7b Supp
ITEM NO.: 7b__Supp
DATE OF
MEETING: Oct 5, 2010
Port of Seattle
2011 Preliminary Operating Budget
Port-wide Overview
October 5, 2010
1
Background
2009 Budget (cut $9M):
Anticipated economic downturn
Cut discretionary spending to absorb other cost increases
Reduced Corporate budget by 2%
2009 Mid-year Budget Adjustment (cut $21.3M):
Cut discretionary spending
Implemented 2-week furloughs
Eliminated retiree medical subsidy
2010 Budget: zero based budgeting (cut $13.8M):
Reduced and eliminated some programs and functions
Implemented Voluntary Separation Program (VSP)
Introduced premium sharing for Port sponsored medical plan
Eliminated 110 positions (6.2% of the total workforce)
2
2011 Preliminary Budget - Revenues
2009 2010 2011
Operating Revenues ($ in 000s) Actual Budget Budget Var. $ Var. %
Aviation
Aeronautical (cost recovery) 182,534 210,367 216,381 6,014 2.9%
Non-Aeronautical 137,346 135,578 143,030 7,451 5.5%
Fuel Hydrant 8,359 8,353 8,353 0 0.0%
Total Aviation 328,239 354,299 367,764 13,465 3.8%
Seaport 90,392 92,544 97,342 4,798 5.2%
Real Estate 30,430 29,923 30,942 1,019 3.4%
CDD 0 0 0 0 0.0%
Corporate 374 18 1,025 1,007 5594.4%
Total 449,435 476,784 497,073 20,289 4.3%
Operating Rev w/o Aero 266,901 266,416 280,692 14,276 5.4%
3
2011 Preliminary Budget Expenses
2009 2010 2011
Operating Expenses ($ in 000s) Actual Budget Budget Var. $ Var. %
Aviation 122,747 129,381 136,575 (7,194) -5.6%
Seaport 21,362 22,466 23,247 (781) -3.5%
Real Estate 28,346 31,629 33,736 (2,107) -6.7%
CDD 7,831 7,352 14,278 (6,926) -94.2%
Corporate 65,481 72,001 74,936 (2,935) -4.1%
Total 245,767 262,829 282,772 (19,943) -7.6%
Est. Exp w/o Capital Policy Change 245,767 262,829 277,772 (14,943) -5.7%
4
Change in Project Overhead Cost Accounting
Change in overhead (OH) cost allocation methodology effective 1/1/11
Consistency with GAAP, accounting for costs, capitalizable vs. operating
expense
More accurate OH cost allocation to projects (capital, environmental,
expense)
More complete charges to departments receiving direct services
Improved cost estimates for projects or services
Affects most of CDD, Seaport Environmental, Airport Building, and
Marine Maintenance departments
Estimated $5M shift from previously capitalized OH costs to
operating costs
$1M - O&M costs (maintenance agreements, training, registration costs, etc.) no
longer included in the overhead pool
$3M - payroll costs (staff time) related to general administration (training,
employee forum, PREPs, etc.) not included in OH costs and allocation
$1M - OH costs now also allocated to departments receiving services for other
than capital or expense projects (e.g., surveying properties not related to capital
construction projects)
No cash flow impact on expenditures; upfront revenue recovery on
portion allocated to Airport aeronautical cost centers
5
2011 Preliminary Budget - NOI
2009 2010 2011
($ in 000s) Actual Budget Budget Var. $ Var. %
Total Operating Revenues 449,435 476,784 497,073 20,289 4.3%
Total Operating Expenses 245,767 262,829 282,772 (19,943) -7.6%
Net Operating Income 203,668 213,955 214,301 346 0.2%
NOI w/o Capital Policy Change * 203,668 213,955 217,541 3,586 1.7%
* Without the capital policy change, O&M costs are estimated to be $5M lower and aeronautical revenues are expected to be
$1.8M lower. Net NOI impact is estimated to be $3.2M.
6
Net Operating Income Comparison
7
Comprehensive Budget Summary
Revenues 2010 Budget 2011 Budget Var. $ %Var.
Operating Revenues 476,784 497,073 20,289 4.3%
Tax Levy 73,500 73,500 0.0%
PFCs 58,535 59,120 585 1.0%
CFCs 22,475 21,813 (662) 2.9%
NonCapital Contributions 2,209 1,489 (720) 32.6%
Capital Contributions 50,152 36,269 (13,883) 27.7%
Interest Income 24,489 13,654 (10,835) 44.2%
Total 708,144 702,918 (5,226) 0.7%
Expenses
O&M Expense 262,829 282,772 19,943 7.6%
Depreciation 158,575 160,491 1,916 1.2%
Revenue Bond Interest Expense 150,070 148,206 (1,864) 1.2%
GO Bond Interest Expense 14,432 13,781 (651) 4.5%
PFC Bond Interest Expense 10,497 10,191 (306) 2.9%
NonOp Environmental Expense 20,000 6,200 (13,800) 69.0%
Public Expense 39,464 17,205 (22,259) 56.4%
Misc. NonOp Rev/Expense 2,217 2,521 304 13.7%
Total 658,084 641,367 (16,717) 2.5%
Change In Net Assets 50,060 61,551 11,491 23.0%
8
Port-wide FTEs Summary
Aviation Seaport Real Estate Capital Dev Corporate Totals
2010 Approved FTE's 746.4 60.4 154.8 268.0 450.2 1679.8
Mid Year Approval * 0.0 1.0 10.0 0.0 7.3 18.3
Eliminated 0.0 -2.0 0.0 0.0 0.0 -2.0
Transfers 0.0 0.0 0.0 0.0 0.0 0.0
Adjusted 2010 FTE's 746.4 59.4 164.8 268.0 457.5 1696.1
2011 Budget
Eliminated -15.7 0.0 -1.0 -5.5 -10.9 -33.1
Transfer 0.0 1.0 0.0 0.0 0.0 0.0
New FTE's 31.3 0.0 1.0 0.0 0.0 32.3
Total 2011 Changes 15.5 1.0 0.0 -5.5 -10.9 -0.9
Proposed 2010 FTE's 761.9 60.4 164.8 262.5 446.6 1695.2
* The mid-year approval includes conversion of 6 contractors to FTEs.
