On November 6, 2007, Harris County
voters will be asked to consider the Port of Houston
Authority’s request for $250 million in port bonds.
These bonds, when taken together with Harris County’s
bond requests, are not expected to increase Harris County’s
overall property tax rate. Port bond funds will primarily
be used to support the continued construction of the
Bayport Container and Cruise Terminal, provide improvements
to port security facilities, and underwrite important
environmental projects. The following gives some background
on the Port of Houston, the Port Authority’s structure,
its cargo trends, details on the Bayport Container and
Cruise Terminal, how the PHA calculates its capital
needs and finally the bond proposal.
BACKGROUND
Port
of Houston Overview
•
The Port of Houston
is the largest foreign waterborne tonnage port in
the US, 2nd largest in total tonnage and it is the
10th largest port in the world.
•
This tonnage includes the private
petrochemical and refinery complex along the Houston
Ship Channel, which is the second largest complex
in the world. The more than 150 private terminals
along the Houston Ship Channel provide much of nation’s
fuel and other refined and petrochemical products.
•
A recent economic
study concluded that approximately 785,000 jobs
in Texas are related to activity at the Port of
Houston. These jobs generate over $39 billion in
personal income annually.
•
The Port of Houston
has an annual economic value of nearly $118 billion.
The port is a major economic engine for the Houston/Harris
County region, Texas and the nation.or economic
engine for the Houston/Harris County region, Texas
and the nation.
BAYPORT
The
Port of Houston Authority
•
The Port of Houston
Authority, the governmental entity that is the local
sponsor the Houston Ship Channel, operates or leases
12 public terminals. Those terminals handle 40 million
of the 212 million tons arriving at the Port of
Houston.
•
The PHA was created
by the State of Texas in 1927 to encourage job growth
and economic development through maritime commerce.
•
In 2006, the PHA
had revenues in excess of $168 million and netted
approximately $42 million of income. These PHA funds
are reinvested into maritime infrastructure matched
to business opportunities and market trends. .
•
This reinvestment
reduces the amount of capital investment supported
by bonds. While the PHA current cash flow fully
supports its day-to-day operating needs, payroll
and many of its capital improvements, the PHA’s
revenues alone do not sustain pace of the market-driven
port infrastructure needed to maintain the flow
of cargo, generation of jobs and positive economic
impact for the region. Publicly supported bonds
are especially important as the PHA competes with
ports both domestically and internationally that
receive direct tax revenues, state subsidies or
other tax revenue for both its operations (unlike
the PHA) and its infrastructure.
•
The PHA primarily
handles commodities like steel and grain, project
cargo including oil exploration equipment, and its
biggest growth area — containers.
Container
Growth
•
Houston has a long
history with containers. The first container ship
movement in world was on the IDEAL X in 1956. Trucking
maverick Malcolm McLean, who started Sea-Land Shipping,
used a converted tanker ship to transport 58 containers
from New Jersey to the Port of Houston. Thus began
the new age of international logistics using containers.
•
Today, the Port
of Houston handles 73% of the container market in
the U.S. Gulf of Mexico. In 2006, the Port of Houston
moved more than 1.6 million Twenty-foot Equivalent
Units or TEUs, the international standard for counting
containers.
•
The Port Authority
has been experiencing tremendous growth every year
for more than 10 years at the Barbours Cut Terminal,
which opened in the 1970s.
•
The Port of Houston
Authority’s container trade is balanced between
import and export trade, a significant measure of
the Port of Houston’s support of the manufacturing
sector and its jobs in Houston.
•
The continued increase
in container shipments is primarily due to the population
growth and economic expansion of Texas and port
and rail congestion on the West Coast. As a result
of the latter, Asian cargo has also increased rapidly
in Houston over the past several years.
•
Future growth is
expected as the Panama Canal plans to complete its
expansion in 2014, which will allow larger, more
efficient ships to transverse the Canal from Asia
to Houston.
Bayport
Container and Cruise Terminal
•
In February of this
year, the first phase of the new Bayport Container
Terminal opened for business. The Port Authority
moved one of its major customers from the Barbours
Cut Container Terminal to its new Bayport Terminal.
•
Barbours Cut is on pace this
year to beat last year’s record for container
volume at the terminal, despite losing one of its
largest customers – clearly demonstrating
the pent-up demand for container terminal capacity.
•
To date, the Bayport
Container Terminal has handled more than 100,000
TEUs and more than 50 ship calls. As more capacity
is added to the complex, the terminal will be able
to handle even more containerized cargo.
•
At buildout in approximately
15 years, the Bayport Container Terminal will have
the capacity to move more than 2.3 million TEUS
through seven berths, along with a 378-acre container
yard, and an on-terminal intermodal rail yard. The
total project will cover 1,043 acres and is expected
to cost a total of $1.4 billion to construct.
PORT FINANCIAL PLANNING
Capital
Improvement Project Evaluation
•
The PHA evaluates
is capital improvement planning process on a continual
basis. Before the PHA formulates any recommendations
for capital funding, it takes a comprehensive long-term
look at the proposed business prospects and financial
viability as well.
•
The PHA remains in constant contact
with PHA customers in order to gauge the direction
of the Houston cargo market.
•
The container market
merits special attention, as it is the largest market
the PHA operates in and is important as a local
driver of economic development. To assist in its
analysis, the PHA has retained one of the nation’s
foremost container industry consultants to help
it achieve real success in forecasting market growth.
•
The goal in these
endeavors is to maximize the port’s business
opportunities, while being mindful that its work
of handling cargo must deliver direct and indirect
economic development and job creation for the state
and region. The PHA uses return-on-investment measures
and other financial tools to gauge the viability
of a capital project and its impact to the PHA and
region.
