidy cut allows the city to divert a relatively larger amount from its port.

By comparison, the Port of Long Beach only has to relinquish $5 million to its municipal governments.

Thomas Russell, an attorney with the maritime law firm Williams Woolley Cogswell Nakazawa & Russell in Long Beach, which is representing a number of groups with business interests in the Port of L.A., said legislators left a loophole in SB 844 by not specifying a penalty for ports that don't meet the Dec. 31 deadline.

Russell said he wasn't "at liberty" to identify the groups he represents or specify what actions these groups will take. But he said L.A. port officials will not hand over the $44 million without a fight.

"The port is not going to take lightly anyone interfering with their hard-fought success," he said.

By not meeting the Dec. 31 deadline, L.A. port officials can buy some time to build their case challenging the constitutionality of the state's unprecedented legislation.

California ports are governed by the California State Tidelands Act, which states that all port revenues must be for the promotion of port activities, not for a city's general fund.

So far, none of the five ports have actually handed over any money to the cities. The San Diego Unified Port District, however, struck a compromise regarding its fund transfer.

The San Diego port faced the loss of an estimated $14 million. But, instead of a pitched battle with municipal officials, an agreement was struck between city and port authorities. Officials from the five San Diego-area cities that oversee that port agreed not to raid the $14 million, as allowed by law. And port authorities, in exchange, agreed to spend $5 million to $6 million for "certain favorite tidelands projects," said San Diego port officials.

Among the "tidelands projects" that port commissioners agreed to fund are $4.5 million to make up the operating deficit of the convention center, $29,000 for a maritime museum and $80,000 for sport fishing, said port officials.

Maritime attorney Russell said officials of the five San Diego-area cities were quick to compromise with the port district mainly because they feared that they wouldn't get any port money if SB 844 is challenged.

Michael Cowett, an attorney with the San Diego firm Jennings, Engstrand & Henriksen, handed port commissioners a 25-page, single-spaced memorandum citing why the state's action could be legally challenged and declared unconstitutional.

Russell said he is not so sure L.A. city officials will be as quick to compromise, mainly because the city is facing a $120 million-plus deficit, and it doesn't place "tidelands projects" as a top priority.

In drafting the City of Los Angeles' 1992-1993 budget, Mayor Tom Bradley included the hotly contested diversion of $44 million from the Port of Los Angeles.

In his letter to the City Council, Bradley wrote that taking money from the port "is a difficult option for me to recommend because of the inevitable deleterious effect it will have on harbor capital programs and the port's competitive position."

Bradley acknowledged that a constitutional challenge is likely, but added that, since the port is in a "strong financial position, the consequences of this transfer are more acceptable than other budget cutting options."

He recommended that the $44 million be considered as fulfilling the port's share of the settlement in the Montrose Chemical case. The federal government is seeking millions of dollars from 170 entities, including the port, for the cleanup of the ocean off Palos Verdes. That underwater area is contaminated with pesticides, including the now-banned DDT.

According to SB 844, the city must make its request for the fund transfer by March 1, 1993. Within 30 days of receiving that request, port officials are required to transfer the amount requested by the city.

While city officials prepare for a fight with the port, they are also gearing up for a similar fight over a pending transfer of funds from the Los Angeles International Airport. On Nov. 3, L.A. voters approved a measure that could allow city officials to start diverting airport funds to the city's general fund.

As a result of the pending fund transfers, credit-rating agency Standard & Poor's Corp. has put the airport and the ports of L.A. and Long Beach all on Creditwatch, which is often a precursor to a credit downgrading.

A lower credit rating could imperil future expansion plans at those facilities because it would make borrowing money more difficult and expensive.

The ports of L.A. and Long Beach, which are self-funding entities, have been building up their respective reserves for years to fund ambitious capital improvements to accommodate the anticipated doubling of cargo volume by the year 2020.

By that year, the ports are predicting a 120-percent growth in cargo, a doubling of the ports' contribution to the local economy, to $6.2 billion, and an increase in direct port-related employment to 97,000, more than double the current employment of 42,000. That growth will be jeopardized if the city raids port funds, port officials said.