Revealed At Last: the once-secret Legal Bills

From 1999 through 2007, the Lancaster County Convention Center Authority spent many millions of dollars from the "hotel tax" fighting off numerous legal challenges to the project and its financing. In spite of numerous requests for information and "right-to-know" requests, the past leadership of the LCCCA repeatedly refused to allow the public to know how their tax dollars were being spent on legal bills. Now that the convention center is completed, a more enlightened LCCCA leadership has fulfilled its obligations under the law, and released the invoices for legal fees paid through 2007. Links to copies of these bills are listed on this page.

Official Convention Center Documents Posted Online

Lancaster First is making available a collection of official documents and agreements which govern the hotel and convention center project. This includes all publicly-released studies of the project, the agreements which control the construction and operation of the convention center, along with other relevant documents. Links to these documents, along with a brief description of each, are available by clicking here.

Pictures of downtown Lancaster lost to "progress"

CLICK HERE to view photographs of downtown Lancaster that were taken before the "Urban Renewal" project of the 1960s.

Lancaster Post series about convention center project

CLICK HERE to read a series of articles about the downtown Lancaster hotel and convention center project which were originally published in the Lancaster Post during 2008.

Email from a concerned citizen

To Whom it May Concern,

I wanted to inform you of unprofessional experience that I had while looking into a management job at the new Marriott Hotel and Convention Center. I formerly worked for a major hotel chain in the United States. I have since left the hospitality industry to pursue other endeavors.

When I heard about this hotel opening the sheer size and magnitude of the project lit a fire inside me to be part of it. As it turns out, the company managing the hotel and convention center may have their hands full not only with delays in the opening, but their managers as well.

During my time in the Hospitality Industry I was always taught that a potential employee is always a potential customer and as such they should be treated with the same respect. In my dealings with Michelle Reynolds of the Rooms Division I received no such thing. I have never been treated so rudely by someone. I only spoke with her via email, but her arrogance and unprofessional manner shined through in these encounters. I question whether J.W. Marriott, a man which I once met, who is a man of great pride and integrity would approve of this person working a property of this magnitude and exposure.

I know some people would say that these are sour grapes since they chose not to even bother interviewing me regardless of my experience as a hospitality manager, but I assure you that it was the best decision that someone has ever made for me. A couple of days after I received word that I would not be considered my personal business took a very fortunate turn and I was very happy that I would not be leaving to work somewhere else.

I wish to remain anonymous and just felt that due to the nature of the Lancaster First website that I should let you know to keep your eyes open for more situations like mine.

Thank you very much,

A. Concerned Citizen

Another $6 million: How Much More?

At the Lancaster County Convention Center Authority meeting held on November 27, 2007, LCCCA chairman and acting director Art Morris reported on the state of contingency funding for the taxpayer-financed hotel and convention center project. Mr. Morris had been asked by the LCCCA board to study if currently available reserve funds will be adequate to complete the construction of the project.

The March 2007 construction budget included $1.3 million for contingencies. This same budget anticipated a rapidly increasing contingency fund, to nearly $8.5 million by the end of October 2007. This contingency fund was budgeted to grow to $12.8 million by April of 2008, then gradually decrease to $3.226 million by the anticipated end of construction in March of 2009.

Unfortunately, this same budget included inadequate funding - or no funding at all - for certain items, such as construction legal fees. The anticipated "value-engineering" cost savings never materialized to the amount planned. And change orders, partially due to rock removal and unanticipated architectural issues, began rolling in immediately.

At the time of the Wachovia construction bond sale at the end of March, 2007, State Sen. Gib Armstrong had promised the LCCCA $1.5 million in additional State funds for "hard cost" contingencies. This money has not yet been approved by the State in writing, but Art Morris reports the LCCCA has received a "letter of intent" that these taxpayer dollars will be available.

As of November 2007, the LCCCA has approved $1,061,000 in change orders. Many more are still waiting to be submitted for approval. Art Morris reported that out of the total of $2.8 million in existing contingency funds, he expects that $882,000 will be available for future unanticipated expenses. Everyone involved is convinced that this will not be nearly enough to compete construction of the taxpayer-financed hotel and convention center project. The amount of money that is expected to be needed for completion of construction of the convention center is $3.26 million.

LCCCA chairman Art Morris reported that he has been in discussions with the Penn Square Partners, including over their own contingency needs. Penn Square Partners reports that they anticipate the need for an additional $2.7 million to complete the hotel and "shared space". Left unsaid was that the Penn Square Partners are refusing to put any additional money of their own into the "private" hotel and "shared space". Complicating all of this is a passage from the "Joint Development Agreement", as amended, which clearly states that HALF of all future additional funding for the LCCCA must be shared with the Penn Square Partners.

Consequently, the Lancaster County Convention Center Authority plans to ask for an additional $6 million taxpayer dollars from the State of Pennsylvania. LCCCA chairman Art Morris has already had discussions with State Sen. Gib Armstrong to request this funding, and Sen. Armstrong reportedly will do everything he can to provide additional State taxpayer dollars to provide adequate contingency funding for the taxpayer-financed hotel and convention center project.

