Austin Convention Center Department Financial Position Presentation, April 11, 2017 Meeting — original pdf

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Presentation to Visitor Impact Task ForceApril 11, 2017Review of Financial Information and ResourcesWhile a common phrase is“Numbers don’t lie”…# $ % It’s important to know…Numbersby themselves don’t tell the whole story.The # of ______ results in $, an increase of % over the previous year, which was a result of _______.Informed users of financial information put numbers in context. 3ACCD has previously provided links to budget and financial statement information ACCD has provided information about outstanding debtComplex financial information requires a methodical approach to evaluating resultsA review and understanding of that information provides a clear picture of ACCD’s financial position and approach to strategic financial planning4LinksVisitor Impact Task Force websitehttp://www.austintexas.gov/edims/document.cfm?id=270179ACCD Responses to Questions –January 31, 2017http://www.austintexas.gov/edims/document.cfm?id=270179Budget Pages https://www.austintexas.gov/financeonline/finance/financial_docs.cfm?ws=1&pg=1oOperational BudgetoCapital Budget and Capital Improvement Project (CIP) PlanoDebtFinancial Statements https://www.austintexas.gov/financeonline/finance/financial_docs.cfm?ws=1&pg=1oStatement of Net Position (Balance Sheet)oStatement of Revenues, Expenses and Changes in Net Position (Income Statement)oStatement of Cash FlowsoNotes to Financial Statements5Review of Cash Balance in context of ACCD’s financial position and approach to capital project financing. Note: The financial statements are for the Austin Convention Center Department, which includes Palmer Events Center. The following slides in this section of the presentation will walk through this reconciliation and show where the amounts are found in the various financial documents published by the City and found online on the City’s Austin Finance Online webpage. The information comes from financial reports presented from both an “accounting basis” and a “budget basis”. The various reports are also published at different points in time, but all amounts represent Fiscal Year 2016 financial information. Due to the differences in reporting basis and timing, there are reconciling differences that come into play, but as shown on a later slide, those differences are considered “immaterial” for the purpose of this analysis. Such differences are common in financial analysis and do not represent issues with the information. 7CAFR –Comprehensive Annual Financial ReportCIP –Capital Improvement ProjectACCD –Austin Convention Center DepartmentAustin Convention Center DepartmentSummary Reconciliation of Financial PositionCash reported on financial statements is at a point in time, in this case, as of September 30, 2016.Just like a personal bank account, a cash balance on any given day doesn’t represent an amount that’s free and clear to spend –such things as encumbrances/commitments reduce the “free and clear” cash balance.Restricted cash and other assets (blue arrows) represent assets that are restricted by an external source for a purpose more narrow that the fund/column being reported. The “unrestricted” cash is highlighted with the green arrows and represents the funds that are the focus of this presentation. 8Page 178 of September 30, 2016 CAFRACCD’s unrestricted cash at 9/30/16 is partially committed to: fulfilling financial policy reserve requirements and funding active capital improvement projects.Thus, the $112 million of reported unrestrictedcash at 9/30/16 is offset by such commitments. Details of those commitments are provided on the following slides.ACCD is not unique in how the financial information is reported or communicated. All City Departments follow the same reporting process. 9Page 178 of September 30, 2016 CAFRThe first commitments against ACCD’s cash and other “liquid” assets are found in the liabilities section of the same financial statement. The lines highlighted with the blue arrows have line descriptions ending with “payable from restricted assets”. These liabilities represent the commitments connected to the restricted cash and investments from the Assets section on the previous slide. 10Page 178 of September 30, 2016 CAFRPage 180 of September 30, 2016 CAFRThe analysis doesn’t stop with looking at unrestricted cash and related current liabilities at a given point in time. The Net Position section of the financial statements provides an indication of the financial health of the entity, given that the accounting equation is Assets –Liabilities = Net Position (Equity)Just like the Assets and Liabilities sections, the Net Position section separates restricted (blue arrow) and unrestricted (red box) components.At 9/30/16, ACCD’s Unrestricted Net Position was $91 million. To fully understand ACCD’s financial position, you can’t stop there though… 11Page 178 of September 30, 2016 CAFRPage 180 of September 30, 2016 CAFRLooking at Net Position, the numbers from the previous slide are at a single point in time. To put those numbers in context, a look at the Combining Statement of Revenues, Expenses, and Changes in Fund Net Position (Income Statement) will show how the Net Position was impacted by the annual revenue and expenses. For the year ended 9/30/16, ACCD’s net position increased by $11 million. It’s also good to point out the 2 lines with the blue arrows. It is important to point out that accounting rules require HOT be considered a “Transfer in”, not operating revenue. This means that, from an accounting perspective, an operating loss is shown prior to the transfer in of HOT. To fully understand what that means, you have to go back to the City’s Fiscal Year 2016 Approved Budget document. 