Committee on Transportation and Seattle Public Utilities 5222

Good morning, welcome to the May 2nd, 2023 meeting of the Transportation and Seattle Public Utilities Committee.

It will come to order.

The time is 9.31 a.m.

I'm Alex Peterson, chair of the committee.

Will our clerk please call the roll?

Council Member Herbold?

Here.

Council Member Morales?

Here.

Council Member Sawant?

Council Member Strauss?

Chair Peterson?

Here.

Three present.

Thank you, and I know at least at this time, Council Member Strauss let us know he's on his way, will be coming later.

So he's excused at this time, and we'll see if another Council Member shows up as well.

But we do have quorum, so we'll go ahead and get started.

Colleagues, if there's no objection, today's proposed agenda will be adopted.

Hearing no objection, the agenda is adopted.

Chair's report.

Good morning again and welcome to the transportation Seattle Public Utilities Committee.

Today we have four items on our agenda.

First on the agenda we have Council 120543, which would renew the term permit, authorizing seaport midstream partners to maintain a pipeline on southwest Florida Street.

The second item is Council Bill 120544, which would renew the term permit authorizing Quest Corporation to maintain and operate a utility tunnel on Seneca Street.

Our third item is Clerk File 314517, which would extend conditional approval for a subterranean alley vacation on Denny Way.

Those first three pieces of legislation are relatively minor, so I'd like to vote them out of committee today.

That's the plan at least.

And we can discuss that later for each item.

And the last item on our agenda is a briefing and discussion on the annual financial audit of our Seattle Public Utilities.

So at this time, we'll go ahead and open the general public comment period for the Transportation Seattle Public Utilities Committee.

Just checking to see if we have anyone signed up in person here and then online.

We do continue to have hybrid meetings for the public, which is very helpful.

Great.

So we don't have anybody signed up online, but we do have one person in person.

So let me go ahead and read the instructions.

And people are able to sign up while I'm reading the instructions, too.

So for let's see here.

I will moderate the public comment period in the following manner.

I will start with the speakers who have registered online and then I'll call on speakers who have signed up here in council chambers.

Public comment period is up to 20 minutes, two minutes for each speaker.

I'll call on speakers two at a time in the order in which registered on the council's website and on the sign-in sheet.

at the Council Chambers here at City Hall.

If you've not yet registered to speak but would like to, you can sign up before the end of this public comment period by going to the Council's website at seattle.gov forward slash Council or by using the sign-in sheet near the public comment microphone here in the front of the City Council Chambers.

Remote speakers.

Once I call a speaker's name, staff will unmute the appropriate microphone and an automatic prompt of you have been unmuted will be the speaker's cue that is their turn to speak and the speaker must press star six to begin speaking.

All public commenters, please begin by stating your name.

and the item you are addressing.

As a reminder, public comment should relate to an item on today's agenda or to our committee's oversight responsibilities per the City Council rules.

Speakers will hear a chime when 10 seconds are left of the allotted time.

Once you hear the chime, we'll ask you to begin to wrap up your public comment.

If speakers do not end their comments at the time, At the end of the allotted time, the speaker's microphone will be muted to allow us to call on the next speaker and to conduct our business.

If you're providing public comment remotely, once you have completed your comment, we ask that you please disconnect from the line.

And if you plan to continue following the meeting, please do so via Seattle Channel or the listing options listed on the agenda.

The regular public comment period for this committee meeting is open, and we will begin with the first speaker.

We don't have any speakers remote, but we do have one speaker in public.

So please, Christopher, go ahead and state your full name and thank you for coming in today.

Thank you very much.

My name is Chris Gergich.

I am the co-chair of the Seattle Pedestrian Advisory Board.

I am here today to, one, follow up on some emails I've been sending this committee.

The board's been very busy talking to staff, working with the STP group, listening to Vision Zero, and the traffic and safety engineer at SDOT.

And of the three letters that we sent you on comments for those issues, I wanted to go over what are some really common themes, which are we see pedestrians getting struck.

most often at arterials and intersections.

And this has gotten worse over the last two years.

It is really a crisis that I believe the city is dealing with and we need to respond as such.

And I think what this committee could do would be to help facilitate or encourage staff to move more quickly in response to pedestrian needs such as crosswalks, especially at intersections where we see, you know, a lot of pedestrians being hit today and there aren't necessarily marked crosswalks at every intersection, but those intersections are all legal crosswalks.

So that is really the summary.

There's, I think, six pages of comments that the board has put together in conjunction with the bike board on those three different issues.

And I know that we don't want to wait for the STP to be finalized and adopted to make movement.

We don't necessarily want to wait for the Vision Zero implementation plan.

We would really like to see some emergency action taken to try to save the lives of pedestrians on our streets today.

That's all.

Thank you very much.

We appreciate your sending those emails as well.

And we know the Seattle Department of Transportation is listening to today and we'll make sure that the highest levels get that information.

Thank you.

