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HomeMy WebLinkAboutEver Vail Fiscal Economic Memo 110910 MEMORANDUM To: Town of Vail From: Andrew Knudtsen and Brian Duffany Economic & Planning Systems Subject: Ever Vail Fiscal & Economic Impacts Date: November 9, 2010 Purpose and Background Economic & Planning Systems (EPS) was hired by the Town of Vail to conduct a fiscal and economic impact analysis of the proposed Ever Vail development. EPS’ scope of work included two major tasks: 􀂃 Fiscal Impact Analysis --The fiscal impact analysis addresses the costs of providing Town services to the project compared to the revenues generated by the project. The fiscal analysis accounts for a range of funds including the General Fund, the Capital Fund, the RETT Fund, the Marketing Fund, and the URA Fund. 􀂃 Economic Impact Analysis --The economic impact analysis addresses the ways in which the project is expected to impact other sectors of the Vail economy and how these impacts can be mitigated. One of the key issues has been cannibalization (sales erosion). To address this issue, the Economic Impact Analysis quantifies quantifies retail sales flows by base area, Vail Village, Lionshead, and West Vail. The Economic Impact analysis also addresses other economic and policy issues (more qualitatively) such as the provision and filling of “hot beds,” the capability to attract group sales and ability of the project to fill shoulder seasons, and the economic goal of attracting and retaining jobs in more diverse economic sectors. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 2 20812-Fiscal & Economic Memo 11-9-10 Development Program Residential The development program as proposed is summarized in Table 1. It includes a total of 530 residential units and hotel rooms. The hotel is currently proposed to be 102 rooms. A 76 unit “branded residence” condominium component would be associated with the hotel brand, management, and guest services. An additional 307 market rate condominiums are proposed, plus 26 deed restricted rental units and 19 deed restricted for-sale condominiums. The for-sale units would be deed restricted to Eagle County residents and full-time local employees. Compared to the earlier submittal, the residential program is largely the same; the major difference is that the hotel has been reduced to 102 rooms from 120 rooms. The retail program has also been scaled back significantly, as will be discussed below. The project was analyzed as a two phase project. The fiscal impact of each phase was modeled modeled as if it were a single standalone project; the fiscal impacts of Phase I and Phase II are reported separately. The cumulative impact of full buildout of both phases was also analyzed. EPS has modeled the east phase as Phase I. Phase I includes the hotel and retail/commercial space. Phase II, the western phase, is almost entirely residential. Table 1 Ever Vail Proposed Development Program Ever Vail Fiscal Impact Analysis Description Phase I Phase II Total East West Development Program Hotel 102 0 102 Branded Residences 76 0 76 Condominiums 158 149 307 Deed Restricted Rental 8 18 26 Deed Restricted For-Sale 12 7 19 Total Units 356 174 530 GRFA 468,067 315,273 783,340 Source: Vail Resorts Development Company, Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]1-Dev Program Market values for the fiscal impact analysis were determined by EPS from research on several recently built and currently for-sale base area projects located throughout the Intermountain West. The market rate components are modeled at an average of $1,200 per square foot, or $1.8 million per unit, as shown in Table 2. The hotel market value is estimated to be $426,000 per room, based on 60 percent occupancy, a $350 per night average daily rate, 50 percent operating expenses, and a 9.0 percent capitalization rate. Vail Resorts Development Company (VRDC) staff has indicated that the deed-restricted for-sale units would be priced at approximately $400,000 per unit. