8a 2019 Budget Presentation
Item No. 8a Meeting Date: November 13, 2018 Port of Seattle 2019 Budget First Reading & Public Hearing Commission Meeting November 13, 2018 1 Outline 2019 Budget Process Recap 2019 Key Business Activity Forecasts and Key Initiatives 2019 Operating Budget 2019 Comprehensive Operating & Non-Operating Budget 2019-2023 Capital Plan 2019 Staffing Summary 5 Year Financial Forecast 2019 Sources and Uses of Funds 2019 Proposed Tax Levy Remaining 2019 Budget Schedule 2 2019 Budget Process May 22 2019 Budget Process and Development Briefing to the Commission Jun. 26 2019 Aviation Business Plan and Budget Development Briefing to the Commission Jul. 10 2019 Maritime Business Plan and Budget Development Briefing to the Commission Jul. 24 2019 EDD Business Plan and Budget Development Briefing to the Commission Jul. 24 2019 Maritime and EDD CIP and Capital Funding Pre-Budget Commission Study Session Sept. 4 Memo to Commission Regarding Key Budget Assumptions for 2019 Sept. 24 2019 Maritime and Economic Development CIP and Capital Funding Budget Study Session Sept. 25 2019 Central Services Operating Budget Briefing Oct. 10 2019 Central Services Capital Budget Briefing Oct. 10 2019 Aviation and Maritime Division Budgets Briefing Oct. 23 2019 EDD Operating Budget Briefing Oct. 23 2019 Preliminary Budget Document to the Commission Oct. 25 2019 Preliminary Budget Document released to the public Nov. 7 Special Budget Session on Maritime and EDD Capital Budgets Nov. 13 Tax Levy & Draft Plan of Finance Commission Briefing Nov. 13 First Reading & Public Hearing of the 2019 Preliminary Budget Nov. 27 Second Reading & Final Passage of the 2019 Preliminary Budget Dec. 3 File the 2019 Statutory Budget with King County Dec. 14 Release the 2019 Final Budget and Draft Plan of Finance Commission engaged in the budget process 3 2019 Business Activity Forecasts Aviation Division: Forecast 3.0% growth in enplaned passenger for 2019 (from the 2018 year-end forecast, which is expected to be 5.1% higher than 2018) Enplaned passengers up 46% since 2013 (6.5% 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: 11.1% growth in cruise passengers to a record 1.2 million in 2019 13.7% reduction in grain volumes in 2019 due to the current trade climate and tariffs Fishing and Commercial Operations occupancy rate average of 86%, same as 2018 Economic Development Division: Commercial Properties target 95% occupancy rate at the end of 2019 2019 budget supports growth in Port businesses 4 2019 Key Initiatives Serve regional demand and maintain our global gateway. Serve regional demand Continue to improve Support Cruise passenger Build capabilities through for air service at Sea-Tac safety & security growth process improvement Support the airport Continue to improve Advance real estate Strengthen the Port's capital improvement customer service development projects Centers of Expertise program Serving increased demand is a key budget driver 5 2019 Key Initiatives Create equitable opportunities throughout the region and invest in healthy communities and environment. Diversity in Contracting Workforce development EPA Grant for work with Promote economic and WMBE Continue internship program near-Port communities development for the region Equity Program and expand career Energy and Sustainability Expand tourism Priority Hire connected learning grants opportunities Expand stakeholder Supporting Fair Works Sustainable Aviation engagement Center at the Airport Fuels Budget resources support community priorities 6 2019 Budget Highlights Operating revenues are budgeted at $753.3M, $82.8M or 12.3% higher than 2018 budget, and $67.7M or 9.9% above 2018 forecast Operating expenses are budgeted at $453.7M, $30.8M or 7.3% increase from 2018 budget, and $34.3M or 8.2% above 2018 forecast Net Operating Income is budgeted at $299.5M, $51.9M or 21.0% above 2018 budget, and $33.4M or 12.5% above 2018 forecast The 2019 capital budget is $1.0 billion and the 5-year capital spending plan is over $3.1 billion The proposed tax levy for 2019 is $74.2M The 2019 budget reflects the Port's growth and continued investments for the region 7 Changes after the Preliminary Budget Published Aviation Division Aeronautical revenues (cost recovery) decreased by $1,459K primarily due to delay in hiring for Phase 2 Employee Screening. Non-aeronautical revenues increased by $2,535K due to: o $2,470K higher Rental Car revenue based on improved YTD 2018 performance trends o $484K increase in ADR & Terminal Lease Space business due to Pest Management reimbursement revenue. o $379K reduction in cost recovery for Ground Transportation due to less cost allocation o $40K reduction in Utilities due to less cost allocation Operating expenses lower by $1,160K due to: o $1,450K due to hiring delay for implementation of Phase 2 Employee Screening o $162K reduction due to removal of a duplicate Firefighter position discovered during budget review o $200K incremental increase in Air Service incentive for newly announced routes and anticipated additional new route o $241K increase in solid waste surcharge. o $9K net increase in B&O tax due to higher revenues Additional refinements made to the budget 8 Changes after the Preliminary Budget Published Economic Development Division Added $200K for Fair Works Center Added back $50K for Visit Seattle in the Tourism Program Made a few minor adjustments to the Tourism budget for a $8.5K net increase Maritime Division & Central Services Phasing in Cruise rate increase over 3 years resulted in $2.3M revenue reduction in 2019 Added $25K for Maritime Tree Inventory Maritime & EDD CIP Included $281.4M and $67.1M five-year CIP for Maritime and EDD, respectively, based on the recommendation from the Executive Director Additional refinements made to the budget 9 2019 Operating Budget for Aviation 2017 2018 2018 2019 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues Aeronautical - Net 264,114 301,082 303,769 365,604 64,522 21.4% 61,835 20.4% Non-Aeronautical 236,803 244,786 251,309 259,537 14,751 6.0% 8,228 3.3% TOTAL 500,916 545,867 555,078 625,140 79,273 14.5% 70,062 12.6% Operating Expenses 299,114 334,856 336,131 366,105 31,249 9.3% 29,974 8.9% Net Operating Income 201,802 211,011 218,947 259,036 48,024 22.8% 40,089 18.3% Growth driving expenses and revenues 10 2019 Operating Budget for Non-Aviation 2017 2018 2018 2019 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues Maritime 54,183 55,053 56,420 59,729 4,677 8.5% 3,310 5.9% EDD 17,791 18,522 19,489 19,725 1,203 6.5% 236 1.2% NWSA Distributable Revenue 54,925 46,647 50,147 43,911 -2,736 -5.9% -6,236 -12.4% Stormwater Utility - Maritime 3,891 4,208 4,208 4,564 357 8.5% 357 8.5% Central Services & Others 324 182 250 185 3 1.8% -65 -25.9% Total 131,114 124,612 130,514 128,115 3,503 2.8% -2,399 -1.8% Operating Expenses Maritime 42,164 49,578 47,420 50,822 1,243 2.5% 3,401 7.2% EDD 25,397 28,751 27,840 31,114 2,363 8.2% 3,274 11.8% Joint Venture/POS 2,974 4,442 4,442 501 -3,941 -88.7% -3,941 -88.7% Stormwater Utility - Maritime 3,033 4,476 4,476 3,933 -543 -12.1% -543 -12.1% Central Services 299 782 619 1,249 468 59.8% 630 101.8% Total 73,868 88,029 84,797 87,619 -410 -0.5% 2,822 3.3% Net Operating Income 57,246 36,583 45,716 40,496 3,913 10.7% -5,221 -11.4% Higher NOI versus 2018 Budget 11 Community Programs Summary 2016 2017 2018 2018 2019 Tax Airport General 2019 Program (in $000) Actual Actual Budget Forecast Budget Levy Dev. Fund Fund Budget Workforce Development 1,483 1,784 2,917 2,067 2,920 1,612 