Port budget talks reveal financial crisis caused by its operating agreement and legal expenses

A bleak future financial outlook for the Ocean Highway and Port Authority emerged Wednesday during its workshop for the 2023-24 budget that sparked impassioned debate over the district's current operating agreement with the company running the port and a haystack of crushing legal bills.

OPHA accountant Pierre Laporte reviewed the draft 2023-24 budget that would leave the special district with a threadbare $4,500 safety net after all expenses were paid. Laporte repeatedly outlined myriad obstacles confronting OHPA's future financial well being. Among the issues cited were:

• A current outstanding balance of $115,577 in legal fees owed to OHPA's law firm Balch & Bingham.

• Another $60,000 in projected legal fees forecast for 2023-34.

• The crushing constraints of OHPA's current operating agreement with Savage, the company that purchased Nassau Terminals almost a year ago to conduct port operations. OHPA's lawyer said the majority of the current legal fees were a result of lawsuits emanating from the operating agreement. The agreement is also stifling new revenue streams.

• If two current lawsuits - one with the City of Fernandina Beach over the Payment In Lieu of Taxes (PILOT) agreement and the other with the Nassau County Property Appraiser over whether OHPA should pay property taxes - aren't resolved quickly, OHPA will run out of money to fight the court cases.

• The $142,000 port director salary included in the 2023-24 budget. Laporte asked OHPA commissioners what they expected to get for their $142,000 investment. Federal grant money funding the position runs out in 2024.

• That once $367,405 in American Rescue Plan Act funds now being used to pay OHPA commissioners, office staff and the port director runs out, OHPA faces severe financial hardships. Laporte told commissioners he was trying to prepare them for that day.

"The legal fees are killing you," Laporte told commissioners an hour into the workshop. "These legal issues need to come to a close."

The revised operating agreement with OHPA and Nassau Terminals and its CEO Chris Ragucci was approved in 2018 and runs 31 more years now under Savage. Clyde Davis, OHPA's attorney at the time, told commissioners not to approve the contract.

"The two big litigations you're in is because of the operating agreement," said OHPA Attorney Patrick Krechowski, "It's my opinion as your attorney that you're going to continue to have conflict with the operator, the city and the county because of that operating agreement. Whether you settle these cases or win these cases something else is going to come up. This is not a good agreement. I told the operator (Savage) that, we (OHPA) told the operator that. From my perspective I would love the board's activation on that document. That's why your revenues are what it is and that's why your expenses are what they are and that's why your legal fees are what they are."

Both OHPA Chairman Danny Fullwod and Port Executive Director David Kaufman said they have asked Savage officials to discuss a revision of the agreement but Savage has declined to enter into discussions.

Laporte told commissioners that even if they sought to challenge or revise the operating agreement there was no money to take action on the agreement. Krechowski said the estimated legal bill to rewrite the agreement would be about $50,000.

"We need to let the past be our teachers and this board has the power to do that," said Commissioner Ray Nelson. "I've read it and that's an operating agreement written by an operator for an operator. We need to stand fast, make that stand and make these corrections (to the agreement)."

Nelson agreed that other financial problems would arise and said there is a situation he would bring before OHPA in July and that "we just don't have the money for it."

The financial predicament led Commissioner Justin Taylor to urge the commissioners to cut their salary by $30,000 annually.

"Look at our own salaries...if we cut $500 a month (from each commissioner) that's $30,000 that goes to offset some of this," Taylor said. "In business if you're struggling to pay your debts and bills you have right now, the first thing you look at internally, good leaders say this is a way to free up some funds we can put towards some of that debt."

Taylor's argument was supported by Nelson and Commissioner Miriam Hill. Fullwood and Commissioner Mike Cole opposed any such cuts. OHPA commissioners doubled their salaries in 2020.

"Once you take it away you won't get it back," Fullwood stated. "I won't vote for this."

The proposed budget didn't address demands by U.S. Customs for more operating space and improved building conditions at the port. U.S. Customs said it would leave the Port of Fernandina if the facility was not upgraded.

Kaufman's 2023-24 contract as port director is scheduled to be approved along with the OHPA budget.

Hill requested that Kaufman submit a "tangible business plan" that would justify renewal of the position.

Nelson's perspective on the proposed budget might have set the tone for OHPA's next budget discussion.

"I know in my own (40 years) experiences through the maritime, if I turned in something like this (budget) to my bosses I'd probably be fired," he declared. "You never want to run that close and $4,500 is too close. We need to delve into this and where we can cut, we cut."