CC Chapter Twenty-Two revised: Kill Shot — County Targets Guaranty

By Christiaan Hart-Nibbrig

From the outset of the convention center project, the most powerful weapons in the sponsors’ arsenal were strategically well-placed public officials.

It was the Lancaster County Board of Commissioners – led by Chairman and project champion, Paul Thibault — who enacted Ordinance 45, the hotel room rental tax, back in 1999.

Repeatedly, Senator Gibson Armstrong either wrote or amended state law to benefit the project. The disgraced ex-state House Appropriations chairman and power broker, John Barley, was vital in securing the initial $15 million from the state, and running other interference for the downtown project.

Former Lancaster city mayor, Charlie Smithgall, treated the project as a favored pet since, literally, his first day in office, and for the entirety of his two terms, ending in late 2005.

With supporters of the project in key positions at all levels of government – state, county, city, authority – the sponsors had been able to parry challenges to the project through the motions, resolutions, and amendments of the legislative process.

But things were different by the spring of 2006.

Although the sponsors still enjoyed the support of Senator Armstrong and the city’s new mayor, the irascible Rick Gray, and Lancaster City Council, the majority of the three-person Lancaster County Board of Commissioners – Dick Shellenberger and Molly Henderson – were increasingly hostile to the project.

The previous year, 2005, Shellenberger and Henderson had presented sponsors with their “57 Questions” which probed and questioned several aspects of the project’s financing and feasibility prior to the Lancaster School Board vote on the sponsors’ TIF tax abatement plan. The sponsors ignored the ’57 Questions’ query.

In February, 2006, after learning that no genuine feasibility study had ever been performed on the project, Shellenberger and Henderson commissioned Pannell Kerr Forster Consulting (PKF), one of the world’s foremost convention center experts, to conduct one.

When the PKF report was submitted in early May with its grim forecast of debt and the specter of raised taxes, the two Commissioners pushed harder to stop the project.

Shellenberger and Henderson went straight for the heart of the project’s financing: The $40 million County Guaranty.

Back in October, 2003, the Lancaster County Commissioners were preparing to vote on whether to partially guarantee a $40 million LCCCA bond issue.

The County Guaranty, as it was known, dominated the news of the day. Making the story even bigger was that 2003 was an election year, and two of the three sitting commissioners – Paul Thibault, the Chairman, and Ron Ford – were lame ducks, not seeking re-election. Thibault and Ford both supported the Guaranty.

The convention center project, particularly the County Guaranty, had turned into the most important issue of the 2003 election.

As noted in Chapter Ten, all of the incoming Commissioner candidates, including incumbent Pete Shaub and candidates Shellenberger and Henderson, were on record opposing the County Guaranty.

On October 29, 2003, after a rowdy, packed, public meeting with partisans on both sides, the two outgoing Commissioners – Thibault and Ford – passed Ordinance 73, the County Guaranty of the LCCCA bond.

Six days later, Shellenberger, Shaub, and Henderson were elected Lancaster County Commissioners.

During the interregnum between the passage of Ordinance 73 and the time the new board took office, about nine weeks, the Thibault board rushed to finalize the Guaranty Agreement.

There were steps that needed to be accomplished to do this. One was that the County applied for, and received, approval to incur debt from the Department of Community and Economic Development (DCED) as required by the Pennsylvania Local Government Unit Debt Act. Approval from the DCED came on November 19, 2003.

Another was that the County enter into the County “Guaranty Agreement” with the LCCCA, in accord with the Authority’s Trust Indenture with M&T Bank. The Trust Indenture is referenced in Ordinance 73. Both the Trust Indenture and the County Guaranty Agreement were drafted after the County applied for approval to incur debt from the DCED.

The County Guaranty Agreement, signed by outgoing Commissioner Chairman Paul Thibault on December 15th, 2003, certified and approved the Trust Indenture on behalf of Lancaster County.

Now, on May 10, 2006, the new majority of the Lancaster County Board Commissioners – Shellenberger and Henderson – went after the 2003 County Guaranty.

