DATE: November 8, 2016
SUBJECT:
Title
FISCAL YEAR END 2016 RESULTS AND BUDGET AMENDMENTS
A) PRESENTATION ON FISCAL YEAR (FY) END 2016 RESULTS ALONG WITH STAFF RECOMMENDATIONS FOR FUNDING THE REMAINING MULTI-YEAR INVESTMENTS PRESENTED TO THE BOARD
B) ORDINANCE AMENDING THE FY 16/17 BUDGET INCREASING THE FY 16/17 NON-PERSONNEL EXPENSE (NPE) APPROPRIATIONS BY $900,000 TO BE FUNDED FROM THE FY 15/16 UNRESTRICTED RESOURCES FOR THE FOLLOWING ITEMS: 1) $600,000 TO EXPAND MARKETING EFFORTS TO INCREASE PUBLIC AWARENESS OF THE DISTRICT; 2) $154,000 FOR BOARD APPROVED RCS COMPANY WIRELESS RADIO UPGRADE FOR HARBOR POLICE; AND 3) $146,000 FOR GRANT MATCHING FUNDS FOR HARBOR POLICE OPERATIONS
C) ORDINANCE AMENDING THE FY 16/17 BUDGET INCREASING THE FY 16/17 EQUIPMENT OUTLAY APPROPRIATION BY $200,000 TO FUND MOBILE VIDEO STORAGE UPGRADES TO BE FUNDED FROM THE FY 15/16 UNRESTRICTED RESOURCES AS PRESENTED IN THE FIVE YEAR PLAN FOR STRATEGIC SECURITY AND PUBLIC SAFETY
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EXECUTIVE SUMMARY:
This was a record year for the District since separating from the airport in 2003. Revenue of $169.8M was the highest attained since the separation, along with earnings of $35.2M before depreciation. After other sources and uses are considered, such as capital and equipment expenditures, debt payments and pension funding, the District generated a record $20.3M unrestricted resources over uses of funds (unrestricted resources).
The Board previously approved an allocation of $10.6M ($7M for Asset Maintenance Program, $2.6M for the Climate Action Plan, $1M for equipment) of these FY 2016 unrestricted resources at the April 21, 2016 Budget Workshop with direction to return to the Board with presentations of initiatives for the additional funding requested. One of the goals presented by the Chief Executive Officer (CEO) was to increase the awareness of the Port by the public. At the September 8, 2016 Board meeting, a presentation was made to fund additional marketing initiatives to support this goal. At the August 9, 2016 Board meeting, a presentation was made for additional funding for security needs. At those presentations, staff said they would return to the Board with a recommendation for the amounts to fund those activities.
Staff also presented at the April workshop a need for $2M of the unrestricted resources to fund an Information Technology (IT) transformation. The Port recently recruited a Chief Technology Officer (CTO) to lead the IT transformation and there are sufficient funds in the approved FY 2017 budget to fund the start of the transformation this year; therefore, staff withdraws the request for additional funds from the FY 2016 unrestricted resources.
Staff now recommends the Board allocate an additional $1.1M of the FY2016 unrestricted resources for Marketing and Strategic Security. Employing the rollover funding concept presented at the April Budget Workshop, staff recommends considering all or a portion of the remaining unallocated unrestricted resources of $7.6M towards these programs in the FY 17/18 Budget. In that regard, the remaining funds of $7.6M would remain unallocated and available for future opportunities by the District as directed by the Board.
RECOMMENDATION:
Recommendation
A. Presentation on FY 2016 results along with staff recommendations for funding the remaining multi-year investments presented to the Board
B. Adopt ordinance amending the FY 16/17 budget increasing the FY 16/17 NPE appropriations by $900,000 to be funded from the FY 15/16 unrestricted resources for the following items: 1) $600,000 to expand marketing efforts to increase public awareness of the District; 2) $154,000 for Board approved RCS Company Wireless Radio Upgrade for Harbor Police; and 3) $146,000 for grant matching funds for Harbor Police operations
C. Adopt ordinance amending the FY 16/17 budget increasing the FY 16/17 Equipment Outlay appropriation by $200,000 to fund Mobile Video Storage Upgrades to be funded from the FY 15/16 unrestricted resources as presented in the Five Year Plan for Strategic Security and Public Safety
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FISCAL IMPACT:
The approval of this recommendation will utilize a portion of the FY 2016 unrestricted resources to fund the remaining multi-year investments for FY 2017:
Marketing $ 600,000
Security $ 500,000
Total $ 1,100,000
Compass Strategic Goals:
This agenda item supports the following Strategic Goal(s).
• A Port that the public understands and trusts.
• A financially sustainable Port that drives job creation and regional economic vitality.
DISCUSSION:
This was a record year for the District since separating from the airport in 2003. Total Revenue of $169.8M and Operating Revenue of $160.2M were the highest attained since 2003. These increases over the prior year were 3.5% and 7.2%, respectively. Earnings of $35.2M before depreciation were also a record since the separation. Year over year earnings growth was 64.5%. After other sources and uses of funds are considered, such as capital and equipment expenditures, debt payments, and pension funding, the District generated a record $20.3M of unrestricted sources over uses of funds, almost triple the amount of the prior year.
At the April 21, 2016 Budget Workshop, staff presented goals which served as the guiding principles in the preparation of the budget. Staff also presented strategies and funding proposals to achieve these goals through multi-year strategic investments. Attachment A is the agenda sheet from the Budget Workshop.
