January 2, 2009
Dear Council Members:
At its meeting on December 11th the City Council failed to approve the Pate Stevedore Company (“PATE”) Lease Amendment #1. I attended that Council meeting and made some comments regarding Lease Amendment #1 (the “Amendment”). I also submitted a written outline of my comments to the council. After the meeting, Mr. Pate’s wife, on his behalf, asked me for a copy of my remarks as did Amy Miller, Port Administrator, and I gave them both a copy. In addition, since the meeting, in order to address issues raised by council members and to address issues I raised at the meeting, I met with the city attorney, Rusty Wells, and I met again with the Port Administrator. (I had previously met with Ms Miller and Clyde Mathis, the Port Director, regarding the Amendment.) From these discussions, I learned that, in order to assure that city council members approve a lease amendment, the negotiating parties are willing to address certain issues and renegotiate certain terms of the lease.
Information needed and changes to the Amendment that would likely result in approval
* Identify the new Lessee. PATE has entered into a partnership with Gulf States Cold Storage, Inc (“Gulf States”), and, presumably, the new entity will be called Northwest Florida Cold Storage, Inc. PATE has indicated that it holds a majority interest in the partnership. PATE should be willing to confirm that it retains a majority share in the partnership and to confirm the particulars of the new entity by providing the city with the partnership agreement documents.
* Determine the legality of an agreement with a non-existent entity. As presently written, the City of Pensacola is entering into an agreement with a business entity, Northwest Florida Cold Storage, Inc. (“NCS”) that does not exist, and there is no promise that such an entity will be incorporated. Amend the agreement to remedy this or determine that such an agreement is legal and enforceable.
* Require construction to improve the expanded facility. Lessee is willing to amend paragraph 10 of the lease to state that: “Lessee shall (instead of “may”) install or construct …other facilities, including but not limited to blast freeze cells, machinery, equipment and appliances in connection therewith necessary to conduct the business herein authorized…” The remainder of paragraph 10 as amended shall remain unchanged. This change will help assure that some new jobs are created and additional revenue is generated since it will guarantee that NCS will construct a blast freeze cells facility.
* Continue the current three 5-year terms of the lease. Lessee is willing to abide by the current 5-year lease renewal terms. Therefore, Paragraph 3 of the original lease regarding the three 5-year terms should remain unchanged except for paragraph 3(e) regarding termination.
* Reduce the termination payment from $4.15 million. Lessee is willing to tie any termination payment to the cost expended by the Lessee to improve the premises, thus, reducing the payment significantly. Paragraph 3(e) can be amended to indicate that the City shall pay to Lessee an amount that is more than the current amount of $1,000,000. (For example, 120% of the cost of improvements)
The city is in a very strong negotiating position
* The City, through city management, has signed a letter agreement with PATE to renew the current lease if the Amendment is not approved by the city council. (Apparently, the letter agreement was not provided to council members for its December 11th meeting regarding Lease Amendment #1.) This letter agreement puts the city in a powerful position to negotiate for the terms that it wants in the lease amendment because there is no risk of losing the current lessee.
* PATE wants to stop losing money on its operations which losses are likely to get worse in the coming 5 years. Per the current lease terms, PATE must pay the city minimum wharfage fees of $140,500 per year ($2.81 per ton on 50,000 tons of cargo). However, since only about 26,000 tons of cargo have been shipped through PATE’s facility this year and last year, PATE has had to make up the difference of $67,440 that PATE is not collecting on shipping. Most likely, this loss only gets worse for PATE in the coming 5 years because the lease calls for annual increases in the guaranteed minimum payments. Needless to say, PATE wants to stop these losses.
* Gulf States, which is essentially a land- based operation, wants the opportunity to expand into maritime operations. Since the Lessee wants this new business opportunity, it is partnering with PATE, and it is willing to guarantee that it will improve the facility. With Lessee guaranteeing to make the improvements to the freezer facility, the City is much more likely to obtain new jobs and increased revenue on an expanded operation.