Thank you.

Thank you very much.

Okay, checking again online and there are no speakers online.

So we'll go ahead and close out the public comment period for this morning's meeting.

And we'll get on to the first item on our agenda.

Will the clerk please read the full title of the first agenda item into the record?

agenda item one, Council Bill 120543, an ordinance granting Seaport Midstream Partners LLC permission to maintain and operate a pipeline system in, under, along, and across Southwest Florida Street between 13th Avenue Southwest and 16th Avenue Southwest for a 30-year term, renewable for two successive 15-year terms, specifying the conditions under which this permit is granted and providing for the acceptance of the permit and conditions for briefing, discussion, and possible vote.

Thank you.

Council Bill 120543 would renew a pipeline term permit, enabling Seaport Midstream Partners to maintain and operate a pipeline system in, under, along, and across Southwest Florida Street between 13th Avenue Southwest and 16th Avenue Southwest on Harbor Island in District 1. Before I turn it over to the presenters, I wanted to thank Lish Whitson on City Council Central staff for his analysis of this and ask, is there any introductory remarks you wanted to make, Lish?

Just very briefly, and you'll probably hear this from the other presenters, but this is a renewal for a term permit that's been in place since the 1950s.

Both this and the previous item are longstanding use of the driveway by private properties and approval under this ordinance would be extended for another up to 30 years.

Thank you.

We'll go ahead and hear from our presenters at SDOT and also we have another guest.

Go ahead, Amy.

Good morning.

Good morning, council members.

I think Bill is pulling up the presentation.

So, like everybody's mentioned, this would Council Bill would grant permission to Seaport Mistream Partners to continue maintaining and operating an existing pipeline system in Southwest Florida Street between 13th Avenue Southwest and 16th Avenue Southwest.

Next slide please.

As Liz mentioned, this pipeline has been in existence out there since the mid of the last century, in the 1950s.

Seaport is a storage and distribution company.

It is not a pipeline operator.

They merely store and transmit the fuel products from deliveries and then out through to trucks for deliveries on land.

Estada has reviewed the application and recommends approval to grant the permit.

Next slide, please.

This permit, if it is passed, will be for 30 years.

The terms and conditions of the permit are granted by the ordinance, includes updating the bond, insurance requirements, inspection and indemnification, maintenance obligations, and specifically for pipelines, we have a greater, a more extensive insurance requirement related to pollution, and that is included in this permit.

Next slide, please.

This map shows the general location of the pipeline system in Southwest Florida Street and 13th Avenue Southwest out at Harbor Island.

Next slide, please.

SDOT is seeking council approval for this existing pipeline system.

If council approves the permit, it will be renewed through 2053. If you have any questions, please let me know.

And Carl Bernard from Seaport Midstream Partners is at the table as well to answer any questions about the operations.

Thank you very much.

Colleagues, any comments or questions about this renewal of the term permit on Harbor Island?

And Lish, did you want to add anything?

No, thank you.

Okay.

All right, did notice on that aerial photograph that there are absolutely no trees on Harbor Island, so we need them in all throughout the city.

That might be something to consider.

But in terms of this renewal, the term permit, appreciate the work SDOT has done on this and central staff analyzing it.

I don't have any comments or questions myself, so.

Mr. Chair?

Yes, Council Member Morales.

Good morning.

Thank you, everyone.

I, this is a new area for me, oil storage and and so this is all a little bit.

I'm learning here, but I wonder if you could just talk a little bit about that insurance issue that you mentioned and what sort of contingencies that might address so that we have an understanding of how the oil is stored and how it gets in and out and what the implications might be if there is some sort of an accident there.

I can answer the questions related to insurance and the obligations of the permit.

Carl can answer questions about what they have in protection out of the, in the facility.

So, for this part for term permits, we consult with the city's risk management and ask them for their work.

requirements for insurance and they provided an exhaustive list for this and include the language for that in this permit.

We also require an environmental indemnification that protects the city's interests in case of a pollution.

Carl, did you want to talk about the on-site operations?

Yeah.

I'd be more than happy to.

Thank you and good morning, everyone.

Thank you for your time today.

I appreciate the opportunity.

But just in summary, the facility is a bulk storage facility.

We actually store petroleum refined products, and we distribute those to the retail market.

The product comes into the terminal by way of Olympic pipeline, and it also comes in by marine as well.

And from there, it goes into our storage tanks.

poured it onto trucks and from the trucks, it goes out to the retail market, to the end user, which is the consumer.

So that's basically how the product flows in and out of the facility today.

And again, the facility has been there back to the early thirties.

There's two other facilities on Harbor Island as well.

There's a Shell terminal and also Kinder Morgan.

So there's three of us operating on Harbor Island today.

I'll say that the facility is a very heavily regulated facility.

We're regulated by the federal government, the United States Coast Guard oversees our operation, the EPA as well oversees our operation, the state Washington Department of Ecology, and also the local authorities, the fire marshal's office as well.

