Diving Deeper Into The Port's Murky Waters (Part 2)

The assets of the Port of Seattle

Jumping right in to more numbers. The Port of Seattle's 2014 Balance Sheet showed total assets of $6.54 billion.

A quick look at page 63 of the financial statements shows Assets allocated by division (numbers rounded up):

• Aviation:  $4.6 billion or 70% of the Port's assets
• Seaport:  $1.5 billion or 23% of the Port's assets
• Real Estate: $419 million or 6%
• Other/Not Specified: $21 million 1%

These assets aren't all free and clear, the Port has issued it's own debt to cover the costs of building and improving for the people and businesses it serves (you know, similar to what the City of Seattle and King County have decided to do for the arena).

The liabilities of the Port of Seattle

Total debt was $3.36 billion and is composed of debt they issued for capital improvements projects, equipment acquisition, and other construction and buildings.

No need to go into each bond detail, suffice it to say the Port knows how to issue debt. What is interesting is the debt load allocated by Division:

• Aviation 73% of total Port debt
• Seaport 18% of total Port debt
• Real Estate 2% of total Port debt
• Other/Not specified 7%

Why is this interesting? Because it shows again the significant difference in the Port's financial allocations between Seaport and Aviation.

When compared to the assets by division (think of this as a loan to value ratio for each division) it breaks out as follows:

• Aviation 52% ($2.4 billion in debt / total assets $4.6 billion)
• Seaport 41% ($599 million in debt / total assets $1.5 billion)
• Real Estate 18%  ($74 million in debt / total assets $418 million)

Taking a look at simple math (assets minus liabilities), the Port's "net worth" (or "Net Position" according to how it needs to calculate retained earnings) was $3.176 billion. Not bad!

Recap of the Balance Sheet

The Port holds $6.54 billion in assets of which 96% consists of land, buildings, capital improvements and furniture and fixtures. The remaining 4% is more liquid/short-term (cash, short-term investments, accounts receivable, etc.). The Port issues a lot of debt but the revenues coming in can more than cover the debt service (ranging from 1.85 for intermediate debt to 16.85 on subordinate lien bonds).

Aviation/SeaTac assets and liabilities make up about 70% of the assets and debt of the Port, Seaport about 20%, Real Estate about 7% and misc./not identified for the remaining 3%. This shows that the Port's primary financial focus is and has been SeaTac.

Where do all the coins come from?

In 2014 alone, about $535 million* from a variety of sources within the following divisions:

• Aviation $406 million (76% of total revenue)
• Seaport $96 million (18% of total revenue)  ($57 million, or 11% of total revenue is from the container terminals)
• Real Estate $32 million (6% of total revenue)

*this figure excludes what the Port deems non-operating revenue like the tax levy they collect from King County property tax payers, capital contributions, misc. income, and what looks like excess PFC and CFC collections.

Where do all the coins go?

Here are the operating expenses ($309 million), by division in 2014:

• Aviation $231 million (75% of total operating expenses)
• Seaport $37 million  (12% of total operating expenses)
• Real Estate $40 million (13% of total operating expenses)

Which means the 2014 Net Operating Income by division was:

• Aviation $175 million (Profit Margin 43%)
• Seaport $59 million (Profit Margin 62%)
• Real Estate loss of $8 million

These number are a bit misleading in that according to the organizational chart, Cruise & Maritime operations are under the Seaport division and Real Estate handles some responsibilities which seem to make more sense under Seaport. This will change significantly in 2015, creating more murky waters with Seaport operations:

In February 2015, CEO Ted J. Fick, announced an organizational realignment intended to flatten the reporting structure. Some of the organizational changes include the creation of an Office of Strategic Initiatives that will provide a launch pad for ideas and an internal focus on Operational Excellence including LEAN/Continuous Process Improvement initiatives. Also new will be the Economic Development Division, which will function as the primary economic growth driver for the Port, and will encompass a number of existing functions including some of the current Real Estate Division, along with the Office of Social Responsibility, Tourism Development, and a new small business ‘incubator". Operation of the Port’s main cargo business is expected to be transferred to the Seaport Alliance, a joint venture with the Port of Tacoma, while the remaining Seaport businesses will become part of a new Maritime Division. These changes will be implemented over the remainder of 2015.

