Item No. 7c
Meeting Date: November 13, 2018

Draft Plan of Finance 2019-2023
and Tax Levy Briefing
November 13, 2018

1

Topics
• Draft Plan of Finance
• Capital Planning and Funding: Airport
• Capital Planning and Funding: Non-Airport
• Tax Levy Background and 2018 Update

2

DRAFT PLAN OF FINANCE 2019-2023

3

The Draft Plan of Finance
• Provided to the Commission to inform the budget process
and capital investment decisions
• Developed based on a sustainable financial model
- Carefully vetted business forecasting
- Financial targets that allow the Port to withstand downside risk
and maintain strong access to financial markets
• Debt service coverage (revenue cash flow available to pay debt service)
• Minimum operating fund balances

4

Airport and Non-Airport Capital Are Funded Separately
• Airport
- Relies on its own operating cash
flow from airline cost recovery
and non-aeronautical businesses
- Unique funding sources:
• Airport grants
• Passenger Facility Charge (PFC)
• Customer Facility Charge (CFC)

• Non-Airport
- Includes Northwest Seaport
Alliance (NWSA), Maritime and
Economic Development
- Relies on a combination of
• Operating cash flow
• Tax levy after payment of other tax
levy uses

- Cost Per Enplaned Passenger
(CPE) is a critical affordability
metric
5

Debt is an Important Funding Tool
• Types of Debt
- Operating cash flow can be used to
support revenue bond debt
- Tax levy can be used to support
General Obligation (G.O) bond debt

• Use of Debt
- Provides near-term funding
capacity with long-term
repayment
- Appropriate for long-term
investments

• Debt Management
- Financial targets and metrics
provide guard rails against over
leverage
• Debt service coverage targets for
revenue bonds
- Airport: 1.25x
- Non-airport: 1.50x (under review)

• Maximum tax levy leverage of 75%
• Minimum operating fund balances -
averaging 9 months of operating
expense
• Cost Per Enplanement (CPE)

6

CAPITAL PLANNING AND FUNDING
AIRPORT
7

Airport Capital Funding
The Airport is self-funding and is prohibited from supporting the Port's non-Airport
businesses due to FAA regulations
Airport CIP
International Arrivals Facility
North Satellite Terminal
Baggage Optimization
Other Existing Projects
Proposed New Projects
SAMP Planning/Design (1)
Capital Allowance
TOTAL

2019-2023
($ million)
$

$

539.1
419.5
260.0
863.9
71.8
250.8
295.0
2,700.1

•

The costs of aeronautical investments that
support the airlines are recovered through
airline fees - much of the Airport's $2.7
billion CIP is aeronautical

•

The costs of non-aeronautical investments
like parking and dining and retail are paid
from Airport operating cash flows

•

The tax levy does not directly support the
Airport, but does provide noise mitigation
funding for the Highline School District
(security enhancements for the City of
SeaTac is a non-capital use of the tax levy)

(1) Sustainable Airport Master Plan

8

Airport Capital Funding
Aviation Funding Sources
Operating Cash Flow
Tax levy (1)
Grants
Passenger Facility Charge (PFC)
Customer Facility Charge (CFC)
Existing revenue bond proceeds
Future bond proceeds
TOTAL
Aviation CIP
Allocated Central Services CIP (2)
Total Aviation Funded CIP

2019-2023
($ million)
$
457.0
2.1
130.6
119.2
11.6
529.6
1,497.1
$ 2,747.3

$

2,700.1
47.2
2,747.3

•

•
•

Operating revenues generated at
the Airport and revenue
supported bonds pay 90% of
Airport Capital cost
Grants, PFCs and CFCs pay the
rest
A small amount of the tax levy is
used to support the Highline
schools and the City of SeaTac is
not used directly by the Airport

(1) Highline Schools noise insulation.
(2) Assumes funding with Operating Cash Flow only
Note: totals may not add due to rounding

Operating Cash Flow = Income after payment of revenue bond
debt service. Includes certain non-operating cash flows.

9

CAPITAL PLANNING AND FUNDING
NON-AIRPORT
10

Background
• Port's non-Airport businesses include
- Maritime
- Economic Development (EDD)
- Port's share of the Northwest Seaport Alliance (NWSA)

• These businesses share funding from
- Non-Airport cash flow (after payment of revenue bond debt
service)
- Available tax levy funds
- Bonds paid from net cash flows and the tax levy

11

Non-Airport Capital Funding Plan
Non-Airport Funding Sources
Operating Funds (1)
Operating Cash Flow
Grants
Tax levy (assumes recommended 3% annual increase) (2)
Harbor Development Fund
Future revenue bond proceeds (2023)
Future G.O. bond proceeds
TOTAL

2019-2023
($ million)
$

$

71.9
94.8
3.7
85.7
65.9
75.2
277.0
674.1

(1) Includes environmental settlement proceeds.
(2) 3% annual increase for five year forecast period (2019-2023)
Note: totals may not add due to rounding

Operating Cash Flow = Income after payment of revenue bond debt service.
Includes certain non-operating cash flows.

