Port of Seattle Introduction & Public Hearing of the Preliminary 2020 Budget Item No. 8a_supp Meeting Date: November 12, 2019 Commission Meeting November 12, 2019 1 Outline • • • • • • • • 2020 Budget Process Recap 2020 Key Business Activity Forecasts and Key Initiatives 2020 Operating Budget 2020 Comprehensive Operating & Non-Operating Budget 2020-2024 Capital Plan 2020 Sources and Uses of Funds 2020 Proposed Tax Levy Remaining 2020 Budget Schedule 2 2020 Budget Process Jun. 4 Jun. 11 Jun. 25 Jul. 9 Aug. 13 2020 Budget Special Meeting with the Commission 2020 Aviation Business Plan and Budget Development Briefing to the Commission 2020 Maritime Business Plan and Budget Development Briefing to the Commission 2020 EDD Business Plan and Budget Development Briefing to the Commission 2020 Maritime and EDD CIP and Funding Discussion Sept. 24 2020 Central Services Operating and Capital Budgets Briefing Oct. 8 2020 Aviation Division Operating and Capital Budgets Briefing Oct. 8 2020 Maritime and EDD Operating Budgets Briefing Oct. 22 Oct. 22 Oct. 22 Oct. 22 Oct. 24 Oct. 28 Nov. 12 Nov. 19 Maritime and EDD CIP Briefing Tax Levy & Draft Plan of Finance Commission Briefing Preliminary 2020 Budget Document provided to the Commission Preliminary 2020 Budget and 5-Year CIP Open House at Pier 69 Preliminary 2020 Budget Document released to the public Preliminary 2020 Budget and 5-Year CIP Open House at the Airport Introduction & Public Hearing of the Preliminary 2020 Budget Adoption of the 2020 Budget Dec. 2 Dec. 13 File the 2020 Statutory Budget with King County Release the 2020 Final Budget and Draft Plan of Finance Commission engaged in the budget process 3 2020 Business Activity Forecasts Aviation Division: • Forecast 3.0% growth in enplaned passenger for 2020 (from the 2019 year-end forecast, which is expected to be 4.0% higher than 2018) • Enplaned passengers up 42% since 2014 (6.1% compounded annual growth rate) • Major capital projects underway at Sea-Tac will reduce congestion, improve the customer experience, and add capacity to accommodate future growth Maritime Division: • 8.8% growth in cruise passengers to a record 1.3 million in 2020 • 16.1% reduction in grain volumes in 2020 due to the current trade climate and tariffs • Recreational Marina occupancy rate of 95%, same as 2019 • Fishing and Commercial Operations occupancy rate average of 86%, same as 2019 Economic Development Division: • Commercial Properties target 95% occupancy rate at the end of 2020 2020 budget supports growth in Port businesses 4 2020 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 • Pier 66 BHICC Interior Modernization • Advance real estate development projects • Build capabilities through process improvement and innovations • Operate as a highly effective and equitable public agency. Serving increased demand is a key budget driver 5 2020 Key Initiatives Create equitable opportunities throughout the region and invest in healthy communities and environment. • • Diversity in Contracting • and WMBE • • Equity, Diversity and Inclusion • Expand Eastside and other • stakeholders engagement • Workforce Development Continue internship program Maritime Secondary Education Youth Maritime Initiative Career Advancement Center • Airport Community Ecology grants • South King County Fund • Energy and Sustainability grants • Sustainable Aviation Fuels • Promote economic development for the region • Expand tourism opportunities • Local Community Advertising Program Significant budget resources to support community priorities 6 2020 Budget Highlights ($ in '000s) Operating Revenues Operating Expenses Net Operating Income • • • • • 2017 2018 2019 2019 2020 Budget Change Actual Actual Budget Forecast Budget $ % 632,030 372,976 259,054 689,390 397,638 291,752 753,255 454,986 298,269 762,661 443,487 319,174 811,181 469,769 341,412 57,926 14,783 43,142 7.7% 3.2% 14.5% Operating