6d supp 1
ITEM NO: 6d_Supp_1___ DATE OF MEETING: November 8,2016 Tax Levy and Draft Plan of Finance 2017-2021 November 8, 2016 1 Agenda Tax Levy Background and 2016 update 2017 2021 Forecast Draft Plan of Finance Assumptions Funding for 2017-2021 Capital Improvement Plan Appendix 2 TAX LEVY 3 Port Taxing Authority Washington State Ports have authority to levy taxes on property within the Port District (King County) 2016 levy is $72 million 2017 levy can be any amount up to $98.7 million based on statutory limitations Port has a track record of levying below the maximum 4 Uses of the Tax levy Statute allows the levy to be used for any Port purpose Commission direction establishes actual use First claim on the levy is payment of General Obligation (G.O.) bond debt service Revenue bond debt service cannot be paid from the tax levy Commission sets the policy on tax levy use 5 Traditional Uses of the Tax Levy Legacy environmental liability Regional transportation Highline Schools noise mitigation Economic Development initiatives Workforce Development Partnership Program (added in 2016) Capital projects that meet levy funding criteria Fishing industry support Strategic investment in Pier 66 cruise redevelopment The Commission has used the levy for these strategic purposes 6 Criteria for Levy Funding Projects As part of last year's levy discussion, criteria was established for funding projects with the tax levy Operating Cash Tax Levy Asset Renewal & Replacement Positive net income from Economic benefit business unit Strategic Initiatives Short payback/ No or long payback Self funding Location South Harbor North Harbor Levy funding criteria supports Century Agenda 7 2016 Levy Update 2016 2016 Budget SOURCES ($ million) Budget Est./Act Variance 2016 Beginning Fund Balance 57.6 71.3 13.7 Annual Tax Levy 72.0 72.0 - Tsubota Property Sale 8.0 - (8.0) Grants & Other Reimbursements - 1.4 1.4 Rail Corridor Reimbursements (Snohomish County) - 3.5 3.5 Investment Income during current year - 0.4 0.4 Total Sources 137.6 148.7 11.0 USES ($ million) There is also $20 General Obligation Debt Service (Existing) 34.5 34.5 - million in the General Obligation Debt Service (New) 3.6 - 3.6 Transportation & Environmental Remediation Liability 7.0 9.8 (2.8) Infrastructure fund for Transportation & Infrastructure Reserve Fund deposit 21.3 21.3 - Capital Expenditures 16.0 20.0 (4.0) Heavy Haul Corridor Workforce Development 1.5 1.6 (0.1) projects Economic Development Partnership Program - 1.0 (1.0) Total Uses 83.8 88.1 (4.3) Balance rolls forward to Estimated Ending Tax Levy Fund Balance 53.8 60.5 6.7 fund future obligations Totals may not add due to rounding Estimated 2016 levy fund balance $6.7 million higher than budget 8 SR99 Tunnel Funding Update Original funding plan sought to Bond funding all SR99 costs frees minimize debt $65 million in cash to use for other projects instead of bond funding G.O. bonds issued for SR99 enjoy at higher interest cost the Port's lowest interest rates Exempt from all federal income tax $ million Original Modified Plan Plan G.O. bonds for other projects, e.g. Terminal 5 redevelopment or real 2015 bonds 120.0 120.0 estate initiatives would be subject 2016 cash 65.0 0 to alternative minimum tax or be 2016/7 bonds 82.7 147.7 fully taxable Total 267.7 267.7 Proposal to free-up $65 million for future growth initiatives 9 Baseline Projects for Levy Funding 2017-2021 Projects meeting the levy funding criteria Status Projects $ million Included in 2016 Plan Fishing Industry Support 62.2 Included in 2016 Plan Strategic Investment in Cruise 13.1 Added during 2016 Fishing Support T91 C-173 roof overlay 1.5 Recommended for addition Strategic Investment in Cruise P66 Facade 11.4 Recommended for addition Strategic Investment in Real Estate T-91 uplands 50.0 TOTAL 138.2 Detailed project list in Appendix 10 Excluded From the 2017-2021 Forecast Terminal 5 modernization Would require an increase in the tax levy to $77 million per year beginning in 2018 Based on