6a 2018 budget first reading slides
ITEM NO: 6a_supp_1 DATE OF MEETING: November 14,2017 Port of Seattle 2018 Budget First Reading & Public Hearing Commission Meeting November 14, 2017 1 Outline 2018 Budget Process Recap 2018 Budget Overview 2018 Operating Budget 2018 Comprehensive Operating & Non-Operating Budget 2018-2022 Capital Plan 2018 Staffing Summary 5 Year Financial Forecast 2018 Sources and Uses of Funds 2018 Proposed Tax Levy Remaining 2018 Budget Schedule 2 2018 Budget Process Jun. 13 Commission 2018 Budget Work Session Jul. 25 2018 Budget Development Commission Jul. 25 Long Range Plan (LRP) Commission Draft Review/Briefing Aug. 22 Memo to Commission regarding key budget assumptions for 2018 Sept. 12 Second LRP Commission Draft Review Sept. 26 2018 Central Services Operating and Capital Budgets Briefing and LRP Commission Draft Review Oct. 10 2018 Division Operating and Capital Budgets Briefing Oct. 24 Tax Levy & Draft Plan of Finance Commission Briefing and Oct. 24 Preliminary Budget document to the Commission Oct. 26 Preliminary Budget document released to the public Nov. 14 First Reading & Public Hearing of the Preliminary Budget and LRP Approval Request Nov. 28 Second Reading & Final Passage of the Preliminary Budget Dec. 1 File Statutory Budget with King County Dec. 15 Release the Final Budget and Draft Plan of Finance Commission engaged in the budget process 3 2018 Budget Highlights Operating revenues are budgeted at $670.0M, $49.8M or 8.0% higher than 2017 budget Operating expenses are budgeted at $422.2M, $37.6M or 9.8% increase from 2017 budget Net Operating Income is budgeted at $247.8M, $12.2M or 5.2% above 2017 budget The 2018 capital budget is $878.2M and the 5-year capital spending plan is approximately $3.1 billion The proposed tax levy for 2018 is $72.0M The 2018 budget reflects the Port's growth and continued investments for the region 4 2018 Business Activity Forecasts Aviation Division: Forecast 5.0% growth in enplaned passenger for 2018 (from the 2017 year-end forecast, which is expected to be 3.0% higher than 2016) Enplaned passengers up 48.5% since 2012 (6.8% annual compounded rate) Major capital projects underway at Sea-Tac will improve the customer experience, reduce congestion, and add capacity to accommodate future growth Maritime Division: 3.1% growth in cruise passengers to over 1 million in 2018 11.6% growth in grain volumes in 2018 Fishing and Commercial Operations occupancy rate average of 86%, above 2017 budget of 84% Economic Development Division: Commercial Properties target 95% occupancy rate at the end of 2018 Conference & Event Center revenue up 19% from 2017 budget 2018 budget supports growth in Port businesses 5 2018 Key Initiatives/Budget Drivers Support for Business Growth and Customer Service Continue to improve Catch up with strong Sea- Grow international and Support the airport customer service Tac growth domestic passenger capital improvement Continue to improve Strengthen the Port's service program safety & security own Centers of Expertise Increase Air Cargo Address growing airport office space needs Growth is a key budget driver 6 2018 Key Initiatives/Budget Drivers Implement Commission Priorities & Initiatives Energy and Sustainability Workforce development Expand tourism Restore and enhance Equity Program opportunities for small & opportunities waterside habitat Priority Hire disadvantaged businesses Advance real estate WMBE Continue internship program development Expand public outreach Budget resources support Commission priorities 7 Budget Additions for Commission Priorities Energy & Sustainability Committee & Green House Gas Reduction: 3 new FTEs focused on sustainability efforts $921K in consulting services Equity Program: 1 new FTE for the Equity Program in Human Resources Priority Hire: 1 new FTE for