Item No. 9b_supp . Meeting Date: August 13, 2019 Maritime and Economic Development CIP and Funding Review and Analysis (Setting the Stage for 2020) August 13, 2019 1 2020 CIP Development 2020 CIP Planning Preliminary 2020 CIP & Prioritization (Spring) (June) 2020 MD/EDD Business Plan & Budget Development Commission Briefing (June) CIP Development Commission Briefing (Aug 13) 2020 Budget Assumptions Commission Briefing Tax Levy & Draft Plan of Finance Commission Briefing (Oct 22) (Oct 22) First Reading & Public Hearing for 2020 Budget 2nd Reading & Final Passage of 2020 Budget (Nov 13) (Nov 19) 2 Overview • Capital Planning Background • Research & Lessons Learned • Maritime and EDD 2019-2023 CIP Update • Capital Funding 2019-2023 • Moving Forward 3 CAPITAL PLANNING BACKGROUND 4 CIP Development Progress Capital Planning • Q1/Q2: Project Management & Business Sponsors Update/Review New & Ongoing Projects Preliminary CIP • Q2/Q3: Managing Directors review, prioritize & approve changes • Q3: Funding strategy for preliminary CIP developed CIP Finalized • Q4: 5-Year Capital Plan and Plan of Finance approved by Commission Capital Budget • End of Q4: Cash flow update establishes "capital budget" for the forward year 5 CIP Includes Projects at Different Stages of Development Committed (included in CIP) Status Number * Status Description * Notes 1 Preliminary Placeholder, not included in CIP 2 Business Plan Prospective Included in CIP if funding is available 3 Division Approved Managing Director approves moving forward, staff level authorization for scoping and cost estimates 4 Authorized Commission authorized funding for design - begins scope, schedule and cost development up to 100% 5 Construction Commission authorized for construction, procurement of construction contract(s) 6 Completed Project completed and ready for booking to assets * Port practice as described in the Budget Document 6 7 Degree of Uncertainty Factors that Impact Project Delivery Establishing the Project • Scope changes to improve NPV • Evaluation of environmental options • Cost estimation challenges for unique projects • Leadership Availability for feedback/direction Commission Oversight • Staff - Commission coordination • Importance of Transparency and Accountability: Briefing, Design and Construction Authorization Project delivery • Prioritization of projects • Working around facilities that continue to operate • Unplanned and unforeseeable obstacles • Scope changes Community • Permitting variability • Addressing stakeholder concerns Procurement • Central Procurement Office staff resources • Incorporating Port values in procurement • Rigorous process to comply with state law and best practices 8 RESEARCH & LESSONS LEARNED 9 Research • Port history and trends • Best practices and peer review take-aways 10 Data Research • Staff reviewed Portwide* CIPs over twenty years - Five-year CIPs beginning with 1998-2002 and ending with 20142018 - Reviewed actual spending vs. CIP • Annual basis - first year of the CIP • Five-year basis - all five years of the CIP *Includes Aviation CIPs 11 Percentage of annual spending compared to forecast is lower than percentage of a five-year period spending to forecast • One-year average 57% • Five-year average 80% • (By the beginning of the year, forecast annual spending accuracy increases to almost 70%) • General decline in spending vs. forecast with recent improvement Five-year CIP Drives Capital Planning and Funding 12 5-year CIP has wide variability and has peaks and valleys • Actual five-year capital spending varies within a normal range of $1.2 billion • Normal range is the mean +/- one standard deviation 13 Interpreting the Data Trends • Capital cycle - During early stages, project delivery timing is uncertain; lead time for scoping, design, permitting, bidding and approvals can be unpredictable - Once projects are under construction, spending is more predictable • Macroeconomic factors - Great Recession - Postponement of some projects, but still included in CIP 14 CIP Spending Estimates • A CIP is a point-in-time collection of all project spending (cash flow) estimates - Some estimates are well developed, others are placeholders - Committed projects have more developed cost estimates than Business Plan Prospective projects • Data research compared each five-year CIP - Five-year CIP actual spending as a percentage of forecasted spending - Committed projects as a percentage of total CIP 15 Correlation: The More "Committed" Projects in a CIP, the More Accurate the CIP Forecast Each dot represents a five-year period - Another Data View: Project Status Affects Forecasting Accuracy - A high percentage