So we are heavily regulated and regular oversight by the government agencies.

Thank you.

Can I also mention?

I'm sorry, Council Member.

I just want to announce Council Member Swan has been here for several minutes.

Thank you, Council Member Swan.

And yeah, Amy, go ahead, please continue.

Sure, the ordinance also specifies that the permit holder provide inspection reports to the city of Seattle every 2 years that we review with the roadway structures and those reports talk about the structural integrity of the pipeline system and the above grade tanks.

So that is another condition of the ordinance.

Thank you.

I appreciate that.

Thank you, Council Member Morales.

And to SDOT or central staff, can we confirm that the Port of Seattle is on board with this as well?

Or we don't have any objections from the Port of Seattle for this?

I have received no information from the Port of Seattle about this pipeline permit.

Okay, thank you.

Colleagues, any more comments or questions before we move to a vote on this renewal?

Okay, thank you for the presentations and the questions and the additional information.

Council members, I now move that the committee recommend passage of Council Bill 120543. Is there a second?

Second.

Thank you.

It's been moved and seconded to recommend passage of this council bill.

Any final comments or questions before we vote?

Okay, will the clerk please call the roll on the committee recommendation to pass Council Bill 120543, item one on our agenda?

Council Member Herbold?

Yes.

Council Member Morales?

Yes.

Council Member Sawant?

Yes.

Chair Peterson?

Yes.

Four in favor, none opposed.

Thank you.

The motion carries and the committee recommendation to pass Council 120543 will be sent to the May 9 City Council meeting.

Will the clerk please read the full title of the second agenda item?

Agenda Item 2, Council Bill 120544, an ordinance granting Quest Corporation permission to continue maintaining and operating an existing utility tunnel under and across Seneca Street, east of 3rd Avenue, repealing Section 8 of Ordinance 123-615, and providing for the acceptance of the permit and conditions, for briefing, discussion, and possible vote.

Thank you.

Colleagues, Council 120544 would renew a utility tunnel term permit for Quest Corporation across Seneca Street, east of Third Avenue in District 7. Before I turn it over to our presenters from SDOT, again, thanking our City Council Central staff, Lish Whitson, for his analysis.

Any opening remarks from Lish?

Similar to the last one, this is a term permit that's been in place since the 1950s.

Okay, thank you.

I'll turn it over again to Amy Gray at SDOT.

Thank you.

So this is for a utility tunnel that's been there since the mid 1900s as well.

Both these term permits are from the same era.

Next slide please.

The Quest Corporation is seeking permission to continue maintaining and operating this utility tunnel under Seneca Street.

Lumen Technologies is the parent firm of Quest Corporation, but Quest will be the term permit holder.

The utility tunnel provides a fuel connection between 1122 3rd Avenue and 1200 3rd Avenue.

Through a series of company changes originally for the Pacific Telephone and Telegraph Company, the permit holder is now Quest and they are the ones seeking renewal.

SDOT recommends approval.

Next slide, please.

As with all renewals, we check to make sure that the use is consistent with the original granting ordinance.

The renewal will be for 15 years and the council bill details all the conditions of the permit as well.

Next slide, please.

This map shows the general location of the utility tunnel in downtown Seattle.

Next slide, please.

Estada is seeking council approval of this existing utility tunnel under Seneca Street.

If the ordinance is approved, the permit will be renewed for 15 years.

And I'm happy to answer any questions you may have.

Thank you very much.

And colleagues, the council briefing eight days ago, I did give a little preview of these items.

I do appreciate your going through the materials for this meeting as well.

Are there any questions about this item?

All right.

Anything to add from our central staff?

Lish?

No, thanks.

Okay, thank you.

All right, well, we'll go ahead and put this up for a vote.

Council members, I now move that the committee recommend passage of this Council Bill 120544. Is there a second?

Thank you.

It's been moved and seconded to recommend passage of the Council Bill.

Any final comments or questions for this renewal before we move to a vote?

Okay.

Will the clerk please call the roll on the committee recommendation to pass Council Bill 120544, item two on our agenda.

Council Member Herbold?

Yes.

Council Member Morales?

Yes.

Council Member Sawant?

Yes.

Chair Peterson?

Yes.

Four in favor, none opposed.

Thank you.

The motion carries and the committee recommendation to pass Council Bill 120544 will be sent to the May 9 City Council meeting.

Thank you, Amy.

Thanks, everybody.

Will the clerk please read the full title of the third agenda item?

Agenda item three, clerk file 314-517, request for an extension to the conditional approval of a petition of city investors for LLC to vacate a portion of the alley in block 89 DT, Denny's fifth addition to the city of Seattle, clerk file 313-894, a briefing discussion and possible vote.

Thank you.

Colleagues clerk file 314517 before us today as a request for the city to extend conditional approval of a subterranean alley vacation within the block 89 in district seven, which was originally approved via clerk file 313894 in 2015. for a five-year period.

