Memorandum

To: Montgomery County Planning Board

From: Karl Moritz, Research and Technology Chief

Re: Financial Infrastructure Recommendations for Planning Board May 15

Worksession on Growth Policy

Date: May 14, 2007

Recommendations:

1. School Impact Fees

Staff recommends that the Impact Fees for Schools should reflect the full cost of
planned increases in school capacity. Our suggested schedule of tax rates to
accomplish that approach is the following:

Table 1. School Impact Fees

$ 22,729 single-family detached
$ 17,112 single-family attached
$ 10,815 multi-family non high-rise
$ 4,585 multi-family high-rise

This impact tax rate schedule more accurately reflects the cost of school
construction and expansion associated with new development. In comparison to
the current fee, revenue generated from this tax will fund school buildings and
additions in a more timely fashion.

2. Transportation Impact Taxes

The derivation of short-term transportation impact tax recommendations in the

April 30 Staff Draft report assumed that certain uses would be exempt, most
significantly some levels of affordable and workforce housing and government
employment. The April 30 recommendations reallocated the “cost” of those trips
proportionately across all other land uses. Based on discussions during the past
two weeks, we now believe that a more appropriate process is to identify the tax
rates that would occur without any exemptions.

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This revised process is “purer” from a technical standpoint in that the relative cost
of vehicle travel is identified first, prior to the consideration of whether the
transportation impacts should be exempted from a tax because the land use
either:

• achieves another public policy goal, such as affordable housing; or

• contains public sector employment, non-profit uses such as hospitals, or
other desirable uses such as bioscience facilities.

Staff has revised the transportation impact tax rates so that the derivation is
based entirely on the estimated trip generation impact without any exemptions.
Table 2 presents the revised recommended transportation impact tax rates.

One way of thinking about the rates in Table 2 is that these are the rates that
should be charged to all development in the County based on the proportional
impact to the transportation system. When a use is determined to be tax-exempt
for any reason, the County should, in essence, pay itself the impact tax and
consider that payment as a cost of the broader public policy goal achieved by the
tax exemption.

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 Table 2. Proposed Transportation Impact Tax Rates

CURRENT RATES (THROUGH 6/30/07)

General Metro Station Clarksburg
Residential (per dwelling unit)
Single-family detached $5,819 $2,910 $8,729
Single-family attached $4,761 $2,381 $7,142
Multi-family attached (except high-rise) $3,703 $1,852 $5,555
High-rise residential $2,645 $1,323 $3,968
Multi-family senior residential $1,058 $529 $1,587

Non-residential (per square foot GFA)

Office $5.30 $2.65 $6.35
Industrial $2.65 $1.30 $3.15
Bioscience facility $0.00 $0.00 $0.00
Retail $4.75 $2.40 $5.70
Place of worship $0.30 $0.15 $0.35
Private elementary and secondary school $0.40 $0.20 $0.55
Hospital $0.00 $0.00 $0.00
Other non-residential $2.65 $1.30 $3.15

PROPOSED RATES

General Metro Station Clarksburg

Residential (per dwelling unit)
Single-family detached $8,380 $4,191 $12,572
Single-family attached $6,856 $3,429 $10,286
Multi-family attached (except high-rise) $5,884 $2,943 $7,591
High-rise residential $4,204 $2,102 $5,422
Multi-family senior residential $1,682 $840 $2,169

Non-residential (per square foot GFA)

Office $11.55 $5.80 $13.90
Industrial $5.40 $2.65 $6.40
Bioscience facility $11.55 $5.80 $13.90
Retail $18.80 $9.50 $22.55
Place of worship $0.55 $0.30 $0.65
Private elementary and secondary school $0.75 $0.35 $1.00
Hospital $4.85 $2.40 $5.80
Other non-residential $4.85 $2.40 $5.80

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3. Recordation Tax

Staff recommends a recordation tax of $11.21 per $1,000 with the first $50,000
exempt.

The recordation tax is a tax applied to new housing sales, resales, and the
recordation of other transactions involving housing. The revenue from the
recordation tax funds school improvements, modernizations and additions.

The 2005 Census Update Survey found that those who have moved within the
past 5 years either into the County or within the County have an average of 0.78
children, while those who did not move had an average of 0.62. Thus, the
marginal costs associated with housing turnover are approximately 25.9% of that
for new construction. A rate of $11.21 applied to the median sales price of a
single family home last year would generate 25.9% of the costs of a school seat
(the additional increment added by turnover). Staff is recommending that this rate
of $11.21 be applied as the recordation tax.

