An Authority unchecked and unchallenged

(Forty-seventh in a series)

by Christiaan Hart-Nibbrig

These municipal authorities are a ‘shadow government.’ They have little accountability. They’re appointed, not elected. They wield an insane amount of power, and spend millions of taxpayer dollars. It is very troubling. It’s time to take a close look at them.”

– Pennsylvania State Representative Jesse White (D-46th) in an interview with NewsLanc. White has sponsored three bills (HB 1715-1717) aimed at strengthening oversight of Pennsylvania’s public authorities.

After the Lancaster County Commissioners voted in early 2006 to hire the consulting firm of Pannell, Kerr, Forster (PKF) to conduct the first feasibility study on the by then $145 million convention center project, the firm’s lead consultant, David Arnold,  was surprised to learn that he would not be receiving any cooperation from the Lancaster County Convention Center Authority (LCCCA).

In declining to participate in the study – a study ordered by one of the two governmental bodies that birthed the LCCCA – the convention center authority offered a glimpse into the unusual power and autonomy of municipal public authorities.

Especially in Pennsylvania, where there are more than two thousand, municipal authorities play an enormous, but largely unobserved, role in providing and financing services and projects ostensibly in the interest of the general public.

These special governmental units, whose board members are usually appointed by one or more regional governments, address services and infrastructure development such as parking, toll bridges and roads, solid waste disposal, sanitary sewer, and water.

The Lancaster Area Sewer Authority (LASA) is an example of such a multi-municipal authority.

The LCCCA was established by joint resolutions passed by both the County and City of Lancaster in 1999. In one meeting, on September 14 of that year, Lancaster County Commissioners passed ordinances 44, 45, 46 establishing the LCCCA and imposed the hotel room rental tax, an excise tax dedicated to convention center development and the county’s tourism agency, respectively. Later that evening, the Lancaster City Council passed a resolution forming the LCCCA.

Although the resolutions at one point empowered a feasibility report, the thrust of the Paul Thibault led county commissioners’ resolutions was to direct the LCCCA to develop a convention center, not to evaluate the need for one.

The county room rental tax provided 80 percent of the five percent room tax levied on every hotel and motel across the 940 square mile county.  This single act provided a revenue stream of about three million dollars per year – $250,000 per month — to the seven-member authority board to administer the project as they saw fit. Moreover, so long as there was debt remaining on the project bonds (which was under the control of the LCCCA), the tax, by law, could not be reduced nor eliminated by the county commissioners.

To lock this in place, the outgoing Thibault board arrange for a bond for $40 million through a bank,  of which only a tiny portion of the funds were drawn down, and future county commissioners were effectively blocked from repealing the room sales tax.

In 2006, the four city-appointed members of the LCCCA board of directors (who serve part-time without compensation) consisted of a director of the local Boys Club; a journeyman electrician with the local power plant; a mid-level school administrator; and a co-owner of a heating oil supply company. What board members Willie Borden, Joseph Morales, and Dave Schwanger did not possess was any experience in the hospitality industry, nor in building and running multi-million dollar projects with complex financing agreements.  (ChairmanTed Darcus had been president of City Council.)

By sharp contrast, the three county appointees had relevant professional experience related to multi-million dollar businesses. But the county-appointed members were three, not four, of the LCCCA board . . and that one seat plurality made all the difference.

Municipal authorities are usually one of two general types: a financing authority, or an operating authority.

A financing authority is generally used as a funding mechanism to take advantage of the tax benefits for which an authority can often qualify as a non-profit, tax-exempt borrower. This type of authority usually functions as a borrowing conduit to finance projects and/or services.

An operating authority, like the LCCCA, is usually tasked with building and operating a specific project or service, with the expected revenues applied to the authority’s expenses and debt service. An operating authority still has the advantage of issuing tax-exempt bonds.

A difference between the LCCCA and most other operating municipal authorities is that the Lancaster center, according to the LCCCA’s own financial advisers, was not projected to generate enough revenue to cover its debt and operating costs.

Therefore, after operating costs and debt service payments, should the LCCCA find itself with an ongoing deficit despite the current hotel room tax supplement, the authority would eventually have to find another revenue source to meet its financial obligations. Such a shortfall would endanger the county tourism bureau’s twenty percent of the room tax, which the LCCCA could appropriate in order to make up all or part of its shortfall.

State law permitted the county commissioners to raise the current five percent to as much as seven percent.  The raising of the room tax, with its potential negative impact on attracting travelers and on earnings, concerned project critics.

The LCCCA did not hire a professional executive director until three years after the authority was established. It is rare for an authority, let alone one charged with building a projected $145 million capital projects, to not have a professional executive director running the day-to-day operations from almost the start.

Retired Jim Pickard served as a part-time volunteer executive director for the first critical years. The Authority effectively turned its planning, negotiations and decision making over to the law firm of Stevens & Lee, to various consultants, and to an affiliate of The High Companies which acted as developer for the convention center. Stevens & Lee, the LCCCA’s solicitor, was also the law firm of record of The High Companies, of which another affiliate was the general partner of Penn Square Partners.

It was not until the spring of 2002 that the LCCCA board hired its first professional executive director, Michael Carper. Carper, a highly qualified former president of a prominent local property management company (Horst), resigned within six months. He made no public comment regarding his resignation, other than to say he was pursuing other opportunities.

In September of 2003, ten months after Carper’s resignation and after spending several million additional dollars, the LCCCA hired David M. Hixson as its executive director on Pickard’s recommendation.