Port funding of an estimated $147 million 2017-2021 Expected to generate additional operating revenues New real estate and environmental initiatives in support of the Century Agenda Inclusion of these items will require additional resources 11 2017-2021 Tax Levy Baseline Forecast SOURCES ($ million) 2017 2017-2021 2017 Beginning Fund Balance 60.5 60.5 Annual Tax Levy 72.0 360.0 Bond Proceeds - reimbursement of SR99 payment 65.0 65.0 Additional G.O. bonds to Grants & Other Reimbursements 6.7 6.7 reimburse the $65 million Total Sources 204.2 492.2 SR99 cash payment; USES ($ million) provides low cost funding for projects beyond the General Obligation Debt Service (Existing) 34.5 164.0 General Obligation Debt Service (New) 10.2 50.8 baseline Environmental Remediation Liability 9.4 47.4 Regional Transportation 2.2 8.0 Highline Schools Noise Mitigation - 3.5 Baseline Capital Expenditures 28.4 138.2 EDD: Workforce Development & Partnership Program 2.6 13.8 Total Uses 87.3 425.6 Estimated Ending Tax Levy Fund Balance 116.9 66.6 Totals may not add due to rounding The baseline levy projects can be funded with a $72 million levy 12 Alternative 2017-2021 Tax Levy Forecast with T-5 SOURCES ($ million) 2017 2017-2021 2017 Beginning Fund Balance 60.5 60.5 Annual Tax Levy 72.0 380.0 Bond Proceeds - reimbursement of SR99 payment 65.0 65.0 Bond Proceeds - capital expenditure - 78.0 Grants & Other Reimbursements 6.7 6.7 Total Sources 204.2 590.2 USES ($ million) General Obligation Debt Service (Existing) 34.5 164.0 General Obligation Debt Service (New) 10.2 68.6 Environmental Remediation Liability 9.4 47.4 Regional Transportation 2.2 8.0 Highline Schools Noise Mitigation - 3.5 Baseline Capital Expenditures 28.4 138.2 Capital Expenditure - Terminal 5 15.6 146.6 EDD: Workforce Development & Partnership Program 2.6 13.8 Total Uses 102.9 590.0 Estimated Ending Tax Levy Fund Balance 101.3 0.2 Totals may not add due to rounding Funding baseline levy projects plus T-5 requires a ~$77 million annual levy beginning in 2018 13 Port's levy forecast is below the maximum allowable levy 14 DRAFT PLAN OF FINANCE 15 Draft Plan of Finance 2017-2021 Key assumptions: Airport is self-funding (exception is Highline School noise mitigation) Maritime, Economic Development and Northwest Seaport Alliance share non-Airport funding resources The Port maintains financial planning targets in support of the Port's credit ratings Revenue bond debt service coverage: 1.25x Airport, 1.50x non-Airport Minimum fund balance based on O&M: 10 months Airport, 6 months non- Airport Borrowing against the tax levy is limited G.O. bond debt service no more than 75% of annual tax levy Staff provides a draft funding plan to inform Commission decisions 16 Capital Improvement Plan (CIP) $ million 2017 2017-2021 Airport (1) 590.5 2,401.1 Non-Airport Maritime 35.0 164.6 Economic Development 16.0 81.6 NWSA Port 50% share 43.9 109.2 NWSA Legacy Port Projects 0.2 1.8 Total Non-Airport 95.1 357.2 Stormwater Utility (2) 2.1 9.7 Corporate (3) 7.7 43.5 TOTAL Port Funded CIP 695.4 2,811.5 (1) Excludes SAMP projects. (2) Funded with stormwater utility funds only. (3) Funded by Airport and non-Airport resources on an allocated basis. Note: totals may not add due to rounding Details were presented in prior budget meetings 17 Funding Resources Operating funds and net income separate for Airport and non-Airport Revenue bonds paid from net income separate for Airport and non- Airport Tax levy primarily non-Airport G.O. bonds paid from tax levy non-Airport Capital grants restricted to specific projects Passenger Facility Charges (PFCs) restricted to FAA approved projects Customer Facility Charges (CFCs) restricted to consolidated rental car facility uses Many funding sources are restricted in use 18 Airport Funding Plan 2017-2021 Aviation Funding Sources ($ million) Net income 282.4 (1) Tax levy 3.5 Grants 187.8 Passenger Facility Charge 258.5 Customer Facility Charge 1.8 Existing revenue bond proceeds 130.0 Future revenue bond