9
9
Aviation Division
2011 Preliminary
Operating Budget
10
Financial Goals
Airline side of business:
Manage growth in passenger airline cost per enplanement
(CPE):
Drive future CPE below November 2005 forecast through 2012
(basis of airline agreement - SLOA)
Maintain rates & charges debt service coverage at 1.0x
Non-airline side of business:
Grow Net Operating Income (NOI)
Provide cash flow to meet/exceed debt service coverage of
1.25x
Generate excess cash flow to facilitate airline cost offsets
Division:
Maintain unrestricted cash and investments equal to at least
10 months of O&M costs
11
Background
2009 budget anticipated economic downturn
2009 Port cut all discretionary spending and
implemented furloughs these were short-term
savings measures
2010 budget recognized need for sustained cost
reductions. Process incorporated organizational
review and zero based budgeting approach
Aviation achieved 5% reductions (before exceptions)
Aviation cut 86 FTEs (over 10%)
Little room in baseline budget for more cuts
12
2010 Trends Point to Recovery
Airline Industry
8 consecutive months of
__--_____________________________ revenue growth
August +17%
Airline industry profitable
Record 2nd Quarter earnings
for Alaska Air Group
3 straight months of positive growth
YTD down only 0.25% vs. 2009
Non-airline revenues picking up:
Public parking up 9.5% in September, fourth straight month of growth
August Concessions SPE of $9.62 vs. $9.39 in 2009
Port revenues +4% in August
August rental car transactions up 6.1%, transaction days up 6.7%
Clear Channel advertising sales up 13% through August
Alaska Air Group/AAAC support for major new capital projects at Sea-Tac
13
Enplaned Passengers Forecast
Growth rate in out years reflects FAA long-term forecast
No Change in forecast from Business Plan presentation in August
14
Operating Budget Overview
2011 Enplaned Passengers: +1.0%
Revenues:
Non-airline revenues up 4.4%
Airline revenues up 2.9%
Expenses up 6.7%
Airport costs up 5.6%
Corporate/CDD costs up 9.2%
NOI up $1.1 million, or 0.7%
Non-Aero NOI up $3.1 million, or 4.1%
CPE: $12.97, vs. $13.06 projected last year for 2011
Debt service coverage: 1.38x, up from 2010
15
Division Summary
16
Sensitivity of Enplanements
Red bars show 2010 YTD
trend (-.25%) annualized and
with 1% growth
2011 with 1% growth over
2010 budget is lower than
2010 YTD Trend
2011 Budget is conservative
17
Expense Summary
18
Summary of Cost Drivers
19
Budget Requests
Over 55% of budget requests were not approved
20
Payroll Costs
Shows increases to payroll if no new FTEs are added
Wage benefits increasing, unlike salary benefits
21
Contractual/Unavoidable cost Increases
Workers compensation increase is less than budget
guidelines based on recent history
Capital OH change is for AV Maintenance, primarily due
to maintenance of PCS/CDD vehicles and equipment
excluded from capital OH
22
New Facilities
RCF to be operational in April 2012; will initiate
staggered hiring in 2011. Total new FTEs> 100.
23
Regulatory Requirements
Maintenance of mitigation sites includes irrigation
maintenance, removal of invasive species, clearing
culverts, etc. Current staff of six unable to keep up, new
acreage added in 2011
24
Customer/Partner Requests
2010 budget included back-up power for spring only. For 2011,
budget assumes spring and fall
Port triggering one-time space reallocation to facilitate growth and
consolidation plans for AAG, UA/Con, and Delta. Also need to
further study FIS improvements
Sound Transit extension to S. 200th requires Port to analyze future
development needs in same corridor
25
Unsustainable Prior Cuts
Aviation cut 85 FTEs for 2010 Budget. Approximately
10% are not sustainable.
FTEs start date April 2011
26
Non-Airline Revenue Development
27
Other New Initiatives
28
Proposed Exceptions
Environmental reserves based on anticipated triggering events in
2011 for RMM:
Main Terminal Low voltage upgrade ($350K)
West End South Satellite ($314K)
PC Air ($295K)
Elevator replacement ($240k)
Common use equipment ($200K)
EGSE ($160)
29
Non-Airline Business
Parking up 5.0% over 2010 forecast
Other includes increase for Utilities, Ground Transportation
Budget assumes new yellow taxi contract for 2011
Utilities O&M and internal billing reflects increase for back-up power
generation. Internal billing also includes "deficit" from 2009 costs
30
Non-Airline Key Indicators
31
Aeronautical Business
Capital costs reflect lower budget for variable rate debt and reduced
interim financing costs
32
Aeronautical Key Indicators
Increased operating costs are primary driver for
increased CPE
Back-up power costs include full year of 2011 and 2009 deficit
Change in capitalization policy for capital overhead
33
Port='
of Seattle FTEsFTES
FTE's
2009 Budget 833.10
2010 Reductions
Airport Operations (30.40)
Security (23.00)
AV Maintenance (27.00)
Other (8.80)
Additions 2.45
2010 Budget 746.35
2011 Changes
Removed Maint. Temps FTEs w/o budget $ in 2009 (9.00)
Acquisitions Department RIF (4.00)
General Manager Facilities & Infrastructure (1.00)
Credential Specialist (1.00)
Other - Reduce FTE to part-time (0.74)
(15.74)
Stafng for Rental Car Facility 12.00
Unsustainable RIF 8.00
Maint Enivironmental Mitigation 5.00
New Facilities 3.00
Parking Business Mgr, Concession Acct Mgr 2.00
Classroom Proctor and College Intern 1.25
31.25
2011 Proposed FTEs
34
Expense Summary by Account
2009 payroll includes reversal of $2.8M in Other Post
Employment Benefits (OPEB) expense.
