7a Supp Presentation
ITEM NO: 7a_Supp___ DATE OF MEETING: October 27, 2015 2016-2020 Draft Plan of Finance and Tax Levy Discussion October 27, 2015 Topics Introduction & Recommendations Non-Airport Funding Baseline CIP Consolidated Funding Approach Funding Resource Income from Businesses Funding Resource Tax levy Draft Plan of Finance Funding Plans Finance Activity Additional Information 2 Introduction Like most Washington State ports, the Port of Seattle levies a tax levy on property owners within it's district The levy is available for general port purposes Port's current tax levy is $73 million 19 cents per $1000 of assessed value Same dollar amount since 2012 Below maximum statutory levy of $95 million in 2015 Levy has been used to fund: Environmental remediation Regional freight mobility projects Job-generating infrastructure investments Economic development initiatives Staff is recommending a flat levy for 2016 Recommending a $73 million levy for 2016, well below the maximum statutory amount. 3 Introduction As part of the annual budget process, staff provides information on Funding for the five-year capital improvement plan (CIP) Tax levy To establish the uses of the tax levy, and To establish the amount of the tax levy Most non-Airport costs can be paid either from operating income (General Fund) or from the tax levy based on Commission guidelines The recent reorganization provides an opportunity to revisit the use of the tax levy This year's presentation will begin with Non-Airport funding and combine information on the tax levy and Plan of Finance Airport is separately funded due to regulatory restrictions Presentation focuses on funding of non-Airport businesses 4 Recommendations Today's presentation will provide information on a capital funding approach focused on non- Airport business operations Key recommendations include: 1. All non-Airport businesses share funding resources 2. Modify use of the tax levy funding for designated projects and initiatives vs. specific divisions: Use for capital projects and specific strategic initiatives that meet criteria approved by the Commission Pay general operating expenses from operating revenues, not tax levy The presentation will provide background on these recommendations 5 Non-Airport CIP Funding Northwest Seaport Alliance (NWSA) Maritime Economic Development (EDD) 6 2016-2020 Baseline CIP is $202 million Baseline CIP includes Port's share of NWSA baseline CIP Maritime and EDD CIPs presented on October 13, 2015 Non-Airport allocation of corporate CIP primarily information technology investments $ million 2016 2016-2020 Maritime 27 112 EDD 12 25 Corporate allocated share 1 7 NWSA Port share 13 59 Total 55 202 The combined non-Airport CIP totals $202 million over the next five years 7 Recommendation #1 Consolidate Funding Reorganization of the Port provides an opportunity to revisit Non- Airport funding Former approach was to segment funding by division Recommended approach is to consolidate into a single fund with guidelines for funding allocation more efficient, less complicated Former Businesses Current Businesses Seaport self funded, but during a NWSA relies on capital period of modest capital investment contributions from homeports per Charter Real Estate (RE) negative income, Maritime modest net income operations and capital supported by insufficient to fully fund its CIP tax levy EDD negative income, will need financial support Consolidation of funding promotes consistent priorities 8 Non-Airport Capital Funding Resources from Business Operations Net income from businesses (after the payment of debt service) NWSA largest contributor to net income Maritime modest net income EDD negative net income Existing available cash is in excess of: Minimum fund balance (6 months Maritime and EDD O&M) and Deposit to NWSA working capital and reserve Net Income first pays revenue bond debt service Funding from additional revenue bonds may be available if 1.50x debt service coverage target is achieved Other potential resources grants, private capital, property sale proceeds Capital funding is available from net income and existing cash balances 9 Funding Resources from Business Operations Business operations are forecast to provide $82 million of capital funding An additional $95 million is available from existing cash and $10 million from TIGER grant. Total funding derived from business operations 2016-2020 is $187 million $ million 2016 2016-2020 Net Income from Business Operations Maritime 7 44 EDD (9) (38) NWSA (1) 52 264 Total 50 270 Less Revenue Bond Debt Service (38) (188) Net Available for Capital Funding 12 82 Plus Available Cash 95 95 Plus TIGER Grant - 10 Total Funding from Business Operations 107 187 Baseline CIP (55) (202) Funding Surplus/(deficit) 52 (15) (1) net of certain Port of Seattle operating expenses associated with the NWSA Funding from business operations is sufficient to fund much of the baseline CIP 10 Potential Additional Funding Needs Additional NWSA projects estimated total Port share of $237 million 2016 2016-2020 Redevelopment of T-5 Channel dredging North Harbor 24 181 Redevelopment of T-4 South Harbor 16 56 Total new NWSA 40 237 Baseline CIP 55 202 Total CIP with new 95 439 Does not include unanticipated future projects or new opportunities requiring investment Baseline CIP does not include T-4 and T-5 redevelopment 11 Funding For Additional CIP Funding from Business operations are insufficient to fund the baseline CIP and the additional NWSA redevelopment of T-4 & T-5 Port's careful use of tax levy resources creates capacity to fund these additional projects Port has capacity to use a combination of cash and G.O. bonds 2016-2020 Funding from business operations 187 Total CIP (including T-4 & T-5) 439 Funding surplus/(deficit) (252) Available funding from tax levy 137 Additional G.O. bonds 115 Funding surplus/(deficit) 0 Tax levy and G.O. bonds can provide full funding for new NWSA projects 12 Recommendation #2 Modify Use of Tax Levy for Designated Projects & Strategic Initiatives Tax levy is a flexible funding source Can be used for any Port purpose except payment of revenue bond debt service First used to pay General Obligation (G.O.) bonds Remaining "net" levy available to fund capital investments and strategic initiatives based on Commission policy Current Policy Uses Recommended Rationale Legacy environmental No change Public benefit remediation Regional mobility projects No change Public benefit Operating expenses RE and Fund from operating Expenses can be funded PortJobs revenues from operations and allow Capital projects RE only Fund projects that levy to be used for capital meet certain criteria, initiatives regardless of division Recommendation focuses the levy on Commission driven priorities 13 Tax Levy Assumptions Levy funds from: Levy amount of $73 million per year Sale of Tsubota site for approximately $8 million (originally tax levy funded) in 2016 Continued funding for: 2016 G.O bond issuance to fund a portion of the final payment for the SR 99 Tunnel project Funding for other regional mobility initiatives including the Heavy Haul corridor plan with the City Legacy environmental remediation Highline School Noise Mitigation Additional uses: Pier 66 redevelopment for cruise growth Other capital projects based on criteria Available levy cash can be used for key capital initiatives 14 Former Levy Uses for Capital Prior to 2010, the Port used the tax levy to support major investments in several businesses: Container Shipping: Between 1994 and 2006 G.O. bonds provided significant funding for expansions at Terminals 5 and 18 and improvements at Terminals 30 and 46 Cruise: Tax levy was used to develop the central waterfront including the cruise facilities at P-66 and T-30 Fishing: Tax levy was used to support improvements at T -91 in support of large fishing vessels and at Fishermen's Terminal Beginning 2010, Tax levy was used: To fund Real Estate Division capital (including Fishermen's Terminal) No tax funding for the Seaport no major investments, capital funded from operations Prior to 2010, the levy was used to fund key capital projects 15 Proposed Criteria for Levy Funding Operating Cash Tax Levy Asset Renewal & Replacement Positive net income Economic benefit Strategic Initiatives Short payback/ No or long payback Self funding Location South Harbor North Harbor Criteria developed to support Century Agenda Projects would be eligible for levy funding based on recommended criteria Capital Investments That Meet Criteria 2016-2020 ($mil.) P-66 