Posted on May 4th, 2009 in Convention Center Series, News and Commentary
By: Christiaan Hart-Nibbrig
Lancaster County Commissioners Paul Thibault and Ron Ford had very good reason for passing the controversial convention center county bond guaranty just before the midnight hour of their terms. The two lame duck commissioners who voted for the guaranty in the week before the November, 2003, general election were aware that if they didn’t get it done then, there would be no county guaranty under their successors.
Thibault and Ford were aware of this because the majority of what would be the next board of County Commissioners was on-the-record opposing the county guaranty. Both Republicans, Shaub and Dick Shellenberger, said unequivocally they were against county bond backing. Of the other three contenders for the minority seat, Democrat Molly Henderson and Constitution Party candidate, Jim Clymer, similarly opposed the guaranty. Only Bill Saylor, the underdog Democrat, was non-committal on the issue.
If the Lancaster County Convention Center Authority (LCCCA) was going to borrow $40 to $50 million to construct a convention center, it needed Lancaster County and its AAA credit rating to guarantee the loan to qualify for a low interest rate and to maximize borrowing. Without it, according to the Authority, the LCCCA could only borrow half that amount. Given the candidates’ stated opposition to the county backing, it was clear the current board must pass the guaranty while still in office and it had the opportunity.
The October 29 vote and public meeting provided high drama for Lancaster County. More than 80 people crowded the Commissioners’ chambers on the fifth floor of the courthouse, many spilling out of the room. It was six days before the general election, one day after the formal request to the county by the LCCCA to guarantee the bond, and two weeks after introducing the issue to the public by hiring bond counsel to look into the guaranty.
Many of the Lancaster’s political power elite were in the audience, most in support of the county guaranty.
“If you do not do this [guarantee the bond], you might as well drive a stake through the heart of Lancaster City,” said Rep. Mike Sturla to the Commissioners.
Former Lancaster city Mayor Art Morris commented, “It bothers me that so many people stand up and try to throw things to try to kill the project. This [guaranty] is not unusual. It is elementary. It shouldn’t be a surprise to anyone in government. It shouldn’t be a surprise to the commissioners. There is no financial reason to oppose this. You can’t be afraid of your own shadow.”
The Authority’s financial advisor, Tom Beckett, said the county’s hotel room tax revenues would cover the estimated annual debt service even if the bonds were called. In the worst case, said Beckett, the complete failure of the convention center would cost between $2.66 to $2.76 per resident, per year, for the life of the bonds.
Lancaster mayor Charlie Smithgall seized on Beckett’s language in typical fashion. “That $2.66 is less than a Happy Meal,” said the fast-food loving Smithgall.
Jim Clymer attacked the hotel room tax, telling the Commissioners it was “fundamentally unfair to impose a tax on an industry that will finance its opposition.”
When the vote came, Republican Chairman Thibault, and Democrat Ford, voted to back the bond. Pete Shaub, who was about to be re-elected, voted against the ordinance, number 73.
The following Tuesday, November 4, Dick Shellenberger, Pete Shaub, and Molly Henderson were elected to the board of Lancaster County Commissioners. Jim Clymer garnered an impressive 18,000 votes. Shellenberger was the leading vote-getter, with more than 41,000 ballots in his column.
A few weeks after the election, before the county-guaranteed $40 million bond agreement was finalized, Commissioner-elect Molly Henderson’s husband, Alex, was allegedly confronted on Queen Street by Lancaster Newspapers Chairman, Jack Buckwalter. Mr. Henderson was the managing partner of a prominent Lancaster law firm. He and Buckwalter knew one another, were professional acquaintances, and sat on some of the same boards of directors.
According to Henderson, an agitated Buckwalter berated him because of his wife’s position on the county bond guaranty.
So why were Convention Center Authority sponsors, like Buckwalter, concerned about the incoming board and its position on the guaranty? Wasn’t it a ‘done deal?’
