Item 9a Supp-1 Tax Levy

ITEM NO.   9a Supp-1
DATE OF
MEETING September 17, 2009

Preliminary Tax Levy Discussion

September 17, 2009

Topics
Background  historical levy uses
Century Agenda  New Funding Policy
Self Sustaining Seaport
Levy Use for Real Estate
Preliminary Levy Scenario



2

Tax Levy Background

General Purpose tax levy authorized for "any lawful Port purpose"
Statutory limitations on annual collection; Port is below maximum
By policy generally restricted to Seaport/Real Estate capital
investments, environmental expenses, freight mobility projects
Federal restrictions on use of airport revenues for non-airport
purposes


3

Prior Levy Funding Criteria*

Projects with long lead times where revenues significantly lag capital
expenditures; or
Project financial return won't support revenue bond financing; and
Project generates significant regional economic or community
benefits


* Policy endorsed by Port Commission in 1990s
4

1994-2008 Seaport & Real Estate Invested $1.5
Billion, Approximately  was Levy Funded
Levy Funding* ($ million)
Container terminal expansion and development              447
Harbor wide dock renewal and upgrades                   90
Central Waterfront redevelopment                       84
Cruise Terminals                                   35
Environmental costs                                49
Fishermen's Terminal improvements                     27
Freight Mobility (FAST Corridor)                          25
Highline Schools Noise Mitigation                         15
Eastside Corridor                                   11
Other (NorthBay, parks, security, small projects)                20
*Includes cash and General Obligation bond funding; represents partial funding of some projects
Approximately $90 million is non-capital spending
5

2009 Levy Uses - Budget
2009 Budget
SOURCES
Levy uses include debt       Projected Tax Levy Collection         75,899
service on G.O. bonds       Prior Year Levy Fund Balance         36,800
Total Projected Sources                 112,699 
primarily used to fund
Seaport projects           USES
Existing G.O. Debt Service - Seaport              38,031
Existing G.O. Debt Service - Real Estate            2,391
Subtotal Existing Debt Service                 40,422
Levy cash can be used for     Projected new G.O. Debt Service - Seaport     6,764
either Seaport or Real        Projected new G.O. Debt Service - Real Estate    10,586
Subtotal New Debt Service                  17,350
Estate projects
Total Projected G.O. Debt Service           57,772
Committed Capital Expenditures                32,476
BP Prospective Capital Expenditures              4,000
Expense
Public Expense: Seaport (Fast Corridor I & II)       6,705
Environmental Expense                     4,232
Port Jobs                                 46
Aviation NOISE Projects                     650 
Total Projected Expenses                11,633
Total Projected Uses                   105,881 
Projected Ending Balance                     6,818
6

Existing G.O. Bond Debt Service
2009
(in 000's)
Containers
Stage II Dredge- Phase I                             $922
T-5 Expansion & Upgrades                       18,089
T-46 Expansion Redevelopment                    4,458
T-18 Expansion & Upgrade                      12,074
Total Containers                                 $35,544
Docks and Commercial Properties
T-91 Apron & Infrastructure Improvements               2,219
Pier 17 Dock Replacement                          122
T-86 Terminal Upgrades                           120
Total Docks and Commercial Properties                   $2,461
Commercial Properties
World Trade Center Garage                         640
Fishing
Fishermen's Terminal Docks & Seawall Renewal           1,778
Total G.O. Bond Debt Service                      $40,423


7

Century Agenda: Funding Policy & Strategy Principles
The Port should be primarily funded through the self-sustaining enterprises that
are at the core of its mission. Revenues from the Port's tax levy should be used
for activities that are not fully self-sustaining and cannot be funded in another
manner. These activities should directly support the Port's core mission,
provide for critical infrastructure investments, or provide environmental
mitigation that cannot be funded through its enterprises.
The Port should demonstrate to the public that it has managed its financial
resources as a disciplined steward of the public interest, guided by priorities set
forth in its strategic plan
The Port should foster a culture of partnership and collaboration in pursuing
public and private funding partnerships for investments that reap shared
benefits to all its partners, and that no single entity can achieve independently.
Adopted August 4, 2009

8

Assumptions for Preliminary Discussion
Preliminary information  for discussion only
Information is based on Seaport and Real Estate updates in June
2009
All information will be updated as part of the budget process
Airport information not included
Airport is separately funded and self-sufficient
Exception is the Highline School noise mitigation which is levy
funded



9

Approach
Seaport and Real Estate had been a combined operating division
Separated in 2008 for operations and reporting
Have continued to be combined for funding purposes
This discussion considers the implications of separate funding for
Seaport and Real Estate
Ability to generate funds from operating revenue
Tax levy support
Seaport   Real Estate
Positive cash flow            Yes        No
Self-supported CIP          Yes       No
Tax Levy support needed      No (1)      Yes
(1) Assumes deferral of some capital projects

