County’s Hotel Development Incentive Program (HDIP) — NOTES

1. Confusion about how it works

Helen Propheter’s staff report describes the HDIP as a ‘Rebate’ of up to 85% of hotel tax.” In this version of the program the hotel tax beyond 15% of that normally due would not be collected from the hotel. In effect hotels favored by HDIP status would only remit to the Tourism Council 0.75% hotel tax after allowance for the tax’s administrative costs, whereas all other hotels will remit 5%.

A a slightly different arrangement is envisaged in the First Amendment to the MOU (Item 8) between the County and the Tourism Commission in which there will be a “set aside” of up to 85% of hotel tax money by the county or Tourism Commission dedicated to servicing the private debt.

The confusion suggests lack of discussion internally, and haste in writing.

2. No studies published, little known about such programs

The staff report says that the Tourism Council has studied how such HDIP programs work elsewhere but no studies have been published. To our knowledge no presentation even has been made to the County on how such programs work.

3. Legal problems

State law of 2004 authorizing counties to levy a hotel tax does not appear to allow for any rebates or set-asides of tax. Plus delegating to a trade group such as Tourism Council decisions on HDIP tax rebate benefits may compound the program’s legal challenges.

4. Big bucks at stake — influence peddling encouraged

A $10 million/year room revenue hotel with HDIP-status (approximately the DH&CC) would pay net hotel tax of $75,000/year versus $500,000/year paid by regular hotels for 25 years. The $425,000 difference could be used by the HDIP hotel for debt service. Other hotels would have to generate the cash flow to service all their debt.

5. Invitation to corruption

HDIP does not mention the proposed Marriott on Carroll Creek but that shonky project is clearly intended to be its first beneficiary. It is intended to fund the County’s portion of the $31m of public funding slated for the downtown hotel in Frederick. But HDIP is also designed to do favors for new similar style hotels in Brunswick, Middletown, Thurmont Newmarket, Mt Airy and other centers in the County. The program offers such potential financial advantage over hotels without these privileges there could be intense political competition for the favor, plus efforts by other hotels to stop such projects by denying them HDIP status. This sets up a system of incentives for influence peddling and a disincentive for clean investors to build hotels since they will perceive an insider-rigged system — an ole-boy clique running the show in Frederick.

6. Political shenanigans in the County

Presenting HDIP as one small part of a larger bill (CB16-13) to increase the rate of the hotel tax from 3% to 5% minimized the opportunity for explanation and discussion of the HDIP. Was this because the authors sensed the incentive program was politically indefensible?

NOTE: This part of the package of CB16-13 due for a vote in Frederick County Council Tuesday afternoon, Aug 30. P Sam 2016.08.28

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