Priority Hire in Capital Development Women and Minority Business Enterprise (WMBE): 1 new FTE for WMBE in Economic Development Division 1 new FTE for WMBE in Central Procurement Office Adding new FTEs and resources to advance Commission priorities 8 Changes Since Preliminary Budget Briefings Aviation Division Aeronautical revenues (cost recovery) increased by $2,185K due to revised janitorial costs and debt service, partially offset by higher revenue sharing Non-aeronautical revenues increased by $1,275K mainly due to $1M TNC rate & volume increases and additional $255K from building permits Operating expenses up by $2,425K due to: o $236K in new labor contract for bus drivers and revenue specialists o $66K reduction in Airport Building Dept. due to more payroll charges to capital o $1,951K increase in janitorial contract (not in the 2018 Preliminary Budget Book) o $300K for ACDBE consultant and study for ADR (not in the 2018 Preliminary Budget Book) o $4K increase in B&O taxes due to higher badge revenue (not in the 2018 Preliminary Budget Book) Additional budget increase due to the new ILA with City of SeaTac (not in the Budget Book): o $569K increase in operating expense for stormwater fees (to $1.2M of which $700K was included in baseline) o $68K increase in operating expense for annual building permit fees o $1.4M non-op expense for annual Public Safety payment (using tax levy fund) Additional refinements made to the budget 9 Changes Since Preliminary Budget Briefings Economic Development Division Added $130K for a WMBE manager position and related expenses Central Services Added $104K for a WMBE Compliance Analyst position and related expenses. Added $90K for a Priority Hire Coordinator position. NWSA Distributable Revenue Added $991K to the Distributable Revenue due to higher Net Income for the NWSA (not in the 2018 Preliminary Budget Book) Maritime/EDD CIP spending has been reduced by $106 million from 2018-2022 to align with projected funding capacity Additional refinements made to the budget 10 2018 Operating Budget for Aviation 2016 2017 2017 2018 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues Aeronautical - Net 244,235 274,799 266,637 301,082 26,282 9.6% 34,445 12.9% Non-Aeronautical 221,021 226,645 232,456 244,786 18,141 8.0% 12,330 5.3% TOTAL 465,256 501,444 499,093 545,867 44,423 8.9% 46,774 9.4% Operating Expenses 261,226 302,711 300,631 334,612 31,901 10.5% 33,981 11.3% Net Operating Income 204,030 198,733 198,462 211,255 12,522 6.3% 12,793 6.4% Growth driving expenses and revenues 11 2018 Operating Budget for Non-Aviation 2016 2017 2017 2018 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues Maritime 50,810 51,830 52,614 54,622 2,792 5.4% 2,008 3.8% EDD 15,902 16,030 16,547 18,522 2,492 15.5% 1,975 11.9% NWSA Distributable Revenue 61,584 46,708 51,288 46,647 -61 -0.1% -4,642 -9.0% Stormwater Utility - Maritime 3,677 3,845 3,845 4,208 363 9.4% 363 9.4% Central Services & Others 1,236 388 388 182 -206 -53.2% -206 -53.2% Total 133,210 118,801 124,682 124,181 5,380 4.5% -501 -0.4% Operating Expenses Maritime 40,268 46,502 45,850 49,284 2,781 6.0% 3,434 7.5% EDD 20,983 29,069 26,792 28,651 -418 -1.4% 1,859 6.9% Joint Venture/POS 1,590 1,128 1,128 4,442 3,314 293.8% 3,314 293.8% Stormwater Utility - Maritime 629 2,882 2,882 4,476 1,594 55.3% 1,594 55.3% Central Services 428 2,367 667 782 -1,585 -67.0% 115 17.2% Total 63,898 81,949 77,319 87,634 5,686 6.9% 10,315 13.3% Net Operating Income 69,312 36,852 47,363 36,546 -306 -0.8% -10,816 -22.8% Flat NOI versus 2017 Budget 12 2018 Operating Budget - Port wide 2016 2017 2017 2018 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues 598,466 620,245 623,774 670,048 49,803 8.0% 46,274 7.4% Operating Expenses 325,124 384,660 376,118 422,246 37,587 9.8% 46,129 12.3% Net Operating Income 273,342 235,585 247,656 247,802 12,217 5.2% 146 0.1% A record $670M of operating revenues for 2018 13 2018 Comprehensive Budget 2016 2017 2017 2018 Budget Change ($ in '000s) Actual Budget Forecast Budget $ % Explanations Revenues 1. Aeronautical Revenue - Net 244,235 274,799 266,637 301,082 26,282 9.6% Cost recovery under SLOA. 2. Portwide Non-Aeronautical Revenue 354,231 345,446 357,138 368,967 23,521 6.8% Mainly due to higher revenues from the Airport, Maritime & EDD. 3. Tax Levy 71,678 72,000 72,000 72,000 - 0.0% Assume no change from 2017. 