Montgomery County Hotel and Conference Center: County and State Fiscal Impact Analysis
Paul Tischler	© & Author Info

Abstract

A hotel and conference center is being proposed on a 33-acre site adjacent to the White Flint metro station in Montgomery County. Tischler & Associates, Inc. (TA) was retained to conduct a fiscal impact analysis for Montgomery County of the proposed development. Once additional County costs due to the construction, operation, and/or land are defined and added to the calculations, the cost-benefit would be complete.

Montgomery County Hotel and Conference Center

State Revenue Analysis

I. Executive Summary

Assignment This report discusses the revenues to the State of Maryland from the construction and operation of the proposed hotel and conference center. Because final figures are not yet determined, the analysis excludes any State contributions to the conference center construction, operation and/or land costs. It also excludes any other State costs.

Project The proposed hotel and conference center is assumed to have 225 hotel rooms and approximately 35,200 square feet of usable conference room space. During operation, the project will employ 228 hotel and 28 conference center employees. Construction is anticipated to take two years requiring 250 construction employees.

Construction Period Revenues During the two-year construction period, the State will receive slightly more than $3 million. These revenues are shown in Table 1 below.

Table 1
Two-Year Construction Period
Revenues to the State of Maryland
Proposed Montgomery County Conference Center and Hotel

The State will receive approximately $5,200 in property tax revenue and $1.3 million in income tax revenues resulting from direct and spin-off employment. In addition, the State will receive approximately $271,000 in sales tax revenues from sales of construction materials purchased and $1.48 million in sales tax revenues from direct and spin-off employee purchases. Spin-off revenues are due to income multipliers, and are discussed further in the Introduction and Part IV.

Operating Period Revenues During the operating period, the State will receive annual revenues from a number of sources. Both direct (site-specific) and indirect (off-site) revenues in addition to spin-off revenues were considered in the analysis. An agreed upon base case was established utilizing the following variables: 1) 70 percent stabilized hotel occupancy rate, 2) 80 percent of hotel and conference center employees would live in the State, and 3) 80 percent of employees living in the State would contribute to property tax payments. The operating revenues to the State using the base case variables are shown in Table 2.

It should be noted that the costs to the State resulting from the project were not analyzed. These costs, although limited, may include some transportation and other indirect costs. Hence, the results of the analysis showing additional State revenues is not a fiscal impact analysis for the State since costs are not taken into consideration. Also, this analysis excludes any State contributions to the conference center construction, operation, and/or land costs.

Table 2
Annual Revenues to the State of Maryland
Proposed Montgomery County Conference Center and Hotel

*Excludes any County contributions to conference center construction, operations, and land costs.

The State will receive approximately $1.28 million in direct revenues per year from the project. Sales tax from patrons ($770,873) and personal income tax ($250,154) are the two largest revenue sources, accounting for 80 percent of the total direct revenues. The personal income tax category includes income tax from both hotel and conference center employees and from spin-off employees generated from the project.

Indirect revenues to the State total approximately $338,000 per year, 98 percent of which consists of sales tax revenues from hotel and conference center employees and spin-off employees generated from the project.

The total direct and indirect revenues amount to $1,617,823 per stabilized year, assumed to begin in the third year of operation. As noted, these results exclude any State contributions to the conference center construction, operation, and land costs.

Montgomery County Hotel and Conference Center

County Fiscal Impact Analysis

I. Executive Summary

Assignment This report discusses the fiscal impact to the County from the construction and operation of the proposed hotel and conference center. Because final figures are not yet determined, the fiscal impact analysis excludes any County contributions to the conference center construction, operation, and/or land costs.

Project The proposed hotel and conference center is assumed to have 225 hotel rooms and approximately 35,200 square feet of usable conference room space. During operation, the project will employ 228 hotel and 28 conference center employees. Construction is anticipated to take two years requiring 250 construction employees.

Construction Period Impacts During the two-year construction period, the County will receive net revenues of approximately $816,000. These revenues are shown in Table 1 below.

Table 1
County Fiscal Impact Analysis
Two Year Construction Period
Proposed Montgomery County Conference Center and Hotel

The County will receive approximately $65,000 in property tax revenue from the hotel (private) portion of the land and $294,000 in income tax revenue collected from the construction workers. In addition, the County will receive a one-time Development Application Payment (DAP) from the hotel portion of the project for transportation related expenses. All other County fees and permits are offset by related costs.

Operating Period Impacts During the operating period, the fiscal impact results for the County reflect both direct and indirect costs and revenues. Whereas direct impacts are site-specific (for example, room tax revenues), indirect impacts result from conference center and hotel employees who live in the County. These residents generate property tax revenue as well as add to County costs (for example, school costs from additional students). An agreed upon base case was established utilizing the following variables: 1) 70 percent stabilized hotel occupancy rate, 2) $105 room rate, 3) 7 percent room tax rate, 4) 68 percent of hotel and conference center employees would live in Montgomery County, and 5) 80 percent of employees living in the County would contribute to property tax payments. The net operating revenues to the County using the base case variables are shown in Table 2 below.

Table 2
County Fiscal Impact Analysis Results
Proposed Montgomery County Conference Center and Hotel
I. Direct Fiscal Impact Analysis

*Excludes any County contributions to conference center construction, operations, and/or land costs

The two main direct revenue sources, room tax ($451,105) and property tax ($279,472), constitute 90 percent of total $815,697 in direct revenues. The three direct cost categories of Police, Fire, and Transportation total $66,704. The result is that the County will receive approximately $749,000 per year in net direct revenues.

The total indirect revenues of $68,853 are primarily composed of property tax revenues ($59,956). The indirect costs of $297,964 consist primarily of Schools ($165,075) and Transportation ($48,660). These two categories contribute 72 percent of the total indirect costs. When the indirect (off-site) costs and revenues are factored in, the County receives approximately $520,000 in net revenues per stabilized year of hotel/conference center operation. The stabilized year begins in the third year of operation.

Intangible Benefits There are intangible benefits that the conference center and hotel will generate. The conference center, with the high quality training and meeting space, will be an asset which can be used to strengthen the image of the County as a place to do business. The biotech, computer and other high tech businesses forming along the I-270 corridor and other areas of the County, will be able to use the conference center and hotel facilities. This will allow the County to be more competitive in the meetings market and capture potential business that is currently lost to Northern Virginia and Washington D.C. The conference center and hotel will also provide local residents and associations with adequate space in which to hold community and business functions.

The project will help provide a diverse array of job opportunities for entry-level workers, minorities, and immigrants, some of whom may be previously unemployed. The recession-affected construction industry will be stimulated through the two-year construction project which will provide more than 250 full time construction jobs.

Another intangible benefit includes a five acre park that will be built as park of the hotel/conference center complex. This park will be open to all residents of the County in addition to the hotel and conference center patrons.

Paul Tischler Tischler & Associates, Inc.
4701 Sangamore Road Suite N210
Bethesda, MD 20815
(301) 320-6900
Fax: (301) 320-4860

80 Annandale Road
Pasadena, Ca 91105-1404
(818) 790-6170
Fax (818) 790-6235