2009 Other includes $2M reduction of expense related to
a surplus of Security Fund reserve.
35
Expense Summary by Department
2009 Actual includes reversal of $2.8M in Other Post
Employment Benefits (OPEB) expense.
36
Key Non-operating Revenues
37
Budget vs. Financial Goals
Aeronautical: manage growth of CPE:
2005 forecast of 2011 CPE: $15.47
2009 forecast of 2011 CPE: $13.06
2011 budget for CPE: $12.97
CPE reduction measures incorporated into budget:
FIS offset to $7.0 million
Use of 90% of PFCs to offset revenue bond debt service
Non-aeronautical:
Revenues up $7.4 million over 2010 budget, $9.3 million
over 2010 forecast
NOI up $3.1 million over 2010 budget, $5.7 million over 2010
forecast
Debt Service Coverage:
Budget for 2011 at 1.38x, up from 2010 budget and forecast,
well above 1.25x minimum threshold.
38
Risks & Opportunities
Risks:
Budget does not include potential operating costs associated
with terminal realignment
Potential fines for PCI non-compliance
Budget for workers compensation assumes improvements
vs. recent history
New structured parking lot opening late 2010
Economic recovery could stall
Opportunities:
Improving economy could increase enplanements and nonairline
revenues
Entrepreneurial efforts by Port staff have, and will continue
to create opportunities to enhance non-aero revenues
When airlines are profitable, they are more inclined to add
capacity to grow market share
39
Business Plan Forecast
40
CPE Forecast
41
Summary
Airline industry is profitable, revenues growing
At Sea-Tac:
Airlines pushing for major capital investments in terminal
Recent trends in enplanement growth and non-airline revenue
growth point to recovery
Airport budget driven by:
Cost increases for payroll and contracted services
New facilities, customer requests
Regulatory requirements, unsustainable prior cuts
Non-aero future revenue development, strategic initiatives
Enplanement forecast is conservative, upside potential
Meets financial goals:
2011 CPE in line with 2009 and 2005 forecast s for 2011
Non-aero NOI is increasing
Debt service coverage is increasing, well above target minimum
42
Seaport Division
2011 Preliminary
Operating Budget
43
Pier 90/91 Pier 86
Pier 66
Terminal 46
BNSF (SIG - North)
Terminal 30
Terminal 5 On-Dock Rail BNSF (SIG - South)
Terminal 25
Terminal 5 Terminal 18
UPRR (ARGO)
44
2011 SEAPORT KEY STRATEGIES
1. Commercial (Business)
2. Asset Stewardship
3. Green Gateway
In addition, Seaport will support Key Corporate
Initiatives including SharePoint and Metrics
45
2011 SEAPORT KEY STRATEGIES
Commercial (Business) Focus Areas
Optimize NOI & utilization of Port assets
Retain and attract customers to our gateway
Market Seattle's "Fee Free", Business Friendly,
Collaborative, and Green Gateway advantages
Partner with Port of Tacoma in Joint Cooperation
Facilitate efforts to assure freight mobility and
terminal access during road project construction
Partner with stakeholders to effectively manage
Seaport business growth and harbor impacts
Manage costs to assure best value ("bang for the
buck") and return on investments.
46
2011 SEAPORT KEY STRATEGIES
Asset Stewardship Focus Areas
Complete projects currently underway
Perform key asset condition assessments
Refine scope, cost estimates, and timing of future
projects
Incorporate clear prioritization criteria for projects
Incorporate Green Gateway criteria for projects
Develop future project schedules contingent upon
available funding
Manage costs to assure best value ("bang for the buck")
and return on investments.
47
2011 SEAPORT KEY STRATEGIES
Green Gateway Focus Areas
Monitor Clean Truck Program to assure objectives met
Grow ABC (At Berth Clean) Fuels and "Green Gateway
Partners" Programs
Partner with stakeholders to implement/ manage
stormwater program
Use Herbert's Carbon Footprint study to market our
"Green Gateway" advantages
Expand collaboration to advance our strategies & Port
competitiveness
Consider future technologies that reduce impacts
48
Key Revenue Assumptions
TEU volume 12% increase from 2010 budget
Full year (12 months) of Eagle Rate increase
effective in July 2010
Cruise forecast 6% decrease in passengers
Grain volume 10% increase from 2010 budget
CPI increase of 1.5% for applicable tariffs and
lease rates
49
Expense Issues
Comprehensive Asset Condition
Assessments
Maintenance Dredging
Repair Costs
Stormwater
NW Ports Clean Air Strategy
Utility Increases
Environmental Reserves
50
Org Revenues By Group
Seaport Division Only
2008 2009 2010 2010 2011 '11-'10 Bud Chg
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenue
Containers & Support Prop 56,293 59,406 59,526 60,185 63,352 3,826 6.4%
Cruise & Industrial Prop 28,757 30,030 28,883 29,471 29,976 1,092 3.8%
Operating Revenue 85,050 89,436 88,409 89,656 93,328 4,918 5.6%
Security Grants 850 847 2,535 824 3,415 880 34.7%
Environmental Grants 28 109 1,600 1,600 600 (1,000) -62.5%
Total Revenues 85,927 90,392 92,544 92,080 97,342 4,798 5.2%
51
Org Revenues
Containers & Support Properties
