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Port Commission  29.3.: \H
The Municipal League of King County           MeetingMM
810 Third Avenue. Suite 224
Seattle. WA 98104                                                     "a
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January 11, 2011

Port Commissioners
Port of Seattle
Pier 69
Seattle, WA


Public Comment on State Auditor's Performance Audit of December 13, 2010

The Municipal League of King County sponsored creation of the Port of Seattle nearly
100 years ago, and we have periodically commented on its operations during the ensuing
years. Our most recent Port of Seattle Report in 2009 included recommendations
regarding specic fair market value assessments of Real Estate assets which have been
ignored by the Port. More recently, the State Auditor's Ofce issued its December 13,
2010 report recommending that the Commission establish operating procedures and a
comprehensive strategy for each real estate asset to ensure prospective transactions are
evaluated against those strategies.

We are submitting these remarks as public comments suggesting that the Port
wholeheartedly adopt the Auditor's recommendations. In addition, the Port should adopt
the 2009 Municipal League recommendation that the Port implement its long-ignored
real estate evaluation process, also recommended by the port-sponsored Harbor
Development Strategy in 2001, and adopted by the Port Commission on June 26, 2001.
(Attachment A).

We believe that the utilization of the 2001 process would enhance transparency and
accountability by requiring the Port to establish plans for each of its developable real
estate properties, and their respective fair market values. This would provide predication
for determination of the rates of return obtained, particularly for non-core assets.

The Real Estate Division currently requires substantial subsidies from the tax levy. We
have been told that the Division has approximately 300 acres ofundeveloped property.
However, we have not been able to obtain information about the fair market values of
these real estate assets, returns on these assets, or plans for developing or disposing of
under-utilized or vacant properties.

The undeveloped properties are triple losers for the public because the properties provide
no return on the Port's investment, they support no jobs in terms of economic
development, and they generate no state or local tax revenues or payments in lieu of tax
payments. Some of these, such as the multi-million dollar uplands of Terminal 91, have
been held vacant for many years and it is not clear whether there are any plans to proceed

Phone: 206-622-83331  Fax: 425-671-0506
Web site: www.muniieague org  E-Mail: muni@munileague.org

with any development. We believe the Port should develop a plan for periodic review of
the fair market values, development plans, and utilization of each of the various
developable assets in the real estate portfolio.

Respe tfully,

Matthew Stubbs
Chair, Municipal League of King County


ruce D. Carter
Chair, Municipal League Port Committee

Attachment A

Portfolio Management and Analysis Process
(from Port of Seattle Harbor Development Strategy 21,
adopted by Commission June 26, 2001)

Purpose

.   To inform good decision making about Port properties by providing and analyzing
information on business factors and the real estate context.
0   A management tool to identify and highlight tradeoffs and opportunity costs
among business options and real estate values.

Principles

.   All properties should be included.

.   Portfolio management reviews should be presented to the Port Commission
annually, as part of the budget process.
.   Properties should be evaluated on a rolling review cycle, with every property
assessed at least every 5 years.
0   The frequency and depth of review should be determined by business/property
characteristics

Use longer cycle (up to 5 years) for:

.   Stable businesses with long-term leases

0   Fully developed, stable real estate assets
These properties could be evaluated using a "short form" format, recognizing that
such a "short form" analysis may turn up issues that would require subsequent "long
form" analysis.

Use shorter cycle (1 to 2 years) for:

Underperforming businesses
Properties with expiring leases
Properties that are vacant or about to become vacant
.   Critical properties in ux should be put on "watch list" and reviewed annually
These properties would require a "long form" analysis, Le. a more detailed
evaluation.

Evaluation Process

1.  Evaluate Current Business Prospects 8. Performance

Business Outlook

.   Relationship to core business - how mission-critical?

Growth and revenue potential
ls business affected by cyclical versus structural changes?
Potential for process improvements
Capital investments and major maintenance needs

Performance Measurement

Financial Performance - covers all costs?
o   Is there an imputed subsidy rate? Does the business cover operating
expense, corporate allocations, depreciation?

Business-to-land market value
0   What is the land value and how does it compare with the business income?

Annual holding cost -- opportunity cost of current activities, practices
o   Revenue foregone on vacant or underutilized property

0   Costs associated with holding site -- debt service, maintenance

0   Other?

Economic benefits - based on Port standardized economic impact measures to
be developed for the Triple Bottom Line

Community and environmental benets assessment -- based on Triple Bottom
Line measures

.  Analyze Business/Real Estate Options
Identify Options:

Hold land in current use
Hold with interim uses
Disposition
Property redevelopment
Relocation of business to other sites
Other business/real estate uses

Analyze Options:

Business and Real Estate Issues
0   Identify criteria, strategic priorities (i.e. maritime uses, waterfront, etc.)

.   Identify range of business uses

0   Real estate analysis of property

Performance Measurement of Alternative Options Measured Against Status Quo
and Minimum Thresholds/Targets
.   Potential financial returns

.   Economic benefits - based on Port-standardized economic impact measures

0   Community and environmental benets

3. Develop Property-Specic Plan for Management of the Asset

.   For underperforming properties:

0   Develop improved performance plan

0   Exit strategy


0   For "holding" properties:

.   Planned holding period and action plan for period

0   Develop exit strategy

0   Properties noted on "hold list" -- list should be prioritized by strategic value
and relative performance and reevaluated annually in light of changing
market conditions.