A scheme worthy of Chicago — business insiders given power to do tax rebate deals for favored hotels

Buried in the fine print of the county bill for a hike to 5 percent in the county hotel tax is a shoddy new hotel financing mechanism called a hotel development incentive program (HDIP.) This provides that up to 85% of the hotel tax generated by a hotel “that meets the program’s criteria can be dedicated to the project’s debt service for a period of up to 25 years.” (Staff memo to Frederick County Council 2016.06.27)

Obviously crafted for the proposed Plamondon Marriott on Carroll Creek, first up, the program’s criteria are a hotel project that is upscale, full-service hotel with conference center, and located in an urban core or downtown of any municipality in Frederick County.

These criteria are fungible terms and big bucks are at stake. 85% of 5% is 4.25 percent of the hotel’s room revenue to be kept to service its debt rather than paid for tourism programs. An eligible hotel with say $10 million a year in room revenues — approximately forecast for the Marriott on Carroll Creek — would get to keep $425,000 each year for servicing its debt out of the $500,000 hotel tax normally paid for tourist promotion.

If over 25 years this hotel’s revenue doubles to $20m/yr the value of tax rebated under the incentive program will be $15.9 million (average 15,000,000×0.0425×25). Staff notes say the Tourism Council has studied such schemes elsewhere but no study has been published, or even any presentation made. Googling such schemes turns up a couple of projects on the west coast with much less than 85% rebated, little else.

This will be very damaging to our historic downtowns.

Firstly, full service hotels with meeting space and other built-in amenities fit poorly into our downtowns with their small lots, narrow streets, and commitments to historic preservation.

Second, giving such hotels a major financial advantage is grossly unfair to other hotels.

And, thirdly, favoring upscale high-priced hotels is perverse — welfare for the well-off travelers.

Fourth it is wrong to delegate to the Tourism Council, an interest group not accountable to voters, the right to decide which hotel projects will be eligible for the privilege of devoting 85% of their tax collection to servicing their own debt. Other hotels will have to generate the cash flow to service their debt themselves.

Influence within the Tourism Council will become a very valuable asset. Hotel people with connections will be able to head off competition by denying eligibility for the huge tax rebates to outsiders’ projects, or get the lucrative rebates for themselves. This doesn’t invite, it begs for corruption.

The HDIP measure sets up a two-tiered tax system — 5 percent for most hotels, 0.75 percent for those with influence at the Tourism Council and a project that can be presented as upscale, full-service etc. There is no hint in the 2004 state law authorizing counties to levy hotel taxes that any such grossly discriminatory scheme was contemplated by state legislators. It is an appalling abandonment of responsible government for county government to delegate to a special interest like the Tourism Council the power to administer a lucrative scheme of this kind.

NOTE: A vote is planned on this Tuesday afternoon.

Peter Samuel 2016.08.28

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