910 398 2,920 Tourism 1,093 1,235 1,460 1,460 1,521 200 1,321 1,521 Adding budget Economic Development Partnership Grants 20 751 960 960 960 960 960 resources for a WMBE & Small Business 356 628 1,509 1,300 1,327 75 928 324 1,327 new Fair Work Center. Fair Works Center 0 0 0 0 200 200 200 Equity Program: Equity Program 0 0 55 0 351 287 64 351 Creating a new department and Diversity in Contracting 0 0 128 100 418 333 85 418 a new Director High School Internship Program 0 484 634 634 634 516 118 634 position Diversity in Airport Community Ecology (ACE) Fund 0 0 400 239 500 500 500 Contracting: Energy & Sustainability (E&S) Fund 0 36 200 130 250 250 250 Adding 3 new FTEs for Energy & Sustainability Program 0 54 255 120 250 199 51 250 Diversity in Community Relief to City of SeaTac 0 0 1,400 1,400 1,400 1,400 1,400 Contacting in Central Port and Local Community Advertising 0 0 0 354 354 354 (354) 354 Procurement TOTAL 2,952 4,971 9,917 8,764 11,085 5,551 2,819 2,361 11,085 Office Change from Prior Year 68.4% 99.5% 76.3% 11.8% Adding new FTEs and resources to advance community programs 12 2019 Operating Budget - Port wide 2017 2018 2018 2019 Budget Change Budget vs Forecast ($ in '000s) Actual Budget Forecast Budget $ % $ % Operating Revenues 632,031 670,479 685,592 753,255 82,776 12.3% 67,663 9.9% Operating Expenses 372,982 422,885 419,417 453,724 30,839 7.3% 34,307 8.2% Net Operating Income 259,049 247,594 266,175 299,531 51,937 21.0% 33,356 12.5% A record $753M of operating revenues for 2019 13 2019 Comprehensive Budget 2017 2018 2018 2019 Budget Change ($ in 000s) Actual Budget Forecast Budget $ % Explanations Revenues 1. Aeronautical Revenues (Net) 264,114 301,082 303,769 365,604 64,522 21.4% Cost recovery under SLOA IV. 2. Other Operating Revenues 367,917 369,398 381,823 387,651 18,254 4.9% Higher revenue from the Airport, Maritime & EDD businesses. 3. Tax Levy 71,702 72,000 72,000 74,160 2,160 3.0% Increased by 3% in 2019. 4. PFCs 88,389 91,787 93,095 95,185 3,398 3.7% Higher enplanement forecast for 2019. 5. CFCs 25,790 22,161 22,161 23,482 1,321 6.0% Increase due to more for debt service cost. 6. Fuel Hydrant 7,000 7,023 7,023 7,022 (2) 0.0% Essentially the same as 2018. 7. Non-Capital Grants and Donations 6,705 5,504 3,000 2,655 (2,849) -51.8% Less state grant in 2019. 8. Capital Contributions 30,112 41,379 41,379 49,345 7,966 19.3% More TSA grant for the Checked Baggage Screen Project. 9. Interest Income 12,174 15,713 25,670 30,903 15,190 96.7% Slight increase in rates and higher cash balances. Total 873,902 926,047 949,920 1,036,007 109,961 11.9% Expenses 1. O&M Expense 372,982 422,885 419,417 453,724 30,839 7.3% New budget initiatives and average pay increase. 2. Depreciation 165,021 163,309 163,309 168,676 5,367 3.3% More new assets come into service in 2019. 3. Revenue Bond Interest Expense 97,748 122,544 105,000 129,429 6,886 5.6% More bond issuance assumed in 2019 increased interest expense. 4. GO Bond Interest Expense 13,891 13,501 13,501 12,689 (812) -6.0% Decreased debt service on GO bonds through amortization. 5. PFC Bond Interest Expense 4,931 4,437 4,437 3,606 (831) -18.7% Decreased debt service on PFC bonds through amortization. 6. Non-Op Environmental Expense 4,464 2,250 40,147 5,000 2,750 122.2% Revise costs estimates for ERL balance and superfund sites. 7. Public Expense 4,588 10,794 11,200 21,009 10,215 94.6% Safe & Swift, Seattle Heavy Haul, Vanderlande Screening Lanes. 