CC Chapter Nineteen Revised: ‘An alternate use for the site’: The PKF Report

By Christiaan Hart-Nibbrig

Any hope that selecting Pannell, Kerr, Forster (PKF) to perform the first genuine feasibility study on the convention center project would bring harmony to the the Lancaster community was dashed almost immediately after PKF’s selection by the Lancaster County Commissioners.

On February 22nd, 2006, one week after PKF was retained by the County, David Hixson, Executive Director of the Lancaster County Convention Center Authority (LCCCA), announced that his board would not cooperate with the study.

Hixson made his announcement without a vote, and despite the fact that the Lancaster County Board of Commissioners co-created the LCCCA board and guaranteed its $40 million construction bond debt.

“A feasibility study at this point in the project is not needed,” Hixson said.

Among Hixson’s stated objections was that another PKF consultant had, five years earlier, testified as a witness for the hoteliers who brought suit against the project’s sponsors. Hixson also complained that Robert Field, whom he characterized as a project opponent, was subsidizing the study. Lastly, Hixson said the scope of PKF’s report was the same as previous reports completed years ago.

Both Commissioners Shellenberger and Henderson stood by the selection of PKF.

“It is my responsibility to look out for the taxpayers and their welfare,” Shellenberger said after PKF was hired. “We do not know if it [the project] is feasible.”

Commissioner Henderson also held firm on PKF.

“The information from a genuine feasibility study would be helpful in carrying out the authority’s responsibilities,” Henderson said. “By ordering a genuine feasibility study, the commissioners are undertaking what the authority should have done several years ago.”

David E. Arnold, an executive-vice president out of PKF’s Philadelphia office, was the lead consultant for the feasibility study. Arnold was surprised to discover that he would not be receiving any cooperation from virtually all of the sponsors.

Lancaster Mayor Rick Gray said there would be no participation in the study from the Redevelopment Authority of the City of Lancaster (RACL) or the city concerning the report.

The war of words over a convention center feasibility study played out over hundreds of column inches on the pages of Lancaster newspapers during the last weeks of winter, 2006.

On February 26th, for example, the PKF feasibility study dominated the Sunday News. The paper’s lead business writer, Judy Strausbaugh, captured the mood in her front page article, “A real study in contrasts”:

“The feelings are bitter, and the pens are poison.

“Last week saw a barrage of letters, e-mails and public statements from factions involved in the battle over the $137.8 million convention center/hotel planned for the Watt & Shand at Penn Square.

“The latest salvos in the eight-year war were ignited by the start of a feasibility study approved by County Commissioners Richard Shellenberger and Molly Henderson. . . .”

Nevin Cooley, in his role as spokesman for Penn Square Partners, circulated and publicly released an e-mail statement on behalf of the Partners. Cooley said no one from his partnership would cooperate with PKF.

Cooley said that the Fox-43 poll commissioned by Field about the project “has been exposed by credible experts as being severely flawed and misleading.” Cooley did not name the “experts.”

Field responded that the pollster, Opinion Dynamics Corporation, performed polls for Fox News and that the sample size was half again what would normally be required for accuracy.

Cooley’s message, like Hixson’s, also challenged Robert Field’s involvement in the study. Cooley wrote that Field as a hotelier and an “aggressive opponent of the project,” had a vested interest in the outcome of the study.

Cooley’s statement prompted Field to e-mail a reply with the subject line “Libel.” He pointed out that he had no ownership interest in hotels in the region or in city properties.

Field challenged Cooley’s statement and asked for a public apology. None was forthcoming.

Also on February 26th, LCCCA board Chairman, Ted Darcus, wrote an open letter to the County Commissioners’ published in the Sunday News.

In the letter, Darcus says one reason the Authority would not participate in the PKF study was the $65,000 contribution from Robert Field, whom, wrote Darcus, “is a self-acknowledged opponent” of the project.

Speaking for the other sponsors, Darcus wrote: “Specifically, neither the Redevelopment Authority of the City of Lancaster nor Penn Square Partners have expressed any willingness to participate in this further feasibility study by PKF.”

