Port of Grays Harbor

Special Commission Meeting

October 4, 2016

The Port of Grays Harbor Special Commission Meeting on October 4, 2016 was called to order at 9:00 a.m.

Randy Lewis, Director of Environmental & Engineering Services, led the meeting in the Pledge of Allegiance.

Those in attendance at the meeting were as follows:

COMMISSION AND STAFF
Chuck Caldwell - Commissioner
Stan Pinnick - Commissioner
Jack Thompson - Commissioner
Arthur Blauvelt - Legal Counsel
Gary Nelson - Executive Director
Mary Nelson - Director of Finance & Administration
Leonard Barnes - Deputy Executive Director
Randy Lewis - Director of Environmental & Engineering Services
Robin Leraas - Westport Marina Manager
Alissa Shay - Manager of Business Development
Seth Taylor - Marine Terminals Manager
Marisa Yauch - Executive Administrative Assistant
Kayla Dunlap - Public Affairs Manager
Ross Read - Operations Manager
Lisa Benn - Accounting Manager

VISITORS
Penny Eubanks - Pasha Automotive Services
Dave Ward - GH PUD
Randy Ross - GGHI Board of Directors/ Candidate GH County Commissioner
Brian Blake - Representative 19th District
Dru Garson - GGHI
Kyle Pauley - KXRO News

Items discussed and action taken where required is as follows:

REPORTS:
Report Regarding Proposed Lease of Enterprise Warehouse at Satsop Business Park for Cannabis Processing and Cultivation
Alissa Shay introduced Jerry Derevyanny, Legal Counsel, Fuller Hill Development Company, LLC. He spoke of their success in Thurston County and showed a video filmed at one of their locations which will share many of the same aspects in the Satsop Business Park Enterprise Building if the lease is executed. This will be a Tier 3 operation with up to 30,000 square feet of canopy for growing. The plants are grown in cells so their conditions can be maintained routinely for each specific strain of the plant. This also allows for isolation if there were to be a pest or disease problem with any area of the grow operation. Mr. Derevyanny is confident that permitting will be an easier process this time as they have already ironed out many of the issues through previous ventures in Thurston County. They also feel this operation may not be the largest in the state, but they plan to build it with the best technology available. They have had the chance to learn through trial and error on other locations and believe they have a strong hold on making this an efficient and strong grow operation.

Commissioner Pinnick asked what the timeline is for the project. Mr. Derevyanny believes this will be a 5 or 6 month buildout as long as permitting goes smoothly. They expect to employ 60-70 people full time when the facility goes live.

Art Blauvelt asked about pesticides. Mr. Derevyanny stated that there are no chemical pesticides used on the products as they have not been researched for effects on human health. Their company employs a Ph.D. in Botany who takes care of pests with neem oil, a non-toxic substance, which stops reproduction of the pest. Then, if needed, nematodes are brought in eat the pests.

Gary Nelson inquired about the water runoff. He stated there are no issues because there are no pesticides being used on the plants. They will be installing state of the art equipment which will ensure that problems other operations may have experienced will not be an issue at this facility.

Commissioner Thompson inquired about security measures at the new facility. Mr. Derevyanny stated that they will have plenty of cameras throughout the facility and the premises. There have been minimal issues of crime in the industry, nothing above the level of other industries. As with any industry they have measures for internal and external security concerns.

Gary Nelson introduced Dave Ward, Grays Harbor PUD, to weigh in on the additional energy use this facility will incur. Mr. Ward stated the PUD has been working with Fuller Hill to learn about their consumption needs and they are prepared for the impact. They feel this will be a good use of power up at SBP and there will be no issues with capacity.

Public Comment:
No public comment

ACTION ITEMS:
Action Item No. 1
Alissa Shay presented the lease agreement proposed for Fuller Hill Development Company, LLC. As presented through the earlier report, lease agreement 2016-L321 with Fuller Hill Development Co., LLC is proposed for a 5 year agreement beginning October 2016. This will be the 50,000 square foot Enterprise Warehouse and surrounding land of approximately 1.75 acres at SBP.

Annual lease revenue will be approximately $150,000 plus $19,260 annual leasehold excise tax.

Art Blauvelt stated there are many provisions in the lease agreement which reflect potential future changes to the law or other issues that may come up in such a new industry.

