TO:ExecutiveDirectorEdGalligan,PortofOlympia

Cc:HeatherBurgess,LegalCounsel
From:PortCommissionerE.J.Zita
DATE:20Nov.2017
RE:$720,000contractapparentlyinexcessof$300,000DelegatedAuthority

DearExecutiveDirectorGalligan:

ItappearsthatthePortcontracttolease2newlogloadersexceedstheDelegated
Authority(DA)oftheExecutiveDirector(E.D.)ThefactsasIunderstandthem:

Youauthorizedacontract1inJune2017tolease2logloadersfor$60,000/monthfor
oneyear,totalingover$720,000peryear2(theactionofconcernreferencedbelow).
LeasecontractwasexecutedusingyourDelegatedAuthority,notbyavoteofapproval
byPortCommissioners.
DelegatedAuthority(DA)limits3aregenerally$300,000/year.
Theoneyearcontractfor$720,000ismorethandoublethan$300,000.
ThesefactscameoutinpublicPortmeetingson13Nov.,9Nov.,and23Oct.

ThePortcommissionshouldcontinueourpublicdiscussionoftheeffectsoftheE.Ds
approvalofacontractthatappearstoexceedthedelegatedauthoritylimit.Weneedto
figureout:

Anyfinancialand/orlegaleffectsofacontractexceedingdelegatedauthority,
Howtomitigateanysucheffects,and
Effectsoftherecentvotetopurchaselogloaders,oneitherouryettobeapproved
budget,orontheJune2017actionofconcern.

ThecontractsignedinJuneanditssizeof$720,000,apparentlyfarinexcessoftheDAlimitof
$300,000,isapubliccontract,andthereforeapublicrecord.Asaresultofourrecentpublic
meetings,thecontractandtheDAlimitsarewellknowntothepublic.Therefore,Ithinkour
discussionsofthisissue,startedinpublicinOct.2017,shouldcontinueinpublic.

ItappearstomethatRCW42.30.110alsopreventsusfromdiscussingthismatterin
confidentialExecutiveSession,becauseitisnotthecasethatpublicknowledgeregardingthe
discussionregardingthisissueislikelytoresultinadverselegalorfinancialconsequencesto
theagency.

ExecutiveSessions,orconfidentialconversations,maybeheld4:

1
June2017emailfromEdGalligan
2
StaffandNMApresentations,Oct.Nov.2017
3
PortofOlympiaResolution(201514)onDelegatedAuthority
 (i) Todiscusswithlegalcounselrepresentingtheagencylitigationorpotential
litigationtowhichtheagencyislikelytobecomeaparty,whenpublicknowledge
regardingthediscussionislikelytoresultinanadverselegalorfinancial
consequencetotheagency.

Thissubsection(1)(i)doesnotpermitagoverningbodytoholdanexecutivesessionsolely
becauseanattorneyrepresentingtheagencyispresent.Forpurposesofthissubsection
(1)(i),potentiallitigationmeans

(iii) Litigationorlegalrisksofaproposedactionorcurrentpracticethatislikelyto
resultinanadverselegalorfinancialconsequencetotheagency.

IftheremightbeadverselegalorfinancialconsequencestothePort,thoseconsequences
wouldresultfromtheE.D.sleaseauthorizationinexcessofDAnotfromfrompublic
discussionofanissuethatisalreadypubliclyknowledge.

Theactionorpracticethatmayresultinanadverselegalorfinancialconsequencetothe
Port,namelytheE.D.authorizingalogloaderleasecontractinexcessofDA,hasalready
occurred.

Publicdiscussionofthispotentiallyadverseaction(theleaseauthorizationexceedingDA),has
alreadytakenplace.Commissioners,staff,andlegalcounseldiscussedthesemattersinour
openCommissionMeetingonMonday13Nov.2017,andpreviously. 5

Ontheotherhand,ifthePortcandemonstratethattheE.D.didnotexceedDA,andthereisno
riskofconsequences,thenthereisnoneedtoholdthediscussioninExecutiveSession.Inany
case,thediscussionshouldbeheldinpublic,notinconfidence.

Itisimportanttounderstandthatpublicdiscussionisnotthepotentiallyadverseaction.The
potentiallyadverseactionwastheleaseauthorizationitself.