We have focused on additional capacity. We have additional information on

modernization as follows. The optimal schedule to modernize schools is a 30-
year cycle. Due to the size of Montgomery County’s school inventory, the current
modernization schedule results in a 43 year cycle for elementary schools, a 76
year cycle for middle schools, and a 50 year cycle for high schools,
approximately. In the next six years, 13 elementary schools, 3 middle schools,
and 4 high schools will be modernized, according to the Current FY 2007-12 CIP.
The associated cost for these modernizations is $559 million. The goal of the
recordation tax may not be total funding the modernization schedule, but
currently the recordation tax is currently funding less than one-half of the
modernization needs .

To accomplish a 30-year schedule for modernizations in MCPS, 4.3 elementary

schools need to be modernized per year, 1.3 middle schools, and .8 high schools
per year. To equate this to a comparable 6-year CIP schedule, 26 elementary
schools, 8 middle schools, and 5 high schools would need to be modernized
every six years. This would cost approximately $1.2 billion over the six years.
This cost is an approximation based on the increase from the current CIP needed
to accomplish the optimal modernization schedule.

At the current rate of $6.90 per $1000, $142 million in revenue has been
collected from the recordation tax for 2003-2006, approximately $35 million per
year. To fully fund the current modernization schedule, approximately $93 million
in revenue are needed each year. To fully fund the optimal modernization
schedule, the revenue required more than doubles to $200 million per year. To
generate $93 million with sales comparable to the past 4 years, the tax would
need to be about $18.00 per $1,000 or $39 to achieve the optimal modernization
schedule.

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4. School Facilities Payment

The Planning Board deferred a decision on the amount of a School Facilities

Payment until it had reached a decision on impact tax rates. The School Facilities
Payment is a payment that a developer would pay, on a per-student basis, when
their proposed subdivision is located in a cluster that is considered inadequate.

Staff recommended that the School Facilities Payment be equal to the cost-per-
pupil of infrastructure. As the Board knows, this is also the basis for the school
impact tax. We believe it is not double-charging to require both the impact tax
and the School Facilities Payment in clusters that are in deficit because the
impact tax is development's contribution to school facilities countywide and the
School Facilities Payment is development's requirement when school capacity is
not adequate.

Staff previously suggested that the School Facilities Payment be charged only for
the level (elementary, middle and/or high school) where there is a deficit. Now
that staff has recalculated the cost-per-pupil of school capacity, staff believes this
is the right approach.

Under the standard tentatively approved by the Planning Board last week, the
following areas would be inadequate, and the folllowing payments would be
required:

Elementary: Blake, Clarksburg, Einstein, Northwest, and Wheaton would be

inadequate
School Facilities Payment = $32,524
Single Family Detached homes generate 0.32 elementary students, for a School
Facilities Payment of $10,407
Single Family Attached homes generate 0.21 elementary students, for a School
Facilities Payment of $6,862
Garden apartments generate 0.153 elementary students, for a School Facilities
Payment of $4,976
High rise apartments generate 0.042 elementary students, for a School Facilities
Payment of $1,366

Middle: Clarksburg would be inadequate

School Facilities Payment = $42,351
Single Family Detached homes generate 0.144 middle school students, for a
School Facilities Payment of $6,099
Single Family Attached homes generate 0.122 middle school students, for a
School Facilities Payment of $5,167
Garden apartments generate 0.056 middle school students, for a School
Facilities Payment of $2,372

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High rise apartments generate 0.039 middle school students, for a School
Facilities Payment of $1,652

High: Wootton would be inadequate

School Facilities Payment = $42,351
Single Family Detached homes generate 0.131 high school students, for a
School Facilities Payment of $6,223
Single Family Attached homes generate 0.107 high school students, for a School
Facilities Payment of $5,083
Garden apartments generate 0.073 high school students, for a School Facilities
Payment of $3,468
High rise apartments generate 0.033 high school students, for a School Facilities
Payment of $1,568

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Appendix A
Calculating the Marginal Costs of Growth

Montgomery County Public Schools provides the costs of construction of

schools by type and an estimated cost per pupil. The 2005 Census Update
Survey provides Montgomery County Public Schools with student generation
rates for new housing by type. Using this information, the school costs per
housing unit type can be calculated.

