Stop everything. Let’s just focus on finances.
When we first heard of this deal, the Markell administration sold it like this. With this deal was are hopeful that a $500 million investment will be put into extending the port into the Delaware River.
That investment back into the port is currently pegged at $150 million. The deal is for 50 years. The exchange of $16 million up front seals the deal. The state gets a lease payment of just under $2 million a year. And the expansion into the Delaware River is not going forward.
A general rule of thumb is that any corporation doubles the amount they tell a state government when they make their investment. In order to get approval they make the verbal statement but are not legally contracted to spend what they promise. Consequently the force of stockholders and their unending demand for profit, deems these investments to become half of their usual stated amount.
So in-port investment will be close to $75 million if this general rule holds true in this case.
Delaware for their port, will receive over the 50 year lease, (50 yrs. X $2 mil) or $100 million, plus the $75 million that Kinder Morgan will actually spend for two cranes and a conveyor. This grand total of $175 million averaged per year, amounts to $3 1/2 million per year.
With no expansion into the river, the rate of cargo must be the same. There are only 4 berths and usually all are full. We will not grow jobs. Instead those working now at union wages, will decrease to non union wages. With 240 union jobs at stake, just with a $10 an hour deduction under Kinder Morgan, the states economy loses (240 X 40hrs/wk X 52wk/yr X $10/hr), or Delaware would suffer almost a $5 million hit to their local economy.
This alone would amount to a negative impact caused by the privatization of the port.
$3.5 million a year that is positive; $5 million a year that is negative. The good news is that within the confines of the state budget, there is a switch from a cost of minus $1.5 million, to a plus of $3.5 million. The bad news is that cost just got dumped on the laborers currently working at the port, who collectively will lose $5 million. They will still be putting in the same hours; just that the local economy will be making do on $5 million less…. That $5 million goes as profit to Kinder Morgan headquarters.
Furthermore, Wilmington’s port volume increased 25% this past year. Up from 4 million tons to 5 million tons. The dollar losses quoted by Alan Levin do not yet account for this increased activity. There is a chance the port actually did make money over 2012 and actually cost the state nothing.
I can understand why Kinder Morgan is interested in the port; it is obvious considering how cheap Markell and Levin are selling it. I would buy the port for that cheap.
The issue begs to be asked. If we are selling the port so cheap, why? Why are there not lines of people begging to pay more for an investment that becomes $1.5 million profitable with no change other than firing all the unions and rehiring non union labor?
Why do we only have one suitor, who was handpicked by a consulting firm, and don’t have open bidding?
I would venture, perhaps because “open bidding” is done in the “open”?
I can name two other deals done in the dark that did not end well for our state. Fisker and Bloom…. Both negotiated by Markell and Levin. I supported both myself because both made good sense on paper. Reality is different. Our in-expertise got us shunted to the bottom of the creditor pile causing us to not get money back from Fisker even though we specified that it was to be clearly promised to us in the deal. The tricky investment firm instead, is getting that money. Likewise Delawareans have already begun paying for the Bloom boxes that will save them money. Construction is behind and has not been started.
I have watched the Phillies long enough to know that two strikes can occur and on the third one, the ball can still get batted out of the park. But I also know, not to bet on it happening…. I’ll enjoy it when I see it, but I won’t mortgage my house on it…
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February 6, 2013 at 10:07 pm
John Young
Reblogged this on Transparent Christina.
February 7, 2013 at 12:01 pm
Thursday Open Thread [2.7.13] : Delaware Liberal
[…] Kavips asks an important question: is the Wilmington port deal the next Fisker? […]
February 7, 2013 at 9:21 pm
Cindy
Kavips,
Factual information and the truth about this bad deal always gets sugar coated in our local media. Aaron Nathans, journalist at the News Journal who covers this Port deal never discusses these facts. I would suggest they allow you to write a column. It appears that Alan Levin and the Governor will not admitt defeat because they know that only 10-15% of Democrats are educated enough to read through their fluff. The other 80% are moderate centrists. It gets more disburbing the more you break it down for people who just have good common sense. Kinder Morgan is not the right fit for the Port of Wilmington-move on and keep steppin.
February 8, 2013 at 12:20 pm
Nancy Willing
I brought probably too much of this post over to DE Way today – couldn’t resist getting your facts and figures duplicated there for the record. Thanks so much! I also brought on some of the Ellen Barrosse DE Voice piece about the way DE is valuing its pensions – very ambitiously and very wrong perhaps.
Is Markell’s real goal in shifting the port to corporate model f foisting off of the state’s labor union pension liability?
February 9, 2013 at 2:09 pm
kavips
Cindy, Aaron Nathans and I are in the same boat; he has one set of sources, I have others. Together we are both just trying to get a balanced picture out there so the right decision gets made….
They know the information is here, and use these sources. Likewise, I use there’s… But feel free to tell every interested person to check them out over here and over there…..
In a way, this port deal has made me more appreciative of marriage in general. As in it, what originally looked good at the outset, as one gets to know ones potential partner, the little things point out to …. ummm I don’t think so….
When a marriage works, it is truly a one of a kind meant to be type of deal… 🙂
February 9, 2013 at 2:26 pm
kavips
Nancy… feel free to copy any amount from me and post it… That is why it is here. As for my knowledge on pensions, a lot of companies have explored higher risk investments and have gotten burned. Prior to 2009 pension underfunding in both private and public areas was a looming serious problem. It then got eclipsed with the capital collapse of 2008… so the fact that pensions were broke mattered little because everyone was broke by then.
This state’s 10% seems safe to me if they keep it at that. A 50% gain or sudden loss on 10% of total assets would amount to a fluctuation of only 5% of the total fund… That is something most of us live with on a day to day basis, yet here would only happen in the most extreme of circumstances. In our case, once in a lifetime market collapse, and yet now, four years latter, assets are up at their original records…
I don’t think the real goal of the port deal is the pension part of the port. I believe it is the port itself… That is unless, they have borrowed from that pension fund in the past, and this is a way to get out from under that obligation… A quick check by someone inside can find out….
It feels to me that the port deal stems more from the business sense of having a liability on the books, that getting rid of it to someone else who wants it, makes the books balance better… In the business world it would be a no-brainer… It is just that with this deal that pesky labor problem (in their eyes), that going from public to private, collapses and sucks out $5 million of the local economy in labor payouts alone….
February 10, 2013 at 4:08 pm
delawareway
Thanks for the analysis. We will be touting the mysterious Mr. Kavips on the television tonight talking about the finances you’ve laid out.
February 10, 2013 at 4:11 pm
kavips
Check back before the show. I’m doing a piece tearing down Sweeney over the next couple of hours… His lack of knowledge ticked me off.
February 10, 2013 at 7:24 pm
Mr. Sweeney Loses His Pants « kavips
[…] For you see, their revenue comes from the level of prosperity bestowed upon its inhabitants. As discussed below, the Kinder Morgan deal will siphon $5 million out of the economy of our city and send it […]