ThereforeIlookforwardtoaWorkSessiontofollowuponourpreviousdiscussions,wherePort
Commissionerswillpubliclyconsidereffectsfromtheactionofconcern(withstaff,including
legalcounsel).

Signed,E.J.Zita
PortCommissioner,District3,Olympia,WA
ejz@portolympia.com

4
RCW42.30.110(1)(i)
5
Intheabsenceofaformalproforma,datafromstaffandWPPAwerecompiledandpresented,tocomparecostsandbenefits
oflogloaderpurchasevs.lease.The19Nov.updateincludesadditionaldataandinformationpresentedon13Nov.bystaff:
2018_Budget_13Nov2017_LL_MT_19Nov
Reference1:EdGalligansJune2017emaildescribingbenefitsof$60,000/monthlease

TheExecutiveDirectordescribesaprovisionalrentalagreementtotest the equipment without an

obligation to purchaseandconfirmsthatpurchasewouldbesubject to Commission approval of
course.Nomentionismadeofa1yearcommitmentfor$720,000,orcustommadeequipmentwith
anexpectationofPortpurchase(cfRef.2).
CommissionersunderstoodthatthePorthadnoobligationtobuyatthispoint.

-----Ed Galligan/Poly wrote: -----

To: Commissioners@poly
From: Ed Galligan/Poly
Date: 06/06/2017 11:07AM
Cc: Len Faucher/Poly@Poly, Mike Crawford/Poly@Poly
Subject: Rental of Front End Log Loaders

Commissioners, Rental of two log loaders:

At the Commission's study session last Fall, as part of the approval process of the 2017 Port Operating
Budget and Capital Investment Plan (CIP), the Commission directed staff to find the most economical,
and operationally adaptable, alternative to purchasing the two log loaders that were originally listed as a
purchase in the CIP at $1.8 million. Specifically, rent the equipment instead of purchase.

Under delegated authority, a rental agreement has been entered into with a local provider in South
Thurston County, Modern Machinery, for $60K monthly rent. The anticipated delivery dates for two
Komatsu log loaders are August 1, 2017 and September 15, 2017.

This rental agreement gives the Marine Terminal Director, Longshore labor and the Port's maintenance
crew time to properly test the equipment without an obligation to purchase. As previously reported by
the Marine Terminal Director, increasing incidents of equipment break downs of the Port's existing and
aging log loaders results in increased work stoppages and increasingly excessive maintenance costs.

If the Port were to decide to purchase the two Komatsu loaders in the year 2018, subject to
Commission approval of course, the advantage of the rental agreement with Modern Machinery is that
the Port's rental payments will be applied to the purchase price along with an additional $115,000 credit
for trade-in of the two existing old log loaders.

A team consisting of Port staff, maintenance representative and longshore representative invested
considerable time researching acceptable rental options for such equipment as well as the adaptability to
the Marine Terminal operating requirements. If you would like to be briefed on the details of their work,
the equipment, and/or the rental agreement, I would be glad to schedule a briefing for you during a
forthcoming one-to-one meeting at a time convenient for you. Ed

From: EJ Zita/Poly
To: Ed Galligan/Poly@Poly
Cc: Len Faucher/Poly@Poly, Mike Crawford/Poly@Poly
Date: 06/26/2017 02:19 PM
Subject: Re: Rental of Front End Log Loaders

Dear Len and Mike, thank you for researching this rental option for us. Better than $2 M outlay with
depreciation. This is consistent with Jeff Smith's principle of "right-sizing" the Port.

Ed, It sounds like this is potentially a rent-to-own agreement, but that we are not obligated to buy at this
point? Good work - Zita
Reference2:StaffandNMApresentations,Oct.Nov.2017

InseveralrecentPortCommissionmeetingsandworksession(56monthsafterthePortofOlympias
ExecutiveDirector(E.D.)executedthe$720,000logloaderleasecontractunderdelegatedauthority),
staffurgedCommissionerstopurchasetheloadersforapprox.$2M(atotalcostofover$3M,including
financing).