So just when we think we are getting close to the real numbers of the Seaport division, we're going to now see them change with the Alliance and a further reshuffling of duties and responsibilities to new departments and divisions.

But wait, there's more!

Yes, the Port also receives what it categorizes as "non-operating income" such as the tax levy, donations, capital contributions, and investment income. And therefore it will also have "non-operating expenses" this is where it gets interesting because it shows the additional funds the Port has available to it, Capital contributions appear to come from the State but I couldn't find a definitive definition of what capital contributions mean (they were $16.7 million in 2014).

The Port though does receive money from tax payers on a daily basis either through the state or other more direct means.

For example, the ad valorem tax levy from King County. The Port is authorized to receive (via Washington State law) up to $0.45 of every $1,000 assessed/property taxable value of King County property (excluding their own of course). The Port makes it very clear that they have chosen not to assess the full $0.45 and instead, have kept it between $0.19 and $0.23 since 2006 (which means it's collected about $73 million each year over the past ten years when it could have collected almost twice that amount([with limitations). The Port goes to some extent to show this via graphs and charts (again, don't forget that the Port owns lands and personal property valued at close to $6 billion for which they pay no taxes).

For 2015, the Port received $73 million in the ad valorem tax levy collected and allocated the use of funds to:

• $31.7 million to the Seaport operations
• $7.5 million to Aviation
• $33.6 million to the Real Estate operations

So let's see, the Port of Seattle collects $73 million/year through an ad valorem tax levy and uses the funds for various purposes. For 2015, it chose to allocate 43% to the Seaport division, 11% to SeaTac, and 46% to it's real estate division.

It's ironic that just under 50% of the property tax levy is allocated to a division that manages properties for which no property taxes are paid.

Another interesting fact about the tax levy, The Port of Seattle receives the levy pass-through from King County on a daily basis. That's right. Every day. So as property taxes are paid, the ad valorem levy for the Port of Seattle appears to be part of a daily transfer out the coffers of King County. Thus assuring King County collects zero additional income (such as interest or overnight investment) on those funds.

Taxes are done in two equal installments on April 30 and October 31. Collections are distributed daily to the Port by the County Treasurer.

The final thing about the 2015 ad valorem collection has to do with freight corridor/traffic improvements. Remember how McGinn said on the interview with Softy how hard it was to get the Port to commit to help fund the Alaska Way Viaduct project? Well, the Port is going to issue debt to chip in for it's share and plans to use the tax levy it receives to help pay the debt service in future years. The Port makes it clear it plans to use the ad valorem tax levy to pay back the general obligation bonds it will be issuing for the Alaska Way Viaduct.

If you own property in King County, don't be surprised if you see the ad valorem amount disbursed to the Port increase in 2017.

Now, moving on to payroll...you know, the really interesting part

So maybe you were like me and thought the Port of Seattle must be primarily unionized (only about 800 directly Port employees are union) and most of the employees worked on the piers and terminals along Seattle's waterfront. Nope, given the tremendous difference in SeaTac operations versus Seaport not only in asset size, revenues, costs, and employees allocated (856 to Aviation and 55 to Seaport), the majority of the direct job benefits provided by the Port is due to operations at SeaTac.

Unfortunately, unlike the other expenses and costs of the Port of Seattle, only the salaries and benefits were broken out for the Aviation division, not for Seaport, Real Estate or Corporate/Other. Therefore, I'm taking the total reported in the financial statements as cash paid during 2014 to employees for wages and benefits of $187.4 million and dividing it by the number of employees at 12/31/2014 (1,780) to get an average of:

$105,303 per employee for 2014

That's a well paying job and/or really good benefits! However, probably people at higher levels make a bit more than that. For example, in 2015, Ted Fick received $387K in salaries and benefits. If you want to look up specific employees that work for the Port of Seattle, click here for a link to The News Tribune where you can fill in the name of a Port employee and find out what they made (released through a public disclosure request).