Past predictions of new jobs and more revenue have proven unreliable
* PATE predicted 24 to 40 new jobs in 2004 but produced only 5 jobs. In 2004, when the city council approved the original warehouse lease, PATE predicted in a memo to the City Council that its freezer operation would produce “between a minimum of 24 to 40 new full-time equivalent employees…” Those operations have currently produced only 5 full-time jobs. Given that history, shouldn’t city management and council members explore, in depth, why this year’s prediction of 32 new full-time jobs and over 68,000 longshoreman hours is any more reliable than the 2004 prediction?
* Potential revenue of $500,000 annually was predicted in 2004, but the PATE operation produced less than half that amount in 2008. In 2004, in his memo recommending the original PATE lease to the city council, the Port Director predicted that the lease agreement would generate revenues “…with the potential of $500,000 annually.” Yet in 2008, the PATE freezer operations generated revenues of only $247,900. Given this history, again, shouldn’t city management and the City Council explore, in depth, why this year’s memo predicting $827,000 in potential revenues is any more reliable than the predictions of 2004?
The city is entering into an agreement with a non-existent entity
* Why is city management recommending that the City Council vote to approve an agreement with a non-existent entity? According to the Amendment, and per the Florida Secretary of State’s records, NCS, the new lessee, does not exist. (There’s not even a promise to incorporate such an entity in the Amendment.) Shouldn’t the council determine if such an agreement is legal and/or enforceable? Whether or not it’s legal or enforceable, is it in the best interest of the City for the council to approve such an agreement?
City management is not moving forward to address Council members’ concerns because management says that the city council failed to ask staff to do so.
At the December 11th council meeting, Councilman Nobles made it very clear that he was going to bring the Pate Stevedore Lease Amendment #1 back for reconsideration by the city council on January 8th. In addition, it was very clear from the discussions about the Amendment at the Enterprise Operations Committee meeting and at the Council meeting that many members of the council object to several terms in the Amendment, and they have not gotten satisfactory answers to their questions regarding the new lessee. Yet, instead of responding to council members concerns, city management has directed staff to take no steps to address these issues brought up by council members. In addition, city management has directed staff to take no steps to renegotiate the terms of the lease that council members found objectionable. And city management’s stated reason for its lack of action—the council did not ask the staff to address council members’ concerns. At its meeting on December 11th, the city council allowed the Amendment, which did not address the concerns of many of its members, to be presented for approval. As a result, a voting fiasco ensued, for which the city council, not city management, was ridiculed. Since nothing has changed regarding the Amendment to date, why would anyone expect a different result on January 8th?
In these 28 days between meetings, city management could have been communicating with council members and PATE to resolve issues and could have been renegotiating the terms of the lease to the satisfaction of most of the non-approving council members. City management could have prepared a revised amendment and supporting memo for review by council members, and then, at the council meeting on January 8th, the revised amendment could have been presented for likely approval.
Now, however, given PATE’s willingness to renegotiate key terms to the benefit of the city, given the city’s extraordinarily strong negotiating position, and given the unresolved issues, I don’t see how city management can continue to recommend approval of the current Amendment. And, I don’t see how any reasonable council member could approve the current Amendment if it were brought up at the January 8th council meeting.
Port staff and PATE appear to recognize that the Amendment, in its present form, is unlikely to be approved by the city council. Therefore, they are willing to renegotiate the Amendment in order to assure council approval. If the terms identified above are renegotiated as indicated, and if the other issues are addressed, the city will get a significantly improved lease amendment and will benefit with new jobs and increased Port revenue, and the Lessee will obtain a new business opportunity. In addition, the objections of many of the non-approving council members most likely would be satisfied, thus resulting in a majority of council members voting to approve a revised lease amendment. I’m hoping that city council members see this situation as an opportunity to obtain a better benefit for the city, and one or more council members will step up and ask the staff to move forward to resolve any remaining issues and to renegotiate the lease terms.
Submitted by,
Ann W. Regan
Pensacola resident