Originally Posted by pfatyol
The shaft seal is bad, and needs to be replaced. I had it happen to mine a couple of years ago, replaced both bearings and the seal, very easy to do. I have 2GMF. Mine was leaking when the motor was running but it was the exact same spot.
I agree. I'll just add that the hole at the bottom is a weep hole, through which any water leaking from a bad seal will pass.
Another thing: One winter, I forgot to loosen the water pump belt when I winterized our previous 2GM20F. This caused the shaft to sit with uneven tension for the entire winter (4+ months). In the spring, the shaft seal was distorted and it leaked a bit. I was going to replace it, but after using the engine a few hours (probably 10+), the seal seemed to get back in proper shape and it stopped dripping and never dripped again.
So if your boat has sat for quite a while with tension on the water pump belt, try running the engine a bit and see if the seal will reseat itself. If not, it's probably time for a new one.