12Page 178 of September 30, 2016 CAFRPage 182 of September 30, 2016 CAFRAs was presented in the first presentation to the VITF on 1/3/17, the sources and uses of funds from a budget basis are shown on these pie charts. Remember from that first presentation, ACCD’s business model seeks to maximize HOT, not internally-generated facility revenue. Facility-generated revenue (“operating” accounting category) represents 29.3% of total sources of funds, and HOT and Car Rental Taxes are 70.6% of the total sources of funds for the operating budget. Looking at Uses of Funds, you see that 50.9 % of the uses fall into the “operating” accounting category. So, for there to be an accounting “operating” loss, does not mean failing operations when you put it in context of the business model employed. 13Page 511 of Volume I of Fiscal Year 2016 Approved Budget2015-16 Approved Budget, Austin, TX29.3%50.9%Before moving on to how ACCD financial policies and Capital Project Financing impacts Net Position, here is a reminder of that previous communication regarding ACCD’s operations and business model. This is a snapshot of the slide from the 1/3/17 presentation to the VITF where the revenue approach, that seeks to maximize HOT, and even discounting facility revenue when it makes sense to do so to accomplish that, was explained. 14Slide 8 of ACCD Presentation to VIFT on January 3, 2017http://www.austintexas.gov/edims/document.cfm?id=269388City-approved financial policies and ACCD’s Capital Project Financing are the remaining two components needed to fully understand ACCD’s financial position. Both of these components are also found in the Approved Budget documents found online at the links provided to the VITF. First, the financial policies are approved by City Council and lay out reserve requirements over and above those placed on ACCD by external sources. There are 2 financial policies that impact the “unrestricted” net position, highlighted here.15Pages 787-8 of Volume II of Fiscal Year 2016 Approved BudgetThe financial policies related to the operating and capital reserves are reflected in the Fund Summaries in the Approved Budget. For Convention Center Operating Fund, the ending balance represents the 180-day operating reserve and the capital reserve. Because the City’s financial policies (not an external source) drive these reserves, for accounting purposes, they are reported as unrestricted. However, for financial planning purposes, these amounts are not considered “available” for current planned uses. 16Pages 700 of Volume I of Fiscal Year 2017Approved BudgetThe funds attributed to the Palmer Events Center are treated the same in the budget documents, but due to differences in the bond documents, the budgeted ending balance is considered “restricted” Net Position in the accounting statements. The City’s approach to reserving funds for the Convention Center and the Palmer Events Center is the same for financial planning purposes. 17Pages 702 of Volume I of Fiscal Year 2017Approved BudgetThe funds attributed to the Convention Center Venue Project Fund are budgeted in a separate fund, but as shown in the following slides are shown combined with other Convention Center funds in the CIP Plan. ACCD internal financial records maintain the separate balances, since the Venue funds transferred to the CIP fund can only be used on the Venue side of the building. Each year, ACCD budgets to transfer funds remaining after debt service transfers to the Convention Center CIP Fund. ACCD’s approach to CIP funding is discussed next. 18Pages 707 of Volume I of Fiscal Year 2017Approved BudgetACCD’s Capital Project Financing significantly impacts ACCD’s reported Unrestricted Net Position. ACCD’s business is its facilities, and therefore, deferred maintenance and delayed capital projects cannot be endured and still remain competitive. Each year, City Council approves the Capital Budget for City Departments. The Capital Budget is found in Volume II of the Approved Budget. 19Pages 305 of Volume II of Fiscal Year 2016 Approved BudgetThe Capital Budget is further detailed in the published CIP Plan, also published online. The CIP Plan shows planned project appropriation and spending at a point in time. It is a planning tool supporting appropriations that are made through the adoption of the Capital Budget. Some amounts may change between the CIP Plan and the Approved Capital Budget. The top section is the appropriation summary, and is a detail of total appropriations, past, current, and future planned. The bottom two sections show spending plan information (blue box), as well as appropriations (red box), for the Convention Center and the Palmer Events Center. 