There has been a lot of buzz around our harbor lately about a Public/Private Partnership, or "P3" for short, as the latest development on the seemingly interminable road to Harbor Revitalization. So, what is P3, and what does it mean to our harbor, and more importantly, to boaters?

 

First, a very brief history. You've heard most of this before, so we'll keep it short. When planning for our Harbor's renovation began nearly 20 years ago, it was envisioned as a wholly County-owned and constructed project, funded primarily by reserves built over time from harbor revenues (slip fees being the majority of it), and supplemented by loans from the California Department of Boating and Waterways (DBW) for marina renovation. Fast forward to today, where the County envisions a nearly $200 million project, but with less than $60 million in reserves and the evaporation of the DBW loans. How do you pay for a $200 million project with less than $60 million in the bank, and a County unwilling to finance construction costs from its general fund? Seek a private partner willing to pay the bill.

 

A public/private partnership for our Harbor's redevelopment is now a near certainty. Yesterday the County of Orange issued a Request for Qualifications (RFQ) to identify private investors/developers financially and technically capable of completing a marina redevelopment project of our scope. This RFQ process will narrow down potential suitors to a manageable handful of qualified developers. Then within a year we expect the County to issue a request for proposals (RFP) from these developers. And within two years we expect the County to have chosen its new partner. The courtship will be over and the marriage final. And we mean FINAL.

 

[ Read the RFQ by clicking here] 

 

A developer doesn't invest in excess of $100 million dollars and not expect a return on their investment. And our Harbor doesn't generate the sort of revenues to make a quick return on this investment. So expect this developer - our new private partner - to own a stake in our harbor for very long time. A master lease making all of us - slip renters, shops and restaurants, yacht clubs, Embarcadero, fuel dock, ship yard, and so on - their tenants for 50 years.

 

Sounds ominous, doesn't it? However, in our analysis of all the possibilities, we believe this may be a very good thing for boaters. Or very bad for boaters. It's too early to tell. The truth will be in the final contract negotiated with the developer of choice, with hints along the way in the RFQ and RFP. So we will withhold judgment for now. But with today's release of the RFQ, we will be on our way down the aisle towards the developer waiting at the altar. And it's important for all of you - our boaters - to understand how this might turn out.

 

Theory #1: P3 is Good

Why bringing in a private partner might be a good thing... The Harbor Revitalization Plan has languished so long primarily as a result of funding, or lack thereof. There's just not enough money in the coffers to do it right, or soon. A private developer would bring in that money, and now. As it stands today, the renovation plan is called out in phases; sequential steps over many years, with marina redevelopment being the very last. And it hasn't even started yet. If we wait for OC Dana Point Harbor reserves to accumulate enough to fund reconstruction of our marinas, following reinvestment in the landside portion of the project, we've been told to expect a wait of 10 years or longer (our math says much longer). Ten more years for docks that were due for replacement 10 years ago. A private developer could fund and commence marina construction right away, perhaps making it a priority. After all, the majority of harbor revenue is generated from the marinas; it's the one steady, reliable source of cash flow in our harbor. It's a sound investment. And the sorts of developers that will qualify for this project will have built quality marinas around the country, perhaps around the world. We're likely to get new docks and related infrastructure (utilities, security, service buildings) to rival some of the finest marinas that we envy when visiting other harbors. So, decent docks in 10 years or more, or first-rate docks in two to three years?

 

Also, with all due respect, the County hasn't proven itself to be an efficient landlord. They acknowledge this themselves. There's just a heavy strain to Santa Ana bureaucracy, and nothing that goes in one end comes out the other end anytime soon. Private business can be nimbler, more responsive, more apt to customer service. Fewer department heads, fewer attorneys, less internal tugs of war. Perhaps more likely to be an efficient and consumer-friendly steward of this most valuable resource - our harbor.

 

Theory #2: P3 is Bad

Orange County Dana Point Harbor operates effectively as a not-for-profit, under rules governed by the California Tidelands Trust. Harbor revenue can't leave our harbor, it can't go to the County's general fund, and it's not diverted to profit-seeking shareholders. Slip fees and other revenue streams can go only to reserves or reinvested directly back into our harbor. This is all good for boaters, and explains why slip fees have stayed mostly flat for years. The same can't be said for a private developer, master lease holder and operator. While they will still be governed by the same Tidelands Trust, their development agreement will surely allow them to recover their investment, and then some. A private developer/operator will be in it for the profit. So where will they be allowed to make their profit? Slip rate increases? Reductions in services? Deferred maintenance? Undesirable dock reconfigurations? There are all sorts of ways to increase their margins. What rules will be in place to prevent our new partner from lording over us with the leverage of their 50-year master lease? And if after the marriage we realize we made a mistake, there's no divorce. Not after a nine-figure dowry.

 

And remember, presently our harbor management reports to County government. Elected officials who answer to us. We can voice our thoughts, concerns and recommendations to our County representatives, who can affect change if we make a good case. A private developer/operator will be protected by their contract and master lease; they will be obligated only to what is stipulated in their agreements. If we don't like it, even our elected officials will have less influence than they do today.

 

What's Next?

Debating the pros and cons of a P3 is largely academic at this point. It's going to happen. But how can we make it happen in a way consistent with Theory #1, and avoid the pitfalls of Theory #2? Despite our relative silence over some stretches of time, please know that your DPBA representatives are working constantly to help lead our Harbor in the right direction. We collaborate routinely with Harbor stakeholders, including OC DPH and County leadership, merchant representatives, and anyone else with a role in the future of our Harbor. As we shared with you previously, in collaboration with the merchants' association, DPBA authored a detailed list of recommendations for the County's pursuit of a private partner. We requested that this document be included in its entirety in the RFQ, and we are pleased to see that the County granted our request - it's there. The inclusion of our recommendations we believe is indicative of the County's intentions as they move forward with the RFQ and RFP process. This is an achievement on behalf of boaters, as prospective bidders will be obligated to consider them in their proposals. Furthermore, we've been assured by 5th District Supervisor Lisa Bartlett that her vision for the future of our Harbor retains its unique small-town vibe and she has no intention to alter the time-tested culture of our community. Our work will continue as we monitor the responses to the RFQ and influence the development of the RFP, and ultimately the selection of our partner for the long-term future of our Harbor. And we expect - and will demand - to remain involved in the formulation of the final contract with our new private partner.

 

As always, we welcome your feedback and support.