proceeds 1,572.7 TOTAL 2,436.8 Aviation CIP 2,401.1 Allocated Corporate CIP 35.6 Total Aviation Funded CIP 2,436.8 (1) Highline Schools noise insulation. Note: totals may not add due to rounding Airport is self-funding 19 Non-Airport Funding Plan 2017-2021 ($ million) Non-Aviation Funding Sources Operating Funds 110.2 Operating Cash Flow 67.0 Grants 10.3 Tax levy 138.2 Funds baseline CIP Future revenue bond proceeds - only; assumes a $72 TOTAL 325.6 million tax levy per year Non-Aviation CIP 357.2 Allocated Corporate CIP 7.9 Total Non-Aviation Funded CIP 365.2 Shortfall can be resolved by Funding Shortfall (39.5) project deferrals or increased Note: totals may not add due to rounding use of tax levy funding Funding is available for most of the Non-Airport CIP 20 Projected Revenue Bond Debt Service Coverage Revenue bond debt service coverage remains in an acceptable range 21 2017 Finance Initiatives Issue G.O. bonds to finish funding SR99 Tunnel contribution recommend full $147.7 million Issue Revenue bonds as needed to fund a portion of the Airport CIP Monitor opportunities to refund bonds for savings Evaluate innovative funding strategies Including Public Private Partnerships (P3) for future projects Finance initiatives support the operating businesses and the Century Agenda 22 APPENDIX 23 Appendix Baseline Levy Funded Project detail 2017-2021 Regional Transportation Projects 2017-2021 Tax Levy authority Industrial Development District (IDD) levy information Bond ratings 24 Tax Levy Funded Projects Total 2017- Division CIP Number CIP Description 2017 2018 2019 2020 2021 2021 Maritime - Fishing Industry Support C800528 FT W Wall N Fender Replacement 10 190 2,750 2,950 C800529 FT W Wall N Sheet Pile Corrosion Protection 10 190 2,575 2,775 C800530 FT S Wall End Improvements 169 970 530 1,669 C800531 FT Dock 3 Fixed Pier Improvement 150 840 2,000 2,990 C800532 FT Dock 4 Fixed Pier Corrosion Protection 150 1,540 1,800 3,490 C800533 FT W Wall S Sheet Pile Corrosion Protection 10 190 1,000 1,200 C800534 FT S Wall Fender Repair and Corrosion Protection 10 190 4,150 4,350 C800526 FT Net Shed 3,4,5 &6 Roof Replacement 3,928 179 4,107 C800525 FT Strategic Plan 1,200 6,600 15,650 1,350 8,700 33,500 C800005 FT Paving/Storm Upgrades 90 800 55 945 C800750 C15 Building Tunnel Improvement 400 300 700 C800137 FT C15 HVAC Improvements 8 8 C800829 T91 Building C-173 Roof Overlay 1,397 54 1,451 C800439 T91 Substation Upgrades 17 - 17 C800675 P91 South End Fender 2,278 - 2,278 C800821 T91 P91W Slope Stabilization 650 600 1,250 Maritime - Strategic Investments - Cruise Facilities C800592 Cruise Terminal Tenant Improvement 12,800 200 13,000 C800819 Cruise Terminal Improvement Staff Oversight 121 121 C800820 P66 Exterior Modernization - 4,470 6,850 30 11,350 Economic Development - Strategic Investments C800158 T91 Uplands Pre-Development 5,000 15,000 30,000 50,000 TOTAL 28,378 31,933 62,230 1,760 13,850 138,151 Three new projects added 25 Regional Transportation Projects Total 2017- CIP Number CIP Description 2017 2018 2019 2020 2021 2021 TAX LEVY FUNDED C001725 Fast Corridor I 50 50 (1) C001786 Fast Corridor II 605 69 2,500 2,500 730 6,404 C800401 North Argo Express Access 200 200 C800606 East Marginal Way Phase 2 350 350 C800759 P66 Alaskan Way St Improvement 960 15 975 TOTAL TAX LEVY FUNDED 2,165 84 2,500 2,500 730 7,979 TRANSPORTATION & INFRASTRUCTURE FUNDED (2) C800823 Seattle Heavy Haul Network 130 3,000 2,000 2,000 2,000 9,130 (1) Includes anticipated $5.0 million contribution to the Lander Street project in 2019-2020. (2) Estimated cash flows, but no specific projects identified yet. Total committed is $20 million over 20 years. Forecast contributions of regional mobility 26 Port's Taxing Authority 45 cent limit The amount of the tax levy in any given year is limited to 45 cents per $1000 of assessed value (2016 rate is 16.95 cents) For 2017, this limit is $209.8 million Excludes the amount needed to pay G.O. bond debt service of $34.5 million 1% limit The maximum