2005 Part V: NOT JUST AN ACT: THE ‘SWEETHEART DEAL’ OF ACT 23

(Thirty-seventh in a series)

by Christiaan Hart-Nibbrig

A striking irony in the saga of the Lancaster County Convention Center and Marriott Hotel is that, in mostly Republican ‘less government’ Lancaster County, the “private-public” downtown project has been paid for almost entirely with taxpayer money and guarantees.

Until the School Board of Lancaster voted down Penn Square Partners’ tax abatement proposal in March of 2005, literally every governmental body that came into contact with this project – at the city, county, and state levels – bowed to the demands of Penn Square Partners, the private hotel investors.

And each time the project grew in size, or scope, or cost, the project’s sponsors, Republicans plus Democrat Assemblyman Mike Sturla, sunk their hands further into the pockets of the common Pennsylvania taxpayer. The “private” partners’ windfall from “the government” has been on the scale of many tens of millions of dollars.

The melodramatic (and phony) resurrection of the project, announced the day after Easter, 2005, relied on the transfer of title ownership of the former Watt & Shand Building from Penn Square Partners (PSP) to the city of Lancaster, through one of its agencies, the Redevelopment Authority of the City of Lancaster (RACL).

The move, touted as something of an ‘end-run’ against the county commissioners’ challenges and a recalcitrant school board, called for RACL to purchase the building from Penn Square Partners for $6.8 million. The Partners originally bought the building for $1.25 million in 1998.  The difference in prices allegedly reflected the costs incurred to date by PSP.

The sale to RACL would remove the building from the property tax rolls, an even better deal for PSP than the school district TIF plan, which would have only abated property taxes for 20 years.  Furthermore, the partners who had offered $200,000 annually in payments in lieu of taxes to the school district was now out from under the obligation.

With city ownership of the building, RACL would now apply for state loans or bonds on two issues of $24 million and $12 million, totaling $36 million. The bonds for the $12 million issue would be funneled through the Department of Community and Economic Development under the Infrastructure and Facilities Improvement Program (IFIP), ratified in 1990. The IFIP was intended as a state financial assistance program in which the Pennsylvania Department of Community and Economic Development (“DCED”) provides multi-year grants to eligible applicants. Grant recipients through this program sell bonds to finance qualifying “infrastructure and facilities” expenses, and then uses grant funds from DCED to pay debt service on the IFIP bonds.

The IFIP statute was altered in July, 2004, with the amendment commonly known as ‘Act 23.’

The principal author of the Act 23 amendment [12 Pa.C.S. §3406(b)(11)] was Sen. David Brightbill, a Lancaster County Republican.  Brightbill’s amendment added language allowing “convention centers” and “hotel establishments” to fall within the IFIP funding guidelines. (Brightbill went to work for the Stevens & Lee law firm, counsel for the Convention Center Authority, after leaving the legislature in 2007. Sen. Gibson Armstrong was also a co-sponsor of Act 23.)

Through the program, and under Act 23, RACL planned to apply for one bond for $12 million – to be serviced by anticipated annual state grants predicated upon projected tax collections by the state generated directly and indirectly by the project over a 20-year period. Then RACL was to apply for a second bond of $24 million from conventional sources.

The new arrangements meant Penn Square Partners would be reimbursing RACL for debt service payments on the $24 million conventional bond and pay no property taxes for 20 years. After 20 years, the Partners had the option of buying the hotel for a small fraction ($2.5 million) of the property’s likely appraised value at that time.

If the partners couldn’t make the debt payments on the $24 million bond issue, the city of Lancaster was responsible for making the payments. The City also agreed to waive all applicable fees, including for building permits.   The fee waivers would exceed a million dollars.

The project was now in the hands of the city, which was then led by ardent project supporter, Mayor Charlie Smithgall, and the Republican dominated, pro-project Lancaster City Council.

