7c Supp 2
Item No. 7c_supp_2 Date: October 28, 2014 Tax Levy Discussion October 28, 2014 Topics Tax levy uses Current Pre 2010 and Policy Change 2014 Tax Levy Update 2015-2019 Forecast Consideration of Additional Uses Taxing Authority Recommendations 2 Levy Uses - Framework Legal: Levy may be used for any Port purpose except payment of revenue bond debt service Port has pledged the tax levy to pay debt service on General Obligation (G.O.) bonds Policy: Set by the Commission Tax levy resource has traditionally been used to fund investments that are Consistent with the Port's economic development mission Have limited ability to recover costs through revenue The levy may be used as a funding source on a cash basis or in the form of G.O. bonds Limit G.O. bond debt service to 75% of annual tax levy 3 Levy Uses - Current Environmental remediation for legacy liabilities Seaport and Real Estate properties Remediation not tied to current business operations Examples include the Lower Duwamish clean-up, T-91 tank farm Regional freight mobility Port contributions to regional transportation projects/freight mobility FAST corridor, Argo Yard Road Transportation and Infrastructure Fund (T&I Fund) to set aside contributions to SR99 tunnel and South Park Bridge Port Jobs (Airport portion has been paid by the Airport) Beginning in 2010, the tax levy has been used to support the Real Estate division Pays for most capital projects Pays for the annual net operating income shortfall Payment of G.O. bond debt service 4 Levy Uses - Former Prior to 2010, the Port used the tax levy to support investment in Seaport job generators: Container Shipping: Between 1994 and 2006 G.O. bonds provided significant funding for expansions at Terminals 5 and 18 and improvements at Terminals 30 and 46 Cruise: Tax levy was used to develop the central waterfront including the cruise facilities at P-66 Fishing: Tax levy was used to support improvements at T -91 in support of large fishing vessels Tax levy was also used to invest in facilities that were moved into the Real Estate Division formed in 2008 Fishermen's Terminal 5 Capital Uses 1994-2009 Facilities Tax/G.O. bonds $ mil. Terminal 5 210 Container terminal Terminal 18 156 spending Terminal 46 71 represented 63% Dredging 24 of levy funded Other Container Terminals 46 capital spending Total Container Facilities 507 during this period Seaport capital Central Waterfront 122 accounts for 89% Terminal 91 47 Other docks 43 Fishermen's Terminal 27 69% of capital Eastside Rail Corridor (net (1)) 39 was paid with Other 26 G.O. bonds TOTAL CAPITAL SPENDING 811 (1) Net of payments from partners to date 6 Policy Change in 2010 By 2010 there was no immediate need for levy support of Seaport the Port had record container volumes of over 2 million TEUs Container terminal lease payments were strong Cruise passengers peaked at 932,000 Commission ceased use of tax levy cash for Seaport Capital At the same time the Port anticipated other needs Support for environmental remediation was expected to increase The Eastside rail corridor was purchased The Port agreed to contribute up to $300 million to the SR99 Tunnel Replacement Commission initiated the Transportation Infrastructure Fund to set aside cash for future SR99 payments 7 Changes in Tax Levy Uses Less levy is now used to fund Other uses have grown including: capital projects Regional mobility G.O. bond debt service pays for Environmental remediation projects funded between 1994 Operating expenses (Real and 2009 Estate) 8 2014 Tax Levy, Estimated Actuals vs. Budget Significant Variances $ million Budget Est. Act. Sources Beginning balance higher Beginning balance 51.7 65.9 due to spending delays Annual Levy 73.0 73.0 Interest Earnings - 0.3 Environmental Recoveries 7.0 7.0 Additional $2 million deposit Rail Corridor Reimbursements - - to T&I fund due to better Total Sources 131.7 146.2 than forecast Real Estate Uses net income Existing G.O. Bond Debt Service (1) 68.9 68.9 Environmental Remediation 16.0 16.0 Highline School projects Regional mobility and T&I Fund deposit 9.4 11.5 budgeted for 2013 occurred Port JOBS (non-Airport share) 0.1 0.1 in 2014 Highline Noise Insulation and Aviation HS 2.4 6.5 Real Estate Capital Projects 14.8 10.8 Real Estate Operating Support 7.3 7.3 Real Estate capital Total Uses 118.8 121.1 