Lancaster Newspapers up to old reporting tricks concerning Convention Center deficits

Lancaster Newspapers, Inc. is at it again and again and again.  It has now published at least its 2nd editorial opposing the Martin Plan (MP) for short-term convention center ‘bridge’ financing in favor of the Gray Plan (GP).  This is on top of at least 3 articles that call for the same.  I am not sure they printed that many opinion pieces on the recent presidential election.

Let’s first pause and realize that this debate is for a short-term solution.  The Convention Center (CC)  mess is just that, an economic mess the likes of which we have never seen in Lancaster County.  Either plan merely kicks the can down the road 5 years so that we can devise a permanent plan, and I am not sure if one exists that does not include slots and table games.

The burden for CC financing to date has been shouldered almost entirely by hotel taxes…paid for by hotel guests BUT with significant impact and cost to hotel operators.  These same hotel operators were promised to see benefit from the project but virtually none has been realized to date and there is very little hope of that changing…this is the primary reason that the vast majority of hotels whose parent company was not linked to this project have opposed it since day one.

Not only has the CC failed to deliver any significant amount of overflow rooms, the project in its entirety, consumes more hotel rooms from the market than it adds.  One must not forget the fact that while the CC may deliver some overflow, Kevin Molloy estimates 18,000 per room (~1.2% of rooms sold in the County) while the taxpayer subsidized downtown Marriott adds 109,135 rooms night per year to County supply.

Beyond the paltry overflow, the Lancaster County Convention Center Authority (LCCCA) has been touting the number of “events” which are being held at the center.  I am not sure what kind of events these are but one thing is very clear, virtually none of them include NEW (incremental) room nights to the County.  Either the LCCCA is overstating or exaggerating the number of events, or what constitutes an event OR this taxpayer financed project is merely moving business from one venue within the county to another.  Either way, there is no benefit to the hotels.

Who is benefitting?  Penn Square Partners (PSP) is certainly benefitting.  From a minuscule out-of-pocket investment * and almost no risk, they have been reaping rewards from the LCCCA since day #1.  With consulting agreements, interest-free uncollateralized loans from RACL, the total reimbursement of every cent they ever invested into the Watt & Shand building, development fees, construction and material contracts, guaranteed management fees to their hand selected CC manager IHR, etc., etc. etc., PSP wins.  PSP will also have the option to purchase the $60+ million hotel for as little as $2 million after 20 years.  All the while, they pay well below market commissions on food and beverage they sell within the CC.

Who else is benefitting?  The City benefits.  With almost no room sales growth between 2010 and 2011, and the CC backers touting their event tallies, it is clear that the number one market for CC business is the business that has existed in Lancaster for years.  In moving this business from outside the City to inside the City, the City is the second primary beneficiary of the project.  It would have been nice to add the property taxes paid for by the Marriott Hotel to the City but it does not pay any.

So now we can go back and look at the Martin Plan and the Gray Plan.  The MP spares more hardship on the hotels that bear the overwhelming majority of the burden and do so with little or no benefit.  It then asks PSP and the City to put in some real money.  PSP, over 5 years, would pay an additional $1 million in commissions (on revenue they derive in the CC) with an increased food and beverage commission that will still be well BELOW market rates.  The City is asked to either contribute $100K/year or guarantee some of the financing.

On the other hand, the GP simply maintains the status quo with the hotels being burdened by even higher taxes and with PSP and the City getting off for next to nothing.  PSP, actually High, relieves a portion of the debt that remains outstanding between themselves and the LCCCA…that’s right, the LCCCA owes money to High.  My question would be how could the LCCCA pay High if they cannot pay their debt service?  What does the GP call for from the City…a phone call?  The City would simply ask that RACL take money they already have and divert some of it to CC marketing.

Now anyone who had the facts can certainly understand why LNP (and PSP) would prefer the GP over the MP.  Why pay something when you can pay nothing?  That does not make it right and this is just a great example of the disservice that the monopoly print media in Lancaster has done for the past 12+ years in ‘reporting’ on a project where they hold a significant financial interest.

I am taking wagers on the total number of editorials that will be printed on this topic…the over/under is 5.

*EDITOR: The contribution was to be $11 million.  Despite ‘Right to know’ requests to RACL and the promise of information, NewsLanc has not received adequate information on how much money PSP has actually invested.