CC Series Chapter Fourteen revised: The Honey Pot

By Christiaan Hart-Nibbrig

The sponsors of the convention center and hotel proved to be very adept at acquiring public money for their project.The vast majority of the money, tens of millions of dollars, came through government-backed bonds, loans, and state grants.  Another two-and-a-half million dollars or so per year was deposited into Lancaster County Convention Center Authority (LCCCA) coffers from its share of the hotel room rental tax.

From all of those sources, the LCCCA had money to spend by 2005.

And spend it they did.

In its first five-and-a-half years of operation, before any construction had begun, the LCCCA had spent more than 10 million dollars.  They spent it on a variety of things, including real estate acquisition,  legal fees, consulting, and public relations services.

The LCCCA had few fixed expenses.  Executive Director David Hixson, hired in the summer of 2003, was paid an annual salary of $90,000.  Including Hixson, the LCCCA  employed a small, three-person administrative staff, the cost of which totaled around $400,000 annually, including insurance and benefits.

The seven LCCCA board members served without payment.

The majority of LCCCA spending went to the Stevens & Lee law firm, which was paid more than five million dollars in legal fees from 2000 to 2005.

In the early years, from 1999 to 2002, the LCCCA effectively turned its planning, negotiations and decision-making over to Stevens & Lee.  John Espenshade, the Authority’s solicitor, was a Stevens & Lee attorney, and much of the Authority’s legal work was funneled to his firm.

Since early in 2000, the Authority had been challenged in court by several Lancaster County hoteliers.  Almost three million dollars of Stevens & Lee’s total LCCCA fees went for legal defense in the hotelier litigation.

Stevens & Lee was also paid substantially as counsel in the “negotiations” with Penn Square Partners in matters concerning the “private” hotel.  This was an apparent conflict of interest, as Stevens & Lee (as shown earlier) was also the registered lobbyist of High Industries, parent company of High Associates, the General Partner of Penn Square Partners.   But no one, including any of the Lancaster Newspapers, seemed concerned enough about the relationship to publicly object to it.

(In 2003, Stevens & Lee was also bond counsel representing Lancaster County in its negotiations with the LCCCA regarding the $40 million county bond guaranty, another potential conflict that received nary a mention from the press.)

Stevens & Lee additionally served as legal counsel to the LCCCA  in connection with real estate acquisition and the parking garage negotiations with the Lancaster Parking Authority.  For all of the non-litigation work, the firm was paid approximately $2.5 million from 2000-2005, according to LCCCA  financial statements and Stevens & Lee invoices.

After Stevens & Lee, the next largest recipient of LCCCA money was High Associates, general partner of Penn Square Partners.  Since February, 2002, the LCCCA had been paying High Associates $52,000 a month as “master developer” of the convention center and the hotel.

The LCCCA board voted in December 2001 to pay High Associates a fee of five percent of the estimated cost of the project, which then was $35 million.

According to an explanation by LCCCA executive director David Hixson in the Sunday News on July 4th, 2004, rather than pay High a lump sum, a monthly payment was negotiated and a contract for “the life of the project” was signed between High and the LCCCA.

By 2005, High Associates had been paid more than $2 million from the LCCCA for its work as master developer.  High was paid through the years of delays of the project, despite no construction having begun.

So, by 2005, more than 70% of the money paid out by the LCCCA  went to two parties: the law firm that wrote the law allowing the hotel room tax and one of the law firm’s clients.

The balance of the money doled out by the LCCCA went to a plethora of consultants. Until he left the board in 2003, James Pickard, the Authority’s controlling initial chairman and executive director, had enormous power in deciding how to apportion the funds.

In 2003, before Pickard left the board, the LCCCA hired several expensive consultants.  One of the pricier contracts was given to Philadelphia-based Fairmont Capital Advisers, “an independent financial advisory firm.”

Fairmont’s senior vice president was Thomas Beckett, who became the Authority’s principal financial adviser. Beckett was said to have 15 years of prior municipal market experience, and was hired to provide expertise in the bond markets for the Authority.

Beckett’s rate started at $150 per hour, but spiked to $275 within one year.  In just under three years, Fairmont billed $409,039 to the LCCCA, almost all from Beckett’s work.

In March, 2003, Chairman Pickard recommended to the board that it hire two consultants: Daniel Logan and Robert Hazard.

Dan Logan turned out to be something of a ‘mystery man’ regarding his actual involvement with the project.

Years earlier, in the late 1990s, Logan had been tangentially involved in the project.  Logan worked out of Philadelphia and commuted to Lancaster to work as the Brunswick Hotel’s regional manager for G.F. Management, a owner.  According to the Lancaster New Era, “G.F. Management, based in Moorestown, N.J., operates 22 East Coast lodging and conference center properties from Massachusetts to North Carolina.”

It was Logan (according to Mayor Smithgall years afterward) who failed to return Smithgall’s phone calls about annexing the convention center project to the Brunswick in Lancaster Square in 1999.  The brush-off from Logan irked Mayor Smithgall, he said, and Smithgall moved on to the Penn Square location for the project.

Whatever ever occurred and its reasons the reasons for it,   Pickard urged the LCCCA board to hire Logan to analyze the “operating and marketing planfor the project.

The initial contract called for Logan to be paid $18,000 for a duration of three months.  After the three month contract with Logan expired in June, Logan continued to be paid $150 an hour.

In the next year, 2004, Logan was remitted more than $200,000 without a LCCCA board-approved contract.

It wasn’t until June of 2004 that Logan submitted a “letter contract” to the LCCCA board. The contract finesses the lack of a previous agreement by saying Logan would be paid “the rate at which he has been paid prior to this date.”

The contract with Logan was finalized on July 14, 2004. There was no time limit or cap on fees paid to the consultant.