LCCCA chairman Art Morris admitted that if the State of Pennsylvania fails to provide the necessary funding to compete the hotel and convention center project, alternative sources of funding must be found. Since the LCCCA has no sources of funding other than the "hotel tax" and State grants, without additional State money the LCCCA would be forced to ask Lancaster County for a substantial increase in the "hotel tax".

Will an additional $6 million - on top of the already additional $1.5 million from State Sen. Gib Armstrong - be enough money to complete the taxpayer-financed hotel and convention center project? Only time will tell.

UPDATE: as of the March 27, 2008 LCCCA board meeting, none of this additional funding is yet available.

Penn Square Partners Denied Additional State Grants

At the LCCCA board meeting held on October 30, 2008, it was announced that State Sen. Gib Armstrong had promised the LCCCA would receive an additional $3 million out of the $3.2 million which had been requested to complete construction of the project. However, the Penn Square Partners' request for an additional $2.8 million State grant had been rejected.

In addition, conditions were attached to the LCCCA grant that none of the money be shared with the PSP, in violation of the agreement which specifies that any additional State grants be shared equally between the LCCCA and PSP. There is no word as to how the Penn Square Partners will react to this development. This may become a major issue, since officials from the PSP have been quoted in the media many times as saying there will be no additional up-front investment beyond the $11 million in "equity" already committed.

At the LCCCA board meeting held on November 20, 2008, it was confirmed that the last of the State grant money promised to the LCCCA was being made available. This includes the remaining $1 million from the additional $1.5 million promised by State Sen. Gib Armstrong in March of 2007.

According to the LCCCA web site, the currently estimated cost of the project is $174.4 million.

Mutation

by Artie See
Scheduled to be published in the Lancaster Post on October 24, 2008, but was not due to lack of space.

...in their own words...

"Redevelop the Watt and Shand Building as a major mixed-use attraction with retail, visitor attractions, office space and other uses – a lively, vibrant, successful place."

- 1998 LDR study of downtown Lancaster

"The investors' plans for the store are still up in the air, but it seems likely the building will have offices - possibly for the county - on the upper floors, and retail/tourism space on the first floor."

- Lancaster Sunday News, Jan. 18, 1998

"What we're trying to create here is a mixed-use project that can house a variety of uses that will bring people into Lancaster to work, to play and to visit."

- Tom Smithgall of High Real Estate, quoted in the Central Penn Business Journal, Oct 30, 1998

"Private investment would fund much of the estimated $45 million it would take to convert and expand the former Watt & Shand Building into a 281-room luxury hotel and new retail shops. The 61,000-square-foot convention center - and an accompanying expansion of the King Street Parking Garage - would be built solely with public dollars, at a combined cost estimated at $30 million."

- Lancaster New Era, Aug. 19, 1999

"The convention center would combine a $35 million publicly owned conference and convention center with a $45 million privately developed 294-room Marriott Hotel on Penn Square. The convention center would likely be 160,000 to 200,000 square feet -- just under the size of a Wal-Mart supercenter."

- Lancaster New Era, July 10, 2002

"Once officials envisioned a 61,000-square-foot center costing about $30 million. Now they are planning a multi-purpose center of nearly 200,000 square feet, costing $55 million. That's triple the size and nearly double in cost."

- Lancaster New Era, Dec. 5, 2002

"The current estimated cost is $124 million, which includes $70 million for the convention center and $54 million for the hotel."

- Lancaster New Era, Sept. 15, 2004

"The price tag, from groundbreaking to the last light bulb, is now estimated at $129 million. The hotel will rise 17 stories, making it the tallest building in the county. The Griest Building, across Penn Square, is 13 stories tall."

- Lancaster New Era., Nov. 11, 2004

"City Council moved the $129 million convention center/hotel project from stall to full speed ahead as it agreed to back two new bonds — adding up to $36 million — to complete the financing of the hotel portion of the project. And council gave its blessing to the Lancaster City Redevelopment Authority to buy the former Watt & Shand building and work with Penn Square Partners to develop the $60 million luxury hotel in the building."

- Lancaster New Era, April 13, 2005

"Keeping costs at or below that figure is critical for developers of the 300-room Marriott Hotel and adjoining convention center proposed for Penn Square. Project officials have said $129 million is the maximum available from public and private sources."

- Intelligencer Journal, April 19, 2005

"With about half of the construction designs completed, the cost for construction has gone from $129 million to $134 million."

- Lancaster New Era, July 9, 2005

"The total estimate is now $137.8 million, or $8.8 million above what developers have said they can raise for construction."

- Intelligencer Journal, Oct. 22, 2005

"City Council voted 4-1 to buy the vacant Watt & Shand building from private developer Penn Square Partners for $7.06 million. The price includes reimbursement for costs incurred by the partnership during the seven years it owned the building and the cost of design documents for the proposed hotel."