of "Business Plan Prospective" projects in a CIP, the more opportunity for course correction Business Plan Prospective = status 2 Committed = status 3-5 16 Best Practices and Peer Outreach • Review of best practices - recommend carrying contingencies and budget conservatively, but provided no specific guidelines • Outreach to peer organizations - Including ports, airports and local agencies - All seek to balance flexibility for the unknown with realistic spending forecasts - No universal approach 17 Research: Helpful Insights from Other Governments • Clear prioritization of projects • Coordination between project managers and business units • Realistic delivery expectations • Smooth annual spending over over the five-year CIP • Use of CIP Reserves can help with planning • Focus on five-year CIP, de-emphasize annual spending • High level focus on project delivery 18 Key Messages • Capital Planning is dynamic and all agencies look for ways to improve forecasting accuracy • Tools to help improve capital planning - Clear project prioritization - Understand schedule drivers - Close collaboration between operating divisions and project management - Use CIP reserve to smooth cash flows - Focus on five-year plan 19 MARITIME AND ECONOMIC DEVELOPMENT CIP PROGRESS - 2019-2023 20 SWOT Analysis • • • • Deep understanding and strong connection to maritime businesses. Strategic properties/facilities that can be updated/redeployed. Prudent Management of Tax Levy provides funding capacity Values driven, Environmental, Social and Governance (ESG) approach to investments. • • Port's public service role adds time and cost. Challenging properties (brownfields, soils, fish window limitations, etc.) • • • • • Support Maritime jobs and businesses. Strong connections with other governments. Shape the future & modernize harbor and related facilities. State Focus on Maritime Innovation. Unique coexistence of tech and maritime sectors in King County. • • • High construction costs. Shortage of trade labor. Gentrification, loss of industrial lands. Costs/challenges of getting stakeholders on board. 21 2020 CIP Development 2020 CIP Planning Preliminary 2020 CIP & Prioritization (Spring) (June) 2020 MD/EDD Business Plan & Budget Development Commission Briefing (June) CIP Development Commission Briefing (Aug 13) 2020 Budget Assumptions Commission Briefing Tax Levy & Draft Plan of Finance Commission Briefing (Oct 22) (Oct 22) First Reading & Public Hearing for 2020 Budget 2nd Reading & Final Passage of 2020 Budget (Nov 13) (Nov 19) 22 2019-2023 CIP: Five Year Spending Forecast MD/EDD 2019-23 CIP Approved Nov 2018 ($s in millions) Authorized (partial/design) Fishermen's Terminal Gateway Building Terminal 117 Restoration Bell Harbor Conference Center Modernization Fishermen's Terminal Docks 3, 4 & 5 Pier Improvements Total Authorized¹ 2019-2023 Spending as of: Nov 2018 Jun 2019 23.0 17.9 9.9 6.1 $56.9 23.5 19.7 11.1 3.1 $57.4 Pending Authorization New Cruise Facility (Assumes 50% Tenant Cost Share) Terminal 91 Uplands Development Terminal 91 Berth 6 & 8 Redevelopment Waterfront Electrification/P66 Shore Power² Fishermen's Terminal Maritime Innovation Center Salmon Bay Marina Docks D & E Replacement Harbor Mooring Dolphins Pier 66 HVAC Systems Upgrade Total Pending Authorization¹ 100.0 39.0 35.0 30.0 10.5 5.9 3.6 2.9 $226.9 100.0 33.7 35.0 17.0 10.3 9.1 4.5 2.5 $212.1 Projects Underway Small Projects/Fleet/Technology/Tenant Improvements Contingency 8.2 16.5 25.0 14.0 10.0 19.0 $333.5 $312.6 Total ($ millions) ¹Project status as of Nov 2018, some projects have since been authorized (in part or full). ²Project has been split into two parts: 1) Pier 66 Shore Power: $17M 2) Waterfront Electrification: $13M Prospective (future project) 23 2019-23 CIP: 2019 Spend Forecast & Milestones MD/EDD 2019-23 CIP Approved Nov 2018 ($s in millions) Authorized (partial/design) Fishermen's Terminal Gateway Building Terminal 117 Restoration Bell Harbor Conference Center Modernization Fishermen's Terminal Docks 3, 4 & 5 Pier Improvements Total Authorized¹ 2019 Forecasted Spend as of: Nov 2018 Jan 2019 Jun 2019 2019 Milestones 1.8 8.0 1.6 5.5 $16.9 0.4 1.0 0.8 0.6 $2.8 1.0 1.0 0.8 0.6 $3.4 Concept design completed by Q4. Schedule delayed due to Trustee negotiations. Construction contract award by Q3, construction begins Q4. Updated solution, net cost savings of $3M. Construction begins Q4. Pending Authorization New Cruise Facility (Assumes 50% Tenant Cost Share) Terminal 91 Uplands Development Terminal 91 Berth 6 & 8 Redevelopment 1.3 3.5 0.5 0.6 0.6 0.3 1.1 0.1 0.1 Waterfront Electrification 1.0 0.2 0.2 Fishermen's Terminal Maritime Innovation