Darcus took the opportunity in the letter to take aim directly at Shellenberger and Henderson:

Please be advised that the authority views this study to be another example of the two commissioners attempting to usurp the powers of the authority, to diminish, distract and interfere with the ongoing business of the authority in fulfilling its statutory mission, and to bring further focus to the self-interests and competing goals of the project opponents.

For these reasons, the authority board and its staff will not participate in the process relating to the consulting services to be provided to the county by PKF Consulting.”

Darcus closed with a blunt warning to the two Commissioners:

Accordingly, the authority places the county and commissioners Shellenberger and Henderson on formal notice that: (1) PKF Consulting and the county are proceeding on your own, independent of the authority; (2) the authority will not be responsive to PKF Consulting’s data gathering, other than to continue to respond in conformity with statutory requirements; (3) the authority will not be responsible for any errors in, or misstatements of, data, contractual and/or legal relationships, or other information relating to either the project or the public agencies or private participants; but (4) in the event of any such errors, misstatements, or other dissemination of false or misleading information relating to either the authority, the project, or the public agencies and private participants, the authority will hold the county, commissioners Shellenberger and Henderson, and their consultants, and any public or private group or individual supporting such acts or omissions, financially responsible.” [emphasis added]

In the same Sunday News edition of February 26th, Nevin Cooley again explained why Penn Square Partners would not participate in the PKF study.

Cooley, in a barely veiled reference to the Conestoga View grand jury investigation, wrote nastily:

“In our view, these two commissioners, who live in a glass nursing home, shouldn’t throw studies. This is the wrong action at the wrong time by the wrong people.

“Feasibility studies are done at the beginning of projects, not after construction is under way.

“Although the two commissioners have claimed repeatedly that their feasibility study is necessary because a feasibility study never has been conducted for the project, the study they just commissioned will contain exactly the same scope of work as the November 2000 PricewaterhouseCoopers feasibility study.

If it looks like a feasibility study, acts like a feasibility study and talks like a feasibility study, it is a feasibility study.”

Of the project sponsors, only State Rep. Michael Sturla, whose role was always minimal, was willing to speak with PKF’s Arnold.

“I would love to [talk to PKF], Sturla said to Lancaster Newspapers. “I think if the feasibility study is done only with information from people with hostility to the convention center, I think there’s a pretty good chance that’s what the feasibility study will say.”

Jack Craver, the county-appointed LCCCA board member, defended the PKF study. His letter was published in the Sunday News and copied to other board members as well as Gov. Ed Rendell, state Attorney General Tom Corbett, the Lancaster City Council and other officials.

Craver’s letter criticized project developers for failing to conduct a feasibility study during the eight years the project had been in development, and encouraged them to embrace the PKF study.

Craver writes:

Not one study has been completed that addresses economic feasibility and estimates cash flow from the center project. . . . But what about several reports that the Lancaster County Convention Center Authority commissioned previously? Not one addresses the economic feasibility of the project.

“This PKF report will analyze the current economic viability and/or the associated economic risk of this disputed project.

“Unfortunately, as of this date, Penn Square Partners, the private developer of the hotel has refused to participate with PKF in this study and the authority has not yet said whether it will participate.

“As a new member of the authority, I do not want this project to fail.

“However, more importantly, I do not want the county and the city to be funding, via bond guarantees, a project that lacks current data to support its viability…”

Jeff Hawkes, a reporter and columnist with the Intelligencer Journal, wondered in print why sponsors were not cooperating with the PKF study.

“I’m confident PKF will provide an eminently reasonable and trustworthy opinion,” wrote Hawkes on February 28th. “Why project supporters aren’t cooperating with the consultant is beyond me. They have everything to gain. … It’s hard for me to believe a consulting firm would risk its international reputation to please some small-town officials.”

Around this time, late February, 2006, LCCA Chairman Ted Darcus, approached the County Commissioners Shellenberger and Henderson with the offer that if they dropped their new lawsuit challenging Act 23, and “cease and desist from all activity to obtain any market, feasibility or other studies of the convention center/hotel project,” the Authority would amend its financing contract with the county.