4. PFCs 85,570 89,087 92,087 91,787 2,700 3.0% Higher enplanement forecast for 2018. 5. CFCs 24,715 26,300 26,300 22,161 (4,139) -15.7% Paid off CFC-funded commercial paper in 2017. 6. Fuel Hydrant 6,992 7,024 7,024 7,023 () 0.0% 7. Non-Capital Grants and Donations 6,284 8,595 5,595 5,504 (3,091) -36.0% Lower state grant for T117 in 2018. 8. Capital Contributions 18,108 15,000 10,000 41,379 26,379 175.9% Increase grants reimbursement from FAA and TSA. 9. Interest Income 8,448 10,822 15,822 15,713 4,891 45.2% Slight increase in rates and higher cash balances. Total Revenues 820,261 849,073 852,603 925,616 76,542 9.0% Expenses 1. O&M Expense 325,124 384,660 376,118 422,246 37,587 9.8% New budget initiatives and average pay increase. 2. Depreciation 164,336 166,300 164,300 163,309 (2,991) -1.8% 2017 YTD actual lower than the budget. 3. Revenue Bond Interest Expense 105,567 122,026 107,026 122,544 518 0.4% Assume $700M new bond issuance in 2018. 4. GO Bond Interest Expense 9,765 17,714 14,714 13,501 (4,213) -23.8% Savings from bond refinancing. 5. PFC Bond Interest Expense 5,251 4,985 4,985 4,437 (548) -11.0% Decreased debt service on PFC bonds through amortization. 6. Non-Op Environmental Expense 280 5,441 4,441 2,250 (3,191) -58.7% Revise costs estimates for ERL balance and superfund sites. 7. Public Expense 8,560 2,488 1,488 10,794 8,306 333.8% $6M for Swift & Safe and $2M for Heavy Haul in 2018. 8. Other Non-Op Rev/Expense 7,485 (257) (257) 473 730 -283.8% Total Expenses 626,368 703,357 672,815 739,554 36,197 5.1% Revenues over Expenses 193,893 145,716 179,788 186,061 40,346 27.7% 9. Special Item 147,700 - - - - n/a Second & third payments for Viaduct contribution in 2016. Change In Net Assets 46,193 145,716 179,788 186,061 40,346 27.7% A strong financial position for the Port in 2018 14 CIP Prioritization Staff has prioritized the Maritime/EDD 5-year CIP to align spending with projected funding capacity; recommendations include: Fund North Harbor channel deepening Provide funding for: Projects under construction or required Projects under $1 million Contingency and small capital Follow asset stewardship program to avoid premature funding of non- critical renewal projects Retain a targeted $50 million of unallocated funding capacity reserved for future considerations Additional prioritized projects included on following slide Airport CIP is fully funded with Airport resources Prioritization efforts focused on Maritime and EDD projects 15 Additional Maritime/EDD Funded Projects 2018-2022 Division Project $'000 Score Rank Notes MT C800525 FT Strategic Plan 33,995 10 1 Fishing industry support and produces new cash flow MT C800995 Restoration 18,848 10 1 Environmental remediation and produces new cash flow MT C800675 P91 South End Fender 3,425 10 1 Fishing asset and income preservation MT C800129 New Cruise Gangway at T91 4,490 10 1 Increases cruise traffic and cruise revenues MT C800531 FT Dock 3,4,5 Fixed Pier Improvement 6,239 9 4 Supports the fishing industry and preserves revenue generating assets MT C800356 SBM Restrms/Service Bldgs Rep, paving 8,390 9 4 Critical asset renewal and supports new revenues EDD C801006 P66 HVAC Systems Upgrade 3,000 8 6 Supports cruise industry key asset renewal EDD C801016 CW Elevator Modernizations 2,750 