2008 2009 2010 2010 2011 '11-'10 Bud Chg
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenue
Containers Operating 52,206 55,062 56,370 57,517 60,506 4,137 7.3%
Containers-Upland Dredge Reim 439 1,382 0 0 0 0 NA
Support Properties 3,648 2,961 3,156 2,668 2,846 (311) -9.8%
Operating Revenue 56,293 59,406 59,526 60,185 63,352 3,826 6.4%
52
Org Revenues
Cruise & Industrial Properties
2008 2009 2010 2010 2011 '11-'10 Bud Chg
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenue
Cruise 9,261 10,656 10,503 10,503 10,150 (352) -3.4%
Bulk 7,053 6,049 5,533 6,068 6,087 554 10.0%
Docks 3,331 3,647 2,936 2,875 3,113 177 6.0%
Industrial Props 9,112 9,679 9,912 10,026 10,625 713 7.2%
Operating Revenue 28,757 30,030 28,883 29,471 29,976 1,092 3.8%
53
Seaport Org Expense Budget
Seaport Division Expenses Only
2010 2011 11-'10 Change
$'s Thousands Budget Budget $ %
Baseline Budget
Salaries 5,152 5,014 (138) -2.7%
Benefits 2,037 1,530 (507) -24.9%
Wages & Benefits 0 0 0 NA
OPEB 31 37 6 18.0%
Salaries & Wages to Capital 826 1,133 307 37.2%
Total Payroll Costs 8,045 7,713 (332) -4.1%
Net Payroll Expense 7,220 6,580 (639) -8.9%
Utilities 4,387 4,817 430 9.8%
Other O&M 4,620 4,939 319 6.9%
Total Baseline Budget 16,227 16,336 109 0.7%
Initiatives
Condition Assessments 300 1,000 700 233.3%
Maintenance Dredging 450 1,050 600 133.3%
Tribal Mitigation 200 331 131 65.5%
Cruise Incentive Payment 250 0 (250) -100.0%
Environmental 0 104 104 NA
ISO Certification (4 Terminals) 0 75 75 NA
Significant Repairs & Other 350 150 (200) -57.1%
Contingency 500 250 (250) -50.0%
Total Initiatives 2,050 2,960 910 44.4%
Total Operating Expenses 18,277 19,296 1,019 5.6%
Security Grant Expenses 2,689 3,451 762 28.3%
Environmental Reserve 1,500 500 (1,000) -66.7%
Total Expenses 22,466 23,247 781 3.5%
54
Initiatives
Initiatives - Proposed for 2011 Budget
Condition Assessment
Container Terminals 800
Cruise & Industrial Docks 200
1,000
Maintenance Dredging
T-5 maintenance dredging (phase 1) 1,050
Tribal Mitigation
Contractual Payment 331
Environmental Increased Program Costs
Environmental-Air 64
Environmental-Stormwater 43
Environmental-Permitting & Compliance Programs 47
Environmental-Finance Support (50)
104
Terminal Efficiency Initiative
ISO Certification (4 Terminals) 75
Other Required Work
Terminal 86 Appraisal 150
Contingency
Contingency 250
Total 2011 One-Time Expenses 2,960
55
Northwest Ports Clean Air Initiatives
and Environmental Reserves
Classified as Non-Operating Expense
$'s Thousands 2011
Non-Operating Expense Budget
PSCAA- ABC FUELS $1,050
Environmental Reserve 6,200
Total $7,250
56
Full-Time Equivalents (FTEs)
FTE's
2010 Budget 60.4
Staff Addition:
Special Project Director (Ltd Duration) 1.0
Staff Reductions:
Dir of Prof & Tech Srvs position elim -1.0
Special Project Director (Ltd Duration) -1.0
Adjusted 2010 59.4
2011 Budget
Trsfer- Envir Controls Tech fr Sea Proj Mgmt 1.0
Subtotal 1.0
Proposed FTE's for 2011 60.4
57
Full-Time Equivalents (FTEs) Summary
Seaport FTE Summary 2008 Bud 2009 Bud 2010 Bud 2011 Bud
Commercial Strategy 7.3 6.3 4.3 4.3
Container Ops & Support Properties 6.0 6.0 5.6 5.6
Cruise & Industrial Properties 9.3 8.3 9.3 9.3
Seaport Finance 4.6 4.6 4.6 4.6
Seaport Environmental 20.9 20.3 19.3 20.3
Seaport Security 5.0 5.0 5.0 5.0
Seaport Planning 4.3 4.3 4.3 5.3
Asia Business Development 0.0 0.0 2.0 2.0
Seaport Admin 7.5 7.0 6.0 4.0
Total Seaport 64.9 61.8 60.4 60.4
58
Seaport Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
2008 2009 2010 2010 2011 '11-'10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 85,404 89,844 88,534 89,781 93,562 5,028 5.7%
Security Grants 850 847 2,535 824 3,415 880 34.7%
Environmental Grants (0) 0 1,600 1,600 600 (1,000) -62.5%
Total Revenues 86,254 90,691 92,669 92,205 97,577 4,908 5.3%
Expenses
Direct Expenses 23,032 25,108 22,698 23,127 24,081 (1,383) -6.1%
Security Grant Expenses 920 860 2,689 978 3,451 (762) -28.3%
Environmental Reserves 866 24 1,500 1,500 500 1,000 66.7%
Divisional Allocations 2,335 2,123 2,575 2,575 2,511 64 2.5%
Corporate Allocations 12,734 12,430 13,862 13,862 16,565 (2,703) -19.5%
Operating Expenses 39,887 40,545 43,324 42,042 47,108 (3,784) -8.7%
Net Operating Income 46,367 50,145 49,345 50,162 50,469 1,125 2.3%
59
Containers Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
Containers & Support Properties
2008 2009 2010 2010 2011 '11-'10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 56,442 59,655 59,651 60,310 63,490 3,839 6.4%
Total Revenues 56,442 59,655 59,651 60,310 63,490 3,839 6.4%
Expenses
Direct Expenses 8,681 10,840 7,374 7,628 9,233 (1,859) -25.2%
Divisional Allocations 5,789 5,160 5,757 5,757 4,858 900 15.6%
Corporate Allocations 7,314 7,300 7,852 7,852 9,603 (1,751) -22.3%
Operating Expenses 21,784 23,300 20,983 21,237 23,693 (2,710) -12.9%
Net Operating Income 34,658 36,356 38,668 39,073 39,797 1,129 2.9%
60
Cruise Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
Cruise
