Broward County Commission Regular Meeting
Director's Name: Jonathan Daniels
Department: Port Everglades Division: Business Administration
Information
Requested Action
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MOTION TO APPROVE Second Amendment to Port Everglades Passenger Cruise Terminal and Berth User Agreement between Broward County and Carnival Corporation to remove passenger cruise ship Berth No. 4 and its associated passenger cruise terminal facility from the list of designated preferential berths; provide for a fourth non-designated preferential passenger cruise ship berth and its adjoining passenger cruise terminal facility upon 24-months' notice; revise the Annual Port User Charges Guaranteed Payment provisions; revise the Work Letter for passenger Cruise Terminal 21 improvements; revise cruise passenger movements volume incentive payments; recognize and implement an uncontrollable force event; and make other changes; and authorize the Mayor and Clerk to execute same.
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Why Action is Necessary
Broward County Board of County Commissioners' approval is required to approve the Second Amendment to Port Everglades Passenger Cruise Terminal and Berth User Agreement between Broward County and Carnival Corporation.
What Action Accomplishes
Approves the Second Amendment to Port Everglades Passenger Cruise Terminal and Berth User Agreement between Broward County and Carnival Corporation.
Is this Action Goal Related
Yes
Previous Action Taken
None.
Summary Explanation/Background
THE PORT EVERGLADES DEPARTMENT RECOMMENDS APPROVAL.
This action supports the Broward County Board of County Commissioners' ("Board") Value of "Ensuring economic opportunities for Broward's diverse population and businesses" and the Goal to "Increase the economic strength and impact of revenue-generating County enterprises balancing economic, environmental, and community needs."
On April 6, 2010 (Item No. 33), the Board approved the Port Everglades Passenger Cruise Terminal and Berth User Agreement ("Agreement") between Broward County and Carnival Corporation ("Carnival"). On August 16, 2016 (Item No. 15), the Board approved the First Amendment to the Agreement to extend the Agreement's term, modify the minimum annual guaranteed billable passenger movements over the remaining term, and modify preferential berth assignments and other business terms.
On March 14, 2020, the U.S. Centers For Disease Control And Prevention ("CDC") issued a No Sail Order in response to the COVID-19 pandemic. As a result, the world's major cruise lines, including Carnival, subsequently suspended operations. On April 15, 2020, Carnival sent a notice to the Port Everglades Department ("Port") advising that the COVID-19 pandemic constituted an Uncontrollable Forces event under the terms of the Agreement. The Port acknowledged receipt of that notice on April 17, 2020. On December 1, 2020, the Port sent a notice to Carnival of an Annual Port User Charges ("PUC") Guaranteed Payment shortfall for the previous contract year (Contract Year ("CY") 10; from October 1, 2019, to September 30, 2020). On December 3, 2020, Carnival responded that any Annual PUC Guaranteed Payment shortfall was due solely to the Uncontrollable Forces event, and the Port subsequently committed to reviewing the issue.
Representatives from Carnival, the Port, and the Office of the County Attorney held sunshined negotiations for the Second Amendment to Agreement on December 10, 2020, December 18, 2020, and January 5, 2021, to discuss COVID-19's effect on Carnival's operations. The primary business terms of the proposed Second Amendment to Agreement are as follows:
• The Parties acknowledge the COVID-19 pandemic and the CDC's No Sail Order issued on March 14, 2020, as modified and extended on April 15, July 16, and September 30, 2020, constituted an Uncontrollable Forces event under the terms of the Agreement, preventing Carnival from running its passenger cruise ship operations from Port Everglades. The Uncontrollable Forces event prevented Carnival from meeting its Annual PUC Guaranteed Payment to the County for CY10. Carnival has paid $23,564,489 of the Annual PUC Guaranteed Payment for CY10, which was $27,320,934. Carnival is excused and released from all further Annual PUC Guaranteed Payment obligations to the County for CY10, amounting to $3,756,445.
• Due to the continued uncertainty over when revenue cruises will resume, the Annual PUC Guaranteed Payment obligations for CY11 and CY12 (October 1, 2020 through September 30, 2022), based on billable passenger movements for CY11 (1,545,713) and CY12 (1,576,627), are reduced to zero. However, Carnival may elect to guarantee the County an Annual PUC Guaranteed Payment for CY12 and CY13 based on a minimum of 1,000,000 annual guaranteed billable passenger movements. If such an election is made, Carnival will be eligible to receive a volume incentive payment for each such CY. A Carnival election made for CY12 will also be binding on Carnival for CY13.
• For CY13 (October 1, 2022 through September 30, 2023), the minimum annual guaranteed billable passenger movements are reduced to 700,000. Starting with CY14 (October 1, 2023) through the end of the Agreement, which expires on September 30, 2030, the minimum annual guaranteed billable passenger movements is reduced to 1,000,000 for each CY. This replaces the current minimum annual guaranteed billable passenger movements over that same period, which increased annually from 1,608,160 in CY13 to 1,800,000 in CY19 (October 1, 2028). Carnival will be eligible to receive a volume incentive payment for each CY when actual passenger movements are greater than the minimum guaranteed.