The FY 16/17 goals include:
• Grow revenues = >5% per year
• Manage growth at a disciplined cost structure
• Increase awareness of the Port
• Develop and increase our ability across the District to innovate and lead
• Focus and improve efforts to support our people
The District continues to proactively manage and grow its financial resources with the objective to balance its service requirements, its responsibility to make long-term investments in infrastructure, the environment, and public service. As such, the District outlined a framework to develop a long-term financial strategy which seeks to establish an overarching set of guiding principles that aligns financial best practices into the District’s strategic plan. At the September 2015 Board meeting, the Board accepted staff’s recommendation for a “Framework for a Long Term Financial Strategy” (framework). The framework consisted of five key pillars, such as:
• Budget unrestricted resources after all guiding principles are satisfied
• Prudent debt levels
• Pension liability funding
• Asset maintenance and renewal management
• New business segments with a return on investment
As a follow up to this framework, staff presented a method to fund multi-year strategic programs and investments with a new budget concept recommendation presented at last year’s mid-year update. The budget concept recommendation was: a portion of the final, actual fiscal year’s unrestricted resources becomes a funding source for the multi-year strategic Investments, and may be approved by the Board as part of the next year’s budget.
Staff did not ask for any action by the Board at that time and said we would present details of specific multi-year strategic investments that would require the foregoing budget guideline recommendation. Staff subsequently identified a number of strategic multi-year investments and presented them to the Board at the April 2016 Budget Workshop.
These items included initiatives for possible investments in Asset Maintenance Program (AMP), Energy - Climate Action Plan, matching funds for Maritime Transformation for Transportation Investment Generating Economic Recovery (TIGER) grants, Technology Transformation, Marketing to build awareness of the District in the region, and Strategic Security matching funds for potential grant match.
Staff recommended at this budget workshop funding these initiatives from the unrestricted resources achieved in FY 2016 in the amounts indicated in the column FY 15/16 Original Request:
The Board approved funding of $10.6M for the Major Maintenance AMP, the Energy - Climate Action Plan, and the Equipment funding requests, in the Budget Workshop and asked staff to return to the Board with additional information for the funding requests for Maritime Transformation - TIGER, Technology Transformation, Marketing, and Strategic Security.
After the presentation of the TIGER project at the July 2016 Board meeting, the Board allocated $1.0M of the FY 2016 unrestricted resources towards the TIGER project for costs that need to be incurred for design. Attachment B is the agenda from the TIGER project item.
Staff also presented at the April 2016 Workshop a need for $2M of the unrestricted resources to fund an IT transformation. The Port recently recruited a CTO to lead the IT transformation and there are sufficient funds in the approved FY 2017 budget to fund the start of the transformation this year; therefore, staff withdraws the request for additional funds from the FY 2016 unrestricted resources.
At the August 2016 Board meeting, a presentation was made by staff for security needs for the Harbor Police Department and at the September 2016 Board meeting, staff presented a marketing plan to increase the awareness of the Port by the public, which was part of the FY17 goals presented by the CEO. Attachment C is the agenda regarding the marketing plan and Attachment D is a recent memorandum regarding Branding. At the end of those presentations, staff said they would return to the Board with a recommendation to fund these activities.
This agenda fulfills that commitment to return to the Board requesting funding of $1.1M for the remaining New Programs Requiring Funding for Marketing and Strategic Security. If the Board approves staff’s recommendation, the Board would have funded $12.7M of Investment Spending in Fiscal Year 2017 by the rollover of a portion of the Fiscal Year 2016 unrestricted resources of $20.3M, leaving a balance of $7.6M.
The Investment Spending projects funded by the Board were presented as five year projects that will require similar levels of funding for the next 4 years. Employing the rollover funding concept presented at the April Budget Workshop, staff recommends considering all or a portion of the remaining unallocated unrestricted resources of $7.6M towards these programs in the FY 17/18 Budget. In that regard, the remaining funds of $7.6M would remain unallocated and available for future opportunities by the District as directed by the Board.
General Counsel’s Comments:
The Office of the General Counsel has reviewed and approved this agenda as to form and legality.
Environmental Review:
The proposed Board actions do not constitute a “project” under the definition set forth in California Environmental Quality Act (CEQA) Guidelines Section 15378 because they will not have a potential to result in a direct or indirect physical change in the environment and is, therefore, not subject to CEQA. Additionally, pursuant to Section 15378(b)(4) of the State CEQA Guidelines, a project does not include the creation of government funding mechanisms or other government fiscal activities which do not involve any commitment to any specific project that may result in a potentially significant impact on the environment. No further action under CEQA is required.
In addition, the proposed Board Actions allow for the District to administrate its obligations under the Port Act and/or other laws. The Port Act was enacted by the California Legislature and is consistent with the Public Trust Doctrine. Consequently, the proposed Board actions are consistent with the Public Trust Doctrine.
Finally, the proposed Board actions do not allow for “development,” as defined in Section 30106 of the California Coastal Act, or “new development,” pursuant to Section 1.a. of the District’s Coastal Development Permit Regulations. Therefore, issuance of a Coastal Development Permit or exclusion is not required.
Equal Opportunity Program:
Not applicable.
PREPARED BY:
Robert DeAngelis
CFO/Treasurer
Attachment(s):
Attachment A: 2016-0185 Budget Workshop
Attachment B: 2016-0382 TIGER
Attachment C: 2016-0404 Branding
Attachment D: 11-01-16 Board Branding Memo