Kenai looks at options for harbor

Fishing industry's hard times force city officials to consider privatization

Posted: Sunday, August 11, 2002

Change is in the air at the city of Kenai harbor. Small catches in recent years and low prices this fishing season have started a ripple effect that could end with the city relinquishing its control of the facility to a private operator by the end of the year.

Out of all the facilities the city operates, the harbor has become the biggest draw on cash, requiring around $70,000 from the city's general fund a year to operate.

The harbor hasn't always been such a financial loss for the city. When it was built, it produced enough money to maintain itself, said Kenai Mayor John Williams.

"We built that in 1986 and it functioned well until three years ago," he said. "... It always earned sufficient revenue to carry its full weight."

The city's harbor facility was built to accommodate the needs of the general public and private fishers. The city already owned the Salamatof Seafoods dock, and leased it to Salamatof Seafoods. The lease allowed Salamatof primary use of the facility. If there was any time and space left over from the company's operations, the dock could be used by the public. As it turned out, that arrangement didn't leave much room for anyone else. The solution was to build a new facility.

"The reason the new dock was built was there really wasn't an opening (at the Salamatof dock)," Williams said. "We developed the dock facility as an alternative for the independent fishermen to off load their product without going through the canneries."

The harbor facility that was constructed consists of a dock, fueling facilities, a boat ramp, a well house, restroom facilities and a parking lot. There are three cranes at the dock, two of which are leased to private operators and the third is used by the general public. The city makes money from the facility from leases and through wharfage fees, boat ramp usage fees and profits from fuel sales. Some of these fees are flat rates, while others depend on the poundage of fish.

When the facility was built it made enough money to pay for itself. That is no longer the case.

"The biggest single problem is the same problem the entire fishing industry faces -- 55 cents a pound for fish," Williams said. "For three years in row the catches have been too low, until this year there was a fairly good catch but the price reversed itself. With that lower price comes fewer fishermen, with fewer fishermen comes lower fuel sales."

As a result of lower prices, lower numbers of fishers using the facility and the resulting lower revenue generated from fees, the harbor can no longer sustain itself financially. In 2000, the city started using money from its general fund to pay for the harbor's operation, to the tune of around $70,000 a year.

During the process to set its 2002-2003 fiscal year budget, the city struggled against lower interest rates, which have meant lower interest revenues for the city. Facing a projected budget deficit and a slim chance of interest rates rebounding within the year, the council found the harbor's price tag a bitter pill to swallow.

As a result, council members discussed the option of leasing the harbor facility out to a private operator. Doing so would mean the city wouldn't have to foot the bill to operate the facility. A private operator may be able to operate the facility for less due to the city's higher personnel costs.

Williams said he already has been approached by a few operators who are interested in the idea. But there are some drawbacks to this option.

According to Williams, privatizing the dock wouldn't necessarily mean the city would be released of its liability and maintenance responsibilities. As it stands now, the city would be liable for something like a fuel spill occurring at the harbor. Even if the facility were privatized, the city could still become the target of a lawsuit, by virtue of its deep pockets, Williams said.

During the winter, the harbor pilings typically incur some damage from the river freezing, which the city is responsible to repair. Privatizing the facility doesn't necessarily mean the city wouldn't still have to make those and other repairs, Williams said. The private operator may theoretically be responsible for maintenance and repairs, but there is a chance the facility won't be well cared for.

"When you lease out to a private operator the lease generally includes a clause that says they have to return the facility in the same condition," Williams said. "But you take that chance. What if they overuse the cranes, mess up the pumps and not maintain and fix them and we get the facility back in junk condition?"

Another drawback is accountability. The council could decide to lease the dock to a private operator and have the operator decide to walk out of the deal mid-season, sticking the city with the bill.

Williams estimated the council will begin discussing these pros and cons in October and make a decision about the dock one way or the other before the city's next budget is passed.

"The problem with the fishing industry is it has its ups and down," he said. "This year was a real good catch year, surprise surprise, but the darn price reversed itself. Next year we might have a high catch and the price goes up."

Any ideas or suggestions the public has regarding the operation of the dock are welcome, but Williams asked they be submitted in writing.

"I want people to understand the fact that the city, because of the economic decline, is making a decision about whether continue to allow taxpayers to subsidize the dock or try to put the cost over in private the sector. These are changing times. "

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