8 6 Public amenity asset renewal EDD C800199 WTC HVAC Replacement 1,600 8 6 Asset renewal and revenue preservation EDD C800889 BHICC Interior Modernization 6,681 8 6 Asset renewal and revenue preservation and growth EDD C800158 T91 Uplands Development 30,000 7 10 Supports maritime industry and produces cash flow TOTAL 119,418 Projects include new initiatives and asset stewardship 16 Prioritized Projects Project Prioritization - Staff Recommendation Highlighted Projects have updates FOR DISCUSSION Blue color indicates staff recommendation for funding Pink color indicates projects to compete again for funding in 2018 2018- 2018- Update 2022 Cost Update 2022 Cost Project Notes ($ mil.) Notes ($ mil.) Staff Recommended for Inclusion in Funded CIP Staff Recommended for Future Review in 2018 MT C800525 FT Strategic Plan 33,995 C MT C800993 Property ACQ #3 32,000 MT C800995 Restoration 18,848 D EDD C800887 P69 Ext & Lobby Improvements #4 2,500 MT C800675 P91 South End Fender 3,425 MT C800539 BHM Pile Wraps 3,350 A MT C800129 New Cruise Gangway at T91 #1 4,490 MT C800534 FT S Wall Cl Fndr Rp & Cor Prt 13,300 MT C800531 FT Dock 3,4,5 Fixed Pier Improvmnt 6,239 MT C800528 FT W Wall N Fender Replacement 3,050 MT C800356 SBM Restrms/Service Bldgs Rep, paving 8,390 MT C800529 FT W Wall N Sht Pile Crsn Prtn 2,884 B EDD C801006 P66 HVAC Systems Upgrade #2 3,000 MT C800533 FT W Wall S Sht Pile Cor Protn 2,210 EDD C801016 CW Elevator Modernizations 2,750 MT C800530 FT S Wall Wt End Improvements 1,674 EDD C800199 WTC HVAC Replacement 1,600 E MT C800678 HIM ABCDE Dock #5 12,370 EDD C800889 BHICC Interior Modernization 6,681 MT C800741 Duwamish Mooring Dolphins 2,300 EDD C800158 T91 Uplands Development 30,000 MT C800820 P66 Exterior Modernization 12,480 Sub total 119,418 MT C801020 Maritime Video Camera Project 3,200 Sub total 91,318 1 as originally contemplated, an additional fee (surcharge) will recover costs in an estimated 4 years. 2 P66 HVAC capital costs over 2018-2022 reduced by $14.8 million, some higher maintenance costs will be needed. 3 Commission has suggested acquisition may be an addition to be funded. 4 Project will focus on Clipper, assuming lease terms provide positive return on investments, lobby accessible furniture, and possibly security improvements. 5 HIM dock replacement can be deferred except for possibly dock E. If 2018 evaluation indicates an urgent need it can be paid from contingency, estimate is $4 million. 23 projects were reviewed 17 Capital Plan Summary Capital Plan Summary by Division $ in 000's 2017 Fcst 2018 2019 2020 2021 2022 2018-2022 Aviation 340,056 815,704 724,212 507,919 459,023 311,828 2,818,686 Maritime 25,076 38,090 31,821 21,921 20,120 14,845 126,797 Economic Development 4,718 9,178 16,979 22,900 8,580 7,180 64,817 Stormwater Utility 1,407 1,700 1,650 2,592 2,150 2,150 10,242 Central Services and Other 7,328 13,556 12,401 10,071 10,873 11,706 58,607 Total 378,585 878,228 787,063 565,403 500,746 347,709 3,079,149 Capital projects have been prioritized by staff. The capital plan does not include $249.9M for our share of the NWSA capital spending between 2018 and 2022. The Port continues to invest in the region with a 5-year capital plan of over $3 billion 18 10 Year Comparison of FTEs to Revenues 10 Year Comparison of FTEs to Revenues $ in Millions 2,500 700 600 2,000 500 R F e T 1,500 400 v E s 1,000 300 e n 200 u 500 100 e s - 0 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 Est. Bud FTEs 1,778 1,779 1,696 1,712 1,788 1,801 1,830 1,842 1,867 2,062 2,156 FTEs Revenues 479 442 463 483 522 545 534 553 600 624 670 Revenues The annual compound growth rate is 1.9% for FTEs compared to 3.4% for operating revenues from 2008 to 2018. Operating revenues outgrew FTEs for the past 10 years 19 FTE Summary Central Aviation Maritime Econ Dev. Services