The per pupil construction costs for a new school seat are $32,524 for an
elementary student, $42,351 for a middle school student and $47,501 for a high
school student.1 By multiplying the “student generation factors” (or the average
number of students for each school type by housing type) by the per pupil
construction costs, we know the costs per housing type.

Marginal costs of growth

Elementary Middle High

Cost per pupil $32,524 $42,351 $47,501

Student Generation Factors

Housing Type Elementary Middle High
SFD 0.32 0.144 0.131
SFA 0.211 0.122 0.107
Multi-family garden apt. 0.153 0.056 0.073
High/Low Rise w/parking 0.042 0.039 0.033

Cost per housing type Elementary Middle High Total

SFD $10,408 $6,099 $6,223 $22,729
SFA $6,863 $5,167 $5,083 $17,112
Multi-family garden apt $4,976 $2,372 $3,468 $10,815
High/Low Rise w/parking $1,366 $1,652 $1,568 $4,585

1
MCPS, average cost based on 2007 market conditions

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Appendix B – Transportation Impact Tax Derivation

The transportation impact tax recommendations described in this memorandum

reflect adjustments to the April 30 Staff Draft recommendations to reflect the
treatment of exemptions for certain types of land uses. This Appendix describes
the derivation of the transportation impact tax recommendations through
revisions to the assumptions and calculations described on pages 7 to 9 of the
April 30 Staff Draft report section on Infrastructure Financing.

Table B-1 is a revision to Table 1 from the April 30 Staff Draft report and derives
the relative trip generation rates from various land uses to proportionally allocate
the estimated $1,182B cost of the 25-year County program of transportation
system improvements according to the relative trip generation of each type of
land use. The table shows the following information:

• Line A shows the Round 7.0 forecast demographic growth

• Line B converts the projected job growth to estimated building square
footage
• Line C shows the vehicle trip rates assumed for this exercise
• Line D shows the total vehicle trip ends (Line C times Line A or Line B as
appropriate)
• Line E shows the proportion of vehicle trip ends within all categories (each
cell in Line D divided by the sum of all cells in Line D)
• Line F shows the distribution of capital costs apportioned to each land use
type ($1.182B times Line E)
• Line G shows the resulting per-unit Transportation Impact Tax rates

The following rates from Table B-1 were inserted into the general category of
Table 2 as follows:

• The single family residential rate ($8,380/DU) as single-family attached,

• The multi-family residential rate ($5,884/DU) as multi-family non-high rise,
• The square footage rates for office ($11.56), industrial ($5.39), retail
($18.80), and other non-residential ($4.85) were used directly (with
rounding to the nearest five cents),
• The office rate was applied to bioscience uses (currently exempt), and
• The other non-residential rate was applied to hospitals (currently exempt).

Each of the other values in Table 2 were based on applying the categorical ratios
(for types of land use and geographic areas) in the current rate structure to the
six values described above. For instance, the current tax rate for a single-family
attached house in Clarksburg ($7,142) is 22.7% higher than that for a single-
family detached house in the general category ($5,819), so the recommended
tax rate for a single-family attached house in Clarksburg ($10,286) is also 22.7%
higher than the recommended tax rate for a single-family attached house in the

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general category ($8,380). The recommended rates for houses of worship and
private schools are based on the “other non-residential” category.

Table B-1. Derivation of Recommended Transportation Impact Tax Rates

Single- Multi-
Other
family family Office Retail Industrial
commercial
residential residential
A. Forecast
119,533 18,232 12,208
growth, 26,645 DU 67,655 DU 20,027 jobs
jobs jobs jobs
2005-2030
B. Square
footage of
29,883,250 7,292,800 5,493,600 10,013,500
commercial
space
C. Vehicle trip 21.47
9.57 6.72 3.30 2.77 2.77
generation per
per DU per DU per job per job per job
rates KGSF2
D. Daily
vehicle trip
254,993 454,642 394,459 156,577 33,816 55,475
ends by land
use type
E. Percentage
of total daily
18.9% 33.7% 29.2% 11.6% 2.5% 4.1%
vehicle trip
ends
F. Proportional
allocation of
$1,182M
estimated local
$223M $398M $345M $137M $30M $49M
capital cost for
facility
expansion,
2005-2030
G. Resultant
$8,380 $5,884 $11.56 $18.80 $5.39 $4.85
unit impact tax
per DU per DU per GSF per GSF per GSF per GSF
rates

2
Assumes a 50% pass-by trip percentage

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