- A majority of the waterways in Newport Harbor are considered tidelands, owned by the State of California (State). The Beacon Bay Bill of 1978 granted the City of Newport Beach (City) trusteeship of most of the tidelands within Newport Harbor. (The County of Orange also has some.) The City, now serving as “landlord” on behalf of the State, is mandated under law to charge rents at fair market value for use of tidelands’ public assets. These uses include moorings, commercial marinas, yacht clubs, fuel docks and more. This is rent charged for the private use of public assets – and the rent must be based on fair market value. The charges are not taxes or fees. There is risk that the State of California will intervene and take control of the rent-setting process if the City does not properly and promptly discharge its responsibilities under the Tidelands Trust.
- It was clear at the time that most harbor rates charged by the City were substantially below fair market levels. Rates set below market value can actually be viewed as a gift of public funds (California Constitution, Article 16, Section 6, prohibits making any gift of public money to any individual, corporation, or other government agency), if State assets held in trust are not set at fair market value. Therefore, the City is mandated by law to ensure rates are adjusted to fair market levels.
- Many of the commercial pier operators had been operating under one-year permits that could have been revoked at any time or transferred each year. Permit holders did not have a property right by virtue of their permits. In fact, by implementing long-term leases, the City granted a true property right.
- The Newport Beach Municipal Code and the Beacon Bay Bill of 1978 suggest that tidelands assets should be subject to lease agreements. A long-term lease gives marina operators assurance that they can operate their businesses for the long run under agreed upon terms for the duration of the lease, and improve the ability to obtain loan financing on their improvements because of that assurance.
Does the City get a percentage of the revenue of all marine-related businesses such as restaurants beside the water, sports fishers and fuel docks?The model of charging rent on a “percentage-of-gross slip revenue” basis is for commercial marina harbor renters. The City tailors the amount of rent for other classes of tidelands renters based on the specific circumstances of each class of users and the appraisal information for each class of harbor user. In all cases, the City seeks only to be paid a fair market rate on the footprint of water used by the harbor renter. In general, it does not seek to obtain a percentage of revenue that is unrelated to slip rentals.
Slip prices in Newport Harbor are set by the competitive market and harbor renters do not have monopolistic pricing power. The City recognized at the time that increasing rent charges to the harbor renters would have a financial impact on commercial pier operators. Therefore, the City phased in the increases over a period of several years to soften the impact.
- State law requires that all revenue produced from the tidelands must be spent on the tidelands. In this regard, the City acts as a fiduciary on behalf of the State Lands Commission in managing the harbor in accordance with the law. Increased harbor rents help fund the things like dredging, public amenities for the harbor, and more, but do not amount to anywhere near the total cost of the needed projects. It has never been the City’s intent to raise rents sufficient to fund the entire cost of maintaining the tidelands and harbor. The increased rents are mandated by law and the lawful requirement to charge fair market value is the sole driver of the increased rents.
No. The City Council reviewed all classes of harbor users, as well as other users of tidelands property, and adjusted charges as appropriate.
How was the community involved and allowed to give input in regards to the increases of commercial harbor rent?
There was a significant amount of public review of the City’s work. We’ve had multiple public meetings with mooring permit holders, Balboa Yacht Basin users, commercial pier holders and several study sessions with the entire City Council (open to anyone who wanted to attend). The two appraisers that handled commercial uses met twice with commercial permittees in workshops and met on a one-on-one basis with individual marina operators. Public and committee input from these meetings and workshops resulted in changes to the City’s initial proposals – changes that reflected good ideas or concepts as suggested by public participants.