With the RACL purchase of the Watt & Shand building, the city authority would now apply for state loans or bonds on two issues of $24 million and $12 million, totaling $36 million. The bonds for the $12 million issue would be funneled through the Department of Community and Economic Development (DCED) under the Infrastructure and Facilities Improvement Program (IFIP), ratified in 1990.
The IFIP was intended as a state financial assistance program in which the DCED provides multi-year grants to eligible applicants. Grant recipients through this program sell bonds to finance qualifying “infrastructure and facilities” expenses, and then use grant funds from DCED to pay debt service on the IFIP bonds.
The IFIP statute was altered in July, 2004, with the amendment known as ‘Act 23.’
The principal author of the Act 23 amendment [12 Pa.C.S. §3406(b)(11)] was Sen. David Brightbill, a Lancaster County Republican. Brightbill’s amendment added language allowing “convention centers” and “hotel establishments” to fall within the IFIP funding guidelines. (Brightbill went to work for the Stevens & Lee law firm after leaving the legislature in 2007.) Sen. Gibson Armstrong was also a co-sponsor of Act 23.
Through the program, and under Act 23, RACL planned to apply for one bond for $12 million – to be serviced by anticipated annual state grants predicated upon projected tax collections by the state generated directly and indirectly by the project over a 20-year period. Then RACL was to apply for a second bond of $24 million from conventional sources in the bond market.
The new arrangements meant Penn Square Partners would be reimbursing RACL for debt service payments on the $24 million conventional bond and pay no property taxes for 20 years. After 20 years, the Partners had the option of buying the hotel for a small fraction ($2.5 million) of the property’s likely appraised value at that time. The Partners purchased the Watt & Shand building for $1.25 million, and sold it to RACL for $6.8 million six years later.
If the Partners couldn’t make the debt payments on the $24 million bond issue, the City of Lancaster would be responsible for making the payments. The City also agreed to waive all applicable fees related to the hotel’s construction, including for building permits. The fee waivers waived many hundreds of thousands of dollars for the Partners. The City also waived a Traffic Impact Study requirement for the project.
The project was now in the hands of the City of Lancaster, which was then led by fervent project supporter, Mayor Charlie Smithgall, and the Republican-dominated Lancaster City Council.
On April 12, 2005, after the City Council approved submitting the Act 23 bond application, the sponsors probably thought the money was as good as in the bank.
The city controller of a small city such as Lancaster has the role of overseeing the accounting and financial systems of the municipality. It is the role of an accountant. In the city of Lancaster, it is an elected position. Usually the Controller comes into office with the mayor of a city. It is a low profile, part-time position.
When Charlie Smithgall was first elected in 1997, his victory and re-election brought with him the entire Republican slate. The Controller on the ticket was a middle-aged, bearded, rather stiff, former West Virginian named Robert B. “RB” Campbell.
Campbell, with an accounting degree from West Virginia University, was a local commercial real estate broker when he was elected. The mayor and his controller had clashing personalities. The garrulous Smithgall, in 2005, was comfortable with the trappings of his office, and expected his agenda followed without questions. Campbell, an independent thinker with a brusque personal manner, bristled at Smithgall’s approach.
Before the school board TIF vote, the County’s special counsel, Howard Kelin, wrote a memorandum to the County Commissioners that questioned the eligibility of the project for the Act 23 funds. Campbell read the memo.
After the ‘miracle’ RACL rescue of the project was announced, it was taken as a formality that the Lancaster City Council would approve the Act 23 applications. And it was a formality. The Council voted 6-1 to apply for the $36 million in bond funds for the hotel. Luis Mendoza, a Republican, dissented and was the only “no” vote. Mendoza explained that Council members had not been provided sufficient information, despite his many requests.
The next step in the Act 23 process, usually automatic, was for the City Controller to sign the application documents before they were mailed to the Department of Community and Economic Development, the agency that disburses Act 23 funds.
But a funny thing happened on the way to the post office…
When the Act 23 application papers arrived on RB Campbell’s desk, he refused to sign them until, he said, “I could have an independent legal counsel advise me on the legality of the application. Howard Kelin’s memo raised some serious questions about the eligibility for the Act 23 funds.”
Kelin’s analysis centered on Act 23’s language requiring the “project user” — in this case, Penn Square Partners’ “hotel establishment” — to “timely pay all local and Commonwealth taxes and fees.”
Campbell believed, after reading the Kelin memo, and thinking for himself, that his fiduciary duty called for him to be certain about the legality of the application. Smithgall was furious, and, without discussing the matter with Campbell, immediately sued his controller, asking the court under a Mandamus writ, to force him to sign the documents. A Mandamus writ is issued by a Superior court to compel a lower court or a government officer to perform mandatory or ministerial duties.
Here is the timeline of the events surrounding the Act 23 application:
- April 12, 2005: City council votes to apply for $36 million in Act 23 funding.
- April 20, 2005 Controller Campbell is presented with documents related to the financing of the Act 23 grants.
- April 22, 2005, Controller Campbell sends letter to Mayor Smithgall stating that he would not execute the documents in question until he had assurance of the legality of the application in the form of an independent review by counsel of the Controller’s choosing to investigate the issues raised by Kelin’s memorandum.
- April 22, 2005 the Mayor sues the Controller to compel him to sign the documents.
- April 25, 2005, the Controller is ordered to appear in common pleas court; judge entered a preliminary “Mandamus” order requiring the Controller to execute the documents and, in the alternative, allowing the Mayor to sign as attorney-in-fact.
- April 27, 2005 The April 25 court order made permanent
- May, 2005 Campbell files appeal with Pennsylvania Commonwealth Court
- September 14, 2005 Campbell loses appeal to Commonwealth Court. County files amicus brief on behalf of Campbell.
Campbell’s defeat did not discourage Commissioners Shellenberger and Henderson. Although Campbell lost, they would take up his cause and bring another lawsuit on the same Act 23 challenge.
The clamor and attention the project was now generating stirred another Lancaster citizen. This man would charge onto the now raging battlefield. He was only one person, but was an army of one.
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