FINANCE

1. DRAFT FOR POLICY DISCUSSION ONLY FINANCE October 2010 Working Group Session

2. DRAFT FOR POLICY DISCUSSION ONLY AGENDA • Introduction • Update: Washington DC Convention Center Hotel • Convention Center Fund: Impacts of Sales Tax Changes • Construction Costs in Boston • Room Tax District Compared to Hotel Use by Attendees • Next Steps

3. DRAFT FOR POLICY DISCUSSION ONLY Update: Washington DC Convention CenterHotel

4. DRAFT FOR POLICY DISCUSSION ONLY Washington DC Convention Center Hotel Project Description • 1,170 room full service hotel – April 30, 2014 projected opening • 128,938 square feet of meeting space • Food and beverage facilities: • Three meal restaurant • Specialty restaurant • Three bar facilities • 400 car parking structure • Subterranean connector to Walter E. Washington Convention Center • Key Participants: • Manager: Marriott (Marriott Marquis Flag) • Developers: Quadrangle Dev. Corp. and Capstone Development • Design/Builder: Hensel Phelps Construction Co.

5. DRAFT FOR POLICY DISCUSSION ONLY Washington DC Convention Center Hotel Project Funding Total development budget: $516,209,000 ($441,204/Key) Land(1) value: $100,000,000 $616,209,000 Net Funding Sources: Private debt and equity $310,209,000 Public contribution: Net Bond proceeds (2) 134,000,000 Land value 100,000,000 WCSA Loan(3) 25,000,000 WCSA cash 47,000,000 Total $306,000,000 Two Land Parcels – District and WCSA. Does not include refunding costs of portion of 2007 Series A Bonds, reserve funding or financing costs. Funded with proceeds from 2010 Series C Bonds.

6. DRAFT FOR POLICY DISCUSSION ONLY Washington DC Convention Center Hotel Public Bonds 2010 Series A Bonds(1): $66,705,000 (Tax-Exempt Recovery Zone Facility Bonds) 2010 Series B Bonds(2): $109,670,000 (Taxable Recovery Zone Economic Dev Bonds) (90,000,000) (Taxable Build America Bonds) (19,670,000) 2010 Series C Bonds(3): $72,840,000 (Taxable Bonds) Total Bonds Issued: $249,215,000(4) • Issued pursuant to the American Recovery and Reinvestment Act of 2009. Bond proceeds eligible for private activity purposes. • Issued pursuant to the American Recovery and Reinvestment Act of 2009. Bond proceeds are limited for eligible tax-exempt purposes. • Bonds issued as federally taxable revenue bonds. Bond proceeds are not restricted. • Includes net project funding proceeds, refunding costs, WSCA loan proceeds, reserve funding and financing costs.

7. DRAFT FOR POLICY DISCUSSION ONLY Washington DC Convention Center Hotel Bond Repayment Bonds are payable from the following revenue sources: 2010 Series A Bonds: First: District ground lease payments Second: Hotel specific tax increment Third: District wide pledged revenues 2010 Series B Bonds: First: Hotel specific tax increment Second: District wide pledged revenues 2010 Series C Bonds: First: WCSA ground lease and loan payments Second: District wide pledged revenues

8. DRAFT FOR POLICY DISCUSSION ONLY Washington DC Convention Center Hotel Bond Repayment Estimated District wide pledged revenues(1): FY 2011 ($000) Hotel sales taxes $67,066 Restaurant and car rental taxes 30,131 Total $97,197 Estimated Hotel specific tax increment: FY 2018 ($000) Property taxes $3,557 Room Occupancy Tax (10.5%) 10,343 Food and Beverage Tax (9.0%) 5,213 Parking Tax (12.0%) 406 Total $19,519 (1) District wide pledged revenues also secure Series 2007A bonds (Walter E. Washington Convention Center project) and provide funding for convention center operations.

9. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund

10. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund – Sales Tax Revenues • Impact of several sales tax scenarios: • 5.0% - baseline sales tax model • 6.25% - sales tax increase implemented on August 1, 2009 • Rate increased to from 5.00% to 6.25% • 6.25% sales tax imposed on sales of alcohol (previously excluded from sales tax levy) • 3.0% - potential sales tax rate decrease effective January 1, 2011 (pursuant to voter initiative on November ballot)

11. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund • Pledged Receipts • 2.75% Room Occupancy Tax (All Hotels in Boston, Cambridge, Springfield, Worcester) • 5.7% Room Occupancy Excise Tax (New Hotels Opened After July 1997 in Boston, Cambridge, Springfield) • Additional 4% Room Occupancy Excise Tax (Springfield) • $9/transaction Vehicular Rental Surcharge (Boston) • 5% Sightseeing Surcharge (Boston) • $2/day Parking Surcharge • 5% Retail Sales Tax (Boston, Cambridge, Springfield)* • *Increased to 6.25%

12. DRAFT FOR POLICY DISCUSSION ONLY Convention Center 2008/09 Pledged Receipts 5.7% Room Occupancy Tax– New Hotels opened after July 1997 24% Other Income 6% Sightseeing Surcharge 2% 2.75% Room Occupancy Tax– All Hotels 40% Sales Tax 15% Vehicular Rental Surcharge 13%

13. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund Impact When the fund was created, there was a 5% state sales tax.

14. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund Impact On August 1, 2009, the Sales Tax increased to 6.25% and was imposed on alcohol sales at retail establishments.

15. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund Impact There is a voter initiative on the November 2, 2010 ballot to roll back the sales tax to 3% effective January 1, 2011.

16. DRAFT FOR POLICY DISCUSSION ONLY Construction Costs in Boston

17. DRAFT FOR POLICY DISCUSSION ONLY Building Cost Index What goes into the Building Cost Index (BCI)? 1. 68.38 hours of skilled labor multiplied by the 20-city wage average for three trades – bricklayers, carpenters, and structural ironworkers 2. 25 cwt of fabricated standard steel at the 20-city average price 3. 1.128 tons of bulk portland cement priced locally 4. 1,088 board feet of 2x4 lumber priced locally The BCI measures how much it costs to purchase this hypothetical package of goods compared to what it was in the base year. Differentials between cities may reflect differences in labor productivity and building codes. Source: Engineering News-Record TISHMAN

18. DRAFT FOR POLICY DISCUSSION ONLY Material Price Index – 20 City Average Percent Change Notes: Data Source: Engineering News-Record Base Year 1913 = 100 TISHMAN

19. DRAFT FOR POLICY DISCUSSION ONLY Skilled Labor Index – 20 City Average Notes: Data Source: Engineering News-Record Base Year 1913 = 100 TISHMAN

20. DRAFT FOR POLICY DISCUSSION ONLY Boston Building Cost Index Historically There has been a 54.3% increase in cost since 2000! Notes: BCI Data Source: Engineering News-Record Base Year 1913 = 100 TISHMAN

21. DRAFT FOR POLICY DISCUSSION ONLY Building Cost Index Historically by City BCI City Notes: BCI Data Source: Engineering News-Record Base Year 1913 = 100 TISHMAN

22. DRAFT FOR POLICY DISCUSSION ONLY 2010 Building Cost Index Comparison BCI City Notes: BCI Data Source: Engineering News-Record Base Year 1913 = 100 TISHMAN

23. DRAFT FOR POLICY DISCUSSION ONLY Labor Rate Comparison Example Trade Hourly Wage* Example Trade Hourly Wage* Assume that total project construction cost is allocated 55% labor and 45% material. Then for every $100 expended on a construction project in Boston, the allocation would be as follows: Material $45 Labor $55 Total $100 Assuming that all other factors such as working conditions, material cost, labor productivity, weather, insurance mark ups, etc. are the same in Boston and Washington D.C. the cost for the same project using the Washington D.C. labor rate would be as follows: Material $45 Labor $29.60 Total $75 *Labor rates based on the published Davis-Bacon Prevailing wage information obtained from the US Government Printing Office website. TISHMAN