2008 2009 2010 2010 2011 '11-'10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 9,375 10,744 10,503 10,503 10,215 (287) -2.7%
Total Revenues 9,375 10,744 10,503 10,503 10,215 (287) -2.7%
Expenses
Direct Expenses 2,133 2,827 1,817 1,817 1,828 (11) -0.6%
Divisional Allocations 976 972 1,326 1,326 1,032 294 22.2%
Corporate Allocations 1,558 1,605 2,269 2,269 2,604 (336) -14.8%
Operating Expenses 4,667 5,404 5,412 5,412 5,465 (53) -1.0%
Net Operating Income 4,709 5,340 5,091 5,091 4,750 (340) -6.7%
61
Bulk Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
Bulk Grain
2008 2009 2010 2010 2011 '11- '10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 7,053 6,049 5,533 6,068 6,087 554 10.0%
Total Revenues 7,053 6,049 5,533 6,068 6,087 554 10.0%
Expenses
Direct Expenses 702 322 214 214 428 (214) -100.2%
Divisional Allocations 307 234 216 216 215 1 0.3%
Corporate Allocations 986 744 707 707 872 (165) -23.3%
Operating Expenses 1,995 1,301 1,137 1,137 1,516 (378) -33.3%
Net Operating Income 5,058 4,748 4,396 4,931 4,572 176 4.0%
62
Docks & Industrial Properties
Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
Docks & Industrial Properties
2008 2009 2010 2010 2011 '11- '10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 12,519 13,349 12,848 12,901 13,770 922 7.2%
Total Revenues 12,519 13,349 12,848 12,901 13,770 922 7.2%
Expenses
Direct Expenses 4,045 4,537 5,523 5,698 6,181 (658) -11.9%
Divisional Allocations 1,925 1,513 1,980 1,980 1,851 128 6.5%
Corporate Allocations 2,534 2,266 2,638 2,638 3,112 (474) -18.0%
Operating Expenses 8,504 8,316 10,140 10,315 11,144 (1,004) -9.9%
Net Operating Income 4,016 5,033 2,708 2,586 2,626 (82) -3.0%
63
Risks
U.S. and Global economic uncertainties - Potential
impact on Container and Cruise volumes
Competitive Pressures
Traffic congestion due to construction
Unexpected Repairs
Environmental Reserves
Performance Audit Implications
64
Real Estate Division
2011 Preliminary
Operating Budget
65
Key Assumptions
Marina occupancy rate 93% compared to 94% in
2010 Budget
Fishing & Commercial occupancy rates FT 82%
and MIC 70% compared to FT 78% and MIC 72%
in 2010 Budget
Commercial Properties target 90% occupancy.
2010 Budget target was 90%
66
Key Assumptions (continued)
Activity at Bell Harbor International Conference
Center forecasted to increase by 16% over 2010
Budget
Continue ownership of Eastside Rail Corridor
Increasing staff time spent on requests for
easements/licenses/leases
Expanding maintenance issues
Execution of Deferred Maintenance Plan continues
with $2.1 million of projects budgeted for 2011
6767
Org Revenues By Group
Real Estate Division Only
2008 2009 2010 2010 2011 11-'10 Bud Change
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenue
Harbor Services 10,538 11,355 11,260 11,222 11,448 188 1.7%
Portfolio Management 22,587 17,563 17,347 17,865 18,373 1,026 5.9%
Commercial 7,650 7,100 6,587 6,672 6,513 (74) -1.1%
Third Party 14,938 10,463 10,760 11,194 11,860 1,100 10.2%
Development & Planning 1,181 804 749 621 724 (26) -3.4%
Eastside Rail 0 0 155 75 45 (110) -70.9%
Facilities & Maintenance 894 708 413 209 352 (60) -14.6%
Total Revenue 35,200 30,430 29,923 29,992 30,942 1,019 3.4%
68
Real Estate Org Expense Budget
Real Estate Division Expenses Only
2010 2011
$'s Thousands Budget Budget Change %
Baseline Budget
Salaries 5,454 5,815 362 6.6%
Benefits 2,509 2,121 (388) -15.5%
Wages & Benefits 6,837 7,168 331 4.8%
Salaries & Wages to Capital 1,000 1,000 0 0.0%
Total Payroll Costs 15,800 16,104 305 1.9%
Net Payroll Expense (net of to capital) 14,800 15,104 305 2.1%
Utilities 2,988 3,237 249 8.3%
Third Party Mgmt (Hospitality Only) 7,605 7,613 8 0.1%
Increase Maint (prevents def maint) 991 2,036 1,045 105.4%
Other O&M 3,175 3,220 45 1.4%
Allocated to Capital (631) (400) 231 -36.6%
Total Baseline Budget 28,929 30,810 1,882 6.5%
Initiatives
Tenant Improve & Broker Fees 343 155 (188) -54.8%
Deferred Maint Projects in Budget 1,561 1,691 129 8.3%
Deferred Maint Salaried Staff 133 198 65 49.0%
Net Shed related work 179 260 81 45.5%
T91 Development Study (50%) 0 138 138 NA
Eastside Rail Corridor 484 484 0 0.0%
Contingency 0 0 0 NA
Total 2,700 2,925 226 8.4%
Total Operating Expenses 31,629 33,736 2,107 6.7%
69
Baseline Maintenance Work
$'s Thousands
Increase in Baseline Maintenance
2011 Budget
Reimburseable work (offset by revenue) 223
Police related maintenance 64
T91 Cruise Facility (gangway warranty expiring) 130
Seaport Industrial Properties 49
T102 (Annual Piling Replacement) 87
StormWater - Pollution Prevention Plan 86
Unfunded Preventive Maintenance 293
Fuel Expense 112
Total Increase in Baseline Maintenance 1,045
70
2011 Deferred Maintenance Projects
$'s Thousands
Deferred Maintenance Projects
2011 Budget
P69 Concrete beams rehab 350
Bell St. Garage sprinklers 357
Lighting Systems Upgrade 100
T102 Electrical Condition Study 42
Other 1,039
Subtotal per schedule 1,889
Maint Net Shed related work * 250
Total Deferred Maintenance Projects 2,139
Note*: Total 2011 Net Shed related w ork cost is $260K. The
