expenses and then allowed expenses to grow as we ramped up our capital program and acquired design and engineering and work of other departments. if you look at this chart operating and maintenance is what the port needs to operate and pay for the maintenance costs and depreciation and amortization is in the light green line and that's a very good indicator of what we should be spending on capital renewal and then operating revenues is the blue line that's even a little below in 2009, a little bo below in 2010, then skipping up in 202011, 12 and 13 and showing positive revenue. so on the real estate revenue, it's really the diversity of our portfolio that continues to help us perform so well. and this last 5 years includes a recessionary period and despite

that we have seen continued growth in our real estate revenues and it's also the policy of this commission to require market rate adjustments in our lease terms that have really helped to grow this revenue stream. also as the city begins to recover we're seeing enhanced performance in our real estate revenues. we also experienced strong growth in maritime revenues and really the two business lines that have shown the most growth are ship repair and cruise and both come from strategic investments from this commission. cruise revenues, as you know, we're making a strategic investment in the pier 27 cruise terminal and in past years it's come from increased ship calls and passenger volume and we expect this trend to continue. dredging and investments to expand dry document capacity and shore power at pier 70 really yielded results in that business line.

since 2008 operating expenses have grown by 13.2 million or an average rate of 3.9 percent per year. and it's really three areas that have drilled cost escalation and that's personnel expense, professional services and charges for other city services. for salaries it's really mandatory fringe benefits have been continuing to rise as well as pension and health plan costs and the report goes into some detail on pension contributions which have had notable increases. the use of professional services is really to get the services of other city departments and for this prior period was to supplement the port's internal work force for our capital projects. much of the front end costs that we're seeing were for due

diligence work, conceptual design and other preliminary costs associated with capital. preparations for the 34th america's cup event also contributed to expenses in 12 and 13. the operating and expenses look -- are held back because of a non-cash adjustment that was from, reducing the environmental liability of pier 70 so this chart shows -- i'm sorry, this table shows our growth rate without that non-cash adjustment. so you can see we had more notable cost increases, expense increases, in 2012 and 2013, 10 percent for 2012 and 4.6 percent for 2013. so the result of this positive net income in the last 3 or 4

years totaled 8.4 million and it really shows that we improved our ability to contribute to capital because of all of the management and all of the policies that this commission has put in place because of the partnerships and the line below grant and contributed capital that grows 21.9 million, that's all the other external sources of revenue that enhanced our operating position. and this chart is showing the incredible benefit of leveraging other sources. operating revenue is in the blue color and grants and contributed capital so other sources of funds, the light green line is our operating and maintenance expenses and then you see dmrerb identification

and amortization above that and this is really showing that the port has had the ability in the last 5 years to meet our operations and our state of good repair and it's other sources of revenue that have really allowed us to make other enhancements to our assets and to address our back load as well. now turning to the balance sheet, the port's net position improved 75.5 million since 2008 and i think that's a really notable result. we've made very significant capital investments that also contributes to liability with debt, tenant improvement credits comprise the majority of increases in liepblts and grants and other capital contributions have really driven significant improvements in our position. i just wanted to give you a look at the investment we have made since 2006 and the sources

of that investment. this pie chart shows the 195.6 million of investment and you can see the result of this very conscientious and focused effort on getting external resources to make really critical investments. to date the port has secured 91.8 million in contributions from federal, state and local agencies. we have held a very, we have maintained a very healthy cash position. total cash and investment balance was 123.6 million at the close of last year. this represents 461 days cash on hand and it's a very strong position and we project that will continue. as you know, the port re-entered the bond market in 2010 following about a 20-year hiatus and in order to achieve that we had to really improve

our financial position and we've been able to use this bond program to push more and more capital investment. and it's really been a decision to create the capital plan, to express the need that was required, to improve our financial position, to enter the bond markets and all of these things together with yielded really impressive results. we have very strong debt service coverage levels historically, looking toward 2013 at 6.54 times. so now turning to the financial projections, so just to be clear, you will see the budget documents later, this budget, budgets focus on current spendable revenue sources and their uses and these projections are prepared on accrual basis of accounting

