7c Presentation Tax Levy Draft Plan
Item No. 7c Meeting Date: November 13, 2018 Draft Plan of Finance 2019-2023 and Tax Levy Briefing November 13, 2018 1 Topics Draft Plan of Finance Capital Planning and Funding: Airport Capital Planning and Funding: Non-Airport Tax Levy Background and 2018 Update 2 DRAFT PLAN OF FINANCE 2019-2023 3 The Draft Plan of Finance Provided to the Commission to inform the budget process and capital investment decisions Developed based on a sustainable financial model Carefully vetted business forecasting Financial targets that allow the Port to withstand downside risk and maintain strong access to financial markets Debt service coverage (revenue cash flow available to pay debt service) Minimum operating fund balances 4 Airport and Non-Airport Capital Are Funded Separately Airport Non-Airport Relies on its own operating cash Includes Northwest Seaport flow from airline cost recovery Alliance (NWSA), Maritime and and non-aeronautical businesses Economic Development Unique funding sources: Relies on a combination of Airport grants Operating cash flow Passenger Facility Charge (PFC) Tax levy after payment of other tax Customer Facility Charge (CFC) levy uses Cost Per Enplaned Passenger (CPE) is a critical affordability metric 5 Debt is an Important Funding Tool Types of Debt Debt Management Operating cash flow can be used to Financial targets and metrics support revenue bond debt provide guard rails against over Tax levy can be used to support leverage General Obligation (G.O) bond debt Debt service coverage targets for Use of Debt revenue bonds Airport: 1.25x Provides near-term funding Non-airport: 1.50x (under review) capacity with long-term Maximum tax levy leverage of 75% repayment Minimum operating fund balances averaging 9 months of operating Appropriate for long-term expense investments Cost Per Enplanement (CPE) 6 CAPITAL PLANNING AND FUNDING AIRPORT 7 Airport Capital Funding The Airport is self-funding and is prohibited from supporting the Port's non-Airport businesses due to FAA regulations 2019-2023 The costs of aeronautical investments that Airport CIP ($ million) support the airlines are recovered through airline fees much of the Airport's $2.7 International Arrivals Facility $ 539.1 billion CIP is aeronautical North Satellite Terminal 419.5 The costs of non-aeronautical investments Baggage Optimization 260.0 like parking and dining and retail are paid from Airport operating cash flows Other Existing Projects 863.9 Proposed New Projects 71.8 The tax levy does not directly support the SAMP Planning/Design (1) 250.8 Airport, but does provide noise mitigation funding for the Highline School District Capital Allowance 295.0 (security enhancements for the City of SeaTac is a non-capital use of the tax levy) TOTAL $ 2,700.1 (1) Sustainable Airport Master Plan 8 Airport Capital Funding 2019-2023 Operating revenues generated at Aviation Funding Sources ($ million) Operating Cash Flow $ 457.0 the Airport and revenue Tax levy (1) 2.1 supported bonds pay 90% of Grants 130.6 Airport Capital cost Passenger Facility Charge (PFC) 119.2 Grants, PFCs and CFCs pay the Customer Facility Charge (CFC) 11.6 Existing revenue bond proceeds 529.6 rest Future bond proceeds 1,497.1 A small amount of the tax levy is TOTAL $ 2,747.3 used to support the Highline schools and the City of SeaTac is Aviation CIP 2,700.1 Allocated Central Services CIP (2) 47.2 not used directly by the Airport Total Aviation Funded CIP $ 2,747.3 (1) Highline Schools noise insulation. (2) Assumes funding with Operating Cash Flow only Operating Cash Flow = Income after payment of revenue bond Note: totals may not add due to rounding debt service. Includes certain non-operating cash flows. 