additional $10K is for permits and is budgeted in
Harbor Services
71
Full-Time Equivalents (FTEs)
2010 Budget 154.8
Maintenance - Admin for Deferred Maint 1.0
Maintenance - Deferred Maint Project Manager 1.0
Maintenance - Skilled Crafts 5.0
Maintenance - Exempt Personnel Staff 3.0
Adjusted 2010 164.8
2011 Budget
Staff Reductions:
Harbor Srvs - Compliance Coordinator (Ltd Duration) (1.0)
Staff Additions:
Portfolio Mgmt - Upgrade two positions 0.0
Portfolio Mgmt - Real Estate Specialist 1.0
Net Change 0.0
Proposed 2011 Budget 164.8
72
Org Expenses By Group
Real Estate Division Expenses Only
2008 2009 2010 2010 2011 11-'10 Bud Change
$'s Thousands Actual Actual Budget Forecast Budget $ %
Operating Expenses
Harbor Services 4,179 4,316 4,513 4,653 4,454 (59) -1.3%
Portfolio Management 12,347 10,333 11,475 11,713 11,949 474 4.1%
Commercial 1,902 3,119 3,440 3,700 3,605 165 4.8%
Third Party 10,445 7,214 8,034 8,013 8,344 309 3.8%
Development & Planning 7,770 622 574 574 759 185 32.3%
Eastside Rail Corridor 0 48 484 404 484 0 0.0%
Maintenance 11,971 10,816 12,298 12,298 14,279 1,981 16.1%
Facilities 1,995 1,835 1,913 1,684 1,453 (459) -24.0%
Division Admin 356 376 372 372 358 (14) -3.8%
Contingency 0 0 0 0 0 0 NA
Total Operating Expenses 38,619 28,346 31,629 31,698 33,736 2,107 6.7%
7373
Real Estate Budget Summary
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
2008 2009 2010 2010 2011 '11-'10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Revenues
Operating Revenues 34,798 30,132 29,798 29,867 30,707 909 3.1%
Total Revenues 34,798 30,132 29,798 29,867 30,707 909 3.1%
Expenses
Direct Expenses 36,402 27,525 30,949 31,018 33,221 (2,272) -7.3%
Environmental Reserves (48) 0 0 0 0 0 NA
Divisional Allocations (3,413) (3,200) (3,802) (3,802) (3,787) (15) -0.4%
Corporate Allocations 5,253 5,244 5,808 5,808 6,645 (836) -14.4%
Operating Expenses 38,195 29,569 32,956 33,025 36,079 (3,123) -9.5%
Net Operating Income (3,397) 563 (3,158) (3,158) (5,372) (2,214) -70.1%
74
Real Estate Budget Summary
Net Operating Income By Business
Inclusive of Direct Charges & Allocations from Corporate, CDD, & Other Divisions
2008 2009 2010 2010 2011 '11-'10 Bud Var
$'s Thousands Actual Actual Budget Forecast Budget $ %
Net Operating Income
Recreational Boating 1,864 2,052 1,236 1,193 850 (386) -31.2%
Fishing & Commercial (1,560) (1,753) (3,113) (3,248) (2,755) 358 11.5%
Portfolio Management 3,235 661 (436) (131) (1,726) (1,290) -295.9%
Eastside Rail 0 (79) (358) (358) (649) (291) -81.4%
RE Development & Plan (6,984) (318) (486) (614) (1,091) (605) -124.4%
Environmental Reserve 48 (0) 0 0 0 0 NA
Net Operating Income (3,397) 563 (3,158) (3,158) (5,372) (2,214) -70.1%
75
Risks
Potential higher vacancies in commercial
properties and recreational marinas
Eastside Rail Corridor
Deferred maintenance costs
SAO audit compliance implications
Tenant improvement allowances
76
Capital Development Division
2011 Preliminary
Operating Budget
77
CDD 2010 & 2011 Budgets
2010 Budget 2011 Budget
FTE 268 262.5
Total Salaries & Benefits $28,841,084 $28,451,234
On-site consultants $ - $5,529,009
Small Works Constr
Contracts $509,136 $1,122,664
Total Before Capital Ch
& Trans $33,936,273 $38,637,105
Sal/Wag to Capital $14,985,375 $13,663,576
Capital Projects Overhead $11,621,815 $6,295,482
On-site consultants to
Capital $ - $4,424,462
Total Charges to Capital $26,607,190 $24,383,520
Total Operating
Expense $7,352,033 $14,278,467
78
CDD 2011 by Department
O9000: Capital
ENG PCS AVPMG SPMG CPO CDD Admn All CDD Total
Development
FTE 110.5 54 42 17 37 2 262.5
Payroll to Capital
6,601.49 3,439.92 1,606,901 1,020,217 995,046 13,663,576
Projects
Total Salaries &
11,604,496 5,542,750 4,883,027 2,280,971 3,748,682 341,307 28,451,234
Benefits
64140 On-site
2,322,000 3,207,009 5,529,009
Consultants
Total Costs Before
Capital Charges & 15,217,918 7,553,113 8,636,921 2,491,954 4,378,860 358,340 38,637,105
Transfers
Total Charges to
-10,892,177 -4,337,557 -6,338,316 -1,601,627 -1,213,844 -24,383,520
Capital Projects
TOTAL OPERATING
4,333,241 3,216,016 2,298,885 891,328 3,180,358 358,640 14,278,467
EXPENSE
79
Priority CDD Initiatives
Prepare for and pass SAO revisit of 2007 audit
Support OSR in implementing SCS Resolution
Use metrics to manage performance
Streamline service agreement contracting
Update Port standard specifications
Implement SharePoint in CDD
80
Corporate
2011 Preliminary
Operating Budget
81
2011 Corporate Preliminary Budget Summary
Description ($ in 000s) Amount Notes
2011 Preliminary Budget 74,936
2010 Approved Budget 72,001
Increase from 2010 Budget 2,935
Revenue from AAPA Convention 990
Net Increase 1,945
Major Change in 2011 Preliminary Budget
Increase in Salaries 1,690 Included converting 6 contractors to FTEs
Reduction on Non-union Benefits (1,004) Rate overstated in 2010 and more sharing
Increase in Contract Wages & Benefits 1,228 Due to contractual increases in Police
New Budget Additions 1,835 Premarily due to AAPA Conv. & Port Cent.
