2016 Forecast Update

&

2017 – 2021 Budget

Study Session

Commission Meeting

October 20, 2016

2017 Budget Schedule

2016 Key Messages & Forecast Update

2017 Key Messages

2017-2021 Budget

– Capital Budget

– Operating Budget

– Tax Levy

– Plan of Finance

– Financial Measures

Agenda

2

October 20

Study Session to review the proposed:

– 2016 Forecast Update Summary

– 2017 – 2021 Capital Budget

– 2017 Statutory Operating Budget

– 2017 Tax Levy

– 2017-2021 Plan of Finance

November 15

– Public Hearing

– Adopt 2017 Statutory Operating Budget & 2017 Tax Levy• Includes Joint Venture revenue from the NWSA operating budget

approved on November 1st

– Approve Inter Local Agreements between the Port and NWSA

Budget Schedule

3

• Strong operating income at $33.6M, $9.6M

higher than budget:

• $3.4M incremental NWSA revenue

• $2M additional real estate revenue

• $1M additional security services

• $1.5M lower environmental expenses

• Net income before tax levy positive at $23.4M

• Net income of $31.1M

2016 Key Messages

4

2016 P&L Forecast($ millions)

52016 forecasted results subject to change

2015 2016 2016 Better

Actual Budget Forecast / (Worse)

Port Revenue 143.9$ 19.3$ 23.4$ 4.1$

Joint Venture Revenue 0.0 51.8 55.2 3.4

Total Revenue 143.9 71.1 78.6 7.5

Total Operating Expenses 104.6 46.8 44.7 2.1

Income from Operations 39.3 24.3 33.9 9.6

Return on Revenue 27.3% 34.2% 43.1% 8.9%

Other Income (Exp) (24.9) (8.8) (10.4) (1.6)

Net Income before Tax Levy 14.4 15.5 23.4 8.0

Tax Levy 14.2 15.0 15.0 (0.0)

G.O. Interest (8.8) (8.5) (7.3) 1.2

Net Income 19.8$ 21.9$ 31.1$ 9.2$

Debt Service Coverage Ratio 2.6 2.3 2.5 0.2

Return on Assets 1.6% 1.8% 2.5% 0.7%

2016 Capitalized Project Spending

6

2016 Capitalized Spending Forecast($ millions)

7Note: May not foot due to rounding

2016

Type Forecast Major Projects

Terminal Development $3.9 T4 Demo and dredging

Building and Land $6.3 Roof replacements, Parcel 14 development

Environmental $2.3Upper Clear Creek, Arkema Mound, Marine View

Drive demolitions

Rail $9.0 North Lead design & construction and rail track

switch replacement

Other $1.8

Total $23.3

• Healthy operating income of $20.4 million

• Net income of $13.4 million

• Proposed tax millage rate same as 2016

• Capital investments include rail and road

infrastructure and maintenance and

rehabilitation of Port assets not licensed to

the NWSA

• Debt service above commission policy of 2x

2017 Key Messages

8

Cargo Forecast

9

• Historically, the budget presentation has been preceded by a

separate cargo forecast.

• The cargo forecast for containers, autos, breakbulk, and the

majority of intermodal volumes was presented as part of The

Northwest Seaport Alliance budget presentations

• The Port of Tacoma revenue is now mainly fixed. Variable

revenue for Port of Tacoma includes:

• Tariff at the Gypsum dock

• Non container intermodal volume

• Auto LOB short-term storage revenue on Port property

Capital Improvement Plan (CIP)Review

Five Year Planned CIP

($ millions)

Note: May not foot due to rounding

11

Capitalized:

• Assets that depreciate over time

• Non-depreciating land purchases

Operating/Non-operating expense

• Included in the budget as spending

• Does not include NWSA capital spending

2016

Forecast 2017 2018 2019 2020 2021

2017 - 2021

Totals

Capitalized 23.3 $44.4 $18.2 $9.6 $6.7 $32.3 $111.2

Operating Expense 3.4 8.4 9.0 7.8 6.1 1.8 33.1

Non-Operating Expense 0.8 3.8 2.5 2.8 2.7 2.9 14.7

Grand Total $27.5 $56.6 $29.7 $20.2 $15.5 $37.0 $159.0

2017 CIP Spending Budget($ millions)

12Note: May not foot due to rounding

* Partially funded by grants

2017

Type Budget Major Projects

Land $21.4

Potential land acquisition. Land improvement at Lower

Wapato Creek & Arkema manufacturing area

investigation

Rail* $13.5North Lead Rail Tracks Design & Construction. Rail track,

rail equipment and switch replalcements

Technology $2.4 Servers and security costs

Environmental $3.7EBC remediation. US Gypsum cleanup investigation.