- Intelligencer Journal, Oct. 26, 2005 "Skyrocketing construction costs and determined opposition to a hotel and convention center proposed for downtown Lancaster likely have killed the project after nearly eight years of planning, developer Penn Square Partners announced Wednesday. Bids for construction contracts were $20 million over the project's $138.9 million budget as of Wednesday afternoon, a hurdle Penn Square Partners said was 'likely too great to fill.'" - Intelligencer Journal, July 27, 2006

"The Watt & Shand building is coming down, and the cost of its replacement on Penn Square — a hotel and convention center — has gone up. The project is now expected to cost $165.5 million, an increase of $10.1 million, new figures released by the Lancaster County Convention Center Authority show."

- Lancaster New Era, Nov. 16, 2006

"Convention Center and Hotel Project Total Area: 412,079 square feet Hotel Facilities: 161,417 square feet; 13 floors Convention Center Facilities: 183,917 square feet Shared Space: 66,745 square feet Approximate Cost: $174.4 million, including hard construction costs (associated with the building), the costs of furniture and fixtures, and soft costs (such as financing)"

- http://www.LCCCA.com/facts-figures.htm, October 2008

Rubber stamp

by Artie See
Originally published in the Lancaster Post on October 17, 2008

For most of its existence, the board of the Lancaster County Convention Center Authority was nothing more than a "rubber stamp", consistently voting as expected. As the controversy over the financing of the project intensified, the County Commissioners eventually appointed individuals to the board who weren't afraid to ask meaningful questions; these board members were accused of trying to kill the project. Some of these same people later played a significant part in untangling the convention center's inadequate construction budget, saving the project from financial paralysis. Yet once the convention center opens for business, the LCCCA board will be prevented from ever again playing a meaningful role in its operation.

From its formation in late 1999 until 2005, the only requirement for membership on the LCCCA board seems to have been good political and/or business connections. Many of the individuals appointed to the LCCCA had already served on various other boards, and all appeared to be qualified. The problem is, until 2005 there is no record that anyone associated with the LCCCA had any kind of experience in the convention or hospitality industries. As a result, the members of the LCCCA board had no idea if what they were voting on was the right thing for a downtown Lancaster hotel and convention center; they only had the word of the Penn Square Partners to base their decisions on.

Both former chairman James Pickard, and his successor Ted Darcus, ran the LCCCA board with an iron fist. Questions from the public went unanswered; as James Pickard said, "We also wish to clarify what the 'public comment' portion of the agenda is NOT: It is not a question and answer session." For a time under James Pickard, "public comment" was only held at the end of a board meeting, after actions were already taken. Former chairman Ted Darcus had a habit of intentionally looking down at his desk when a member of the public was speaking, often pretending to read or write while concerned citizens tried to make their point. Questions from board members were openly discouraged, both by the chair and other board members. No LCCCA committee ever met on a regular basis.

In 2005, at the height of the controversy over the project's financing, the County Commissioners appointed three new members to the LCCCA board who were not afraid to ask questions. Two of these had extensive experience in the hospitality industry, and the third had lengthy business management experience. Chairman Ted Darcus repeatedly criticized the new board members for asking questions; the more pointed the question, the stronger Darcus' criticism became. Darcus, along with other board members, repeatedly accused the three new board members of wanting to kill the project, even though they were only trying to fulfill their duties.

The LCCCA's construction bonds were sold at the end of March 2007, which sealed the fate of the project; this meant construction could begin in earnest. Over the next several months, many members of the LCCCA board either resigned, or their terms expired. Ted Darcus resigned as chairman, but was immediately re-appointed as a board member Even executive director Dave Hixson resigned.

With former Lancaster mayor Art Morris as the new chairman of the LCCCA board, everything changed. Committees were formed, and started holding public meetings every month. Comments from the public were openly welcomed, and questions were answered for the first time in years. Of course, this was like closing the barn door after the horses got out; once the bonds were sold, nothing could change the project.

But something very interesting happened. The construction budget left behind by Dave Hixson and Ted Darcus proved to be grossly inadequate, particularly in providing funds for change orders. Art Morris, along with some of the board members who had dared to ask questions (and were accused of trying to kill the project), spent a huge amount of their own time calculating how much money would be required to complete the project. Additional State grant money was requested to make up the deficit (and was promised to be provided by Sen. Gib Armstrong). Without the actions of Morris and the other board members, the project would be in serious trouble right now. People who were once branded as project opponents helped to save it from a financial calamity.

Unfortunately, once project construction is completed, the LCCCA board will be reduced to an oversight role. The agreements between the LCCCA and the Penn Square Partners dictate that all operational decisions will be made by joint hotel and convention center manager Interstate Hotels and Resorts. The LCCCA board will be relegated to an "oversight" role, with no real authority over the convention center or its operation.

Once again, the LCCCA board will be nothing more than a "rubber stamp".

Risk

by Artie See
Originally published in the Lancaster Post on September 26, 2008

In March of 2006, the Penn Square Partners released a document titled "What's the Risk?", which was designed to reassure the public at a time when controversy was at a peak over the hotel and convention center project in downtown Lancaster. The local media then heavily promoted the claims of this document as proof the project is a good idea.

