Both Harrisburg and Lancaster Bond projects born of deception

EDITOR: The following is taken from NewsLanc’s Convention Center Series. The startling revelation appearing as a postscript came years later.

CC Series Chapter Four revised: The Deception Begins

By Christiaan Hart-Nibbrig

The first hint that the downtown “conference center” recommended by Bert Winterbottom might be located at Penn Square, rather than Lancaster Square, came in late November, 1998.

Days before the Stadium Bill vote was withdrawn from the House, speaking about the $15 million in state funds he expected Lancaster to receive for the center, Rep. John Barley remarked regarding its location:

“Could be there [Lancaster Square], could be Penn Square. I think they’re the two areas where it could end up going,” Barley said to the Sunday News on November 22. “It would be in the city.”

After Gov. Tom Ridge signed the amended Stadium Bill, in February, 1999, the only site discussed publicly for a conference center in Lancaster was the Penn Square location of the former Watt & Shand building.

No public explanation was given at the time for the switch, and reporters from Lancaster Newspapers evidently did not bother to ask for one.

A month later, on March 9th, buried in section C, page 20 of the Lancaster New Era, a short article appeared bylined by one of the New Era’s most senior and respected reporters, Ernest Schreiber.

“TOP CONSULTANT TO STUDY CITY CENTER PLAN

LANCASTER CAMPAIGN AIMING FOR HOTEL/CONFERENCE CENTER”

Schreiber reported that the Lancaster Campaign – which had just paid Bert Winterbottom for his high-profile study – had now hired accounting giant, Ernst & Young, to perform a $60,000 “market feasibility study” on the project located at Penn Square.

“The bottom line is to see if this will work,” the Campaign’s Tom Baldrige was quoted in article. “It is critical we do due diligence to make sure this project is feasible and that our money is well spent.

Schreiber, who would soon be the paper’s editor-in-chief, wrote: “Officials here expect that a city-controlled authority will own the state-financed conference center portion of the project, while a private corporation owns the hotel portion.”

There was no mention in the article of Penn Square Partners, the Winterbottom Report, nor of Winterbottom’s recommendation that a “conference center” be located on Lancaster Square

The completed Ernst & Young “Market Study, Cash Flow Estimates, and Economic Impact Analysis” was submitted to the Lancaster Campaign and Penn Square Partners General Partner, High Associates, on July 19th, 1999

For weeks afterward, members of Greater Lancaster Hotel and Motel Association (GLHMA) repeatedly asked Lancaster Campaign executive director, Tom Baldrige, to provide them complete copies of the document. Baldrige, after promising the hoteliers they could review the report, withdrew his “overpromise” of the full study in early August

In mid-August, in lieu of the full Ernst & Young report, the hoteliers were given the Executive Summary of the study. Immediately after reading it, GLHMA issued a sharp rebuke of its findings. In “Resolution 08-99,″ dated August 19, 1999, the hoteliers affirmed:

“… based on the information provided to date from the partial Ernst & Young report, the GLHMA is opposed to the proposed Penn Square Conference Center, further, that upon review of such a partial report and such limited information, the new business said to utilize such facility cannot be substantiated.”

Others were also interested in seeing the complete Ernst & Young report before the County Commissioners were scheduled to vote on imposing the hotel room tax at their September 15th board meeting.

In a letter to the Lancaster County Commissioners, dated September 07, 1999, Allan Erselius, Executive Director of the PDCVB, urged release of the full report:

“The Ernst & Young Feasibility [sic] Study is the basis from which we are to make our decision, yet the full report has been seen by only a select few. We would encourage you to release the full report to our Board of Directors and key hoteliers in order to gain their expertise in developing a well-rounded marketing plan.”

Luis Mendoza, a Republican Lancaster City Councilman, too, was stonewalled. “I made several requests to [Lancaster Campaign’s] Tom Baldrige, asking for a copy of the study,” Mendoza said . “I was the only one on Council asking to see it, and I never got to see it before the county voted on the tax, and before we voted on whether to set up the Authority.”

The Lancaster Campaign’s Baldrige sounded defensive speaking of the embargoed Ernst & Young report:

“Ernst & Young entered this market with no preconceived notions and ended its analysis with the conclusion that the (Lancaster) market is viable for a convention center,” Baldrige said to the New Era. “They have put their name and their reputation on that position. What’s the motivation to tell us something will succeed, if they really believe that it wouldn’t?”

A reading of the Ernst & Young report suggests why it was withheld by Baldrige and Penn Square Partners. It also suggests that Tom Baldrige, in his public comments, was either deliberately deceitful regarding the Ernst & Young conclusions, or he had not read the study. The same went for reporter Schreiber.