Motion to authorize the Executive Director to negotiate and execute Lease No. 2016-L321 with Fuller Hill Development Co., LLC was made by Commissioner Caldwell and seconded by Commissioner Pinnick. Motion passed with a vote of 3-0.

WORKSHOP: 2017 Preliminary Budget
1. 2017 Preliminary Budget & Capital Investment Plan
Mary Nelson presented the 2017 preliminary budget and capital investment plan. She pointed out priorities that help Grays Harbor stay competitive. Our partnerships and strong relationships with tenants are very important. She commended Leonard Barnes on the direct communication he dedicates to all of our tenants. Mr. Barnes confirmed the importance of this especially when dealing with global market changes and direct competition from other local ports. Staying in contact regularly helps ensure that their needs will be met and exceeded through PGH so they will want to continue to conduct business. Another important priority maintained is that the finance department manages funds so the Port does not to run at a financial deficit nor is any portion of property taxes used for Port operations. Many other important decisions for balancing debt service and maintenance projects have contributed to financial stability.

The Port continues to keep forecasting very conservative by listening to customers and making changes right away based on information provided. Budgets are reviewed regularly and if projections have slowed they are reflected so adjustments can be made.

Capital projects continue to be a moving target. While cash flow is available the Port does its best to take care of projects that may have been deferred in years prior. Projects are evaluated based on safety, use and financial return. Projects on the Marine Terminals continue to rank highly as these may be required to keep daily operations sustainable. A large investment recently made is for the deeper draft which will allow our current Marine Terminal customers to be able to deal in larger quantities as there will be more depth for large vessel maneuvering. These improved conditions for existing customers will increase overall satisfaction with the Port and likely improve already strong relationships.

Mary Nelson mentioned there will be another review of the budget and the 2017 Preliminary Budget will be made available to the public next week at the regular Commission meeting. Some small adjustments will be made to reflect costs that were mentioned in the meeting today, but it will be very similar.

Each Commissioner commended staff on the excellent budget strategies that have improved the Port’s financial position greatly over the years.

RECESS: 20 minute break, session resumed at 10:30 a.m.

WORKSHOP: 2017 Strategic Planning
2. Creating a Sustainable Position for the Port of Grays Harbor: Managing the New Normal Today & Ten Years Forward
Gary Nelson introduced Shelli Hopsecger to present a strategy workshop reflecting on where the Port is today and how we plan to move forward.

Ms. Hopsecger started with a brief video showing some of the many projects the Port has been a part of over the last 10 years. This is where the Port has been, which has set the bar high. This session is geared to plan which direction the Port will take in the next 10 years.

At this point we can see from the budget review that growth has dipped and stabilized from the revenue peak set in 2014. Even with this dip we see that the overall expectation has grown largely in the last decade. The Port was accustomed to expecting between 5 and 10 million in revenues between 2007 and 2009. After growth in private investment and tenants the expectations now range in the 20 to 30 million dollar range. That is solid growth we can be proud of, but how do we sustain this level.

Many things in our economic climate have changed in the last 10 years. There have been major losses in industry, but also major additions. All three Commissioners agree that the best method to try to continue to improve our climate is to begin with investment. This will create jobs that are needed for our citizens which will ultimately result in betterment of our community and sustainability.

Mr. Nelson feels that one of our strengths is continuing to distinguish our Port from the competition. Ms. Hopsecger asked about facilities, talent and partnerships; which order is most effective. Some different ideas here, but the Commissioners felt talent and partnerships were the two strongest needs. It has been brought up by customers looking to relocate here that finding qualified workers in this area can be a challenge. If we do not have the workforce then there may be no room for partnerships and no need for infrastructure. All three are needed for a successful outcome; the order may be more challenging. Commissioner Caldwell has heard first hand that some local companies have started to pay qualified existing employees overtime rather than hire, because they are unable to find qualified candidates locally.

Commissioner Pinnick stated the importance of partnerships. Our collective of staff and Commissioners are maturing and we need to be sure to have strong leaders in place to keep these relationships thriving for years to come.

Mr. Nelson mentioned on a financial level that 10 years ago the Port was not operating at a breakeven level. There were several tough years and now we are trying to chip away at projects that may have been deferred for years based on finances; there is still a lot of progress to be made between all of the facilities. Ms. Hopsecger summarized in stating that the Port has exceeded the previous goal to break even on operating revenue, but there is not much extra to go towards these projects.

