Agenda Item 8
January 24,2012
Public Hearing
MEMORANDUM
TO:
County Council
FROM: irMichael Faden, Senior Legislative Attorney
&oGlenn Orlin, Deputy Council Staff Director
SUBJECT:
Public Hearing:
Bill 39-11, Taxation - Development Impact Tax - Exemptions
Bill 39-11, Taxation - Development Impact Tax - Exemptions, sponsored by
Councilmembers Floreen and Rice and Council Vice President Navarro, was introduced on
December 6, 2011. A Government Operations and Fiscal Policy Committee worksession is
tentatively scheduled for January 30 at 2:45 p.m.
Bill 39-11 would exempt the market-rate dwelling units in any development which
consists of at least 25% affordable housing units from the transportation and school development
impact taxes.
An OMB/Finance Department fiscal and economic impact statement, shown on ©5-14,
indicates that the exemption allowed under this Bill could result in as much as $56.7 million in
impact tax revenue loss. Council staff will analyze this estimate for the Committee worksession
but preliminarily believes that it may be substantially overstated because, among other reasons:
• it assumed that no transportation impact tax credits would be granted on account of the
housing built in specific areas with major transportation programs; and
• it may not take into account a provision in current law (County Code §52-90(d)) which
reduces the school impact tax by 50% for any non-exempt dwelling unit located in a
development where at least 30% of the dwelling units are MPDU's or other affordable
units.
This packet contains:
Bill 39-11
Legislative Request Report
Fiscal and economic impact statement
F:\LA WIBILLS\1139 Impact Tax Exemptions. Affordable HousinglPublic Hearing Memo.Doc
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CORRECTED COpy
Bill No.
39-11
Concerning: Taxation -
Development
Impact Tax - Exemptions
Revised: 12-6-11
Draft No. _3_
Introduced:
December 6, 2011
Expires:
June 6, 2013
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
-!..!.No~n..!.::e~
_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Floreen, Rice and Council Vice President Navarro
AN
ACT to:
(1)
(2)
exempt certain market-rate dwelling units from certain development impact taxes;
and
generally amend the law governing development impact taxes.
By amending
Montgomery County Code
Chapter 52, Taxation
Sections 52-49 and 52-89
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill,
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL NO.39-11
1
2
3
Section 1. Sections 52-49 and 52-89 are amended as follows:
52-49.
Imposition and applicability of development impact taxes.
*
*
(1)
*
4
5
(g) A development impact tax must not be imposed on:
any Moderately Priced Dwelling Unit built under Chapter 25A or
any similar program enacted by either Gaithersburg or Rockville,
(2) any other dwelling unit built under a government regulation or
binding agreement that limits for at least 15 years the price or rent
charged for the unit in order to make the unit affordable to
households earning less than 60% of the area median income,
adjusted for family size;
(3) any Personal Living Quarters unit built under Sec. 59-A-6.l5,
which meets the price or rent eligibility standards for a
moderately priced dwelling unit under Chapter 25A;
(4)
any dwelling unit in an Opportunity Housing Project built under
Sections 56-28 through 56-32, which meets the price or rent
eligibility standards for a moderately priced dwelling unit under
Chapter 25A;
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
ill
any non-exempt rental dwelling unit in
f!:
development in which at
least 25% of the dwelling units are exempt under paragraph
ill
.Q1
Q1
or
(11
or any combination of them; and
[(5)]
®
any development located in an enterprise zone designated by
the State or in an area previously designated as an enterprise
zone.
25
26
*
52-89. Imposition and applicability
of tax.
*
*
@f:\laW\biIlS\1139 impact tax - exemptions - affordable housing\1139 bill 3.doc
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BILL
NO.39-11
27
*
(c)
*
*
28
29
The tax under this Article must not be imposed on:
(1)
any Moderately Priced Dwelling Unit built under Chapter 25A
or any similar program enacted by either Gaithersburg or
Rockville,
(2)
any other dwelling unit built under a government regulation or
binding agreement that limits for at least 15 years the price or
rent charged for the unit in order to make the unit affordable to
households earning less than 60% of the area median income,
adjusted for family size;
(3)
any Personal Living Quarters unit built under Sec. 59-A-6.15,
which meets the price or rent eligibility standards for a
moderately priced dwelling unit under Chapter 25A;
(4)
any dwelling unit in an Opportunity Housing Project built under
Sections 56-28 through 56-32, which meets the price or rent
eligibility standards for a moderately priced dwelling unit under
Chapter 25A;
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
ill
any non-exempt rental dwelling unit in
~
development in which at
least 25% of the dwelling units are exempt under paragraph
ill
{21
Q1
or
81
or any combination of them; and
[(5)] (Q) any development located in an enterprise zone designated by
the State or in an area previously designated as an enterprise
zone.
