Review of Occupancy and Food Tax Policies for Raleigh and Wake County

Occupancy and Prepared Food and Beverage Taxes and Interlocal Agreements Review Stakeholders May 12, 2016 1

Process in Review March 30 - Educational Session April 14 - Reviewed Capital Maintenance Plans for PNC Arena and Raleigh Convention Center April 28 - Reviewed key elements of funding models May 12 Consider proposed modifications to models

Proposed Modifications Key Considerations: Phase I Addressed fundamentals to know capacities that can be considered as part of Phase II. Revisited assumptions Continued commitments Reviewed sections Model clean-up Phase II Given capacities available, are additional commitments appropriate?

Strawman - In Summary Jointly developed and presented by City of Raleigh and Wake County Proposed modifications continue previous commitments, support on- going needs and identify future capacity similar to or greater than baseline models

Proposed Modifications Key Principles More realistic revenue assumptions in short term; remain most conservative in long term; established minimum fund balances to provide for contingencies Prioritize maintenance for existing facilities included in the enabling legislation No change to 85% / 15% allocation percentages

Model Continuum 1st & 2nd Years 3rd to 5th Years 6th Year & Beyond TIMEFRAME REVENUES / EXPENDITURES More Realistic Conservative Conservative UNCERTAINTY Low Moderate High NEED FOR MARGIN OF ERROR Low Moderate High 6

Strawman Major Facilities Model Revenues Model Section Current Consideration Basis R1: Occupancy Revenues Growth 3% 1. 2. 5% 2017 4% 2018 through 2021 3% thereafter For modeling purposes be less conservative in short-term; county to update projections annually based on current information as part of budget For modeling purposes be less conservative in short-term 3. R2: Food & Beverage 5% 1. 6% through 2021 5% thereafter 2. Revenue projections shall be set: at realistic and attainable levels, sufficiently conservative to avoid shortfalls, yet accurate enough to avoid a pattern of under stating capacity . Short-term assumptions to be revisited annually to account for current market and economic conditions.

Food & Beverage Model Projection Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Type Food & Beverage Tax More Conservative 9.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Conservative 9.0% 6.0% 6.0% 6.0% 6.0% 6.0% 5.0% 5.0% 5.0% 5.0% Less Conservative 9.0% 7.0% 7.0% 7.0% 6.0% 6.0% 6.0% 5.0% 5.0% 5.0% Blue Shading Indicates Variance from More Conservative Prepared Food & Beverage Tax Rev - Percent Change Year to Year 16.0% Average: 7.2% 13.0% Projection Scenarios 10.0% 7.0% 4.0% 1.0% FY03 FY12 FY21 FY30 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY31 FY32 FY33 FY34 -2.0% -5.0% Prepared Food Tax Revenue Growth Prior Model Assumption Conservative (Recommended) Average (Actual Years Only) More Conservative (Current) Less Conservative

Food & Beverage Drivers Prepared Food & Beverage Drivers 16.0% 13.0% 10.0% 7.0% 4.0% 1.0% FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 -2.0% -5.0% Population CPI-U for Food Food & Beverage Average

Occupancy Tax Model Projection Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Type Occupancy Tax More Conservative 9.9% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Conservative 9.9% 5.0% 4.0% 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% Less Conservative 9.9% 6.0% 6.0% 5.0% 5.0% 5.0% 4.0% 3.0% 3.0% 3.0% Blue Shading Indicates Variance from More Conservative Occupancy Tax Revenue - Percent Change Year to Year 16.0% Average: 7.1% 13.0% Projection Scenarios 10.0% 7.0% 4.0% 1.0% FY97 FY98 FY99 FY00 FY95 FY96 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 -2.0% -5.0% Average (Actual Years Only) Prior Model Assumption Conservative (Recommended) Occupancy Tax Revenue Percent Growth More Conservative Less Conservative

Strawman Major Facilities Model Revenues Model Section Current Consideration Basis R3: Interest Revenues R4: NSF (insufficient funds) Charges R5: 2 for 1 Transfer from Convention Center Model 0% No change Is not used in the projection, actuals are recorded with each fiscal year and increase or reduce fund balance. For each $1 spent on Convention Center Operations beyond agreed amounts, County receives $2 from the Convention Center Model 2 for 1 Reimbursement eliminated and replaced with separate provisions affecting County and Convention Center See related changes in County Model Row 3b and Convention Center Model New Column G

Strawman Major Facilities Model Section 1: Admin and Holdbacks: Uses of Funds Model Section Current Consideration Basis 1a. Administration and Collection 3% of Occupancy and Prepared Food Revenues Fix at FY16 level of $1.4 million for future modeling Uncouple Administrative Fee from revenue projections. Evaluate at next review to establish amount of annual increase on fee itself 1b. City of Raleigh Holdback $680,000 No change 1c. Greater Raleigh Convention & Visitors Bureau 22% occupancy + $675,000 F&B No change 1d. Town of Cary Hold Harmless 5% occupancy No change 1e. Centennial Authority Operations 7% occupancy and F&B - after other deductions No change 1f. Five County Stadium Debt service completed in FY16 No change Obligation completed

Strawman Major Facilities Model Section 1: Admin and Holdbacks: Uses of Funds Model Section Current Consideration Basis 1g. PNC Debt Service $5,200,000 annually through FY20 - Debt service completed in FY20 with no future commitments beyond FY20 N/A No change Any potential changes would be considered under Phase II of review 1h. PNC Maintenance 1. Move current commitments from Section 3 through 2021 Continue maintenance funding at $2M annually beginning FY2022 through 2034 No change Align facility maintenance for projects in the enabling legislation to Sections 1 and 2 2. 1i. City of Raleigh Discretionary Dollars $1,000,000 Provides support to Performing Arts Center operations 1j. Wake County Discretionary Dollars $1,000,000 No change Currently supports Marbles/IMAX and Five County Stadium Maintenance