Umbrella mitigation bank and monitorings

Road Contribution $2.0 SR 516 Grade Separation Rd contributions

Others $13.6

Total $56.6

2017 - 2021 CIP Spending Budget($ millions)

13

2017 - 2021

Type Budget Major Projects

Land $42.4Potential land acquisition. Lower Wapato Creek & Arkema

manufacturing area investigation

Terminal Development $28.0 Widening of the Blair Waterway

Rail* $22.5North Lead Rail Tracks Design & Construction. Rail track,

equipment and switch replalcements.

Technology $6.7 Hardware and servers replacement.

Environmental $22.7EBC & Parcel 2 remediation. Municipal stormwater

permit program

Road Contribution $3.8Puyallup River Bridge, Taylor Way and SR 516 Grade

Separation Rd contributions

Unanticipated Projects $16.5 $14M capitalized projects and $2.5M operating expenses

Others $16.4

Total $159.0

* Partially funded by grants

Port contribution to SR 167 (timing to be determined)

• 11+ acres estimated value of $3.5 to $4 million

• Fill and associated grading for ramp of $3 to $4 million

• Subject to completion of Parcel 14 mitigation site

• Timing of contribution to be determined

• Non cash expense for contribution in year donated

SR 167 Investment

14

2017 Operational Budget

• Revenues are based on NWSA, POT real estate and POT bulk

businesses.

• Split NWSA Distributable Income (Net Income) 50/50 = $46.7

million for the Port of Tacoma

• Real Estate and Bulk based on existing leases and cargo forecast

• Lease Revenue

– Based on existing customers & lease commitments

• 2017 environmental expenses include $1.4 million recognition of

future liabilities

2017 Key Assumptions

16

Other Expenses will be greater than 2016 forecast by $6.6M

Non Operating Revenue lower by $5M

– Grant income decreases by $3.5M to $2.3M in 2017

– Gain on land sale at Frederickson offset by write off of assets

– No budgeted asset impairments

– No budgeted market adjustments for investments

Non Operating Expenses higher by $1.6M

– Decreased revenue bond interest expenses of $2.1M

– Election expenses of $750k in 2017

– FAST corridor contribution of $2M for SR 516 (Willis road)

– Building demolition costs of $500k

2017 Key Assumptions

17

2017 NWSA Operating Budget

10/19/2016 18

• The Port of Tacoma 2017 operating budget includes $46.7 million from the

NWSA (50% of $93.4 million)

2017

$ Million Budget

Revenue 189.4$

Expenses

Operations 45.7$

Maintenance 17.7

Administration 23.2

Security 4.4

Air & Water Environmental 3.3

Total Operating Expenses 94.3$

Income from Operations 95.1$

Depreciation 2.5

Operating Income 92.6$

Non Operating 0.9$

Net Income 93.4$

Return on Revenue 49.3%

2016 2016 2017 Better

Budget Forecast Budget / (Worse)

Port Revenue 19.3$ 23.4$ 21.7$ (1.7)$

Joint Venture Revenue 51.8 55.2 46.7 (8.5)

Total Revenue 71.1$ 78.6$ 68.4$ (10.2)$

Total Operating Expenses 46.8 44.7 48.1 (3.3)

Income from Operations 24.3 33.9 20.4 (13.5)

Return on Revenue 34.2% 43.1% 29.8% (13.3%)

Other Income (Exp) (8.8) (10.4) (17.0) (6.6)

Net Income before Tax Levy 15.5 23.4 3.3 (20.1)

Tax Levy 15.0 15.0 16.6 1.7

G.O. Interest (8.5) (7.3) (6.6) 0.7

Net Income 21.9$ 31.1$ 13.4$ (17.7)$

Debt Sevice Coverage Ratio 2.3 2.5 2.2 (0.3)

Return on Assets 1.8% 2.5% 1.0% (1.5%)

2016 Forecast vs 2017 Budget($ millions)

19

2016 vs 2017 Expenses Comparison($ millions)

May not foot due to rounding

20

2016 2016 2017 Better

Budget Forecast Budget / (Worse)

Port Labor and Fringes $29.0 $29.2 $32.9 ($3.7)

Maintenance & Repair 6.3 5.5 8.2 ($2.7)

Direct Expenses (Revenue Expenses) 1.8 1.6 1.6 ($0.1)

Outside Services 5.6 4.8 7.4 ($2.6)

Environmental Compliance 6.1 4.7 5.1 ($0.4)

Utilities 1.6 1.6 1.6 ($0.0)

Staff Expenses 1.0 0.9 1.4 ($0.4)

Marketing & Global Outreach 0.9 0.7 1.0 ($0.3)

