Who do they serve? Part Two

The following article appeared in the Lancaster Post on September 5, 2008:  by Artie See

The taxpayer-financed hotel and convention center in downtown Lancaster, PA would have never been built had it not been for a series of questionable actions taken by local public officials. At no other time during the last half-century have so many Lancaster City and County “public servants” done so much to benefit so few.

In 2003, County Commissioners Paul Thibault and Ron Ford decided to not run for another term. As the political campaigns to replace them took shape, most of the candidates for County Commissioner questioned the wisdom of proceeding with the greatly-enlarged hotel and convention center proposal. As “lame ducks”, Thibault and Ford took desperate action late in the year to make certain no future County officials could ever kill the project: they enacted a County guarantee for a future $40 million convention center bond sale. To make certain their successors could never revoke their actions, Thibault and Ford authorized a $40 million bank loan from Citizens Bank, called it a “bond sale”, then deposited the balance (less hundreds of thousands of dollars in legal fees) into the same Citizens Bank. This action cost taxpayers $18,000 a month for over three years, the difference between interest paid and interest earned. The third County Commissioner at the time, Pete Shaub, voted against these actions; ever the opportunist, after his reelection he worked to support the project.

Just over a year later, the leadership of the Penn Square Partners announced that they could no longer afford to build their “private” hotel if they also had to pay the full amount of taxes that would be owed on the building. The Penn Square Partners proposed that their real estate taxes would be frozen at the 2003 rates on the vacant Watt & Shand building for 20 years, in exchange for a promise of additional payments in lieu of taxes IF their profit margin would ever exceed an unrealistic 12%. The elected board of the School District of Lancaster held several public hearings on this issue; during one held at Edward Hand Middle School, both Democratic State Rep. Mike Sturla and Republican Mayor Charlie Smithgall shouted threats at school board members. Several of the school board members later received messages that if they didn’t approve the PSP tax abatement, additional State funding for the SDoL would be denied.

On Tuesday, March 16, 2005, at McCaskey East High School, the Penn Square Partners presented a slightly improved offer to the SDoL, which was presented to the school board in a motion by one of its members – but it was never seconded, so it died. The school board then attempted to negotiate by approving a counter-proposal; this was immediately rejected by S. Dale High himself, who declared the project dead. Mr. High’s anger at being rejected was demonstrated when he ordered the signs on the inside of the Watt & Shand building’s windows to be scraped off the next day.

Lancaster mayor Charlie Smithgall, aided by Rep. Mike Sturla and Sen. Gib Armstrong, frantically worked for the next several days to come up with a way to give the Penn Square Partners exactly what they wanted. Their solution practically ripped the “private” out of the “private-public partnership”: Lancaster City, through its Redevelopment Authority, would purchase the Watt & Shand complex from the Penn Square Partners (which had bought it for $1.25 million) by turning $7 million in previous State loans into grants. The Redevelopment Authority of the City of Lancaster would then build the hotel, practically guaranteeing that the structure would be tax-exempt. The Penn Square Partners would then only need to pay $10 million (later increased to $11 million) in “equity” (what form was never made public) to furnish and equip the $75 million hotel building; they would also make payments on a $24 million construction mortgage over 20 years. The deal (as approved by City Council) promised nominal payments in lieu of taxes to the Redevelopment Authority of the City of Lancaster, which holds title to the hotel building.  (In 2010, RACL provided money received from the PSP to the Mayors’ Office Of Special Events, which supposedly helps to pay for police overtime; these funds do NOT appear anywhere in Lancaster City’s budget.)  As a result, an agency of the Lancaster City government built the hotel for the benefit of the Penn Square Partners, and the SDoL will receive no taxes from the site for decades.

Out of several other examples of questionable actions by government officials to support the hotel and convention center project, one more is noteworthy. When bids for constructing the project were opened in July of 2006, they were more than $20 million over budget. The Penn Square Partners publicly proclaimed the project dead, one of over a half-dozen times they had done so. After weeks of frantic negotiation, once again involving Rep. Mike Sturla and Sen. Gib Armstrong, Lancaster mayor Rick Gray announced the funding gap had been closed, and the project saved. But many of these savings have never materialized:

The Penn Square Partners did increase their investment from $10 to $11 million in “equity”.

$7 million was added to the LCCCA’s borrowing power when the Lancaster City Parking Authority agreed to build the project’s parking garage.

An expected $1.5 million increase in the Act 23 construction bond turned out to be just over half a million dollars.

Most of an expected $5.25 million in “value engineering” was nothing more than fiction.

A $3 million easement for the Watt and Shand facade, which was to have been provided by the Historic Preservation Trust, has never been mentioned since.

$2 million in naming rights for the convention center has never been pursued by the LCCCA, because contractual agreements require half of this amount be given to the PSP.

In other words, the project was “saved” with the equivalent of smoke and mirrors.

How did the LCCCA proceed without these additional funds? It simply borrowed more money.

Updated: February 9, 2011 — 5:39 pm