48
49
50
*
Approved:
*
*
51
52
Valerie Ervin, President, County Council
Date
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LEGISLATIVE REQUEST REPORT
Bill 39-11
Taxation
DESCRIPTION:
Development Impact Tax
-
Exemptions
Exempts the market-rate dwelling units in any development which
consists of at least 25% affordable housing units from the
transportation and school development impact taxes.
Need to encourage provision of affordable housing.
To create further incentives to increase the share of low- and
moderate-income housing in new developments
Department of Permitting Services, Department of Housing and
Community Affairs, Planning Board
To be requested.
To be requested.
To be requested.
To be researched.
Michael Faden, Senior Legislative Attorney, 240-777-7905
To be researched.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
Not applicable.
(j)
f:\law\bills\1139 impact tax - exemptions - affordable housing\legislative re
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Fiscal Impact Statement
Council Bill 39-11
Taxation - Development Impact Tax - Exemptions
1. Legislative
Summary.
Bi1l39-11 would exempt the rental market-rate dwelling
~ts
in
any housing development
which consists ofat least 25% affordable housing units from the transportation and school
development
impact
taxes they would otherwise have to pay.
2.
An
estimate of changes in County revenues and expenditures regardless of whether
the revenues or expenditures are assumed in the recommended or approved budget
Includes source of information, assumptions, and methodologies used.
DPS examined several areas that have major rental housing projects in the pipeline and
that are assumed to be moving forward. This analysis assumes anticipated development
in three planning areas (Great Seneca Science Corridor (GSSC); Wbite Flint; and Shady
Grove-County Service Park West (CSWP» and projects the lost impact tax revenue if
all
potential
projects took advantage ofthe proposed bill.
p
otentia
IL
os
tl
mpac tTax Revenues un d er M axunum-Loss Scenano
.
Additional Loss in
Loss
in
Loss
in
Master/Sector Total
Costner
Plan Area
MPDUs
Rental
.Units
Suoolied
193
1,550
408
3,266
33
1,114
635
5..J,.90
I1'allSportation School
ImQactTaxes ImQact
Taxes
$10,728,442 $15,401,448
NJA
$15,727,790
$3,850,222
$~
1,062,692
$14.578.664 $42..191.130
Additional
Total
Impact
MPDU
Taxes
$26,129,890 $135,388
$15,727,790 $38,525
$14,912,914
$4
A
£,,),,)'"1
$56.770.594
~8924491
GSSC
White Flint
CSPW
Totals:
Under the above scenario, the additional 635 affordable units provided llilder the waiver
would result
in
$56.770.594 in lost impact tax revenues at an average cost of $89,449 per
each additional MPDU constructed.
See Attachment A for sources, assumptions, methodologies, additional scenarios, and
potential lost impact tax revenues projections.
3. Revenue and expenditure estimates covering at least the next 6
fIScal
years.
No additional expenditures are expected as a result ofthis bill. l1lustrative revenue
impacts are described above.
ITotallost impact
tax
revenues divided
by
tolal additional MPDUs of635 units.
1
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4.
An
actuarial analysis through the entire amortization period for each bill that would
affect retiree pensiou or group insurance costs.
Not applicable.
5. Later actions that may affect fnture revenue and expenditures
if
the bill authorizes
future spending.
Not applicable.
6. An estimate of the staff time needed to implement the bill.
No additional
staff
time is needed from
DHCA.
DPS, and Finance.
7.
An
explanation of how the addition of new staff responsibilities would affect other
duties.
Not applicable.
8. An estimate of costs when an additional appropriation is needed.
Not applicable.
9. A description of any variable that could affect revenue and cost estimates.
Revenues (or lost impact tax revenues) may be affected by changes in the impact
tax
rate.
The quantity ofadditional MPDUs developers elect to build may also affect revenues (or
lost impact tax revenues).
10. Ranges of revenue or expenditures that are uncertain or difficult to project.
The change in impact tax receipts is difficult to project. Impact tax revenues would vary,
depending on the number of developers that elect to build under this waiver.
Additionally, the market dictates whether projects will be condominium or rentals and
it
is difficult to predict what future shifts will be. If expected development
in
different plan
areas changes from rental to fee simple sales, fewer projects would make use of the
provisions of
this
bill
11.
