The national banking malaise comes home at budget time
When the Port Commission passed its 2010 operating budget recently, we learned that the Port of Edmonds is not insulated from the effects of the national recession.
Interest rates have dropped to a near-record low, which is good if you are a borrower. On the other hand, if you have CDs that are earning a minute rate of return it is not a good thing. As we were struggling with our budget, this became abundantly clear. Let me explain.
The Port has a lot of expensive physical assets: the new covered docks, the buildings at Harbor Square and the dry storage and launching facility at the south end of the marina, to name just three. These could not have been built or acquired without millions of dollars of financing, in our case the issuance of bonds. And those bonds have to be repaid, principal and interest.
Every lender requires evidence that the borrower can make those payments. Besides a positive cash flow, by law the borrowerin this case, the Portneeds to maintain healthy cash reserves.
State law restricts the sort of instruments we can invest our reserves in. Safety and preservation of capital are paramount. We are prohibited from using higher paying, but riskier instruments, such as derivatives and the stock market. So we invest prudently in certificates of deposit and savings accounts through local banks. We are not restricted to local banks, but we do so because we feel an obligation to support our community whenever we can. Community economic development is an important part of our mission.
The several million dollars that we are required to keep in reserve have historically provided hundreds of thousands of dollars of income every year, which helps to offset the cost of borrowing. The current fractional interest rates have reduced that to almost nothing, creating a sizable dent in the Ports revenue stream.
At the recent budget hearings, it was evident that most people are not aware of the impact this has on the Port. We either have to replace the revenue or trim expenses. Recognizing that individuals are feeling a pinch these days, the Commission chose not to raise the Port property tax or to raise moorage rates for our tenants beyond the cost of living.
We cut all but the most essential expenses and delayed projects where we could. In the end we had a balanced budget with no compromise in service or facilities.
Budgets are complicated and seldom understood, even by those whom they affect the most. I hope this helps you understand the process better and gives you a greater appreciation of the effort that the Port makes to protect all of its stakeholders.