Failure to report the true nature of the Convention Center’s financial problems

According an article “Visitors bureau releases convention center report; Calls for change to debt structure”:

First note:

“Al Duncan, of Thomas E. Strauss Inc., which operates Miller’s Smorgasbord, called attention to the $64 million in variable rate debt which funded construction of the center.

“’When has there ever been a public project done with a variable interest rate?’ asked Duncan, who was task force chairman.”

Then consider:

“The interest rates on those bonds are now 3.67 and 3.5 percent, the study found. Those were market rates in 2003 and 2007 when the bond indentures were signed, but after the economic downturn of recent years, those rates are ‘gold’ to Wells Fargo, the bank which holds the debt, said Duncan.”

The renegotiation of those agreements should be ‘job one,’ he maintained.

If indeed the interest rates were variable, their drop would have been a boon to the Authority, saving vast sums.

What really happened was, to increase the amount to be borrowed, ‘swaps’ , a form of derivatives, were purchased that restricted interests rates from dropping below or rising amount set ‘collars’.  Thus the Authority only marginally benefited from the favorable lowering of interests rates in the market.

So Mr. Duncan and perhaps the reporter got it all wrong; or perhaps the editors want the public to get it wrong to mask past errors.  A major factor for the ‘swaps’ transaction was to maximize the amount that could be borrowed.

Later in the article, there is an extraordinary acknowledgement:

“Convention center usage does not have a material impact on the center’s debt situation, Holzbauer said. In fact, even doubling center usage would not solve the current problem, the report states.”

We interpret that to mean that the project cost so much and was so ill conceived that it simply cannot break even when operated full tilt.  (No surprise to disinterested observers, including the writers of the PKF Feasibility Study which the Authority the sponsors and the Authority leaders chose to ignore.)

This was the reason why Fulton Bank and other local and national institutional declined to guarantee the LCCCA bonds for the project.   The arrangement with Wachovia Bank, which was soon to fail and be absorbed by Wells Fargo, was to enhance its short term earnings without due regard to longer term implications of what happens when the initial five year term of its guarantee expires.  (There may have also been other inducements  given Senator Gibson Armstrong’s powerful position in state government.)    Because of the immense risk involved since the Convention Center bonds were only partially gluaranteed by the county (unlike the bonds for the Marriott fully guaranteed by the City), the price in annual fees that the Authority now pays Wells Fargo is far higher than would normally be the case.

Lancaster Newspapers Inc. and Dale High sold the project to the public and got a sweetheart deal for their adjoining Marriott Hotel…no real estate taxes, one sided contracts, favorable interest rates on the project due to the City guarantee of the bonds, and the right to purchase the hotel in 40 years for a nominal amount .  Moreover, a high subsidiary received millions in so called management fees during the years of planning and another subsidiary was paid  tens of million more during the construction stage when others were unwilling to bid due to High’s close association with the project.

It isn’t often that a communities two largest entities join together to flim-flam the community.  If the newspapers weren’t a partner, can anyone doubt what they would be saying now…and likely all along?

We say once again, why don’t they just say they regret what occurred, and agree to make up the Authority’s losses?  Why make the public pay an extra one percent sales tax for their shenanigans?