1. AlanDashellofNMArecentlyarguedthatleasingthe2logloadersfor$60,000/mo,or$720,000
peryear,insteadofpurchasingthemforover$3Mtotal,wouldbefinanciallyirresponsible.

ThiscontrastswiththeE.D.sdescriptioninJuneofRentaloftwologloadersasthe most economical

alternative to purchasing the two log loaders (cf Reference 2 below).

2. LenFaucher,MarineTerminaldirector,recentlyarguedthatthelogloaderswerecustom
madeforthePortofOlympia,andthatifwefailedtopurchasethem,wewouldbeseenas
unreliablebusinesspartners.

ThiscontrastswiththeE.D.sassuranceinJunethatThis rental agreement gives the Marine Terminal

Director, Longshore labor and the Port's maintenance crew time to properly test the equipment without
an obligation to purchase. (cf Reference 2 below)
Reference3:PortofOlympiaResolution201514

2. Purchased Services Agreements (Policy 1005) The Executive Director may execute
contracts for the acquisition of equipment when:

Reference4:RCW42.30.110(1)(i)http://app.leg.wa.gov/RCW/default.aspx?cite=42.30.110

RCW 42.30.110 Executive sessions.

(1) Nothing contained in this chapter may be construed to prevent a governing body from holding an
executive session during a regular or special meeting:
(a)(i) To consider matters affecting national security;
(ii) To consider, if in compliance with any required data security breach disclosure under RCW
19.255.010 and 42.56.590, and with legal counsel available, information regarding the infrastructure and
security of computer and telecommunications networks, security and service recovery plans, security risk
assessments and security test results to the extent that they identify specific system vulnerabilities, and
other information that if made public may increase the risk to the confidentiality, integrity, or availability
of agency security or to information technology infrastructure or assets;
(b) To consider the selection of a site or the acquisition of real estate by lease or purchase when
public knowledge regarding such consideration would cause a likelihood of increased price;
(c) To consider the minimum price at which real estate will be offered for sale or lease when public
knowledge regarding such consideration would cause a likelihood of decreased price. However, final
action selling or leasing public property shall be taken in a meeting open to the public;
(d) To review negotiations on the performance of publicly bid contracts when public knowledge
regarding such consideration would cause a likelihood of increased costs;
(e) To consider, in the case of an export trading company, financial and commercial information
supplied by private persons to the export trading company;
(f) To receive and evaluate complaints or charges brought against a public officer or employee.
However, upon the request of such officer or employee, a public hearing or a meeting open to the public
shall be conducted upon such complaint or charge;
(g) To evaluate the qualifications of an applicant for public employment or to review the performance
of a public employee. However, subject to RCW 42.30.140(4), discussion by a governing body of
salaries, wages, and other conditions of employment to be generally applied within the agency shall occur
in a meeting open to the public, and when a governing body elects to take final action hiring, setting the
salary of an individual employee or class of employees, or discharging or disciplining an employee, that
action shall be taken in a meeting open to the public;
(h) To evaluate the qualifications of a candidate for appointment to elective office. However, any
interview of such candidate and final action appointing a candidate to elective office shall be in a meeting
open to the public;
(i) To discuss with legal counsel representing the agency matters relating to agency enforcement
actions, or to discuss with legal counsel representing the agency litigation or potential litigation to which
the agency, the governing body, or a member acting in an official capacity is, or is likely to become, a
party, when public knowledge regarding the discussion is likely to result in an adverse legal or financial
consequence to the agency.
This subsection (1)(i) does not permit a governing body to hold an executive session solely because
an attorney representing the agency is present. For purposes of this subsection (1)(i), "potential litigation"
means matters protected by RPC 1.6 or RCW 5.60.060(2)(a) concerning:
(i) Litigation that has been specifically threatened to which the agency, the governing body, or a
member acting in an official capacity is, or is likely to become, a party;
(ii) Litigation that the agency reasonably believes may be commenced by or against the agency, the
governing body, or a member acting in an official capacity; or
(iii) Litigation or legal risks of a proposed action or current practice that the agency has identified
when public discussion of the litigation or legal risks is likely to result in an adverse legal or financial
consequence to the agency

Reference 5: 2018_Budget_13Nov2017_LL_MT
2017-11-19
Commissioner Zita compiled staff data to compare costs and benefits of log loader purchase vs.
lease, in the absence of a formal pro forma. Updated 19.Nov., using staff information presented
13 Nov. Selected pages are included below. (select2018_Budget_13Nov2017_LL_MT_19Nov

2018 Financial accountability at Port of Olympia

1 13 Nov. 2017, Commissioner Zita, updated 19 Nov.