revenues up 7.7% to a record $811.2M from 2019 budget Operating expenses up 3.2% to $469.8M from 2019 budget Net Operating Income up 14.5% to $341.4M from 2019 budget The 2020 capital budget is $640.5M and the 5-year capital spending plan is over $3.4B The proposed tax levy for 2020 is $76.4M, a 3% increase over the 2019 levy of $74.2M The 2020 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 $221K primarily due to reduction in allocated expenses from Central Services. No changes to Non-aeronautical revenues. Operating expenses from the Airport increase by $26K due to: o $28K increase for an FTE from Central Services/Engineering to AV Maintenance (80% charged to Capital - Baggage Optimization project) o $2K reduction in B&O tax due to lower Aeronautical revenues. • Maritime Division - • Maritime reduced Space Rental Expense for T46 Cruise by $1.9M. NWSA Joint Venture - Reduced operating revenue by $1.9M due to net of Space Rental Expense for T46 Cruise Additional refinements made to the budget 8 Changes after the Preliminary Budget Published • Economic Development Division - • No changes other than cost allocations from Central Services Central Services - - - - Added a new FTE in Commission Office Transferred a FTE from Engineering to AV Maintenance to support the Baggage Optimization project Corrected a minor budget entry error for Engineering department Made some minor adjustments to a few departments' cost allocation Additional refinements made to the budget 9 Pending Accounting Standard Change • • • • The Governmental Accounting Standards Board (GASB) has changed the treatment of operating leases starting in 2020 Operating leases will be treated in a manner similar to capital leases- receipts and expenditures will be broken into an operating (rent) and non-operating (interest) component The primary impact will be a reduction in operating revenue and corresponding increase in non-operating revenue, so net operating income will be lower, although total revenue over expense (change in net position) will be the same This standard has not been incorporated into the 2020 budget due to the large number of leases and complexity of the calculations GASB 87 will be adopted in 2020 10 2020 Operating Budget for Aviation 2017 2018 2019 2019 2020 Actual Actual Budget Forecast Budget $ % Aeronautical 264,114 291,268 365,604 361,493 401,342 35,738 9.8% Non-Aeronautical 236,803 257,707 259,537 267,528 283,167 23,631 9.1% TOTAL 500,916 548,975 625,140 629,021 684,510 59,369 9.5% Operating Expenses 299,114 318,849 366,105 359,710 377,306 11,202 3.1% Net Operating Income 201,802 230,126 259,036 269,311 307,203 48,168 18.6% ($ in '000s) Budget Change Operating Revenues Operating revenues outgrow operating expenses 11 2020 Operating Budget for Non-Aviation 2017 2018 2019 2019 2020 Actual Actual Budget Forecast Budget $ % 54,183 57,575 59,729 59,029 62,938 3,208 5.4% 17,791 20,705 19,725 20,004 19,110 -615 -3.1% 54,953 57,622 43,911 48,911 39,887 -4,023 -9.2% 3,891 4,195 4,564 4,564 4,696 131 2.9% 296 318 185 1,131 40 -145 -78.4% 131,114 140,415 128,115 133,640 126,671 -1,444 -1.1% Maritime EDD NWSA Joint Venture Stormwater Utility Central Services 42,164 43,252 50,822 48,749 54,396 3,575 7.0% 24,868 27,063 30,445 28,282 29,368 -1,078 -3.5% 2,974 3,123 501 501 837 336 67.0% 3,028 4,124 3,933 3,933 3,940 7 0.2% 827 1,227 3,180 2,312 3,922 742 23.3% Total 73,862 78,789 88,881 83,777 92,463 3,582 4.0% 57,252 61,626 39,234 49,863 34,208 -5,025 -12.8% ($ in '000s) Budget Change Operating Revenues Maritime EDD NWSA Joint Venture Stormwater Utility Central Services Total Operating Expenses Net Operating Income Lower NWSA Distributable Revenue reduces NOI for 2020 12 Accounting Impacts on NWSA Financials ($ in millions) Operating Revenue Operating Expense Net Operating Income Depreciation NOI After Depreciation Non-Operating Revenue/Expense Change in Net