9 CAPITAL PLANNING AND FUNDING NON-AIRPORT 10 Background Port's non-Airport businesses include Maritime Economic Development (EDD) Port's share of the Northwest Seaport Alliance (NWSA) These businesses share funding from Non-Airport cash flow (after payment of revenue bond debt service) Available tax levy funds Bonds paid from net cash flows and the tax levy 11 Non-Airport Capital Funding Plan 2019-2023 Non-Airport Funding Sources ($ million) Operating Funds (1) $ 71.9 Operating Cash Flow 94.8 Grants 3.7 Tax levy (assumes recommended 3% annual increase) (2) 85.7 Harbor Development Fund 65.9 Future revenue bond proceeds (2023) 75.2 Future G.O. bond proceeds 277.0 TOTAL $ 674.1 (1) Includes environmental settlement proceeds. (2) 3% annual increase for five year forecast period (2019-2023) Note: totals may not add due to rounding Operating Cash Flow = Income after payment of revenue bond debt service. Includes certain non-operating cash flows. 12 Non-Airport Capital Improvement Plan (CIP) 2019-2023 Non-Airport CIP ($ million) Maritime & EDD CIP $ 348.5 NWSA - 50% Share (North & South Harbor) 215.5 NWSA - Contingency & Port Projects (1) 57.7 Strategic Reserve 50.0 TOTAL $ 671.7 Allocated Central Services CIP (2) 10.9 Total Non-Airport Funded CIP $ 682.7 Estimated Funding Shortfall (8.5) (1) Includes North Harbor channel deepening and other 100% Port legacy costs. (2) Assumes funding with Operating Funds/Cash Flow only. Note: totals may not add due to rounding 13 Port-wide Revenue Bond Debt Service Coverage Forecast Represents net income divided by annual revenue bond debt service (principal and interest) Provides a measure of financial sustainability and is critical to investors and rating agencies Coverage is primarily driven by the Airport debt service coverage which is targeted at 1.25X 14 2019 Finance Initiatives Issue Revenue bonds as needed to fund a portion of the Airport CIP Monitor existing debt for opportunities to refund at lower costs Develop and support Public Private Partnership (P3) strategies for appropriate projects 15 TAX LEVY BACKGROUND AND 2018 UPDATE 16 Tax Levy Washington State ports are permitted to levy a tax on property within the port's district The levy amount must be approved by the Port Commission and is part of the annual budget process The Port may approve a levy amount up to the maximum allowable within statutory limits The maximum levy for 2019 is $104 million The current levy is $72 million 17 Tax levy uses Investments in maritime infrastructure Environmental sustainability Regional transportation mobility Community: workforce development, security, local grants 18 Tax Levy History Since 2008 2018 tax levy is $72 million Due to inflation, since 2008, the real dollar value of the tax levy is worth $59 million Previous levy decreases and inflation have reduced purchasing power since 2008 by $100 million Local inflation in 2017 was 3% and has averaged 2% over the past 10 years 19 King County Homeowners Homeowners pay based on the value of their property 2018 tax was 13.5 cents per $1000 of assessed value The median homeowner* paid an estimated $69 to the Port in 2018 * Per King County, median residence assessment for 2018 is $509,000 20 Overall Taxpayer Impact - 2018 In 2018, the median homeowner paid $5,925 in total property tax with $69 going to the Port Of the $5.6 billion of property taxes paid in King County, just over 1% goes to the Port 21 Port Taxpayer Impact Median Levy Amount Millage Rate Taxpayer ($ M) (per $1000) Cost 2018 (1) 72.0 $0.1352 $ 68.82 2019 (2) flat levy 72.0 $0.1196 $ 68.17 3% increase 74.2 $0.1232 $ 70.21 (1) per King County, the median home value was $509,000 (2) based on (1), median home value in 2019 is estimated to be $570,000 3% increase to the tax levy amount will add $1.39 to the median home owner's tax in 2019 compared to 2018. * Projected based on historical increases to maximum levy amount If there is no change to King County assessed value, that tax payer would pay an estimated $79 (a $10 increase) in 2023. 