Convention Center Authority calls for increase in Hotel Room Sales Tax

Kevin R. Molloy, the executive director of the Lancaster County Convention Center Authority, calls for an increase in the hotel room rental sales tax in a “white paper”, entitled “Recommended Funding Shortfall Solution, which he has released to the media.

Molloy states:  “I believe that the best solution for funding the shortfall faced by the Lancaster County Convention Center is the adoption of an increased hotel room guest tax. I recommend an increase of the hotel room guest tax to 5.0% from 3.9%.”

Molloy explains:  “If no action is taken, I anticipate that, as a result of a cash shortfall and in accordance with county ordinance, beginning April 2012 the bond holders of the convention center will receive 100% of the 3.9% hotel room guest tax revenue (instead of the current 80%, with the other 20% going to the CVB for destination marketing).”

He continues:  “A hotel room guest tax increase of 1.1% (approximately one dollar per average hotel room night) would benefit (1) the convention center and (2) the CVB’s destination marketing — the primary engine for attracting visitors to Lancaster County — and (3) the broad spectrum of hotels and businesses across the county affected by tourism.”

To substantiate the above, Molloy then provides a theory of Supply and Demand that raising the price of an item or service does not lose customers:  “The hotel room guest tax is paid by consumers, not by hotel owners. It is not an income or gross receipts tax. It is a tax paid by hotel guests. The proposed 1.1% increase would equal about one dollar on the average county hotel room rate of $90. The new rate would still be absolutely in line with regional and metropolitan markets.”

Countywide room rental sales taxes have declined in recent years and remains about the same for 2011 as for 2010.  This is despite the considerable addition to the number of hotels including the downtown Marriott.   Hoteliers have recently observed the result of achieving less revenue per guest room has caused many to defer usual and necessary investments in renovations and improvements, causing the region to become less attractive as a destination.   They have also noted that less people patronizing hotels means less visitors patronizing restaurants and recreational facilities.

If the convention center absorbs the revenue that now goes to the Visitors Bureau, there will be less promotion of tourism and convention center business, thus adding to downward spiral.

Two big questions not addressed are:   1) How close is the Convention Center to a bankruptcy that triggers existing county guarantees?  and 2)  What is the financial condition of the adjoining Marriott Hotel, whose debt is guaranteed by the City of Lancaster?

The equitable owner of the hotel, under a long term lease with option to purchase at a modest price, is Penn Square Partners, a venture of subsidiaries of the High Companies and the Lancaster Newspapers, Inc.

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Updated: January 19, 2012 — 6:10 pm

3 Comments

  1. I still maintain that the simplest solution to this financial shortfall is to DEMAND that those involved in formulating/promoting the original plan (Penn Square partners, legislators, poltical allies, ‘proponents’ of this heavy-handed venture) should be the ONLY ones to make thing right.

    I also firmly believe that a re-vist to the ‘agreement’ between the Convention Center and the Marriott Hotel be done to insure the ‘fairness’ between all parties concerned.

    I am just a simple Lancaster County taxpayer with no ‘political clout’…perhaps there is someone out there who shares my opinion and who could be a better ‘voice’. Doubtful if a ‘letter to the editor’ from a ‘common person’ on this issue would even get printed.

  2. The agreements between the convention center and the Penn Square Partners must be revisited, since they are so unfair to taxpayers. Eventually they will be; it’s only a matter of time before the elephant in the room can no longer be ignored.

    Of course the Penn Square Partners could threaten to close the Marriott. Their bluff should be called, especially since Lancaster City owns the hotel building; a new operator could literally be given ownership of the hotel in exchange for taking over whatever payments remain (something in the neighborhood of $20 million), and taxpayers would come out considerably ahead as long as fair and equitable agreements replace the current legal nightmare.

  3. The Lancaster County Commissioners are NOT going to approve an increase in the “hotel tax”. Period. Craig Lehman is a fiscal conservative, and Scott Martin has been pushing for severe cuts to existing programs. Stuckey would not look good if he were to vote for a tax increase of any kind in today’s economy.

    A significant portion of the convention center’s marketing comes from the Pennsylvania Dutch Convention and Visitors Bureau, which would be forced to treat the convention center on an equal basis with all other facilities in Lancaster County if revenue from the “hotel tax” was lost. Interstate Hotels and Resorts is focused on marketing the “integrated facility”; they claim that there is no differentiation between the hotel and convention center when they interact with potential customers. Without the added marketing push from the PDCVB, it would be quite difficult for the convention center to maintain its current level of sales initiatives.

    Kevin Molly is absolutely correct in saying what he did; he’s only following a path that was laid out for him years before he ever applied for the job in downtown Lancaster. Those of us who were carefully watching the proposed figures pointed out long before the construction bonds were sold in March of 2007 that the need to increase the “hotel tax” would be inevitable. But without that increase, the convention center will be in serious trouble.

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