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 3 20812-Fiscal & Economic Memo 11-9-10 Table 2 Ever Vail Estimated Market Values Ever Vail Fiscal Impact Analysis Description Phase I Phase II Avg. Sq. Ft. Hotel ------Branded Residences 1,500 1,500 Condominiums 1,500 1,500 Deed Restricted Rental 1,200 1,200 Deed Restricted For-Sale 1,250 1,250 Market Value/Sq. Ft. Hotel ------Branded Residences $1,200 $1,200 Condominiums $1,200 $1,200 Deed Restricted Rental ------Deed Restricted For-Sale $325 $325 Market Value/Unit Hotel $426,000 $426,000 Branded Residences $1,800,000 $1,800,000 Condominiums $1,800,000 $1,800,000 Deed Restricted Rental $102,000 $102,000 Deed Restricted For-Sale $406,250 $406,250 Source: Vail Resorts Development Company, Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]3-MktAssumptions Retail and Commercial The project is also proposed to contain approximately 123,000 square feet of mixed use retail and commercial space. space. However, less than half of the space or approximately 53,000 square feet is programmed as retail and food and beverage space. There is an additional 69,500 square feet of conference, meeting, skier services, spa, and office space, as shown in Table 3. The program also proposes additional parking. A total of 1,464 parking spaces will be constructed, 1,025 in Phase I and 439 in Phase II. Approximately 400 of the total count will be public spaces and are anticipated to be used by day skiers during the ski season. The balance fulfills requirements related to retail and residential uses. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 4 20812-Fiscal & Economic Memo 11-9-10 Table 3 Ever Vail Retail and Commercial Development Program Ever Vail Fiscal Impact Analysis Description Phase I Phase II Total East West Retail and F&B Restaurant 16,090 0 16,090 Nightclub 6,013 0 6,013 Sporting/Apparel 11,118 0 11,118 Spa and Other Leaseable Retail 5,881 0 5,881 Grocer 14,156 0 14,156 Subtotal 53,258 0 53,258 Other Commercial Space Skier Services-Ticketing 2,489 0 2,489 Children's Skier Services 0 12,114 12,114 Spa 9,870 0 9,870 Office 35,395 0 35,395 Meeting Spaces (incl. hotel) 9,663 0 9,663 Subtotal 57,417 12,114 69,531 Totals 110,675 12,114 122,789 Parking Public Spaces 200 200 400 General 825 239 1,064 Total Analyzed 1,025 439 1,464 Source: Vail Resorts & BBC Research, Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]4-Commercial Dev Prog Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 5 20812-Fiscal & Economic Memo 11-9-10 The applicant has reduced by approximately half the amount of retail proposed in this submittal. The applicant is currently proposing 53,000 square feet of restaurant, spa, and leasable retail space. Earlier versions of the development program contained approximately 100,000 square feet of retail and restaurant space. The current proposal has been downsized, as shown in Table 4. Previously, EPS expressed concerns that the earlier proposal had too much retail space for the location and the size of the bed base proposed. A number of potential impacts to the Town were identified such as vacant retail space and a lack of vitality and potential impacts to the existing retail areas of the Town. The reduction in retail space was an outcome of several discussions and working meetings between Vail Resorts Development Company (VRDC), EPS, BBC Research working as VRDC’s consultant, and Town of Vail Staff. A key factor used in these discussions was the amount of retail floor area that could be supported by reasonable assumptions about the expenditure potential from Ever Vail guests and residents. (Based on the immediate adjacency, the “right sizing” also accounted for future expenditure from Ritz Carlton guests.) There is now general agreement that the retail is appropriately sized, the supply reflects appropriate assumptions about demand, and that the resulting area has sufficient ballast to provide a high quality guest experience expected by visitors at a ski area base portal. Table 4 Comparison of Ever Vail Retail Programs Ever Vail Fiscal Impact Analysis Retail Development Current Proposal Previous Proposal Restaurant 16,090 24,000 Nightclub 6,013 6,000 Sporting/Apparel 11,118 36,000 Spa and Other Leaseable Retail 5,881 21,000 Grocer 14,156 13,000 Total 53,258 100,000 Source: Vail Resorts, Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]Sheet1 Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 6 20812-Fiscal & Economic Memo 11-9-10 Key Assumptions EPS analyzed the project under “High” and “Low” scenarios to evaluate the project under different performance measures. The High Scenario reflects what EPS believes to be reasonable estimates of performance for a