Other Costs Reduction (814) $440K reduction due to 6 contractors
Increase from 2010 Budget 2,935
82
2011 Budget Additions
# 2011 Budget Additions ($ in 000s) Amount
1. AAPA Convention (mostly offset by revenues) 1,175
2. Port Centennial 314
3. Port Jobs - Truckers Initiative 100
4. Port Jobs - Workforce Development 50
5. Deferred Compensation Third Party Administration 54
6. Educational Reimbursement Program 50
7. Contracted Services for Internal Audit Policies 50
8. Other 41
Total 1,835
Total Budget Requests 4,751
83
2011 Budget Major Changes
2010 2011 $ %
Major Budget Change ($ in 000s) Budget Budget Change Change Notes
Payroll Costs change
Salaries 24,511 26,201 1,690 6.9% Included converting 6 contractors to FTEs.
Benefits 9,607 8,603 (1,004) -10.4% Overstated benefit rates in 2010 budget.
Wage & Benefits 17,983 19,211 1,228 6.8% Contractual increase in Police Dept.
Total Payroll Costs 52,102 54,015 1,914 3.7%
Non-Payroll Changes
Equipment Expense 1,284 1,181 (102) -8.0%
Supplies & Stock 615 673 58 9.5% AAPA Convention.
Outside Services 11,169 11,322 153 1.4% Outside Legal Service, AAPA Convention, etc.
Travel & Other Employee Expense 2,167 2,402 235 10.8% AAPA Convention & Port Centennial.
Promotional Expense 367 882 515 140.4% AAPA Convention & Port Centennial.
Telecommunications 746 788 42 5.6% AAPA Convention & Port Centennial.
Insurance Expense 2,046 2,050 4 0.2%
Charge to Capital (3,612) (3,283) 328 -9.1% Due to change of Capital OH policy in 2011.
Other 1,507 1,624 117 7.7% Truckers Initiative and Workforce Development.
Total Non-Payroll Expenses 19,899 20,921 1,022 5.1%
TOTAL 72,001 74,936 2,935 4.1%
84
2011 Corporate Budget
2009 2010 2011 2010 to 2011 Change
($ in 000s) Actual Budget Budget $ %
TOTAL REVENUES 374 18 1,025 1,007 5594.5%
EXPENSES
Executive 1,551 1,536 1,500 (36) -2.3%
Commission 750 868 931 64 7.3%
Legal 2,702 2,713 2,906 194 7.1%
Risk Services 2,526 3,009 2,789 (220) -7.3%
Health & Safety 913 1,095 1,129 34 3.1%
External Affairs 4,918 5,997 7,012 1,015 16.9%
Human Resources & Development 3,913 5,048 5,213 165 3.3%
Labor Relations 542 784 922 137 17.5%
Information & Communications Tech. 17,505 19,076 19,511 435 2.3%
Finance & Budget 1,635 1,529 1,493 (36) -2.3%
Accounting & Financial Reporting 5,836 6,716 6,596 (119) -1.8%
Internal Audit 978 1,109 1,215 106 9.6%
Office of Social Responsibility 1,431 1,458 1,567 109 7.4%
Contingency 420 750 700 (50) -6.7%
Police 18,409 20,314 21,452 1,138 5.6%
Total Corporate Costs 65,481 72,001 74,936 2,935 4.1%
85
2011 Corporate FTE Summary
FTEs
2010 Approved Budget 450.2
Mid-Year Approval (convert 6 contractors to FTEs) 7.3
Adjusted 2010 Total 457.5
Eliminated FTEs -10.9
2011 Proposed New FTEs 0.0
Proposed FTEs for 2011 446.6
Change from 2010 Approved Budget -3.6
86
Risks
SAO Performance Audit implications
Insurance premiums on renewal
Unexpected litigations or claims
Unanticipated events & TSA mandates
87
Payroll Discussion & Options
88
The Port has proactively managed
2001 Exited crane maintenancereduction of
staffing levels and payroll costs to 19.2 Seaport FTEs
respond to business challenges over the
2002 10% across the board expense cuts
past decade following 9/11
Exited Warehouse business/reorganized
Seaportreduction of 187.5 FTEs
Total Port FTE's Flat 3% pay increase for all non-union staff
2000 Eliminated Port 401A supplemental
retirement contributions
1832
1800 1778
1779 2003 Changed medical benefits providers to
1709 1702 contain medical cost increases
1647 1680 Non-union pay ranges frozen at 2002 levels
1600
1584 1622 1608
2004 Aviation reorganizationreduction of 66.9
New AV security
FTEs
1400 mandates, converted
contractors to FTEs, All wages and salaries frozen
and new RE division, Non-union pay ranges frozen at 2002 levels
OSR, CDD, CPO, and
1200
Internal Audit. 2009 Two week furloughs for all employees
Medical cost shifting to employees through
10% coinsurance
1000
Retiree medical subsidy eliminated
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Layoffs/VSPreduction of 106 FTEs
Bud
2010 Non-union pay ranges frozen at 2009 levels
Overall Port staffing levels decreased by Additional medical cost shifting to
8.3% from 2001-2010 employees through premium sharing
Planned move to medical self funding
89
Net Operating Income Comparison
90
73% of Revenue is Reasonably Stable
91
High Performance Organization
In 2003, as part of the Port's Strategic Plan,
Commission set a goal of being a "High
Performance Organization".