Assets NWSA Budget with GASB 87 2019 2020 Change 199.4 99.3 100.1 13.5 86.6 1.1 87.7 149.9 98.9 51 15.4 35.6 47.4 83.0 POS Share of Distributable Revenue Less: 50% of T46 ILA Revenue POS Distributable Revenue 41.5 (1.9) 39.6 (49.5) (0.4) (49.1) 1.9 (51.0) 46.3 (4.7) NWSA Budget without GASB 87 2019 2020 Change 199.4 99.3 100.1 13.5 86.6 1.1 87.7 197.4 99.2 98.2 15.4 82.8 0.2 83.0 (2.0) (0.1) (1.9) 1.9 (3.8) (0.9) (4.7) GASB 87 and Joint Venture Accounting Affect NWSA Financials 13 Community Programs Summary Program (in $000) 1) Airport Community Ecology (ACE) Fund 2) Energy & Sustainability Fund 3) South King County Fund 4) Duwamish Valley Community Equity Program 5) Low Carbon Fuel Standard Support 6) Sustainable Aviation Fuels & Air Emissions Program 7) Economic Development Partnership Grants 8) Tourism Program 9) Airport Spotlight Advertising Program 10) City of SeaTac Community Relief 11) Maritime Innovation Center 12) Diversity in Contracting 13) Equity, Diversity & Inclusion 14) Workforce Development 15) High School Internship Program TOTAL 2019 Budget 500 250 750 375 960 1,521 354 1,400 1,657 648 2,920 634 2020 Budget 522 250 1,500 292 150 40 960 1,536 1,148 1,400 150 2,059 1,586 2,879 775 11,968 15,247 2019 to 2020 Budget Change 22 4.5% 750 100.0% 292 0.0% 150 (335) -89.3% 15 1.0% 794 224.5% 150 402 24.3% 938 144.9% (41) -1.4% 141 22.2% 3,279 • Added new programs for 2020: o o o • • • • Duwamish Valley Community Equity Program Maritime Innovation Center Low Carbon Fuel Standard Support Increased the budget for South King County Fund. Workforce Development eliminated K-12 Career Connected Learning, and added new items, which include Maritime Secondary Education, Engagement and Strategic Plan, and Career Advancement Center. Diversity in Contracting added 2 new FTEs in 2019. For 2020, Equity, Diversity and Inclusion included 3 new FTEs and additional resources to implement EDI strategy. 27.4% Adding new FTEs and resources to advance community programs 14 2020 Comprehensive Budget ($ in 000s) Revenues 1. Aeronautical Revenues 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 2018 Actual 2019 Budget 2020 Budget Change $ Change % 291,268 398,122 71,771 94,070 21,802 6,942 1,711 43,650 26,287 955,623 365,604 401,342 387,651 409,839 74,160 76,385 95,185 99,505 23,482 23,914 7,022 7,022 2,655 2,551 49,345 48,010 30,903 27,669 1,036,007 1,096,237 35,738 22,187 2,225 4,320 432 (104) (1,335) (3,234) 60,230 9.8% 5.7% 3.0% 4.5% 1.8% 0.0% -3.9% -2.7% -10.5% 5.8% Cost recovery under SLOA Mainly due to higher revenues from the Airport, Maritime & EDD. Assume a 3% increase from 2019. Higher enplanement forecast for 2019. Higher non-op revenue for CFC debt service No change from 2019. Less non-capital grants from state. Increase grants reimbursement from FAA and TSA. Decrease in rates, partially offset by higher fund 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 397,638 164,362 100,443 13,414 4,368 10,600 5,269 3,217 699,310 454,986 168,676 129,429 12,689 3,606 5,000 21,009 1,415 796,810 469,769 179,056 157,231 12,003 2,740 5,000 19,233 2,905 847,937 14,783 10,379 27,801 (686) (865) (1,776) 1,490 51,127 3.2% 6.2% 21.5% -5.4% -24.0% 0.0% -8.5% 105.3% 6.4% New budget initiatives and average pay increase. More new assets coming into services. Assume $600M new bond issuance & $150M refunding in 2020. Amortization of outstanding GO debts and no new issuance assumed. Decreased debt service on PFC bonds through amortization. No change from 2019. Safe and Swift, Heavy Haul, Checkpoint Screening Equipment. Spotlight Advertising Program increase from $353K to $1,148K. 9. Special Item 10. Retro Adjust to Net Position Revenues over Expenses 34,923 2,721 218,669 - 248,300 0.0% 0.0% 3.8% T25 NRD restoration project special item. Net of GASBs 75 and 86 adjustments. 