and they merit the audit ed financial statements. looking forward, we see less, we see a declining ability to generate net revenue. we see that revenues are projected to grow about 16.7 million or an average of 3.8 percent per year, but expenses are projected to grow 21.3 million, or 4.9 percent per year. so this graphic indicates that we're not that far off if you look at the operating revenue line. it shows we're certainly able to meet our operating and maintenance costs and almost pay, almost invest appropriately in renewal costs, but we're not generating that net income result that would allow us -- we're not projected to generate that net income result that would allow us to

invest further. and this is really a cue for management, careful management intervention, the same way we've managed the last 5 years. the diversity of the port's portfolio, low vacancy rate, economic recovery, commission policies are all -- work together to show very strong growth on the real estate side. these assumptions assume interim releasing generating 25.4 million in 2018. they also assume investments we're proposing come online, for example pier 31, pier 33, pier 38, new restaurant at pier 50. the projections do not assume other opportunities such as the back lands or further

utilization of pier 35 once it's a secondary cruise terminal or development of pier 31 and 33 so those opportunities can help us over the next 5 years. we didn't include them because either they are speculative or we believe they are outside the time hoer rise upb. maritime revenues, the real story on our projections here is that cruise is driving the lion's share of the growth in maritime revenues beyond typical cpi and that's really from continued enhancement in the increase in the number of passengers that are visiting san francisco from 202,000 projected in 2013 to 261 for our projection period. we're also assuming that $6 passenger facility charge and special events and parking revenue from pier 27 which at the end of the 18, about 1.8 million. so the cruise investment is paying off in the maritime revenue.

so for operating expenses the drivers of our future expense are primarily labor, a lot of it is what we have and paying for increases in fringe benefit costs and cola adjustments, et cetera, and the other part is from adding new resources and positions that we believe are critical to meet operating efficiencies, protect our revenue and respond to who we are today. also in prior years we had that non-cash adjustment for pier 70, the reduction of that environmental liability that we don't project having into the future. so this graphic just shows the main drivers, personnel expenses in the dark blue, charges for other city departments, other expenses, professional services. so expense growth is projected to outpace revenue growth

resulting in a negative net income position throughout the projected period. atz i said, it still shows we can cover operating and almost get to renewal, but it's really the grants and contributed capital line again that small line starts at 25.8 million out to 1.8 in 1718 that is going to enhance our position. so it's other sources of revenue, it's the general obligation bonds, it's grants from other city agencies -- i'm sorry -- grants from other grantors and just contributed capital that continues to improve our position. here i'm showing you that contributed capital line again in the light green which are the partnerships that we

project to continue to have success in forming that drives an improved financial position. we project debt service coverage levels to at least 1.3 mile 81 1.3 times but far above that, 4.7 times, well above the requirement for the next 5 years. so our coverage looks very good. so in terms of summarizing what the past tells us and what the future suggests, our operating revenues are diverse and stable. we have a very healthy cash position. our debt portfolio is structured conservatively in terms of structure and leverage. we are projecting operating expenses outpacing operating revenue which shows that we will, unless there is careful

intervention, we will not be able to address the renewal costs in the way we should and we need to seek additional revenue generating opportunities to continue to improve our position as we experienced in the last 5 years. and you'll be hearing about the capital plan shortly and you'll see that for the first time the backlog projected at year 10 is smaller than you've seen in prior years and that's a very significant milestone because it is hard for us to keep up with just escalation costs and all of the investment we have done in the prior years has gotten us there. so for capital the strategies are really to pursue development projects that leverage private investment to support city policies while reducing our backlog and you will see in the capital plan that development projects are 43 percent of our identified sources over the next 10 years and those

development projects we're showing to address 243 million of backlog. we need to continue to rebuild our aprons and bring sheds up to code with port maintenance. this is an initiative we advanced last budget year by adding a pile driving crew and we're seeing results and will continue to see results from that strategy. we need to continue to address date of good repair through implementation of your capital policy and also investment criteria and invest in new properties and continue to build new partnerships. we're funding an initial phase of the seawall study and are partnering with external the city and other external agencies to size the problem of the seawall and develop a financing strategy. we also are funding grant