Construction was delayed, as I understand it, so the petitioners are here today to request an extension of that original approval.

This alley vacation, subterranean alley vacation, would allow for the development of an office building, residential tower, two retail buildings, and an underground parking garage.

We'll hear more about that in a moment.

Today we'll hear from Seattle Department of Transportation and the petitioners on the project.

Wanted to, and then we'll get Lish Whitson from Council Central staff to walk us through the conditions of approval, which the committee will need to add before voting on the clerk file.

Then after adding those conditions, we will vote on the clerk file as conditioned.

So there'll be some fun parliament procedure for this clerk file.

So before I turn it over to our presenters, just want to check in again with central staff.

Lesh Whitson, thanks for analyzing this.

Any opening remarks on this proposal?

No, I'll talk to you about it after the presentation.

Thanks.

OK, thank you.

Good morning, Beverly Barnett and team.

Good morning, thank you for getting us scheduled this morning we appreciate it, so we do have with us representatives from Vulcan we have.

Murray at Crampton is going to be doing a PowerPoint presentation to orient you to the location of the project and remind the committee of what the city council approved back in 2015. We also have Nick Lennington and Jacqueline Gruber from Vulcan just to be available to answer questions.

And Holly golden from Hillis is here if there are any questions for her as well.

I think leash and his memo to the committee has outlined why we're here in a very clear fashion.

We don't see requests for extensions very often and I think the reason for that is that the council.

Generally, with a couple noted exceptions looks at projects that are really ready to proceed so when a developer comes in they're working on their map they're doing their environmental work they're seeking financing and tenants.

So when they get the vacation, they're really ready to proceed in almost all instances.

Sometimes things happen, whether it's business and or market changes or COVID or other things.

So every once in a while, we do get a project that needs an extension.

And, you know, again, this doesn't come up very often, but the practice has been that the city council We'll review the request and grant an extension for the specified period of time.

I would note in the most recent policy revisions, we have looked at the length of time granted under conceptual approval to make sure that we are providing adequate time for large scale and complex projects to get through permitting and complete environmental and design work.

And so we can look at whether we're granting enough time for the type of projects that the committee sees.

But this is really very straightforward.

It doesn't come up very often, but we do see it.

And I think Murray has, what do we have, six or eight slides?

But I think it is easier to look at after the slide so you can see the orientation and the blocks.

And then I think Lish then is going to talk through the that condition document and the new clerk file.

But I think that's it.

So Murray, I think if you can go through the PowerPoint, that would be great.

Thanks, Beverly.

Hi everyone, I'm Murray Crampton from Vulcan Real Estate.

Thank you for your time this morning.

I'll be providing some background on our Block 89 project at 111 Westlake.

It's a hugely important project for us and we count for a significant portion of our development pipeline into the future.

I'll start with a quick overview of our request and then walk you through some high level details of the project.

So in late 2015, city council approved a subterranean LE vacation to allow a full block development.

The design of our project is anchored by a large public plaza at the southwest corner of the property.

And the LE vacation allows us to make the most of this important element by keeping vehicles below grade and providing a pedestrian connection across the block.

As a subterranean vacation, the surface of the alley and a utility corridor remain public right away.

At the time of approving the alley vacation, it was anticipated that construction of the project would commence within 18 months and be completed within three years for several reasons, including COVID-led market uncertainty in recent times.

The project has not commenced as planned.

Despite this, we remain strongly committed to the project And this is why we are requesting extension of the previous timing that will allow us to commence construction by 2027 and complete by 2030. We continue to actively market the project and we'll do everything we can to commence sooner than 2027. We're working towards receiving entitlements next year to allow us to do that.

The project and existing context are shown here.

The site is well-placed between Westlake Ave to the east and Denny Park to the west.

Here you can see the scale of the Southwest Public Plaza, as well as the location of our 18-storey office building at the northeast corner, and a modest retail pavilion above that, and our 40-storey residential building at the northwest corner.

Evident in this diagram is the extent of public benefits that the project will deliver.

There was an emphasis on the public realm and creating a great pedestrian experience on the site.

Our total area of public benefits is just under 26,000 square feet compared with the subterranean alley vacation area of a little under 6,000 square feet.

These renderings of the project take us to the end of the presentation.

We remain enthusiastic about the project.

It gets a lot of our attention.

And we appreciate your time and consideration of our request.

We welcome any questions that you may have.

Thank you.

And colleagues, we can turn it over now, if you'd like, to Lish Whitson, who will talk about conditions of approval.

I think that'll help with the comfort level.

That'd be OK.

Or we can ask questions now, or both.

Why don't we go ahead and turn it over to Lish right now?

So attached to the agenda, and I will share it, are amended conditions of approval.

They're based on the conditions that were previously granted to Council, granted by Council in 2015. The key difference is that these conditions include a statement that Rather than expiring three years after original approval, they would expire on December 7th, 2030, which would be 15 years after the original approval and is consistent with what Vulcan has requested.

