LETTER: CSL report clearly avoids addressing the root causes of the convention center’s debt issues

There are several notable issues with the CSL report on the downtown Lancaster convention center:

Page 13 notes the total amount of “sellable event space” including the part of the convention center that is controlled by the Penn Square Partners (all of the third and fourth floors, including the upper ballroom). Yet the next several pages do not include this space; it is noted on page 18 that “Data for hotel-controlled space (floors 3 and 4) was not available.” Yet Interstate Hotels and Resorts SUPPOSEDLY markets all of the meeting spaces as an “integrated facility”; it is their oft-repeated claim that the customer chooses which rooms to use. If so, how can this space – owned by the convention center, built and maintained by taxpayers, yet leased to the Penn Square Partners for next to nothing – NOT be included in determining the center’s results? Obviously a significant portion of the convention center business is being diverted (intentionally or otherwise) to the Penn Square Partners, which directly receives revenue from events booked in the convention center!

Later in the report, this split of exhibit space is again mentioned several times. Page 33 notes “Floors 3 & 4 are leased to Penn Square Partners and are not included in this analysis.” A comment at the bottom of Page 34 states “It should be noted that figures for Lancaster include floors 1 and 2 of the Convention Center. Floors 3 & 4 are leased to Penn Square Partners and are not included in this analysis.” Yet there is no mention whatsoever of the direct impact to taxpayers of this lost revenue.

Now here is where the report gets strange. The following excerpt from Page 47 is so significant that I’m going to quote it in its entirety:

“Lease Agreement between the Authority and Penn Square Partners – The amended lease dated March 27, 2007 addresses the lease terms for 14,851 square feet of meeting, ballroom and business center space leased to Penn Square Partners (PSP) by the Authority. The lease term runs for 99 years, with a base annual rent of $100.00. PSP also pays a proportionate share of Convention Center maintenance costs (7.2 percent based on current calculations).”

This sounds like the build-up to something significant. Yet the very next paragraph is clearly a cop-out:

“Given the significant costs of developing convention and hotel space, it is very common nationally for the public sector to provide financial assistance in a variety of ways, including build-out of event space for use by hotel owners/managers. The March 27, 2007 Lease Agreement appears to be consistent with this approach.”

This statement is not consistent with the critical nature of the surrounding portions of the report. Might this paragraph been edited, toned down to divert attention from the fact that this specific agreement bleeds desperately-needed revenue from the convention center – and taxpayers? It might be common “for the public sector to provide financial assistance in a variety of ways”, and IN A VACUUM this might seem to be reasonable; yet in perspective, the “private” hotel pays no real estate taxes, and nearly $45 million of the hotel’s construction was paid for directly by taxpayers. In fact, the hotel doesn’t even own its building, which is held by the Redevelopment Authority of the City of Lancaster. The total amount of taxpayer-provided financial assistance to the Penn Square Partners is clearly unreasonable, and is in no way comparable to competing facilities.

On page 7 of the “LCCCA: review of bond docs” appendix, most of the proposals would negatively impact businesses and/or taxpayers within Lancaster City, which already has the highest taxes in all of Lancaster County; any of these would only serve to drive businesses and individuals out of Lancaster City. One of these proposals is particularly noteworthy in its fallacy:

“Tax Increment Financing: It is not uncommon to set in place a tax increment financing district from which various tax revenues in excess of a base collection level are contributed into a particular project, in this case the Convention Center. This concept should be considered.”

Tax Increment Financing diverts INCREASED tax revenue based on improvements made after a specific date. Base taxes remain unchanged, but taxes which are increased as a result of new construction or renovations are used to fund economic development projects. Tax Increment Financing is successfully being used to pay off loans used to create civic infrastructure on the former Armstrong site. Since northwest and north central Lancaster City is thriving, there is adequate construction and renovation going on to pave the way for new development in the former brownfield.

The reason a TIF will not work in downtown Lancaster is because there is no significant new construction or renovation going on. Had a TIF been implemented when the construction bonds were sold at the end of March 2007, tax revenue might have been collected from the new Lancaster Newspapers parking garage, the renovated buildings on East King Street, and the Subway across King St. from the Marriott Hotel. That’s all, folks! The hotel and convention center project simply has done practically nothing to spur economic development in downtown Lancaster (there is NO way the residential and commercial renovations in the 100 and 200 blocks of East King Street could even remotely be credited to either the hotel or the convention center). ALL of the remaining construction surrounding the hotel and convention center has been either non-profit or taxpayer funded. Besides, a TIF district by law cannot coexist with a LERTA (Local Economic Revitalization Tax Assistance) district, one of which has covered much of Lancaster City for many years.

The CSL report clearly avoids addressing the root causes of the convention center’s debt issues, and its recommendations suggest a naïveté that is unhelpful at best.