20Pages 44, 45, 48 of Fiscal Year 2016 CIP PlanFiscal Year 2015-2016 Capital Improvement Project (CIP) Funded Appropriation Request SummaryOne of the most important points to understand is how ACCD funds its capital projects. The vast majority of capital projects are funded with cash, not debt. This is not the case for the vast majority of, if not all, other city departments. As a result, ACCD does not commit to capital projects until the funds are collected and available. In the ACCD plan, only fully funded projects are included in the 5-year plan. This means the appropriations “thru prior year” and the current year (only) are committed to the spending plan through the next 5 years. While additional future cash funding is expected, it is not committed to projects until it is “in hand”. As is the case for using conservative projections in operating budget forecast, the same conservative approach to capital funding is needed due to the volatility of HOT and Car Rental tax –the funding source for ACCD capital projects.In comparison, other departments’ capital funding portfolios for specific project categories are shown here.21Various Pages of Fiscal Year 2016 CIP Plan87% project debt79% project debt99% project debt60% projects debt4% debt project & overall75% debt overall75% debt overall76% debt overall64% debt overallSo, putting everything together, starting with reported cash, considering outstanding commitments of that cash, reserve requirements, and capital spending plans, it is possible to determine ACCD’s funding available for future capital or other related purposes.This shows the first part of the reconciliation, starting from the accounting basis with cash, working to net position, and then to the budget-basis amounts. To perform a detailed reconciliation with no difference would require significant additional work. For the purposes of understanding ACCD funding, reconciliations to within an immaterial difference (of less than 2% in this case) is appropriate and commonly used in auditing and financial analysis. After taking into consideration current liability commitments and planned capital spending, ACCD’s funding for future projects/use as of 9/30/16 is $56 million. 22Analysis of ACCD FundingReconciling / comparing sections of Statement of Net Position (Balance Sheet)Can’t stop here!...This includes Venue and Non-Venue Funds…There’s one more step to fully understanding the CIP funding identified as available for future use. Since the City’s Budget reports departmental budgets, in ACCD’s case, the amount represents funding for ACC, ACC Venue, and PEC/Town Lake Venue.The $56 million is further broken out as follows:ACC$35.1 millionACC-Venue$14.5 millionPEC-Town Lake Venue$ 6.4 millionAs it relates to the ACC and ACC-Venue portion, as ACCD has communicated in each of the last 3 Budgets (highlighted on this slide), accumulating excess funding has been deliberate, as expansion is being considered. Preparing for a possible expansion requires responsible, prudent financial planning. ACCD would be remiss if funds were not being strategically managed. 23Analysis of ACCD CIP FundingACCD has communicated its strategy of transferring funds to CIP in each of the last 3 years’ Approved Budgets. Excerpts from the Message from the Director, along with links to those documents are below. From FY15 Approved Budget, Volume I, page 420:From FY16 Approved Budget, Volume I, page 514:From FY17 Approved Budget, Volume I, page 502:FY15: https://assets.austintexas.gov/budget/14-15/downloads/fy15_approved_volume_I.pdfFY16: https://assets.austintexas.gov/budget/15-16/downloads/Vol1Approved_Final.pdfFY17: https://assets.austintexas.gov/budget/16-17/downloads/FY17_Proposed_Budget_Vol_1.pdfThis slide provides the detail for some of the amounts included in the reconciliation on slide 22.The amounts for part A (blue arrow are found on slide 20.The amounts for part B (green arrow) are found on slides 16, 17, and 18.The amounts for part C (orange arrow) are found on slide 20.The amounts for part D, representing the unrestricted amounts, (purple arrow) are found on slides 8 and 10. 24Analysis of ACCD CIP FundingReview of ACCD’s outstanding debt ACCD posted this debt/bond related information, in response to VITF questions, on January 31, 2017.In addition to this information, debt/bond information is posted online, both in the budget and CAFR documents, found at the links posted to the VITF, and covered in the preceding slides.The $133.9 million of outstanding bonds that was communicated in the posting to the VITF website was as of January 2017, and only represents the debt attributed to the Convention Center. ACCD also has debt outstanding for the Palmer Events Center, backed by Car Rental Tax.ACCD’s complete debt portfolio is presented on the following slides. 26VITF Bond Questions with ACCD Posted ResponsesWhen were bonds last issued for the convention center? Bonds for Convention Center purposes were last issued in 2013 to refinance existing Convention Center bonds at lower interest rates; these 2013 bonds were issued as hotel occupancy tax (HOT) bonds. The last “new money” issuance of debt for actual capital improvements to the Convention Center (rather than refinancing of existing debt) was a certificate of obligation (“CO”) issued in 2009 by the City for retrofit purposes. The most recent “new money” HOT debt issuance was issued in 1999 for the Convention Center /Waller Creek venue. There have been numerous refundings (refinancings) of HOT bonds between 1999 and 2013.Are these bonds repayable in whole or in part? If so, when?  