well located high quality base portal development with direct lift access. It was not designed to be an “optimistic” or “aggressive” scenario. It does, however, assume that VRDC will actively market the project, pursue off-season business (group business, meetings, conferences, etc.) to fill hotel rooms and rental condominiums, and motivate owners to participate in a rental program. The “Low” scenario was designed to reflect “average” or “business-as-usual” performance for Vail properties. Occupancy is a key economic and fiscal driver; the occupancy assumptions are shown below in Table 5. In the High Scenario, the hotel is assumed to operate at 60 percent annual occupancy and 50 percent occupancy in the Low Scenario. Condominiums are modeled at 40 percent occupancy in the High Scenario and at 30 percent in the Low Scenario. Table 5 Occupancy Assumptions Ever Vail Fiscal Impact Analysis Description "High" Scenario "Low" Scenario % In Rental Pool Hotel 100% 100% Branded Residences 75% 65% Condominiums (Free Market) 50% 35% Deed Restricted Rental 0% 0% Deed Restricted For-Sale 0% 0% Annual Occupancy Hotel 60% 50% Branded Residences 45% 40% Condominiums in Rental Pool 40% 30% Second Home Condominiums 20% 20% % of Guests Net New Hotel 70% 60% Branded Residences 70% 60% Condominiums in Rental Pool 50% 40% Second Homes 100% 100% [1] Developed from discucssions with Vail Resorts Development Company Source: Vail Resorts, Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]Sheet1 The percent of guests that are “net new” to Vail are also estimated. The hotel is assumed to draw 60 to 70 percent net new guests, based on interviews with hospitality consultants and hotel managers. Net new guests are lower for the condominiums, estimated at 40 to 50 percent. All second homeowners are assumed to be new; however, second homes have a fraction of the economic impact of hotel rooms and therefore do not have a large effect in the fiscal impact model. Another key assumption is that costs related to infrastructure internal to the project will be borne by Vail Resorts, not the Town of Vail. It is anticipated that Vail Resorts and the Town will establish a Title 32 Metropolitan District (metro district) for this purpose. At the time of service Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 7 20812-Fiscal & Economic Memo 11-9-10 plan approval, it is recommended that a segregated revenue stream be established to cover operations and maintenance costs (as distinct from debt service for capital improvements) and that it be sized to ensure a level of service commensurate with Town of Vail standards. Finally, it is important to note that the fees included in the model are the best approximation available at this time. Actual fees and requirements applied at time of project approval or at time of building permit may differ, based on a modified development program and/or modified Town standards. Summary of Findings Fiscal Impacts 1. At full buildout, the Ever Vail project is estimated to generate a positive fiscal impact to the Town. After accounting for high and low occupancy assumptions, the fiscal impact to the General Fund is estimated at $383,000 to $709,000 annually at full project buildout and stabilization. The higher range of estimated fiscal impacts reflects what EPS believes are reasonable assumptions for the performance of a high quality well performing base area resort project with direct lift access. It also presumes that VRDC will actively market the project to fill hotel beds, attract groups during the off-season, and encourage owners to participate in a rental program. The lower fiscal impact estimate represents more “average” performance for Vail properties, with no special marketing or management strategies designed to maximize “hot beds.” The project’s actual performance will likely lie somewhere between the low and high estimates. The results of the fiscal impact analysis are summarized in Tables 6 and 7 for the High and Low Scenarios, respectively. 