Redevelopment for Cruise Growth 14 Fishermen's Terminal Improvements 32 Other projects supporting fishing 4 Total recommended for levy funding 50 See Slide 38 for a complete list of projects recommended for tax levy funding. Several baseline CIP projects meet the criteria for levy funding 16 Tax Levy Recommendations Maintain $73 million levy for 2016 Prioritize funding across Port based on recommended guidelines Use tax levy to fund specific projects based on criteria: P-66 redevelopment to accommodate cruise growth Propose levy funding for: Fishermen's Terminal Improvements Other projects that support the fishing industry Monitor new initiatives that may require funding, including NWSA redevelopment projects Monitor funding needs for environmental remediation Preserve tax levy and G.O. bond capacity for additional funding needs The Tax Levy is a strategic resource for capital funding 17 Proposed Tax Levy Sources & Uses Uses are based on Baseline CIP only Positive ending fund balances can be preserved to support additional projects, including NWSA redevelopment Provide cash and/or support additional G.O. bonds 2016 Tax Levy Sources & Uses ($ mil.) Sources 2016 Proposed 2016-2020 Beginning Balance 58 58 Annual Levy 73 365 Tsubota Sale 8 8 Total 139 431 Uses G.O. Debt Service - existing 35 169 G.O. Debt Service - SR99 Tunnel 4 32 Environmental Remediation 7 43 Regional Mobility 2 10 Highline Schools Noise Mitigation - 3 Approved CIP - P66 Cruise 12 14 Proposed CIP - Fishing Industry 4 37 Total 63 308 Ending Fund Balance 76 123 Levy fund balance is available for future capital initiatives 18 Total CIP Funding Tax Levy Sources & Uses To fully fund the total CIP including additional NWSA projects additional levy cash and G.O. bonds are needed 2016 Tax Levy Sources & Uses ($ mil.) - Total CIP Sources 2016 Proposed 2016-2020 Beginning Balance 58 58 Annual Levy 73 365 Tsubota Sale 8 8 Additional B.O. bond proceeds - 115 Total 139 546 Uses G.O. Debt Service - existing 35 169 G.O. Debt Service - SR99 Tunnel 4 32 G.O. debt Service - additional CIP - 36 Environmental Remediation 7 43 Regional Mobility 2 10 Highline Schools Noise Mitigation - 3 Approved CIP - P66 Cruise 12 14 Proposed CIP - Fishing Industry 4 37 Additional CIP - NWSA 24 202 Total 87 546 Ending Fund Balance 52 (0) Additional projects are fully funded 19 2016-2020 Draft Plan of Finance Funding Assumptions Tax levy is available to fund non-Airport CIP based on funding guidelines Financial policies are maintained Revenue Bond debt service coverage 1.50x for non-Airport 1.25x for Airport Minimum fund balances are maintained Non-Airport provides funding for NWSA operating reserve Plan of Finance based on meeting key financial targets 21 Non-Airport Funding Baseline CIP Net Income after payment of existing revenue bond debt service Available operating cash After minimum fund balance, and After deposit to NWSA minimum operating reserve TIGER grant Tax levy based on recommended funding guidelines There is minimal capacity for additional revenue bonds during this funding period Plan of Finance based on funding recommendations described in this presentation 22 Non-Airport Baseline CIP Funding 2016-2020 2016-2020 ($million) Non-Aviation Funding Sources Net income 82.0 Operating funds 95.2 Grants 10.1 Tax levy Recommended (1) 36.5 Tax levy Authorized (2) 13.5 Future revenue bond proceeds - TOTAL 237.3 Non-Aviation CIP 195.1 Allocated Corporate CIP 7.2 Total Non-Aviation CIP 202.3 Additional Available Capacity 35.0 (1) Related to Maritime CIP associated with Fishing Industry (2) Pier 66 redevelopment Funding plan can be re-evaluated if additional NWSA projects proceed Baseline CIP is fully funded and there is capacity of $35 million for future projects 23 Total CIP Funding 2016-2020 2016-2020 ($million) Non-Aviation Funding Sources Net income 82.0 Operating funds 95.2 Grants 10.1 Tax levy Recommended (1) 36.5 Tax levy Authorized (2) 13.5 Tax levy Additional CIP 87.0 Future G.O. bond proceeds 115.0 TOTAL 439.3 Non-Aviation CIP 195.1 Allocated Corporate CIP 7.2 Additional CIP 237.0 Total Non-Aviation CIP 439.3 (1) Related to Maritime CIP associated with Fishing Industry (2) Pier 66 redevelopment Funding plan includes NWSA projects Use of additional G.O. bonds and tax levy provide full