If
a bill is likely to have no IlScal impact, why that
is
the case.
The fiscal impact ofthis bill
is
difficult to detennine since it depends completely on the
number ofdevelopers who avail themselves of this credit. A number of developers have
indicated it is unlikely that the credit provides them with a sufficient incentive to build
additional MPDUs
(up
to the 25% required for the waiver).
If
that is the case, then it is unlikely this bill will result in a significant fiscal impact as it
will not achieve the stated goal ofthe legislation.
2
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12. Other fiscal impacts or comments.
Not applicable.
13. The following contributed to and concurred with this
analysis:
Rick Nelson, Department ofHousing and Community Affairs
Chris Anderson. Department ofHousing and Community Affairs
Diane Schwartz Jones, Department ofPermitting Services
Reginald Jetter, Department ofPermitting Services
Mary Beck, Office ofManagement and Budget
Naeem Mia, Office ofManagement and Budget
:~
es, Director
er
A.
ofManagement and Budget
Date
3
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Attachment A-1
Sources of Information:
1. Montgomery County Department of Housing Affairs (DHCA)
2. Montgomery County Department of PermiWng Services (DPS)
3. Master Plans/Sector Plans for housing projects in GSSCMP, White Flint, and CSPW
4. Lost impact tax revenues are calculated by DPS based on current impact tax rates
Assumptions:
1. Developers to build to 25% of all units {in all projects} as MPDU under the legislative waiver
.
2. All units/projects are assumed to be rental units
3. No transportation impact
tax
for White Flint Area {current law}
4. All projects in White Flint are high-rise
5. Number of units are based on current Master/Sector plans or units under development
Methodologies:
DPS calculated lost impact tax revenues using the current impact tax rates as applied to all current or
expected projects under development.
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Attachment A-2
Potential Lost I
.
tTaxR
-
...
-----
--
derDif~
s
Pineline ofrecent
Potential Loss Potential Loss Potential LQss Potential
fmSlmi§l
Cost
i
in
School·
in
GSSCMP alm1ications
in Total Imnact Additional ner Additional!
(assmnes develoDer Dians Transoortation ImDact Taxes Taxes
MPDUs
MPDU
at minimum MPDUs)
Imnact Taxes
--
....&
__ •
_ _ ........ _ .
A_·~
1480
mfd units (mid-rise)
1480
mfd units (bigh-rise)
1550 mfd units (mid-rise)
1550 mfd units (high-rise)
$10,238,270
$7,312,865
$10,728,442
$7,662,979
$14,708,61C
$6,235,425
$15,401,448
$6,533,955
$24,946,880
$13,548,290
$26,129,890
$14,196,934
185
185
193
193
$134,848
$73,234j
$l35,388
$73,559
GSSCMP Maximum-loss Potential Loss Potential Loss
scenario
in
in
School
TransDortation ImDact Taxes
Imnact Taxes
1550 mfd units (mid-rise)
White Flint Sector Plan
(based on sketch nians)
$10,728,442
$15,401,448
Potential Loss Potential
Potential Cost
in
Total Imnact Additional IDer Additional
Taxes
MPDU
MPDUs
$26,129,89C
193
$l35,388
Potential Loss Potential Loss
in
School·
m
Transoortation Imnact Taxes
Imoact Taxes
N/A
Potential Loss Potential
Potential Cost
in Total ImDact Additional IDer Additional
MPDUs
MPDU
Taxe~
$15,727,799
408
$38,525
PJLtential Cost
oer Additional
MPDU
3266 mfd units
$15,727,790
Count: Service Park West Potential Loss Potential Loss
in
School
in...
TransDortation hngact Taxes
ImRact Taxes
1,114 mfd units
Potential Loss Potential
in Total Imnact Additional
Taxes
:M:PDUs
$3,850,222
$11,062,692
$14,912,914
33
$446,227
~
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Attachment A-3
Potential Lost Impact
Tax
Revenues under Maximum-Loss Sceuario
lMaster/Sector rrotal MFD Potentia] Potential Loss lPotential
LOSSi~
.oss
in-School
Additiona
lll.
units
~
IMPDUs
Transoortatio hnpact Taxes Impact Taxes
nhnpact
Taxes
193
$10,728,44:2 $15,401,44a $26, 129,89C
GSSCMP
1,550
$15,727,79C $15,727,79C
White Flint
Sector Plan
N/A
408
3,266
$3,850,222 $11,062,692 $14,912,914
County
Service Park
West
33
1,114
Totals:
5,930
635
$14,578,664
$42,191,93tl
$56,770,594
Potential
Costner
Additional
MPDU
$135,388
$38,525
$446,227
$89,449
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Economic Impact Statement
Council Bill 39-11, Taxation - Development Impact Tax - Exemptions
Background:
1.
