From what I understand, convention centers across the country are rarely profitable. This is why the project was so appealing to Penn Square Partners. They could reap the benefits of the convention center (room nights and food service revenues) without incurring the losses from the convention center operations.
Furthermore, Penn Square Partners benefited by having no property taxes for 20 years as well as High making money via developer fees (above market rate) and the general trades contract during construction. They got a sweetheart deal.
The reason the interest rates are as high as they are with Wells Fargo is because of the “default status” of the project. Wells Fargo knows under this scenario the convention center is not in a position to get financing elsewhere. Furthermore, the existing swap liability makes financing elsewhere economically impossible.
Here are four factors why the convention center is in the financial position it is
A) There was no allowance for “reserve for replacement” in the 2007 projections. I would like to know why.
B) Penn Square Partners and High got a sweetheart deal on the food service contact. The convention center is getting 5% of gross revenues when market is 25% or more. Furthermore, the convention center paid for the kitchen including equipment. This deal should be renegotiated before any funding enhancement program is authorized by the county commissioners.
C) The 2007 projections for utility costs were too low.
D) The 2007 projections for the hotel tax were overly optimistic.
Why don’t we ever read this kind of analysis in thre paper???????????
EDITOR: A factor is that comments here are kept anonymous. In a town the size of Lancaster, people are very cautious about being publicly critical of members of the estblishment.
Dear Mr. Editor:
Your response to the above is a point well taken.
We all remember the hatchet job that LNP did on the County Commissioners that had the audacity to question PSP, in their attempt to protect the taxpayers from exactly what has happened.
The Intell editorial in todays’ (6/14) paper is a perfect example of LNP sticking it’s head in the sand, and refusing to acknowledge the obvious.
I would like to add #5, to your loist of 4 factors effecting CC finances.
The recent controversy between LNP and the Hoteliers on releasing their proprietary tax data sheds light on a 10 YEAR OLD problem with CC financing. In his request for this private data, LNP staffer Gil Smart uses the variance between what the County reports in total tax collections and what that collection would be if we collected tax on the amount of revenue reported by Smith Travel Research.
This variance, what could more appropriately be described as a gross OVERSTATEMENT by Smith Travel, has existed for more than 10 years. Smith reports unaudited, voluntary data which they collect from “some” lodging operators in Lancaster and then use computer models to “make-up” the difference.
The problem is that the LCCCA, in 2003, used this overstated data to convince Thibault and Ford to back their bonds, even though they had almost 4 years of actual (audited) County collections to use if they wanted to. Of course, that would not have allowed them to get their guarantee but why let reality get in the way of Dale’s project?
The result is that tax revenues on their model are overstated by 15-20% per year and we are now in year 10 of that model. That’s right, we were behind, WAY BEHIND, before we even put a shovel in the ground.
Even with a strong economy and consistent growth, there is no way we could possibly be hitting the numbers used by the LCCCA to secure our bond guarantee. Kind of like entering a boxing match with one hand tied behind your back.