Ernst & Young did not conclude that the Lancaster market “is viable for a convention center,” as Baldridge stated and Schreiber reported. Its conclusions were far more tepid and equivocal than that.

Ernst & Young studied four “Scenarios”

“Scenario I – An upscale full service, chain affiliated hotel with 169 guest rooms and 13, 200 square feet of meeting space;

Scenario II – An upscale full service, chain affiliated hotel with 281 guest rooms and an attached, newly constructed 31,000 square foot Conference Center;

Scenario III – An upscale full-service Hotel with 393 guest rooms and an attached newly constructed 61,000 square foot Convention Center;

Scenario IV – An upscale full-service Hotel with 281 guest rooms and an attached, newly construction 61,000 square foot Convention Center.

What Ernst & Young concluded was that of the four “Scenarios,”:

“Scenario IV is the most appropriate of the development scenarios to investigate further based on the market information gathered to date.”

This is hardly a testament to the project’s viability

The Ernst & Young study is not a feasibility study, as one might expect for a project costing many tens of millions of dollars, and one that had never had a feasibility study performed on it. The Ernst & Young study is market report, and a not particularly comprehensive one, at that.

In the world of real estate appraisal, “Market”and “Feasibility” studies are distinctly different reports. Ernst & Young – leaders in the field of hospitality consulting – intentionally called its report a “Market” study because it was not the much more substantial and comprehensive “Feasibility” study. A feasibility study includes, among other things, projections of profits and losses, legal and operational feasibility, environmental impact, and includes within it a market study.

To underscore this, Ernst & Young authors themselves were explicit their Executive Summary:

“It is important to note that this [report] does not take into account the estimated costs associated with the development of each Scenario, the financial feasibility or the anticipated returns”. [Emphasis added.]

And far from an enthusiastic endorsement of a Penn Square hotel/convention center project, the Ernst & Young report pointed out several red flags for a center located in downtown Lancaster.

Ernst & Young listed 23 “Critical Success Factors” important for the project’s success. Of these 23, the report named only three “Competitive Strengths” for the Lancaster project:

“costs to attendees;
event costs;
road access from major feeder markets.”

The study then named a total of seven “Competitive Weaknesses” for the Penn Square project, including deficiencies in:

“air access;
historical demand for lodging/meeting facilities;
market image;
cultural and entertainment attractions;
population;
industry concentration;
other quality of life issues. “
Additionally, Ernst & Young warned ominously of “Threats” to the overall convention center market:

“According to representatives from the Lancaster Host Hotel, state association/convention business has decreased in recent years, with many groups combining to form a single annual event, and thus requiring larger venues.

“National trends corroborate the above observation, with the number of events remaining constant, but attendance at the events increasing.

It seems Ernst & Young thought Lancaster had more going against it than for it.

A final detail from the Ernst & Young report went completely unreported by Lancaster Newspapers. While newspaper reports repeated a $75 million price tag for the combined project, the Ernst & Young study estimated the project to cost of convention center and hotel to be $91 million.

The Ernst & Young report was not released until after the September 15th, 1999 vote by the Lancaster County Commissioners to impose a hotel room tax.

The Ernst & Young report, and the controversy surrounding its release, presented an ethical dilemma for Lancaster Newspapers, Inc.

In evaluating its four “scenarios” for the proposed convention center, Ernst & Young assumed the publicly-owned center would be attached to a privately-owned hotel. The hotel would be adapted from the former Watt & Shand building on Penn Square, according to the study.

The Watt & Shand building was owned, of course, by Penn Square Partners. And one of the three Penn Square Partners was Lancaster Newspapers.

In 1999, the 100 year-old newspaper company, led by its chairman and president, Jack Buckwalter, found itself a major partner in what would become one of the largest capital projects in Lancaster’s history. Tens of millions of taxpayer dollars were discussed in connection with this project.

Lancaster Newspapers’ business and editorial offices were also located directly across the street from the proposed project, on one of the four corners of Penn Square. The company owned other downtown real estate near the proposed project site, the value of which would be impacted by a convention center and hotel.

Given the vested economic interests of Lancaster Newspapers, both as a partner and neighbor to the project, and the public money that would go to funding it, questioning Lancaster Newspapers’ impartiality should have been expected.

One might have reasonably thought, too, that Penn Square Partner and Lancaster Newspapers’ chairman, Jack Buckwalter, would have explicitly ordered the staffs of his three newspapers to vigorously and impartially investigate and report the facts regarding the project.