This proposed legislation would exempt the market-rate dwelling
u~its
in any
development which consists of at least 25% affordable housing units from the
transportation and school development impact taxes. The goal of the proposed
legislation is to create further incentives
to
increase the share of low- and moderate­
income housing
in
the new development. Specially, Bi1l39-11
(Bill)
exempts "any
non-exempt
rental
dwelling unit in a development in which
at
lel:lSt 25% ofthe
dwelling units are exempt:"
.
The analysis that follows is a detennination of whether a developer of rental property
would opt for the 25% exemption and is based on a number of economic assumptions
and data sources.
~.
The sources of infonnation, assumptions, and methodologies used.
Sources:
Montgomery Deparbnent ofHousing and Community Affairs (DHCA)
National Apartment Association (www.naahq.org)
"Determinants of Operating Costs ofMultifamily Rental Housing", Jack
Goodman, Hartrey Advisers, December 18, 2003.
E;ngineering News Record
McGraw-Hill Dodge Local Construction
Metropolitan Regional Information System
Assumptions:
Current market rental rates for two
high~rise
developments (DHCA and
Finance) with 250 units each.
Current market rates for :MPDUs (DHCA)
Developments are located in the General· County transportation area to
employ the transportation impact
tax
rate for high-rise developments
Gross operating profit margin for rental units (www.naahq.org and
Goodman article)
Methodologies:
Gross operating profit margin is derived from data provided by
www.naahq.org and Goodman article by subtracting operating expenses
and capital expenditures per unit from revenue per rental unit and dividing
the result into the revenue per rental unit to derive gross operating margin.
That result is used to calculate gross profit margin per unit.
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3. A description ofany variable that could affect the economic impact estimates.
a.
Derivation of gross profit which
is
based on data based on
a
national
survey
and mayor may not be truly reflective ofthe Washington Metropolitan Area
or Montgomery County.
b. Rental rates and MPDU rates are current rates and are not adjusted for
inflation.
4. The Bill's positive or negative effect,
ifany
on
employment~
spending, saving,
investment, incomes, and property values in the County.
The
Bill
could have an effect on
the
profitability ofnew rental development
However, this effect is based on the assumptions listed above. Those assumptions
include: gross profit margin, impact tax rates, and rental rates - both market and
MPDU.
Using
data
provided
by
DHCA, Finance selected two sample properties located in
the
General County transportation impact tax district and calculated the gross
profit margin (please see the tables, below),
Finance calculated the loss in
average annual gross profits
for a "new" rental
development assuming 25 percent and 12.5 percent. For the two examples, Finance ..
calculated an
average annual gross profit
of $2.6 million for the two properties providing
25 percent MPDUs, and slightly less than $2.8 million for the two properties providing
12.5 percent MPDUs. The impact tax fees are estimated at $3,321,750 (250
'*'
S13,287/tax per unit) for the entire project However, gross profits are higher than net
profits or net income, therefore the book profits for the two properties will be less than
the
gross profits. Second, the gross profits are calculated based on a national survey and
the gross profit margin used in this analysis may not reflect the actual gross profit margin
for rental properties in Montgomery County. While the exemption ofthe impact taxes '
offset the loss of revenues/profits, that amount of offset depends on the assumptions
listed above.
5.
If
a
Bill is likely to have no economic
impact,
why is that the case?
Not applicable.
6. The foHowing contributed
to
and concurred with this analysis: David Platt, Finance;
Mike Coveyou, Finance
Datd
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;
12.5% MPOUs
I
25%MDPUs
SAMPlE Project Initial
Investment
$136,296;
$136,296
Unit
-
.......
Construction Costs
...
""'"-~. ~ ~.'--.-
...
--~;-
,
2501-------
!
Number of Units
!__
$34,074J:16~
$34,074,116
TOTAL
CONSTRUcnON
COSTS
....
.
,
"'--------------
I
'2:50
I
--i
i
... ......-----.--.'.
Development l.ID2.actTax
Per
Unit ,___._.. ____
..-J________
L...._
_ _ _ _. _ ._ _..
_.~_
••_._..._ _ _
~
••_ . , _••
~_,_
.......
~u
.....- -••• -'u,.,.•••
~
~-
~ent@.U~c.hooJL.._.~_.
___._.___
~...:..
