By Christiaan A. Hart Nibbrig

When Governor Tom Ridge signed the Stadium Bill in the first days of February, 1999—adding half a billion dollars to the Pennsylvania state capital budget—Lancaster County was virtually promised a $15 million check to build a downtown convention center.

“I figure, if we get that $15 million egg, somebody will sit on it,” Mayor Charlie Smithgall said to the Lancaster New Era.

Almost immediately, the project, which had been at the discussion stage for years, and enjoyed seemingly unanimous local support, began to change significantly.

The comity, civic high-mindedness, and community involvement that had marked the project’s early planning vanished, replaced by a lack of transparency, ‘old boy’ patronage, and an apparent absence of due diligence on basic questions of feasibility. These questions, never fully answered, would define the next tortured decade of the Lancaster County Convention Center and Hotel project.

The first and most obvious change was the physical location of the proposed center. The much promoted LDR International (“Winterbottom”) Report of 1998, commissioned by the Lancaster Campaign, recommended a “conference center” located in Lancaster Square on North Queen Street, adjacent to the Brunswick Hotel, which Winterbottom suggested be extensively renovated.

Another study, conducted by the Pinnacle Advisory Group, and also commissioned by the Lancaster Campaign, recommended the Lancaster Square location, too. The Pinnacle study was never released.

After Ridge signed the bill, the only site discussed publicly was the Penn Square location of the former Watt & Shand building, across the street from the Fulton Bank and the Lancaster Newspapers’ buildings. No public explanation was given at the time for the switch. “We were the prime location [for a convention center];” the Brunswick’s marketing manager said to the New Era, “for whatever reason the winds had shifted to Penn Square.”

Mayor Smithgall said recently the location of the center was moved to Penn Square because the owners of the Brunswick, a Philadelphia-based corporation, would not return his phone calls, but this was not reported. [A senior executive of the company, G&F Management, Inc., declined to comment on negotiations between his firm and the city of Lancaster, or on any personnel matter concerning any current or past employee.] Daniel Logan, a controversial consultant hired later by the Convention Center Authority and paid nearly a million dollars, was then the local representative of G & F Management.

The historic Watt & Shand building was purchased the previous year by Penn Square Partners, a limited partnership consisting of High Real Estate as General Partner with a 45% interest; the Lancaster Newspapers as a limited partner with a 45% interest; and Fulton Bank as a limited partner with a 10% interest. The price was $1.25 million. The CEOs of the partners respectively were S. Dale High, Jack Buckewalter and Rufus Fulton.

The cost of the convention center also changed dramatically. Winterbottom’s estimate was $6 million for a center at the Brunswick site; now, the cost was blown up five times, to $30 million, plus another $45 million for the “Four-Star,” “Luxury” hotel that would now be built by Penn Square Partners.

In order to receive the $15 million from the state, funneled through the Department of Community and Economic Development (DCED), the county had to match, dollar-for-dollar, the Commonwealth grant.

The local legislative mechanism several other Pennsylvania counties used to get the matching funds was the levying of a countywide hotel and motel room tax. This levy—enacted by the county commissioners, collected by the county treasurer, and administered by a public convention center authority—allowed a tax on each hotel and motel room rental at a rate between 0.5% and the statutory limit of 5.0 %. The tax money would be used to pay back money borrowed to build the center.

The enabling state legislation—The Pennsylvania Third-Class County Convention Center Act of 1994—was written and championed by the powerhouse law firm of Stevens & Lee. The Reading-based corporation was also the registered lobbyist of High Industries, the General Partner of Penn Square Partners. Stevens & Lee was also the long-time solicitor of record for Lancaster County, in this capacity for more than a decade.

By 1999, Stevens & Lee could list among its many clients, Berks County (Pa.) and the Berks County Convention Center; and Luzerne County (Pa.) and the Luzerne County Convention Center.

Until this point, the senior Lancaster County state legislative representatives—House Appropriations Chairman, Rep. John E. Barley, and Sen. Gibson E. Armstrong—strongly supported the convention center concept, but both gave similar caveats for their support.

“I wouldn’t be interested in doing this [implementing a hotel room tax] unless I had the support of the affected community—the hotel people,” Barley said to the Lancaster New Era.

Armstrong echoed his colleague. “The hoteliers have to support it,” said the senator.

Republican County Commissioner Terry L. Kauffman seemed to be reading from the same memo: “It can’t compete with existing businesses. It has to help them.”

The problem was that the “existing businesses”—Lancaster County’s hotel and motel owners—didn’t think the convention center and hotel project would help them at all.

