6d supp budget
Item No.: 6d_Supp Meeting Date: November 10, 2015 Port of Seattle 2016 Preliminary Budget First Reading & Public Hearing November 10, 2015 Outline 2016 Budget Process Recap 2016 Budget Highlights Northwest Seaport Alliance Storm Water Utility Changes made after publishing the preliminary budget document Proposed 2016 Operating Budget Proposed 2016 Comprehensive Op & Non-Op Budget Proposed 2016 FTEs Summary Proposed 2016-2020 Capital Budget Proposed 2016 Sources and Uses of Funds Proposed 2016 Tax Levy Remaining 2016 Budget Schedule Appendix 2 2016 Budget Process May 12 2016 Business Plan and Budget Process Briefing May 26 2016 Aviation Division Business Plan Discussion Jul. 9 2016 Maritime Division Business Plans Discussion Sept. 8 2016 Economic Development Division Business Plan Discussion Sept. 8 2016 Key Budget Assumptions Briefing Sept. 22 2016 Corporate Budget Briefing Oct. 13 2016 Operating Division Budgets Briefing Oct. 20 Preliminary Budget Document to the Commission Oct. 22 Preliminary Budget released to the Public Oct. 27 Preliminary Tax Levy and Draft Plan of Finance Briefing Nov. 10 First Reading & Public Hearing of the Preliminary Budget Nov. 24 Second Reading & Final Passage of the Preliminary Budget Dec. 3 File Statutory Budget with King County Dec. 11 Release the Final Budget and Draft Plan of Finance A long and challenging budget process this year due to re-org and the new NWSA. 3 2016 Budget Highlights Operating revenues are budgeted at $584.6M, $32.9M or 6.0% higher than 2015 budget Operating expenses are budgeted at $335.9M, $3.0M or 0.9% increase from 2015 budget (largely due to transfer of some expenses to the NWSA) Net Operating Income is budgeted at $248.7M, $29.9M or 13.7% above 2015 budget The 2016 capital budget is $408.4M and the 5-year capital spending plan is $2.2 billion The proposed tax levy for 2016 is $73.0M, flat for 5 consecutive years The 2016 budget reflects strong growth and continued investments for the region. 4 Northwest Seaport Alliance The newly formed NWSA is a separate legal entity that functions as a joint venture between the Ports of Seattle and Tacoma The Ports have licensed certain cargo-related assets to the Alliance to manage on their behalf; the Alliance is governed by Managing Members consisting of the two Port Commissions The ports retain ownership of the underlying assets and share equally in the distribution of net revenue from the Alliance For 2016, operating revenues and expenses associated with the licensed assets are included in the Alliance budget; expenses include direct costs as well as those associated with administrative and other support services provided by the home ports to the Alliance under service agreements Capital improvement projects associated with licensed assets are jointly funded by the two ports and are also included in the Alliance budget Alliance revenues and expenses and capital projects are not included in the Port's budget; the Port's 50% share of net distributable revenue from the Alliance is included as a separate operating revenue line item 5 NWSA Accounting Model The Alliance will be accounted for as a Joint Venture under GASB 14 The Alliance will have standalone financial statements, and each port's income statement will be adjusted to reflect participation in the Alliance Revenues and expenses associated with Alliance assets are transferred from the home port's books to the Alliance The Alliance's net revenue is distributed equally to the Port's and recognized as operating revenue The appendix includes a simplified example using illustrative numbers as well as a diagram of Alliance cash flows The Port's financial statements will be modified as a result of the NWSA. 6 2016 NWSA Budget 2016 Port of Seattle Support Service Charges ($ in' 000s) Budget (included in NWSA expenses) Operating Revenues Corporate/Capital Development 5,283 Container 134,573 Maritime 4,496 Non-Container 47,731 Economic Development 497 Real Estate 10,492 Aviation 28 Other 95 Total 10,305 Total Revenues 192,891 