Port Story

The Port of San Francisco’s headquarters is an old C&H sugar warehouse at the base of Washington Street, next door to the Ferry Building’s upscale markets. Inside, it’s as though the 1990s never ended.

By Kristen Bole
Published: March, 2006

The Port of San Francisco’s headquarters is an old C&H sugar warehouse at the base of Washington Street, next door to the Ferry Building’s upscale markets. Inside, it’s as though the 1990s never ended.

Boldly redesigned by San Francisco architects SMWM, the ceilings vault above old steel girders and are artfully integrated into a modern interior with knee-to-ceiling glass in the offices. The conference rooms host original pegged bookcases and double-hung windows, alongside complete sets of Aeron chairs—those $700 ergonomic wonders made popular by extinct dot-coms.

A mile south along the waterfront, Pier 36 stands barricaded from the public, its pilings literally breaking off and floating into the Bay. Nearby, the Victorian ship repair buildings are boarded up, hosts to seasonal flooding and clandestine rave parties.

This is the irony and struggle of one of the world’s most beautiful stretches of waterfront. With a host of successful renovations in its portfolio and a newly invigorated Embarcadero, the Port’s 7.5 miles of waterfront are simply stunning.

Yet that same waterfront is at a breakpoint.

Like an old-money family with no cash left, the Port is barely earning enough to survive, much less to maintain its version of the family mansion.

Desperate for funds and hamstrung by 2,000 pages of regulations and the seven government agencies to which it reports, the Port is facing the hard truth that it is, in essence, a real estate developer with huge limits and no money.

It also faces a sophisticated public that is newly connected to its waterfront for the first time in 50 years. And it’s placing strong demands on what that real estate looks like and how it’s managed.

The Port is getting an amazing amount of pressure, said Port Executive Director Monique Moyer, the financial dynamo whom Mayor Newsom appointed in 2004 to clean up the Port’s mess. It gets no city money, its one of the smallest city agencies, yet it’s in the paper every single day.

It’s there because people care.

The only question is what do we care about? And how do we plan to pay for it?

As it now stands, the Port is designed as an enterprise agency, both self-sufficient and generating revenue for the city, much like the water or sewer departments or a private business.

In truth, it’s barely making ends meet. Its current, $55.602 million budget is only a hair larger than last year’s actual $55.599 million, according to Port Finance Director Tina Olson. Even after Moyer’s substantial trimming, Port revenues have only risen 12.5 percent in the last five years, while expenses rose 41.7 percent, leaving a capital budget of just $7 million.

Yet its civic contribution is huge: Each year, the Port supports 30,000 jobs – the same as the San Francisco airport – of which every dollar of payroll- and sales-tax goes to the city, as does $20 million from the cruise business alone.

It generates $1.6 billion in revenue in the 700 companies on Port land and $120 million in state and local taxes, but none of those return to the Port. Then, the Port pays $11 million per year for City services: police and fire department, among others.

And unlike any other port in this country, it is expected to cover those costs on its own, with limited ability to raise rents and under the constraints of an urban setting, without Seattle’s tax support or San Diego’s $50-million revenue hotels.

We (earn) enough money every year to cover our annual operating costs, Olson said. What we don’t have enough money for is the major repair and replacements. That’s our concern because our facilities are so old.

What remains of its maritime business – fishing, cruise ships and bulk cargo – is also heavily subsidized, costing $2.5 to $3 million per year for dredging alone, plus maintenance, to generate $5.7 million in revenues.

The Port, which will issue a 10-year Capital Plan on March 10, estimates it needs more than $1 billion for maintenance and upgrades on its facilities and piers, most of which date back to 1908-1912. Of that, $300 million is needed immediately for life-safety issues alone. One in 20 Port buildings is already unsafe for public use.

The average age of a Port roof is 46 years, added Moyer. The utilities and underground pipes are even older. The average age of a pier structure is 80 years and I can’t find any manufacturers who would guarantee them for 10 years in salt water.

For perspective, it costs $20 million to repair and retrofit one pier for the high-occupancy use needed by a museum or new cruise terminal. Since 1950, the Port has rehabilitated 8 of its 39 pile-supported piers. There are 31 to go.

As things get older and older, and you can’t pull the cash out of your operating revenues, you’re stuck, Olson said. Either a developer does it, or you close it down.

In fact, partnerships with developers have been the Port’s lifeblood since the demise of the maritime business, starting with one of the nation’s first public-private partnerships at Pier 39. Now, those projects are under added pressure to generate the money to rehabilitate Port property before it’s too late.

Until we figure out a way to address the long-term infrastructure needs of the Port, it’s worrisome, Olson said. If you pull a pier off line because it’s red-tagged, you don’t develop your revenues any further.

That creates a downward spiral, in which the Port condemns piers, they fall into the Bay and they’re lost forever as a potential for revenues. With real estate now generating 72 percent of its income, that’s no small sacrifice.

The Port’s financial struggles are hardly new. Many date back to World War II, when cargo calls began a steady decline, due to a combination of competition from other West Coast ports and San Francisco-specific obstacles.

The reality is that, for reasons that were outside the decision-making responsibilities of San Francisco, there was a sea-change in the shipping industry, said Aaron Peskin, president of the San Francisco Board of Supervisors. It was an inevitability for a number of reasons.

Perched atop a peninsula and full of hills, the city’s geography made it hard for trucks to get to the Port, which had limited room for parking, storage or loading, given its railroad-era, finger-pier design. Its urban setting also provided no buffer zone for the community.