2. The fiscal impacts of both phases of the project are positive. Phase I (east) generates a larger benefit to the Town than Phase II (west) due to higher guest expenditure levels generated by the 102 hotel rooms, 76 branded residences, and 158 condominium units. The hotel hotel is a key economic driver estimated to generate about 25 percent of the visitors and spending from the project under the High Scenario. The branded residences are modeled as performing similarly to the hotel and account for approximately 17 percent of total visitors and expenditures. As noted previously, Phase II does not include hotel rooms or branded residences. It is also noteworthy that Phase II has nine fewer condominium units. Retail sales and sales tax are derived from visitor spending, and Phase I generates more spending that Phase II. The annual net fiscal impact of Phase I by itself is estimated at $342,000 to $563,000. Phase II by itself has a fiscal impact of $118,000 to $223,000 per year. 3. Ever Vail is estimated to require additional staff for Police and Fire under the High and Low Scenarios. Police and Fire service demands were estimated by a comparative analysis of call volumes in Lionshead Village by EPS and Town staff. At full buildout of both phases, Police is forecasted to need one one additional patrol officer at an annual cost of $77,150 plus a one-time training cost of $65,000. By themselves, neither phase triggers the need for an additional police officer. Cumulatively, however, demand for services will require a new position. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 8 20812-Fiscal & Economic Memo 11-9-10 Based on the forecasted call volume, the Fire Department will need an additional staff person to serve Phase I at an annual cost of $76,600 plus a one-time training and equipment cost of $7,800. 4. The largest impacts on Town services are to the Town’s transit system. LSC Transportation Consultants completed a study of the impacts of Ever Vail on the Town’s transit system. LSC estimated the need for three new buses at a cost of $600,000 each. The annual operations cost is estimated at $111,000. EPS has allocated the impacts to Phase I, as it generates the most visitor activity. 5. The project is largely within the Lionshead URA. Therefore, the majority of the property tax generated by the project will flow to the URA rather than the General Fund until 2030. At full buildout, the General Fund portion of the property tax increment generated by the project is approximately $360,000 per year. After the URA expires in 2030, this revenue will revert back to the General Fund, increasing the net fiscal impact by the same amount. The total property tax increment at buildout is approximately $3.5 million per year, based on the structure of the URA which redirects non-Town revenue streams for the duration of the URA. These funds can be used by the URA to fund eligible projects. 6. The Ever Vail development will generate substantial one-time revenues from construction use tax and permit fees. The construction use tax from Phase I is estimated at $9.3 million over the course of its construction, contributing to the Town’s Capital Fund. The construction of Phase II would produce approximately $5.1 million in use tax. The Real Estate Transfer Tax (RETT) from developer sales is forecasted to be $4.7 million for Phase I and $3.0 million for Phase II. The RETT fund is used for park, open space, and sustainability projects. Permit and plan check fees are estimated at $3.1 million for Phase I and $1.7 million for Phase II. Permit and plan check fees are one-time revenues that contribute to the cost of development revue. Since they are one-time revenues during construction, they are not counted in the annual fiscal impact to the General Fund which reflects the project at buildout and stabilization. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 9 20812-Fiscal & Economic Memo 11-9-10 Table 6 High Scenario Fiscal Impacts Ever Vail Fiscal Impact Analysis Fund Phase I Phase II Phase I Phases I & II General Fund Revenues $1,015,500 $430,100 $1,015,500 $1,445,500 Expenses [1] -$452,800 -$206,900 -$452,800 -$736,850 Net Fiscal Impact $562,700 $223,200 $562,700 $708,650 Capital Fund One-Time Use Tax $9,291,760 $5,103,520 ------Annual Sales Tax $599,800 $258,464 $599,800 $858,232 RETT One-Time Developer Sales $4,729,067 $3,025,273 Annual Resales $192,000 $122,000 $192,000 $314,000 Vail Marketing District 1.4% Lodging Tax (Annual) $366,000 $168,000 $366,000 $534,000 Urban Renewal Authority General Fund Property Tax to URA [2] $258,000 $104,000 $258,000 $362,000 Other Taxing Entities Tax Increment $2,280,000 $919,000 $2,280,000 $3,199,000 