•
The budgets submitted
by the terminal mangers are questioned, tested and
revised by PHA senior management. While not all
projects can be funded when desired by terminal
managers, the result each year is an overall operating
budget and capital plan that best achieves the PHA’s
goal to create and sustain economic growth.
•
After this exhaustive
process is completed each fall, the following year’s
budget and capital expenditure plan are submitted
to the Port Commission for its review. Staff also
prepares an operating budget and prepares forecasts
based on actual performance on a quarterly basis,
which are again vetted by senior management.
•
The extensive review
of the capital needs for the PHA assists with prioritization
and estimation of the capital improvements required
at its terminals each year to keep up with the predicted
cargo volumes. The review of cargo trends also helps
drive the PHA’s operational forecasts, including
determining the funds available from operational
revenue in the future for capital work.
BOND PROPOSAL
Capital
Improvement Bond Request
•
In the summer of
2007, the PHA responded to the county’s request
for a report on its capital needs. After assessing
the PHA’s long-term capital improvements,
it was determined that needed improvements will
total more than $1.7 billion over the next nine
years.
•
Of this amount, the PHA predicted
it would need $550 million in general obligation
bonds. The remaining $1.2 billion would be paid
for by operational revenues from the port business
over the nine year period.
Bond
Request Reduced to Eliminate Tax Rate Impacts
•
To remain tax rate
neutral for the overall Harris County tax rate,
the county requested that the PHA reduce its request.
After prioritizing capital projects to those that
need to be done in the next four years, the PHA
submitted a request to the county for $250 million
in bond funds.
•
The PHA’s
reduced request, coupled with Harris County’s
reduced request, helped to eliminate any expected
increase on the county’s overall tax rate.
No
Property Tax Rate Increase
•
The Port of Houston
Authority, working with Harris County, has requested
bonds that when considered with Harris County’s
bond propositions are not expected to increase the
overall Harris County tax rate.
Current
Tax Rate
•
The Port of Houston
Authority’s current tax rate is 1.3 cents
per $100 valuation, and is collected as part of
Harris County’s overall tax rate of 64 cents
per $100 valuation.
•
Unlike some other
major ports around the nation, the PHA’s tax
rate is used only to pay for general obligation
bonds. Many of the PHA’s competitors receive
direct tax revenue for operational costs, state
subsidies for infrastructure, and other local or
state tax revenues.
•
This tax rate covers
the debt service on bonds previously approved by
Harris County voters and issued by the PHA. These
bonds include the local share of the costs of deepening
and widening of the Houston Ship Channel.
•
As the local sponsor
of the Houston Ship Channel, the PHA went to the
voters in 1989 for $130 million in bond authorization
to fund the deepening and widening of the Houston
Ship Channel. The dredging portion of the project
is completed and now delivers approximately $87
million in economic impact each year to the region.
The deepened channel does not currently connect
to the western-most public terminals, but rather
primarily benefits the private terminals along eastern-most
reaches of the Houston Ship Channel, as part of
the PHA’s mission to provide economic development
opportunities. .
•
Other PHA bonds
recently authorized by the voters in Harris County
include $387 million for the first phase of Bayport
in 1999 and $150 million for Barbours Cut improvements
and other general shipping infrastructure in 1993.
Current
Median Property Tax
•
The Harris County
median home sales price according the Houston Association
of Realtors is $155,000 (updated July 2007 for single
family homes only). As a result, the PHA’s
current 1.3 cents per $100 valuation tax rate equals
approximately $20.15 annually for the median home,
before homestead exemptions and other deductions.
•
This median $20.15
investment in the PHA helps support an annual economic
value of $118 billion, 785,000 jobs generating more
than $39 billion in personal income, and $3.7 billion
in state and local taxes.
Economic
Development and Job Opportunities
•
The PHA’s
current cash flow fully supports its day-to-day
operating needs, as well as many capital improvements.
However, these improvements alone do not sustain
the pace of market-driven port infrastructure the
PHA needs to maintain the flow of cargo, generation
of jobs and positive economic impact for the region.
•
Keeping pace with
rapidly changing patterns of international trade
is not an easy task. By running Barbours Cut beyond
its capacity until Bayport could come online, we
were able to capture the new trade with China and
bring that economic development boost to our local
community and region.
Continued
Bayport Construction, Security Improvements and
Environmental Stewardship
•
The bond funds,
leveraged with the operational revenues, will continue
the construction of the Bayport Container and Cruise
Terminal, a $1.4 billion development that will include
seven container ship berths, have a total 2.3 million
twenty-foot equivalent unit throughput at buildout
in approximately 15 years and include up to three
cruise ship terminals, with the first one opening
in 2008.
•
In addition, the
bond funds will be used to improve port security
infrastructure and assist in environmental projects
to further enhance the port’s leadership role
of environmental stewardship for Galveston Bay and
elsewhere.
Bond
Language
•
The port authority’s
bond request for $250 million will follow the county’s
bond program on the November 6 ballot.
•
THE ISSUANCE OF
$250,000,000 PORT OF HOUSTON AUTHORITY BONDS FOR
PORT IMPROVEMENTS (INCLUDING RELATED TRANSPORTATION
FACILITIES, SECURITY FACILITIES AND ENVIRONMENTAL
ENHANCEMENTS) TO PROVIDE ECONOMIC DEVELOPMENT AND
THE LEVYING OF THE TAX IN PAYMENT THEREOF.
Revised: 09/24/07
Port
of Houston Authority
111 East Loop North • Houston, Texas 77029
P.O. Box 2562 • Houston, Texas 77252-2562
Phone: 713-670-2400
Copyright 2006 Port of
Houston Authority • All Rights Reserved
For questions and comments, send an e-mail.
Please include company name and phone number, when appropriate,
so we may better respond to your inquiry.