Citing the recently completed PKF feasibility study, the drastic changes in size, cost, and scope of the project since 2003, a proposed “risky” swap of debt interest rates by the LCCCA, and comments made by LCCCA chairman Ted Darcus indicating that the Authority would not amend the Trust Indenture to prioritize debt payments over operations costs, the Commissioners passed Resolution No. 36.

Resolution No. 36 resolved:

“(A) the County will consider any action by the LCCCA to;

(I) re-market the LCCCA’s Hotel Room Rental Tax Revenue Bonds, Series of 2003 (the “2003 Bonds”) into a tax-exempt variable or fixed rate Bonds or

(II) enter into a Swap Agreement in which the 2003 Bonds are used as the notional amount, or

(III) otherwise attach the County Guaranty to any borrowing other than the existing Citizens’ Bank bond, to result in the issuance of a new County guarantee; and

(B) the County shall draft documents for review and approval by the Board of

Commissioners of the County of Lancaster to advertise a special meeting of the Board

of Commissioners to consider the following actions in the event the LCCCA takes

steps to accomplish the new financing set forth in the previous paragraph:

(I) not approve the new County guaranty, or, in the alternative

(II) authorize the submission to the Department of Community and Economic Development of appropriate proceedings concerning the new County guaranty under the Local Government Unit Debt Act.

Motion passed.

Commissioner Shellenberger Yes

Commissioner Henderson Yes

Commissioner Shaub No”

One week after the County Commissioners passed Resolution 36, on May 17th, the project bids came back more than $24 million over budget.

On May 24th, at the next Commissioners’ meeting after the bid overage, the County Commissioners board strengthened the language of Resolution 36 with Resolution 37.

Noting that “the base bids received on May 17, 2006 indicate that the base construction cost contracts will likely exceed estimates by 29%, or a $24 million overage, with no additional financing or equity available to cover the overage with a potential hotel/convention center cost of $164 million, before change orders,” Commissioners Shellenberger and Henderson introduced and passed Resolution No. 37.

“NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF

COMMISSIONERS OF LANCASTER COUNTY, PENNSYLVANIA, that:

(A) The County will consider any action by the LCCCA to:

(I) re-market the LCCCA Borrowing into tax-exempt variable or fixed rate Bonds or

(II) enter into a Swap Agreement involving the LCCCA Borrowing or

(III) otherwise attempt to attach any County Guaranty to any LCCCA debt other than the

existing Citizen Bank bond or otherwise terminate the Escrow, to result in the attempted

creation of a new County guarantee; and

(B) This Board of Commissioners resolves and determines:

(I) not to approve any such new County Guaranty; and

(II) not to allow the attachment of any County Guaranty to any LCCCA obligation other

than the Citizens Bank Bond secured by the Escrow; and directs the Chief Clerk to advise

the LCCCA, Bond Indenture Trustee, Citizens Bank, and other relevant parties of this

determination of this Board of Commissioners.

Motion passed.

Commissioner Shellenberger Yes

Commissioner Henderson Yes

Commissioner Shaub No

ADOPTED this 24th day of May, 2006 by the Board of Commissioners of the

County of Lancaster, Pennsylvania in lawful session duly assembled.”

Both Resolutions 36 and 37 said essentially the same thing: The County opposed and would not back any LCCCA additional borrowing attached to the existing Guaranty, and that the County intended to petition the DCED to review the validity of the original 2003 County Guaranty Agreement itself.

It was also during this period, on May 31st, at a public meeting in the East Donegal suburb, that Commissioner Henderson raised the question of whether it was appropriate for the County to consider reducing the geographic size of the market area in which the hotel room tax was collected. A reduction in the area would necessarily cut the tax revenue going to the project, and thus kill it.

These actions by Commissioners Henderson and Shellenberger were, predictably, met with alarm and a direct response by project sponsors.

On June 14th, 2006, after emerging from a private “executive session” at their Southern Market Center chambers, the LCCCA board voted 4-3 (with the usual city/county split) to sue Commissioners Shellenberger and Henderson in their capacities as County Commissioners. The Authority created by the County was now suing the County.

The LCCCA was asking the Court for an injunction – a court order – enjoining, prohibiting, the Commissioners from enacting Resolutions 36 & 37.