Hixson, who was then 37, had six months experience as  “principal adviser” in the state Department of Labor and Industry. Prior to that, Hixson spent the bulk of his professional life in the public relations offices of then-Congressman Tom Ridge, and Lt. Gov. Mark Schweiker.  At the time, few if any questioned why Hixson, a public relations flack, was being engaged to oversee a hundred million dollar project.

Hixson proved to be as dependent on Stevens and Lee  as Pickard.  Often during public meetings Hixson turned for advice from attorney Espenshade.  ChairmanTed Darcus would only permit comments or questions from the audience during a period allowed at the outset of meetings.  Furthermore, it was his practice not to permit board members to respond to questions.

A municipal authority like the Lancaster County Convention Center Authority is, or is supposed to be, an independent public governmental body. It is subject to the same open records and ‘Sunshine’ laws as elected government offices. Authorities must hold public meetings with adequate public notice, respond to right-to-know requests, and perform due diligence in their capacity as stewards of public funds.  But otherwise, an authority is accountable to no others including the entities that originally created it.

Therefore, their oversight falls squarely within the purview of a vigorous, independent press, the so-called ‘Fourth Estate,’

For most of the 20th Century, the three Lancaster newspapers – the morning Intelligencer Journal, afternoon Lancaster New Era, and Sunday News – provided Lancaster County with competent and, at times, distinguished local coverage. The editorial pages of each of paper were meant to operate quasi-independently, with the Intell taking a more Democrat, or progressive perspective, and the New Era leaning Republican and to the right.  The Sunday News was typically a weekly summary and analysis of the major events of the week, and was heavy on religion. Its editorial page was closer to the New Era’s.

But a change in the quality of reporting began to emerge in 1999, the year that the LCCCA was formed and when the newspapers’ parent company had become a major investor in Penn Square Partners.

Lancaster Newspapers was an equal equity partner with General Partner, High Associates.   However, Lancaster Newspapers did not report its percentage of ownership in the project until a court hearing in 2006, seven years after the project officially commenced.

On August 26, 1999, the newspaper coverage of a public meeting before the key September county commissioners’ room tax vote blared a banner headline:

PENN SQUARE COMPLEX IS HAILED AS ‘EVERYTHING THE CITY NEEDS’;  STRONG PRAISE FROM CROWD OF NEARLY 300.”  The article began: “In a display that united old foes and bridged city-county and Republican- Democrat differences, county leaders have embraced plans for a $75 million downtown hotel and convention center with almost religious zeal.”

Only buried deep in the article were the objections of the hotel and motel owners who would be funding the “complex.”

Weeks later, after the tax was passed, which came with banner headlines and front-page stories, the pro-project reporting and omissions continued. For example, none of the Lancaster papers reported that the representations of sponsors that the project had feasibility studies performed were incorrect!  They were only market studies which do not deal with profits and losses. (The first feasibility study was actually conducted in the spring of 2006, and it concluded the project should be “downsized” or another use of the Watt and Shand site found.)

The selection of city-appointed LCCCA board members, seemingly chosen for compliance, despite inexperience, was never discussed, let alone challenged.

Lancaster Newspapers did not report on the role of Stevens & Lee representing the county and LCCCA, while also being the registered lobbyist for The High Companies. This potential conflict-of-interest where Stevens and Lee had represented or was representing both the private and public parties to the transaction was not a subject of concern to the Lancaster Newspapers.

In attacking the questions raised by the county commissioners, the Lancaster Newspapers editorialized that the majority of people supported the County Commissioners guaranteeing convention center bond debt.  The salient determination of the Fox 43 county poll that 78 percent with an opinion opposed county guarantees for the project debt was not included in reports in any of the three Lancaster Newspapers. (Robert Field, who underwrote the cost of the survey, took out a half-page advertisement in the morning and afternoon newspapers to publish the entire report and show the vast public opposition.)

The newspapers reporting claims that there was “No Plan ‘B'” if the school board turned down the tax abatement proposal while its management knew a ‘Plan B’ by which the City of Lancaster would own the hotel for twenty years had already been developed months earlier and was waiting in the wings.

Lancaster Newspapers also accepted without analysis the LCCCA’s bid overage representation in the spring of 2006. The amount of the overage was understated by $12 million!  The Sunday News ran a correction article after LCCCA board member Laura Douglas’ revelation.

When the Executive Director of Common Cause, Barry Kauffman, wrote a letter to Pennsylvania Governor Edward G. Rendell, urging the Governor to direct the Auditor General to investigate the LCCCA, it merited only a single sentence that was  awkwardly buried in the fifteenth paragraph of a barely related article.

The millions of dollars of taxpayer money that went to private consultants and massive legal bills, and the subsequent one-sided agreements between the authority and the private hotel partners, were reported only superficially.

In a letter to a Lancaster Newspapers reporter, Robert Field wrote: “Instead of running a newspaper, Lancaster Newspapers have become a propaganda rag.” Field, who had recently launched NewsLanc, publicly called for the newspapers to engage an ombudsman to examine and evaluate the fairness of newspaper reporting.

Later, the newspapers were to play major role in suggesting the project was in deep trouble and, at one point was dead, a possible deception which implications will be examined later in this series.

Thus Ted Darcus and his three allied city appointees on the board went unfettered by Fourth Estate scrutiny and resulting public opinion.


Chapter Forty-Eight: THE FOG OF WAR; PART TWO