Operating Expenses Direct Container 20,378 Non-Container 23,015 Real Estate 937 Other 17,520 Total Direct 61,850 Administrative 19,707 Security 4,410 Environmental 2,694 Total Operating Expenses 88,661 Net Operating Revenue Over Expense 104,230 Depreciation 571 Net Distributable Revenue 103,659 50 % Share 51,830 Distributable Revenue is split and booked as Operating Revenue at each home port. 7 New Storm Water Utility Starting in 2016, the budget reflects the formation of the new Storm Water Utility In prior years, external fees were charged as utility expense on a proportionate basis to the Seaport and RE divisions Tenants on leased properties were billed for their share; these were reflected as operating revenue by the divisions The treatment of storm water revenues and expenses are changing with full implementation of the new utility. 8 New Storm Water Utility Starting in 2016, the Utility will be treated as a separate division The Utility will bill tenants directly and also charge Maritime, EDD and the NWSA for unleased propertiestotal revenues collected will match those that would have been paid externally The Utility will have its own O&M expense and capital expenditures Since a portion of the revenues reflect internal charges to Maritime and EDD, these are eliminated from the Port Wide revenue roll up New Storm Water Utility drives a change in budgeting. 9 Storm Water Budget Comparison ($ in '000s) Previous Budget Treatment Real 2015 Seaport Estate Total Utility Revenues 2,457 156 2,613 Direct Tenant Billings Utility Expense 3,328 836 4,164 External Fees New Budget Treatment Tenant 2016 Billings Maritime EDD NWSA Total Utility Revenues* 2,536 359 378 1,044 4,317 O&M Expense 2,495 NOI 1,822 *recognized as expense by divisions and NWSA Portwide Revenue Adjustment Revenues 4,317 Eliminations (737) Charges to Maritime and EDD Adjusted Revenues 3,580 External utility fees cease but total revenues are similar. 10 Storm Water Utility Budget Detail 2016 $'s Thousands Budget Assumptions Revenues Sales of Utilities - Surface Water $4,317.0 12 months revenue Total Revenues 4,317.0 Expenses Salaries & Benefits 136.0 1 FTE to be hired in Q4 2015 Supplies & Stock 1.1 Travel & Other Employee Expenses 5.4 Telecommunications 1.0 Outside Services 293.0 Wages & Benefits 854.4 Stormwater line assessments Maintenance Materials 150.8 Stormwater line assessments Overhead Allocations 513.2 Utility Tax (to City) 473.1 11% of revenue B&O Taxes 66.8 1.5% of revenue. Operating Expenses 2,494.7 Net Operating Income Before Depr $1,822.2 For use for current and future capital projects. Capital Budget 2016 2017 2018 2019 2020 2016-20 Upgrade Stormwater Lines $0 $1,815 $2,954 $3,179 $3,418 $11,366 Total 0 1,815 2,954 3,179 3,418 11,366 11 Budget Changes Since 10/22/15 Aviation division revised the enplanement forecast for 2016 Higher enplanement forecast resulted in higher non-aeronautical revenues, higher credit card fee & B&O taxes, and higher PFCs Moved a $65K budget entry for SWU from EDD to Maritime division Economic Development division added one additional FTE and increased the budget for Real Estate Development and Planning ($554K) Legal Department removed an duplicate outside legal expense item budgeted for the NWSA ($102K) Commission Office added $45K to the preliminary budget The 2016 budget reflects strong growth and continued investments for the region. 12 2016 Operating Budget 2014 2015 2015 2016 Budget Change ($ in '000s) Actual Budget Forecast Budget $ % Operating Revenues Aeronautical 228,864 242,352 232,534 261,078 18,725 7.7% SLOA III Incentive Adj. -3,576 -3,576 -3,576 -3,576 0 0.0% Non-Aeronautical 180,791 188,465 194,832 208,323 19,857 10.5% Aviation 406,079 427,242 423,790 465,824 38,583 9.0% Maritime 43,790 47,264 44,864 49,314 2,050 4.3% Economic Development 16,267 16,108 17,029 13,745 -2,363 -14.7% Licensed NWSA Assets 68,413 60,812 66,712 0 -60,812 -100.0% NWSA Distribution Revenue 0 0 0 51,829 51,829 N/A Other 389 340 3,159 3,926 3,586 1056.0% Total 534,938 551,766 555,554 584,638 32,872 6.0% Operating Expenses Aviation 230,704 248,141 239,564 268,296 20,155 8.1% Maritime 31,854 36,683 34,661 42,272 5,588 15.2% Economic Development 23,546 21,188 20,078 23,114 1,925 9.1% Licensed NWSA Assets 22,840 26,562 27,262 121 -26,441 -99.5% Other 389 340 2,040 2,103 1,764 519.4% Total 309,334 332,914 323,605 335,905 2,992 0.9% Net Operating Income 225,605 218,852 231,949 248,733 29,881 13.7% NOI in the proposed 2016 budget is $29.9M or 13.7% higher than 2015 budget. 