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 Jun. 26 Jul. 10 Jul. 24 Jul. 24 Sept. 4 Sept. 24 2019 Budget Process and Development Briefing to the Commission 2019 Aviation Business Plan and Budget Development Briefing to the Commission 2019 Maritime Business Plan and Budget Development Briefing to the Commission 2019 EDD Business Plan and Budget Development Briefing to the Commission 2019 Maritime and EDD CIP and Capital Funding Pre-Budget Commission Study Session Memo to Commission Regarding Key Budget Assumptions for 2019 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 Oct. 23 Oct. 25 Nov. 7 Nov. 13 Nov. 13 Nov. 27 2019 EDD Operating Budget Briefing 2019 Preliminary Budget Document to the Commission 2019 Preliminary Budget Document released to the public Special Budget Session on Maritime and EDD Capital Budgets Tax Levy & Draft Plan of Finance Commission Briefing First Reading & Public Hearing of the 2019 Preliminary Budget Second Reading & Final Passage of the 2019 Preliminary Budget Dec. 3 Dec. 14 File the 2019 Statutory Budget with King County 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 for air service at Sea-Tac • Support the airport capital improvement program • Continue to improve safety & security • Continue to improve customer service • Support Cruise passenger growth • Advance real estate development projects • Build capabilities through process improvement • Strengthen the Port's Centers of Expertise 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 and WMBE • Equity Program • Priority Hire • Expand stakeholder engagement • Workforce development • EPA Grant for work with • Continue internship program near-Port communities and expand career • Energy and Sustainability connected learning grants • Supporting Fair Works • Sustainable Aviation Center at the Airport Fuels • Promote economic development for the region • Expand tourism opportunities 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 - - - • Maritime Division & Central Services - - • 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 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 Actual Budget Forecast Budget $ % $ % TOTAL 264,114 236,803 500,916 301,082 244,786 545,867 303,769 251,309 555,078 365,604 259,537 625,140 64,522 14,751 79,273 21.4% 6.0% 14.5% 61,835 8,228 70,062 20.4% 3.3% 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% ($ in '000s) Operating Revenues Aeronautical - Net Non-Aeronautical Budget Change Budget vs Forecast Growth driving expenses and revenues 10 2019 Operating Budget for Non-Aviation ($ in '000s) Operating Revenues Maritime EDD NWSA Distributable Revenue Stormwater Utility - Maritime Central Services & Others Total 2017 2018 2018 2019 Budget Change Budget vs Forecast Actual Budget Forecast Budget $ % $ % 54,183 55,053 56,420 59,729 4,677 8.5% 3,310 5.9% 17,791 54,925 3,891 324 131,114 18,522 46,647 4,208 182 124,612 19,489 50,147 4,208 250 130,514 19,725 43,911 4,564 185 128,115 1,203 -2,736 357 3 3,503 6.5% -5.9% 8.5% 1.8% 2.8% 236 -6,236 357 -65 -2,399 1.2% -12.4% 8.5% -25.9% -1.8% 42,164 25,397 2,974 3,033 299 73,868 49,578 28,751 4,442 4,476 782 88,029 47,420 27,840 4,442 4,476 619 84,797 50,822 31,114 501 3,933 1,249 87,619 1,243 2,363 -3,941 -543 468 -410 2.5% 8.2% -88.7% -12.1% 59.8% -0.5% 3,401 7.2% 3,274 11.8% -3,941 -88.7% -543 -12.1% 630 101.8% 2,822 3.3% 57,246 36,583 45,716 40,496 3,913 10.7% -5,221 -11.4% Operating Expenses