matches so when we receive home land security and other sources we have the match there to receive those funds. on the operating budget, it's really to maintain the operating reserve in the capital policies to support only new positions that meet strategic goals to address our changing environment or protect recovery knews and increase operating efficiencies and we have limited all other expenditure growth to 3 percent of actuals. it's to seek reductions in operating expenses that do not undermine effective operations and every year we'll be looking to find those and also to ensure that south beach harbor, the south supporting program prior to its transfer and to offset expenses for development proposals through cost recovery. so as i looked at all of these numbers i really saw two types

of strategies. one is to look toward incremental improvement and change in areas we can control, controlling operating expenses, growing our revenue, setting aside the right amount for capital, and the past shows that incremental strategy is showing really really good results. and the other strategy is more of an external strategy where we seek innovative financing, partnerships with the san francisco electric, for example, for the 2008 and 2012 bonds and those changes the hopes of ifd in terms of a source. the go bonds, those are game changers for our position. the incremental strategies that we can control we really show very good incremental results but it's those external strategies that

show dramatic, really dramatic changes. so i think that this look back shows a lot of success and it also shows caution looking forward and that we have to continue to be as creative in the future as we've been in the past. so with that i'll close and i'm open to any questions now or we could move to the other items. >> move to the other items? >> i would prefer to address this one before we go to capital, ma'am, if i could ask for comment first. >> any public comment? seeing none, commissioners. >> i want to commend the staff for putting both the historical and the future projections in one presentation. i know it was a lot of work and a lot of time but i think it's good to see the two side by side and i think there is a lot of insight

that we do see. a couple things, one we've already talked about, in the future i think it would be useful to have an operating cash flow for the period historic and going forward because i think we can see cash is increasing versus the fact net income on an accrual bases is declining. that's one thing to watch as well. i guess i, if we've talked a little bit, the key thing in these forecasts is really understanding the assumptions that go into it and i guess i would hope that we could also list out at any future presentation some variables to the projection so we can understand exactly what the sensitivity of those assumptions are and in this and the real estate revenue, i think the question i had is whether, how granular we were able to do the analysis versus a cpi increase of rental rates because at this point the trend line of the exact the expenses are going up faster than the

revenue is not a good sign. and i know that you are generally quite conservative but i think it's important to go sort of very granular here to understand if there is anything on a pure operating level that could improve this forecast going forward so there should be more of an understanding what is coming up for renewal and not just a cpi increase or major leases so if there is some money that will be coming in on the revenue side that we can take a look at that. i think that's, and the sensitivity of both the positive and my understanding is the expense side is kind of fixed, we can't really do too much, but we're seeing that the operating revenue is not going to have enough to do the capital renewal. and we'll get to the capital plan but that's a major issue but we want to be able to sustain an operating level and the forekafrt right now is not showing that trend so that is very alarming, given that we have other pressures coming on us in terms of other

negotiations down the line and my understanding is that this point you have included the interim revenue from any of the piers that have been freed up from ac34. >> yes, that's right. i think it's a good suggestion to do a more granular level of projections. we have certainly done due diligence on sites that either we know will turn over or are vacant or underutilized. for ac34, we are assuming interim parking either shed or all those other facilities it enhances revenue substantially during the projection period. it's about 5.4 million in fiscal year 17-18 so that's assumed. we also, as i mentioned but probably didn't go into much detail, i assume pier 38

revenue for 15-16 at 360,000. we assume the upstairs portion is rented resulting in $202,000 of revenue in 15-16 and pier 31 as well, resulting in revenue at $765,000 so we did assume those particular sites and you mentioned it would be nice to see the variables to the projections and what would make them go up or down and the variables that would make this revenue projection for real estate go up is fuller utilization of 35 is one example when it becomes a secondary cruise ship terminal and i know the maritime division is working on some concepts for that site. the back lands but i don't believe we'll see that revenue in this projection period so that's why i didn't include it, but that's a very good opportunity site. i think that in these