13 Changes from the Preliminary Budget Document Preliminary Proposed Change ($ in '000s) Budget Doc Budget $ % Note Operating Revenues Aeronautical 261,446 261,078 -368 -0.1% Due to higher non-aero revenues sharing. SLOA III Incentive Adj. -3,576 -3,576 0 0.0% Non-Aeronautical 206,744 208,323 1,579 0.8% Due to higher enplanements forecast. Aviation 464,614 465,824 1,211 0.3% Maritime 49,314 49,314 0 0.0% Economic Development 13,745 13,745 0 0.0% NWSA Distribution Revenue 51,829 51,829 0 0.0% Other 3,926 3,926 0 0.0% Total 583,427 584,638 1,211 0.2% Operating Expenses Aviation 268,229 268,296 66 0.0% Increases in B&O taxes and Corp allocation. Maritime 42,202 42,272 69 0.2% Adjusted SWU costs and Corp allocation. Economic Development 22,623 23,114 491 2.2% One FTE and add'l budget for RE Dev & Planning. Licensed NWSA Assets 223 121 -102 -45.9% Removed a duplicated outside legal expense item. Other 2,103 2,103 0 0.0% Total 335,381 335,905 525 0.2% Net Operating Income 248,047 248,733 686 0.3% The net change is a $686K increase in NOI compared to the Preliminary Budget. 14 2016 Comprehensive Budget Summary 2014 2015 2016 Budget Change ($ in '000s) Actual Budget Budget $ % Explanations Revenues 1. Aeronautical Revenues 228,864 242,352 261,078 18,725 7.7% Cost recovery under SLOA III. 2. SLOA III Incentive (3,576) (3,576) (3,576) () 0.0% 3. Other Operating Revenues 309,650 312,989 327,137 14,147 4.5% Mainly due to higher revenues from the Airport. 4. Tax Levy 72,801 73,000 73,000 - 0.0% Assume no change from 2015. 5. PFCs 69,803 73,752 84,650 10,898 14.8% Higher enplanements in 2016. 6. CFC Non-Op Revenue for Debt Service 19,889 23,614 24,963 1,349 5.7% Driven by increased debt service on 2009B bond. 7. Fuel Hydrant 6,935 7,202 7,098 (104) -1.4% 8. Non-Capital Grants and Donations 10,158 6,263 3,566 (2,697) -43.1% Lower grants for Clean Truck Program in 2016. 9. Capital Contributions 16,746 40,949 23,406 (17,543) -42.8% Lower due to the $25M 16C LOI will be fully claimed in 2015. 10. Interest Income 11,202 7,094 8,537 1,443 20.3% Total 742,473 783,639 809,859 26,220 3.3% Expenses 1. O&M Expense 309,334 332,914 335,905 2,992 0.9% New initiatives and average pay increase. 2. Depreciation 166,337 162,082 162,451 370 0.2% 3. Revenue Bond Interest Expense 108,910 133,468 121,423 (12,045) -9.0% 2015 revenue bond interest expense budgeted conservatively. 4. GO Bond Interest Expense 9,475 14,706 14,726 20 0.1% 5. PFC Bond Interest Expense 5,906 5,633 5,302 (331) -5.9% 6. Non-Op Environmental Expense 9,142 5,600 5,000 (600) -10.7% 7. Public Expense 6,854 9,572 8,898 (674) -7.0% Driven by final year of Clean Truck Program. 8. Other Non-Op Rev/Expense (2,110) 3,657 3,319 (338) -9.2% Subtotal 613,849 667,632 657,026 (10,606) -1.6% 9. Special Item - - 147,700 147,700 n/a Second installment for AWV contribution. Total 613,849 667,632 804,726 137,094 20.5% Change In Net Assets 128,624 116,007 5,134 (110,874) -95.6% 2016 budget includes a $147.7M second installment for AWV contribution. 15 FTEs Summary Aviation Maritime Econ Dev Corporate Total 2015 Approved FTE's 877.0 202.8 24.0 750.7 1,854.5 Mid Year Approval 16.0 4.5 1.0 5.2 26.7 Eliminated (10.0) (6.0) (2.0) (2.0) (20.0) Transfers (2.0) (17.5) 7.5 (8.0) (20.0) Adjusted 2015 FTE's 881.0 183.8 30.5 745.9 1,841.2 2016 Budget Eliminated (2.0) (1.0) - (11.0) (14.0) Transfer - - - - - New FTE's 14.0 1.0 3.3 9.5 27.8 Total 2016 Changes 12.0 - 3.3 (1.5) 13.8 Proposed 2016 FTE's 893.0 183.8 33.8 744.4 1,855.0 Moderate FTEs growth driven mainly by the strong traffic growth at the Airport. 