Total Property Tax Increment $2,538,000 $1,023,000 $2,538,000 $3,561,000 [1] Expenses by phase do not add to the cumulative impacts of the entire project. Police is not estimated to need additional staff to serve individual phases, but would need an estimated 1 officer to serve the project if both phases are built. Fire is estimated to need an additional staff person to serve Phase I, which will also cover Phase II. [2] The project is largely within the Lionshead URA. This revenue reverts to General Fund after URA expires in 2030. Source: Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-fiscal model-11-05-2010.xls]ES-1 By Phase -Standalone Cumulative Impact by Phase Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 10 20812-Fiscal & Economic Memo 11-9-10 Table 7 Low Scenario Fiscal Impacts Ever Vail Fiscal Impact Analysis Fund Phase I Phase II Phase I Phases I & II General Fund Revenues $777,800 $316,200 $777,800 $1,093,900 Expenses [1] -$435,600 -$198,000 -$435,600 -$710,750 Net Fiscal Impact $342,200 $118,200 $342,200 $383,150 Capital Fund One-Time Use Tax $9,157,200 $5,103,520 ------Annual Sales Tax $457,096 $188,264 $457,096 $645,344 RETT One-Time Developer Sales $4,729,067 $3,025,273 Annual Resales $192,000 $122,000 $192,000 $314,000 Vail Marketing District 1.4% Lodging Tax (Annual) $294,000 $126,000 $294,000 $420,000 Urban Renewal Authority General Fund Property Tax to URA [2] $248,000 $104,000 $248,000 $352,000 Other Taxing Entities Tax Increment $2,193,000 $919,000 $2,193,000 $3,112,000 Total Property Tax Increment $2,441,000 $1,023,000 $2,441,000 $3,464,000 [1] Expenses by phase do not add to the cumulative impacts of the entire project. Police Police is not estimated to need additional staff to serve individual phases, but would need an estimated 1 officer to serve the project if both phases are built. Fire is estimated to need an additional staff person to serve Phase I, which will also cover Phase II. [2] The project is largely within the Lionshead URA. This revenue reverts to General Fund after URA expires in 2030. Source: Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\11-05-Lo w\[20812-fiscal model-11-05-2010_low.xls]ES-1 By Phase -Standalone Cumulative Impact by Phase Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 11 20812-Fiscal & Economic Memo 11-9-10 Economic Impacts 1. The spending from new guests in Ever Vail is forecast to be $18.1 million per year with 90 percent of expenditures estimated to occur in the Town of Vail and 10 percent in the Vail Valley. The town derives most of its retail sales from visitor expenditures. Adding to the bed base will introduce new dollars into the Vail economy, contributing to additional retail sales. Ever Vail visitors are estimated to make 35 to 40 percent of their expenditures within Ever Vail, as shown in Figure 1. Approximately 50 to 55 percent of Ever Vail visitors’ dollars are expected to occur within the Town of Vail in other retail locations such as Lionshead, Vail Village, and West Vail. The remaining 10 percent of expenditures are estimated to occur elsewhere in the Vail Valley, such as Beaver Creek, Avon, or Edwards. Similar to any guest in Vail, Ever Vail’s guests will spend money in multiple locations in the Town. Figure 1 Ever Vail Guest Spending Patterns Ever Vail Fiscal Impact Analysis Total Spending $18.1 Million Down Valley $1.7M Ever Vail $6.8 Million Vail Village, Lionshead, West Vail $9.6 Million 38% 53% 9% Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 12 20812-Fiscal & Economic Memo 11-9-10 2. The project is not expected to cannibalize (erode) sales from Vail Village or Lionshead. The West Vail area is expected to see sales erosion of 1.1 percent. As new retail in Ever Vail is introduced, some sales from other Vail locations will flow to Ever Vail. At the same time, Ever Vail guests will spend money in existing retail establishments in Vail. In most cases and in total, the net dollar flows to existing retail areas are positive. The economic analysis projects sales of $19.0 million in Ever Vail to achieve a minimum viability. Of this total, approximately 60 percent are expected from guest in the immediate village (Ever Vail plus the Ritz Carlton). The balance of 40 percent would need to come from guests staying elsewhere in Vail to support $19.0 million in sales in Ever Vail. Under