"What's the Risk?" focused on the potential cost to taxpayers of public guarantees for the project, but only if it were to be a complete failure, or if revenue from the "hotel tax" were to collapse. No mention was made of what would happen if the convention center or hotel would generate less revenue than needed to pay its obligations.

The concept behind a convention center in downtown Lancaster seems to have been "if you build it, they will come." In 1998, the Lancaster Campaign commissioned the Pinnacle Advisory Group of Boston to study the possibility of a downtown convention center. Its report, which was never released to the public, clearly spelled out that a convention center would be inappropriate for downtown Lancaster.

Consequently, the Lancaster Campaign in 1999 commissioned Ernst & Young LLP of Philadelphia to perform a second study, focusing on the Watt & Shand site. This report was widely proclaimed as justification for the project. However, the report's own introduction includes many limitations and qualifications, which casts doubt on its own conclusions.

As further justification for the project, the fledgling Lancaster County Convention Center Authority in 2000 ordered yet another report by PricewaterhouseCoopers LLP (a company which appears to have never issued a negative report to one of its clients about a proposed convention center). Updates were provided by PWC in 2002, and C.H. Johnson Consulting in 2003, as justification for the massive expansion of the project. These reports are still being quoted on the LCCCA and Penn Square Partners' web sites to this day, in spite of PWC's withdrawal of their conclusions in March of 2005.

Several "pro-forma" estimates of convention center income and expenses were released to the public before its construction bond sale in March of 2007. Each subsequent estimate included less operational income that the previous one, but all included projected losses that just fit within the "hotel tax" proceeds which are expected to remain after bond payments. More recent "pro-forma" estimates have been produced by Interstate Hotels and Resorts, the manager of both the hotel and convention center, which again show operational losses that would barely be covered by the "hotel tax". But no one will explain how these estimates were arrived at.

What would happen if the convention center were to lose more money than expected?

The "hotel tax" could be increased to the maximum amount allowed by law, 5% for the convention center by itself, and 2% for the Pennsylvania Dutch Convention and Visitors Bureau. If this revenue is insufficient, Lancaster County would be forced to raise real estate taxes, since the LCCCA has no other source of operational funding.

To make matters worse, Wachovia's construction bond guarantee is only for five years. If revenue from convention center operations consistently falls well below previous estimates, Wachovia would be within its rights to refuse to renew the bond guarantee. This would greatly increase the interest cost of the "seven day demand" construction bonds, leaving even less revenue from the "hotel tax" to pay for operational losses.

An even bigger risk is in the "private" hotel. Only $11 million in "equity" - which has never been explained to the public - has been invested in the hotel by its private partners. Another $24 million is supposed to come over 20 years from future earnings of the hotel. The remaining anticipated $40 million cost to build the hotel and its part of the "shared space" is from taxpayer dollars via the Redevelopment Authority of the City of Lancaster, which holds title to the hotel building.

The Penn Square Partners have taken out a five-year $24 million construction loan as their share of the construction costs. At the end of five years, PSP is obligated to convert the balance into a mortgage. If hotel revenue does not meet expectations, obtaining a mortgage for the hotel could be difficult. If PSP cannot refinance the construction loan, it could declare bankruptcy (without affecting its parent companies), leaving Lancaster City taxpayers stuck with an unprofitable hotel.

The biggest risk is to Lancaster City itself. If the convention center and hotel fail to generate the amount of economic development needed to justify the cost of this project, tens of millions of taxpayer dollars over five decades will have been wasted. A convention center that is dark most of the time, plus an under-utilized hotel, would be a drag on Lancaster's economy from which there would be no escape.

Historic Preservation prevails

by Artie See
Originally published in the Lancaster Post on September 12, 2008

The one bright spot that has come out of the hotel and convention center project in downtown Lancaster, PA is the preservation of several historic buildings. But achieving this success involved controversy that reflects that of the project itself.

What is now known as the "Stevens & Smith Historic Site" began with four historically significant buildings. These include the former home and law office of Thaddeus Stevens, along with the adjacent former Kleiss Saloon (also owned by Stevens) at the northeast corner of Queen and Vine Streets. The other two buildings are located at the corner of Vine and Christian, and were at one time owned by Stevens' long-time housekeeper, Lydia Hamilton Smith. A woman of mixed race, Smith operated them as boarding houses.

Thaddeus Stevens is perhaps the most influential politician that ever lived in this area. A Lancaster City attorney, Stevens was a lifelong opponent of slavery. As a member of the Pennsylvania legislature, he successfully defended Pennsylvania's fledgling free public school system from attacks by wealthy and religious factions. As U.S. Representative, Stevens played a crucial role in the abolition of slavery, and was instrumental in the creation and passage of three amendments to the U.S. Constitution.

Lydia Hamilton Smith, Stevens' housekeeper and confidante, is noteworthy because she was a successful businesswoman of color at a time when few women or minorities operated their own businesses.

