Chapter Twelve: The Rift over the TIF

(Twelfth in a series)

“It wasn’t my money we were talking about. It was the people’s money, and I owed it to them to understand it before voting on it.”

  • Dick Shellenberger, Chairman Lancaster County Commissioners, explaining his request for details of the Tax Increment Financing (TIF) proposal before his board would take a vote, February, 2005.

During the first frigid weeks of the Lancaster winter of 2005, Nevin D. Cooley, president of Penn Square Partners (PSP), was quietly going around town meeting with Lancaster’s elected officials, paying particular attention to the board members and solicitors for the School District of Lancaster (SDL). Cooley wanted to discuss a financing proposal for the hotel his partnership was supposed to build next to the convention center.

For years, the sponsors of the project had touted the tax revenue its “privately-owned” Marriott Hotel would bring to city tax coffers.

Now, during those frozen early days of 2005, PSP turned its attention to the funding of the hotel, and Nevin Cooley was the man to pitch it. Cooley, a University of Maryland-educated native of Lancaster County, had been Dale High’s right-hand and principal spokesman for more than a decade. The portly, bearded Cooley was most often the face and voice of Penn Square Partners. Cooley’s proposal to the county, city and school board officials was a complex scheme called a Tax Increment Financing (TIF) plan.

Tax Increment Financing (TIF) is a device used in many states whereby theoretical future gains in taxes from a project are anticipated to finance a new project. Relevant local taxing bodies must consent to the TIF plan. The taxing bodies in Lancaster would be the County Commissioners, City Council, and the School District of Lancaster.

The proposed Penn Square Partners TIF called for the SDL to re-direct 90% of the school real estate taxes it was to receive from the hotel to pay down the hotel mortgage bonds. Full tax payments would be available to the school district in 20 years when the mortgage bonds would be paid off, according to the PSP plan. If certain return on investment – 12% – was exceeded during the TIF period, the Partners tax payment would increase.

Mike Winterstein was the self-described economic development “point-person” for the school board, to which he was elected in 1997. A conservative Republican businessman, Winterstein owned many properties around the city, and found himself increasingly involved in city politics.

“I remember meeting with Nevin Cooley along with [fellow board member] Dan Desmond, who was also involved in economic policy matters,” said Winterstein. “Desmond said we wanted to have the partners pay 50% of the taxes. I wanted it all to be taxable. My feeling was that the schools needed money, and that economic growth would only come with taxable economic growth. I wanted the hotel to be entirely taxed as a private business.”

Winterstein and Desmond went back to their board and explained the proposal. The board was not supportive of the TIF plan.

“Although we were Democrats and Republicans on that board, we really shared the same vision about the tax revenue,” said Winterstein, “We needed all of it. We saw the tax revenue as the cornerstone of economic development. We simply weren’t buying the Penn Square Partners’ plan. They wanted a 90/10 split in their favor!”

“Also,” continued Winterstein, “Cooley was using this market study that didn’t reflect the project we were discussing. I was through with his spewing nonsense.” (The convention center size had increased from 61,000 sq. ft. to more than 100,000 sq. ft. since the time of the market study.)

In a letter to the president of the school board, Patrice Dixson, Cooley based his argument on a market study, which he incorrectly, and repeatedly, characterized as a “feasibility” study. It was later certified that the study was, in fact, a market study, not the much more comprehensive ‘feasibility’ study which projects revenues and expenses, profits or losses, and also includes a market analysis.

Another prominent businessman who attended one of the TIF pitches recalled:

“[Lancaster Newspapers CEO] Jack Buckwalter came to the meeting, and they gave a superficial power point presentation,” said the businessman who spoke on condition of anonymity. “What they were saying didn’t answer a lot of questions, so we asked for more details. And, as usual, they never provided anything in writing.”

Like the campaign around the Interstate Hotel management vote, sides on the TIF issue were vocal and clearly drawn.

On the side of the Penn Square Partners, all three Lancaster Newspapers editorialized in favor of the TIF. The Lancaster Alliance — of which all three Penn Square Partners were founding members — showed up at meetings urging its adoption.

Opponents were, predictably, the Greater Lancaster Hotel and Motel Association (GLHMA) plus ‘in-your-face’ activist Ron Harper, and a growing miscellany of citizens. But the issue also caught the attention of the Lancaster County Board of Commissioners.

The three-person Commissioners’ board had taken office a year earlier. In January, Dick Shellenberger had replaced Pete Shaub as chairman, much to Shaub’s dismay and disappointment. Unlike Shaub, who was a staunch supporter of the convention center project, Dick Shellenberger was more questioning of its viability. Henderson had similar questions of feasibility.

Dick Shellenberger was a fiscal and socially conservative commissioner who campaigned on a platform of smaller government. The commissioner’s job was Shellenberger’s first elected office. He said that he didn’t sufficiently understand the TIF proposal. If the School Board passed the TIF, then the County Commissioners and City Council would also have to vote on it.

Shellenberger asked for details. “They [Penn Square Partners] would not provide them,” said Shellenberger. “It wasn’t my money we were talking about, it was the people’s money, and I had to understand how it was going to be spent.”

The Republican-dominated City Council, led by outspoken project supporter, Council president Stephen Diamantoni, was very supportive of the TIF, along with perhaps the project’s most ardent supporter, Mayor Charlie Smithgall.

According to a New Era article of February 16, 2005, “Penn Square Partners would also give the school board a 2-year binding agreement that would pay the district a lump sum of $100,000 a year in lieu of taxes”, which  S. Dale High later said had been increased to $150,000.

Public sentiment strongly opposed the TIF. According to an Intelligencer Journal poll published March 12, three days before the School Board vote, 93% of respondents opposed the plan.

