��Page of THE INDUSTRIAL DEVELOPMENT CORPORATION OF THE PORT OF SEATTLE NOTICE OF A SPECIAL ITEM NO. DATE OF MEETING March 201 ��Page of INDUSTRIAL DEVELOPMENT CORPORATION AGENDA Item No. Date of Meeting March 14, 2017 DATE: February TO: Dave Soike Interim Chief Executive Officer FROM: Scott Bertram Supervisor Corporate Finance & Budget SUBJECT: Approval of the Proposed Minutes of the Industrial Development Corporation of the Port of Seattle Meeting March ACTION REQUESTED Request Board approval of the proposed minutes of the Industrial Development Corporation of the Port of Seattle meeting of March . Draft minutes have been circulated to the Board of Directors and approved minutes will be posted to the Port’s website. ��Page of INDUSTRIAL DEVELOPMENT CORPORATION AGENDA Item No. Date of Meeting March , 201 DATE: February TO: Dave Soike, Interim Chief Executive Officer FROM: Scott Bertram Supervisor Corporate Finance & Budget SUBJECT: Election of Officers REQUESTED ACTION: Request Board a pproval of the Industrial Development Corporation of the Port of Seattle Board of Directors and Officers for BACKGROUND In accordance with the Bylaws for the Industrial Development Corporation of the Port of Seattle, the following is a list of the Board of Directors and Officers for the Corporation: Tom Albro , President Courtney Gregoire Vice President Stephanie Bowman ��Page of INDUSTRIAL DEVELOPMENT CORPORATION AGENDA Item No. Date of Meeting March 14, 2017 DATE: February TO: Dave Soike, Interim Chief Executive Officer FROM: Scott Bertram Supervisor Corporate Finance & Budget SUBJECT: Industrial Development Corporation Annual Report for SYNOPSIS: The Industrial Development Corporation (the “IDC”) of the Por t of Seattle as established in 1982 pursuant to Revised Code of Washington (Chap. 39.84). The IDC is a special purpose government with limited powers and was established for the purpose of facilitating industrial expansion through tax exempt financing providing companies with access to the tax exempt credit market through the facilities of the IDC. Any company with a project that qualifies for tax exempt financing and qualifies under both RCW 39.84 and IDC policy may apply for IDC financing. The Port is not the lender and cannot lend credit or give money to the IDC. Debt issued by a company through the IDC is the sole responsibility of the company and is always recourse to the Port and to the IDC. Bond proceeds go directly to the company bor rowing through the IDC. The companies pay their debt service (principal and interest) to a trustee. Any city, county or port in Washington tate may establish an IDC and a number of other jurisdictions have done so, including King and Pierce Counties; ��Page of ANNUAL REPORT SUMMARY STATUS OF IDC BONDS At December 31, , the re were mpanies with outstanding IDC debt totaling $ as shown in the table below Company Outstanding Debt Maturity Date Crowley Marine Services Delta Air Lines, Inc. TOTAL Previously Northwest Airlines Corp. (NWA). NWA merged with Delta Air Lines, Inc. (Delta) in 2008. NWA bonds refunded with D elta bonds, October 2012. MANAGEMENT DISCUSSION The IDC collects customer fees from the companies ased on a customer fee rate and their annual debt service. The fee can be paid annual ly or via a one time lump sum pa yment at the time the company issues and is calculated using the present value of debt service over the life of the bonds nnual customer fees are collected from Crowley Marine Services (“Crowley”) , whereas Delta made a one time lump sum payment in 2012 during the refunding of the Northwest Airlines Customer fees collected m Crowley in amounted to only $ Crowley IDC debt has a variable interest rate, and as such, the annual customer fee will fluctuate with interest rates. ue to the continued ow interest rate environment , the actual and projected customer fee is minimal IDC funds are invested in the Port investment pool and the allocated interest income to the IDC in was he i nvestment income for is projected to be approximately IDC administrative xpenses total ed and consist ed exclusively of Port’s staff administrative time. The IDC also incurred $930 in operating expenses associated with State Auditor’s Office (SAO) audit in 2016, which covered years 3, 2014 and 2015 and resulted in no findings. The IDC’s charter permits its funds to be transferred only to the Port. Under an amendment to RCW 39.84.130, IDC funds that are not otherwise encumbered for the payment of revenue bonds and are not anticipated to be necessary for administrative expenses of the IDC may be transferred to the Port to be used for growth management, planning or other economic development purposes. In order to transfer funds, the Board of Directors of the IDC needs to adopt a resolution authorizing the transfer. Any transfer of funds would reduce the assets of the IDC and the interest earnings on these assets. No such transfer was requested nor made in 2016. MINIMUM FUND BALANCE RECOMMENDATION Staff recommends that the IDC maintain the current bal ance of to ensure adequate investment earnings to fund annual operating and future audit expenses. The low interest rate environment