Expected Outcomes of a High Performance
Organization:
High productivity, efficiency & strong financials
High levels of customer satisfaction and loyalty
92
High Performance Organization
These Outcomes are Achieved by:
Attracting & retaining superior performers
Providing a motivating & engaging work environment
Fostering an environment that promotes well thought
out creativity and innovation
Ensuring an active employee development program
Providing a competitive pay and benefit program that
includes a performance based pay program for nonrepresented
employees
93
Port Total Compensation Practices
Represented: 47% of Non-represented: 53% of
employees employees
Good faith bargaining Salary & Benefit Resolution
Terms differ unit-by-unit Same terms cover entire group
On semi-staggered 1-4 year Reviewed and updated annually
cycles Pay for performance increases
No pay for performance No step increases / No COLA
Step increases / 2%-6% COLA Port sponsored health plans
Most units use union health care State retirement plan
& have 100% maintenance of 401(a) match
benefits
Some units get union pensions
and supplemental retirement
funds
94
Benchmarking Pay
We compete with private and public sector
organizations for employees
Many employees perform technical, often
specialized or unique work
Goal is to have market competitive pay for all
employees
Data for non-represented pay comparisons comes
from all industry survey data (public and private
employers)
Data for represented pay comparisons comes from
public sector employers
95
Non-Represented Pay
Goal is to keep pay ranges comparable to market
Pay range adjustments determined by comparing ranges
to average actual market pay and next year's anticipated
pay increases
Performance increases targeted to general industry
increases
Total increases at local public employers and anticipated
Port represented employee increases considered as well
Latest published surveys are reporting anticipated,
all industry average pay increases of 2.9% to 3.0%
for 2011
Preliminary budget assumes 2.5% average Pay for
Performance increase for 2011
96
Medical Cost Containment Efforts
Port sponsored medical plan covers approximately
990 employees
Approximately 12.5% are union employees
2008 deductibles and office visit copays increased
Deductibles increased from $200 to $300
Office visit copays increased from $15 to $25
2009 10% coinsurance added to both Premera
plans
2010 Employee premium sharing implemented
Employees pay an average of 5% of medical premiums
97
Medical Cost Containment Efforts
2011 ChangesPort Sponsored Plan
Converting Premera (and WDS dental) plans to selfinsured
Employee premium sharing increasing
Average employee contribution increasing from 5% to
approximately 8.7%
Keeps Port sponsored medical and dental costs flat
compared to 2010
Compared to projected increase of 12.3% with no changes
Employee premium increase & increasing PERS
retirement contribution offsets slightly more than half
of the 2.5% average Pay for Performance increase
98
2011 Key Payroll Assumptions Summary
Average pay-for-performance increase of 2.5% for
non-represented staff
Medical benefit costs flat for Port sponsored plan
(with self funding and increased employee premium
sharing)
PERS employer contribution increase from 5.3% to
8.6% effective 7/1/11 (7% blended full year rate)
Represented payroll varies by individual contract:
Wages COLA, STEP, other increases
Benefits POS contributions to Health & Welfare, Pension
trusts; most contracts have no employee cost sharing
11 of 23 contracts open 2010-11
99
2010-11 Payroll Comparison
(Includes Salaries, Wages & Benefits, Expense & Capital)
Payroll ($ in 2010 2011 Budget Change in Change in
000s) Budget $ %
Non-represented 100,305* 104,241 3,936 3.9%
Represented 81,264 87,368 6,104 7.5%
TOTAL 181,569 191,609 10,040 5.5%
Adjustments Change
vs. 2010
Budget
2010 Mid-Year Approvals and New 2011 FTEs 2,790 1.5%
Pay Increase Carryover from 2010 1,170 0.6%
Other Pay Adjustments 1,440 0.8%
Total Adjustments 5,400 3%
Estimated Baseline Increase 4,640 2.6%
*Estimated benefits reduced to adjust for over budgeting in 2010; numbers exclude projected $235K increase in Unemployment Costs
100
Payroll Reduction Options
Estimated Savings
Two week furloughs for all staff $6.5 million
Freeze pay for non-represented $2.1 million
employees
Suspend 401A supplemental Offsets approximately $900 thousand
retirement match to offset expected of estimated $1.1 million PERS
PERS contribution increase contribution increase
Negotiate open labor contracts/reopen TBD
existing contracts
Apply HR benefit fund (cash funding Approximately $2.6 million could be
onlyno budget impact) used to fund benefit costs
Staff Reductions 45-50 FTEs to offset baseline payroll
increase
101
Remaining Schedule
October
Tax Levy Discussion (10/12)
Preliminary Budget Document to the Commission (10/19)
Draft Plan of Finance (10/26)
Release of Preliminary Budget & Draft Plan of Finance (10/28)
November
First reading of budget resolution (11/9)
Second reading of budget resolution (11/23)
December
Statutory budget filed (12/2)
Release Final Budget & Draft Plan of Finance (12/15)
102
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