levy is increased each year by the 1% limit factor Based on prior year's maximum Increased by the lessor of 1% or inflation plus an addition for new construction The maximum levy for 2016 would have been $96.5 million The more restrictive 1% limit applies 27 2017 Information King County preliminary assessed value for 2017 is $466 billion an increase of 9.3% A $72 million levy equals a 15.44 cent millage rate 28 IDD Levy - Background Port can levy property tax within an Industrial Development District (IDD) In addition to regular property tax A port can form multiple districts Coextensive with port district, or Smaller area within the Port district The Port already has two Industrial Development Districts Port can implement the levy twice - Port of Seattle implemented first round in 1963 Purpose is to provide for harbor improvements or industrial development of marginal lands Broadly defined Includes areas of poor planning or declining tax receipts The IDD levy provides a potential additional funding source 29 IDD Levy - Implementation Port may implement a second round based on a new formula Maximum of $1.26 billion over a period of up to 20 years Average amount = $63 million (13.5 cents for 20 years) Maximum annual amount = $210 million (45 cents for 6 years) Port can establish a smaller IDD or collect a lesser amount Process to implement Publish notice by April 1 to begin collecting the next year If within 90 days a petition of 8% of voters (voting in the most recent gubernatorial election) opposes, the Port must hold a special election to approve the levy Implementation may require voter approval 30 IDD Levy Information: "Marginal lands" are defined to include property subject to the following (RCW 53.25.030) conditions: 1. An economic dislocation, deterioration, or disuse resulting from faulty planning. 2. The subdividing and sale of lots of irregular form and shape and inadequate size for proper usefulness and development. 3. The laying out of lots in disregard of the contours and other physical characteristics of the ground and surrounding conditions. 4. The existence of inadequate streets, open spaces and utilities. 5. The existence of lots or other areas which are subject to being submerged by water. 6. By a prevalence of depreciated values, impaired investments, and social and economic maladjustment to such an extent that the capacity to pay taxes is reduced and tax receipts are inadequate for the cost of public services rendered. 7. In some parts of marginal lands, a growing or total lack of proper utilization of areas, resulting in a stagnant and unproductive condition of land potentially useful and valuable for contributing to the public health, safety and welfare. 8. In other parts of marginal lands, a loss of population and reduction of proper utilization of the area, resulting in its further deterioration and added costs to the taxpayer for the creation of new public facilities and services elsewhere. 9. Property of an assessed valuation of insufficient amount to permit the establishment of a local improvement district for the construction and installation of streets, walks, sewers, water and other utilities. 10. Lands within an industrial area which are not devoted to industrial use but which are necessary to industrial development within the industrial area. 31 Current Bond Ratings Noted Credit Strengths: Diverse asset and revenue base Fitch Moody's S&P General Obligation Bonds AAA Aa1 AAA Airport's market position and First Lien Revenue Bonds AAA Aa2 AA- enplanement levels Intermediate Lien Revenue Bonds A+ A1 A+ Solid coverage and liquidity levels Subordinate Lien Revenue Bonds A A2 A+ Conservative debt structure Passenger Facility Charge Revenue Bonds A A1 A+ Pro-active Port Commission and deep Fuel Hydrant Special Facility Bonds A2 A- and experienced staff Vibrant and resilient area economy A solid capital funding plan is critical to investors and for strong credit ratings 32
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