Item 9a Supp-1 Tax Levy
ITEM NO. 9a Supp-1 DATE OF MEETING September 17, 2009 Preliminary Tax Levy Discussion September 17, 2009 Topics Background historical levy uses Century Agenda New Funding Policy Self Sustaining Seaport Levy Use for Real Estate Preliminary Levy Scenario 2 Tax Levy Background General Purpose tax levy authorized for "any lawful Port purpose" Statutory limitations on annual collection; Port is below maximum By policy generally restricted to Seaport/Real Estate capital investments, environmental expenses, freight mobility projects Federal restrictions on use of airport revenues for non-airport purposes 3 Prior Levy Funding Criteria* Projects with long lead times where revenues significantly lag capital expenditures; or Project financial return won't support revenue bond financing; and Project generates significant regional economic or community benefits * Policy endorsed by Port Commission in 1990s 4 1994-2008 Seaport & Real Estate Invested $1.5 Billion, Approximately was Levy Funded Levy Funding* ($ million) Container terminal expansion and development 447 Harbor wide dock renewal and upgrades 90 Central Waterfront redevelopment 84 Cruise Terminals 35 Environmental costs 49 Fishermen's Terminal improvements 27 Freight Mobility (FAST Corridor) 25 Highline Schools Noise Mitigation 15 Eastside Corridor 11 Other (NorthBay, parks, security, small projects) 20 *Includes cash and General Obligation bond funding; represents partial funding of some projects Approximately $90 million is non-capital spending 5 2009 Levy Uses - Budget 2009 Budget SOURCES Levy uses include debt Projected Tax Levy Collection 75,899 service on G.O. bonds Prior Year Levy Fund Balance 36,800 Total Projected Sources 112,699 primarily used to fund Seaport projects USES Existing G.O. Debt Service - Seaport 38,031 Existing G.O. Debt Service - Real Estate 2,391 Subtotal Existing Debt Service 40,422 Levy cash can be used for Projected new G.O. Debt Service - Seaport 6,764 either Seaport or Real Projected new G.O. Debt Service - Real Estate 10,586 Subtotal New Debt Service 17,350 Estate projects Total Projected G.O. Debt Service 57,772 Committed Capital Expenditures 32,476 BP Prospective Capital Expenditures 4,000 Expense Public Expense: Seaport (Fast Corridor I & II) 6,705 Environmental Expense 4,232 Port Jobs 46 Aviation NOISE Projects 650 Total Projected Expenses 11,633 Total Projected Uses 105,881 Projected Ending Balance 6,818 6 Existing G.O. Bond Debt Service 2009 (in 000's) Containers Stage II Dredge- Phase I $922 T-5 Expansion & Upgrades 18,089 T-46 Expansion Redevelopment 4,458 T-18 Expansion & Upgrade 12,074 Total Containers $35,544 Docks and Commercial Properties T-91 Apron & Infrastructure Improvements 2,219 Pier 17 Dock Replacement 122 T-86 Terminal Upgrades 120 Total Docks and Commercial Properties $2,461 Commercial Properties World Trade Center Garage 640 Fishing Fishermen's Terminal Docks & Seawall Renewal 1,778 Total G.O. Bond Debt Service $40,423 7 Century Agenda: Funding Policy & Strategy Principles The Port should be primarily funded through the self-sustaining enterprises that are at the core of its mission. Revenues from the Port's tax levy should be used for activities that are not fully self-sustaining and cannot be funded in another manner. These activities should directly support the Port's core mission, provide for critical infrastructure investments, or provide environmental mitigation that cannot be funded through its enterprises. The Port should demonstrate to the public that it has managed its financial resources as a disciplined steward of the public interest, guided by priorities set forth in its strategic plan The Port should foster a culture of partnership and collaboration in pursuing public and private funding partnerships for investments that reap shared benefits to all its partners, and that no single entity can achieve independently. Adopted August 4, 2009 8 Assumptions for Preliminary Discussion Preliminary information for discussion only Information is based on Seaport and Real Estate updates in June 2009 All information will be updated as part of the budget process Airport information not included Airport is separately funded and self-sufficient Exception is the Highline School noise mitigation which is levy funded 9 Approach Seaport and Real Estate had been a combined operating division Separated in 2008 for operations and reporting Have continued to be combined for funding purposes This discussion considers the implications of separate funding for Seaport and Real Estate Ability to generate funds from operating revenue Tax levy support Seaport Real Estate Positive cash flow Yes