“We want them to be held to their contractual obligation,” said John Fenningham, the Authority’s counsel. “We believe the Commissioners have intentionally and falsely conveyed a message that they have the power to not approve the Guaranty. We want the court to declare the Guaranty is enforceable.”

The County was ready for the fight.

An expedited hearing was scheduled in the Lancaster County Court of Common Pleas for July 12th, 2006. Lancaster County Judge Joseph Madenspacher presiding.

The Plaintiffs – the LCCCA, along with Penn Square Partners and the Redevelopment Authority for the City of Lancaster (RACL) – were asking the Court for an injunction vacating Resolutions 36 and 37, and enjoining the County Commissioners from reducing the geographic area from which the hotel room rental tax was collected.

The sponsors’ lawsuit also asked the Court to effectively gag the Commissioners, and prevent them from “communicating an intent to, or taking actions that are adverse to the project.” This would cover “communicating an intent” to shrink the market area of the hotel room tax.

The sponsors didn’t want Shellenberger and Henderson even talking about what could be thought of as anything “adverse to the project.”

The Plaintiffs contended the Commissioners were causing “immediate and irreparable harm” to the project by their actions and public discussions.

In the LCCCA brief, the Plaintiffs ask the Court to:

“…confirm the validity and enforceability of the [2003] Guaranty Agreement; provide an appropriately clear and unequivocal confirmation and affirmation that the project will proceed without further interference or opposition from those with competitive and politically differing interests; to otherwise affirm and ratify the underlying contractual obligations and commitments pursuant to the statutory, regulatory and municipal laws and regulations applicable to the Authority.”

The County was represented by special counsel, Howard Kelin, a low-key, but keen attorney, who used the opportunity of discovery and a public hearing to uncover some heretofore undisclosed, but important information about the project.

The County’s defense was based on the notion that the “Guaranty Agreement,” signed on December 15th, 2003, after the passage of Ordinance 73 by outgoing County Commissioner Chairman, Paul Thibault, was not a valid contract because it “violated the expressed terms of Ordinance 73.”

The Commissioners Shellenberger and Henderson, therefore, were justified in challenging the Guaranty with Resolutions Nos. 36 & 37 of 2006.

In the County’s brief, Kelin argued that the current County Commissioners had a right, even duty, to rescind the County Guaranty because important taxpayer protections that were supposed to be included in Ordinance 73 were excluded from the Guaranty Agreement signed just two weeks before Thibault left office in December, 2003.

According to Kelin, Ordinance 73 required the bond contract between the LCCCA and the Trustee M&T Bank – called the “Trust Indenture” – have a specific provision included in it before Thibault could sign the County Guaranty Agreement.

The evidence will show the Guaranty was signed in violation of a county ordinance by a previous County Commissioner,” Kelin said as the Madenspacher hearing began. “Bottom line: the county was not authorized to sign and deliver the Guaranty.”

Shellenberger and Henderson were protected in challenging the County Guaranty because a specific provision found in Ordinance 73 was missing from the Trust Indenture. The missing provision, Kelin argued, invalidated the Guaranty Agreement which certified the County’s backing of the LCCCA bond.

“This was a taxpayer protection provision.” Kelin told the Court, “When you go to the Indenture, it’s not there.”

The provision at issue was Section 7 (b) of County Ordinance 73 of 2003.

“Section 7. Notwithstanding any other provision contained in the Ordinance to the contrary, the Board, upon written request of the Authority, shall execute and deliver the Guaranty Agreement … upon satisfaction of the following, and only the following conditions…

b) That the Indenture shall contain a requirement (the “Indenture Requirement”) that, as a condition to the release of the proceeds from the Bonds on deposit in the construction fund or project fund, as applicable, to be established under the Indenture, the Authority shall have certified to the Trustee, the following:

That the Authority has sufficient funds to complete the construction of the Facilities in full accord with the final plans and specification prepared by the architect for the Facilities and approved by the Authority;…” [emphasis added.]