On April 12, 2005, when the city council approved submitting the Act 23 bond applications, the sponsors erroneously thought the money was as good as in the bank.

Normally, the city controller of a small city has the role of overseeing the accounting and financial systems of the municipality. It is the role of an accountant. In Lancaster, it is an elected position. Usually the controller comes in with the mayor of a city. It is a low profile, part-time position.

When Charlie Smithgall was elected in 1997, his victory and re-election brought his administration the entire Republican slate. The controller on the ticket was a middle-aged, bearded, rather stiff, former West Virginian named Robert B. “RB” Campbell.

Campbell, an accountant by training, was a local commercial real estate broker when he was elected. The mayor and his controller had clashing personalities. The garrulous Smithgall, in 2005, was comfortable with the trappings of his office, and expected his agenda followed without questions. Campbell, an independent thinker with a brusque personal manner, bristled at Smithgall’s approach.

Before the school board TIF vote, the county’s special counsel, Howard Kelin, issued a public memorandum to the county commissioners that questioned the eligibility of the project for the Act 23 funds. Campbell read the memo.

After the ‘miracle’ rescue of the project was announced, it was taken as a procedural formality for the Lancaster City Council to approve the Act 23 applications. It was, and the Council voted 6-1 to apply for the $36 million in bond funds for the hotel. Republican Luis Mendoza was the only “no” vote.   He explained that council members had not been provided sufficient information, despite his timely requests.  (The same complaint would later be heard from minority members of the Convention Center Authority when the LCCCA approved key contracts with Penn Square Partners.)

The next step, usually automatic, was for the city controller to sign the application documents before they were submitted to the Department of Community and Economic Development, the agency that disburses Act 23 funds.

But a funny thing happened on the way to the post office…

When the Act 23 application papers arrived on RB Campbell’s desk, he refused to sign them until, as he told NewsLanc, “I could have an independent legal counsel advise me on the legality of the application,” Campbell says. “Howard Kelin’s memo raised some serious questions about the eligibility for the Act 23 funds.”

Kelin’s analysis centered on Act 23’s language requiring the “project user” — in this case, Penn Square Partners’ “hotel establishment” — to “timely pay all local and Commonwealth taxes and fees.”

Campbell believed, after reading the Kelin memo, and thinking for himself, that his fiduciary duty called for him to be certain about the legality of the application. Smithgall was furious, and, without discussing the matter with Campbell, immediately sued his controller, asking the court under a Mandamus writ, to force him to sign the documents.

Here is the timeline for what happened:

  • April 12 City council votes to apply for $36 million in Act 23.
  • April 20, 2005 Controller Campbell is presented with documents related to the financing of the Act 23 grants.
  • April 22, 2005, Controller Campbell sends letter to Mayor Smithgall stating that he would not execute the documents in question until he had received comfort
  • in the form of an independent review by counsel of the Controller’s choosing to
  • investigate the issues raised by the county solicitor’s memorandum.
  • April 22, 2005 the Mayor sued the Controller to compel him to sign the documents.
  • April 25, 2005, the Controller ordered to appear in common pleas court, judge entered a preliminary “Mandamus” order requiring the Controller to execute the documents and, in the alternative, allowing the Mayor to sign as attorney-in-fact.
  • April 27, 2005 The April 25 court order made permanent
  • May, 2005 Campbell files appeal with Pennsylvania Commonwealth Court
  • September 14, 2005 Campbell loses appeal to Commonwealth Court. County files amicus brief on behalf of Campbell.

Campbell’s defeat did not discourage Commissioners Shellenberger and Henderson. Although Campbell lost, they would take up his cause and bring suit on the same Act 23 challenge.

The clamor and attention the project was now generating stirred a prickly philanthropist, activist, and businessman into stepping onto the civic battlefield. And he came heavily armed.

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Chapter Thirty-Eight: 2005 Part VI: Robert Field: The Lone Ranger Rides Again

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Updated: August 4, 2016 — 3:27 pm
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