Maritime EDD Joint Venture/POS Stormwater Utility - Maritime Central Services Total Net Operating Income Higher NOI versus 2018 Budget 11 Community Programs Summary Program (in $000) 2016 Actual 2017 2018 2018 Actual Budget Forecast Workforce Development 1,483 1,784 2,917 2,067 2,920 1,612 Tourism 1,093 1,235 1,460 1,460 1,521 200 Economic Development Partnership Grants 20 751 960 960 960 960 WMBE & Small Business 356 628 1,509 1,300 1,327 75 Fair Works Center 0 0 0 0 200 200 Equity Program 0 0 55 0 351 287 64 351 Diversity in Contracting 0 0 128 100 418 333 85 418 High School Internship Program 0 484 634 634 634 516 118 634 Airport Community Ecology (ACE) Fund 0 0 400 239 500 500 500 Energy & Sustainability (E&S) Fund 0 36 200 130 250 250 250 Energy & Sustainability Program 0 54 255 120 250 Community Relief to City of SeaTac 0 0 1,400 1,400 1,400 1,400 0 2,952 0 4,971 0 9,917 354 8,764 354 11,085 354 5,551 68.4% 99.5% 76.3% 11.8% Port and Local Community Advertising TOTAL Change from Prior Year 2019 Budget Tax Airport General Levy Dev. Fund Fund 910 2019 Budget 398 2,920 1,321 1,521 960 928 324 1,327 200 199 51 250 1,400 (354) 2,819 2,361 • 354 11,085 • • Adding budget resources for a new Fair Work Center. Equity Program: Creating a new department and a new Director position Diversity in Contracting: Adding 3 new FTEs for Diversity in Contacting in Central Procurement Office Adding new FTEs and resources to advance community programs 12 2019 Operating Budget - Port wide ($ in '000s) Operating Revenues Operating Expenses Net Operating Income 2017 2018 2018 2019 Actual 632,031 372,982 259,049 Budget 670,479 422,885 247,594 Forecast 685,592 419,417 266,175 Budget 753,255 453,724 299,531 Budget Change Budget vs Forecast $ 82,776 30,839 51,937 % 12.3% 7.3% 21.0% $ 67,663 34,307 33,356 % 9.9% 8.2% 12.5% A record $753M of operating revenues for 2019 13 2019 Comprehensive Budget 2017 Actual 2018 Budget 2018 Forecast 2019 Budget Budget Change $ % 264,114 367,917 71,702 88,389 25,790 7,000 6,705 30,112 12,174 873,902 301,082 369,398 72,000 91,787 22,161 7,023 5,504 41,379 15,713 926,047 303,769 381,823 72,000 93,095 22,161 7,023 3,000 41,379 25,670 949,920 365,604 387,651 74,160 95,185 23,482 7,022 2,655 49,345 30,903 1,036,007 64,522 18,254 2,160 3,398 1,321 (2) (2,849) 7,966 15,190 109,961 21.4% 4.9% 3.0% 3.7% 6.0% 0.0% -51.8% 19.3% 96.7% 11.9% Cost recovery under SLOA IV. Higher revenue from the Airport, Maritime & EDD businesses. Increased by 3% in 2019. Higher enplanement forecast for 2019. Increase due to more for debt service cost. Essentially the same as 2018. Less state grant in 2019. More TSA grant for the Checked Baggage Screen Project. Slight increase in rates and higher cash balances. Expenses 1. O&M Expense 2. Depreciation 3. Revenue Bond Interest Expense 4. GO Bond Interest Expense 5. PFC Bond Interest Expense 6. Non-Op Environmental Expense 7. Public Expense 8. Other Non-Op Rev/Expense Total 372,982 165,021 97,748 13,891 4,931 4,464 4,588 10,441 674,066 422,885 163,309 122,544 13,501 4,437 2,250 10,794 473 740,193 419,417 163,309 105,000 13,501 4,437 40,147 11,200 1,200 758,212 453,724 168,676 129,429 12,689 3,606 5,000 21,009 1,415 795,549 30,839 5,367 6,886 (812) (831) 2,750 10,215 942 55,356 7.3% 3.3% 5.6% -6.0% -18.7% 122.2% 94.6% 199.4% 7.5% New budget initiatives and average pay increase. More new assets come into service in 2019. More bond issuance assumed in 2019 