spending below budget Ending balance 12.9 25.1 (1) Includes early redemption of $15.3 million Numbers may not add due to rounding 9 Tax Levy Cash Flow: 2015-2019 Current Uses 5 Years $ million 2015 2015-2019 LEVY SOURCES Beginning Tax Levy Fund Balance 25.1 25.1 Reimbursements - Environmental 1.4 1.4 Eastside Rail Corridor Reimbursements 6.1 19.6 Annual levy 73.0 365.0 Total Sources: 105.6 411.1 LEVY USES General Obligation (G.O.) Bonds Debt Service (DS) G.O. Bonds DS - existing debt 28.4 142.1 Future G.O. Bonds DS - contribution to SR99 Tunnel 4.5 67.8 Subtotal G.O. Bond debt service 32.9 209.8 Other uses Regional Mobility & T&I Fund deposits 8.1 11.6 Highline Schools NOISE Insulation 2.4 4.5 Environmental Remediation Liabilities 10.4 37.4 Workforce Development/Port Jobs 0.2 1.0 Subtotal Other 21.1 54.5 Real Estate Support RE Capital Total 7.0 47.0 RE Operating Subsidy 6.8 46.7 Subtotal RE Support 13.8 93.7 Total Uses: 67.8 358.0 Projected Ending Tax Levy Fund Balance 37.8 53.1 Numbers may not add due to rounding 10 Considerations for Potential Uses Renewed support for Seaport capital investments Industry competitive pressures may require significant new investments, e.g. T- 5 redevelopment to accommodate large ships Revised container rate structure and T-5 lease termination limit ability to provide 100% capital funding from revenues Seaport capital plan has a funding gap of $110 million in 2017 G.O. bond for $110 million would require debt service that would use an estimated $26 million by the end of 2019 Use of the levy for Seaport will need to be evaluated in the context of the Seaport Alliance Additional deposit to Transportation and Infrastructure fund Add an additional $15 million toward the SR99 contribution Reduces G.O. bond funding need 11 Port's Taxing Authority Washington State port districts have authority to levy a tax on the value of property within the port district (coterminous with King County) The Port is subject to two limitations on the amount of tax it may levy 45 cent limit 1% limit The more restrictive 1% applies to the Port In 2014, the Port assessed a levy of $73 million The maximum levy the Port could have assessed was $93 million based on the 1% limit King County assessed value in 2014 was $339 billion Preliminary 2015 assessed value is $385 billion (a 13% increase) The Port can levy up to the statutory maximum 12 Annual Levy vs. Statutory Max Annual levy is well below statutory maximum Preliminary 2015 maximum levy estimate is $95 million 13 Staff Recommendations Enhance funding for the Seaport capital program Use levy cash or G.O. bonds as appropriate Primary funding source continues to be revenue generated by Seaport businesses use levy as needed Make an additional T&I deposit to increase the cash contribution to SR99 14 ADDITIONAL INFORMATION FOR BACKGROUND ONLY 15 Levy Limits 45 cent limit The amount of the tax levy in any given year is limited to 45 cents per $1000 of assessed value (2014 rate is 21.5 cents) For 2014, this limit is $152.7 million Excludes the amount needed to pay G.O. bond debt service of 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 2014 would have been $93 million The 1% limit applies - more restrictive for the Port 16 Tax Levy Uses G.O. Bonds The levy can be pledged to pay general obligation bonds (G.O. bonds) Port currently has $268 million G.O. bond debt outstanding State statute limits the amount of G.O. bonds Non-voted limit on the amount of G.O. debt that does not require voter approval 0.25% of assessed value $849 million total in 2014 Voted limit on the total amount of G.O. debt even with voter approval 0.75% of assessed value $2.5 billion in 2014 Port policy limit G.O. bond debt so that debt service does not exceed 75% of the annual tax levy 17 Transportation & Infrastructure Fund Commission established in 2010 Purpose is to set aside funds for Port contributions to regional transportation projects SR99 Tunnel ($268 million due in 2015/2016) South Park Bridge (payments in 2014 & 2015) Funds are restricted by policy, not law Transportation & Infrastructure Fund Forecast 2014 2015 $ million Beginning balance 40.8 47.0 Deposit from tax levy fund 8.0 5.0 Interest earnings 0.3 0.1 South Park Bridge payment (2.1) (2.1) Ending balance 47.0 50.0 18
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