The relevant section of the Trust Indenture – 3.17 – reads:

“On or before the Tax-exempt Conversion Date, the Issuer [Authority] shall cause to be delivered to the Trustee:

1) complete plans and specifications with respect to layout, design, land area, and all other matters with respect to the Convention Center; 2) a project budget which shall include a detailed itemization of all construction costs to be incurred in connection with the Convention Center, including (without limitation) all architectural, engineering and consulting fees, and a detailed itemization all non-construction costs to be incurred by the Issuer in connection therewith:…[emphasis added.]

Absent from the Trust Indenture – as specified in Section 7 (b) of Ordinance 73 – is the requirement that before bond proceeds can be re-marketed as tax-exempt and released for construction, the Authority “shall have certified” that it “has sufficient funds to complete the construction of the Facilities.”

At the time of the July hearing, the project was already $25 million over budget. The sponsors were a long way from having “sufficient funds” to build the project.

Lawyers for the Plaintiff sponsors said they did not perceive a meaningful difference between the language of the two documents, the Ordinance and the Indenture.

“We think there is no ambiguity in these agreements,” said David Pittinsky, counsel for Penn Square Partners.

Douglas Rauch, the County’s special counsel who drafted Ordinance 73 in 2003, testified: “I thought the Indenture provided more protection for the County. It required the authority to produce the actual plans and a detailed budget – in this context, a balanced budget.”

Kelin also argued another important taxpayer provision was missing from the Trust Indenture – and Ordinance 73. Kelin believed this omission also invalidated the County Guaranty. The provision concerned the prioritization of debt service payments above other costs.

Kelin presented evidence that on October 24th, 2003, five days before Ordinance 73 was to be voted on, at a public meeting of the LCCCA, Thomas Beckett, the LCCCA’s financial adviser, made a presentation in support of the County Guaranty.

During his remarks at that October, 2003, meeting, Beckett explained the risk to Lancaster County taxpayers would be mitigated because, he said, “the Authority would prioritize room tax revenues” by first applying revenues to cover bond debt service before paying any other expenses.

Further, Kelin also showed that Chris Gibbons, the County’s bond counsel (along with Rauch), and Mervin Heller, Jr., a special counsel to the County for the 2003 Guaranty, all represented to the public that both the “sufficient funds” and prioritization of debt service clauses would be included in Ordinance 73.

The following is excerpted from the Minutes of the Lancaster County Commissioners’ meeting from October 29, 2003, the meeting where Ordinance 73 was passed.

“Mervin Heller, Jr., Esquire explained that he was hired as Special Counsel because there was a conflict of interest with the County’s Solicitor [Stevens & Lee attorney, John Espenshade regarding this matter. In his role as Special Counsel, Attorney Heller reported that he met with the Commissioners on an individual basis in compliance with the Sunshine Law, met with the Convention Center Authority staff and met with the County’s professional staff and professional advisors to ensure that the guarantee was in accordance with the County’s needs.

Attorney Heller noted that the following requirements must be met for the County to guarantee the bond:

  • There has to be sufficient credit enhancement, such as bond insurance, to insure that this was the best rated bond.
  • There has to be sufficient funds to complete the construction of the convention center in full accordance with the final plan and specifications prepared by the architect and approved by the convention center.
  • There must be a new hotel designed to support that convention center and provide sufficient rooms and amenities as a headquarters hotel for the convention center.

Doug Rauch, Esquire, Special Counsel, presented an overview of Ordinance No. 73, noting that it meets the above-described requirements of the County.

Chris Gibbons, Principal, Concord Public Finance, reported that he agrees with the numbers presented by the Convention Center Authority’s financial advisor, Fairmount Capital Advisors, which were based on feasability [sic] studies completed by Price Waterhouse Coopers and the internal numbers of the professional staff of the authority. He believes that this is the best financial option for the project due to the layers of protection that are in place to protect the County’s guaranty from ever being used such as:

  • The Authority’s financing structure is a gross revenue pledge, which means the first $2.5 million collected in hotel tax will go toward the debt service repayment.
  • The Authority will provide full funding of one year’s debt service payments in the Debt Service Reserve Fund.
  • The ability exists to recapture 20% of the hotel tax currently going to the Convention and Visitors Bureau for repayment of debt service should the need arise.
  • The ability exists to raise the hotel tax to 5% should the need arise.
  • Additionally, under the proposed legal documents, there will be a provision and requirement that should the County pay on the guaranty, it would be entitled to reimbursement from future revenues of the Authority.” [Emphasis added.}

Kelin was not finished hammering at the project’s flimsy financing. He pointed out that both the city of Lancaster’s $24 million bond and its $12 million Act 23 bonds were not secured.

