If successful, a citizens initiative to increase the transient occupancy tax in the county may provide the Crescent City Harbor District with enough revenue to pay off its $5.3 million USDA loan.

But state and local officials have no definitive answer as to what will become of the port if the initiative fails to make it to the November ballot and the harbor runs out of money. Commissioner Brian Stone said that is a “nightmare scenario” he and his colleagues don’t want to test.

“We can’t file for bankruptcy because it wouldn’t do anything good for us,” Stone said. “In discussions we’ve had with the State Lands Commission, they have no provisions for taking us back over because we own the property in trust for the people of the State of California. If I’m not wrong, I think the county is on the hook with us on these loans and the question then comes to, would the county take us over? This is a no-win scenario for everybody.”

For the last several months, harbor commissioners have been discussing ways to address a $498,000 budget deficit and make the port’s $270,000 payments to the U.S. Department of Agriculture, which provided the loan that rebuilt the inner boat basin following tsunamis in 2006 and 2011. The harbor must also find a way to finance roughly $11 million in repairs.

According to Stone, with only $1.8 million in reserves, the port could run out of savings in about three years. He has estimated that between 500 and 800 jobs and 150 residents could be affected if the harbor’s money ran out.

The California legislature originally granted land the Crescent City Harbor sits on to the city in 1868, according to Sheri Pemberton, public information officer for the State Lands Commission. The grant was repealed and amended in 1949 and again in 1963.

The Crescent City Harbor District is the entity that manages the granted lands, Pemberton said. The State Lands Commission has “indirect oversight” over the grant, she said.

Pemberton said it’s unknown what role her agency would play if the Crescent City Harbor District declared bankruptcy because it hasn’t experienced that scenario with granted lands.

“Our understanding is if bankruptcy was filed then a bankruptcy court would likely appoint an outside party to manage everything,” she said. “Concurrently the commission could recommend that the Legislature revoke the grant, but we would have to also see the situation.”

The State Lands Commission would need more information on the details of the bankruptcy including what the assets were and what was at risk, Pemberton said.

“But the commission can always recommend the legislature revoke the grant because it’s a conditional grant and they are state sovereign lands,” she said.

Bob Black, the harbor district’s legal counsel, said the question of what would happen to the harbor if it ran out of money is difficult to answer. He noted that many of the harbor’s expenses such as payroll, utility payments and insurance wouldn’t be discharged if it filed for bankruptcy.

The port would still have to make its USDA loan payments as well, Black said.

“By filing bankruptcy you can’t really make that debt go away because revenues the harbor receives would end up being diverted to the USDA loan payments even if you tried to file bankruptcy and tried to avoid the loan,” Black said. “The harbor is in a really difficult position relative to all of this in which if they run out of money, they kind of have to do some rather extreme cutbacks in service, employment of Harbor District employees and maintenance.”

The port obtained a loan from the USDA to pay for its share of rebuilding the inner boat basin following the two tsunamis. The tsunami generated by the Nov. 15, 2006, magnitude 8.3 earthquake in the Kuril Islands created more than $20 million in damage at the Crescent City Harbor. The 2011 tsunami generated by the Tohoku Japanese earthquake generated roughly $21.8 million in damage at the harbor.

Black said he thinks the harbor’s current troubles stems from a 2010 bill that passed both houses of the state legislature but was vetoed by Governor Jerry Brown. That bill would have required the state to pick up the local match on the repair of the inner boat basin, Black said.

“That’s what sent the harbor to the USDA to actually borrow the money instead of receiving grant money,” Black said. “And there was precedent for the state to do this, to pick up the local share in case of a disaster. My own belief is that this is the genesis of the problem we face today, but it doesn’t change the fact there is a problem.”

If the harbor ran out of money, there would be a lot of policy choices to be made including closing the harbor, Black said.

“It becomes a question of does it close rapidly or does it close very slowly,” he said. “If there isn’t an infusion of income I think it does close.”

If the citizens initiative doesn’t make it to the November ballot, a movement might arise to dissolve the harbor, Black said.

The harbor district itself could seek dissolution, said George Williamson, executive officer for the Del Norte Local Agency Formation Commission. A successor agency would need to be established to distribute the port’s assets. If the city or county wound up being the successor agency the City Council or Board of Supervisors would take on that task, Williamson said.

“It’s one thing to dissolve as an independent special district, but if you hold assets or have obligations, from a LAFCO perspective, we would certainly want to identify a successor interest or a successor agency,” Williamson said. “There is a LAFCO process for dissolution and then that would result in the district ceasing operations and ceasing to be an independent (district) in very limited circumstances. The LAFCO commission has the authority to do that, but if things get to that point that the district is filing for that action, we would work with them to try to define that successor agency.”

The Save the Harbor 2018 citizens initiative seeks to increase the transient occupancy tax visitors to motels and hotels in the county pay from 8 percent to 10 percent. The initiative also seeks to place a 2 percent transient occupancy tax on recreational vehicles for tenants that stay at parks in the county for less than 30 days.

For it to be ready for the November general election, Save the Harbor 2018 representatives must collect 704 signatures countywide in favor of its tax initiative and bring it before the Del Norte County Board of Supervisors by June 28.

Reach Jessica Cejnar at jcejnar@triplicate.com .