Rodney Gleiberman is currently, and was in 1999, the general manager of the 165-room Continental Inn on Lincoln Highway East in suburban Lancaster, near the popular outlet malls and the Dutch Wonderland amusement park. His father, Michael Gleiberman, with whom he co-owns the Continental, has developed more hotel rooms in Lancaster County than anyone.

“If I felt that this project offered any upside to my business, I would support it,” says Gleiberman today. “The reality is that this hospitality project has zero un-interested support from within the local hospitality industry, as it is not grounded in a complete and thorough feasibility study, any reasonable anecdotal nationwide track record, or the slightest bit of common sense.”

Gleiberman wasn’t the only hotelier to hold this view. He is one of dozens of hotel and motel owners that form the membership of the Greater Lancaster Hotel & Motel Association (GLHMA). The organization’s businesses represent more than half of the total rooms available in the county.

In the summer of 1999, before the tax was voted on by the Lancaster County Commissioners, GLHMA conducted a survey of 58 hotels listed with the county’s Pennsylvania Dutch Convention & Visitor’s Bureau (PDCVB). Of the 58 establishments, 54 voted against the project; three abstained pending more information. There was only one supporter among the hotels contacted—the Hampton Inn, owned by High Hotels, a subsidiary of High Industries, a partner in the project.

Peter Chicarrine, part of the executive management of the 280-room Eden Hotel and Resort and GLHMA member, said to the New Era. “Before we spend $30 million for a facility and another $45 million for a hotel, I think we should get the facts, and nobody has done that.”

Another GLHMA member, Tom Zeager, owner of an historic inn in Strasburg, was more blunt. “I think this will be a white elephant on the backs of the taxpayers. I don’t think it will work.”

The underlying economic justification for building a publicly financed convention center and adjoining 281-room privately-owned hotel was a $60,000 study commissioned in February, 1999, and fully funded by the Lancaster Campaign. The Ernst & Young “Market Study, Cash Flow Estimates, and Economic Impact Analysis,” released to the Campaign in July of 1999, was the basis for the feasibility of the project.

The first striking thing about the Ernst & Young study is that it isn’t a feasibility study at all. In the world of real estate appraisal, “Market” and “Feasibility” studies are distinctly different by definition. Ernst & Young intentionally called its report a “Market” study because it was not the much more substantial and comprehensive “Feasibility” study, which includes, among projects of profits and losses, a market study. Ernst & Young worked in a world where these terms were clearly an established part of the nomenclature of the business.

(The only actual Feasibility Study of the project was performed in 2006 by industry leader, Pannell, Kerr, Forster (PKF). The PKF report was jointly underwritten by the County and Robert E. Field, a local businessman, philanthropist, and publisher of NewsLanc.com. The PKF Feasibility study showed that many of the fundamental assumptions of the project were flawed, and that the revenues from the tax would not pay the operations costs of the center and the debt service on the massive taxpayer guaranteed borrowings.)

The second noteworthy aspect of the Ernst & Young study is the secrecy with which the report was released. Again, unlike the Winterbottom study of the year before, which held several public meetings that included organizations and regular citizens, the methodology of the Ernst & Young report was limited primarily to discussions with certain government officials, and a few carefully selected representatives from the hospitality industry. The community and some government officials were conspicuously left out of the process.

A reading of the report suggests why it was kept secret. While Ernst & Young concludes that a 61,000 square foot convention center and a 281-room adjoining hotel is the “most appropriate” of the four “scenarios” it analyzed, the report was very clear that a much more thorough study was needed. “It is important to note,” the Executive Summary states, “that this does not take into account the estimated costs associated with the development of each Scenario, the financial feasibility or the anticipated returns”. [Emphasis added.]

Moreover, the Ernst & Young study lists 23 “Critical Success Factors” for the project. The report names only three “Competitive Strengths” for the Lancaster project (costs to attendees; event costs; road access from major feeder markets). There were a total of seven “Competitive Weaknesses,” (air access; cultural and entertainment attractions; population; industry concentration; historical demand for lodging/meeting facilities; market image; other quality of life issues.) It seems Ernst & Young thought Lancaster had more going against it than for it.

The release of the Ernst & Young report was also handled very differently from the Winterbottom study, which was highly publicized and freely disseminated. The Lancaster Campaign’s Chairman, Tom Baldrige, promised the GLHMA members a complete copy of the report would be available to them.

In a letter to Allan Erselius, Executive Director of the PDCVB, August 12, 1999—four weeks after receiving the completed Ernst & Young report—the Campaign’s Baldrige rescinded his offer to the hoteliers to release the complete Ernst & Young study.