That gave Oakland, with plenty of space, a distinct advantage—that was only exacerbated by the global shift toward containerized cargo in the mid-1960s, increasing the need for space and access to truck lines.

By the time the Burton Act restored San Francisco’s control over its port in 1968, the Port had brought with it $81 million in debt, which Olson said is nearly paid off, after 38 years.

The Port of San Francisco was, no pun intended, under water from day one, Supervisor Peskin noted.

People forget that. They think that San Francisco (mismanagement) and the loss of the container industry drove it into the ground.

But historical accounts point to a bigger problem, much earlier.

In 1949, Herb Caen wrote lovingly of the Port that, (At night) you can hear the water sighing over the rotten timbers of the piers.

Clearly, this was not a healthy port with recent financial struggles.

In truth, the problems stem from before 1863, when San Francisco asked the state to assume control over the Port to curb years of corruption and mismanagement. Even then, piers and wharves were disintegrating and filled land was constantly slipping into the Bay, preventing ships from berthing, according to Mel Scott’s The San Francisco Bay Area: A Metropolis in Perspective.

State management only made it worse. San Francisco’s port was a low priority for state funds and couldn’t generate the voter interest to pass any of several financing proposals. That, in turn, led to further disintegration and lawlessness that helped drive shipping from the Port, according to the San Francisco Planning and Urban Research Association (SPUR).

So the city took back the Port – and its debt – but the problems didn’t stop. As recently 2004, just before Moyer took charge, a city audit showed widespread Port mismanagement, to the tune of $3.1 million per year.

The audit blamed the Port for development agreements that failed to cap construction costs, the failure to enforce its own leases and outspending its own office-space budget by $500,000 in FY 2002 for its current digs—on top of $1.7 million in tenant improvements as a one-time expense.

Thus, the Aeron chairs in the conference room, over which Moyer recently retorted, I couldn’t afford those!

As a final symbol of disarray, the Port reported that it oversaw between 756 and 817 parking meters and couldn’t account for discrepancies over how much money they generated. In fact, the audit found 880 meters under Port control, corresponding to $216,000 in unaccounted income on roughly $1 million annual revenue.

This was the Port that Moyer inherited.

Monique’s job was to dig the Port out of a canyon, and she was given a teaspoon to do it, said Jon Golinger, who leads Citizens to Save the Waterfront, a coalition that ranges from the Sierra Club to real estate investors. She needs a bulldozer.

She also inherited some stunning renovations, among them PacBell Park, Pier 1, the new Embarcadero and the Ferry Building, all funded by either developers or federal funds. With them came rents that approach modern market levels, in bold contrast to many of the Port’s 66-year leases.

Yet, even those come at a cost. The Ferry Building has been a huge success, in part from a decision to choose the developer who proposed more open space and lower retail density. That, in turn, generates less money for the Port.

Likewise, the Port’s outdoor open space, including the partly completed Bayside promenade from Mission Street to Broadway, accomplishes one of the Port’s primary goals – connecting San Francisco to its waterfront – and meets the requirements of the Port’s Waterfront Land Use Plan, which voters required it to develop when they passed Proposition H in 1990.

Yet all of that is expensive to build and maintain, with no revenues.

It’s taken 11 different funding sources over many years to piece together the money to create that public presence, said Byron Rhett, the Port’s director of planning and development. That includes $2.5 million for the upcoming Pier 14 and the $15 million park at the Brannon Street Wharf. It’s very expensive to build over water.

They’re also subject to what some might consider the whims of the current Board of Supervisors.

Three times over the past two years, the Board has tried to thwart either significant Port projects or its current administration: setting height restrictions on hotels, deeming its Mills retail-recreation project financially unsound, and proposing term limits for Port Commissioners.

Each of those stemmed in varying degrees from public outcry over the Port’s direction. Most significant of those was the Mills Project, in which mall developer Mills Co. had planned to build a $218 million retail and recreation center on piers 27-31, at the base of Lombard Street.

That project almost single-handedly awakened San Franciscans to the waterfront’s future, largely due to efforts by Supervisor Peskin and Golinger, who alerted residents that Mills planned to build a mega-mall at the base of Lombard Street.

No one views the Port as a portfolio of assets with costs and benefits, Moyer said. We have neighbors who see each proposal as a stand-alone issue. Our regulators don’t see it that way.

Moyer refutes the mega-mall characterization of the Mills plan, but it’s a moot point. The project has been in limbo since the Supervisors’ October vote. In Feb., local developers offered an alternative office-recreation proposal as a possible replacement, in part due to a timely intervention by until-then-silent Mayor Newsom.

To Moyer’s team, those public interventions are a direct blow, giving the Port no ability to act on long-term plans, which often are approved by one administration, only to be shot down after decades of work.

So what do we want? Moyer demanded. Do we want Pier 36? It’s an ugly shed with a fence around it because it’s not safe. Or do we want the Ferry Building, borrowing on the developer’s terms?

Opponents of those projects maintain they simply don’t want to be sold one bill of goods and delivered another.

But from either direction, San Francisco’s waterfront is at a turning point.

It’s up to us to figure out what we can be, said Olson, speaking for all San Franciscans, not just the Port itself. We’re in the middle of a transition from where we were to what we could be, and it’s a painful process.

San Francisco’s Port Executive Director, Monique Moyer