The original plan for the convention center, a completely separate building from the hotel, would have required the demolition of all the historic structures on the southern end of the site. James Pickard, then chairman of the Lancaster County Convention Center Authority, insisted that these historic buildings stood in the way of the project. The Historic Preservation Trust held easements to preserve the historic nature of these buildings, donated by a former owner; the director of the HPT at the time, Randy Harris, fought valiantly to save them from demolition. The LCCCA then proposed moving the buildings across Vine Street, which satisfied no one. Mr. Pickard even went so far as to persuade the Redevelopment Authority of the City of Lancaster to prepare to nullify the HPT's easements.

Fortunately, former mayor Charlie Smithgall, along with State Senator Gib Armstrong, convinced the LCCCA to forge a compromise with the Historic Preservation Trust. The LCCCA agreed to preserve the front section of the four Stevens/Smith properties, while demolishing the rear. The LCCCA also demanded that the Oblender's building be demolished, which had been a grocery store that was owned by a close friend of Thaddeus Stevens.

During excavations of the site prior to demolition, a cistern was discovered behind Stevens' home that included a small passage, which suggested it might have been used as a hiding place for runaway slaves. Stevens had often defended minorities, and had even employed a spy who would learn the plans of slave hunters and pass this information on to runaway slaves. There is no real evidence that Stevens actually did hide runaway slaves, but it is possible.

When the hotel and convention center project was greatly enlarged in 2003, the historic properties once again presented a challenge - and an opportunity. The now 47,842 square foot main convention hall is being built at an angle to the rest of the structure. This allows the convention hall to clear the Smith buildings, while integrating the Stevens and Kleiss buildings into the convention center itself. An underground museum, part of the Stevens & Smith Historic Site, is being built inside the lower level of the convention center, where the cistern will be visible to convention visitors.

The Stevens & Smith Historic Site is expected to be a $20 million project. The exterior of the Stevens, Kleiss, and Smith buildings are expected to be restored by the time the convention center is to open in the spring of 2009. The interiors of these buildings, along with the exhibit areas inside the lower lobby of the convention center, are planned to be completed some time in 2010. The ground floor of Stevens' home and office are to be restored to an appearance consistent with the time Stevens lived there, and will be a part of the museum. The ground floor of the Kleiss building is to be the museum store. Upper floors of these buildings are expected to be offices.

The corner building once owned by Lydia Hamilton Smith is expected to be leased as commercial space, providing revenue to help offset the operational costs of the site. The other Smith building is to house an exhibit about the history of minorities and women. And the Swan Hotel, across Vine St. from the Kleiss building, is to be restored and leased to a private partner as a restaurant.

Some time in the middle of the next decade, the Stevens & Smith Historic Site plans to build a new educational center at the rear of the Swan Hotel, across from the Vine St. convention center entrance. These plans include converting a carriage house along Christian St. into an auditorium and café.

We have often pointed out the many issues with the hotel and convention center project. It is fortunate for all that, in the midst of all the controversy, historic preservation has to some small degree prevailed.

Who do they serve? (part two)

by Artie See
Originally published in the Lancaster Post on September 5, 2008

The taxpayer-financed hotel and convention center project currently under construction in Lancaster, PA would have never been built had it not been for a number 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 our last article, we wrote about a number of instances where State Senator Gibson E. Armstrong literally rewrote Pennsylvania law to make this project and it highly unusual financing legal. But Sen. Armstrong is not alone in working to use more and more of our taxpayer dollars to keep this project alive.

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. Other school board members received threats between meetings 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 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. Smithgall's 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) to furnish and equip the $75 million hotel building; they would also pay off a $24 million construction mortgage over 20 years. The deal (as approved by City Council) promises nominal payments in lieu of taxes to the City of Lancaster, which is free to share with the School District of Lancaster as it sees fit. As a result, an agency of the Lancaster City government is currently building the hotel for the benefit of the Penn Square Partners, and the SDoL has received no taxes from the site for years.

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. Unfortunately, many of the savings Gray had detailed never materialized:

- The Penn Square Partners did indeed increase their investment from $10 to $11 million.

- $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, Lancaster mayor Rick Gray "saved" the project with the equivalent of smoke and mirrors.

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

Who do they serve? (part one)

by Artie See
Originally published in the Lancaster Post on August 22, 2008

Elected and appointed government officials are often referred to as "public servants". We vote in primary and general elections for the individuals that we believe would do the best job of serving we the people. We expect that once these individuals take office, they will take actions that are in the best interest of all. We also expect that they will appoint individuals to boards, commissions, and authorities that will do the same.

It is plain to see that the taxpayer-financed hotel and convention center project has made a mockery of the term "public-private partnership": $11 million in "equity" (whatever that means), plus $24 million to be paid out of future profits, out of a $176 million (so far) project, makes for highly unequal "partners". It is clear that taxpayers carry an inappropriately large share of the burden in this project.

The Penn Square Partners have often been criticized for taking advantage of taxpayers, and rightfully so. But this raises another important question:

Who let them get away with it?

Unfortunately, it was the government officials who we elected to represent our interests. They repeatedly created and amended laws to make the hotel and convention center project possible. As the project evolved, and the Penn Square Partners demanded more and more from taxpayers, these same officials repeatedly worked to give the PSP exactly what they wanted.