Council Member Morales.

Thank you.

First I want to thank you for remaining committed to creating something here, given the challenges that we know we've all experienced in the last several years.

And I will also admit that I have a lot of questions that may be better answered out of briefing so I will make sure that I make time to do that.

But I am very curious, given that this project was originally envisioned in 2015. It will be several more years before you actually begin construction, and in the intervening years, our awareness of climate change of our need to reduce carbon emissions of our need to reduce congestion downtown have changed.

I'm wondering if there is any conversation happening about actually reducing the size of the underground parking, so that we, we have lots of empty parking here already.

And, and I would just like to hear a little bit about whether there are other things being contemplated, so that we don't encourage more people to come downtown.

in cars, I should say.

We want lots of people downtown.

We would just like them to come some other way to get here.

And I think, you know, I think for the office building, we're at a parking ratio of about one per thousand.

And certainly that that's what the market is requiring these days.

So I don't think I don't think that's really changed.

And I must admit, I don't have the details of the residential parking handy.

but we certainly don't like to build more parking than we need to.

Well, if I may follow up Councillor Morales.

So what I hear you saying is that the market demand from potential office tenants is hoping to see a certain amount of car parking.

Is that what you mean by the market?

is your potential tenants that you'd be leasing to?

That's right, yeah.

We haven't seen a change in demand for car parking from office tenants.

One per thousand seems to be market at the moment, and that's what we have in the current design.

Okay.

Do you have accommodations for electric vehicles?

Do you have charging?

Will you have charging stations?

Yeah, we typically do a balance of having EV ready stalls.

So we have the hidden infrastructure ready to add electric vehicles, but typically we put some electric vehicles in initially as part of the base building.

And then depending on the tenant demand, we have the ability with our upstream infrastructure to turn that on relatively easily.

Thank you.

Go ahead, Council Member Morales.

Do you have anything else?

No, I think what you're saying is no, there hasn't been any conversation about possibly changing the ratio.

I will say we have, I don't have the details, but I know that we have lots of parking that goes unused downtown every day, even before COVID.

So, you know, it's just a question and maybe a request for consideration before we actually get started on here.

But thank you.

Thank you for being here.

Thank you Councilmember Morales, and in terms of the ratio of parking for these commercial but I mean, I'm, you know, surprised that there would be office space that you'd be building, especially when there's a such a vacancy right now but I know that these, these things come in cycles and it's really hard to plan so far in advance, but I'm thinking that through the land use committee, we can probably look at those parking requirements rather than through a term permit extension.

And since it's just a subterranean alley, I think it was just hard to Um, look at this project and try to micromanage it, um, even though I was tempted looking at like, wait, why are they doing this or that?

And then realizing, you know, this is an extension of something already approved and, um, and just a subterranean, but I, it does beg the question, you know, what should we be doing big picture with all these new buildings downtown and making sure that we're looking at the future of reducing single occupancy vehicle use.

Looking, you know, making sure there's sufficient bike parking, for example, and electric charging stations.

So.

I'd be interested in joining that discussion with, you know, on a bigger picture with comprehensive planning process is probably a good place to really tackle it big, large scale.

Colleagues, any other comments or questions?

Okay.

Lish, anything to add?

Oh, you got it.

I would just note that in the South Lake Union Urban Center, we do not require parking for either office or residential uses.

So this is a voluntary decision by the developer to include this level of parking.

Thank you.

All right, colleagues, let's go ahead and do some parliamentary procedure.

I'm gonna put the clerk file in front of us, and then we're going to amend it with the conditions, and then we'll go ahead and consider approval of that amended clerk file.

So, council members, to put the item before us for amendment, I now move that the committee recommend approval of clerk file 314517. Is there a second?

Thank you.

And so we've already gone through the conditions of approval.

So we'll go ahead and I'll go ahead and move to colleagues, I'd like to move that we add the conditions of approval as outlined in the memo.

Is there a second for that?

Second.

Thank you.

So it's been moved and seconded to amend the clerk file 314517 by adding the conditions of approval.

Let's go ahead and vote on that to add those conditions.

Will the clerk please call the roll on the recommendation to amend clerk file 314517 by adding attachment one with the conditions to the clerk file.

Council Member Herbold?

Yes.

Council Member Morales?

Yes.

Council Member Sawant?

Yes.

Chair Peterson?

Yes.

Four in favor, none opposed.

Thank you.

The motion carries and the clerk file is amended to add the conditions of approval.

Colleagues, any final questions on the amended clerk file before I move to vote on the amended clerk file?

All right, so I know move that the committee approve a clerk file 314-517 as conditioned.

Is there a second?

Second.

Thank you.

It's been moved and seconded to approve the clerk file as amended with the conditions.

Will the clerk please call the roll on the committee recommendation to approve clerk file 314-517 as conditioned?

Council Member Herbold?