10

Seaport Cash Flow - Positive
Seaport generates positive operating cash flow (NOI before
depreciation)
Seaport's cash flow is also positive after payment of revenue bond debt
service

Seaport Generates Positive Operating Cash Flow        Seaport Cash Flow Positive after Debt Service
120,000                                              70,000
100,000                                              60,000
50,000
80,000
40,000
60,000
30,000
40,000
20,000
20,000                                              10,000
- -
2010     2011     2012     2013     2014             2010     2011     2012     2013     2014
Revenue     Expenses     NOI before depreciation            NOI   Existing Revenue Debt Service   cash flow after debt service



11

Real Estate Cash Flow - Negative
Real Estate operating expenses exceed revenues  negative operating
cash flow (NOI before depreciation)
Revenue bond debt service further reduces cash flow
Real Estate Revenue Bond debt totals $59 million

Real Estate Operating Cash Flow is Negative              Real Estate Cash Flow after Debt Service is
45,000                                                                     Negative
6,000
35,000
4,000
25,000                                                  2,000
-
15,000                                                 (2,000)
(4,000)
5,000                                                  (6,000)
(8,000)
(5,000)                                                       (10,000)
2010     2011     2012     2013     2014               2010     2011     2012     2013     2014
Revenue     Expenses     NOI before depreciation               NOI    Revenue Debt Service    cash flow after debt service



12

Solving the Real Estate cash flow deficit
There are three options for managing the negative cash flow
1. Continue to use Seaport positive cash flow to pay Real Estate
operating deficit and debt service
Alternatively
2. Use the tax levy to pay for the Real Estate deficit
3. Retool Real Estate to improve cash flow
Real Estate is already working toward improved profitability
where possible
Assets can be sold or leased and proceeds used to pay
down Real Estate debt
These options can be combined
For analysis, options 1 & 2 are considered separately

13

Option #1: Seaport Support of RE reduces
Seaport Capital Funding Capacity
Seaport CIP and Capital Funding Capacity
Seaport's cash flow without
2010-2014 ($million)
supporting RE can support a
400
$206 million CIP           350
Requires deferral of $135 million   300
135
250
of the total $341 million CIP
200
150      130          130
100                              61
Seaport's ability to fund its
50       76          76          80
CIP decreases further if it -
Total CIP        Self-Sufficient       Support RE
supports RE
Seaport will likely need tax levy        Operating cash flow  Revenue Bonds  Unfunded
support for some capital projects
Or defer an additional $65 million       Seaport CIP includes Committed and
of capital spending until post           Business Plan Prospective projects
2014                      5-yr total is $341 million
Of which, $135 million needs to be deferred

14

Option #2: Tax Levy Supports Real Estate
Policy Question  Should the tax levy be used to fund the Real Estate
operating deficit (including direct expenses and allocated overhead)
Legally levy can be used for this purpose, but Port policy has
excluded most operating expenses
Alternative is to continue tax levy support of Seaport
Allows Seaport to support Real Estate
Capital Projects  historically the tax levy has funded a variety of
capital projects for Seaport and Real Estate
Under Option #2, Real Estate projects would be levy funded
No Real Estate cash flow for funding projects
No Seaport support
Under Option #2, Seaport would no longer receive levy funding for
capital projects

15

Other Tax Levy Uses
For budget planning purposes, staff is assuming that the tax levy will
continue to fund the following
Existing G.O. bond debt service
Public expense projects
FAST corridor
Eastside corridor
Highline School noise mitigation
Seaport and Real Estate environmental expenses
Seaport and Real Estate portion of PortJobs



16

Preliminary Levy Scenario
9/9/2009 Update               2010    2011    2012    2013    2014
Possible levy scenario    LEVY USES
G.O. DS                  40,426  40,438  40,442  40,444  40,442
based on preliminary
information             Other uses
Sea Pub Exp FAST/mobility      21,644   1,509
Levy is maintained at     AV Pub Exp - Highline Noise    9,075  7,650   650  4,880
2009 levy until 2013      Environmental Reserve cash flow  5,466  2,630  1,407   500   264
PortJobs                    46     46     46     46     46
No new G.O. debt
Subtotal Other             36,231  11,835   2,103   5,426    310
Real Estate Support
Assumptions          RE Capital         44,307 26,575 21,686 20,200 10,756
Port participation in          RE Operating Subsidy         3,119   2,790   2,130   2,951   2,930
waterfront tunnel has not       Subtotal RE Support        47,426  29,365  23,816  23,151  13,686
been included in the
Total Uses                124,083   81,638   66,361   69,021   54,438
calculations
Environmental cash flows   LEVY SOURCES
are based on current        Available Balance         48,000   (184)  (5,923)      3,615   (406)
reserved amounts         Annual levy           75,899  75,899  75,899  65,000  55,000
Total Sources             123,899   75,715   69,976   68,615   54,594
Projected Ending Fund Balance     (184)  (5,923)        3,615    (406)    156

17

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