239,197 9,103 Explanations A strong financial position for the Port in 2020 15 Capital Plan Summary Capital Plan Summary by Division $ in 000's 2019 Fcst 2020 2021 2022 2023 2024 2020-2024 Aviation Maritime Economic Development Stormwater Utility Central Services and Other 660,834 14,934 5,059 1,619 12,003 656,204 42,566 15,801 2,104 (76,213) 577,314 97,112 12,497 650 40,469 471,143 156,325 19,171 650 25,673 547,039 41,782 16,735 650 58,116 671,262 29,079 9,255 650 26,992 2,922,962 366,864 73,459 4,704 75,037 Total 694,449 640,462 728,042 672,962 664,322 737,238 3,443,026 • Capital projects have been prioritized by staff. • The capital plan does not include Port share of the NWSA capital spending between 2020 and 2024. The Port continues to invest in the region with a 5-year capital plan of over $3.4 billion 16 Sources of Funds • • • Almost half of funding sources comes from operating revenues. 35% of the funding sources comes from bond proceeds. The tax levy makes up 4.5% of the funding sources in 2020. Total Sources : $1,699 million The Port has diversified funding sources 17 Uses of Funds • • • Plan to spend about 40% of the funds on capital projects in 2020. 29.2% of total expenditures on operating expenses. 25.3% of the total spending on debt services. $1.6 billion total expenditures for 2020 18 Tax Levy Strategy • • • • In 2019, the Commission approved a 3% inflationary levy increase to support investments in the Seattle Harbor Funding assumed that the levy would increase 3% per year through 2023, then flat in 2024 2019 tax levy increased to $74.2 million compared to $72.0 million in 2018 Over the prior decade, inflation reduced the purchasing value of the tax levy 19 Taxpayer Impact 2018 2019 2020 preliminary Tax Levy ($ million) 72.0 74.2 76.4 Estimated millage rate ($/1000) 0.135 0.123 0.120 Median home value ($) (1) 509,000 582,000 611,000 68.7 71.6 73.3 Estimated median home Port tax ($) (1) 2018 and 2019 per King County Assessor; 2020 based on estimated 5% growth in assessed value Preliminary estimate indicates that the median home-owner will see an increase payment of Port property tax of $1.74 in 2020. 20 Remaining Budget Schedule • Adoption of 2020 Budget Nov. 19, 2019 • File Statutory Budget with King County Dec. 2, 2019 • Release the 2020 Final Budget Document Dec. 13, 2019 Statutory budget to be filed with the County on December 2 21 APPENDIX 22 FTE Summary Aviation Maritime Econ Dev. Central Services 2019 Approved FTE's Mid Year Approval Eliminated Net Transfers 1,105.78 27.25 (42.75) 64.00 173.00 (1.50) 21.00 36.00 2.00 (3.00) 940.30 26.25 (2.00) (83.00) 2,255.08 55.50 (46.25) (1.00) Adjusted 2019 FTE's (note 1) 1,154.28 192.50 35.00 881.55 2,263.33 2020 Budget Eliminated Transfer Conversion of Emergency Hires New FTE's 53.00 (3.00) 1.00 24.00 8.50 0.60 (2.20) (1.00) 36.00 (5.20) 24.00 98.10 Total 2020 Changes (note 2) 53.00 30.50 0.60 32.80 116.90 1,207.28 223.00 35.60 914.35 2,380.23 Proposed 2020 FTE's Total Notes: 1) Includes 3.0 FTE for Stormwater Utility in M aritime Division. 2) All F&B and ENV COEs, including a total of 7.5 new FTEs, roll up to Central Services. FTEs driven by operating needs and growth initiatives 23 Tax Levy Sources and Uses 2020 ($ million) SOURCES OF TAX LEVY FUNDS Prior Year Tax Levy Fund Balance Projected Tax Levy Collection Environmental Grants & Other Reimbursements Total Sources USES OF TAX LEVY FUNDS G.O. bond debt service (Existing) Non-Airport Capital Investments Environmental Remediation Liability (Non-Aviation) NWSA Membership Interest Contribution Community Programs Total Uses Projected Ending 2020 Levy Fund Balance $ $ $ 2020 10.6 76.4 13.3 100.3 $ 39.8 24.8 8.2 5.5 11.4 89.7 $ 10.6 • The $76.4 million tax levy is sufficient to fund the uses identified for 2020 • Current projections assume the issuance of General Obligation bonds in 2021 24 Port of Seattle Introduction & Public Hearing of the Preliminary 2020 Budget Commission Meeting November 12, 2019 25