16 Capital Budget Summary Capital Budget Summary by Division $'s in 000's 2016 2017 2018 2019 2020 2016-20 Aviation 360,064 456,890 453,575 416,085 363,074 2,049,688 Maritime 27,480 21,112 24,621 24,637 13,796 111,646 Economic Dev. 12,458 3,650 2,285 2,104 4,104 24,601 Corporate 8,443 8,686 8,707 8,307 8,230 42,373 Total 408,445 490,338 489,188 451,133 389,204 2,228,308 The Port continues to invest in the region with a 5-year capital plan of $2.2 billion. 17 Capital Budget Summary Capital Budget Summary by Category $'s in 000's 2016 2017 2018 2019 2020 2016-20 Commission Authorized/Underway 319,638 382,542 396,504 334,148 182,714 1,615,546 Pending 2015/2016 Authorization 28,017 17,669 8,030 250 - 53,966 Pending Future Authorization 4,956 13,148 24,358 28,343 18,880 89,685 Small Capital Projects 15,062 13,753 11,997 11,662 12,650 65,124 Total 367,673 427,112 440,889 374,403 214,244 1,824,321 Allowance CIPs and Other* 40,772 63,226 48,299 76,730 174,960 403,987 Total 408,445 490,338 489,188 451,133 389,204 2,228,308 * Allowance CIPs represent undesignated future spending for future new projects and potential budget increases for existing projects in Aviation division. 18 Sources of Funds Tax Levy is 8.1% of the $900.6 million total sources of funds in 2016 budget. 19 Uses of Funds The Port continues to invest in capital projects and infrastructures for the region. 20 2016 Tax Levy Tax Levy Amount: Levy amount established by the Commission each year as part of the budget process The maximum allowable levy for 2016 is estimated to be $96.4 million The levy for 2016 is proposed to be $73.0 million Projected rate change (from $0.1891 to $0.1728) Tax levy remains flat at $73.0 million for 5 consecutive years. 21 2016 Tax Levy Proposed 2016 Tax Levy Uses: General Obligation (G.O.) Bonds Debt Service Legacy Environmental Remediation Highline School NOISE Mitigation Pier 66 Redevelopment for cruise growth Capital projects in support of the fishing industry Per Commission Direction Additional Deposit to the Transportation & Infrastructure Fund for Regional Transportation & Freight Mobility projects - $21.3 million Heavy Haul Corridor projects Other regional transportation initiatives (FAST II, E. Marginal Way, Argo Access) Workforce Development funding - $1.5 million in 2016 Tax levy uses include strategic initiatives 22 Levy Funded Capital Projects $ million 2016 Budget Cruise: Redevelop P66 to accommodate cruise growth 12.0 Fishermen's Terminal:renewal and replacement of 1.6 portions of the sewer and drainage system, pavement and sidewalks Fishermen's Terminal:building renewal projects including 0.2 roof and ventilation systems Terminal 91: Electrical substation upgrades, slope 2.1 stabilization and fender replacement Total 15.9 Local jobs supported by Port facilities total: 16,000 Fishing Industry 3,400 Cruise Industry 2013 Economic Impact of the Port of Seattle, Prepared by Martin & Associates Tax levy will support job generating industries of fishing and cruise 23 Sources and Uses of the Tax Levy 2016 Tax Levy Sources & Uses ($ mil.) Sources 2016 Budget 2016-2020 Beginning Balance 57.7 57.7 Annual Levy 73.0 365.0 Tsubota Sale 8.0 8.0 Total 138.7 430.7 Uses G.O. Debt Service - existing 34.5 169.0 G.O. Debt Service - SR99 Tunnel 3.6 32.4 Environmental Remediation 7.0 42.9 Transportation & Infrastructure Contribution 21.3 21.3 Workforce Development 1.5 7.3 Highline Schools Noise Mitigation - 3.5 Approved CIP - P66 Cruise 12.0 13.5 Proposed CIP - Fishing Industry 4.0 36.5 Total 83.9 326.4 Ending Fund Balance 54.8 104.3 Fund balance is available for other uses 24 Sources and Uses of the Transportation and Infrastructure Fund Transportation & Infrastructure Fund ($ mil.) Sources: 2016 Budget 2016-2020 Beginning Balance 62.5 62.5 Annual Contributions 21.3 21.3 Total 83.8 83.8 Uses Regional Transportation 1.6 10.2 SR99 62.5 62.5 Total 64.1 72.7 Ending Fund Balance 19.7 11.1 Fund balance is available for future Heavy Haul Corridor projects 25 Sources and Uses of the Tax Levy - Full CIP 2016 Tax Levy Sources & Uses ($ mil.) Sources 2016 Budget 2016-2020 Beginning Balance 57.7 57.7 Annual Levy 73.0 365.0 Tsubota Sale 8.0 8.0 Additional G.O. bond proceeds - 115.0 Total 138.7 545.7 Uses G.O. Debt Service - existing 34.5 169.0 G.O. Debt Service - SR99 Tunnel 3.6 32.4 G.O. Debt Service - additional CIP - 36.3 Environmental Remediation 7.0 42.9 Transportation & Infrastructure Contribution 21.3 21.3 Workforce Development 1.5 7.3 Highline Schools Noise Mitigation - 3.5 Approved CIP - P66 Cruise 12.0 13.5 Proposed CIP - Fishing Industry 4.0 36.5 Additional CIP - NWSA 24.0 202.0 Total 107.9 564.7 Ending Fund Balance 30.8 (19.1) Negative ending balance in 2020 based on current forecast 26 Remaining Budget Schedule Second Budget Reading Nov. 24, 2015 Statutory Budget Filed with King County Dec. 3, 2015 Release the Final Budget Document Dec. 11, 2015 27 Port of Seattle 2016 Preliminary Budget First Reading & Public Hearing November 10, 2015 Appendix 1 NWSA Accounting Treatment & Cash Flow (simplified example using illustrative numbers) 29 Revenues and expenses contributed to the Alliance will be transferred from each port's Income Statement and combined to form the Alliance's Alliance Port of Tacoma Pre-Alliance Contributions Revenue 125,000 (100,000) Expense 70,000 (60,000) NOI Before Depreciation 55,000 Port of Seattle Revenue 550,000 (80,000) Expense 300,000 (40,000) NOI Before Depreciation 250,000 Alliance Alliance From POT From POS Total Revenue 100,000 80,000 180,000 Expense 60,000 40,000 100,000 Net Income 40,000 40,000 80,000 Numbers are illustrative only 30 Alliance net income is split 50/50 as distributable revenue to the home ports Alliance Port of Tacoma Pre-Alliance Contributions Revenue 125,000 (100,000) Expense 70,000 (60,000) NOI Before Depreciation 55,000 Port of Seattle Revenue 550,000 (80,000) Expense 300,000 (40,000) NOI Before Depreciation 250,000 Alliance Alliance From POT From POS Total Revenue 100,000 80,000 180,000 Expense 60,000 40,000 100,000 Net Income 40,000 40,000 80,000 To POT To POS Distributable Revenue 40,000 40,000 Numbers are illustrative only 31 Each port's share will be recognized as operating revenue Alliance Port of Tacoma Pre-Alliance Contributions Distributable Revenue Revenue 125,000 (100,000) 40,000 Expense 70,000 (60,000) NOI Before Depreciation 55,000 Port of Seattle Revenue 550,000 (80,000) 40,000 Expense 300,000 (40,000) NOI Before Depreciation 250,000 Alliance Alliance From POT From POS Total Revenue 100,000 80,000 180,000 Expense 60,000 40,000 100,000 Net Income 40,000 40,000 80,000 To POT To POS Distributable Revenue 40,000 40,000 Numbers are illustrative only 32 Adjusted Income Statements will show lower revenues and expenses, similar net income compared to Pre-Alliance Alliance Post- Port of Tacoma Pre-Alliance Contributions Distributable Revenue Alliance Revenue 125,000 (100,000) 40,000 65,000 Expense 70,000 (60,000) 10,000 NOI Before Depreciation 55,000 55,000 Port of Seattle Revenue 550,000 (80,000) 40,000 510,000 Expense 300,000 (40,000) 260,000 NOI Before Depreciation 250,000 250,000 Alliance Alliance From POT From POS Total Revenue 100,000 80,000 180,000 Expense 60,000 40,000 100,000 Net Income 40,000 40,000 80,000 To POT To POS Numbers are illustrative only Distributable Revenue 40,000 40,000 33 The Northwest Seaport Alliance Cash Flow Other Licensed Licensed Other Facilities Facilities Facilities Facilities Revenue Revenue The Northwest Seaport Alliance Port of Operating Fund Port of Contribution (1) Contribution (1) Seattle Tacoma Distribution (2) Distribution (2) Payment of Debt Service Contribution (1) Capital Contribution (1) Payment of Debt Service Construction Investors Investors (1) Initial contribution plus any future contributions approved by the Ports (2) Automatic distribution of cash flow from operations at least quarterly plus any additional distributions approved by the members 34 Appendix 2 Projects Recommended for Tax Levy Funding 35 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 36
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