Total 2017 Approved FTE's 962.9 162.3 36.0 870.1 2,031.3 Mid Year Approval 15.3 1.0 - 15.5 31.8 Eliminated - - - (1.0) (1.0) Net Transfers - 1.0 (1.0) - - Adjusted 2017 FTE's (note 1) 978.2 164.3 35.0 884.6 2,062.1 2018 Budget Eliminated - - - (1.6) (1.6) Transfer - - - - - New FTE's (note 2) 62.2 3.8 1.0 27.4 94.4 Total 2018 Changes 62.2 3.8 1.0 25.8 92.8 Proposed 2018 FTE's 1,040.4 169.0 36.0 910.5 2,155.9 Notes: (1) Includes 1.0 FTE for Stormwater Utility in Maritime Division. (2) Includes 2 new FTEs for WMBE and 1 new FTE for Priority Hire added after the Commission budget briefings. FTEs driven by Commission priorities and growth initiatives 20 5 Year Financial Forecast ($ in 000's) Compound Budget Forecast Budget Forecast Growth OPERATING BUDGET 2017 2017 2018 2019 2020 2021 2022 2018 - 2022 Aeronautical Revenue - Net 274,799 266,637 301,082 358,885 12.7% 404,903 463,050 485,623 Portwide Non-Aeronautical Revenue 298,738 305,849 322,320 321,429 1.6% 326,581 333,986 344,049 NWSA Distributable Revenue 46,708 51,288 46,647 43,122 42,334 45,815 46,498 -0.1% Total Operating Revenues 620,245 623,775 670,048 723,436 6.9% 773,818 842,852 876,171 Total Operating Expenses 384,660 376,118 422,246 431,797 3.9% 452,041 473,164 491,161 Net Operating Income Before Depreciation 235,585 247,657 247,802 291,641 321,777 369,688 385,009 11.6% Steady growth in Net Operating Income projected 21 Sources of Funds Rental Car Customer Fuel Hydrant Receipts Passenger Facility Facility Charges 0.4% Charges 1.4% Other Receipts Tax Levy 5.6% 0.2% 4.4% Grants and Capital 84% of funding Operating Revenues Contributions 41.1% sources come from 2.9% bond proceeds and operating income. The tax levy makes up less than 5% of the funding sources Proceeds from Bond Issues in 2018. 43.0% Interest Receipts Total Sources: $1,628.5M 1.0% The Port has diversified funding sources 22 Uses of Funds Operating Expenses 24.1% Plan to spend more Capital Expenditures Bond Redemptions than half of our 50.8% 10.0% funds on capital projects in 2018. Interest Payments Operating expenses 9.5% are less than a quarter of total expenditures in 2018. Other Expenses Payment to NWSA for 0.3% Capital Expenditures Public Expense 4.4% 0.6% Total Uses: $1,730.5M Capital spending comprises more than half of Port expenditures 23 2018 Tax Levy The maximum allowable levy for 2018 is $101.6 million. For 2018 the levy will be $72.0 million. The estimated millage rate is $0.1358. The 2018 levy will be used for: General Obligation (G.O.) Bonds Debt Service Regional Transportation projects Environmental Remediation Capital projects meeting specified criteria endorsed by the Commission Economic development initiatives including workforce development and economic development partnership programs Other environmental initiatives including Airport Community Ecology funding and energy and sustainability policy directives The Port uses tax levy for community investments 24 2009-2018 Tax Levy & Millage Rate $ Millions $80 $75.90 $73.50 $73.50 $73.00 $73.00 $73.00 $73.00 $72.00 $72.00 $72.00 $0.70 $70 $0.60 $60 $0.50 $50 $0.40 $40 $0.22 $0.22 $0.23 $0.23 $0.22 $0.30 $30 $0.20 $0.19 $0.17 $0.15 $0.14 $20 $0.20 $10 $0.10 $0 $0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Tax Levy (Left Scale) Millage (Right Scale) The Port has gradually reduced the tax levy amount since 2009 25 Actual vs. Maximum Allowable Levy The Port has forgone $491M in tax revenue since 1991 26 Remaining Budget Schedule Second Budget Reading Nov. 28, 2017 File Statutory Budget with King County Dec. 1, 2017 Release the 2018 Final Budget Document Dec. 15, 2017 Statutory budget to be filed with the County on December 1 27 Port of Seattle 2018 Budget First Reading & Public Hearing Commission Meeting November 14, 2017 28
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