12

Non-Airport Capital Improvement Plan (CIP)
Non-Airport CIP
Maritime & EDD CIP
NWSA - 50% Share (North & South Harbor)
NWSA - Contingency & Port Projects (1)
Strategic Reserve
TOTAL
Allocated Central Services CIP (2)
Total Non-Airport Funded CIP
Estimated Funding Shortfall

2019-2023
($ million)
$
348.5
215.5
57.7
50.0
$
671.7
10.9
$
682.7
(8.5)

(1) Includes North Harbor channel deepening and other 100% Port legacy costs.
(2) Assumes funding with Operating Funds/Cash Flow only.
Note: totals may not add due to rounding

13

Port-wide Revenue Bond Debt Service Coverage Forecast
• Represents net income divided by annual revenue bond debt service (principal and interest)
• Provides a measure of financial sustainability and is critical to investors and rating agencies
• Coverage is primarily driven by the Airport debt service coverage which is targeted at 1.25X

14

2019 Finance Initiatives
• Issue Revenue bonds as needed to fund a portion of the
Airport CIP
• Monitor existing debt for opportunities to refund at lower
costs
• Develop and support Public Private Partnership (P3)
strategies for appropriate projects

15

TAX LEVY BACKGROUND AND 2018 UPDATE

16

Tax Levy
• Washington State ports are permitted to levy a tax on
property within the port's district
• The levy amount must be approved by the Port Commission
and is part of the annual budget process
• The Port may approve a levy amount up to the maximum
allowable within statutory limits
- The maximum levy for 2019 is $104 million
- The current levy is $72 million
17

Tax levy uses
•
•
•
•

Investments in maritime infrastructure
Environmental sustainability
Regional transportation mobility
Community: workforce development, security, local grants

18

Tax Levy History Since 2008
• 2018 tax levy is $72 million
- Due to inflation, since 2008, the
real dollar value of the tax levy is
worth $59 million
- Previous levy decreases and
inflation have reduced purchasing
power since 2008 by $100 million
- Local inflation in 2017 was 3% and
has averaged 2% over the past 10
years

19

King County Homeowners
• Homeowners pay based on
the value of their property
• 2018 tax was 13.5 cents per
$1000 of assessed value
• The median homeowner*
paid an estimated $69 to the
Port in 2018

* Per King County, median residence assessment for 2018 is $509,000

20

Overall Taxpayer Impact - 2018
• In 2018, the median
homeowner paid $5,925 in
total property tax with $69
going to the Port
• Of the $5.6 billion of property
taxes paid in King County,
just over 1% goes to the Port

21

Port Taxpayer Impact
Levy Amount Millage Rate
($ M)
(per $1000)

Median
Taxpayer
Cost

2018 (1)

72.0

$0.1352

$ 68.82

2019 (2)
flat levy
3% increase

72.0
74.2

$0.1196
$0.1232

$ 68.17
$ 70.21

(1) per King County, the median home value was $509,000
(2) based on (1), median home value in 2019 is estimated to be $570,000

* Projected based on historical increases to maximum levy amount

•

3% increase to the tax levy amount will add
$1.39 to the median home owner's tax in 2019
compared to 2018.

•

If there is no change to King County assessed
value, that tax payer would pay an estimated $79
(a $10 increase) in 2023.

22

2018 Tax Levy Update
($ million)
SOURCES OF TAX LEVY FUNDS
2018 Beginning Levy Fund Balance
Annual Tax Levy
Environmental Grants & Other Reimbursements
Investment Income
Total Sources
USES OF TAX LEVY FUNDS
G.O. bond debt service (Existing)
Environmental Remediation Expense
Community Programs
Transportation and Infrastructure Fund Deposit
Non-Airport Capital Investments
Total Uses
Projected Ending 2018 Levy Fund Balance

2018
$ 81.1
72.0
6.1
1.4
$ 160.7

$

43.4
5.0
6.5
30.0
29.4
$ 114.4
$

•
•

Estimate $46 million of levy
available for future funding
In addition to the tax levy
Commission established
- Harbor Development fund for T-5
redevelopment - $66 million
available
- Transportation Infrastructure
fund paid for $6 million in
regional mobility efforts in 2018
• $30 million of funding for SR
509 Gateway MOU added