No Self-supported CIP Yes No Tax Levy support needed No (1) Yes (1) Assumes deferral of some capital projects 10 Seaport Cash Flow - Positive Seaport generates positive operating cash flow (NOI before depreciation) Seaport's cash flow is also positive after payment of revenue bond debt service Seaport Generates Positive Operating Cash Flow Seaport Cash Flow Positive after Debt Service 120,000 70,000 100,000 60,000 50,000 80,000 40,000 60,000 30,000 40,000 20,000 20,000 10,000 - - 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Revenue Expenses NOI before depreciation NOI Existing Revenue Debt Service cash flow after debt service 11 Real Estate Cash Flow - Negative Real Estate operating expenses exceed revenues negative operating cash flow (NOI before depreciation) Revenue bond debt service further reduces cash flow Real Estate Revenue Bond debt totals $59 million Real Estate Operating Cash Flow is Negative Real Estate Cash Flow after Debt Service is 45,000 Negative 6,000 35,000 4,000 25,000 2,000 - 15,000 (2,000) (4,000) 5,000 (6,000) (8,000) (5,000) (10,000) 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Revenue Expenses NOI before depreciation NOI Revenue Debt Service cash flow after debt service 12 Solving the Real Estate cash flow deficit There are three options for managing the negative cash flow 1. Continue to use Seaport positive cash flow to pay Real Estate operating deficit and debt service Alternatively 2. Use the tax levy to pay for the Real Estate deficit 3. Retool Real Estate to improve cash flow Real Estate is already working toward improved profitability where possible Assets can be sold or leased and proceeds used to pay down Real Estate debt These options can be combined For analysis, options 1 & 2 are considered separately 13 Option #1: Seaport Support of RE reduces Seaport Capital Funding Capacity Seaport CIP and Capital Funding Capacity Seaport's cash flow without 2010-2014 ($million) supporting RE can support a 400 $206 million CIP 350 Requires deferral of $135 million 300 135 250 of the total $341 million CIP 200 150 130 130 100 61 Seaport's ability to fund its 50 76 76 80 CIP decreases further if it - Total CIP Self-Sufficient Support RE supports RE Seaport will likely need tax levy Operating cash flow Revenue Bonds Unfunded support for some capital projects Or defer an additional $65 million Seaport CIP includes Committed and of capital spending until post Business Plan Prospective projects 2014 5-yr total is $341 million Of which, $135 million needs to be deferred 14 Option #2: Tax Levy Supports Real Estate Policy Question Should the tax levy be used to fund the Real Estate operating deficit (including direct expenses and allocated overhead) Legally levy can be used for this purpose, but Port policy has excluded most operating expenses Alternative is to continue tax levy support of Seaport Allows Seaport to support Real Estate Capital Projects historically the tax levy has funded a variety of capital projects for Seaport and Real Estate Under Option #2, Real Estate projects would be levy funded No Real Estate cash flow for funding projects No Seaport support Under Option #2, Seaport would no longer receive levy funding for capital projects 15 Other Tax Levy Uses For budget planning purposes, staff is assuming that the tax levy will continue to fund the following Existing G.O. bond debt service Public expense projects FAST corridor Eastside corridor Highline School noise mitigation Seaport and Real Estate environmental expenses Seaport and Real Estate portion of PortJobs 16 Preliminary Levy Scenario 9/9/2009 Update 2010 2011 2012 2013 2014 Possible levy scenario LEVY USES G.O. DS 40,426 40,438 40,442 40,444 40,442 based on preliminary information Other uses Sea Pub Exp FAST/mobility 21,644 1,509 Levy is maintained at AV Pub Exp - Highline Noise 9,075 7,650 650 4,880 2009 levy until 2013 Environmental Reserve cash flow 5,466 2,630 1,407 500 264 PortJobs 46 46 46 46 46 No new G.O. debt Subtotal Other 36,231 11,835 2,103 5,426 310 Real Estate Support Assumptions RE Capital 44,307 26,575 21,686 20,200 10,756 Port participation in RE Operating Subsidy 3,119 2,790 2,130 2,951 2,930 waterfront tunnel has not Subtotal RE Support 47,426 29,365 23,816 23,151 13,686 been included in the Total Uses 124,083 81,638 66,361 69,021 54,438 calculations Environmental cash flows LEVY SOURCES are based on current Available Balance 48,000 (184) (5,923) 3,615 (406) reserved amounts Annual levy 75,899 75,899 75,899 65,000 55,000 Total Sources 123,899 75,715 69,976 68,615 54,594 Projected Ending Fund Balance (184) (5,923) 3,615 (406) 156 17
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