Under Darcus’ proposal, the Authority would agree to guarantee the use of its income from the county’s hotel room tax to pay down some of the debt service needed to finance the now-$137.8 million project.

Shellenberger said at a Commissioners’ public meeting that the offer from Darcus did not provide the protection for taxpayers for which he and Commissioner Molly Henderson had been seeking.

“It says nothing about the interest,” Shellenberger said. “And we all know when we pay a mortgage, most of the money paid the first few years is interest.”

Shellenberger said Darcus’ offer amounts to “horse trading.”

“I’m not interested in horse trading,” Shellenberger said.

When Darcus didn’t get the response he sought from the Commissioners, he fumed. “ I don’t know what they’re after,” Darcus said. “The more actions they take, the more it looks like they’re only interested in killing this project.”

The fireworks continued.

In response to a critical letter to the editor written by Nancy Morris, head of the Lancaster Economic Action for Downtown Success (and the former mayor’s sister), Robert Field wrote in the Lancaster New Era on March 23rd, 2006:

“Describing me as an ‘aggressive opponent of the project’ is not accurate, because I will accept and support the findings of the forthcoming [PKF] feasibility study regardless of its conclusions.

“PKF Consultants has a worldwide reputation for integrity and professional competence.

“It is ungenerous to believe that the firm would compromise its standards….”

In the second week of May, 2006, PKF delivered the first genuine feasibility study of the convention center and hotel project.

In the 83-page report, PKF frames its analysis around the key trend of supply growth in the meetings industry outpacing demand growth, thus creating a more fiercely competitive environment for convention events. This issue was developed in the Brookings Institute study of 2005, which detailed the trend in depth.

PKF noted that: “…functions that previously would have been held at secondary or tertiary convention destinations are now being accommodated at primary destinations, as the larger facilities in major markets have the ability to host numerous smaller events concurrently.”

However, the report states with balance, “…there is a renewed interest on the part of many convention groups to consider second-tier cities in their evaluation of destinations, primarily for pricing reasons. Although it is reasonable to expect that third-tier cities [e.g., Lancaster] will benefit from this trend, the options open to groups at this level are extensive. Similarly, Pennsylvania associations which operate on a rotational basis for site selection now have a venue available in several geographic and city locations, reducing the visit frequency for each location.”

The PKF study also painted a bleak picture of the downtown Lancaster hospitality market.

PKF writes:

“While the overall Lancaster County hotel market is stable, the downtown commercial hotel market has shrunk considerably in recent years. This has contributed to the decline of the Hotel Brunswick. Although the Marriott brand is extremely strong in this segment, the availability of Marriott products along Route 30 will limit this advantage.”

PKF, while noting some “Strengths” of the Lancaster area – its “wholesome image” ; tourism base; strong hotel brand; “historic attractions downtown— echoed the other market studies, pointing out Lancaster’s “Weaknesses.” Among them: parking and traffic issues, an undesirable downtown location, poor air access, and “Lancaster’s image not what conventioneers are looking for.”

It was an actual feasibility study. And PKF’s conclusion after its sober study?:

“The projected annual operating deficit of the combined entities is $1,281,000 (2006 value dollars) in a representative year. Although losses are expected with most facilities of this type and these deficits are offset to some extent by attendee spending within the community, there is great controversy as to the degree to which this offset occurs. In the case of Lancaster, much of the spending would occur outside of the City, where the bulk of the shopping, hotels and restaurants are located. Since travel would be required to accomplish this, the spending by attendees and delegates would likely be less than in a normal urban situation.

Our surveys indicate that a relatively limited amount of demand will be readily attracted to this facility without extensive marketing efforts and concessions on price. To the extent this is not successful, and depending on how these marketing efforts are funded, the downside economic risk is substantial.”

… [O]ur findings lead us to conclude that the potential economic benefits are not likely to be sufficient to justify the risks involved, including the potential need to raise the hotel tax to fund operating deficits after several years should the reserves become depleted. We therefore recommend that, prior to proceeding further with this project, the parties involved consider exploring a downsizing of the project or an alternate use for the site.” (emphasis added)