Yes.

Council Member Morales?

Yes.

Council Member Sawant?

Yes.

Chair Peterson?

Yes.

Four in favor, none opposed.

Thank you.

The motion carries and the committee recommendation to approve the clerk file as conditioned will be sent to the May 9 City Council meeting.

All right, colleagues, appreciate that.

Thank you very much.

Now we'll go on to a briefing and discussion.

Thank you, Beverly.

Thank you, Murray.

We'll now go ahead to our fourth and final item on the agenda.

Will the clerk please read the full title of that fourth and final item?

Agenda item four, Seattle Public Utilities 2022 Audit Report for briefing and discussion.

Thank you.

With us today, we've got the Independent Accounting for Moss Adams, which is responsible for the annual financial audit of Seattle Public Utilities.

And today, they'll walk us through the 2022 financial audit for SPU.

And we also have with us our City Council Central Staff, Brian Goodnight.

Brian, did you have any opening remarks before we turn it over to Moss Adams?

Thank you, Chair.

Just to say that it is required that SPU have an external audit of all three of its enterprise funds every year.

And Moss Adams has been the firm that does that.

They typically come in twice a year.

So they come in the end of the year, about December or so, to provide the audit plan.

And then they come in about this time of year, April or May, to provide the results.

So that's all.

Thank you.

Excellent.

Thank you for that context.

Now, I want to say what the audit results are, but I know I've got to keep you here.

I can't I can't spoil that.

So we'll we'll go ahead and hear from Moss Adams.

Good morning.

Good morning.

Thank you.

My name is Laurie Tish.

I'm here with my colleague, Nicole Siegmeyer-Janes, who was the manager for all of our audits this year and Yeah, I won't spoil the surprise.

Nicole is going to give you the summary of our audit scope and the reports, but I can tell you it is all good news for Seattle Public Utilities today as the result of our audits.

Nicole, if you want to kick us off with the scope and services and then I will come back after she's done and go through the required communications that are required of us by generally accepted auditing standards.

Go ahead, Nicole.

Yes, thank you, and thank you for having us.

It's a pleasure to continue to serve as auditors for Seattle Public Utilities.

As part of our 2022 audit, we perform separate financial statement audits for each of the three utilities that make up Seattle Public Utilities, the Water Fund, the Drainage and Wastewater Fund, and the Solid Waste Fund.

And while management continues to remain responsible for the preparation and fair presentation of their financial statements, We are responsible to express an opinion on those financial statements that they've been presented fairly in all material respects and in conformity with generally accepted accounting principles.

And also as part of our audit, we're testing certain systems within the structure of internal controls for SPU around the financial reporting processes and as well as verifying debt coverage and debt covenant compliance.

There are several purposes for the audits that we're performing.

Our audits of Seattle Public Utilities are used and relied upon by the state auditors and their audit of the city as the financial statements of SPU are rolled up into the annual comprehensive financial report for the City of Seattle so that there aren't any duplication of efforts between ourselves and the state auditors.

The audit reports are used in the official statements for bond issuances.

and for various other reasons for stakeholders of the utilities.

So for our 2022 audits, we have issued our reports last week, and these resulted in unmodified opinions for all three sets of statements.

This means that our opinion is that they've been presented fairly in accordance with US GAAP and governmental accounting standards boards.

We had no modifications or qualifications to that opinion, meaning this was a clean audit for the utilities.

One item that we did wanted to note that you'll see in the reports this year is an emphasis of matter, which was for the implementation of the GASB 87 leasing standard, which went into effect for the utilities this year.

And this has been called out in our report as it has changed some presentation on the statement of net position and had a related impact and restatement of 2021 numbers as well related to the implementation of the standard for both 2022 and 2021 financials.

These reports were dated as of the end of last week.

And we've also issued the report on internal control and compliance over financial reporting in accordance with government auditing standards.

Again, a clean opinion here, we did not note any material weaknesses and internal controls as a result of our audits, and there were no significant deficiencies and controls reported.

And both of these reports were dated on the same day.

So this slide, we outline our responsibility under our auditing standards related to these audits.

Our responsibility is to express our opinion that the financial statements prepared by management with your oversight are fairly presented and all material respects and conform to US GAAP.

Again, wanted to mention that this audit does not relieve you or management of the responsibilities related to the financial statements.

We've performed the audit in accordance with generally accepted auditing standards issued by the AICPA as well as the government auditing standards issued by the Comptroller of the United States.

And we've designed the audit to obtain reasonable rather than absolute assurance over the financial statements and whether they're free from material misstatement.

With our audit, we are considering internal control over financial reporting as a basis for designing our audit procedures.

But this is not for the purpose of expressing opinion on the operating effectiveness or providing any assurance related to those internal controls.

And lastly, we are responsible to communicate any findings to you that we believe are relevant to your responsibilities and your oversight of financial reporting for Seattle Public Utilities.

But again, the purpose of our audit is not designing procedures for that purpose.