24. DRAFT FOR POLICY DISCUSSION ONLY Summary • Boston’s ENR BCI Index is in the high range compared to other cities • Overall cost • Labor continues to increase annually • Material cost – over extended periods, trends upward • Winter Construction • Cost for winter conditions • Schedule impacts • Site Conditions – most sites in built up areas are challenging TISHMAN

25. DRAFT FOR POLICY DISCUSSION ONLY Convention Center Fund: Hotel Tax District Compared to Hotel Use by Attendees

26. DRAFT FOR POLICY DISCUSSION ONLY Hotel Booking Channels • Group sales (“Room Block”) • A room block is reserved by event planner which is held open until a specified date before event • Rooms in block are “picked-up” by individuals before the closing date • Direct sales • Phone calls, websites, walk-ins • Hotel company central reservations systems • Phone systems and Websites • Sells multiple brands under single ownership • Opaque sites • Excess hotel inventory released to online travel companies such as Travelocity, Expedia, etc.

27. DRAFT FOR POLICY DISCUSSION ONLY BCEC Room Night Tracking • BCEC tracks known room block pick-up • What BCEC does not track • Bookings related to the convention event made outside the designated room block • Compression – hotel room night demand unrelated to the convention event that is forced out of the District during periods of high occupancy

28. DRAFT FOR POLICY DISCUSSION ONLY Current Boston/Cambridge Hotel Tax District CH 152 of the Acts of 1997: 2.75% Room Occupancy Tax – All Hotels 5.7% Room Occupancy Tax – Hotels Opened After July 1997

29. DRAFT FOR POLICY DISCUSSION ONLY Room Block Hotels for Contracted Events at the BCEC AIA Event 2008

30. DRAFT FOR POLICY DISCUSSION ONLY Room Block Hotels for Contracted Events at the BCEC ADA Event 2016

31. DRAFT FOR POLICY DISCUSSION ONLY Room Block Hotels for Contracted Events at the BCEC AARP Event 2019

32. DRAFT FOR POLICY DISCUSSION ONLY Directions for Additional Analysis • Determine More Specifically: Where Do Attendees Stay? • Discuss Alternatives to Current Hotel Tax District Boundaries

33. DRAFT FOR POLICY DISCUSSION ONLY “California Model:” Multiple Taxing Districts • Implemented in San Francisco • Under Consideration in San Diego

34. DRAFT FOR POLICY DISCUSSION ONLY Moscone Center Tourism Improvement District San Francisco, CA • Tourism Improvement District (“TID”) approved by hotel owners and operators in San Francisco • TID imposes an additional lodging tax on hotel in San Francisco based on proximity to Moscone Center • Tax imposition for 15 years: • Benefit Zone 1 properties – 1.5% for years 1-5, 1.0% for years 6-15 • Benefit Zone 2 properties – 1.0% for years 1-5, .75% for years 6-15 • TID approved in December 2008 (95% of hotels voted for TID) • Tax took effect January 1, 2009

35. DRAFT FOR POLICY DISCUSSION ONLY Moscone Center Tourism Improvement District San Francisco, CA

36. DRAFT FOR POLICY DISCUSSION ONLY Moscone Center Tourism Improvement District San Francisco, CA • Tax revenues fund two primary purposes: • 2/3 of tax revenues support marketing efforts and administrative expenses of the San Francisco Convention and Visitors Bureau • 1/3 is used to fund upgrades and renovations to the Moscone Center • Annual tax revenue estimated at $27 million • $18 million for marketing • $9 million for Moscone Center improvements • City of San Francisco will match the $9 million

37. DRAFT FOR POLICY DISCUSSION ONLY FINANCE October 2010 Working Group Session