City to Repay $62 Million to Port of L.A.

The city of Los Angeles, in a legal settlement reached Friday, must repay the port $62 million that state officials alleged was improperly diverted to pay for municipal services and projects unrelated to the port.

Ending its 1996 lawsuit against the city, the State Lands Commission unanimously approved the settlement after more than 18 months of negotiations between state and port attorneys. The Los Angeles City Council and Mayor Richard Riordan have already signed off on the terms.

By law, the city may charge for certain services performed in the port but may not use the port to subsidize services beyond that area.

The settlement is very equitable, said state Controller Kathleen Connell, the head of the lands commission and a candidate for Los Angeles mayor. “This is a fair recognition of what is owed to the port and a fair recognition that the city needs to be paid for municipal services related to the harbor.”

State and city officials contend that the long-awaited agreement should provide other port cities in California some guidance about what harbor revenue can be used for.

“This is a legitimate solution for Los Angeles, but the settlement could apply to other ports in terms of what may or may not be charged by cities,” said Paul D. Thayer, the commission’s executive officer.

Under the agreement, the city admitted no wrongdoing, but must repay the port about $62 million over the next 15 years in cash or credits against the bills the city sends the port for future services.

The city is allowed to charge the port 100% for fireboats and 75% of the costs of providing other fire and emergency medical services in the Harbor district.

The settlement also states that the city can bill for a variety of other services, including administrative overhead if it relates to the port, and park facilities that are either on or near harbor property.

According to the deal, however, city officials can no longer charge the port for costs related to the Los Angeles Convention Center or Drum Barracks and the Banning Museum in Wilmington.

Both sides said the reimbursement formula should minimize any adverse impact on municipal services or the city’s future budgets.

“This is a good deal for Los Angeles,” said Deputy Mayor Kelly Martin, Riordan’s chief of staff. “It resolves the past amounts due the port and gives us plenty of time to make the repayment.”

The legal dispute involved the city’s transfer of about $68 million in port revenue to the municipal treasury in the 1990s to pay for present and past city services used by the Harbor Department.

Research by the city indicated in the mid-1990s that the city was subsidizing port operations and undercharging the harbor for a variety of municipal services .

In an attempt to halt the transfers, attorneys for the State Lands Commission and a group of shipping lines sued the city in Los Angeles Superior Court in 1996.

The commission, joined by the Steamship Assn. of Southern California, alleged that the $68-million transfer violated state law requiring port revenue to be spent on harbor-related items, such as terminals, wharves, docks and other port services.

In court papers, the city denied any wrongdoing. If the city had to reimburse the port millions of dollars at once, a defense attorney said, half the municipal libraries or a quarter of the city’s recreational facilities would have to close.

But the lands commission and the steamship association maintained that the effect of diverting port funds would be far more costly to the regional economy.

They contended that shipping lines, which disagreed with the transfers, might shift their cargo to less expensive ports in other states or Canada.

Thomas Russell, one of the association’s attorneys, contended that because association members already paid a variety of taxes, using their port fees for city services was tantamount to double billing.

According to the settlement, the steamship association has refused to approve the agreement or dismiss its allegations against the city.

“We are pleased the case has progressed to this level,” said Jay Winter, executive secretary of the association, which will return to court next week to resolve a few remaining issues. “It has been brought home that cities cannot just go in and take this money.”