The striking thing about the Logan hire is not the amount of money he was paid, a tab that eventually added up to nearly one million dollars over four years, but that there is almost no evidence of any work product performed.

Logan, from 2003 to 2007, was said to be involved in “pre-sales and marketing.”

“He [Logan] serves as community liaison to the Convention and Visitors Bureau which is obviously a very important working partnership with us in moving forward,” said Hixson to the Intelligencer Journal in 2004.

According to an investigation conducted by journalist James Sneddon for NewsLanc.com in 2008, Logan was very much a mysterious figure.  A former employee of the LCCCA described Logan as the “Invisible Man.” Almost no mention is made of Logan at LCCCA board meeting minutes.

However, a former LCCCA insider, who spoke on condition of anonymity, said Logan was Hixson’s “right hand man.” “He was always with Dave,” the ex-staffer said.

What he was doing “with Dave” is not clear from the invoices submitted by Logan to the LCCCA.

The NewsLanc investigation, after examining the invoices, showed that Logan billed for hours it appeared he could not have worked.  Logan sometimes billed for meetings with other consultants where records suggested those other consultants were not there.

The other consultant hired at the same time as Dan Logan was Robert C. Hazard, III.

Like Logan, Hazard was hired by the LCCCA at Pickard’s urging.  Pickard told the Authority board why the project needed the Pittsburgh-based Metro Vision Company headed by Hazard.

Lancaster New Era quoted Pickard as saying: The need for Metro Vision relates back to the litigation and the pall it has put on the project. Because of the litigation, the Authority has been unable to attract qualified Executive Director candidates. …   For 20 years Hazard has been actively involved in asset development business, specifically publicly owned or sponsored convention centers that headquarter hotel facilities.”

Hazard also had a connection to the project.  He worked for Interstate Hotels, Inc., the company that had been selected in 2001 to manage both Lancaster Marriott Hotel and Convention Center facilities.   Hazard worked as a liaison between the Authority and Pittsburgh-based.

As with Daniel Logan, Hazard was rarely mentioned in board meetings minutes and infrequently seen at the meetings. And he, too, had examples of mysterious billings.

Sneddon’s investigation found that Hazard was paid more than $407,000 for twenty-six months of employment for the Authority. There is no trace of work product to show for that outlay.

In the Spring of 2005, the LCCCA board hired Bull’s Advisory Group as business consultant.  Bull’s was a black-owned consulting firm based in McLean, Virginia.  A senior Bull’s consultant, Maurice Walker, was brought on to work with the LCCCA.

Maurice Walker, with an MBA from the University of Virginia, had expertise in the commercial real estate and finance industries.   According to his Bull’s profile, Walker had worked in the areas of development, technology, operations, investment asset management, compliance, business development/retention over the previous 18-year period.  By all accounts, Walker was a highly qualified consultant.

It was Walker, paid $350 per hour, who effectively ran the Authority, with guidance from John Espenshade. If anyone was Hixson’s ‘right-hand man,’ it was Maurice Walker.

Maurice Walker was paid his hourly rate as he traveled from his home in Bowie, Maryland to Lancaster. Each trip cost approximately $1200, plus mileage.

By the time Walker’s contract was terminated in 2007, after just over two years, the consultant had been paid more than $1.1 million.

The LCCCA was also paying an average of $6,000 per month in public relations fees.  It was not clear what the local firm, Kelly Michener, produced for the money.  But given the increasingly unpopular project, there was probably a lot of spinning to do.

Finally, the LCCCA lost $18,000 per month from its $40 million construction bond from Citizen’s Bank.  The LCCCA, with Lancaster County co-signing, borrowed the $40 million from Citizens Bank in late 2003, weeks before the current board of county commissioners took office.

The Authority paid many thousands of dollars in fees to conduct the transaction.  After paying the transaction fees, the LCCCA then deposited the balance of the $40 million back in Citizens Bank.

As a result of keeping the money in the Citizens Bank account, the LCCCA was paying $18,000 per month in “negative arbitrage” for the loan. Negative arbitrage refers the difference between the higher interest rate paid on borrowings and the lower interest rate earned when the funds are placed out to earn interest.

The premature borrowings created a situation whereby the LCCCA was literally throwing taxpayer money away.

The $18,000 per month lost in negative arbitrage might not have been the largest drain of funds, but perhaps it represented the most significant problem for opponents of the project.

The $40 million Citizens Bank construction bond, although guaranteed by Lancaster County, was a debt of the LCCCA.  And, according to the enabling Third Class County Convention Center Authority   Act of 1994, until that LCCCA bond debt was “fully met and discharged,” including interest, there was nothing any subsequent board of commissioners could do to rescind the Hotel Room Sales Tax.

“If and to the extent that the authority pledges its share of the proceeds of the tax authorized by this    section as security for the payment of bonds issued by the authority for convention center purposes, the Commonwealth does hereby pledge to and agree with any person, firm or corporation subscribing to or acquiring bonds to be issued by the authority for convention center purposes that the Commonwealth itself will not, nor will it authorize a county to, reduce the rate of tax imposed for convention center purposes until all bonds so secured by the pledge of the authority, together with interest, are fully met and discharged.”

–16 P.S. Chapter 1; Article XXIII; (n) Third Class County Convention Center Authorities; Section 2399.23;    subsection (f)

Thus, as long as the majority of the LCCCA board was unwilling to repay the relatively small amount drawn down (closing fees and $18,000 per month in negative arbitrage), any board of County Commissioners would be held hostage to the convention center project, and, with the possible exception of immediately mounting a challenge, were powerless to stop it.

But there were other areas to challenge the still to-be-built convention center project.  And there were other people to challenge it.

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Updated: February 28, 2013 — 12:10 pm
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