increased interest expense. Decreased debt service on GO bonds through amortization. Decreased debt service on PFC bonds through amortization. Revise costs estimates for ERL balance and superfund sites. Safe & Swift, Seattle Heavy Haul, Vanderlande Screening Lanes. Revenues over Expenses 199,836 185,854 191,709 240,459 54,605 29.4% ($ in 000s) Revenues 1. Aeronautical Revenues (Net) 2. Other Operating Revenues 3. Tax Levy 4. PFCs 5. CFCs 6. Fuel Hydrant 7. Non-Capital Grants and Donations 8. Capital Contributions 9. Interest Income Total Explanations 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 Maritime Economic Development Stormwater Utility Central Services and Other 574,425 28,638 3,777 1,913 11,848 935,454 33,455 8,221 1,800 22,507 576,576 70,415 29,796 2,550 10,917 515,061 149,853 21,350 2,319 11,872 394,108 12,713 3,960 2,150 11,740 278,868 14,936 3,830 2,150 33,813 2,700,067 281,372 67,157 10,969 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 $3 billion 15 10 Year Comparison of FTEs to Revenues • The annual compounded growth rate is 2.4% for FTEs compared to 5.5% for operating revenues from 2009 to 2019. Business growth and revenues outgrew FTEs for the past 10 years 16 FTE Summary Aviation Maritime 2018 Approved FTE's Mid Year Approval Eliminated Net Transfers 1,040.4 8.0 3.0 171.0 1.0 36.0 1.0 (2.0) - 907.1 12.0 (1.5) (4.0) 2,154.5 21.0 (3.5) - Adjusted 2018 FTE's (note 1) 1,051.4 172.0 35.0 913.6 2,172.0 2019 Budget Eliminated Transfer New FTE's (note 2) 54.4 (1.0) (1.0) 3.0 1.0 (0.8) 1.0 25.5 (1.8) 83.9 Total 2019 Changes 54.4 1.0 1.0 25.8 82.1 1,105.8 173.0 36.0 939.4 2,254.1 Proposed 2019 FTE's Econ Dev. Central Services Total Notes: 1) Includes 1.0 FTE for Stormwater Utility in M aritime Division. 2) Includes 1.0 new FTE for Stormwater Utility in M aritime Division. FTEs driven by Commission priorities and growth initiatives 17 5 Year Financial Forecast ($ in 000's) OPERATING BUDGET Budget 2018 Forecast 2018 Budget 2019 Aeronautical Revenue - Net Portwide Non-Aeronautical Revenue NWSA Distributable Revenue Total Operating Revenues 301,082 322,751 46,647 670,479 303,769 331,676 50,147 685,592 Total Operating Expenses 422,885 Net Operating Income Before Depreciation 247,594 Compound Growth 2019 - 2023 2020 Forecast 2021 2022 2023 365,604 343,741 43,911 753,255 422,642 349,093 39,084 810,818 486,338 361,253 42,732 890,323 516,584 371,575 48,016 936,176 545,373 382,284 51,037 978,694 10.5% 2.7% 3.8% 6.8% 419,417 453,724 459,515 486,048 507,162 528,740 3.9% 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 Passenger Facility Charges 6.1% Tax Levy 4.8% Rental Car Customer Facility Charges Fuel Hydrant Receipts 1.5% 0.5% Other Receipts 0.2% • Grants and Capital Contributions 3.3% Operating Revenues 48.3% Proceeds from Bond Issues 33.4% Total Sources: $1,559.2M • 82% of funding sources come from bond proceeds and operating income. The tax levy makes up less than 5% of the funding sources in 2019. Interest Receipts 2.0% The Port has diversified funding sources 19 Uses of Funds Operating Expenses 23.4% Capital Expenditures 51.6% • Bond Redemptions 9.8% Interest Payments 9.5% Payment to NWSA for Capital Expenditures 4.2% • Plan to spend more than half of our funds on capital projects in 2019. Operating expenses are less than a quarter of total expenditures in 2019. Other Expenses 0.5% Public Expense 1.1% 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