funding 24 Airport Funding Sources The Draft Plan of Finance includes funding from: Net operating income (after payment of revenue bond debt service) Operating fund balances (above minimum requirement) Existing and future revenue bond proceeds Passenger Facility Charges Grants Tax levy The Airport is self-funding 25 Aviation Capital Funding 2016-2020 2016-2020 Aviation Funding Sources ($million) Net income 295.5 (1) Tax levy 3.5 Grants 150.0 Passenger Facility Charge 245.0 Existing revenue bond proceeds 142.1 Future bond proceeds 1,248.7 TOTAL 2,084.8 Aviation CIP 2,049.7 (2) Allocated Corporate CIP 35.2 Total Aviation Funded CIP 2,084.8 (1) Highline Schools noise insulation (2) Assumes funding with Net Income only. Future bonds will fund $1.2 billion of the CIP 26 Revenue Bond Debt Service Coverage 2016-2020 Port-Wide Forecast By managing to financial targets coverage is forecast to remain strong 27 2015 Finance Activity - Results G.O. bonds to fund $120 million for the Port's 2105 contribution to the SR99 project and refund bonds for present value saving of $11 million Airport bond issue to fund project spending and refund bonds for $42 million present value savings Evaluated options for extending and/or replacing letters of credit (LOCs) expiring in 2015/2016 Note: Request for replacement LOC for a portion of the Port's commercial paper program scheduled for November Successful completing of 2015 work plan 28 2016 Planned Finance Activity G.O. bonds to fund a portion of the final SR99 Tunnel payment Transportation and Infrastructure Fund cash ($62 million) can fund a portion or be used for other needs Monitor existing bonds for refunding for debt service savings Extend or Replace LOCs that support variable rate debt Select a new bond underwriting team Monitor Airport funding needs next new money issue expected in 2017 2016 includes several on-going debt management projects 29 ADDITIONAL INFORMATION FOR BACKGROUND ONLY 30 2015 Tax Levy, Estimated Actuals vs. Budget 2015 Tax Levy Sources & Uses ($ mil.) Significant Variances Sources 2015 Budget 2015 Forecast Beginning Balance 25.1 40.8 Annual Levy 73.0 73.0 Beginning balance higher Grants/reimbursements 1.4 0.8 due to spending delays Rail Corridor sales 6.1 14.3 Interest earnings - 0.3 King Co. rail corridor Total 105.6 129.1 payment received early Uses G.O. Debt Service 32.9 29.8 G.O bond issue resulted in Environmental Remediation 10.4 7.4 lower debt service Regional Mobility 3.1 4.5 T & I Fund Deposit 20.0 15.0 PortJobs 0.3 0.3 Some environmental Highline Schools Noise Mitigation 2.4 - remediation spending delays Real Estate Capital 7.0 7.2 Real Estate Operating 6.6 5.7 T&I deposit lower due to lack P-66 Cruise Redevelopment - 1.5 of Snohomish Co. payment Total 82.7 71.4 for rail corridor Ending Fund Balance 22.8 57.7 Numbers may not add due to rounding Ending levy fund balance is projected to be $57.7 million 31 Port's Taxing Authority Washington State port districts have authority to levy a tax on the value of property within the port district (coterminous with King County) The Port is subject to two limitations on the amount of tax it may levy 45 cent limit 1% limit The more restrictive 1% applies to the Port In 2015, the Port assessed a levy of $73 million The maximum levy the Port could have assessed based on the 1% limit was $95 million in 2015 and $96 million in 2016 King County assessed value in 2015 was $388 billion Preliminary 2016 assessed value is $421 billion (an 8% increase) The Port can levy up to the statutory maximum The Port can tax up to $96 million is 2016 32 Changes in Tax Levy Uses Less levy is now used to fund Other uses have grown including: capital projects Regional mobility Environmental remediation G.O. bond debt service pays for Operating expenses (Real Estate) projects funded between 1994 and 2009 Recent levy use has invested in regional mobility and environmental remediation 33 Tax Levy Uses G.O. Bonds The levy can be pledged to pay general obligation bonds (G.O. bonds) Port currently has $322 million G.O. bond debt outstanding By 12/31/2015, the Port will have $306 million outstanding State statute limits the amount of G.O. bonds Non-voted limit on the amount of G.O. debt that does not require voter approval 0.25% of assessed value