8. Other Non-Op Rev/Expense 10,441 473 1,200 1,415 942 199.4% Total 674,066 740,193 758,212 795,549 55,356 7.5% Revenues over Expenses 199,836 185,854 191,709 240,459 54,605 29.4% A strong financial position for the Port in 2019 14 Capital Plan Summary Capital Plan Summary by Division $ in 000's 2018 Fcst 2019 2020 2021 2022 2023 2019-2023 Aviation 574,425 935,454 576,576 515,061 394,108 278,868 2,700,067 Maritime 28,638 33,455 70,415 149,853 12,713 14,936 281,372 Economic Development 3,777 8,221 29,796 21,350 3,960 3,830 67,157 Stormwater Utility 1,913 1,800 2,550 2,319 2,150 2,150 10,969 Central Services and Other 11,848 22,507 10,917 11,872 11,740 33,813 90,849 Total 620,601 1,001,437 690,254 700,455 424,671 333,597 3,150,414 Capital projects have been prioritized by staff. The capital plan does not include Port share of the NWSA capital spending between 2019 and 2023. The Port continues to invest in the region with a 5-year capital plan of over $3 billion 15 10 Year Comparison of FTEs to Revenues The annual compounded growth rate is 2.4% for FTEs compared to 5.5% for operating revenues from 2009 to 2019. Business growth and revenues outgrew FTEs for the past 10 years 16 FTE Summary Central Aviation Maritime Econ Dev. Services Total 2018 Approved FTE's 1,040.4 171.0 36.0 907.1 2,154.5 Mid Year Approval 8.0 - 1.0 12.0 21.0 Eliminated - - (2.0) (1.5) (3.5) Net Transfers 3.0 1.0 - (4.0) - Adjusted 2018 FTE's (note 1) 1,051.4 172.0 35.0 913.6 2,172.0 2019 Budget Eliminated - (1.0) - (0.8) (1.8) Transfer - (1.0) - 1.0 - New FTE's (note 2) 54.4 3.0 1.0 25.5 83.9 Total 2019 Changes 54.4 1.0 1.0 25.8 82.1 Proposed 2019 FTE's 1,105.8 173.0 36.0 939.4 2,254.1 Notes: 1) Includes 1.0 FTE for Stormwater Utility in Maritime Division. 2) Includes 1.0 new FTE for Stormwater Utility in Maritime Division. FTEs driven by Commission priorities and growth initiatives 17 5 Year Financial Forecast ($ in 000's) Compound Budget Forecast Budget Forecast Growth OPERATING BUDGET 2018 2018 2019 2020 2021 2022 2023 2019 - 2023 Aeronautical Revenue - Net 301,082 303,769 365,604 422,642 486,338 516,584 545,373 10.5% Portwide Non-Aeronautical Revenue 322,751 331,676 343,741 349,093 361,253 371,575 382,284 2.7% NWSA Distributable Revenue 46,647 50,147 43,911 39,084 42,732 48,016 51,037 3.8% Total Operating Revenues 670,479 685,592 753,255 810,818 890,323 936,176 978,694 6.8% Total Operating Expenses 422,885 419,417 453,724 459,515 486,048 507,162 528,740 3.9% Net Operating Income Before Depreciation 247,594 266,175 299,531 351,304 404,275 429,014 449,955 10.7% Steady growth in Net Operating Income projected 18 Sources of Funds Rental Car Customer Passenger Facility Facility Charges Charges Fuel Hydrant Receipts 1.5% 6.1% 0.5% Other Receipts Tax Levy 0.2% 4.8% 82% of funding Grants and Capital sources come from Contributions bond proceeds and 3.3% operating income. Operating Revenues 48.3% The tax levy makes up less than 5% of Proceeds from Bond Issues the funding sources 33.4% in 2019. Total Sources: $1,559.2M Interest Receipts 2.0% The Port has diversified funding sources 19 Uses of Funds Operating Expenses 23.4% Plan to spend more Capital Expenditures Bond Redemptions 51.6% than half of our 9.8% funds on capital Interest Payments projects in 2019. 9.5% Operating expenses are less than a quarter of total expenditures in 2019. Other Expenses Payment to NWSA 0.5% for Capital Public Expense Expenditures 1.1% 4.2% Total Uses: $1,941.8M Capital spending comprises more than half of Port expenditures 20 2010-2019 Tax Levy & Millage Rate The Port has gradually reduced the tax levy amount from 2010 to 2018 21 Actual vs. Maximum Allowable Levy The Port has forgone $521M in tax revenue since 1991 22 Remaining Budget Schedule Second Budget Reading Nov. 27, 2018 File Statutory Budget with King County Dec. 3, 2018 Release the 2019 Final Budget Document Dec. 14, 2018 Statutory budget to be filed with the County on December 3 23 Port of Seattle 2019 Budget First Reading & Public Hearing Commission Meeting November 13, 2018 24
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