46.3

23

2019-2023 Tax Levy Uses - Non Capital Investments
($ million)
G.O. bond debt service (Existing)
G.O. bond debt service (New)
Non-Airport Environmental Expense
Economic Development Programs
Environmental Grants (ACE) and Energy and Sustainability
Highline Schools NOISE Projects
City of SeaTac Security Enhancements
Local Community Advertising Program (Spotlight)
TOTAL NON-CAPITAL TAX LEVY USES

2019-2023
$
200.5
78.7
75.9
14.0
1.5
2.1
7.0
1.8
$
381.5

•
•

•

G.O. Bond Debt Service - $279M
Environmental Remediation and
Improvements
Port Community Programs
- Workforce development
- Highline schools noise mitigation
(capital)
- City of Seatac safety
- Economic Development grants

In addition, the Port expects to support $30 million of
regional transportation projects from the Transportation &
Infrastructure Fund (funded with tax levy dollars)

Levy dollars above this total are available for new capital investments
24

Tax Levy Options - Staff Recommends a 3% Annual
Increase to the Tax Levy Amount
Funding Sources 2019-2023

•

800

674

700
600

$ million

500

547
150

tax-backed G.O. bonds

tax levy cash (1)

400
300
200
100

•

277

152

152

75

75

170

170

0
Flat Levy

Annual 3% Increase

revenue bonds
cash from operations and grants

•

A flat $72 million tax levy over the
next five years does not provide
sufficient funding for the
recommended CIP
By increasing the amount of the
tax levy each year for the next five
years, the Port can add capacity
and keep up with King County
consumer inflation
Total funding capacity increases
$127 million
- Additional capacity all from G.O.
bonds

(1) Includes the Harbor Development Fund

25

ADDITIONAL INFORMATION

26

Contents
• Page 28
• Page 29
• Page 30
• Page 31
• Page 32
• Page 33
• Page 34
• Page 35
• Page 36

Port's Taxing Authority
2018 Levy Status (additional detail)
2010-2019 Tax Levy & Millage Rate
Actual vs. Maximum Allowable Levy
Transportation and Infrastructure Fund (TIF)
Tax Levy Cash Flows Available for Capital
Non-Airport Operating Cash Flow Available for Capital
Current Credit Ratings
Industrial Development District Tax Levy

27

Port's Taxing Authority
Port taxing limitations: Port is limited by the most restrictive - currently the 1% limit
• 1% limit
- The maximum levy is increased each year by the 1% limit factor
- Based on prior year's maximum
- Increased by the lessor of 1% or inflation plus an addition for new construction
- The maximum levy for 2019 is estimated to be ~$104.2 million
• 45 cent limit
- The amount of the tax levy in any given year is limited to 45 cents per $1000 of
assessed value
• Port 2019 rate is estimated to be 12.3 cents based on a $74.2 million levy
- For 2019, this limit is ~$270.9 million
- Excludes the amount needed to pay G.O. bond debt service of $43.4 million

28

2018 Levy Status
SOURCES AND USES OF TAX LEVY
SOURCES ($ million)
2018 Beginning Fund Balance
Annual Tax Levy
Environmental Grants & Other Reimbursements
Investment Income
Total Sources
USES ($ million)
G.O. bond debt service (Existing)
Environmental Remediation Expense
Capital Expenditures - Maritime
Capital Expenditures - EDD
NWSA North Harbor Spending
Transfer to Transportation and Infrastructure Fund
Airport Community Ecology (ACE) Fund
Energy and Sustainability Policy Directives
Workforce Development
Economic Development Partnership Program
Tourism Grants
Local Community Advertising Program
City of SeaTac Security Enhancements
Highline Schools NOISE Projects
Total Uses
Estimated Ending Tax Levy Fund Balance

2018
Budget
$

$

$

69.5
72.0
2.6
144.1

2018
Est./Act
$
81.1
72.0
6.1
1.4
$
160.7

$

$

43.4
5.8
28.0
4.9
8.4
0.4
0.2
1.6
1.0
0.5
1.4
95.6

$

43.4
5.0
22.8
1.9
4.8
30.0
0.3
0.3
0.7
1.0
0.2
0.3
1.4
2.4
114.4

$

48.5

$

46.3

Budget
Variance
$

$

$

$

11.7
3.5
1.4
16.6

(0.0)
0.8
5.2
3.0
3.6
(30.0)
0.1
(0.1)
0.9
0.0
(0.2)
0.1
(2.4)
(18.8)