Of particular note are the efforts of Republican State Senator Gibson E. Armstrong, who worked very closely with Democratic State Representative P. Michael Sturla. Rarely has bipartisanship been demonstrated in such a way that made it possible for any project to spend more and more taxpayer dollars on the "private" part of a "private-public partnership".

In February 1998, the Penn Square Partners purchased the Watt & Shand complex in a private sale. In less than a year, the focus on the site was for a hotel and taxpayer-financed convention center. During the same time period, Sen. Gib Armstrong and former Rep. John Barley negotiated concessions in a stadium funding bill so it would also provide State money for smaller stadiums and convention centers. The problem was, Pennsylvania law prevented a convention center from being built with public funds if there was already "an existing convention center which covers an area of more than 40,000 square feet." Sen. Gib Armstrong's solution was to introduce and shepherd through to passage in late 1999 an amendment to State law which modified this prohibition, making a taxpayer-financed convention center legal in Lancaster County.

Fast forward to 2005. By this time, Lancaster City (through its Redevelopment Authority) had purchased the Watt & Shand complex, freeing the Penn Square Partners from paying any real estate taxes on their "private" hotel for decades. Since the Redevelopment Authority of the City of Lancaster has no taxing authority of its own, it is dependent on State taxpayer dollars to provide enough funding to construct the hotel building. No less than eight separate grant programs provide funding to build the "private" hotel, all of which were shepherded through the system by Sen. Gib Armstrong. The biggest one of these is from "Act 23", co-sponsored by Sen. Armstrong, which provides State grants for economic development projects based on anticipated increases in State sales and income tax collections. In the case of the hotel being built by Lancaster City, it provides for a $14,523,716 bank loan, to be paid back over 20 years by $1 million a year in State grants - which is the amount of new State tax revenue expected to be generated by the hotel and convention center.

But there was a catch: "Act 23" grants are based on actual tax revenue collected over a period of three years; since no tax revenue would be generated by the hotel and convention center project during construction, this would severely impact the amount of the State grant for the following three years. In addition, the original wording of "Act 23" required the private user - in this case Penn Square Partners - to "timely pay all Commonwealth and local taxes and fees", which the PSP had already refused to do. To eliminate these issues, Sen. Armstrong (as chair of the Senate Appropriations Committee) took a bill already passed by the House that would have provided tax credits for film productions, gutted the existing language, and replaced it with wording that amended "Act 23"; it was passed in the spring of 2006. As a result, State "Act 23" grants are now guaranteed for the first six years (the first three-year cycle was based on estimated tax receipts, now the second three-year cycle is also). In addition, it is now legal for Lancaster City taxpayers to pay real estate taxes on the "private" hotel, if the for-profit facility is ruled to be taxable. It is interesting to note that every single Republican State representative in Lancaster County voted against this bill.

Meanwhile, other local officials were bending over backwards for this project…

Funny money (part two)

by Artie See
Originally published in the Lancaster Post on August 8, 2008

One issue that has been avoided by the mainstream media is the complex construction financing of the convention center project. Last week, we discussed the how the basic construction financing of the convention center was arranged. This article will try to explain what has happened to the financing of the project since the LCCCA's bond sale.

After the March 2007 Wachovia bond sale, the LCCCA had $63,920,000 in cash that it had to put somewhere. According to the terms of a 2003 ordinance passed by former County Commissioners Paul Thibault and Ron Ford, M&T Bank is the trustee of the LCCCA construction funds. Since the LCCCA is a governmental body, it is required that the deposit of these funds must be put out to bid, to earn the highest interest rate. One type of investment which was considered is a "Guaranteed Investment Contract", in which a financial company will re-invest funds for a maximum rate of return, then guarantee both the funds and the contract's interest rate. Bids were accepted only from companies with AAA credit ratings.

The winner of the bidding process was MBIA, a diversified financial insurance company that has several divisions, including one that specializes in municipal accounts. Their contract provides the LCCCA with 5.3% interest on the remaining balance in their construction account, which as of this writing is just under $29 million.

One of the terms of the "Guaranteed Investment Contract" agreement with the LCCCA is that if the rating of the investment company were to fall two full steps, the investment company had 15 days to either refund the LCCCA's cash balance upon request, or "collateralize" the remaining balance by holding enough equity to cover the LCCCA's account balance. No one seriously expected this clause to ever be invoked; however, the sub-prime mortgage security crisis has adversely affected most investment companies, including MBIA.

On Friday, June 20th, 2008, MBIA's credit rating was lowered by Standard & Poor's to "AA", and by Moody's to "A2". Fitch has ceased rating the company. These actions triggered the "collateralization" provision of the "Guaranteed Investment Contract"; MBIA had until Monday, July 7 to fulfill the terms of the agreement. Had MBIA declared bankruptcy before this was resolved, the LCCCA could have lost some or all of its remaining construction funds.

