A Way to Help Cities That Hurts California’s Future : Economics: Balancing municipal budgets on the backs of the state’s prospering ports will eventually move shipping north to Washington.

A quiet struggle is developing among the five largest California ports and their parent cities, and the victors could be ports in Washington and Oregon.

Legislation passed during last summer’s frenetic pursuit of extra money to balance the state budget will drastically change how California’s major seaports manage and pay for capital improvements by giving their cities unprecedented authority to tap into their discretionary reserves. This money has traditionally been set aside for expansion and improvement of dockside facilities, making California’s ports--San Francisco, Oakland, Los Angeles, Long Beach and San Diego--some of the best equipped and most economically competitive in the world.

The ports of Los Angeles and Long Beach, for example, handled more containerized cargo in 1991 than any in the world, except for Singapore and Hong Kong. That volume of cargo translates into 203,000 Southern California jobs.

The Port of Los Angeles will be hit hardest by the new legislation, because it has a large discretionary reserve and L.A. is an estimated $121 million short of balancing its budget. According to a memo to the City Council, Mayor Tom Bradley will reluctantly request all $44 million the city is entitled to by the legislation.

It is unclear whether each of the other four cities will exercise its option to draw on funds. As currently interpreted, the cities connected with the Port of San Diego could claim $12 million, the city of Long Beach could take $5 million, and the cities of San Francisco and Oakland could request $4 million each from their ports.

Although the revenue-sharing legislation contains a 1995 sunset clause, port authorities worry that cities, in seeking to balance their books at a time of economic slow growth, will become dependent on the new revenue. As a result, the Legislature may balk at rescinding the law.

The revenue-sharing scheme has produced at least one ominous note. In September, Standard & Poor’s municipal-bond rating service placed the ports of Oakland, Long Beach, Los Angeles and San Francisco on CreditWatch (S&P; does not rate San Diego). CreditWatch is S&P;’s way to highlight a potential change in the debt rating of an organization. The bond-rating service cited its concerns over how the legislation will affect a port’s financial flexibility and ability to maintain adequate reserves for operational uncertainties, among other things.

Considering the intricacies of the municipal-bond rating process, it is not just the loss of the ports’ current reserves that is troublesome. According to Peter Bianchini, director of S&P;’s San Francisco office, the ports’ bond rating may be downgraded because, “the ports may no longer be the autonomous and separate entities that they once were.”

A lower bond rating will raise the ports’ cost of financing capital projects, and the effects of that would compound. Not only would the ports have less money if revenue sharing with cities were business-as-usual; financing would also be more costly and the ports would lose control over their discretionary funds that make capital improvements possible. As a result, it would be more difficult to manage any type of program to keep ports competitive.

It must be remembered that the decision to ship through a California port is discretionary . Forty percent of entering cargo is destined for markets outside the Southern California region. In choosing, companies mainly consider shipping costs and long-term port stability, at which California’s ports have excelled.

But the revenue-sharing legislation threatens to change all that. Indeed, the hazy future of California ports may have been a factor in American President Lines’ decision, announced last November, to invest in the development of a 160-acre super-terminal in Seattle, which would make it the largest container terminal on the West Coast. A company executive, quoted in a Seattle Times article, said Seattle “was chosen . . . not only (because) it’s one sailing day closer to Asia, but also for its ability to pull business, government and labor leaders together to make a joint pitch to (company) officials.”

The message is clear: If fiscal constraints hamper California ports’ ability to modernize and improve their facilities, other West Coast ports will pick up the slack. And thousands of jobs tied to warehousing and technical facilities will move to where the shipping business is growing.

Using California’s ports as “cash cows” to prop up ailing municipal budgets may serve short-term interests. But continuation of the practice would imperil the state’s long-term economic prospects by undercutting its gateways to international commerce. If the 21st Century is to be the Pacific Century, California needs to recognize the essential link that its ports play in maintaining our vital business relationships with the Pacific.