22 2018 Tax Levy Update ($ million) Estimate $46 million of levy SOURCES OF TAX LEVY FUNDS 2018 2018 Beginning Levy Fund Balance $ 81.1 available for future funding Annual Tax Levy 72.0 In addition to the tax levy Environmental Grants & Other Reimbursements 6.1 Commission established Investment Income 1.4 Harbor Development fund for T-5 Total Sources $ 160.7 redevelopment $66 million USES OF TAX LEVY FUNDS available G.O. bond debt service (Existing) $ 43.4 Transportation Infrastructure Environmental Remediation Expense 5.0 fund paid for $6 million in Community Programs 6.5 regional mobility efforts in 2018 Transportation and Infrastructure Fund Deposit 30.0 Non-Airport Capital Investments 29.4 $30 million of funding for SR Total Uses $ 114.4 509 Gateway MOU added Projected Ending 2018 Levy Fund Balance $ 46.3 23 2019-2023 Tax Levy Uses Non Capital Investments ($ million) 2019-2023 G.O. Bond Debt Service - $279M G.O. bond debt service (Existing) $ 200.5 Environmental Remediation and G.O. bond debt service (New) 78.7 Improvements Non-Airport Environmental Expense 75.9 Economic Development Programs 14.0 Port Community Programs Environmental Grants (ACE) and Energy and Sustainability 1.5 Workforce development Highline Schools NOISE Projects 2.1 Highline schools noise mitigation City of SeaTac Security Enhancements 7.0 (capital) Local Community Advertising Program (Spotlight) 1.8 City of Seatac safety TOTAL NON-CAPITAL TAX LEVY USES $ 381.5 Economic Development grants In addition, the Port expects to support $30 million of regional transportation projects from the Transportation & Infrastructure Fund (funded with tax levy dollars) Levy dollars above this total are available for new capital investments 24 Tax Levy Options Staff Recommends a 3% Annual Increase to the Tax Levy Amount Funding Sources 2019-2023 A flat $72 million tax levy over the 800 next five years does not provide 674 700 sufficient funding for the recommended CIP 600 547 277 By increasing the amount of the 500 150 tax-backed G.O. bonds tax levy each year for the next five $ million 400 tax levy cash (1) years, the Port can add capacity revenue bonds 152 152 and keep up with King County 300 cash from operations and grants consumer inflation 200 75 75 Total funding capacity increases 100 170 170 $127 million Additional capacity all from G.O. 0 Flat Levy Annual 3% Increase bonds (1) Includes the Harbor Development Fund 25 ADDITIONAL INFORMATION 26 Contents Page 28 Port's Taxing Authority Page 29 2018 Levy Status (additional detail) Page 30 2010-2019 Tax Levy & Millage Rate Page 31 Actual vs. Maximum Allowable Levy Page 32 Transportation and Infrastructure Fund (TIF) Page 33 Tax Levy Cash Flows Available for Capital Page 34 Non-Airport Operating Cash Flow Available for Capital Page 35 Current Credit Ratings Page 36 Industrial Development District Tax Levy 27 Port's Taxing Authority Port taxing limitations: Port is limited by the most restrictive currently the 1% limit 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 2019 is estimated to be ~$104.2 million 45 cent limit The amount of the tax levy in any given year is limited to 45 cents per $1000 of assessed value Port 2019 rate is estimated to be 12.3 cents based on a $74.2 million levy For 2019, this limit is ~$270.9 million Excludes the amount needed to pay G.O. bond debt service of $43.4 million 28 2018 Levy Status SOURCES AND USES OF TAX LEVY 2018 2018 Budget SOURCES ($ million) Budget Est./Act Variance 2018 Beginning Fund Balance $ 69.5 $ 81.1 $ 11.7 Annual Tax Levy 72.0 72.0 - Environmental Grants & Other Reimbursements 2.6 6.1 3.5 Investment Income - 1.4 1.4 Total Sources $ 144.1 $ 160.7 $ 16.6 USES ($ million) G.O. bond debt service (Existing) $ 43.4 $ 43.4 $ (0.0) Environmental Remediation Expense 5.8 5.0 0.8 Capital Expenditures - Maritime 28.0 22.8 5.2 Capital Expenditures - EDD 4.9 1.9 3.0 NWSA North Harbor Spending 8.4 4.8 3.6 Transfer to Transportation and Infrastructure Fund - 