Provides an additional $746 million bonding authority Voted limit on the total amount of G.O. debt even with voter approval 0.75% of assessed value Provides an additional $2,848 million bonding authority Port policy limit G.O. bond debt so that debt service does not exceed 75% of the annual tax levy Port's policy limit on G.O. bonds is more restrictive than statute 34 Transportation & Infrastructure Fund Commission established in 2010 Purpose was to set aside funds for Port contributions to regional transportation projects SR99 Tunnel ($120 million contributed in 2015 funded with LTGO bonds; remaining $148 million due in 2016) South Park Bridge (payments in 2014 & 2015) Funds are restricted by policy, not law Transportation & Infrastructure Fund Forecast 2015 2016 ($ million) Beginning balance 49.3 62.5 Deposit from tax levy fund 15.0 0 Interest earnings 0.3 0 SR 99 Tunnel Project cash payment 0 (62.5) South Park Bridge payment (2.1) 0 Ending balance 62.5 0 The T&I balance is available to fund the final SR99 payment 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 The IDD levy provides a potential additional funding source 36 IDD Levy - Implementation Port may implement a second round based on a new formula Maximum of $1.14 billion over a period of up to 20 years Average amount = $57 million (13.6 cents for 20 years) Maximum annual amount = $189 million (45 cents for 6 years) Port can establish a smaller IDD or collect a lesser amount 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 Implementation may require voter approval 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 Projects Recommended for Levy Funding ($'000) CIP Number Project Description 2016 2017 2018 2019 2020 TOTAL C800307 MIC West & Central Piers Resur 70 638 708 C800592 Cruise Terminal Tenant Improv 12,000 1,500 - 13,500 C800439 T91 Substation Upgrades 1,073 26 - 1,099 C800137 FT C15 HVAC Improvements 30 30 C800344 FT C-2 (Nordby) Roof & HVAC 54 - 54 C800527 FT Net Shed 9 Roof Replacement 21 - 21 C800005 FT Paving/Storm Upgrades 800 50 - - 850 C800191 FT C14 (Downie) Roof & HVAC 105 1,015 72 - 1,192 C800526 FT Net Shed 3,4,5 &6 Roof Rpl 105 2,515 91 - 2,711 C800750 C15 Building Tunnel Improvmnt 700 - 700 C800675 P91 South End Fender 950 1,127 2,077 C800821 T91 P91W Slope Stabilization 120 404 524 C800525 FT Strategic Plan 1,000 5,000 4,000 10,000 C800528 FT W Wall N Fender Replacement 10 190 2,750 2,950 C800529 FT W Wall N Sht Pile Crsn Prtn 10 190 2,575 2,775 C800530 FT S Wall Wt End Improvements 174 970 530 1,674 C800531 FT Dock 3 Fixed Pier Improvmnt 10 190 800 2,000 3,000 C800532 FT Dock 4 Fixed Pier Corr Prot 10 190 1,000 2,300 3,500 C800533 FT W Wall S Sht Pile Cor Protn 10 190 200 C800534 FT S Wall Cl Fndr Rp & Cor Prt 10 190 200 C800567 FT Net Shed 10 Roof Overlay - C800568 FT Net Shed 11 Roof Overlay - C800569 FT Net Shed Electrical System 70 2,168 2,238 TOTAL 15,978 8,281 9,021 16,343 380 50,003 39 NWSA Funding Resources to Port Port recognizes as revenue half of the NWSA net income after depreciation (non-cash expense) Port receives cash payments from NWSA based on cash flow from operations (depreciation is added back) Port estimates approximately $220,000 per year in Port expenses, but associated with the NWSA $ million 2016 2017 2018 2019 2020 TOTAL NWSA Net Income - POS share 51.8 47.1 47.3 55.7 54.9 256.8 NWSA depreciation - POS share 0.3 1.0 2.0 2.0 2.6 7.8 POS expense for NWSA management (0.2) (0.2) (0.2) (0.2) (0.2) (1.1) NWSA Funding Available to POS 51.9 47.9 49.1 57.4 57.3 263.6 NWSA provides significant net income to the Port 40 Current Bond Ratings RATING AGENCY Fitch Moody's S&P General obligation bonds AAA Aa1 AAA First lien revenue bonds AA Aa2 AAIntermediate lien revenue bonds A+ A1 A+ Subordinate lien revenue bonds A A2 A+ Passenger Facility Charge revenue bonds A A1 A+ Fuel Hydrant Special Facility bonds A2 A- Noted Credit Strengths: Diverse asset and revenue base Airport's market position and enplanement levels Solid coverage and liquidity levels Conservative debt structure Pro-active Port Commission and deep and experienced staff Vibrant and resilient area economy A solid capital funding plan is critical to investors and supports the Port's strong ratings 41
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