Measuring success of Convention Center Project

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We have been told many times that the hotel and convention center project currently under construction in Lancaster, PA will help to revitalize its downtown area. The $139.4 million (plus interest) taxpayer dollars spent on this project (so far) has been called an investment in the future of Lancaster.

We have heard many vague promises about how successful the project will be. What we have NOT heard are many specifics about what form this success will take.

For the sake of this article, let’s assume that the hotel and convention center meets the expectations of those who helped to create the project. What changes can we expect to see in downtown Lancaster as a result of a successful hotel and convention center?

The biggest advantage of a hotel and convention center is the number of people that it is expected to attract to the downtown area. It is hoped that the guests of the facility will take the time to visit surrounding shops and restaurants, spending money that will help to financially revitalize downtown Lancaster.

The most optimistic scenarios provided to the public indicate that the convention center will be utilized at most an average of two days a week. There has been no information whatsoever released to the public about the expectations of the hotel; it is considered to be privileged business information, in spite of about $40 million (plus interest) of taxpayer dollars invested in the $76 million hotel. Practically all events to be held in the hotel will include food, which greatly reduces the economic impact those guests will have in the surrounding downtown area. And some of the events to be held in the convention center spaces will also include meals and/or food service.

During any given event, anywhere from a few dozen to a few thousand people may visit downtown Lancaster. Much of their time will be spent within the facility, attending meetings and exhibitions. It is hoped that visitors to the hotel and convention center will spend at least some of their time shopping and dining in the area.

What might visitors spend their money on when visiting downtown Lancaster?

Guests from out of town might be attracted to shops and stands that specifically sell local merchandise. There are a few of these in the Central Market, and on West King Street near Penn Square. Other shops in the area sell high-end and specialty merchandise that might appeal to visitors with money to spend. The new business created by an influx of visitors might justify the opening of even more shops near the hotel and convention center; there are certainly more than enough vacancies within a block or two of Penn Square, especially on East King Street.

The catch for shopkeepers is that the business created by convention center visitors can never be consistent. Some days, thousands of visitors will be in downtown Lancaster; on most other days, no more than a handful of guests will be present. Whatever new businesses might open in downtown Lancaster must be able to sustain their cash flow during the majority of the time when the convention center is dark.

The same is true of restaurants. Some dining establishments in downtown Lancaster have already announced the hiring of more employees. Unfortunately, most of these jobs will be part-time out of necessity, depending upon the number of people who are interested in dining out at any given time. There may or may not be enough businesses created by the hotel and convention center to justify more restaurants in downtown Lancaster, but once again their business model must be sustainable all year.

In July of 2001, former State Sen. Gib Armstrong promised that the then $75 million project would create 300 to 400 new jobs. Sen. Armstrong did not specify whether or not all of these jobs would be inside the hotel and convention center. Interstate Hotels and Resorts, the joint manager of both the hotel and convention center, promised in early April of 2009 to hire a total of 225 to 250 people by the end of the year; about 80 percent of these are expected to be full time. Considering the intermittent nature of business downtown that could be created as a result of the hotel and convention center project, Sen. Armstrong’s estimates may indeed be accurate – if they include jobs created outside the walls of the facility.

What impact might the hotel and convention center have on local taxes?

As properties are improved and redeveloped as a result of increased traffic created by the project, there will be some increased real estate tax revenue. But since this business will be somewhat sporadic, whatever additional taxes are collected will be minimal, especially since there is no land available for new construction. This increased tax revenue has already been more than offset by the fact that the hotel will pay no real estate taxes whatsoever for at least 20 years, and the convention center will never pay any real estate taxes ever again.

There will be tax revenue from the local income and EMS taxes collected as a result of the new jobs created as a result of the project. Unfortunately, since most of these new jobs will pay little more than minimum wage, what wage taxes might be collected will clearly be less than the real estate taxes that would have been collected from the site if it were in the same condition that it was when the project was first proposed. In addition, the Penn Square Partners has promised to provide an annual $200,000 payment in lieu of taxes to Lancaster City, depending on how profitable the hotel becomes. Unfortunately, this is only enough money to pay for two and a fraction full-time police officers, far fewer than will be required to provide the traffic and other public safety services that are required by a hotel and convention center of this size. Meanwhile, the School District of Lancaster will receive nothing at all, placing an additional burden on local taxpayers. And none of this covers the millions of taxpayer dollars being spent on “streetscape improvements” that would not have been made without the hotel and convention center.

Taking all of this into consideration: how can the potential for “success” of the hotel and convention center be defined?