Ports & Harbors - Publications
Current Port Management Issues
By Thomas J. Dowd, FCIT* Affiliate Professor
Change is affecting virtually every aspect of our
lives. To gain a better perspective on how and why change is affecting ports, it
may be useful to pose and answer a few key questions.
What is a port authority?
A port authority is a public enterprise form of
government. It is a hybrid that fits between general government and private industry.
| General |
Public |
Private |
| Government |
Enterprise |
Industry |
General Government is primarily tax supported
with a goal of delivering monopoly services (e.g., police, fire, roads, water/sewer,
parks). By its very nature it is not designed to make a profit or become
engaged in providing non-monopoly services. General government is
citizen/voter driven.
Private Industry is profit driven, engaged in
offering products and services in a competitive market place. Private industry is not tax
supported.
Public Enterprise (specifically a port
authority) is a form of government
that engages in offering services in a competitive market place.
Some port authorities receive tax support. Port authorities have
both commercial profit producing goals (e.g., leasing facilities,
providing shipping services) as well as public oriented goals (e.g.,
providing jobs, enhancing the 10caVregional economy).
How have port authorities evolved?
If one looks at the history of the Industry, ports can
be characterized
as having three major phases.
Phase #1 is the beginning or organizational
phase that includes creation
of a legal framework, creation of the port authority often by vote
of the electorate - and the initial acquisition of property and construction
of facilities. Many of the costs associated with this Phase are subsidized
by taxes, grants, appropriations, , and general obligation (tax supported)
bonds.
Phase #2 is the growth phase of the port. This
phase is characterized
by the development of more formal strategies to deal with larger
and riskier projects and by decision making based on complex and
often interrelated factors. The port matures financially, going from
subsidy to self-sufficiency.
Phase #3 is characterized by a port being
" required" to
provide financial support to a general government with direct payments
from the port, sometimes in the form of billings for services (e.g.,
fire, police, roads) or, in response to a "request", a
percentage of the port's income or working capital (often without
concern for the port's profitability).
This last phase came on the scene in the late 1980' s - early 1990's primarily
as a result of declining tax revenues and increasing expenses in general governments
(e.g., cities, counties, states). Some ports now are considered primary revenue
sources by general governments and this trend appears to be growing.
Should port authorities make a profit?
Quite often the answer to this question depends on the port's ability to maintain
sufficient income from subsidies (e.g., taxes, grants) and net profit from the
port's operations to support the "public" bottom line projects. However,
for most port authorities the answer to this question depends on what the Board
considers as an appropriate balance between the public and financial bottom lines.
Ports, as public enterprise organizations, have two "bottom lines." The
public bottom line calls for jobs and activities that support the local/regional
economy while the financial bottom line calls for profit or, at the very least,
self sufficiency (net profit after depreciation but before the inclusion of tax
revenue).
It is important for Boards to recognize that profit is not a dirty word - in
fact, profit is an essential factor for public enterprise forms of government
such as ports.
Profits or more specifically "Retained Earnings" are absolutely necessary
in order for the vast majority of port authorities to continuetD grow and prosper.
Without "Retained Earnings", a port will be forced to finance all of
its expansion with debt (e.g., revenue bonds); and that significantly limits,
and in time may preclude, expansion.
The question of profitability for many of today's port authorities may be less
of a choice among degrees of viability than a choice between survival and stagnation.
Has the role of the port's Board changed?
Yes, it certainly has changed!
The actual day to day management of the Port still rests with the Executive Director/Manager
and the policy setting and the oversight functions still rest with the Board.
However, in the major decision making arena, the Board now acts more in concert
with the Executive Director, especially in decisions affecting priorities, significant
projects or major shifts in services/programs. This change has come about due
to the need to manage risk.
RISK is normally not a word associated with ports or port projects! This was
true in the past, but today risk is associated with many port sponsored projects/activities.
Historically, Board Members were able to make most decisions in a less deliberative
manner because the risks associated with those decisions were minimal. Today,
this is no longer the true and Ports are reorganizing and reorienting their decision
making process to accommodate the current situation.
Ports face new challenges and Board Members and Executive Directors must be far
more concerned with the analysis of new projects/activities. There will be a
requirement for more interactive Board/Executive Director Team involvement especially
on strategic decisions, decisions that in many cases will determine the long-term
success or failure of the port itself.
For ports, this translates into the need for a far more deliberative decision
making process, a Board/Executive Director Team Approach. This process requires
that all parties have a greater appreciation of the opportunities and threats
posed by the proposed project, and a clearer understanding of the financial/political
factors and the pros and cons of each option available. This process will require
additional time, effort, energy and dedication on the part of both the Board
Members and Executive Director. In effect, the existence of RISK creates the
need for a closer coordination between the Board and the Executive Director.
This coordination forges the Board/Executive Director Team Approach to decision
making.
For the Pons that adopt this Team Approach, decisions will be made that recognize
the risks inherent in a project/activity. With a more complete understanding
of all of the economic/political factors and the pros and cons of the options
that are available, the Pon can "manage" the risk - not be managed
by the risk!
Conversely, for those ports that fail to adopt this Team Approach, decision making
will be more akin to a "crap shoot" than a balanced logical deliberative
process. Most important, without the ability to deal with risk through the Team
Approach to decision making, these Pons may miss the opponuriity to distinguish
between the solid opportunity and the latent disaster before committing their
funds.
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