Cost / Benefit – Monticello Raceway – Montreign

    Background:

    Monticello Raceway Management. Inc. (“Monticello Raceway”) plans to develop a new casino resort with harness horse racetrack (“Casino Resort”) on 117 acres of a 186 acre parcel to be leased from the EPT Concord II, LLC. EPT Concord II, LLC, proposed to develop a master planned destination resort community of 1735 acre site largely comprised of the former Concord Resort. Monticello Raceway proposes a 74,000 square feet casino, 248-room hotel, harness horse racetrack, 53,409 square feet grandstand/showroom, simulcast facility, 17,583 square feet banquet event center, various restaurants, parking facilities, support buildings and infrastructure.

    It is estimated that $365 million will be invested in the new facility by Monticello Raceway. Approximately  $330 million of that investment will be subject to real property taxes and $198 million of which will represent sales taxable equipment and materials.  Monticello Raceway has applied to the County of Sullivan Industrial Development Agency (IDA) for real property, sales and mortgage tax abatements to assist with this project.

    New York State law governing IDA’s requires “an analysis of the costs and benefits of the proposed project.”  Shepstone Management Company, Inc. has been requested by the IDA to provide such an analysis on an independent basis.  This study is designed to compare the economic benefits of the project, including both direct and indirect revenues generated for local and state government, against the costs to these governments for additional services required.  Both direct and indirect costs are considered on this side of the equation as well.

    The following is a summary of the findings from this analysis, including supporting materials forming the basis for the conclusion reached.

    Methods and Assumptions:

    The following methods and assumptions were employed for this analysis of Monticello Raceway Casino Resort Hotel project:

    1)         The project involves the investment of a total of $365 million, which includes $330 million in building/equipment/soft costs and $35 million of other costs.   An estimated $198 million will be spent on sales taxable material and equipment purchases.

    2)         It is assumed, strictly for purposes of this analysis, that all construction activities will occur in 2013 and, absent IDA involvement, the real property improvements will be taxable beginning in 2013.  Actual construction may take considerably longer but this would not have a practical impact on the benefit/cost analysis.

    3)         Data is extrapolated over the period of 2013 through 2028.  Sales tax abatements are recorded in 2013 as actual costs.  This is a reasonable period to assess the net present value of long-term benefits (new economic activity and governmental revenues) and costs (new governmental expenses) produced.  Values are net present valued for purposes of fairly comparing benefits and costs taking place over periods of varying length.

    4)         Mortgage tax abatement costs are based on the assumption there will be $109,500,000 mortgage subject to the tax.

    5)         No benefits or costs are assumed with respect to any difference in the purchase and assessed values of the property.

    6)         Certain special district taxes are not included in the calculations of benefits and costs since IDA tax abatement applies only to ad valorem levies.

    7)         Real property tax abatement will be provided according to the Real Property Tax Abatement Schedule depicted in the table to the right. This abatement schedule is application to destination resort projects of the nature proposed in this instance and covers a 16-year period from beginning to end (2013-2028), over which real property taxes are effectively phased in under a Payment In Lieu of Taxes (PILOT) agreement through the IDA while the property remains under its ownership, such that taxing jurisdictions receive the equivalent of real property taxes.

    8)         Sewage treatment and water supply will be subject to separate municipal/private agreements and not be abated or represent any uncompensated added cost.

    9)         The additional annual costs to local government for providing highway maintenance and other non-educational services in the Town of Thompson are estimated at $1,646 for each new resident attracted.  This is based on an estimated Town of Thompson tax levy of $4.3 million within the Town and an estimated County tax levy of $9.8 million (a total of approximately $14.1 million) divided by a Town population outside the Village of Monticello of 8,582 persons.

    It is assumed one-third of employees will be new to Sullivan County.  However, the applicant should be able to hire mostly local employees given its convenient location within the County and the type of labor required as compared to the available unemployed workforce.  Assuming an average household size of 2.45 persons for all households (individuals as well as families), the project will produce 192 new households, with a cost of approximately $4,032 annually in non-educational local government services.

    It is assumed, based on the Sullivan County Cost of Community Services Study, that 76.9% or $3,101 per household would be covered from taxes paid by the new residents, leaving $930 per household as the net cost for Town of Thompson and Sullivan County services.  This is the ratio of costs of services to tax revenues for residential development in the Town of Thompson.

    This is to say every new household, viewed independently of the businesses employing its members, theoretically generates a net tax loss for the community.  This strict interpretation provides for a conservative analysis of benefits versus costs, but it is also important to remember the commercial ratables would not exist without the employees required to run the business or residential customers for its products.  The value of costs of services data is limited to analyzing the likely tax impacts of projects, as it is being used in this instance.

    10)      It is estimated one-third of the estimated new employees (575 new employees are anticipated) will involve new households. Moreover, family households represented some 65% of all Sullivan County households in 2010.  This suggests 125 new family households will be generated by the project.  There were 14,957 children aged 5-19 years for an average of 0.78 school-age children for each family household according to the Census Bureau.  This yields a maximum potential of 98 new students for the Monticello Central School District, the school system within which the project is located.

    The Monticello Central School District, given recent reductions in State Aid, can be expected to incur an estimated average cost per pupil of roughly $15,000 net of New York State School Aid (based upon School District and New York State Department of Education statistics).  This includes special education costs.

    A 1.5% per year escalation in these and other costs (as well as benefits) is assumed.  It is further assumed property taxes paid by new residents will, once again, cover a minimum of 76.9% of the local share (see No. 9 above).

    11)      Sales taxes attributable to the increased buying power generated by the payroll the facility will produce (at $57,322 per job average, based on the applicant’s estimates) are calculated on the assumptions 50% of the project payroll will consist of Sullivan County residents, and 50% of such payroll will be spent on taxable items in Sullivan County.

    It is further assumed total personal income, including indirect or “spin-off” gains in personal income, will be 1.47 times direct personal income (incorporating the “multiplier effect” from the applicant’s own IMPLAN analysis).

    12)      It is assumed there will be 248 hotel rooms renting at $265 per night with an 65% occupancy rate.  It is further assumed the project will generate additional sales taxable income from ancillary activities (e.g., banquets, dining, concessions, entertainment, etc.) in an amount equal to $400 per square foot of dining area (Source: Urban Land Institute).  This assumption forms the basis for calculations of added sales tax revenue from operations and room tax revenue (based on the County’s 5% room tax rate).

    13)      The racetrack and casino operations will generate vendor track fees for New York State which, based on the experience of the applicant with the existing track operations will be approximately $46,500,000 annually.

    14)      Cash flow streams from benefits and costs are net present valued using a discount rate of 2.487%, the average cost of public debt in the U.S. as of February 28, 2013.  Net present value figures include actual costs of abatements and other costs for 2013 plus discounted values for 2014-2028.

    Conclusion:

    This project will generate a positive benefit/cost ratio of 9.71 for the County on a net present value basis.

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