Regarding the $24 million bond, the County’s brief states that “RACL has been unable to accomplish an essential step associated with the sale of the $24 million in bonds, and is now trying an alternative approach that is far from complete or certain to occur.”

The “alternative approach” mentioned was said to be a “consortium of banks” that would provide a letter of credit for the bonds.

Kelin was able to extract from Mark Fitzgerald, Chief Operating Officer for Penn Square Partners, the concession that the “consortium of banks” had not materialized at the time of the Madenspacher hearing.

The $12 million in Act 23 bonds were also not secured, according to the County’s brief. Kelin noted that to pay debt service, RACL intended to rely on annual $1 million Act 23 grant payments from the DCED over a period of 20 years. That money was pending annual review.

The $12 million, therefore, was “far from secure,” Kelin told the Court.

“Regardless of what your honor does with this [injunction] request, the developers are not going to be ready to go to refinancing,” Kelin said to Madenspacher.

Finally, Kelin argued that the Guaranty Agreement was a “midnight contract,” entered into by the previous Board of Commissioners in order to “tie the hands” of the current one.

Kelin pointed out that the enabling Third Class County Convention Center Authority Act , in Section 23, subsection (f):

“Pledge to bondholders – The Authority will not reduce the rate of tax imposed for convention center purposes … until all bonds secured by the pledge of the Authority, together with interest, are fully met and discharged.” [emphasis added.]

Kelin suggested the hasty passage of Ordinance 73, and quick placement of the 2003 bond funds in the waning days of the Thibault term, was done deliberately, “fake financing” designed to create bond debt, thereby preventing the incoming board of Commissioners – who opposed the County Bond Guaranty – from taking any action against the hotel room rental tax.

After receiving Thibault’s signature on the County Guaranty Agreement, on December 15, 2003, the LCCCA quickly placed the non-tax-exempt $40 million bond from Citizens Bank into Citizens Bank. The bond was to be later reissued bond with a tax-exempt interest rate through M& T Bank once construction was ready to commence.

The ‘negative arbitrage’ created by the placement of the bond funds with Citizen’s Bank, and the closing and transaction fees associated with the placement of the funds in Citizen’s Bank, created debt. And it was that debt, as long as it existed, that statutorily prevented the County Commissioners from touching the room tax.

The County’s argument here was based on the leading case, Lobilito vs North Pocono School District. In Lobilito, an outgoing school board entered into a contract that the new board did not want to honor.

The Pennsylvania Supreme Court held that a lame duck board could not ‘bind the hands’ of its successor.

Kelin had this exchange with Thomas Beckett, the LCCCA’s financial adviser, during Beckett’s deposition.

“KELIN: So as I understand your testimony, the sale of the bonds was important in 2003 to establish for the Commonwealth that it could give the final necessary approval on the 15 million dollar grant because the tax would remain in place so long as the bonds were outstanding.

BECKETT: That’s correct.”

The testimony from the Plaintiffs’ witnesses, which included several of the principal sponsors of the project, left no doubt what, or who, the problem was.

“Primarily, we have a situation in which the County Commissioners [Shellenberger and Henderson] have poisoned the environment to complete our financing,” testified LCCCA executive director David Hixson about Shellenberger and Henderson.

Every action the County has taken has sent the message that the county will kill the project,” said Penn Square Partners’ Chief Operating Officer, Mark Fitzgerald, from the witness stand.

Of his fellow Commissioners, the intemperate Pete Shaub testified his colleagues had “engaged in a strategy to sabotage and to kill the project.”

In his own defense, Commissioner Shellenberger testified: “The deal [2003 County Guaranty] promoted and announced at two public meetings was changed in private, without any explanation to the public that this safeguard was being removed.”