• To account for the minimum annual guaranteed billable passenger movements reduction, the Second Amendment provides for the complete release of preferential berthing rights to passenger cruise ship Berth No. 4 and its adjoining passenger cruise terminal facility, and a 5th non-designated preferential berth and adjoining passenger cruise terminal facility. If this Second Amendment is approved, Carnival will have three designated preferential berths (2, 21, and 26) and one non-designated preferential berth. Carnival must provide schedules for the three designated preferential berths not less than 12 months in advance as provided for in the Agreement, as amended, and schedules for the one non-designated preferential berth not less than 24 months in advance. The Port will assign the fourth passenger cruise ship berth from among Berths No. 18, 19, 25, and 29, which shall be chosen by the Port at its sole discretion based on the dates requested and the vessel’s names and classes. Any dates not requested by Carnival may be assigned to other port users. The release of passenger cruise ship Berth No. 4 and its associated passenger cruise terminal facility and the 5th berth and adjoining terminal allows the Port to market these assets to pursue further customer diversification within the Port's cruise business sector.
• The entire amount of surplus funds held in the Reconciliation Account ($3,500,000) is transferred to the County, and the Reconciliation Account's new balance is $0. Under the Agreement, surplus funds accumulated are carried forward as a credit against any shortfall amounts in future CYs. The Reconciliation Account accrues surplus funds when the total annual PUC payment exceeds the Annual PUC Guaranteed Payment for a CY. Surplus funds, if any, will recommence to accrue in the Reconciliation Account on the earlier of: (a) the start date of CY13, or (b) the start date of CY12 if Carnival has elected to guarantee 1,000,000 billable passenger moves at the applicable PUC charge.
• The Parties revised the Work Letter for Cruise Terminal 21 ("CT-21") improvements in the current Agreement. In addition to the original project for improvements necessary to make CT-21 capable of safely and efficiently accommodating homeport operations of Carnival's new LNG-fueled Excel-class vessel, the revised Work Letter also provides a framework for the design and construction of an interim project to improve efficiencies for Carnival's Royal Class vessels at CT-21, and for the negotiation of the funding for both projects, including the implementation of a capital cost recovery charge. The Port's Chief Executive and Port Director is delegated authority to negotiate and approve an amendment to the Interim Project, as defined in the Work Letter.
• Cruise passenger movements volume incentive payments were revised to align with the reduced minimum annual guaranteed billable passenger movements and incentivize passenger throughput above the minimum annual guaranteed. The incentives now increase at a higher percentage with Carnival's increased passenger throughput beyond the minimum annual guaranteed billable passenger movements.
• The Passenger User Charge is updated to account for its increase from CY10 ($18.03) to CY11 ($18.66).
• A provision was added which states that Carnival must not use more than one cruise passenger terminal facility for a single cruise ship call without the prior written approval of the Port Department. If such use is approved, Carnival must pay the County for all additional terminal expenses the County incurs as a result of such use, including, but not limited to, security costs, overtime labor costs, and other applicable charges, unless the parties otherwise agree on a fixed fee or adjusted PUC to cover such costs through an amendment to the Agreement, with the County acting through its Chief Executive & Port Director. This provision grants Carnival the flexibility to address any future CDC orders that may result in Carnival needing to use more than one terminal for a single ship, and allows the County to recover its costs if an agreement is not otherwise reached for such use.
• A provision was added which states that Carnival must not allow one of its cruise ships to remain at a berth for more than 16 hours without the prior written approval of the Port Department. If such use is approved, Carnival must pay the County for all additional terminal expenses the County incurs as a result of such use, including, but not limited to, security costs, overtime labor costs, and other applicable charges, unless the parties otherwise agree on a fixed fee or adjusted PUC charge to cover such costs through an amendment to the Agreement, with the County acting through its Chief Executive & Port Director. This new provision will apply until Carnival guarantees to the County an Annual PUC Guaranteed Payment for each CY based on 1,000,000 billable passenger moves at the applicable PUC charge. This provision grants Carnival the flexibility to address any future CDC orders that may result in a Carnival ship needing to remain at a berth for more than 16 hours, and allows the County to recover its costs if an agreement is not otherwise reached for such use.
The Port engaged Martin Associates to conduct an Economic Impact Study (the "Study") based on the Second Amendment's proposed business terms (see Exhibit 3). The Study provides context to the regional economic impact of Carnival's projected activities at Port Everglades through the remaining term of the Agreement. Martin Associates concludes that Carnival's vessels continuing to be homeported or make port calls at Port Everglades will generate an estimated annual economic impact of 3,216 local jobs, related personal income of $145.3 million, and $16.2 million in state and local taxes.
The Second Amendment has been reviewed and approved as to form by the Office of the County Attorney.
Source of Additional Information
Jonathan T. Daniels, Chief Executive & Port Director, Port Everglades Department, (954) 468-3516
Glenn A. Wiltshire, Deputy Port Director, Port Everglades Department, (954) 468-3504
Fiscal Impact
Fiscal Impact/Cost Summary
Over the Agreement's remaining term, Carnival guarantees 7.7 million billable passenger movements, resulting in an estimated $174,936,000 of PUC guaranteed payments to the County. PUC guaranteed payments could increase to an estimated $200,246,000 based on nine million billable passenger movements if Carnival elects to guarantee the County an Annual PUC Guaranteed Payment based on 1,000,000 minimum annual guaranteed billable passenger movements for CY12 and CY13. This is a reduction from 16.9 million billable passenger movements and $371.1 million in PUC guaranteed payments in the current Agreement. The County will also receive additional revenue for any passenger movements above the minimum annual guaranteed billable passenger movements.