Next, we're just running through kind of a very high level overview of our areas of audit emphasis, areas that we're looking at specifically as we're going through our audit.

Some of these include the earnings and classification for cash and investments, the utility plant and related accounts, particularly the work order cycle and the ongoing capital projects and accounting for those.

The right to use assets, which is the new result of the leasing standard this year, which has brought both an asset and a liability related to leases onto the statement of net position.

We perform testing over accounts and other receivables and perform extensive procedures over bonds and the related accounts there, including any issuances and repayments, defeasances, interest expense, and then the covenant compliance and looking at any potential arbitrage liability.

We're testing regulatory assets and liabilities and credits and deferred accounts and looking at internal controls related to all of these different areas as sort of the infrastructure underlying all of these accounts.

Our list continues here on some other areas of audit emphasis, looking at accrued liabilities and especially the environmental remediation liability and any pollution remediation obligations and landfill closure and post-closure care.

operating expenses and revenues for retail and wholesale sales and the various revenue streams for the utilities, and then looking at capital and operating contributions and grants received by the utilities.

We perform procedures looking at the classification within that position at unrestricted, restricted, or investment in capital assets.

And again, bonds and looking at the management discussion and analysis and various note disclosures included in those financial statements that we are opining on.

Now, before we move to the matters that we're required to bring up to you in this meeting, I do want to pause to see if there's any questions related to the scope of our audit or the areas that Nicole just covered.

Thank you for having that break.

Are you going to talk about the the new leasing?

The new leasing standard and what that means?

Yes, yes, I'll be covering that in a moment.

OK.

And we'll pause again at the end for any questions.

So if you come up with any more, we're happy to cover those.

So I am required to go through a series of required disclosures or comments back to you.

And the first one relates to significant accounting practices.

Now in your note one to your three sets of financial statements, there's a lot of detail in there about the significant accounting policies, practices, and accounting estimates, that sort of thing.

And there really weren't any changes to that other than there is now some disclosures about your leasing policies, those right to use assets that are on the books of each utility.

But other than that, there were no changes in the policies discussed in that note one.

We had no difficulties encountered performing our audit and we had no disagreements with management.

And this is fairly rare, but we had no proposed journal entries.

There were no errors or misstatements in the financial statements.

The drafts that we were provided throughout our audit were the ones that were published.

So we didn't have any adjustments that were large enough to post.

And we didn't even have any that were large enough to inform you about that were passed upon.

So no proposed and no passed and no booked adjustments as a result of our audit this year.

At the end of the audit, we do obtain what we call a representation letter from management, and that is signed by not only the senior level executives for the utilities, but also the accounting manager that we do have a lot of conversations with about things like management estimates and some of the questions that come up in the financial statements.

So we have obtained that, and we did obtain that on the same day that we issued the financial statements.

And now to talk a little bit more about that leasing standard that Nicole brought up.

You might remember we've been talking about this with you for a couple of years.

It finally was implemented this year.

Very heavy lift on the part of management to go through.

It really required management of the utilities to go through an inventory of all of your arrangements that potentially could represent a lease.

Now, in the past, most of the leases entered into by the utilities would have been treated on the income statement.

So just expensed as these costs came through.

And likewise, on the other side, if there are the less or again, just recognizing that revenue as it came in.

What the leasing standard did was actually look at it more as those are assets that are being used a right to use that asset by the utility.

So the GASB, along with their twin in the corporate world, the Financial Accounting Standards Board, the FASB.

really both of those sets of governing bodies for accounting standards decided, you know what, that really is an asset and should be treated like that in the financial statements.

If you're in there with a long-term lease, there's really not a big difference between that and the assets that you own.

And likewise, the other way around, if you're the lessor and you're leasing something out, that other entity is really the one that's using that.

And so you should, really show those amounts on your balance sheet.

So it really takes what used to be just an income statement transaction recognized in that period and parked those dollar amounts permanently on the balance sheet, and then it would roll out as the lease term goes.

So you're still getting that recognition in your income statement on a yearly basis, but you're also showing on your balance sheet that long-term impact of essentially the right to use that asset.

or that long-term deferred inflow if you're the lessor side.

So it just really puts larger amounts on your balance sheet that were rolling out over time until that lease term is over.

And then it is, of course, zeroed out on the balance sheet.

So that was done.

I would say the heavy lifting part comes in in that first year of implementation, because management had to go through every single arrangement, whether they were the lessee or the lessor, decide if it was scoped in or not, There was a lot of rules around that.

For example, if it was a short-term lease below 12 months, it can be ruled out.

If it's immaterial, such as some copier leases, that can be scoped out.

It was a huge effort to go through and decide, well, what is a lease?

When you lease land that SPU owns to a cell tower, is that a lease or not?

There was a lot going into that whether permits, and such arrangements like that met the criteria to be a lease.

So they got through that and got to the numbers that were involved in each one.