Commissioner Henderson testified that when the County Guaranty was being promoted to the public, “We had been promised there would be no risk to the taxpayers,” she said.

“The current financing structure of the project needs to be adapted and altered in such a way that we return to a public/private partnership where there is balance,” testified Henderson.

County Treasurer Craig Ebersole testified that he worried that the proposed project would eventually fail, saddling future generations with tax increases, or “an incredible tug-of-war” for government bailout.

Ebersole said there would have to be a “Disney World-type of growth” in new hotels in Lancaster County to generate adequate revenue from the hotel room tax to cover debt service on the project bonds. Ebersole also said he saw a scenario where the portion of the room tax revenue currently going to the Pennsylvania Dutch Convention & Visitors Bureau for marketing the center would be taken to pay debt service for the convention center bonds.

Along with more esoteric financial details about the project, there were some fascinating, but not legally important, facts revealed about the project during the hearing.

Mark Fitzgerald, the Penn Square executive, revealed in his deposition and in his testimony the financial ownership stakes of each of the three Penn Square Partners – High Associates; Lancaster Newspapers; and Fulton Bank.

Commissioners Henderson and Shellenberger had publicly called for ownership disclosure in their ’57 Questions’ in 2005.

Until this point – the summer of 2006 – Lancaster Newspapers, which controlled all the newspapers in Lancaster County, failed to disclose how much of a financial investment it was making in one of the most expensive capital projects in the region’s history, one that the newspapers had covered for eight years..

According to both Penn Square Partners President, Nevin Cooley, and C.O.O. Fitzgerald, High Associates owned 44%; Lancaster Newspapers 44%; Fulton Bank 12%

Kelin pointedly remarked that with control of the Lancaster press, “Plaintiffs haven’t had any problem getting the newspapers to articulate their position in this case.”

Kelin also noted the irony of an American newspaper seeking to silence the free speech of democratically elected officials. “It’s ironic than Lancaster Newspapers, which otherwise promotes itself as a champion of the First Amendment, would seek a gag order against the County Commissioners,” Kelin said.

Ernest Schreiber, the dour editor of the Lancaster New Era, defended his bosses.

“If it were not for the many stories about them [Shellenberger and Henderson] and the many letters and comments by them that we have published, the opposition to the project in this community would be largely unknown,” Schreiber was quoted in the newspaper he edited. “We have done our best to present all sides.”

Jack Buckwalter, President and CEO of Steinman Enterprises, parent of all Lancaster Newspapers, said the newspapers stake in Penn Square Partners was not released sooner because “at that time Penn Square Partners did not feel that that was relevant.”

“The only thing that is being asked for is that (the Commissioners) are not allowed to say they’re going to take an illegal action,” Buckwalter was quoted after his company’s ownership in Penn Square Partners was revealed. “The First Amendment does not cover somebody who’s going to make an illegal statement that is designed to harm a project. When we went into this, all of the editors were advised that we are to treat this as if we are not involved with Penn Square Partners. We should treat this as any other project we are reporting. I think we’ve achieved that.”

On July 15th, after two-and-half days of testimony, the Madenspacher hearings ended.

Two weeks later, on July 23rd, Madenspacher issued his nine-page Opinion:

“… [T]he first thing to be decided is the issue of immediate and irreparable harm. The testimony of Mr. Thomas Beckett, the financial advisor for LCCCCA, stated that August 1, 2006 was the date he would need to begin refinancing. Since that date is rapidly approaching, and since it will occur before the final hearing can be held, there is a case of immediacy; likewise any harm would be irreparable…. As Mr. Beckett testified, if the injunction is not granted there can be no refinancing. If there is no refinancing then the project cannot be built. If the injunction is granted there would be little, if any, injury to the County at this point. The ultimate issue would be decided at the hearing for the permanent injunction.”

The judge ruled the County could not take action on the two resolutions – 36 & 37 — that threatened the County Guaranty.

With respect to the Commissioners discussing the issue publicly, Madenspacher wrote “this might be a non-issue,” noting that the Commissioners had only talked about reducing the market area, not taken any action to reduce it.