requires a ��Page of higher fund balance to earn sufficient interest earnings to cover these anticipated expenses and there are no anticipa ted additional sources of funds December 31, December 31, December 31, E&T Fellowship Reserves (1) Accounts Payable Equity TOTAL LIABILITIES & EQUITY (1) In 2012, the Economic & Trade Fellowship program was discontinued; all three-year fellowships awarded in 2012 expired in 2015. Accordingly, the fellowship reserve balance was eliminated in December 2015. INDUSTRIAL DEVELOPMENT CORPORATION OF THE PORT OF SEATTLE AS OF DECEMBER 31 2016, 2015, and 2014 ��Page of December 31, December 31, December 31, INCOME Customer Fee Investment Income TOTAL INCOME EXPENSE Administrative Expense Scholarship Expense (1) (24,853) B&O Tax Expense (2) (11) Other Expense - State Audit Other Expense - WA Trade Sponsership Other Overhead (90) TOTAL EXPENSE (23,296) NET INCOME BEGINNING EQUITY ENDING EQUITY (1) Negative Scholarship Expense in 2015 represents reversal of E&T Fellowship Reserves. (2) Negative B&O Tax Expense in 2014 represents a correction of a duplicate Q4-2013 tax payment. INDUSTRIAL DEVELOPMENT CORPORATION OF THE PORT OF SEATTLE INCOME STATEMENT AND CHANGES IN EQUITY For The Years Ended December 31, 2016, 2015, AND 2014 ��Page of December 31, December 31, December 31, CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from bond issuers Cash received from Port of Seattle Miscellaneous cash receipts Cash paid for expenses (1,192) (2,197) (2,048) Net cash provided by operating activities (1,170) (2,169) (2,012) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investment securities Sale of investment securities Interest on investments Net cash provided by investing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS Beginning of year End of year INDUSTRIAL DEVELOPMENT CORPORATION OF THE PORT OF SEATTLE STATEMENT OF CASH FLOWS For The Years Ended December 31, 2016, 2015, AND 2014 ��Page of INDUSTRIAL DEVELOPMENT CORPORATION AGENDA Item No. Date of Meeting March 14, 2017 DATE: February TO: Dave Soike, Interim Chief Executive Officer FROM: Scott Bertram Supervisor Corporate Finance & Budget SUBJECT: Overview of the Industrial Development Corporation Frequently Asked uestions (FAQs). What is the purpose of an IDC? To facilitate industrial expansion through use of tax exempt financing made available to companies for qualified projects. What does the term “tax exempt financing” mean? It means bondholders (investors) who purchase the bonds do not pay federal income tax on the interest received on such bonds, as they normally would do on interest bearing bonds. How does tax exempt financing help the institution that is funding capital projects? Because investors pay no income taxes on interest income, they are generally willing to accept a lower interest rate than if the bonds were issued on a taxable basis. Thus, tax exempt bonds provide the ability to finance many public infrastructure capital projects at a reduced cost. What changed in the tax law to make tax exempt financing through the IDC less attractive now than it was when these projects were financed? There are several factors that have adversely affected the use of tax exempt financing over the years. When our state initially authorized the use of nonrecourse tax exempt financing, federal tax rules permitted the financing of a very broad sp ectrum of projects, including wholesale and retail facilities as well as warehouse facilities (for which were many in Washington State due to the large agricultural base) . There was almost no limit on the types of facilities that could be financed. As a result, tax exempt financing was an option for many capital expansion projects. At that time, interest rates were also very high (substantially higher than the cur rent interest rate environment), which made tax exempt financing especially attractive. The Tax Reform Act of 1986 made a number of changes in the tax exempt financing code sections that adversely affected the use of tax exempt bonds for business expansion. The tax rules imposed substantial limitations on the types of facilities that may be fina nced with tax exempt bonds. These limitations eliminated at least 50 60% of the facilities that had been financed pre 1986. The 1986 Tax Reform Act also removed the deductibility of interest earned on tax exempt securities purchased by commercial banks subsequent to August 7, 1986 . This effectively created a tax tax exempt interest for such banks, which prior to 1986 were the largest investors in tax exempt bonds. The net result was the demand by commercial banks for tax exempt securities was almost entirely eliminated. ��Page of Users of tax exempt bond financing were also restricted in their depreciation methodology for tax exempt bond financed property. Interest on private activity bonds also is subject to alternative minimum taxes. The US Treasury proposed the enactment of th ese rules in order to minimize the availability of this financing tool. Who can establish an IDC? Any city, county or port in the State of Washington can establish an IDC. When and how was the Port’s IDC formed? The Port’s IDC was