6b. Maritime and Economic Development Capital and Funding Briefing
Item No. 9b_supp . Meeting Date: August 13, 2019 Maritime and Economic Development CIP and Funding Review and Analysis (Setting the Stage for 2020) August 13, 2019 1 2020 CIP Development 2020 2020 Budget Tax Levy & First 2 nd Reading MD/EDD CIP Draft Plan 2020 CIP Preliminary Assumptions Reading & & Final Development of Finance Planning 2020 CIP & Business Plan Commission Public Passage of Prioritization & Budget Commission Briefing Commission Hearing for 2020 Development Briefing Briefing 2020 Budget Commission Budget (Spring) (June) Briefing (Aug 13) (June) (Oct 22) (Oct 22) (Nov 13) (Nov 19) 2 Overview Capital Planning Background Research & Lessons Learned Maritime and EDD 2019-2023 CIP Update Capital Funding 2019-2023 Moving Forward 3 CAPITAL PLANNING BACKGROUND 4 CIP Development Progress Capital Planning Preliminary CIP CIP Finalized Capital Budget Q1/Q2: Project Q2/Q3: Q4: 5-Year End of Q4: Management & Managing Capital Plan Cash flow Business Directors and Plan of update Sponsors review, Finance establishes Update/Review prioritize & approved by "capital New & Ongoing approve Commission budget" for the Projects changes forward year Q3: Funding strategy for preliminary CIP developed 5 CIP Includes Projects at Different Stages of Development Status Status Description * Notes Number * 1 Preliminary Placeholder, not included in CIP Business Plan 2 Included in CIP if funding is available Prospective Managing Director approves moving forward, staff level 3 Division Approved Committed (included in CIP) authorization for scoping and cost estimates Commission authorized funding for design begins 4 Authorized scope, schedule and cost development up to 100% Commission authorized for construction, procurement of 5 Construction construction contract(s) 6 Completed Project completed and ready for booking to assets * Port practice as described in the Budget Document 6 Degree of Uncertainty 7 Factors that Impact Project Delivery Establishing the Project Project delivery Scope changes to improve NPV Prioritization of projects Evaluation of environmental options Working around facilities that continue Cost estimation challenges for unique projects to operate Leadership Availability for feedback/direction Unplanned and unforeseeable obstacles Scope changes Commission Oversight Staff Commission coordination Community Importance of Transparency and Accountability: Permitting variability Briefing, Design and Construction Authorization Addressing stakeholder concerns Procurement Central Procurement Office staff resources Incorporating Port values in procurement Rigorous process to comply with state law and best practices 8 RESEARCH & LESSONS LEARNED 9 Research Port history and trends Best practices and peer review take-aways 10 Data Research Staff reviewed Portwide* CIPs over twenty years Five-year CIPs beginning with 1998-2002 and ending with 2014- 2018 Reviewed actual spending vs. CIP Annual basis first year of the CIP Five-year basis all five years of the CIP *Includes Aviation CIPs 11 Percentage of annual spending compared to forecast is lower than percentage of a five-year period spending to forecast One-year average 57% Five-year average 80% (By the beginning of the year, forecast annual spending accuracy increases to almost 70%) General decline in spending vs. forecast with recent improvement Five-year CIP Drives Capital Planning and Funding 12 5-year CIP has wide variability and has peaks and valleys Actual five-year capital spending varies within a normal range of $1.2 billion Normal range is the mean +/- one standard deviation 13 Interpreting the Data Trends Capital cycle During early stages, project delivery timing is uncertain; lead time for scoping, design, permitting, bidding and approvals can be unpredictable Once projects are under construction, spending is more predictable Macroeconomic factors Great Recession Postponement of some projects, but still included in CIP 14 CIP Spending Estimates A CIP is a point-in-time collection of all project spending (cash flow) estimates Some estimates are well developed, others are placeholders Committed projects have more developed cost estimates than Business Plan Prospective projects Data research compared each five-year CIP Five-year CIP actual spending as a percentage of forecasted spending Committed projects as a percentage of total CIP 15 Correlation: The More "Committed" Projects in a CIP, the More Accurate the CIP Forecast Another Data View: Project Status Affects Forecasting Accuracy A high percentage of "Business Plan Prospective" projects in a CIP, the more opportunity for course Each