Although both sides claimed victory, the winners were the sponsors, still more than $20 million over budget and who needed more time to fill that gap and balance the project construction budget.

The Judge upheld the temporary injunctions on Resolutions Nos. 36 & 37, pending the yet-to-be-scheduled hearing for a permanent injunction against the Resolutions.

Basically, Madenspacher put the case on hold until a permanent hearing was scheduled.

About two weeks later, on August 10th, the re-bid drama occurred. First, the bids came back again more than $20 million over budget. Then, the sponsors proclaimed the project muerte, dead. The next day, after the flurry of meetings between sponsors, the heroic Lancaster Mayor Rick Gray announced the ‘miracle’ plugging of the $20 million gap.

Two weeks after the Gray ‘miracle,’ Madenspacher announced the permanent hearings would take place in late September.

The permanent hearing against County Commissioners Shellenberger and Henderson began on September 28th, 2006, with Judge Joseph Madenspacher again presiding.

The September hearing was fundamentally a repeat of the preliminary hearing in July, with minor supplementation on both sides.

On October 23rd, 2006, Madenspacher issued his final ruling, codifying his earlier preliminary decision.

In a 13-page opinion, Madenspacher upheld his preliminary ruling enjoining the Commissioners from enacting Resolutions 36 & 37, and affirming the validity of the 2003 County Guaranty Agreement contract between developers and County.

Madenspacher dismissed the County’s Lobilito claim, writing that the County Guaranty was a “proprietary” and not “governmental” action, and so the Lobilito precedent did not apply in this case. (In Lobilito, the Pennsylvania Supreme Court deemed the school board’s action in Lobilito was a “governmental” action.)

In his opinion, Madenspacher singled out the testimony of Peter Edelman, the LCCCA bond counsel and Stevens & Lee attorney; Douglas Rauch, the County bond counsel, and Thomas Beckett, the LCCCA financial adviser.

“However, the three (3) witnesses [Edelman, Rauch, Beckett] who were most familiar with financing all testified that budget meant balanced budget,” the Judge wrote. “It was most aptly put by Mr. Edelman when he stated that if the word budget meant unbalanced budged that would be a ridiculous interpretation given the scope of this document and requirements of the marketplace. … In this context the word budget means balanced budget.”

On the central issue of the discrepancy between wording of County Ordinance Number 73, 7(b) of 2003, and the Trust Indenture, Madenspacher wrote:

“It is clear that the language of Ordinance 73 is not exactly mirrored in the Trust Indenture. As Counsel for the Defendants have correctly noted the Court is powerless to change either the language of the Ordinance or the Indenture. The question thus is whether the language of the indenture provided the same protections as the language that the Ordinance required. . . .

“…The differences are basically certify v. deliver and sufficient funds v. project budget.

“….Thus, where the ordinance requires that the authority shall have certified to the trustee that it has sufficient funds to complete construction of the Facilities in full accord with the final plans and specifications, and the indenture requires that the authority deliver to the trustee complete plans and specifications and a project budget, then both documents have the requirement that the trustee have the assurance that the entire project will be completed.”

“Thus, the Guaranty Agreement of December 15, 2003, is not in contravention of Ordinance No. 73 of 2003.”

Madenspacher’s opinion ended with a rather ominous, and, as it turned out, prescient, thought:

“The Court notes that [Lancaster County Treasurer) Mr. Ebersole’s testimony as to potential operating losses of the convention center differ substantially from those of the Plaintiffs evidence. However, the Court does not do any analysis as to which projections are correct. True, if the operating losses of the convention center are greater than the Plaintiffs forecast, then hard business decisions will have to be made. It is also true, as stated in the Defendants’ brief that a future Board of Commissioners may face a Hobson’s Choice, requiring a hard political decision. This Court cannot be concerned with that. The narrow legal decision that needs to be made is whether or not the Plaintiffs are entitled to a permanent injunction to enjoin the Defendants from enforcing Resolutions 36 and 37 of 2006. Based on the analysis, the Court finds they are.”

The decision was bad news for Commissioners Shellenberger and Henderson. And the news was about to get much worse.

XXX

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Updated: April 10, 2013 — 5:24 pm
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