FBCC/OHPA mediation attempt fails: no bridge over these troubled waters

Submitted by Suanne Z. Thamm
Reporter – News Analyst
July 16, 2020

Any hope for an agreement between the Fernandina Beach City Commission (FBCC) and the Ocean Highway and Port Administration (OHPA) over the question of payments owed to the City in lieu of taxes (PILOT) by OHPA sank as mediator Carlos Alvarez declared an impasse following 6 hours of public mediation between the parties on July 15, 2020.  While there is always a chance that parties may reconsider their respective positions and reach some agreement, at this time such chance seems remote as both parties are dug in to their respective positions.  The next step:  litigation.

The Fernandina Beach Municipal Golf Course Clubhouse was the setting for the unusual public mediation session in accordance with procedures outlined in Florida law for resolving disputes between governmental bodies.  A handful of spectators and two media representatives attended in addition to the principals for the City (all Commissioners, City Attorney, City Manager) and OHPA (3 onsite commissioners and 2 remote attendees; Port Attorney and Port Manager/World Wide Terminals President).

Mediator Carlos Alvarez had been agreed to by both parties.  In introducing the mediation, Alvarez asked both parties to focus on their interests, as opposed to their positions, and to identify alternatives that would allow them to achieve most, but not all, of their objectives.  He also said that most mediations that fail do so because emotions get in the way.  

The background

OHPA is a special district established by the Florida Legislature in the 1940’s to spur economic development of Nassau County.  As such, it is not accountable to local government.

In the 1980’s OHPA embarked upon a major initiative to develop a modern port within the geographic boundaries of the City of Fernandina Beach.  This project brought the City and OHPA into discussions over conditions and requirements of both parties.  OHPA is tax exempt, due to its special district status.  The City demanded a PILOT payment (PILOT = Payment In Lieu Of Taxes) to cover services such as police, fire, emergency and roads.

While the records are not clear, it appears that at some point the parties came to agree on a PILOT of $50,000 per year.  This amount was never included in a contract signed by both parties.  However, the City accepted the agreement as part of a development agreement, later deemed a Development of Regional Impact (DRI) adopted by COFB Resolution 962 (1989).

OHPA did not make payments for the first two years following adoption of the DRI.  However, with some exceptions, it has paid the City at least $50,000 annually during subsequent years.

But the business of the Port of Fernandina has fluctuated greatly during the 30 years following the implementation of the DRI.  Nassau Terminals, the Port operator, has changed hands, most recently in late 2018  when World Wide Terminals took over the operations from Kinder Morgan.  As part of their agreement to assume port operations, World Wide Terminals also took on significant debt that OHPA had run up over the years.  As a result of assumption of this debt and the need to attend to major infrastructure repairs and improvements ignored by Kinder Morgan, World Wide Terminals issued $27.6M in public bonds, thus relieving OHPA of any debt.

Business at the Port of Fernandina has been impacted by forces beyond its control including national economic trends and COVID-19.  Despite these problems, exacerbated by outdated and/or failing infrastructure and facilities, the Port has been able to keep 50 workers employed to service about 120 ships per year.  Additional, part time workers are also brought in to assist in loading and unloading operations as needed.  Due to space constraints (20 acres of land in Fernandina Beach) and environmental concerns, the Port is not able to expand its operations to attract larger vessels, which are serviced by other area Ports.  However, the Port competes with other area ports to attract business from smaller ships and to handle break bulk cargo.

The dispute:  OHPA’s position

OHPA claims that any real or perceived obligation to pay the City $50,000 expires with the DRI, which ends after 30 years.  Furthermore, they claim that there is no contract or other legal instrument that has been produced by either party that shows that OHPA ever agreed to pay the City any specified amount of money in lieu of taxes.  They claim that their annual payment of $50,000 was purely voluntary, and as such is not binding.  Finally, and probably most importantly, OHPA claime that they have no money to pay, even if the parties could agree on an amount.  Under their contract with the Port Operator, World Wide Terminals (WWT) is obligated to pay the City $100,000, representing PILOT payments for the last two years of the DRI.  But WWT does not have the money on hand or the authority from its board to pay.  OHPA questions how the figure of $50,000 was derived as a fair charge for city services, claiming that by federal and state law it is required to provide port security and fire protection.  They claim conflict with the city over the use and condition of city streets.

The diispute:  The City’s position

The City cites Resolutions passed in the 1980’s that allowed OHPA to develop the Port in its current location and the fact that OHPA has generally paid the $50,000 each year without question as OHPA’s implied acceptance of its obligation.  The City, based upon recent analysis of costs of services, says that OHPA is receiving more than $80,000 in benefits for the $50,000 payment.  The City rejects OHPA’s claim that it does not have the funds to make the payment, citing the decision of the OHPA to double commissioner salaries to the legally allowable $2,000 per month per commissioner with the transfer of operations from Kinder Morgan to WWT.  The City cites the wear and tear on city streets and the surrounding residential neighborhood by Port truck traffic.  While acknowledging that the Port does provide first echelon security and fire protection, it stresses that the City would be required to respond to any major incident, especially an incident involving public safety or personal injury.  The City maintains that the requirement to pay $50,000 annually does not expire with the DRI but endures in perpetuity.

Areas of agreement

Both parties acknowledge that the poor paper trail and vague language of documents executed in the 1980’s are at the root of the dispute.  Both parties also acknowledge that it would be preferable to reach agreement prior to initiation of legal action, which could drag on for years and cost both parties (and taxpayers) significant sums of money for legal and research fees.  The dispute is not a “slam dunk” for either side and would involve issues of law as well.  While OHPA disputes the requirement that they pay $50,000 per year to the city, they appear to acknowledge that they should pay some amount to the city, if it can be fairly determined and agreed to by both parties.

Mediation

Mediator Carlos Alvarez met with each party separately to determine if there were any middle ground that could be agreed to by both parties.  He explored the possibility of commissioning studies to determine an “equitable annual fee,” language set out in the initial development agreement, as suggested by OHPA.  The City viewed more studies as an expensive delaying tactic that would only push resolution further into the future.  Moreover, the City claimed that it had already conducted such a study that concluded that the value of services provided to OHPA exceeded $80,000 currently.

Alvarez also explored extending the deadline for PILOT payments until 2023, at which time the Port would be in a better position to make payments of any amount.  The City rejected this, pointing out that if the OHPA commissioners would cut their salaries back to $1,000 per month, the level they had accepted prior to the WWT takeover of operations, there would be ample funds to make the annual PILOT payment.

The OHPA bottom line:  We don’t have the money.  We have no legal obligation to pay the City anything.

The City’s bottom line:  OHPA could easily find the money by halving its commissioner salaries.  We had an agreement that you honored for more than 20 years. 

The mediator in declaring an impasse to reaching agreement, expressed hope that the parties would continue to try to end the dispute short of costly litigation.  He asked both parties to exchange information on both costs incurred (by the City) and benefits received (from the Port).

Due to the legal questions surrounding the cause of action for any lawsuit, the mediator expressed confidence that litigation, if taken, would become a matter for the Appeals Court to decide.

For additional background on the dispute, see https://fernandinaobserver.com/city-news/fbcc-ohpa-headed-to-mediation-over-50k-annual-payment-to-city/; https://fernandinaobserver.com/general/fbcc-ohpa-meet-to-discuss-mutual-concerns/;