For the Aviation division, the Port disclosed $99.1 million of salaries, wages, and benefits paid for the 855 employees allocated to that division, so an average of $115,906 per employee. This leaves about $88.3 remaining for the 925 employees that work for Seaport, Real Estate and presumably corporate (although there is no way of knowing this based on the published information), about $95,450 per employee.

Pay Grades and Pay Levels

But the Port of Seattle goes even further in that they have 42 grade levels of pay. The lowest evaluated pay level is grade 3: Office/Maintenance Clerk. For this position, the minimum amount they will receive in wages is $25,292/year and the max for the position is $37,928/year (excluding benefits).

For Grade Levels 3 through 26 the pay levels start at a midpoint of $31,610/year up to $91,689 (grade level 26). The number of positions/job titles listed in Grade levels 3 through 26 totals 304.

Note that the maximum pay that could be received in levels 3 through 26 reaches $97,442 by grade level 24. It's important to look at the range of pay available for that position to truly understand large swings in pay.

For grade levels above 26 (27 to 42), the mid point pay ranges from $97,305/year to $224,992 (grade level 42 Managing Director, Aviation and Deputy CEO). The positions available under these pay grade levels totaled 580. That's a substantial difference it means that 2/3's of all the job titles and positions available at the Port of Seattle have a mid point pay range of $97,305 and above (and remember, this excludes the generous benefits package).

Note that this excludes the outside independent contractors who may be providing consulting services to the Port. This does not get disclosed anywhere in the financial statements. The closest thing I could find was a separate supplemental financial disclosure that listed outside services (typically the category used for independent contractors) for the Aviation division as $34.1 million for 2014.

Are you burned out from all the Port numbers?

Me too, and that's just the tip of the iceberg. It's important though to understand how the Port operates and where for the purpose of this research: is the Port correct in claiming that traffic issues that it believes will be caused by the new arena will inflict great harm to it's operations?

Overall, the Port seems to be in pretty good shape. They are on the higher end of their debt capacity limits and that could become problematic for them, but they seem to be aware of this with some shuffling in their investment portfolio from 2013 to 2014.

But what about those traffic issues that go back to 2002?

Since the same traffic issues were identified in 2002 and the Seaport division is still around, it seems existing traffic hasn't stopped the Seaport division from continuing operations.

In terms of the impact the arena will make on Port operations, the numbers don't convince me that the Port will be materially harmed by the arena. Since the Port doesn't disclose as much information on it's Seaport and Real Estate divisions as it does for Aviation, it's going to be important to look at outside data to corroborate or refute the Port's claims.

Remember, the arena will house up to 18,000 people. If the Port survived this long with Safeco Field (seating up to 54,097 with lots of day games during the week), it's unlikely an 18,000 arena (playing at night except for the weekends) will have a significant impact (as was shown by the traffic studies). If anything, it will be positive due to the transportation infrastructure planned.

No, no, no!

One more number for you, the amount of TIF funds the Port began reserving for future transportation infrastructure improvements out of the ad valorem levy since 2010 is now at $63 million (so about $10 million a year). Hansen, for his small arena footprint, has committed $40 million and a pro-rata share of additional infrastructure improvements (not yet quantified). I think the size of the Port's acreage in that area is a bit more substantial than that of the Stadium District arena. The Port owns 1,338 acres [Seaport] and has set aside $63 million of ad valorem taxes for transportation improvements, Hansen's arena will be on about five acres. On a per acre basis, the Port has reserved $47,085 to Hansen's $8 million.

But as Art Thiel wrote

the survival of Seattle's port is affected by larger market forces than the fate of a lightly traveled alley

That's what gets looked at with Part 3t. In the meantime, for your review and understanding, a screen shot of the Port's Organizational chart as of 2014. It will be interesting to see what the new org chart looks like (and the numbers) when they reflect their reorganization of the Seaport division from the Seaport Alliance.