The other unique thing about this standard was it did require the entities to go back and restate last year.

So it was applied as if it had been in place since January 1, 2021. So last year's financial statements were changed.

They're noted in the financial statements in a column that says as restated.

There's in note one, there's a discussion about every dollar amount that changed from last year and how you could trace that back.

And then in note five to the financial statements, it shows the amount of the leases that are now considered capital assets, right to use assets.

So going forward, this will be routine.

You'll get used to it.

But it was a pretty big effort on the part of management to get all this sorted out for not only the 2022 financial statements, but also to go back and restate 2021 financial statements.

So we, of course, were right behind management all along auditing their assumptions.

making sure we agreed with the buckets that they were being put into as far as whether it met the scope of the lease or did not meet the scope of the lease, and we feel very comfortable that those are now properly stated in your financial statements for the year.

Thank you for explaining that since you you do highlight it at the beginning of your report it is a little bit counterintuitive that if you're signing a lease as the renter that now it's booked as an asset.

So, the wizardry of GASB accountants, I guess.

But thank you for walking us through that.

And you said, though, that it will show up as expenses on the income statement when the rent is being paid.

I'm thinking that Seattle Public Utilities rents a lot from our own financial and administrative services department.

Okay, thank you.

Any questions about this point otherwise we can keep going.

Okay, let's keep going.

Okay, and then lastly the.

We are not aware of management having any consultation with other accountants.

the one in the middle there, the potential effect of any significant risks and exposures.

This is really just to let you know this is considered as part of our audit.

And certainly we do obtain attorney letters.

We do spend some time with the city attorney trying to understand any claims or potential litigation against the utilities.

And then we also trace any cases that are in play any claims that are in play, and those do get posted into the footnotes of each set of financial statements.

So that again is an integral part of our audit.

And then lastly, independence.

Moss Adams is independent with respect to not only Seattle Public Utilities, but also the city of Seattle.

So what that means is we are not allowed to, we being all of our employees of our firm are not allowed to hold, be a bond holder for SPU or for the city.

We also make sure everyone answers questionnaires as far as having any close relatives that would potentially be employed by SPU or the city.

And so we do a lot of procedures on our side to ensure that we truly are independent with respect to SPU and to the city.

And finally, I just want to, again, mention how hard the SPU management and staff had to work this year.

The leasing standard was a big lift.

But of course, every audit is intrusive.

We ask a lot of questions.

We require a lot of documents.

We start our work In the fall, so it's really kind of a six month effort where we do a lot of our internal control testing and preliminary testing and planning in the fall and then we come back in March for about four weeks where we're quite intrusive with with management and staff in in getting what we need.

I think one thing that works really well for us is we do have a lot of regular communication really daily with a lot of the people.

We have formal status meetings once a week with our entire teams on both sides and just make sure we're all in agreement with what's open, what's left to do, that progress.

So that's worked really well for us.

I did also want to comment that we are I want to say it's funny to say this, but I almost feel like we're welcomed with open arms by everybody we deal with throughout the utility and we venture out from the finance and accounting department we talked to project managers we talked to folks in the revenue areas.

just all throughout the utility and everyone answers our questions and has been very helpful.

We do observe a very strong tone at the top where I think that trickles down to all the employees where they see that, hey, this is important to be transparent.

This is important to have accountability and these audits.

And so I just want to reassure the Council committee that we certainly get a lot of great cooperation throughout the entire utility and that tone at the top is very strong.

So I do want to.

thank the committee, because I think you set that tone as well with respect to your willingness to host us twice a year and listen to the discussions.

And some of you we actually interview throughout the year and get your input on what the risk areas are.

And so we appreciate that as well.

So again, thank you so much to SPU management and staff for making the audit a successful event this year, and it went very smoothly and on time.

Thank you very much.

Thank you for your in-depth financial audit and also congratulations to Seattle Public Utilities, not only the management and the chief financial officer realm of SPU, but also everybody down in the department who's entering all the financial information that rolls up to the the balance sheet and income statement and cash flows of this audit.

Really appreciate that.

Seattle's very blessed to have not only our own source of fresh water and a utility that dispenses with all the solid waste in the city, but the fact that they're delivering clean audits or they're producing clean audits is great.

And I know it's similar over at Seattle City Light as well.

So thank you to the team at Moss Adams.

Colleagues, any comments or questions about this and the annual financial audit of Seattle Public Utilities.

Great.

All right.

Well, thanks to the auditors.

Thanks to Brian Goodnight, City Council Central staff for looking at this for us as well.

We'll go ahead and conclude the meeting.

This was just a briefing and discussion item.

So we can go ahead and conclude this meeting, colleagues.

It's 10.30 a.m.

On May 2nd, 2023, we're concluding our meeting of the Transportation Seattle Public Utilities Committee.

The next meeting of this committee will be on May 16th, the next Tuesday or Tuesday, two Tuesdays from now.

Thank you.

We are adjourned.