established on February 9, 1982, pursuant to RCW 39.84. What is the boundary of the Port’s IDC? King County as defined, it is the “Corporate boundaries of the Port”. The IDC may finance projects within King County. What is the Port’s IDC’s structure? It is a special purpose g overnment with limited powers. It is governed by a board of directors who are the same as the members of the Port Commission. The Port cannot lend credit or give money to IDC. Debt is always non recourse to the Port and to the IDC. What law(s) govern the I DC? Washington State law RCW 39.84, which is the statute that covers all IDC related issues. Federal law (tax code), which significantly narrows the type of projects that can be financed with tax exempt bonds and the type of borrowers who can avail themse lves of tax exempt bonds. Projects that qualify include those involving manufacturing, processing, airports, docks and wharves, mass commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, qualified residential rental projects, facilities for the furnishing of local electric energy or gas, local district heating or cooling facilities, qualified hazardous waste facilities, high speed intercity rail facilities, environmental enhancements of hydro elect ric generating facilities, and qualified public educational facilities. Resolutions on policy adopted by the IDC board. What does that resolution stipulate for eligibility of projects? The Commission has adopted a policy for judging eligibility of projects The IDC will consider only projects or proposals which will further the purposes and objectives of the Port of Seattle within the confines of state and federal law. Tax exempt private activity bonds will be issued only for the financing of projects which broaden and strengthen the economic base of the Port District by enhancing trade and the movement of passengers and cargo by air or sea, including: the development or improvement of marine terminals and airport facilities or components thereof; ��Page of the d evelopment and improvement of commercial and industrial land, manufacturing facilities, warehouses, terminal and transfer facilities, and related improvements which enhance trade via Port owned or operated airport and marine facilities; the development and improvement of facilities which will enhance or promote the Port’s Comprehensive Scheme; and the development and improvement of facilities which directly support and assist the movement of passengers and cargo by air or waterborne transportation, includin g, but not limited to, aircraft and ship construction and repair facilities, facilities necessary for the inspection, weighing, storage, and packaging of cargo; and connecting surface transportation facilities. Who assists the Port in deciding which projec ts to fund? When bonds are issued, outside bond counsel is engaged to review and confirm legal compliance and eligibility of the project for tax exempt financing. The bond counsel certifies that the issuer has the legal authority to issue the bonds and tha t the securities qualify for federal income exemption. Who may apply for financing through the IDC? Any company with a project that qualifies for tax exempt financing and qualifies under RCW 39.84 (the RCW that covers all IDC issuances) and the IDC policy listed above may apply for IDC financing. How much can be spent on financing the project? The amount of the bond issuance depends of the borrower’s ability to repay as determined by investors; as non recourse bonds, this is determined solely by the bo rrower’s credit. Generally, all proceeds from the bond issuance are used for project spending with some exceptions. Under section 147(g) of the Federal Tax Code, any amount of bond proceeds that may be applied to finance the costs associated with the iss uance of qualified private activity bonds (both before and after the issue date) is limited to 2% of the proceeds of the bond issue. As a general rule, qualified private activity bonds must satisfy a use test whereby 95% or more of the net proceeds of the bond issue must be used to finance the qualified purpose for which the bonds were issued. How does the IDC get compensated? The IDC is compensated for administrative expenses related to the bonds by the borrower. The compensation is based on a percentag e of the debt service. Payment is generally a lump sum paid when bonds are issued; older bonds had the option of payments made annually through the life of the How does the bond counsel get compensated? Bond counsel is paid a fee that is negotiated w ith the borrower. The fee may be fixed or hourly. A flat fee is generally based on the type and size of the bond issue. Fees are paid at the time of issuance, generally out of bond proceeds. Who are the current outstanding borrowers of IDC funds? Ther e are currently t projects that used IDC bonds to finance the project: Crowley Marine Services: IDC issued in December 2001 for the a cquisition and construction of improvements to certain dock facilities (Pier 16/17) owned by the Port of Seattle. Delta Air: In 2001, the IDC issued bonds on behalf of Northwest Airlines for the construction of a two bay maintenance