In 1994, supporters touted the controversial $16.7 million sale of the Port of Providence as a financial benefit for the city. But over the last three years, the City of Providence has spent $1.3 million to bail out ProvPort, the private company that runs the port.

Patricia McLaughlin, director of administration for Mayor Vincent A. "Buddy" Cianci Jr., says ProvPort's financial condition is improving and she expects the money to be repaid to the city. Alex Prignano, Providence's finance director, echoes McLaughlin in discussing ProvPort's outlook, but he says the company has no legal obligation to repay the $1.3 million.

The situation angers Ward Six Councilman Joseph DeLuca, who vigorously opposed the 1994 sale of the city-owned-and-operated port to balance Providence's budget. "The whole thing was a scam to begin with and it's still a scam," DeLuca says. Meanwhile, another opponent of the original deal, Council President John J. Lombardi, says the city should go to court to recoup the $1.3 million if ProvPort fails to repay it.

Providence sold the port, located off Allens Avenue near the Cranston line, in September 1994. Since then, ProvPort has faced financial difficulties, forcing the city to spend $1.3 million to guarantee that bond payments were made. The money replenished a reserve account used by ProvPort when it can't pay bondholders. Had ProvPort met its financial obligations without assistance, the city would have had an additional $1.3 million to spend on education, parks, and other municipal needs.

Selling the 120-acre port was first suggested in the spring of 1994, when Providence's budget included a $16 million deficit. Cianci and then-Governor Bruce Sundlun initially proposed selling the port to the Rhode Island Port Authority, but the deal collapsed amid strong public criticism that Sundlun was unilaterally spending state funds to bail out Providence. The normally mild Lincoln Almond, then seeking the Republican nomination for governor, called the idea, "the boondoggle of the week."

Thwarted in his first attempt, Cianci proposed selling the port to a private company and this plan also met with resistance. Lombardi, DeLuca, and independent mayoral candidate Paul Jabour spoke against it, and the Providence Journal charged in an editorial that the sale was being proposed "to avoid a tax increase or a cut in [the city's] bloated payroll in an election year."

But Cianci convinced the city council that the deal would not only eliminate the budget deficit, but also encourage investment and create jobs at the long-neglected port. The winning bidder, Public Asset Management of San Rafael, California, created a non-profit entity -- ProvPort-- to run the operation.

The city council resolution called the deal a sale, but it also gave the city, through the Providence Redevelopment Agency (PRA), the right to repurchase the property in 2024 for $1. This provision led some to insist the deal was really a lease that simply required ProvPort to make 30 years of rent payments in advance -- thereby offering a convenient way to balance the city's budget. Although the city received $16.7 million for the port, Lombardi says, it was not clear whether the deal constituted a lease or a sale. "The answers were not forthcoming," recalls the council president, a potential mayoral candidate in 2002. "It certainly scared me."

In any case, ProvPort borrowed $19 million from the Providence Redevelopment Authority (PRA) to pay the city, finance an engineering study, cover financing costs, and establish a "debt service reserve." Bonds were then sold, explains William Brody, ProvPort's legal counsel, backed by the "moral obligation" of the City of Providence. Much like when the quasi-public Rhode Island Economic Development Corporation backs bonds to encourage new companies to locate in Rhode Island, Brody says, the PRA's involvement secured a lower interest rate for ProvPort.

Brody says the financing arrangement operates much like a 30-year mortgage. ProvPort pays $1.7 million annually in interest and principal. Unfortunately, business at the port has been slow during the last three years, so ProvPort has been unable to make payments from its revenues. Instead, it has used the "debt service reserve," and the City of Providence has subsequently replenished that account. In September 1999, the city pumped $700,000 into the reserve. It added another $497,000 in 2000, and this year it contributed $120,000 more, according to Prignano.

As Brody notes, Providence has no legal obligation to replenish the reserve, but the failure to do so would lead investors to question the city's trustworthiness and perhaps increase the cost of future borrowing.

BECAUSE THE CITY'S annual expenditure on the port is decreasing, Prignano is optimistic about ProvPort's financial future. McLaughlin agrees, noting, "At this point we're feeling better. The amounts are decreasing and decreasing significantly."

Brody adds that ProvPort made money during the first quarter of this year, which ended September 30, and he notes that the expansion at the port of Lehigh Portland Cement Company means increased rent payments and shipping fees.

But the overall picture isn't so rosy. Business at the port "is very slow, almost non-existent," says state Representative Paul Moura (D-Providence), a ProvPort board member. Most of the port's revenue comes from lease payments of companies located on port land, not dockage and wharfage fees. Even if everything goes as projected, ProvPort will have a net income of only $46,562 this year, according to its budget, which was recently approved by the PRA. Debt payments comprise more than half the company's annual expenses, according to the budget.

Moura, who worked as a longshoreman at the port for more than a decade, says it has had numerous difficulties: The John Orr Company, the stevedoring firm he worked for, had financial problems, forcing ProvPort to temporarily take over the loading and unloading of ships; The once lucrative lumber business moved to the port in New London, Connecticut; Steel imports declined drastically after Bush administration put restrictions into place; And the income from leases is less than could be expected, Moura concludes, because of "sweetheart" arrangements made by previous mayors.

ProvPort's president, Ray Meador, has also been criticized for living in California and not paying enough attention to the port. And ProvPort's full-time marketing director was laid off when the company's financial condition worsened.

"I see difficult times," says Moura, "but not insurmountable [challenges]." Most needed, he says, is an investor to finance dredging and major improvements to the wharfs. "Without that," he says, "it's going to be difficult." ProvPort's current capital improvement budget includes only a $15,000 down payment to buy a forklift.

ProvPort faces an additional cost in the future. According to McLaughlin, the company was given a 10-year tax treaty, so it should start paying taxes in 2005.

Because its finances continue to teeter on the edge of unprofitability, it's unclear if ProvPort will need more city assistance or be able to repay the $1.3 million. "As we progress, there is definitely not an intention not to [repay]," says Brody, but he adds that no specific discussions have been held on the issue.

Prignano and Brody insist that ProvPort owes the city only $1 million, because it gave the city $300,000 from the $1.4 million paid to ProvPort when the Narragansett Bay Commission (NBC) seized some port land in condemnation proceedings. Some of the property will be the site of a massive underground tunnel meant to prevent sewage from flowing into the bay after heavy rainstorms. The rest of the condemnation proceeds were used to pay off some bonds, thereby reducing annual interest payments, and finance $200,000 in capital improvements.

If the original deal is considered a lease and not a sale, however, questions could be raised as to whether the entire $1.3 million should have gone to the city. Since he's unsure if the deal was a sale or a lease, Lombardi is uncertain about how the money should be considered. "I think it was a lease, but it was so convoluted they could do whatever they want," he says.

The financial situation at the port has been further complicated by the September 11 terrorist attacks on the World Trade Center and the Pentagon. ProvPort has increased security staff and hired a security consultant whose report is due December 1. Of great concern is the huge tank for liquified natural gas (which receives deliveries by truck, rather than ship) at the port.

Brody expects future discussions between ProvPort and the city to include security costs, the $1.3 million in reserve account payments, and the 20 acres of city land that ProvPort might like for expansion. The city hopes to use the land for the proposed Festival Fields Park and Save The Bay's new environmental education center, McLaughlin says. But Brody says the land, if needed for port development, was promised to ProvPort. ProvPort also hopes to refinance its debt to take advantage of lower interest rates, Brody says. The company is currently paying eight percent interest.

Meanwhile, ProvPort's next quarterly debt payment, of $420,900, is due in December.

Issue Date: November 9 - 15, 2001