Fortunately for the LCCCA, MBIA came through in time. A new collateralized "Guaranteed Flexible Draw Investment Contract" includes MBIA's deposit of at least 103% of the amount of the LCCCA's remaining funds at Wells Fargo Bank, in the form of government securities. As the LCCCA's funds continue to be spent for construction, the "Guaranteed Investment Contract" will expire in October of 2008. No decision has yet been made on how to invest whatever funds may remain at that point.

Unfortunately, there are other financial issues that plague the convention center project.

The individuals who put together the convention center's construction budget calculated that there would be enough excess funds from the "hotel tax" to build up more than enough of a surplus to pay for any budget shortfalls. Even though the proceeds from the "hotel tax" have been higher than expected, this has not happened.

In late 2007, LCCCA board chairman and then-acting executive director Art Morris carefully studied the convention center's construction budget, and uncovered some serious concerns. Mr. Morris observed there was $200,000 or more in "change orders" requested every month; for the most part, these are for issues which were unanticipated in the design of the building. This amount is not out of line with other projects, however the LCCCA's construction budget only provided for $1.3 million in contingency funds. In anticipation of additional cost overruns, State Sen, Gib Armstrong had already promised another $1.5 million in State grants; this provides the LCCCA with a total of $2.8 million in reserve funds, which is still not enough to cover all of the expected additional costs. As a result of his research, Mr. Morris announced a request for an additional $3.2 million in State grants at the LCCCA finance committee meeting on November 27, 2007. At the same time, the Penn Square Partners requested an additional $2.8 million State taxpayer dollars to complete its part of the project.

As usual, the wheels of government turn slowly. As of the writing of this article, the LCCCA has been able to apply for $500,000 of the original $1.5 million in additional reserve funds promised by State Sen. Gib Armstrong. There is no word about the status of the additional funds being requested, although Sen. Armstrong has reportedly promised the LCCCA that it should know by the end of September if and when it will actually receive the funds it requested.

This additional money is required to complete the project. If for some reason this State grants are not approved, the LCCCA will be forced to find another source of revenue - possibly through an increase in the "hotel tax".

But that's not the end of the story…

Funny money (part one)

by Artie See Originally published in the Lancaster Post on August 1, 2008

One issue that has been avoided by the mainstream media is the complex construction financing of the convention center project. As one local reporter told me, this subject can make people's eyes glaze over. Unfortunately, this is one issue that has the potential to cost taxpayers a lot of additional money, both in the short term and for decades to come.

I have gathered information about the convention center construction financing from a number of different sources. I'm no accountant, but I will try to understand and explain these important issues to the best of my ability. Please note that this article is limited to convention center financing only; the financing plan for the hotel is yet another complex issue.

The first part of the convention center's financing started out as a $40 million bank loan. During the campaign for Lancaster County Commissioner in 2003, almost all of the candidates opposed a taxpayer guarantee for the convention center. After the election, incumbent commissioners Paul Thibault and Ron Ford needed to take drastic action to make certain the LCCCA would be able to borrow as much money as possible to build the proposed convention center. By a 2 to 1 vote (Pete Shaub voted "no"), the Lancaster County Commissioners agreed to guarantee one-half of a $40 million bond sale. But for the guarantee to stick, there needed to be a bond to guarantee. Consequently, the LCCCA borrowed $40 million from Citizens Bank, paying hundreds of thousands of dollars in fees to do so. The LCCCA then deposited the balance in this same Citizens Bank, receiving $18,000 less in interest per month than the cost of interest for the loan. Over the three year and three month duration of this bank loan, taxpayers had to pay well over one million dollars in interest and fees, all so that future County Commissioners would be held hostage to the convention center project.

When the construction bonds were finally sold at the end of March in 2007, the "hostage loan" was converted into bonds. To maintain the fiction that the original bank loan was indeed a bond, the March 2007 bond sale included $40 million in "Series 2003" bonds, with a maturity date of October 1, 2043.

By March of 2007, the convention center project had grown far beyond its original relatively modest design. Besides an increase in exhibit space, the LCCCA is now responsible for building half of the public areas of the hotel, known as "shared space". An additional $23,920,000 was required to complete the greatly expanded project. This part of the bond sale is known as the "Series 2007" bonds, with a maturity date of March 1, 2047.

Neither part of this combined "bond sale" was sold as a conventional municipal bond. Instead, Wachovia Bank was charged with selling "seven-day variable rate demand bonds" of $100,000 or more, in increments of $5000. According to the offering documents of both the 2003 and 2007 bonds, the purchaser never receives a certificate of ownership; instead, the bonds are registered in the name of "Cede & Co.", which holds a bookkeeping entry in the name of the bond purchaser. The bonds bear interest at a weekly rate determined by Wachovia. There is also a provision for these bonds to be converted to a "term mode".

All of the documents which describe these bonds clearly state that their creditworthiness is based on a guarantee by Wachovia Bank, not on the credit rating of the LCCCA. Wachovia Bank has issued a five-year "letter of credit" for all of the LCCCA bonds, which expires March 1, 2012. This "letter of credit", which is designed to lower the interest rate paid by the LCCCA, costs taxpayers 9/10 of a percent for the "series 2003" bonds, which include the Lancaster County guarantee, and 1.25 percent for the "series 2007" bonds. There is no word on what happens to the bonds when the five year "letter of credit" expires.