Internal Allocations (37.0) (35.1) (40.2) $5.1

Total Operating Expense before Depreciation $15.5 $13.9 $19.1 ($5.1)

Depreciation $31.3 $30.8 $29.0 $1.8

Total Operating Expense $46.8 $44.7 $48.1 ($3.3)

Allocations and Direct Charges($ millions)

May not foot due to rounding

21

2016 2016 2017

Budget Forecast Budget

Direct Charges

Maintenance to projects $14.1 $14.0 $16.1

Facilities Development to Projects 4.1 3.7 3.8

Security to NWSA LOB 0.6 0.6 0.7

Total Direct Charges $18.9 $18.3 $20.6

Service Agreement Allocations

POT to NWSA 19.0 17.9 20.9

NWSA to POT 1.0 1.1 1.3

Net Allocations $18.1 $16.8 $19.5

Total Allocations & Direct Charges 37.0 35.1 40.2

2017 Memberships

• Other Port memberships all less than $10,000 per year.

• AAPA membership moved to NWSA

• Membership costs subject to small variations based on fees tied to 2016 actual results

2016 2017

WA Public Ports Assoc. (WPPA) 194,000$ 210,000$

Puget Sound Regional Council 44,000 44,000

American Assoc. of Port Auth. 40,000 -

Pacific NW Waterway Association 13,400 26,765

Tacoma/Pierce Co. Chamber 25,000 25,000

WA Council on Int'l Trade 10,000 20,000

Executive Council for Greater Tacoma 14,000 14,000

Coalition for America's Gateways 10,000 13,000

Other Port and Staff Memberships 29,540 37,845

Total 379,940$ 390,610$

22

2017 Major Community Contracts

2016 2017

World Trade Center 120,000$ 120,000$

Economic Development Board 120,000 120,000

Trade Development Alliance 50,000 51,500

Total 290,000$ 291,500$

23

RCW 53.36.120 & 130 requires that Port

expenditures for Industrial Development,

Trade Promotion, and Promotional hosting be

specific budgeted items

The 2017 statutory budget includes $147,000

for promotional hosting

• Includes POT’s 50% portion of NWSA

hosting

• 2017 Statutory limit based on Port

revenue is $196,000

2017 Promotional Hosting

24

2017 Proposed Tax Levy

State law allows tax levy dollars to be used for

paying general obligation debt and for “…general

port services.”

Port of Tacoma policy is to use remaining tax levy after paying annual GO bond debt service for “governmental” purposes.

– Debt retirement

– Road and rail infrastructure

– Environmental projects

Tax Levy Usage

26

2017 Recommendation

– Budget $16.7 Million for 2017

• Covers 100% of GO bond interest payment ($6.6M)

• Covers 100% of GO Bond principal payment ($5.3M)

of total principal payment)

• $4.8 for Governmental projects

• Maintains millage rate consistent with 2016 rate at

$0.18365 per thousand dollars of valuation

27

Tax Levy

2017 Tax Levy

28

* 2017 Preliminary assess valuations as of September 2015

** Based on 2017 preliminary valuations and targeted millage rate

*** Post September 2016 refundings.

2016 Forecast 2017 Budget

Assessed Valuation* $81,750,009,927 $90,713,390,689

Target Millage Rate per $1000 valuation $0.18635 $0.18365

Total Port Tax Levy** $15,013,389 $16,659,514

Debt Service on G.O. Bonds*** $13,047,366 $11,831,945

Remainder for Governmental Projects $1,966,023 $4,827,569

Tax Levy history

29

* 2017 Preliminary assess valuations as of September 2016

** Based on 2017 preliminary valuations and targeted millage rate

2016 Tax Levies by Taxing District

Source: Pierce County Assessor

30

Tax Collection Year 2015 2016 2017

Avg. Assessed Value $218,573 $232,666 $258,427

Port Millage Rate ($1,000) 0.18365 0.18365 0.18365

Annual Tax Levy $40.14 $42.73 $47.46

Monthly Tax Levy $3.35 $3.56 $3.96

Tax Levy if at Maximum Rate $65.99 $67.25 $68.63

Monthly Amount at Max. Rate $5.50 $5.60 $5.72

Port Millage Rate for Single Family Residences

31

2017 Statutory Cash Budget

32

($ Thousands) 2017

Beginning Cash & Investments $228,942

Projected Sources of Funds

Revenues 68,438.0

Expenses (18,510.0)

Memberships (391)

Promotional hosting POT (57)

Promotional hosting NWSA (POT share) (111)