The answer can be found in a buried subsection of the enabling legislation, the 1994 Third Class County Convention Center Authorities Act, which reads:
“If and to the extent that the authority pledges its share of the proceeds of the tax authorized by this section as security for the payment of bonds issued by the authority for convention center purposes, the Commonwealth does hereby pledge to and agree with any person, firm or corporation subscribing to or acquiring bonds to be issued by the authority for convention center purposes that the Commonwealth itself will not, nor will it authorize a county to, reduce the rate of tax imposed for convention center purposes until all bonds so secured by the pledge of the authority, together with interest, are fully met and discharged,”
–16 P.S. Chapter 1; Article XXIII; (n) Third Class County Convention Center Authorities; Section 2399.23; subsection (f)
The $40 million Citizens Bank construction bond, although guaranteed by the commissioners, would be a debt of the Convention Center Authority. And, according to governing Pennsylvania law — the Convention Center Act of 1994 — until that debt was “fully met and discharged,” including interest, there appeared nothing any subsequent board of commissioners could do about lowering or abolishing the tax.
Thus, as long as the majority of the LCCCA Board was unwilling to repay the relatively small amount drawn down (closing fees and $18,000 per month in ‘negative arbitrage’), the incoming County Commissioners would be prevented from reducing or rescinding the hotel room rental tax, and therefore killing the convention center project.
The net result of the county guaranty and the issuance of the LCCCA bond effectively tied the hands of the new board of Commissioners unless and until the LCCCA Board arranged to pay off the bond.
Howard Kelin was hired in 2006 by the County Commissioners as Special Counsel to represent them against a suit brought by the Convention Center Authority. In the County brief filed with the court, Kelin writes of the 2003 guaranty and the speedy issuance of the bond in the waning days of the Thibault board:
“The county believes the 2003 financing was ‘fake financing,’ engineered to create debt to which the former lame-duck board of commissioners could adhere the County’s guaranty and to subvert the right of future Commissioners to consider and decide whether county taxpayers should guarantee financing for the project…”
There is disagreement about whether later boards of Commissioners would have the standing to revoke the guaranty and reduce or modify the room tax. There is precedent in Pennsylvania law with the courts setting aside similar actions when challenged by their successors.
In the leading case, Lobilito, Inc. vs North Pocono School District, [562 Pa 380, 755 A. 2d 1287 (2000)], the Pennsylvania Supreme Court concluded that ‘lame duck’ elected officials could not artificially bind the hand of its successors.
In Lobilito, a construction company, Lobilito, had entered into a construction contract with the North Pocono, Pa, school board. The newly-elected incoming school board opposed the controversial project. When the new board took office in 1994, they disavowed the construction contract. Lobilito filed a breach of contract suit against the North Pocono School District.
The Pennsylvania Supreme Court ruled that the newly elected board could disavow the contract of the previous board because it was inappropriate to ‘hamstring’ its successor board:
“With respect to those agreements involving municipal or legislative bodies that encompass governmental functions, we have repeatedly held that governing bodies cannot bind their successors.
“…The obvious purpose of the rule is to permit a newly appointed governmental body to function freely on behalf of the public and in response to the governmental power and body politic by which it was appointed or elected, unhampered by the policies of the predecessors who have since been replaced by the appointing or electing power. To permit the outgoing body to ‘hamstring’ its successors by imposing upon them a policy implementing and to some extent policymaking machinery, which is not attuned to the new body or its policies, would be to most effectively circumvent the rule.”
–Lobilito, Inc vs North Pocono School Disrict, 562 Pa 380, 755 A. 2d at 1289-90
One Lancaster attorney, who has worked on governmental issues concerning the county (and who spoke on condition of anonymity), said that because a judge later found that the passing of the bond guaranty was a “proprietary” rather than a “governmental” action, that guaranty couldn’t be reversed “whether the new commissioners waited a year or two, or whether they did it the first day in office.”
Another Lancaster attorney with decades of experience in municipal law (who also declined to be identified) disagreed, arguing that challenging the guaranty immediately might have made a significant difference in revoking it.
“Proprietary?” said the second attorney. “There were no architectural designs completed. Construction was years away. The financing was not secured. The public didn’t want it. I think it [the guaranty] could’ve been challenged and perhaps reversed. But there weren’t the votes on the board to do that at the time.”
He was right. The next board was not then interested in overturning the guaranty, or stopping the project at all. All three said they supported the project, and one of them was adamant that it get done sooner rather than later…