That directive from Buckwalter – well within his purview as publisher — would have provided the public, his loyal, paying customers, with a basis for evaluating the project’s viability. It would also allow his newspapers to maintain their professional credibility.

But that did not happen.

The handling of the release of the Ernst & Young study in the summer of 1999 exposed a strong pro-project bias on the part of Lancaster Newspapers.

After the report was finished and submitted to the Lancaster Campaign in mid-July, it was reported that Lancaster Campaign executive director, Tom Baldrige, promised county hotel owners copies of the full report. Baldrige reneged on that promise, and the hotel owners were not provided copies of the report

Jack Buckwalter was a board member of the Lancaster Alliance, the organization that launched and entirely funded the Lancaster Campaign. The Lancaster Campaign paid for the Ernst & Young report with Lancaster Alliance money, part of which came from Buckwalter himself. Jack Buckwalter personally had proprietary access to the report

Buckwalter, therefore, could have insisted to his fellow Lancaster Alliance/Campaign board members – which included Penn Square Partners Dale High and Rufus Fulton — that the Ernst & Young report must be released. Or, Buckwalter could simply have made copies of the report and handed it to the editors of the Intelligencer Journal, Lancaster New Era, and Sunday News and told them to report its contents.

But Buckwalter did not do that, and the Ernst & Young report stayed sequestered and unreported by any of the Lancaster Newspapers.

The Lancaster Newspapers’ articles leading up to the September vote on the hotel room tax read more like public relations pablum than balanced, unbiased investigation into an important, expensive urban development project.

The headlines, front-page placement, and length of the articles reflect their editorial slant:

ELSEWHERE IN PA., HOTEL ROOM TAX IS BOOSTING BUSINESS, Lancaster New Era – August 19, 1999 (1,136 words)

CONVENTION CENTER, HOTEL PROPOSED AT PENN SQUARE

WHY NEW HOTEL ROOM TAX IS A KEY PART OF CONVENTION CENTER PACKAGE, Lancaster New Era – August 19, 1999 (1,486 words)

CONVENTION CENTER, HOTEL PROPOSED AT PEN SQUARE $75 MILLION PLAN TURNS EX-WATT & SHAND INTO LUXURY HOTEL AND SHOPS, WITH 14-STORY TOWER, Lancaster New Era – August 19, 1999 (1,734 words)

CONVENTION CENTER/HOTEL PLAN WOULD HELP CITY, COUNTY, Lancaster New Era- August 20, 1999 (608 words)

THE WATCH ON THE SQUARE: CONVENTIONAL WISDOM

EXPERTS LIKE LANCASTER’S CHANCES AT MAKING A GO OF LUXURY HOTEL AND CONVENTION CENTER, Sunday News – August 22, 1999 (1,650 words)

PENN SQUARE COMPLEX IS HAILED AS ‘EVERYTHING THE CITY NEEDS’, Lancaster New Era – August 26, 1999 (1,168 words

Adding column inches to some of these ‘articles’ were full-color, artistic renderings of the proposed project. These lovely, made-up images, with smiling pretend citizens under make-believe sunny skies, were splayed on the front pages of Lancaster Newspapers before the room tax was voted on. These illustrations amounted to front-page advertisements for the project

Most disturbingly, all of the Lancaster Newspapers got essential facts wrong about the project. The most important mistake, repeated over and again by each of the three newspapers, was the cost of the project.

The sponsors, which included Lancaster Newspapers’ Jack Buckwalter, knew very well that Ernst & Young estimated the cost of a 61,000 square-foot convention center and 281-guest room hotel to be $91 million, not the $75 million figure that was reported again and again and again.

It seems inescapable that Jack Buckwalter, Charlie Smithgall, Paul Thibault, Tom Baldrige and the other sponsors who obviously read the report – which was finished one month before these articles appeared – deliberately misled the public regarding how much the project would cost.

Not one of these men, including the newspaper publisher, corrected the $75 million figure. Not one.

There are crimes in journalism, and reporting as true what one knows to be false is a capital offense. And Lancaster Newspapers committed it in this case.

The Lancaster County Commissioners were scheduled to vote on the hotel room rental tax on September 15th, 1999.

On that morning, in its editorial, the Intelligencer Journal, to the surprise of no one, weighed in on the issue:

“… We also believe that the county commissioners should impose a room tax on hotels throughout the county to help pay to build the convention center and to promote tourism in both the city and county. . . .”

POSTSCRIPT: In 2013, an eye witness of unquestionable reliability told NewsLanc publisher Robert Field that a feasibility study had been ordered during early consideration of the project but, when a draft of the report was reviewed and found to be very negative, the report was canceled and thus never came to the attention of the public. 
XXX