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Port Financing Shows Potential

THE PORT OF HOUSTON, TEXAS, which is the nation’s busiest in terms of foreign tonnage received each year, has a long history as an innovator. At its inception nearly a century ago, the port was the first in the country to be financed using a combination of federal funding and local matching funds. It was also the first U.S. port to receive a container shipment by sea in 1956. It is continuing in that tradition today as it seeks innovative ways to fund security solutions.

The port is unique in its configuration as well. While many of the nation’s major seaports lie in harbors immediately adjacent to the open ocean, ships arriving and departing the Houston port must traverse roughly 30 miles across Galveston Bay between the facility, Galveston Inlet, and the Gulf of Mexico.

The port’s facilities are owned and operated by the port authority and more than 150 private companies. The port complex encompasses 25 miles of shoreline along the Houston Ship Channel, which begins on the city’s central waterway, Buffalo Bayou, just a few miles east of downtown, and continues east out to San Jacinto Bay and south, through Galveston Bay to the Gulf. In its entirety, the ship channel itself runs 52 miles and crosses myriad local, city, county, state, federal, and quasi-public jurisdictions.

This combination of public and private stakeholders demanded a broad-based, regional approach to port security after 9-11. To achieve that objective, leading stakeholders formed the Port Strategic Security Committee, which has since evolved into the Houston Ship Channel Steering Committee (HSC SC). It includes representatives of the Port of Houston Authority (PHA), private operators (such as terminals and freight forwarders), and dozens of government and sworn public-safety officials. All of them come together through the committee to share information, needs, and plans for the future.

HSC-SC’s central function is to apply for federal Port Security Grant Program (PSGP) funding from the U.S. Department of Homeland Security (DHS). From the program’s establishment through 2007, the port secured $38.6 million in PSGP funding toward projects, including one to establish interoperable communications throughout the port region.

Despite the region’s foresight and collaboration, Houston encountered a problem familiar to other beneficiaries of PSGP funding: how to produce DHS ’s 25 percent matching requirement. Typical DHS grants to states are matched just like federal highway funding—from state treasuries. Different PSGP recipients, usually port authorities, have satisfied the program’s matching requirements using various public revenue sources at the city, county, and state level, officials say. But there is not enough public money to meet the needs for matching funds in every case.

To date, PSGP matching requirements for the Houston port have been satisfied through the Harris County Public Infrastructure Department. But the county has limited funds and wanted another option. One option was tapping beneficiaries to pay a sort of user fee for security improvements. The primary beneficiaries of port grant funds are made up of private operators, such as terminals and freight forwarders.

With that option in mind, Harris County Commissioner Sylvia R. Garcia, whose precinct includes the Port of Houston, worked with PHA Chairman James T. Edmonds to win support for an innovative approach: a state law that would allow them to establish a management district to collect the matching funds for the port grant from private businesses using the facilities. If established, this district for financing port security would be the first of its kind in the nation.

A management district consists of a group of businesses that have statutory authority to levy supplemental taxes on themselves and spend the revenues within guidelines set by the authorizing legislation. These legal entities proliferate in the Houston area—there are at least 20—and they have been used in other large metropolitan areas as well, but they are usually set up to fund small projects like street-side improvements and beautification. The district Garcia and Edmonds envisioned would have a larger goal.

While many of the physical security efforts at ports since 9-11 have focused on the protection of port-facility land perimeters and the credentialing of authorized port workers, the management district plan focuses on the water side of the operation, hence its planned name: the Houston Ship Channel Security District.

Winning support. Garcia, along with PHA and industry leaders, secured the support of several area lawmakers in the state legislature, including State Rep. Wayne Smith of Baytown and State Sen. Mike Jackson of LaPorte, whose districts sit opposite one another at the mouth of San Jacinto Bay. The two lawmakers introduced companion bills early last year that would authorize establishment of the ship channel security district in Houston. The measure passed (via Jackson’s proposal) and was signed into law by Gov. Rick Perry last June.

