Many cities and counties around the State of Ohio have created port authorities, and a few of them even operate seaports and airports. Many of the rest were created as an economic development tool in order to stimulate job growth and economic development in the local community. Many municipalities and counties have considered creating a port authority and a new economic development bond fund. In all instances the fundamental question remains: How can they add value to a municipality? As shown below, a port authority has broad powers in the economic development arena, and by committing sufficient resources to this operation, a port authority can do many things to help a municipality.

Status, Jurisdiction and Governance

A port authority is a body corporate and politic; i.e., it is a political subdivision. A port authority’s area of jurisdiction includes all the territory of the political subdivision(s) that created the port authority; however under no circumstance may the same area be included in more than one port authority. So, if any municipality creates a port authority, its basic jurisdiction would be the corporate boundaries. Also, as discussed below, through the use of cooperative agreements with cities, counties or other port authorities, the port authority can undertake economic development projects outside of those boundaries. A port authority is governed by a board of directors. The municipality creating the port authority may determine the number of members of the board, and they will then be appointed by the mayor with the advice and consent of the municipal council.

Port Authority Powers

Port authorities possess a multitude of powers. These powers are what make them so useful as economic development tools. A few examples of port authority powers follow.

Acquiring Property. A port authority may acquire, construct, furnish, equip, maintain, repair, sell, exchange, lease to or from or lease with an option to purchase, convey other interests in real or personal property, or any combination thereof, for any authorized purpose and operate any property in connection with transportation, recreational, governmental operations, or cultural activities.

“Authorized purposes” are activities that enhance, foster, aid, provide, or promote transportation, economic development, housing, recreation, education, governmental operations, culture, or research within the jurisdiction of the port authority. A port authority can also use its power to facilitate the development of governmental and quasi-governmental facilities within the jurisdiction of the port authority, as well as commercial facilities and those used for traditional port authority functions.

For instance, if a community within the jurisdiction of a port authority wanted to develop a recreation facility but didn’t want to do so directly (or by creating a recreation district), a port authority could undertake the project. A port authority could also use this power to facilitate a lease-purchase of a government facility to a political subdivision as was the case when the Rickenbacker Port Authority (now merged with the Columbus Airport Authority) entered into a lease-purchase involving the improvement and lease of a portion of the former downtown Columbus Lazarus department store building to the Ohio Environmental Protection Agency.

Issuing Revenue Bonds. A port authority may issue revenue bonds (secured by a pledge of the revenues generated by the facility financed by the bonds) for the purpose of providing funds to pay the cost of any port authority facility constructed for an authorized purpose. Such bonds can be issued in any amount necessary to finance the project. As discussed below, the key question is how do you provide for repayment of the revenue bond debt?

Facilitating Economic Development Transactions. In furtherance of any interest in real or personal property, a port authority may: (a) loan monies to any person or political subdivision of the State of Ohio (State) for the acquisition, construction, furnishing, and equipping of the property, and (b) acquire, construct, maintain, repair, furnish and equip the property, and (c) sell to, exchange with, lease, convey other interests in or lease with an option to purchase the same or any lesser interest in the property to the same or any other person or governmental entity, and (d) guarantee the obligations of any person or governmental entity.

In this context, a port authority may provide additional security for an economic development project by facilitating a structured financing, such as a synthetic lease (or off-balance sheet) transaction where a company finances the acquisition of a building and/or machinery and equipment by leasing the asset from the port authority instead of borrowing money to finance the acquisition. In this manner, a publicly held company can improve the appearance of its balance sheet because the financing will not be reflected as a debt of the company, but simply as an operating lease. In addition, in certain circumstances, a port authority may determine to provide additional security for a transaction by agreeing to guarantee (by a pledge of non-tax revenues of the port authority) all or a portion of the debt of a company in the context of a facility financing.

Exercising Eminent Domain Power. A port authority may exercise the right of eminent domain to appropriate any land, rights, rights-of-way, franchises, easements or other property, necessary or proper for any authorized purpose, with certain restrictions and exceptions regarding property belonging to any agency or political subdivision, utility or common carrier. This allows a port authority to facilitate economic development projects by helping to assemble the land necessary for the project.

Acquiring Property to Facilitate Economic Development and Housing. A port authority may purchase, exchange, sell, lease, lease with an option to purchase, convey other interests in, or contract with a person or governmental entity that pertains to the acquisition, construction maintenance, repair, furnishing, equipping or operation of any real or personal property, related to any activity contemplated by Section 13 (economic development) or 16 (housing assistance) of Article VIII, Ohio Constitution. A port authority acquiring property pursuant to this authority may not use moneys raised by taxation, the proceeds of obligations secured by a pledge of monies raised by taxation, or any general revenues of the port authority. Using this power, a port authority may use non-tax revenues to acquire property from another political subdivision or private entity for the purpose of facilitating economic development or housing and may then transfer interests in such property to others, sometimes at bargain prices.