hangar and a cargo handling facility at SeaTac Airport. In September of ��Page of 2012, the Commission gave approval for the bonds to be refinanced by Delta Airlines, which has acquired Northwest Airlines, so Delta Airlines is now the borrower. The facility is still in operation. These projects are all completed, but the bond debt is still being paid down. ��Page of IDC Frequently Asked Questions Appendix Chapter 39.84 RCW INDUSTRIAL DEVELOPMENT REVENUE BONDS Chapter 39.84 RCW Industrial Development Revenue Bonds can be found in the Washington State Legislature web site, via the following hyperlink: http://apps.leg.wa.gov/rcw/default.aspx?cite=39.84 ��Page of Appendix B RESOLUTION NO. 2 A RESOLUTION of the Industrial Development Corporation of the Port of Seattle adopting a master policy for the purpose of determining the eligibility of proje cts or proposals for financing. WHEREAS, the Industrial Development Corporation of the Port of Seattle (the “Corporation”) is a public corporation created pursuant to Chapter 300, Laws of Washington 1981 (Reg. Sess.) codified as Chapter 39.84 of the Revise d Code of Washington and Resolution No. 2845 adopted by the Port of Seattle Commission on February 9, 1982; and WHEREAS, the Corporation is now desirous of adopting a master policy to determine the eligibility of projects or proposals coming before the Cor poration; and WHEREAS, the Corporation wishes to establish and empower a Chief Staff Officer for the Corporation with the authority to amend, update and revise, when necessary, the initial procedures to carry out the adopted policies herein; and WHEREAS, t he initial procedures have been submitted to the Board of Directors of the Corporation and by adoption of this Resolution represents Board concurrence in the general context and form. NOW, THEREFORE, BE IT RESOLVED BY THE INDU STRIAL DEVELOPMENT C ORPORATION OF THE PORT OF SEATTLE, WASHINGTON, as follows: Section 1 . It is the basic policy of the Corporation to comply with the applicable Federal and State of Washington laws and amendments thereto in determining the eligibility of any project or proposal comin before the Corporation for consideration and/or approval for financing Section 2 . The Corporation hereby adopts the following additional policy to determine the eligibility of projects or proposals for financing by the Corporation: The Corporation will consider only projects or proposals which will further the purposes and objectives of the Port of Seattle as adopted by the Port Commission December 9, 1980 or as further amended from time to time. Tax exempt industrial revenue bonds will be issued only f or the financing of projects which broaden and strengthen the economic base of the Port District by enhancing trade and the movement of passengers and cargo by air or sea, including: (1) the development or improvement of marine terminals and airport facilities or components thereof; (2) the development and improvement of commercial and industrial land, manufacturing facilities, warehouses, terminal and transfer facilities, and related improvements which enhance trade via Port owned or operated airport and marine fa cilities; (3) the development and improvement of facilities which will enhance or promote the Port’s Comprehensive Scheme; and (4) the development and improvement of facilities which directly support and assist the movement of passengers and cargo by air or waterb orne transportation, including, but not limited to, aircraft and ship construction and repair facilities, facilities necessary for the inspection, weighing, storage, and packaging of cargo; and connecting surface transportation facilities. The Corporation will not consider projects or proposals that: (1) unnecessarily or unjustifiably subsidize users, i.e., proponents must demonstrate reasonable need for this form of financing; ��Page of (2) create unfair competition or dislocate the balance of competition within the Port Di strict; (3) Section 3 . The Chief Staff Officer of the Corporation shall be the Executive Director of the Port of Seattle. The chief staff officer is hereby authorized to carry out the purposes o f the policies hereby and henceforth adopted by the Corporation and may amend, update and revise the procedures of this Resolution as it is from time to time necessary due to changes in law and/or operations of the Port without prior Commission approval, e xcept as to fees and assessments to be charged. The initial procedures have been submitted to the Board of Directors of the Corporation and by this Resolution they concur in the general context and form. ADOPTED by the Board of Directors of the Industrial Development Corporation of the Port of Seattle, Washington this 27th day of April JACK BLOCK PRESIDENT ATTEST: HENRY L KOTKINS �� &#x/Att;¬he;
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 [/;ott;&#xom ];&#x/BBo;&#xx [5;	.14;' 1;.46;# 5;g.5;ނ ;S.7;঄ ;&#x]/Su;typ; /F;&#xoote;&#xr /T;&#xype ;&#x/Pag;&#xinat;&#xion ;http://collab.portseattle.org/sites/CommMemos/Commission Document Sets/Industrial Development Corporation This list may not represent all issuers; as some have been inactive for many years.