The law is only the first step toward establishment of the district, however. Before the district can become a reality, it must get broad support. Specifically, proponents, including PHA and the county, must gather the signatures of at least 50 percent of the port’s private operators—both in number, and total assessed property tax value. Then the plan must be voted on by the Harris County Board of Commissioners.

Thus far, supporters are optimistic about their prospects. The plan enjoys the support of the East Harris County Manufacturers Association (EHCMA), the port region’s major business association representing 125 of its energy and chemical refiners and terminals. Most of EHCMA’s members operate along the Houston Ship Channel, and these businesses would, therefore, be subject to taxation under the district if it is created.

David Seitz, a member of EHCMA’s board of directors and its security committee sponsor, is charged with securing association members’ support for the district proposal. Seitz says he emphasizes to members that the plan is “about more than just terrorism.” It is about being able to handle any emergency, natural or man-made.

Most operators who support the plan do so on the condition that private sector stakeholders exercise strong oversight of procurement from grant funding; most importantly, that federal and matching funds are spent on established and reliable equipment, as opposed to novel applications that carry high maintenance costs and low reliability, Seitz says.

Seitz expects that support from within the association itself may fulfill the authorizing law’s 50-50 petition requirement. Garcia is equally optimistic and expects the district’s establishment by the end of the year, she says.

Governing board. If the district is approved, stakeholders must then appoint officials to a district board of directors. The law divides the port area into four separate zones. No more than two private-sector directors from each zone can serve on the board to prevent any one company from packing the board.

Also on the board will be a municipal official selected by the Harris County Mayors and Councils Association, an at-large member appointed by Harris County leadership, and the executive director of the PHA, or a designee.

Taxes. District taxes would be levied on private port operators based on their assessed property values, Garcia says. Under the authorizing law, the revenues can only be used to match federal security grant funding. Proponents of the district model expect that the long PSGP fulfillment process would provide the region enough time—more than a year—to assess and collect any district taxes needed to satisfy a grant-matching requirement.

Model for Others?

Houston officials say they are fielding inquiries from other ports—particularly in the Gulf region—eager to duplicate the model they are pursuing. Tom Robison, a former DHS transportation infrastructure official and now a vice president with ABS Group, who has worked with the Port of Houston, says the management district approach will prove a national model.

DHS recently opened the application process for PSGP funding to ports the agency classifies as Tier II, like Norfolk International Terminal in Virginia, beneath Tier I facilities like Houston’s. That will increase the number of ports looking for ways to find matching funds.

Ed Merkle, director of port security and emergency operations for the Virginia Port Authority, which oversees Norfolk and three other facilities, is currently preparing for the grant application process. Merkle faces the same challenges with regard to matching funds, long-term maintenance of equipment, and the private sector’s willingness to chip in. But he also anticipates resistance to a management district. Taxation is a “nonstarter” in Virginia, he says.

Robison, however, says other ports are considering the model, at least as an eventual option, among them leaders in the San Francisco Bay Area. Sidonie Sansom, director of homeland security for the port of San Francisco, says, “It’s definitely a model that we’ll be looking at when we get to that point.”

What It Takes

Pat Bellamy, who chairs the HSC-SC, attributes his region’s role as a leader in public-private collaboration in part to culture. Even before 9-11, the Houston area’s business and public-safety sectors operated in a culture of face-to-face cooperation, he says. Public-private partnerships back then grew from the ever-present threat of industrial accidents in the area’s refining sector and the yearly threat of natural disasters posed by hurricanes.

Seitz says that private operators looking to innovate, improve security, ensure good management, and maximize return must do what operators in Houston have done: Align in a formal association like EHCMA to pool their collective assets, cooperate among themselves, and ensure that government understands their needs.

Government is willing to work with industry as well, says Bellamy. “A lot of it is relationships, and I think a lot of the innovations evolve from that.”

Joe Straw is an assistant editor at Security Management.