Between 2006 and 2016 the Port experienced 318% growth; what do we expect for the next decade.

Both Mr. Barnes and Mr. Nelson agree that there is a lot of room for growth. Our most lucrative line of business, Marine Terminals is operating at 25% capacity or less. We have the channel, rail and facilities capacity to increase our revenue greatly with additional partnerships or increased growth in current tenants. Our industry can be very volatile relating to crops and the strength of the US dollar in the global market. Commissioner Pinnick mentioned room to grow in the fact that AGP, REG and Westway all lease additional property from the Port that could be developed further. Commissioner Thompson would also like to see the upland infrastructure utilized and/or increased to support the potential 75% increase at the Marine Terminals.

Mr. Nelson stated that some ports have built infrastructure in order to get certain companies to come look at doing business there. We do not have the capacity for this added debt at this time, we will continue to wait until a tenant would like to do business here before building. There are always concerns about other ports taking on the same commodities as PGH and potentially taking some of our business, but we continue to do our best to maintain those relationships and keep them satisfied.

Commissioner Pinnick inquired about the current state of the log business. Mr. Barnes stated that it is better than it was in 2000 when there were no logs being exported. At that time a decision was made by the Port to retain expensive equipment for log handling on the yard in case the industry was revived; through Dkoram, Alcan and now PLS this has been a good decision. It remains a volatile industry with strong competition. The log market is currently holding steady, but has fallen from original projections by PLS. New projections are estimating 5-7 ships a year.

Commissioner Thompson would like us to strategize on how we can continue to compete with other ports. What should we do long term to be more competitive.

Mr. Barnes stated constant communication with current customers is the key. We continue to build confidence and increase expectations through deeper draft improvements. These are our best tools for maintaining steady business and having a good reputation.

Is growth sustainable? Mr. Nelson feels that the Port’s marine terminals are at the “moment of truth” point on the business growth model. Satsop is still in the startup/youth stage, but has a lot of room for growth. Bowerman and Westport Marina are both in maturity; opportunities for increased business and expansion have been explored or implemented with maximum return.

Art Blauvelt mentioned the importance of noting tenant maturity as well. Where do we think they will be in the coming years.

Ms. Hopsecger asked about big picture priorities. The Commissioners feel the best avenue is to seek expansion of existing customers at the Marine Terminals. Commissioner Caldwell mentioned the importance of making sure current tenants remain happy by being aware of how changes may affect existing customers. Commissioner Thompson noted that it will be important to build on the Marine Terminals business in order to sustain the other lines of business which do not bring in as much money.

Mary Nelson emphasized the need to watch trends closely so we stay on top of the financial climate. Ms. Hopsecger stated that at this point after the financial review it appears that we would not have the funds at this time to put into a large infrastructure project should it become necessary. Even with grant funds, there are cash funds required for matches which we would likely not be able to meet at this time. This is something to be aware of and work on; more revenue will allow opportunities for infrastructure improvements like the rail project of 2008. As a port, we should be prepared for projects like this to become important as we grow. With 2010 being a record year, the Port was able to rebuild the viewing tower in Westport. There were also a large number of substantial projects that were a result of strong years in 2013 and 2014.

2017 projections? Commissioner Caldwell mentioned big changes that could be coming as a result of the Panama Canal. They are now in the works trying to break the ice over the arctic in order to have another route for vessels. Ms. Hopsecger asked for input from staff and Commissioners for 2018-2020. Some ideas were: flexibility, people, partnerships, success, jobs, trust, ROI, rail, family, vision.

Moving forward, the Commissioners and staff have agreed that adding a small strategy workshop monthly to focus on individual lines of business will be beneficial. December will focus on public affairs and marketing, and January will be the Westport Marina.

Mr. Nelson wanted to check with the Commissioners on their feelings about the lease that was approved today for the operations of marijuana growing. The Port is optimistic this will be a strong anchor tenant at SBP. Is the Commission on board with offering leases to other tenants that may be interested in the same operations or a co-location business for the same industry. Will it be acceptable to present other interested parties for similar usage at the park in the future.

Yes, the Commissioners have agreed to this current lease and are prepared to evaluate any other proposal with the same considerations.

The Special Meeting adjourned at 12:30 p.m.