“At the most recent meeting with hoteliers,” Baldrige writes, “I assured them that they would get copies of the complete Ernst & Young study as a means to further their due diligence on the project. Unfortunately—and with much apology—I have been informed by Ernst & Young that I am not permitted to share the complete report.”

The full report, which was finished in mid July, 1999, was not released publicly until after the County Commissioners passed the Hotel and Motel Room Sales Tax on September 15, 1999.

]]> http://newslanc.com/2009/06/28/1999-part-i-convention-center-gets-15-million-from-the-state-with-a-lot-more-on-the-way/feed/ 0 http://newslanc.com/2009/06/24/letter-20-million-is-but-the-beginning-of-county-guarantee/ http://newslanc.com/2009/06/24/letter-20-million-is-but-the-beginning-of-county-guarantee/#comments Thu, 25 Jun 2009 02:39:26 +0000 Robert E. Field http://newslanc.com/?p=7250 “Yes, Lancaster County is only liable for $20 million of the $64 million in [Convention Center] construction bonds. But that does not tell the whole story.

“If ‘hotel [room sales] tax’ proceeds fall short of the amount needed to make construction bond payments, Lancaster County government is liable to make up the difference. About the only way that would happen is if hotel occupancy would collapse to about half of its current level; since ‘hotel tax’ collections have only slipped a few percentage points during the worst recession in decades, that is not likely to happen.

“*But what about the OPERATION of the convention center?* This is the issue that Craig Lehman has failed to address.

“It is obvious that the operational budget for the convention center is woefully inadequate. It is already clear that the convention center will need to generate more revenue than anticipated by the “pro-forma” estimates to make ends meet. This will be difficult, especially since utilization of the LCCCA’s spaces is booked at not much more than half of pre-opening estimates. And no major trade shows have been booked beyond the spring of 2010.

“Note that the LCCCA does NOT have any taxing authority; only the County Commissioners can raise taxes. Yes, the LCCCA can legally take the share of the ‘hotel tax’ that currently goes to the Pennsylvania Dutch Convention and Visitors Bureau. But would the County Commissioners willingly let the PDCVB lose such a large part of its funding? Especially since the ‘hotel tax’ funds the three full-time PDCVB employees whose job it is to promote the hotel and convention center.

“What will happen when the convention center needs additional funds to pay for its unanticipated operational losses? Would the County Commissioners really allow the convention center to close when it runs out of money?

“*Of course not.*

“Craig Lehman’s promises will quickly be forgotten, ignored, or rationalized when the LCCCA eventually is forced to come begging for more money.

“I challenge anyone to ask Craig Lehman exactly what he will do when the LCCCA needs additional operating subsidies. It will be interesting to see what kind of spin he puts on that answer.”

Time will tell whether or not it will “disappoint.” The same things were reported upon the opening of the Hilton Hotel in Lancaster Square some decades ago. But because of a paucity of hotel demand in downtown Lancaster (which still exists), it soon had to be taken over by its lender who could not find a buyer for decades and then sold at a tiny percent of the original cost. The Hilton, later called Ramada, and now The Brunswick, never has come close to meeting its expectations.

As for retired Fulton Bank former CEO Rufus Fulton possessing the “vision,” let’s just say that Fulton Bank was content to be a 10% part of Penn Square Partners when they were planning a $40 million improvement. As the project changed and grew towards $180 million, the bank appeared a hostage and ceased to invest further. It allowed its share in the limited partnership to shrink. Finally they were able to sell out to High and the Newspapers.

Furthermore, we suspect that the newspapers also got taken for a ride. However, their executives just weren’t smart enough to take notice. Moreover, they ‘whored’ their news departments which have not recovered the public’s confidence

Meanwhile Dale High’s firm raked in lavish development fees and got quasi-competitive construction and construction management contracts, first dibs on naming rights, along with eventual half ownership of a hotel underwritten by grants, real estate tax exemptions (despite PSP’s promises to the contrary), and city tax payers guarantees. Despite representations by PSP of having made a major investment, most of the so called investment is simply future payments out of anticipated revenue for debt service on the bonds.

Only time will tell whether the Marriott will be Lancaster’s “jewel” or a few years down the road a “thorn.”

Nevertheless, we wish the Marriott and the Convention Center well. After all, it is we taxpayers who have most of the skin in the game.

Could someone explain this to me? I thought it was meant to be a convention center. Now it’s limited to people who live two or three hours away?

Why would they come to a convention center?  For what events?

Well…just because it is now open, doesn’t make it ‘right’ for Lancaster City or County taxpayers, especially in the years ahead. We can only hope (and pray!), that things go better than anticipated (which would be a first), and that we don’t have to address a misguided albatross down the road.