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By Rodger Rees, Galveston Wharves Port Director and CEO
As the Galveston Wharves Board of Trustees and staff work to finalize details of a revenue bond package to fund $120 million in capital improvements, I would like to give readers an update on where we are.
We’re considering issuing $120 million in bonds this summer to help fund two time-sensitive, revenue-generating cruise projects – improvements to Cruise Terminal 25 and construction of a proposed fourth cruise terminal at Pier 16.
These two projects will generate millions of dollars in additional revenue for the port, as well as hundreds of jobs and revenues for the city. The port’s robust cruise business generates more than 60 percent of our annual revenues. We forecast $58.7 million in total revenues in 2023, of which $40.55 million would be generated by our cruise business. The port’s strong financial performance allows us to consider the bond issue.
HOW BOND FUNDS WILL BE SPENT
More than $50 million in bond funding would be used to make improvements to Terminal 25 as we prepare for arrival of the Carnival Jubilee in December. Because the newly built ship is much larger than the Carnival ships now sailing from the terminal, we’re making berth upgrades and adding a new gangway to accommodate the ship, as well as making changes inside the terminal to efficiently move more passengers.
The port will recover 83 percent of this cost through an agreement with Carnival Cruise Line. The new 17-year contract is also expected to generate revenues for the city of Galveston.
We’re finalizing a similar cost recovery agreement as part of a contract with MSC Cruise Line to build a new cruise terminal at Pier 16. The port is budgeting $70 million in bond funds for the proposed fourth terminal, which is included in our 20-Year Strategic Master Plan.
We expect to have a final agreement within weeks so that we have a contract with MSC, a major international company, before we issue the bonds.
WHY ISSUE BONDS NOW
The port is well-positioned to issue bonds to take advantage of these growth opportunities because we have worked hard to reduce expenses and generate revenues to build up cash reserves. As a self-sustaining city entity with no taxing authority, we must be fiscally conservative.
As a result, we’ve accumulated $29.8 million in cash reserves. We can leverage these cash reserves, as well as future revenues, to fund these major capital projects.
WHAT ABOUT CARGO
While this bond package doesn’t include funding for the West Port Cargo Complex, we are planning much-needed improvements and potential funding opportunities for cargo infrastructure, in accordance with our master plan.
We’ve begun engineering work on a total renovation of the west end to make critical improvements to accommodate more cargo business and expand efficient rail access. The total cost is estimated to be $250 million.
That level of investment will require a private partner. The port will issue a request for qualifications to gauge interest by companies who may want to partner with the port to invest in the improvements in exchange for a long-term lease of the cargo facility. That’s one possible scenario.
Cargo operations don’t generate the revenues that cruise operations do, but cargo activities do generate good-paying local jobs and diversify our business. We will continue to be the “Port of Everything” with cruise, cargo and commercial operations.