Totals may not add due to rounding

29

2010-2019 Tax Levy & Millage Rate

30

Actual vs. Maximum Allowable Levy

31

Transportation and Infrastructure Fund (TIF)
TIF ($ million)
Beginning Balance
Transportation Investments
Ending Balance

Transportation Investments ($ thousand)
Seattle Heavy Haul Network
Fast Corridor II
N Argo Express Access - Pub Ex
East Marginal Way Phase 2
Safe and Swift
Highway 509 Contribution
TOTAL

2019
$ 1,000
250
229
265
10,000
$ 11,744

2019-2023 Post 2023
$
66.4 $ 36.3
30.1
36.7
$
36.3 $ (0.4)

2020

2021

2022

2023

2019-2023 Post 2023

$ 2,000 $ 2,000
345
730
-

$ 2,000

$ 2,000

$

$ 2,000

4,286
$ 6,286

$

5,000
$ 7,345

$ 2,730

9,000 $ 11,000
1,325
229
265
15,000
4,286
25,714
30,105 $ 36,714

32

Tax Levy Cash Flows Available for Capital
Tax Levy Cash Flow Available for Capital
$ Million
2019
$ 74.2
2.1
$ 76.2

2020
$ 76.4
5.0
$ 81.4

2021
$ 78.7
15.0
$ 93.7

2022
$ 81.0
$ 81.0

2023
$ 83.5
5.0
$ 88.5

TOTAL
$ 393.7
27.1
$ 420.8

G.O Bond Debt Service
Environmental Remediation Expense
Economic Development Programs
Environmental Grants (ACE) and Energy and Sustainability
Highline Schools NOISE Projects
City of SeaTac Security Enhancements
Local Community Advertising Program (Spotlight)
Total Non-Capital Tax Levy Uses

$

$

$

$

$

$

43.4
6.9
2.7
0.8
1.1
1.4
0.4
56.6

$ 279.2
75.9
14.0
1.5
2.1
7.0
1.8
$ 381.5

Tax Levy Cash Flow Available for Capital

$

19.6 $

Tax Levy Collections
Environmental Insurance/Grant Receipts
Total Levy Receipts

$

57.1
7.1
2.7
0.5
1.0
1.4
0.4
70.2

$

11.2 $

59.0
12.6
2.8
0.3
1.4
0.4
76.4

$

17.3 $

59.8
16.5
2.9
1.4
0.4
81.0

$

0.1 $

59.8
32.8
2.9
1.4
0.4
97.4

(8.9) $

39.3

There is a projected beginning fund balance $46.3 million that is also available for capital funding

33

Non-Airport Operating Cash Flow Available for Capital
Cash Flow From Operations Available for Capital
$ Million
Income from NWSA
Maritime net income
EDD net income

2019
2020
2021
2022
2023
TOTAL
$ 48.2 $ 44.0 $ 52.9 $ 58.2 $ 59.2 $ 262.6
9.7
7.4
8.6
13.9
15.3
55.0
(11.1)
(11.7)
(11.2)
(11.5)
(11.7)
(57.3)

Revenue bond debt service and adjustments (1)
TOTAL

(32.3)
(33.5)
(34.5)
(34.3)
(30.3)
(164.9)
$ 14.6 $
6.2 $ 15.9 $ 26.2 $ 32.5 $ 95.4

(1) Adjustments include certain non-operating revenues and expenses and reimbursements for tax levy funded EDD expenses

34

Current Credit Ratings
Moody's
General Obligation Bonds
Aaa
First Lien Revenue Bonds
Aa2
Intermediate Lien Revenue Bonds
A1
Subordinate Lien Revenue Bonds
A2
Passenger Facility Charge Revenue Bonds
A1
Fuel Hydrant Special Facility Bonds
A1

S&P
AAA
AAA+
A+
A+
A

Fitch
AAAA
AAAAA+

Noted Credit Strengths:
• Diverse asset and revenue base
• Airport's market position and
enplanement levels
• Solid coverage and liquidity levels
• Conservative debt structure
• Strong governance and
management
• Long-range strategic and
sustainability plans
• Vibrant and resilient area
economy
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

36

IDD Levy - Implementation
• Port may implement a second round based on a new formula
- Maximum of $1.7 billion over a period of up to 20 years

• Average amount = $85 million (for 20 years)
• Maximum annual amount = $271 million (45 cents for 6 years)

- Port can establish a smaller IDD or collect a lesser amount, but cannot
bank the unused capacity

• 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
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