Collaboration in Civic Spheres

State Audit Critiques Seattle Port’s Property Management, Cargo Crane Oversight, And Under-reported Pilferage

by Matt Rosenberg January 14th, 2011

SUMMARY: A State of Washington performance audit found the Port of Seattle: failed to sufficiently report to the state, as required by law, 41 instances of pilferage valued at $107,000; failed to monitor actual usage of its cargo cranes and related lease fees by lessees; and failed to monitor required maintenance of the cranes by lessees as specified in contracts; and sold a property for $4.1 million less than market value due to an accounting error. The audit also finds that The Port, lacking a risk assessment, paid $5.5 million for a property which was not ultimately used for a planned development project; allowed wide variances – of 20 to 70 percent – in lease rates for similar properties, with no explanation; and does not widely market its salable properties to get best bid competition. The audit found The Port also fails to obtain timely appraisals on many of its leased properties which would allow it to charge higher, market-rate lease fees.

Three of the Port of Seattle's 18 cargo cranes, seen from lower West Seattle Bridge, 12/3/10 - photo by Matt Rosenberg, Public Data Ferret

BACKGROUND: This state-led performance audit of the Port of Seattle was done under the authority of voter-approved Initiative 900. A previous state performance audit of The Port in 2006-2007 examined The Port’s construction project management, at Sea-Tac Airport. This audit examines the Port’s real estate management practices and other program areas.

KEY LINK: Port of Seattle: Real Estate Management And Selected Programs, Washington State Auditor’s Office, 12/13/10

KEY FINDINGS:

  • Between January 2006 and March 2009, various divisions of the Port of Seattle reported to Port Police 41 cases of property losses totalling $107,000 in value but that information was not also conveyed to Port executive management, internal auditors or – as required by state law – the state auditor. The losses included numerous items that went permanently missing while on Port property, including computers, copper wire, aluminum window frames, a pressure washer, drills, a projector, steel cables., copper pipes, handguns, blank security badges and digital cameras.
  • The Port leases its 18 cranes to private shipping operators, who use the cranes to handle cargo containers at Port terminal facilities. But contrary to recommended best practices, the Port does not seek to verify reported usage hours of the cranes by the customers/tenants, upon which lease payments by the operators to the Port are based. As a result, there is no protection against the possibility of under-reporting of crane usage hours and underpayments.
  • Crane lease agreements also require the tenants to pay for and perform regularly scheduled maintenance of the cranes and for The Port to inspect the cranes to verify the work has been done, and done properly. But no inspections of the cranes by The Port occurred in 2008 and only one in 2009.
  • The Port does not review crane maintenance records unless a mechanical problem arises, potentially putting crane durability and worker safety at risk.
  • Of the Port’s four major property transactions since 2004, two were well handled, under the current (new) administration and two (under the old administration) were not.
  • The Port in 2004 sold its Terminal 106E property for $4.1 million less than fair market value due, ultimately, to an accounting error – and also failed to market the property competitively to seek alternative (and better) bids from prospective buyers.
  • In April 2005, using an intermediary which was paid to $402,000 to hide The Port’s identity as a potential buyer, The Port bought for $5.5 million the 3.4-acre Tsubota Steel property without fully assessing or documenting the considerable risks, liabilities and costs of ongoing ownership of the property, which was slated for a larger development project including adjoining acreage, but which never materialized.
  • The State Auditor’s Office reviewed 21 of 244 leases overseen by The Port’s Seaport Real Estate Division and found that in some instances The Port’s property lease rates have been set at below fair market value and lacked documented justification. Rates for similar properties leased out by The Port to tenants have sometimes varied by between 20 percent and 70 percent, with no explanation.
  • The Port too often does not widely market its salable properties to promote competition. Lack of appraisals were also a concern for auditors. The Port’s Seaport division manages 45 leases but obtained only seven related property value appraisals from 2001 through 2009. Those appraisals indicated significant growth in market-value lease rates, from 14$ to $25 per square foot between 2001 and 2006, to between $28.50 to $32.50 per square foot in 2008 to 2009. This illustrates the need for “current market information specific to individual properties” leased by The Port, according to the state performance audit. Without that, “The Port is at risk of inconsistent rental lease rates that are less than fair market value.”

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