30.0 (30.0) Airport Community Ecology (ACE) Fund 0.4 0.3 0.1 Energy and Sustainability Policy Directives 0.2 0.3 (0.1) Workforce Development 1.6 0.7 0.9 Economic Development Partnership Program 1.0 1.0 0.0 Tourism Grants - 0.2 (0.2) Local Community Advertising Program 0.5 0.3 0.1 City of SeaTac Security Enhancements 1.4 1.4 - Highline Schools NOISE Projects - 2.4 (2.4) Total Uses $ 95.6 $ 114.4 $ (18.8) Estimated Ending Tax Levy Fund Balance $ 48.5 $ 46.3 Totals may not add due to rounding 29 2010-2019 Tax Levy & Millage Rate 30 Actual vs. Maximum Allowable Levy 31 Transportation and Infrastructure Fund (TIF) TIF ($ million) 2019-2023 Post 2023 Beginning Balance $ 66.4 $ 36.3 Transportation Investments 30.1 36.7 Ending Balance $ 36.3 $ (0.4) Transportation Investments ($ thousand) 2019 2020 2021 2022 2023 2019-2023 Post 2023 Seattle Heavy Haul Network $ 1,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 9,000 $ 11,000 Fast Corridor II 250 345 730 1,325 - N Argo Express Access - Pub Ex 229 - 229 - East Marginal Way Phase 2 265 265 - Safe and Swift 10,000 5,000 15,000 - Highway 509 Contribution - 4,286 4,286 25,714 TOTAL $ 11,744 $ 7,345 $ 2,730 $ 2,000 $ 6,286 $ 30,105 $ 36,714 32 Tax Levy Cash Flows Available for Capital Tax Levy Cash Flow Available for Capital $ Million 2019 2020 2021 2022 2023 TOTAL Tax Levy Collections $ 74.2 $ 76.4 $ 78.7 $ 81.0 $ 83.5 $ 393.7 Environmental Insurance/Grant Receipts 2.1 5.0 15.0 - 5.0 27.1 Total Levy Receipts $ 76.2 $ 81.4 $ 93.7 $ 81.0 $ 88.5 $ 420.8 G.O Bond Debt Service $ 43.4 $ 57.1 $ 59.0 $ 59.8 $ 59.8 $ 279.2 Environmental Remediation Expense 6.9 7.1 12.6 16.5 32.8 75.9 Economic Development Programs 2.7 2.7 2.8 2.9 2.9 14.0 Environmental Grants (ACE) and Energy and Sustainability 0.8 0.5 0.3 - - 1.5 Highline Schools NOISE Projects 1.1 1.0 - - - 2.1 City of SeaTac Security Enhancements 1.4 1.4 1.4 1.4 1.4 7.0 Local Community Advertising Program (Spotlight) 0.4 0.4 0.4 0.4 0.4 1.8 Total Non-Capital Tax Levy Uses $ 56.6 $ 70.2 $ 76.4 $ 81.0 $ 97.4 $ 381.5 Tax Levy Cash Flow Available for Capital $ 19.6 $ 11.2 $ 17.3 $ 0.1 $ (8.9) $ 39.3 There is a projected beginning fund balance $46.3 million that is also available for capital funding 33 Non-Airport Operating Cash Flow Available for Capital Cash Flow From Operations Available for Capital $ Million 2019 2020 2021 2022 2023 TOTAL Income from NWSA $ 48.2 $ 44.0 $ 52.9 $ 58.2 $ 59.2 $ 262.6 Maritime net income 9.7 7.4 8.6 13.9 15.3 55.0 EDD net income (11.1) (11.7) (11.2) (11.5) (11.7) (57.3) Revenue bond debt service and adjustments (1) (32.3) (33.5) (34.5) (34.3) (30.3) (164.9) TOTAL $ 14.6 $ 6.2 $ 15.9 $ 26.2 $ 32.5 $ 95.4 (1) Adjustments include certain non-operating revenues and expenses and reimbursements for tax levy funded EDD expenses 34 Current Credit Ratings Noted Credit Strengths: Diverse asset and revenue base Moody's S&P Fitch Airport's market position and General Obligation Bonds Aaa AAA AA- enplanement levels First Lien Revenue Bonds Aa2 AA- AA Solid coverage and liquidity levels Intermediate Lien Revenue Bonds A1 A+ AASubordinate Lien Revenue Bonds A2 A+ AA- Conservative debt structure Passenger Facility Charge Revenue Bonds A1 A+ A+ Strong governance and Fuel Hydrant Special Facility Bonds A1 A management Long-range strategic and sustainability plans Vibrant and resilient area economy 35 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 36 IDD Levy - Implementation Port may implement a second round based on a new formula Maximum of $1.7 billion over a period of up to 20 years Average amount = $85 million (for 20 years) Maximum annual amount = $271 million (45 cents for 6 years) Port can establish a smaller IDD or collect a lesser amount, but cannot bank the unused capacity 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 37 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. 38
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