Strawman Major Facilities Model Section 2: 85% Distribution Model Section Distribution to Convention Center Model Current Total Revenues less Section 1 Holdbacks Consideration No change in calculation but recommended changes to Section 1 impacts distributable amounts Basis / Questions

Strawman Major Facilities Model Section 3: 15% Distribution Model Section Current Consideration Basis 3a. 15% Competitive Projects Cary Sports Facilities NC Museum of Art NC Museum of Natural Sciences (Green Square) St. Augustine Track Whitewater 3b. Reserve for Competitive Projects Various funding commitmen ts Remove Whitewater Current projects funded as currently planned Whitewater should come forward in future process with new plan/proposal if funding is desired. N/A Commit $2 million annually for competitive process led by Wake County to support smaller capital projects Provides funding to assist municipalities and other community partners with investments to support Wake residents and visitors and replaces capacity previously provided by 2 for 1 provision; maximum of $1.5 million per project and no more than 35% from County

Strawman Major Facilities Model Section 3: 15% Distribution Model Section Current Consideration Basis 3c. Fund Balance Minimum Guideline None Minimum fund balances of 50% of subsequent years 15% project commitments (Section 3) Amount above Fund Balance Minimum Guideline (Row 3c) With more realistic revenue projection, fund balance minimum should be established to provide for a margin of error 3d. Cumulative Excess Fund Balance (Capacity) N/A Will provide indication of capacity available for future uses

Strawman Convention Center Model New Column Old Column Current Assumption Row Label Revised Assumption Basis A Fiscal Year A Fiscal Year No Change B 100% Uncommitted Fund C 85% Uncommitted Funds Duplicate amount from County Model Duplicate amount from County Model, same amounts as Current Column H 85% of funds deducted from 100% of funds Delete Column not needed as it is duplicative from County model B 85% Uncommitted Funds / Annual Revenues No Change, other than Column Label D Funds Not Put into Convention Center E Variable Rate Debt Delete Column not needed as it is not included in any calculations C- Variable Rate Debt Debt service amounts for variable rate debt No Change D- Fixed Rate Debt F Fixed Rate Debt Debt service amounts for fixed rate debt No Change

Strawman Convention Center Model New Column Old Column Current Assumption Total Debt Service for Convention Center Duplicate amount from Column C Difference between Annual Revenues and Convention Center Debt Service 3% increase annually Revised Assumption New Column Label Basis E Total Debt Service G Net Debt Service H Annual Revenues Delete, Replaced by New Column B Column not needed as duplicate of New Column B F Net Annual Revenues After Debt Service I Annual Surplus / Deficit No Change, other than Column Label G RCC Operating Subsidy J -- Other Expenses to be Paid 5% increase annually; Column Label changed and retitled Due to elimination of 2 for 1 provision, increase annual subsidy to ensure adequate coverage for RCC operations Column not used in current modeling; funding capacity for expansion previously transferred to fund Balance K Debt Service from $121M Delete

Strawman Convention Center Model New Column Old Column Current Assumption Revised Assumption Delete Basis L Additional Cap Expenditure M Business Development Fund Column not used in current modeling H Business Developmen t Fund $450,000 through 2025 $550,000 beginning in FY2017 through 2028; Revise column label Modified request from GRCVB increased annually by $100K and extends 3 additional years (funds restricted to business development at RCC) I RCC Capital Maintenance Plan N -- Capital Plan Funding for Convention Center Capital Maintenance Plan N/A No Change, other than Column Label J PAC Capital Maintenance N/A $500,000 annually for on- going maintenance of the Performing Arts Center Align facility maintenance for projects in the enabling legislation to Sections 1 and 2; Core component of Convention Center Complex with significant capital maintenance needs.

Strawman Convention Center Model New Column Old Column Current Assumption For each $1 spent on Convention Center Operations beyond agreed amounts, County receives $2 from the Convention Center Model Revised Assumption Basis K COR Discretional Operating Withdrawals P COR Discretionary Withdrawals Allow for COR to annually withdraw up to $1,000,000 from the CC Model s fund balance for use in the CC Operating Fund should the projected Operating fund Balance drop below a minimum level equal to 50% of the current year s operating expense budget. After FY15, amounts are only for PNC Capital Acceleration Replaces 2 for 1 provision with an emergency withdrawal authority allowing, in times of unanticipated business fluctuation, up to a $1m transfer within the CC Model to allow maintenance of a minimum fund balance level L Transfer to County Major Facilities M- Other Model Adjustments Q Transfer to County Major Facilities R True Up for Debt Service Fund Amounts for 2 for 1 distribution and PNC Capital Acceleration Elimination of 2 for 1 provision No Change Column purpose not used in current modeling; combine history of it and former column L in newly labeled column M

Strawman Convention Center Model New Column Old Column Current Assumption Projected interest income on fund balance Resulting Fund Balance after accounting for all revenue and expenditure projections Row Label Revised Assumption Basis N- Interest Income O Interest Income No Change, other than Column Label O Ending Fund Balance S Ending Fund Balance No Change P Fiscal Year T Fiscal Year No Change

Strawman - Proposal Phase I Discuss proposed changes to models Meet May 26 PNC Arena (if needed) Draft Interlocal Agreement Amendment Share joint recommendations with Raleigh City Council (6/7) and Board of Commissioners (6/6) Revise FY17 Budgets Phase II Begin Summer 2016

Questions? Feedback for Managers 23