By Randolph Carney
Those of us who dared to ask serious questions during the inception and development of the downtown Lancaster taxpayer-financed hotel and convention center project were often called “naysayers”, implying that we didn’t know what we were talking about. Time has proven that we were indeed wrong in some ways, while we were quite correct in many others.
The convention center is actually hosting nearly the number of events that were planned by its promoters years ago, although revenue is slightly below expectations. Unfortunately for taxpayers, the cost of operating the convention center portion of the “integrated facility” has been considerably higher than predicted – compounded by a design that focuses on esthetics at the cost of efficiency. (There are no comparable figures available for the “private” hotel; its equitable owners and management treat its operations as if they were issues of national security).
Complicating matters are the complex agreements which so tightly bind the “private” hotel and the publicly-owned convention center. The operators of the hotel don’t even own its building (Lancaster City does, through RACL), and their “lease” payments are for a loan that amounts to less than half of its construction costs. Yes, taxpayers do receive some tangible benefit from operating the hotel and the convention center as a single “integrated facility”, but the agreements stipulate that taxpayers own and maintain all of the hotel’s meeting space and kitchen, and half of the hotel lobby (among other parts of the building).
Over the past decade, numerous newspaper articles and press releases repeatedly assured the public that revenue from the “hotel tax” would be more than enough to fund both the borrowing costs and the operational losses of the convention center. The reality is, during 2011 “hotel tax” receipts have been well below expectations. When combined with unanticipated operational losses, there is not enough revenue at current levels from the “hotel tax” to fund the convention center into the future. The LCCCA has found itself in the unenviable position of not being able to make its first ever principal payment, which has forced it to refinance its bonds under disadvantageous terms as its original 5-year “letter of credit” expires in early 2012.
What will happen next requires little speculation, thanks to the agreements which bind the project: the trustee of the convention center’s construction bonds has the legal right to unilaterally take control of the balance of the “hotel tax” which currently helps fund the Pennsylvania Dutch Convention and Visitors Bureau. In that event, it had been expected that the County Commissioners would then increase the “hotel tax” to the highest amount permitted under Pennsylvania law, but the current County Commissioners have repeatedly stated that they would not support such a tax increase. The PDCVB has already lost its State funding under Gov. Corbett; the loss of over a million dollars in local taxes would be devastating, especially considering how much of the convention center’s business is generated as a direct result of the activities of the PDCVB. The Visitors Bureau would be forced to slash its budget so it can operate with only the dues paid by its members, and the convention center would lose many of the services of its major promoter.
It is worth noting that the current LCCCA board and leadership have been taking extraordinary measures to postpone the inevitable. All but one of the original people behind the project are no longer associated with the convention center; all of those who have come since have worked far above and beyond the call of duty to keep the LCCCA operating within its unreasonably tight agreement-mandated budget, and to keep the “private partners” honest and within the boundaries of the agreements which bind all of these parties together.
The stated purpose of the taxpayer-financed hotel and convention center project is to provide support for economic development in downtown Lancaster, spilling out into all of Lancaster County. There has clearly been some impact: more businesses have opened in downtown Lancaster than have closed since the “integrated facility” opened, and existing businesses have seen an intermittent increase in volume. But in no way does any of this constitute a major impact; only one new building has resulted (a Subway restaurant across from the hotel which has negatively impacted food service revenue within the “integrated facility”), and the first few blocks of East King Street adjacent to the hotel are still among the most economically depressed in all of Lancaster.
There has also been a negative impact on the taxpayers of Lancaster City. The original promoters of the project publicly promised the School District of Lancaster $400,000 in new real estate tax revenue (which today would be much higher, especially if the hotel were to be appraised based on the actual cost to build it). Since ownership of the hotel building has since been assumed by the Redevelopment Authority of the City of Lancaster, the only taxpayer benefit from the “private” hotel is that it supposedly provides RACL with $200,000 in annual Payments In Lieu Of Taxes; half of this is reportedly given to the Mayor’s Office Of Special Events, where it is supposedly used to help pay for police overtime for special events. The problem is, there is no written record available to the public of this actually happening, not even in the comprehensive Lancaster City budget. Lancaster City taxpayers appear to receive no reimbursement for the costs of providing police, fire, traffic control, and other public services to the “integrated facility”.
There can be no doubt that the downtown Lancaster taxpayer-financed hotel and convention center costs taxpayers far more than any economic development which could possibly ever be derived from the project. In addition to tens of millions of dollars of taxpayer construction subsidies, the convention center debt payments and operational losses will total millions of dollars every year for decades to come. In addition, the hotel receives one million dollars annually from the State to help pay off its construction debt, for at least 20 years. Add to this the additional burden the project places on Lancaster City services, and it becomes practically impossible for this “integrated facility” to create enough economic development to justify its costs to taxpayers.
Supporters of the project often note that if it had not been developed, the site might still be vacant. Yes, it might; but it is far more likely that another use for the once-historic Watt & Shand building would have been found by now, had local officials put any effort of any kind at all into finding an alternative occupant. The Stevens-Smith project (which for all intents and purposes bankrupted the Historic Preservation Trust) might have been viable had its historic buildings been physically isolated from the massive convention center structure. Even in the unlikely event these spaces would still be vacant, the real cost to taxpayers would be minimal. Meanwhile, much of the economic growth which has occurred in downtown Lancaster would has happened anyway, as a direct result of the numerous other market forces which have independently started to turn downtown Lancaster into a vibrant place to live, work, and visit.
Excellent analysis….now all we need to have happen is for Lancaster Newspapers to print this without editing!!!!!
They got away with it. Period!
It seems that with the purported center activity and the lack of increase in room tax revenue, we are merely shifting business from one part of the County to the other. That being the case, any economic activity to the plus in the city could is most likely offset to the minus in the surrounding municipalities. I think it maybe time to start thinking about plan B.
EDITOR: It may be about six years too late!
I’ve learned that I made a mistake in writing this article. The LCCCA has indeed made payments on the principal of its construction bonds in the past. The statement “its first ever principal payment” should have instead read “its next principal payment”. My apologies.
I would like to emphasize once again something that I should have paid more attention to in this article. The current LCCCA staff has been making a truly heroic effort to keep the convention center operating as smoothly and efficiently as possible. The fact that all of this work has been accomplished by only two paid staff members, along with a board of volunteers, shows that in at least this area taxpayers are truly getting a real bargain.
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