Receiving State and Federal Grants and Loans. A port authority may receive and accept from state and federal agencies grants and loans. Port authorities can use this power to facilitate economic development projects by administering and coordinating state and federal grants and loans in their jurisdiction.

Exercising Powers on Behalf of Another Subdivision. A port authority may contract with any other political subdivision of the State, usually pursuant to a cooperative agreement, to exercise any duties on behalf of such entity, except the levy of taxes or exercise of eminent domain (unless approved by the voters of such political subdivision) or to have such entity exercise powers on behalf of the port authority. For example, if the political environment in a community made it difficult for a political subdivision to undertake a public project, a port authority could undertake the project directly on behalf of that subdivision.

Issuing General Obligation Bonds. A port authority may issue voted general obligation bonds or notes for the acquisition, construction, furnishing, or equipping of any port authority facility or other permanent improvement that a port authority is authorized to acquire, construct, furnish, or equip. The net indebtedness incurred by a port authority may not exceed two percent of the total assessed value of all property within the territory comprising the port authority. If you are creating a new port authority, this could be very useful, but would require a lot of lobbying and political will in order to enact the necessary property tax.

Levying Voted Property Tax. A port authority may, with voter approval, levy a property tax of up to one-mill for all purposes including bond debt charges, for a period of up to five years, except that when the tax is for the payment of bond debt charges, such tax shall be for the life of the bond indebtedness. Following approval of such a levy, the port authority may issue notes in anticipation of the collection of the proceeds of the tax levy, other than the proceeds to be received for the payment of bond debt charges, in the same manner as a county would issue notes in anticipation of the proceeds of a tax levy. The port authority may also borrow money in anticipation of the collection of current revenues, provided the notes are not issued for a period beyond the port authority’s fiscal year.

Engaging in Extraterritorial Activities. Port authorities are now specifically authorized to engage in activities outside of their boundaries. Port authorities are authorized to enter into contracts or other arrangements with the U.S. government or any departments thereof, with private persons and corporations, with public utilities, and with the State or other states and political subdivisions thereof. Port authorities are also authorized to acquire and lease property in any county in the State and in any adjoining state, for various uses including the development of port facilities in adjoining states. These powers would include the ability to issue revenue bonds for the development of projects outside the port authority’s geographic boundaries, assuming it was for an authorized purpose. Some new port authorities are using these powers to help facilitate the start up of economic development bond fund programs.

Bond Funds

Several port authorities around the State have created so-called bond funds, which are pooled security bond issuance programs modeled after long-standing bond funds created by the Toledo-Lucas County Port Authority and the Cleveland-Cuyahoga County Port Authority. Together, those two ports have closed approximately 100 bond issues supported by a combination of individual company credits, borrowed reserve funds and port funded additional reserve funds. Given the broad powers described above - i.e., the list of “authorized purposes” - port authorities can issue taxable or tax-exempt bonds through these bond funds to finance a variety of economic development projects. However, in order to create and maintain a new bond fund, a port authority will need: (1) a source of capital or security for the additional reserves needed to make the bond fund creditworthy, and (2) professional administrative capabilities.

Exception to Sunshine Law and Public Records Law

Private business information submitted to a port authority is not a public record and is therefore kept confidential. Thus, such information is not subject to the sunshine law or public records law. This helps facilitate a port authority’s ability to foster economic development efforts in working with private businesses.

Federal and State Tax Exemptions

Tax exemption for port authority property and securities is an advantage of creating such an authority over other entities, such as community improvement corporations or not-for-profit corporations. Port authority facilities are not subject to property, income, or sales and franchise taxes; provided that such exemptions do not apply to any port authority property leased to a third party under a written lease with a term longer than one year. The issuance of tax-exempt securities is generally limited by federal tax law to situations where there is a governmental purpose for the securities.

Practical Issues

Port authority revenue bond financed economic development projects still require both a source of repayment for the money borrowed from the bondholders, and usually some additional security measures, like mortgages or additional reserve funds. These transactions are more difficult than they first appear, and at a minimum require professional administration. The big port authorities in the State have expert staffs to help manage each port’s economic development program. Any municipality planning to start a port authority should consider consulting with one of them or with the Ohio Department of Development regarding their experience and staffing.

Reprinted from Finley’s Ohio Municipal Service, with the permission of the publisher and copyright owner, West Group.