these assumptions, Lionshead and Vail Village would “lose” $2.6 to $2.9 million in sales to Ever Vail; however, this is estimated to be replaced by $2.9 to $5.5 million in expenditures from new Ever Vail guests spending money in Lionshead and Vail. Thus, net sales flows are expected to be positive for Lionshead and Vail Village. Due to the competition created by the proposed market, a one percent loss in sales is projected for West Vail. The sales flows are quantified below in Table 8 and Figure 2. Vail Village currently achieves $152.7 million in sales, while Lionshead achieves $32.8 million, and West Vail has $71.8 million in sales. The net dollar flows shown are less than two percent of existing sales and are only projected to be negative for West Vail. EPS believes that the strength of Lionshead and Vail Village will be the main draw for all Vail guests regardless of where their lodging is. Our opinion is that the removed location of Ever Vail is unlikely to draw significant amounts of sales away from existing retail areas. Table 8 Summary of Town Sales Flows with Ever Vail Ever Vail Fiscal Impact Analysis Potential Dollar Flows Erosion to Ever Vail Spending From Ever Vail Net Dollar Flows Lionshead $2,632,000 $2,954,000 $322,000 Vail Village $2,994,000 $5,486,000 $2,492,000 West Vail $1,938,000 $1,166,000 -$772,000 Total $7,564,000 $9,606,000 $2,042,000 Potential Erosion vs. Existing Sales Net Dollar Flows Existing Sales (2009) Erosion as % of Sales Lionshead $322,000 $32,789,000 1.0% Vail Village $2,492,000 $152,700,000 1.6% West Vail -$772,000 $71,807,000 -1.1% Total $2,042,000 $257,296,000 0.8% Source: Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Models\[20812-EV Sales Tax Model 11-05-2010.xls]Table ES-1 Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 13 20812-Fiscal & Economic Memo 11-9-10 Figure 2 Net Dollar Flows vs. Existing Retail Sales Ever Vail Fiscal Impact Analysis Chart 2 $322,000 $2,492,000 -$772,000 -$20,000,000 $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 $180,000,000 Lionshead Vail Village West Vail Retail & Food & Bev. Sales Net Dollar Flows Existing Sales (2009) Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 14 20812-Fiscal & Economic Memo 11-9-10 3. The amount of retail and restaurant space proposed in Ever Vail is small in comparison to the Town’s retail inventory and is therefore forecast to have a relatively small impact on existing retailers. VRDC and their consultants have worked closely with EPS to “right size” the amount of retail space in the project. This work has resulted in downsizing the retail from 100,000 to 120,000 square feet in earlier development plans to approximately 53,000 square feet as currently proposed. This has been based on an expenditure analysis, qualitative analyses and comparisons of other base areas, and from a determination of the minimum numbers and types of services needed for a successful base area portal. The tenant mix is expected to cater largely to hotel and condominium guests rather than to create a new shopping destination in Vail. The amount of retail proposed would result in an 8 percent increase in the amount of retail space in Vail, as shown in Table 9. Table 9 Vail Retail Inventory Ever Vail Fiscal Impact Analysis Vail Ever Store Category # Retailers Sq. Ft. # Retailers Sq. Ft. # Retailers Sq. Ft. Total Vail Food & Beverage 54 205,000 21 58,500 11 27,000 290,500 22,103 Gallery/Art/Books 14 21,000 0 0 0 0 21,000 TBD Clothing/Fur 32 48,000 8 13,000 0 0 61,000 5,559 Jewelry 12 8,500 2 3,200 0 0 11700 TBD Ski Equipment 14 36,000 16 28,000 2 16,000 80,000 5,559 Grocery/Liquor 2 1,400 1 1,000 4 108,000 110,400 14,156 Gift Shop 6 6,000 3 2,400 0 0 8,400 TBD Eyewear 2 1,100 1 350 0 0 1,450 TBD Miscellaneous 14 10,000 6 10,000 11 25,000 45,000 5,881 Total 150 337,000 58 116,450 28 176,000 629,450 53,258 Source: Town of Vail; Economic & Planning Systems H:\20812 Ever Vail Fiscal Analysis\Data\[20812-inventories.xls]Vail_Retail Vail Village Lionshead West Vail Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 15 20812-Fiscal & Economic Memo 11-9-10 4. To maximize economic benefit from the Ever Vail development, the Town and Vail Resorts Development Company should recognize the following key strengths of the project and ensure they are adequately addressed: 􀂃 Phasing – Given that the expenditure potential from Phase I is 4.5 times higher than that of Phase II ($11.2 million vs. $2.5 million), constructing Phase I first will generate greater economic benefit to the Vail community and greater fiscal benefit to the Town. 