___
-Transportaion
(General
Countv
!..---..
--.-.~!47~
......_.__
.~~
I
$4,8151
$4815
:
,
Subtotal'
._.____.-.,...;._.. ___
~_
.._ .. '._ ._._..
_1_____
$.~1~~7 ~_._._._.$..l~~!r
Number of Units
I
250,
250
:!QIAL~Q~~..l~fM!:ffi~
_ ......._ ._.....
_+_.. .
_$.~,32!t.Z~.Q.~
..- -..
1?~~~t,7s0
I
}lIDLEhQf!YI..ENIl~PAqI~J':.4!Q!J..!?EP.!Lg),9~L~ThC=
...
g.s9.~t=~-
.......
1Q9E~
- - - ' - - ' - ' - " ...... -
DEVElOPMENTIMPACTTAX
••• ,....
PAID
. - - _._.....
··-·-·--..
----~I--·-----.:--
... - ...-._.._--
'-'.>< - • ""
.. _ .••(
!
I
}
[
.
.... ......... .....
2,906,531
.-.
I
'"
.'.
• ... ' ........
0
- -
FlOW
-
-
...
~--
..
--.~-.--'--- ---~--.-~
---..
-.-.----~
-
CASH
I !
....
INITIAL
If!JX~1rin.!~1'-
•.
-~-
••
~~===.~-=1·-~36~~9~~~.!1--. ~.' $342?.1,~~
..
5
Years"
..-"-·-·-·..··--....-.-···..-·---..-···-·--..
~-=-1- $13~S7~~i~r~.~_
$12;703,910
~rs
.
.______.____
-L_.
S4h871,10~
$38,111,730
!
~
__•.
~~
__.... _...
~
___._.._ ....
_.~
....
_~_._
...__...
~
__"L____•___._."..
! ... __ •• _ _
,o~:::.~~~~_.~:~=~=~=--_=~_-.=t -$i~.~~ii~ $2S,~-,=~
,
!
!
20
j'~!'.!._.
_____ .___.___._._._....
_~ $S5~28,11Ql_.
__
~w.?.s.Q
'SO'Years---.-- ...··--··..·-..-··.. -·-....···-..---.. - . .
..
-1..
~-$8i:742:2ior·
"-$76
2-23460
.
. . .' ....
h~
......._
.. _
"' ••
" ......
$137188;
_u.........._·,.'.._....
~,.
......_
:
.....
_~
.........."" ...........
~~c.
__ .. ("
".~,
.....
~
:
'
~
.. _."' .. '..
$131458
._,.., ....
L_...,.
.... -.-- .............
J~t.?l.!!~.tJ.QF _M!:,RY.~i-·-·'--
..·-,··....,..
jgJ~-~]l·
.. _.. ' .. " .
......
_~3§.!m
Total Rentfor Marlret Units!
. . a . . . . ._
. . . . . . . . . _ . " ' . ' " ........._ "
......_ ........
....- - - -..-.- ...... - ......
~.--
Two Bedroom Units
.... - ... , ....
~.
--'1- - -.- ..-.--.--.......-"'.••.
-~-"
.. - ., .......
~
... ," ..,
-.~---
$172.
0831
147,500
__.. _....__ .... "" ...
!'?!&M!1!!!tJlyJte.!}~
__._....._
...."'__
..$!~1.91-!.!.
_...... .. ..
....Ji~§J!.46
...... ____Iota
I
A!\r..!!!lJ!_e.!!!t _ . _._..
$~..!2~.J1ID
.........
._ _
~4,99~,
....._
Total Annual 0
,Ex
ensel
Gross Profits!
2452,9681
$2791407i
-._..__.. -.. _ _- -.-_..-- -....-..
~
..-.....,-.-.. .-------..t. '" . ". -----.. __.
.
2452
$2,540,782
.1...__
~
...
~
...
_~*-~§.r9.qq!_."
......_
".~~.~~~.
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~£~i!ct I!~tal
Rates_.·__·__
__.--.l__
.Market
Rate
Renj_t~u Ra~!\en!_
~J?le Pr~ject
___
p'er
Month
_..
~LM.C!mrr
__
-efficien,9! units
(1/3
of total)
$1,4~~,,
___.
$1,085
:;,;;-;~~
(iL'S
«;If
ttrtal)
-two
room
(1/3
of
total)
!
----.=J====_==_
___ ..___..
~_._
i
1
___·___·
J__
L---....----.-.
.L.___
_._._~_l
$117i~r-'----~-'--"$ii65
__._____._
$1.240
$2.3601