dot represents a five-year period correction Business Plan Prospective = status 2 Committed = status 3 - 5 16 Best Practices and Peer Outreach Review of best practices - recommend carrying contingencies and budget conservatively, but provided no specific guidelines Outreach to peer organizations Including ports, airports and local agencies All seek to balance flexibility for the unknown with realistic spending forecasts No universal approach 17 Research: Helpful Insights from Other Governments Clear prioritization of projects Coordination between project managers and business units Realistic delivery expectations Smooth annual spending over over the five-year CIP Use of CIP Reserves can help with planning Focus on five-year CIP, de-emphasize annual spending High level focus on project delivery 18 Key Messages Capital Planning is dynamic and all agencies look for ways to improve forecasting accuracy Tools to help improve capital planning Clear project prioritization Understand schedule drivers Close collaboration between operating divisions and project management Use CIP reserve to smooth cash flows Focus on five-year plan 19 MARITIME AND ECONOMIC DEVELOPMENT CIP PROGRESS 2019-2023 20 SWOT Analysis Deep understanding and strong connection to maritime businesses. Strategic properties/facilities that can be updated/redeployed. Prudent Management of Tax Levy provides funding capacity Values driven, Environmental, Social and Governance (ESG) approach to investments. Port's public service role adds time and cost. Challenging properties (brownfields, soils, fish window limitations, etc.) Support Maritime jobs and businesses. Strong connections with other governments. Shape the future & modernize harbor and related facilities. State Focus on Maritime Innovation. Unique coexistence of tech and maritime sectors in King County. High construction costs. Shortage of trade labor. Gentrification, loss of industrial lands. Costs/challenges of getting stakeholders on board. 21 2020 CIP Development 2020 2020 Budget Tax Levy & First 2 nd Reading MD/EDD CIP Draft Plan 2020 CIP Preliminary Assumptions Reading & & Final Development of Finance Planning 2020 CIP & Business Plan Commission Public Passage of Prioritization & Budget Commission Briefing Commission Hearing for 2020 Development Briefing Briefing 2020 Budget Commission Budget (Spring) (June) Briefing (Aug 13) (June) (Oct 22) (Oct 22) (Nov 13) (Nov 19) 22 2019-2023 CIP: Five Year Spending Forecast MD/EDD 2019-23 CIP 2019-2023 Spending as of: Approved Nov 2018 ($s in millions) Nov 2018 Jun 2019 Authorized (partial/design) Fishermen's Terminal Gateway Building 23.0 23.5 Terminal 117 Restoration 17.9 19.7 Bell Harbor Conference Center Modernization 9.9 11.1 Fishermen's Terminal Docks 3, 4 & 5 Pier Improvements 6.1 3.1 Total Authorized $56.9 $57.4 Pending Authorization New Cruise Facility (Assumes 50% Tenant Cost Share) 100.0 100.0 Terminal 91 Uplands Development 39.0 33.7 Terminal 91 Berth 6 & 8 Redevelopment 35.0 35.0 Waterfront Electrification/P66 Shore Power 30.0 17.0 Fishermen's Terminal Maritime Innovation Center 10.5 10.3 Salmon Bay Marina Docks D & E Replacement 5.9 9.1 Harbor Mooring Dolphins 3.6 4.5 Pier 66 HVAC Systems Upgrade 2.9 2.5 Total Pending Authorization $226.9 $212.1 Projects Underway 8.2 14.0 Small Projects/Fleet/Technology/Tenant Improvements 16.5 10.0 Contingency 25.0 19.0 Total ($ millions) $333.5 $312.6 Project status as of Nov 2018, some projects have since been authorized (in part or full). Project has been split into two parts: 1) Pier 66 Shore Power: $17M 2) Waterfront Electrification: $13M Prospective (future project) 23 2019-23 CIP: 2019 Spend Forecast & Milestones MD/EDD 2019-23 CIP 2019 Forecasted Spend as of: Approved Nov 2018 ($s in millions) Nov 2018 Jan 2019 Jun 2019 2019 Milestones Authorized (partial/design) Fishermen's Terminal Gateway Building 1.8 0.4 1.0 Concept design completed by Q4. Terminal 117 Restoration 8.0 1.0 1.0 Schedule delayed due to Trustee negotiations. Bell Harbor Conference Center Modernization 1.6 0.8 0.8 Construction contract award by Q3, construction begins Q4. Fishermen's Terminal Docks 3, 4 & 5 Pier Improvements 5.5 0.6 0.6 Updated solution, net cost savings of $3M. Construction begins Q4. Total Authorized $16.9 $2.8 $3.4 Pending Authorization New Cruise Facility (Assumes 50% Tenant Cost Share) 1.3 0.6 1.1 Predesign work underway in Q2. Partner RFP released in Q3. Terminal 91 Uplands Development 3.5 0.6 0.1 Design team selected by Q4. Terminal 91 Berth 6 & 8 Redevelopment 0.5 0.3 0.1 Design/permitting funding authorization by late Q4. P66 Shorepower predesign complete by Q3. Design/permitting Waterfront