A few days before the SDL board took official action, a special public meeting was held at the Edward Hand Middle School. Dale High and Nevin Cooley and other associates detailed the proposal before several hundred people. Wearing a gray suit and speaking in a monotone, High recapped his past achievements. Of his twelve minute presentation, less than two minutes was devoted to discussion of the TIF. The bulk of his remarks attacked opponents and promoted the ‘blue-sky’ projections of his partnership.

The SDL vote itself on March 15 at McCaskey High School was a strong rejection of the Partners’ plan. In a 7-1 vote (with one abstention), the School Board refused to back the TIF.

To read Lancaster Newspapers’ reports immediately after the TIF vote, one would’ve thought the defeat was fatal to the project.

“Supporters of a downtown Lancaster hotel and convention center on Thursday pulled the plug on a tax relief plan they said was needed to support the project. And the center project remains barely alive today,” read a New Era article after the vote.

Said Penn Square Partner and Lancaster Newspapers CEO, Jack Buckwalter: “We are very disappointed. Over the past seven years, we have made our best efforts to bring the Watt & Shand building back to life. It appears that we cannot proceed under the conditions as set by the school board. So the project very well at this juncture could die.”

Dale High released a written published statement two days after the ‘Ides of March’ school board vote. “We have stopped all work on our portion of the project, effectively immediately.”

High immediately instructed his construction company to remove all signs from the Watt & Shand building promoting the project coming soon.

“We made it clear that this is our best offer,” said Nevin Cooley following the meeting. “There is nothing more that we can do. If I could have offered something different, I would have. We can’t go forward and the community and the taxing authority will continue to have a building that is empty and deteriorating and not generating anything in new taxes. . . . There is no ‘Plan B.”

But that was not true. There was indeed a ‘Plan B.’ The sponsors had it ready to go, and it was something the newspapers had already reported. Penn Square Partners would not wait long to unveil it . . . again.

In a front page story on December 17, 2004 – three months before the SDL vote on the TIF – the Intelligencer Journal published an article (“City to buy Watt & Shand”) outlining a plan by which the city of Lancaster, via one of its municipal authorities, would purchase the landmark building from Penn Square Partners.

The article, by Dave Pidgeon, describes an agreement whereby the Redevelopment Authority for the city of Lancaster (RACL) would buy the building from Penn Square Partners, then lease it back to the Partners, who would then have an option to re-purchase the building in 20 years.

Unlike the TIF proposal to the SDL, the RACL plan would completely exempt the hotel from property taxes, and would no longer come with an offer by PSP to contribute annually to the SDL in lieu of property taxes.

It would also allow the City of Lancaster, through RACL, to apply for an annual grant through the state’s Department of Community and Economic Development (DCED), which would rebate to PSP an anticipated million dollars of annual state sales tax generated directly or indirectly by the convention center project.  (Eventually the rebate was pledged to service a $14 million loan from Fulton Bank.)

Mike Winterstein, the school board member who would soon vote on the TIF, remembered Mayor Charlie Smithgall lobbying him during the weeks before the school board vote: “I recall the meeting very well,” Winterstein said. “Smithgall is trying to get us to pass their [Penn Square Partners’] TIF and he says, ‘Well, if you don’t do it, we’ll just take it off the tax rolls.’ I couldn’t believe it.”

During the twelve days following the school board vote on March 15, 2005, the project was described in moribund terms. Its miraculous ‘resurrection’ is a study in media manipulation and deception on the part of project sponsors:

On March 22, Rep. Mike Sturla, another ally of the project in Harrisburg said to the New Era after a revised TIF proposal to the school board was made: “We’ve unloaded our tool box. This is the end.”

Three days later, March 25, the Intelligencer Journal virtually pronounced the project dead.  Disarray hits Penn Sq. plans/Leaders halt tax deal negotiations, the headline read.  The article struck an ominous tone.

“Plans to build a luxury hotel and convention center on Penn Square suffered another blow Thursday night, when hotel developer Penn Square Partners ended attempts to obtain property tax breaks for the project.

The partnership had said it needed millions in property tax abatements from City Council, county commissioners and the School District of Lancaster board to build the 300-room Marriott Hotel.

“The collapse of negotiations concerning the tax deals places the status of the hotel and adjoining convention center in doubt.

“‘We’re out of time,’ said state Sen. Gibson Armstrong, one of the chief proponents of the project. ‘It’s impossible to pull everything together.’”

The next day, on Good Friday, March 26, the Intelligencer Journal reported that a $22 million funding gap may doom the project.  “A $22 million funding gap that first surfaced in early 2004 continues to threaten the proposed downtown hotel/convention center,” the article began.

Nevertheless, on Monday March 28, 2005, one day after Easter Sunday, Lancaster County citizens read that the project proclaimed to be “dead” only days before had been miraculously resurrected.

HOTEL PLAN RESCUED, exclaimed the Lancaster New Era in its headline.

The article begins, breathlessly:

“Skip the school board. Forget the county commissioners’ 57 questions.

“The Lancaster City Redevelopment Authority this morning unveiled a new way to finance – and keep alive – a proposed 300-room convention center hotel on Penn Square.”

As it turned out, what the sponsors “unveiled” was not “a new way to finance — and keep alive” the hotel. Rather, it was in fact a “Plan ‘B’” that was far more favorable to PSP than what they had presented to the SDL. And it was the exact plan that one of Jack Buckwalter’s newspapers reported on in detail three months prior.

In the ‘new’ financing scheme, not only would the SDL receive zero real estate taxes whatever for twenty-years, but the offer of “$150,000″ in annual payment  that Dale High for PSP had “agreed to guarantee” was now gone.

The TIF and RACL proposals awakened the public, and opened a new front of opposition.

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Chapter Thirteen: Shellenberger and Henderson move into the crosshairs

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