Tax levy

1
 2017-11-19

Proposal to improve 2018 Port of Oly budget

Tax Levy cannot cover expenses.

Reconsider the biggest Capital expense:

2 Log Loaders: $1.8+ M to buy, or $60-$70,000/mo to lease
Marine terminal loses $131,000 before depreciation

Spend $360,000-$420,000 to lease 1 in 2018?

Save over $2,000,000 total?

Fund public projects, e.g. Harbor Patrol, Small Cities Program, Ag

3

Biggest 2018 expense: Log Loaders $1.8 million

2
 2017-11-19

Who benefits? Who pays? for $1.8 M log loaders:

Benefits - Lease rates for Weyerhauser et al?
Total COSTS incurred by Port?
Proposed TAX increase of 1% + 4c (is that wise?)

Pro forma for log loaders?

STF debt ~$1.5 M /yr, paving ~$0.5 M/yr, more
5

Who benefits? Who pays? for $1.8 M log loaders:

Private companies (Weyerhauser and PLS) would benefit financially

from log loaders purchased with public funds (tax money and debt).

3
 2017-11-19

How much do the $1.8 M log loaders cost?

$1.7 M?

$1.8M?

$1.9 M?

More?
7

How much do the $1.8 M log loaders cost to buy?

Lease to buy: $720,000/yr for 3 years

Finance over 20 years: over $70,000/yr for 10 years, then
over $230,000/yr to 20 years

Need a pro forma for 1 and 2 log loaders

Compare total costs over time
Compare value over time
8

4
 2017-11-19

Total cost of log loaders? Need a pro forma

Log Loaders cost almost $1M more over 20 years

$700,000

$600,000

$500,000 $2.16 M total : Lease to own (3 yrs)

$400,000
Lease2Buy/yr

$3 M total : Buy over 20 yrs buy/yr

$300,000

$200,000

$100,000

$0
9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Value of log loaders? (Need a pro-forma)

Value of Log Loaders over 20 years
$1.80

$1.60

$1.40

$1.20
Millions

$1.00

$0.80

$0.60

$0.40

$0.20

$0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Years (value drops 20% upon purchase, and to approx. $0 after 20 years).
10

5
 2017-11-19

Value of log loaders compared to costs

$3 M to
Finance

$2.1 M to LeaseBuy

Value

11 Bottom line: Purchase costs rise for 20 years, while value drops for 20 years.

$720,000 for log loaders (1 yr) approved by E.D.

A rental agreement for two log loaders at $60,000 / month x 12 months = $720,000 / yr
was approved under delegated authority on or before 06/06/2017.

(or $840,000 if the lease rate is $70,000/month)

12

6
 2017-11-19

Benefits expected from $1.8-$3 M log loaders?

Port projects increased productivity and log shipping

Benefits to Marine Terminal Tenants

How is our productivity currently * measured and

*performing?
13

Costs and benefits of higher productivity?

New log loaders quicker loading of log ships
Fewer hours of labor required to load ships
Lower costs to Weyerhauser, PLS, etc. (based
on hours of labor)
Lower payments to Port of Olympia for log ship
loading
Lower wages earned by ILWU
14
Source: Staff testimony, 13 Nov. 2017 Commission meeting

7
 2017-11-19

How to offset costs of higher productivity?

New log loaders lower income to Port and ILWU
How much faster are the new log loaders?
How many hours/ship of income would be lost?

Need more log ships to offset lower income/ship

How many more log ships/yr would be needed to keep
hourly income steady for Port and ILWU?
How many more ships would be needed to pay for LL?
15

WPPA projects LOW log exports:

Claim: We anticipate increased ship counts

with greater productivity from the new log loaders
(i.e. fewer hours per ship)

Questions: What % increase in ship counts:

Are required for steady income,
with fewer hours/ship?
Can be reasonably expected,
given WPPA projections?
16