Electrification 1.0 0.2 0.2 funding request in Q4. Fishermen's Terminal Maritime Innovation Center 0.0 0.3 0.3 Concept design completed by Q4. Salmon Bay Marina Docks D & E Replacement 0.4 0.4 0.1 Demolition permit by Q4. Harbor Mooring Dolphins 0.2 0.0 0.0 Design/permitting funding authorization by Q4. Pier 66 HVAC Systems Upgrade 1.2 0.7 0.8 System controls upgrade completed by Q4. Total Pending Authorization $8.0 $3.0 $2.7 Projects Underway 8.2 4.1 4.1 SBM Customer Service Buildings - construction contract by Q3. Small Projects/Fleet/Technology/Tenant Improvements 5.5 8.4 6.5 Contingency 3.0 3.0 2.0 Total ($ millions) $41.7 $21.4 $18.7 Project status as of Nov 2018, some projects have since been authorized (in part or full). 24 2019-23 CIP Major Projects as of Nov 2018 Target Achieved 2019-2023 CIP Progress 2019-2023 CIP as of November 2018 2019-2023 CIP as of June 2019 5 - Authorized 2 - Business Under Plan Contract Prospective 9% 9% 2 - Business 4 - Authorized Plan Prospective 23% 3 - Division Approved 61% 23% 3 - Division Approved 16% 4 - Authorized 59% 6 of 12 Major Projects Advanced to Commission Approval since November 2018* *Represents total project spending, many projects only partially approved *Does not include Northwest Seaport Alliance Projects 26 CAPITAL FUNDING 27 Airport and Non-Airport Capital Are Funded Separately The 2019-2023 Maritime and EDD CIP included a funding plan Non-Airport business: 50% share of Northwest Seaport Alliance (NWSA) Maritime and Economic Development Share funding sources Operating cash flow and Revenue bonds Tax levy after payment of other tax levy uses General Obligation (G.O.) bonds paid by the tax levy 28 Effective Financial Policies Provide Guardrails for the Funding Plan Financial sustainability is critical to on-going capital delivery Sound financial policies help right-size a CIP and ensure funding availability for project delivery Two policies under review per Commission Motion 2018-14: Debt service coverage targets (non-Airport) to avoid over leverage CIP Reserve(s) (Contingency) to provide flexibility and smooth cash flows 29 Non-Airport Capital Improvement Plan (CIP) 2019-2023 Non-Airport CIP ($ million) Maritime & EDD CIP $ 333.5 NWSA - 50% Share (North & South Harbor) 215.5 NWSA - Contingency & Port Projects (1) 57.7 Strategic Reserve 50.0 TOTAL $ 656.8 Allocated Central Services CIP (2) 10.9 Total Non-Airport Funded CIP $ 667.7 Estimated Funding Shortfall (15.1) (1) Includes $25 million NWSA CIP reserve, North Harbor channel deepening and other 100% Port legacy costs. (2) Assumes funding with Operating Funds/Cash Flow only. Note: totals may not add due to rounding Per 2019 Budget 30 Non-Airport Capital Funding Plan 2019-2023 Non-Airport Funding Sources ($ million) Operating Funds (1) $ 70.5 Operating Cash Flow 100.2 Grants 3.7 Tax levy (2) 68.7 Harbor Development Fund 65.9 Future revenue bond proceeds (2023) 66.6 Future G.O. bond proceeds 277.0 TOTAL $ 652.6 (1) Includes environmental settlement proceeds. (2) Assumes 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. Per 2019 Budget 31 Tax Levy The maximum allowable levy for 2019 is $104 million The current levy is $74.2 million Port accounts for 1.3% of King County property taxes levied The 2019-2023 funding plan included an annual 3% increase to the tax levy amount; to be reviewed annually The 2019 median home pays $71.39 to the Port 32 Tax levy uses Investments in maritime infrastructure Environmental sustainability Regional transportation mobility Community: workforce development, security, local grants 33 MOVING FORWARD APPLYING THE LESSONS FOR 2020-2024 CIP 34 Five-year CIP Planning Process Improvements Current Progress already Enhancements: includes: Refine CIP prioritization and CIP prioritization planning process Collaboration between Operating Recommended financial policy Divisions and Project updates Management - Reorganization Refine use of CIP reserves Executive Review of CIP Finance funding policies 35 CIP Delivery Enhancements Understand project dynamics and apply lessons learned to planning Implement capital delivery reorganization Assess organizational resources and processes - - Procurement and Contracting - Planning - Safety - Delegations - Permitting - Hiring 36 Next Steps Prior to September 1, 2019 Deliver policy update per Motion 2018-14 October 8, 2019 Commission budget workshop including Maritime and EDD 2020-2024 CIP October 22, 2019 Commission briefing on the 2020-2024 Draft Plan of Finance November 12, 2019 Introduction of 2020 Budget Resolution and public hearing November 19, 2019 Passage of the 2020 Budget 37
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