With respect to existing HOT debt, the 2008‐A and 2008‐B HOT bonds ($87.8 million outstanding) are callable (prepayable) in whole or in part on any business date; however, because these bonds are variable rate debt, in order to early redeem or defease these bonds the Convention Center would also have to pay off the swap termination fee, which was approximately $11.7 million based on the most recent swap valuation.The 2012 HOT bonds ($16.9 million outstanding) are also callable in whole or in part beginning 11/15/2021. The 2013 HOT bonds ($14.1 million outstanding) are not callable prior to final maturity. For certain GO bonds outstanding that were issued for Convention Center purposes (approximately $15.06 million still outstanding), these bonds have various call dates, with the earliest occurring in 2018 and portions not callable prior to final maturity. How much bond debt remains outstanding? Total Principal Outstanding $133,991,000oSeries 2013 ‐$14,115,000oSeries 2012 ‐$16,995,000oSeries 2008 ‐$87,820,000 (variable rate)oGO Debt ‐$15,061,000http://www.austintexas.gov/edims/document.cfm?id=270179City Bond Indebtedness is found in Volume II of the Approved Budget.ACCD has two separate funds to handle annual debt service payments –one for Convention Center and one for the Palmer Events Center. Those funds are described and presented on pages 731-734 of Volume II of the Fiscal Year 2016 Approved Budget. The Approved Budget also includes debt service schedules for all bond series outstanding. ACCD’s debt service schedules are found on pages 760-763. Note: ACCD’s portion of General Obligation bonds ($15 million) are not disclosed separately, but are included in the citywide summary schedule of outstanding Certificates of Obligation on page 742 of Volume II of the Fiscal Year 2016 Approved Budget. Including GO debt, ACCD’s total outstanding debt as of 9/30/16 was $175 million ($160 million HOT/Car Rental bonds (amounts circled in red); $15 million GO). Total scheduled payments (principal and interest) equal $241.8 million ($221.2 million in HOT/Car Rental bonds (amounts circled in blue); $20.6 million GO bonds).27https://assets.austintexas.gov/budget/15-16/downloads/Vol2Approved_Final.pdfACCD Debt Schedules included in Fiscal Year 2016 Approved BudgetThe City’s CAFR includes information about ACCD’s outstanding debt as well. Within the notes of the financial statements is a discussion of ACCD’s debt (page 79). The notes provide information about the amount outstanding, fiscal year of issuance, maturity dates, bond ratings, as well as any corresponding debt-related agreements, as is the case of ACCD. The amount outstanding of $160 million (red circle) as of 9/30/16 agrees to the debt services schedules shown in the Approved Budget. The 2008 Series is variable rate debt, and the associated counterparty agreement is also discussed (green arrow). 28https://assets.austintexas.gov/financeonline/downloads/cafr/cafr2016.pdfACCD Debt Information included in Fiscal Year 2016 CAFRAt the back of the City’s CAFR is additional information about outstanding debt. Table 17 on page 232 of the CAFR shows debt service coverage for certain enterprise departments, including ACCD (red box). A debt service coverage target of 1.25x or 1.50x, depending on the debt, is considered a good minimum threshold, and required by most bonds.ACCD’s debt service coverage has been increasing over the last 6 years and is in line with Austin Energy and Airport (blue circles). Debt service coverage is monitored by rating agencies regularly and can impact bond ratings and interest rates on new bond offerings. 29https://assets.austintexas.gov/financeonline/downloads/cafr/cafr2016.pdfACCD Debt Information included in Fiscal Year 2016 CAFROne other area in the City’s CAFR that provides information about debt is within the financial statements themselves. On ACCD’s Statement of Net Position (page 180), in the Liabilities section, bonds payable is shown as both current (portion payable within a year) and noncurrent (portion payable beyond a year) liabilities (red circles). The amounts total $178.8 million, which approximates the $175 million shown in the debt service scheduled on the previous slide, but is a bit different, due to the inclusion of net premiums and discounts related to those bond issuances (description highlighted). 30https://assets.austintexas.gov/financeonline/downloads/cafr/cafr2016.pdfACCD Debt Information included in Fiscal Year 2016 CAFRFinally, on ACCD’s Statement of Cash Flows, the amount paid for principal and interest during Fiscal Year 2016 was $20.3 million (red circle). This amount is made up of $18.1 of HOT/Car Rental bond payments and $2.2 of GO bond payments. 31https://assets.austintexas.gov/financeonline/downloads/cafr/cafr2016.pdfACCD Debt Information included in Fiscal Year 2016 CAFRA complete picture of ACCD’s financial position requires review and understanding of multiple financial documents published by the City:Comprehensive Annual Financial Report (CAFR)Approved Budgets –Operating and CapitalCapital Improvement Program (CIP) PlansUnderstanding the basis of reporting (i.e. accounting versus budget) is important when evaluating different financial reportsA portion of ACCD’s reported cash at any given time has offsetting commitments or limited spending ability, leaving funds available for future projects/uses something less than the cash balance.ACCD’s debt schedules are published in the City’s Approved Budget and outstanding debt is discussed in the City’s CAFR. 32