Funds Provided by Operations 49,370

Interest Income 2,613

Other, Net 1,144

Ad valorem tax revenue (net) 16,612

Projected Sources of Funds $69,739

Projected Uses of Funds

Investment in Nortwest Seaport Alliance $43,916

Debt Payments (Principal and Interest) - GO Bonds $11,832

Debt Payments (Principal and Interest) - Revenue Bonds $26,572

Debt Payments (Principal and Interest) - General Fund $0

Debt Payments (Principal and Interest) - Commercial Paper $188

Additional Retirement of G.O. Bonds $0

Additional Retirement of Revenue Bonds $0

Capital Spending - Planned Projects $44,365

Projected Uses of Funds $126,873

Projected Borrowing

Commercial Paper Borrowing 0

Total Borrowing $0

Projected Ending Cash & Investments $171,808

2017 -2021 Plan of Finance

Revenues– Includes POT portion of NWSA operating income– Based on business forecast & existing leases

Expenses– Mild inflation 2.5%– Real Estate and operating expenses, mainly fixed costs

Non-Operating– Security, commerce and environmental grants– Frederickson land sales– Road contributions– Demolition of buildings– Election expenses

2017-2021 Plan of Finance Assumptions

34

Capital totaling $220.4 million– Includes POT portion of NWSA CIP

• Capitalized projects of $109.2 million (50% of NWSA capitalized

projects totaling $218 million)

– Includes POT specific Capitalized projects of $111.3 million

Debt Management

– 2016 refundings

– Normally scheduled GO and Revenue Bond debt payments

– Retire $25 million of Commercial Paper in 2021

2017-2021 Plan of Finance Assumptions

35

2016 2017 2018 2019 2020 2021

Port Revenue 23.4$ 21.7$ 21.8$ 22.2$ 22.6$ 23.0$

Joint Venture Revenue 55.2 46.7 45.6 55.6 54.3 50.5

Total Revenue 78.6 68.4 67.4 77.7 76.9 73.5

Operating Expenses 44.7 48.1 48.1 44.5 38.9 38.0

Income from Operations 33.87 20.38 19.25 33.25 38.00 35.53

Return on Revenue 43.1% 29.8% 28.6% 42.8% 49.4% 48.3%

Non-Operating (expense), Net (8.3) (17.0) (18.2) (18.1) (15.6) (15.4)

Net Income, Before Tax Levy 25.5 3.3 1.1 15.1 22.4 20.2

Tax Levy (@ constant millage) 15.0 16.6 16.8 17.1 17.5 17.9

G.O. Interest (7.3) (6.6) (6.4) (6.3) (6.2) (6.1)

Net Income 33.2$ 13.4$ 11.5$ 25.9$ 33.7$ 32.0$

Debt Service Coverage 2.5 2.2 2.1 2.7 2.8 2.6

Return on Assets 2.5% 1.0% 0.9% 1.9% 2.5% 2.3%

2016-2021 Budget Forecast -Plan of Finance

($ millions)

36

Percentage of 2017Revenue• NWSA 68%• Real Estate 26%• Bulk & Other 6%

2017 Minimum Cash Calculation

6-months operating expenses 9.5$

Prorated Revenue bond payments 2.2$

Prorated GO bond payments 1.0$

Required Reserves 48.7$

Required Minimum Cash 61.4$

($ millions)

37

Does not include $25.5 million in working capital contribution to the NWSA

($ millions)

38

Debt: Outstanding & Projected Principal

Balance 2017 2017 Balance

12/31/2016 Issues Repayments 12/31/2017

G.O. Bonds 159.0$ -$ (5.3)$ 153.7$

Senior Rev. Bonds 180.6 - (1.8) 178.8

Sub. Rev. Bonds 277.7 - (5.0) 272.6

Commercial Paper 25.0 - 0.0 25.0

Total 642.3$ -$ (12.1)$ 630.2$

• Cash available in future years for facilities investment or debt

retirement

• 2021 reflects $25M retirement of Commercial Paper

($ millions)

39

2017-2021 Ending Cash

40

Financial Measure: Return on Operating Revenue

41

Financial Measure: Net Income before Tax Levy

42

Financial Measure: Net Income

43

Financial Measure: Return on Assets

44

Financial Measure: Revenue Bond Coverage

45

Financial Measure: Debt to Asset Ratio

• Strong operating income at $31.1M, $9.6M

higher than budget:

• $3.4M incremental NWSA revenue

• $2M additional real estate revenue

• $1M additional security services

• $1.5M lower environmental expenses

• Net income before tax levy positive at $23.4M

2016 Key Messages

46

• Healthy operating income of $20.4 million

• Net income of $13.4 million

• Proposed tax millage rate same as 2016

• Capital investments include rail and road

infrastructure and maintenance and

rehabilitation of Port assets not licensed to

the NWSA

• Debt service above commission policy of 2x

2017 Key Messages

47