Center Salmon Bay Marina Docks D & E Replacement Harbor Mooring Dolphins Pier 66 HVAC Systems Upgrade Total Pending Authorization¹ 0.0 0.4 0.2 1.2 $8.0 0.3 0.4 0.0 0.7 $3.0 0.3 0.1 0.0 0.8 $2.7 Predesign work underway in Q2. Partner RFP released in Q3. Design team selected by Q4. Design/permitting funding authorization by late Q4. P66 Shorepower predesign complete by Q3. Design/permitting funding request in Q4. Concept design completed by Q4. Demolition permit by Q4. Design/permitting funding authorization by Q4. System controls upgrade completed by Q4. Projects Underway Small Projects/Fleet/Technology/Tenant Improvements Contingency 8.2 5.5 3.0 4.1 8.4 3.0 4.1 6.5 2.0 $41.7 $21.4 $18.7 Total ($ millions) SBM Customer Service Buildings - construction contract by Q3. ¹Project status as of Nov 2018, some projects have since been authorized (in part or full). 24 2019-23 CIP Major Projects as of Nov 2018 Target Achieved 2019-2023 CIP Progress 2019-2023 CIP as of November 2018 2019-2023 CIP as of June 2019 5 - Authorized Under Contract 9% 2 - Business Plan Prospective 9% 2 - Business Plan Prospective 61% 4 - Authorized 23% 3 - Division Approved 16% 3 - Division Approved 23% 4 - Authorized 59% 6 of 12 Major Projects Advanced to Commission Approval since November 2018* *Represents total project spending, many projects only partially approved *Does not include Northwest Seaport Alliance Projects 26 CAPITAL FUNDING 27 Airport and Non-Airport Capital Are Funded Separately • The 2019-2023 Maritime and EDD CIP included a funding plan • Non-Airport business: - 50% share of Northwest Seaport Alliance (NWSA) - Maritime and Economic Development • Share funding sources - Operating cash flow and Revenue bonds - Tax levy after payment of other tax levy uses - General Obligation (G.O.) bonds paid by the tax levy 28 Effective Financial Policies Provide Guardrails for the Funding Plan • Financial sustainability is critical to on-going capital delivery • Sound financial policies help right-size a CIP and ensure funding availability for project delivery • Two policies under review per Commission Motion 2018-14: - Debt service coverage targets (non-Airport) to avoid over leverage - CIP Reserve(s) (Contingency) to provide flexibility and smooth cash flows 29 Non-Airport Capital Improvement Plan (CIP) 2019-2023 ($ million) $ 333.5 215.5 57.7 50.0 $ 656.8 10.9 $ 667.7 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 (15.1) (1) Includes $25 million NWSA CIP reserve, North Harbor channel deepening and other 100% Port legacy costs. (2) Assumes funding with Operating Funds/Cash Flow only. Note: totals may not add due to rounding Per 2019 Budget 30 Non-Airport Capital Funding Plan 2019-2023 ($ million) Non-Airport Funding Sources Operating Funds (1) Operating Cash Flow Grants Tax levy (2) Harbor Development Fund Future revenue bond proceeds (2023) Future G.O. bond proceeds TOTAL $ $ 70.5 100.2 3.7 68.7 65.9 66.6 277.0 652.6 (1) Includes environmental settlement proceeds. (2) Assumes 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. Per 2019 Budget 31 Tax Levy • The maximum allowable levy for 2019 is $104 million • The current levy is $74.2 million • Port accounts for 1.3% of King County property taxes levied • The 2019-2023 funding plan included an annual 3% increase to the tax levy amount; to be reviewed annually • The 2019 median home pays $71.39 to the Port 32 Tax levy uses • • • • Investments in maritime infrastructure Environmental sustainability Regional transportation mobility Community: workforce development, security, local grants 33 MOVING FORWARD - APPLYING THE LESSONS FOR 2020-2024 CIP 34 Five-year CIP Planning Process Improvements • Current Progress already includes: - CIP prioritization - Collaboration between Operating Divisions and Project Management - Reorganization - Executive Review of CIP - Finance funding policies • Enhancements: - Refine CIP prioritization and planning process - Recommended financial policy updates - Refine use of CIP reserves 35 CIP Delivery Enhancements • Understand project dynamics and apply lessons learned to planning • Implement capital delivery reorganization • Assess organizational resources and processes - Procurement and Contracting - Safety - Permitting - Planning - Delegations - Hiring 36 Next Steps • Prior to September 1, 2019 - Deliver policy update per Motion 2018-14 • October 8, 2019 - Commission budget workshop including Maritime and EDD 2020-2024 CIP • October 22, 2019 - Commission briefing on the 2020-2024 Draft Plan of Finance • November 12, 2019 - Introduction of 2020 Budget Resolution and public hearing • November 19, 2019 - Passage of the 2020 Budget 37