􀂃 Hot Beds and Critical Mass – Comparing one hotel room to one condominium unit, the hotel room generates 2.3 times the expenditure potential of a condominium unit and 1.3 times the net fiscal benefit ($3,150 vs. $2,440). Thus, hot beds result in significantly greater economic and fiscal benefit. A related issue is the ability for the hotel to control and market a critical mass of accommodation units, sufficient to capture group meeting business. A reasonable target, based on representatives that have marketed Vail facilities for group business, is 200 to 225 rooms. Vail Resorts should be encouraged to create lock off units and incentive programs with sufficient benefits to increase participation and achieve the critical mass needed to effectively market its group sales. In addition to boosting occupancy rates during summer and winter seasons, group sales are one of the most effective tools to increase rates during shoulder seasons. 􀂃 Office Uses – When the office is evaluated in terms of economic benefit, it will provide space for direct, indirect, and induced employment. All are beneficial to the Town. The 35,000 square feet of office proposed are an important economic development tool for the Town to consider, as a modest way to diversify its economy. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 16 20812-Fiscal & Economic Memo 11-9-10 Methodology This section provides an overview of the methodology used to perform the detailed calculations in the Fiscal Impact Model. Fiscal impact analysis (FIA) is a municipal financial planning and community development tool used to evaluate the impacts of land use decisions. It provides order-of-magnitude estimates of the impacts to a Town’s ongoing revenues, operations and maintenance costs, and capital expenditures. The FIA can, however, identify specific project impacts to be addressed and mitigated such as extraordinary O&M costs, or one-time capital costs triggered by the project. This analysis focuses on the Town’s General Fund revenues and expenditures to estimate the net fiscal impact of the project. The General Fund is the major operating fund for the Town. The analysis also estimates the building and construction related revenues, the Real Estate Transfer Tax (RETT), construction use tax, tax, lodging tax, the recreation impact fee, and property tax increment to the URA. The Town has many other smaller revenue sources. Most of these were not analyzed because they do not have a strong nexus to growth and development. In other words, they are determined by contractual agreements or formulas which are not linked to new growth and development. Tax Revenues The tax revenues described below are ongoing annual revenues that will occur after the project is constructed and occupied, and will continue for the life of the project. Revenues are based on the assumption that 90 percent of visitors to Ever Vail are net new. The major ongoing tax revenues analyzed are described below: 􀁸 Sales and Lodging Tax – The Town allocates about 60 percent of sales tax to the General Fund and 40 percent to the Capital Fund. Within the General Fund, sales tax accounts for 37 percent of all General Fund revenues. Sales tax includes the 4.0 percent general sales tax and the 1.4 percent lodging tax. The 4.0 sales tax applies to both retail sales and overnight lodging sales. The 1.4 percent lodging tax is dedicated to the Vail Marketing District and is not used to fund Town operations. There is a minor amount of existing retail space on the site. At this time the sales tax lost from this space is not accounted for but is a minor amount that would not affect the conclusions of this analysis. 􀁸 Property Tax – Property tax is normally a General Fund revenue. However, the Ever Vail project lies within the Lionshead Urban Renewal Area (URA). The URA collects property tax increment revenues in this area. Any new property tax revenue in the URA, including revenues generated by the Ever Vail project, flows to the URA rather than the General Fund. The URA can use these revenues to fund a variety of functions or capital projects within the URA. 