projections in general there's really big risks so the biggest risk i would say to the capital plan is a change in the real estate market or a change in the political context vis-a-vis port development. we've talked about $250 million of state of good repair assumption from the development projects. the biggest risk to operations and to the budget is not growing enough to allow for us to operate efficiently or, conversely, growing too much and we're really trying to strike that balance and the biggest risk to the financial projections is this negative net revenue that you are discussing and not being able to overcome that. i think the past shows it took a lot of intervention and careful decision making and strategy to have us generate positive income, address the backlog,

and gain ground. we have a very big capital plan. so i think it does take a lot of effort to show positive results. >> right, but then the other question, i know you have been conservative but i guess the encouragement in terms of being able to be very aggressive and identifying more grants and other contributed capital because that's the only way we are going to get into a positive change in net assets and if we're going to incur a higher net income loss under the current projections and assumptions it's incumbent therefore to look for third party and we also know the mood in sacramento and washington so it's not going to be easy to get our share of grants but that's imperative and that's the take away we have to look at here in terms of the projections going forward. i also want to mention i think

on the cruise ship terminal you have assumed aggressive growth in the cruise ship calls and then you have a passenger facility fee which at this point is flat in this projection but that will be as we learn whether there is going to be elasticity in that because that could change and increase revenue. all i'm saying is every single stone has to be looked over to look for revenue source because this trend cannot continue the way it is. >> agreed. >> questions? just had a couple -- in terms of some of the projections i also am a little concerned and some of the revenue projections are fairly significant with increase, for example, of cruise passengers. are we fairly confident that those numbers, we have the commitments from the cruise ships? >> i think so. i can turn

over to marilyn ye but i believe this is based on bookings going forward, actual books. so i think it's a reasonably optimistic projection. before i step up, i do appreciate commissioner woo ho's comments. >> good afternoon, marilyn yee, financial analyst, maritime division. yes, it is, currently we have some defined booked and 261,000 passengers. >> i guess assuming the economy continues as it is. you also noted one of the reasons we did quite well these last couple years was in terms

of, you lumped it under grant funds but there's a range of things. do you see any opportunities for us to get similarly -- similar funds coming in or that seems to me it was more sort of a one or two time? >> i think there is future opportunity. i think the 2008 decision of the city to add the port to the general obligation for parks has proven to be an on-going relationship and i think it's now the rec and park and ports bond and our next will be placed on the ballot in 2020 for the schedule of the capital planning committee. that's a big source to us, a big kupb tripbtor to this line and a game changer to this position. i think we were very successful in prior years with home land security grants and ward appropriations, i think that will continue but maybe at a slower clip and one of the

things that is difficult here as we do projections of contributed term, as we know new term but as we look out hopefully they will do much better. you see a huge drop off in the last year, a million plus, and our generate is more like 20 million but we just don't know what those opportunities will be and they really vary. so i don't do a straight line because they are so depen depblt on making alaitionships, applying for the grants, making the business case for the investment or the public's case. >> in terms of trying to maintain a state of good repair, also also a difficult one to project. have we left it any potentially large issues we might be facing from that stand point for expenditures. >> i think we have known since 2006 that we are underinvesting

in state of good repair. if you look at this line, which is a good indicator of what we ought to be spending, almost double with our capital budget. it's not there but it's close. i think it's always our strategy to push whatever surplus earnings we have or net income into capital and to hold down operating expenses to the extent possible. the risk you are pointing out is that the backlog continues to grow and that we are, we can't keep pace and just the inflation costs on our backlog becomes such a large number, becomes such a large number that we can't chip away. because of the position we're in, our expenditure plan, but the risk of not having enough for state of good repair is an increasingly large

backlog. >> may i comment on that as well, president? i thought that was a really excellent question. in listening to the conversation i am reflecting back on my arrival at the port when we were dramatically cutting our budget i think from the first 10 days i was here we cut it by 20 percent, which was very painful. and if you were to look at a 5 year projections then the numbers much much more horrific than it is now and i think the lessons learned in the historical presentation is really important and it has been that the capital plan has really helped us to guide our investments but also to guide our negotiations with our regulatory partners to be more persistent and effective in seeking grant funds when with we have been shut out in the past and one example of that has