􀁸 Ski Lift Tax – This is a 4.0 percent sales tax on lift ticket sales. Lift tax revenue contributes to operating the Town’s free bus service. 􀁸 Real Estate Transfer Tax (RETT) –This is a 1.0 1.0 percent transaction tax on the sale of real property in the Town of Vail. RETT revenues are restricted to the RETT Fund, which is used for parks, recreation, open space, and environmental sustainability. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 17 20812-Fiscal & Economic Memo 11-9-10 Construction Related Revenues Ever Vail will generate several revenue streams during the course of project construction. These are “one time” revenues in that they will end when the project is built out. The primary concern in the FIA is to ensure that the ongoing revenues will cover the costs of services, as construction related revenues cannot be relied on if construction stops. However, construction fees and permits are roughly 15 percent of General Fund revenues, and are an important operating revenue source from year to year and should be accounted for in the analysis. 􀁸 Construction Use Tax – The Town’s 4.0 percent construction use tax is applied to the cost of materials. The construction use tax is dedicated to the Capital Fund. 􀁸 Building Permit and Plan Review Fees – The Town charges a building permit fee based on the construction valuation and a plan review fee that is 65 percent of the building permit fee. Permit fees go to the General Fund. 􀁸 Recreation Impact Fee – The Town charges a $1.00 per square foot recreation impact fee which is allocated to the RETT fund for parks, recreation, open space, and environmental sustainability. 􀁸 Traffic Impact Fee – The Town has traditionally collected a traffic impact fee that is $6,500 per peak hour trip. It has been included in the analysis, recognizing that in previous project approvals, the Town has accepted public road improvements as a credit against the impact fee. Cost and Revenue Methodology The fiscal impact model uses the Town of Vail Budgets and Comprehensive Annual Financial Reports (CAFR) from 2006-2009 as the basis for estimating revenue and cost factors which are applied to estimate project specific impacts. The analysis compares annual ongoing revenues to ongoing annual expenditures (O&M). One time capital costs are addressed separately. Two methods are used to estimate costs and revenues: case studies and average cost or revenue multipliers as described below. Case Studies This refers to a specific calculation of the marginal costs or revenues derived from the Project based on available data. Case studies were developed for revenue sources when refined calculation methods were available. For example, property taxes are calculated from expected market values multiplied by the assessment ratio and then multiplied by the applicable mill rates. Sales tax revenues are calculated from estimated visitor expenditures. Police and fire impacts (calls for service) were estimated by constructing a per-unit comparison of call volume in Lionshead Village. Average Cost or Revenue Multipliers These are cost or revenue measures that are ratios of budget line items to known quantities such as population, housing units, or peak persons served. The variable “peak persons served” is defined as population plus visitors plus one-half of non-resident employees. Half of non-resident employees reflect the impacts of employees who are only present for a portion of of a day. This estimating technique is used when more detailed data is not available. Revenues or expenditures can be expressed in terms of a cost/revenue per capita, or per housing unit, or per peak person served, etc. Memorandum November 9, 2010 Ever Vail Fiscal Impact Analysis Page 18 20812-Fiscal & Economic Memo 11-9-10 Some costs and revenues do not increase at the same rate as the Town’s growth (i.e., the per capita or person served, etc., factors). For example, general Town administration and government is a relatively fixed cost that does not increase by a one-to-one ratio with new development. The costs to provide other services such as police and fire are more directly tied to the increase in population and persons served generated by new development. To account for cost variability, a percentage adjustment is applied to gross average cost multipliers to reduce them to a net multiplier.