There have been many reports in the news recently about the volatility of interest rates. The LCCCA anticipated this, and in an attempt to limit its risk it entered into an "interest rate swap" agreement with Wachovia Bank. This means that both parties gamble that future interest rates will move in a direction that favors their part of the agreement. The base interest rate that the LCCCA pays Wachovia Bank is fixed at 3.65 percent; adding the costs of the Wachovia "letter of credit" plus the bond remarketing fees brings the total cost to taxpayers to 4.843 percent on the $63,920,000 40-year bond sale.

The catch is, either party can buy their way out of the "interest rate swap" agreement, at considerable expense, if they see they are losing large amounts of money on the deal. With current market conditions, it is likely that Wachovia is paying far more for interest on the bonds than was anticipated at the time of the bond sale. If Wachovia would terminate the "interest rate swap" agreement, it could cost the LCCCA far more in bond payments than can be paid by the proceeds of the "hotel tax". This would mean that taxes would need to be raised to keep the LCCCA from going bankrupt.

…to be continued

The ties that bind

by Artie See
Originally published in the Lancaster Post on July 11, 2008

At the end of March in 2007, the Lancaster County Convention Center Authority sold $64 million in construction bonds. This permitted the construction of the taxpayer-financed hotel and convention center project – which was already under way – to legally proceed. Those who are behind this project act as if this bond sale means the hotel and convention center project is now free to be an unqualified success.

It is not.

Please consider the agreements upon which dictate the ownership and operation of the hotel and convention center (a collection of which are available for download at: www.LancasterFirst.org). Many of these agreements clearly take advantage of the LCCCA, which is completely funded with taxpayer dollars. Together, these agreements clearly represent abuse and misuse of our taxpayer dollars.

For example:

The "Declaration of Condominium" agreement, dated March 27, 2007, includes the following excerpt from section 2.2(m):

"Convention Center Unit" means Unit number 1 to be owned by the LCCCA which will consist of the following areas of the Property and the Building currently constructed and to be constructed on the Property, as more specifically depicted on the Plats and Plans:

(i) All Interior areas on the Watt & Shand Meeting/Administration Level;

(ii) All Interior areas on the Watt & Shand Ballroom A Level, except the Hotel Business Center;

(iii) All Interior areas on the Watt & Shand Ballroom B Level;

(iv) Those Interior areas on the Watt & Shand Lobby Level identified as Kitchen (and notwithstanding anything to the contrary contained herein, including Kitchen equipment), Mechanical and Sound Control Room.

This clearly means that the LCCCA will pay to build, own, and maintain areas which will also be used by the Penn Square Partner’s "private" hotel. Note that even though the hotel will use the only kitchen in the entire complex 80% of the time, taxpayers are being forced to pay for 100% of its construction and maintenance!

Section 5.3(a) spells out how proceeds from the sale of "naming rights" for the convention center will be allocated:

…fifty percent (50%) to the Unit Owner of the Convention Center Unit and fifty percent (50%) to the Unit Owner of the Hotel Unit.

The "Hotel Unit" being, of course, Penn Square Partners.

But it gets better. Section 5.3(b) says:

S. Dale High (who may nominate High Industries or any affiliate thereof to exercise the rights granted in this Section 5.3(b)) shall have a right of first offer with respect to all Naming Rights.

Why does S. Dale High have ANYTHING to do with the LCCCA's convention center?

And that's not all.

The "First Amendment to Joint Development Agreement" dated March 28, 2007 includes in section 1(c) a lengthy passage that describes the allocation of any additional State funds for the project. Other than a $1.5 million grant to the LCCCA promised by State Sen. Gib Armstrong (and still not delivered as of this writing), additional State money is first to be used to support a complex collection of contingency funds. However, this section closes with this statement:

…any additional funding received (other than the Additional State Grant) shall be equally allocated between RACL/PSP and LCCCA to be utilized in accordance with this Agreement.

In other words, half of all additional money which comes to the LCCCA must be handed over to the Penn Square Partners.

To add injury to insult, section 2(c) states:

The capital expenses required of PSP as defined in the Modification of the King Street Garage agreement between the City of Lancaster Parking Authority and PSP dated March 28, 2007 shall be allocated in this Exhibit as either Parking Connector Costs or Garage Renovation Hard Costs and shall be allocated 100% to the Convention Center Unit.

This means the Penn Square Partners' share of structural modifications to the existing King Street Garage (which will primarily be used by patrons of the PSP's hotel) must be paid for by the LCCCA – with taxpayer dollars.

As these and many other examples demonstrate, this "private-public partnership" clearly favors private gain over public benefit. We the people are on the receiving end of a very bad deal.

As long as these agreements stand, it doesn't matter how "successful" the project is claimed to be; we the people are ultimately the losers.

Can't see the forest for the trees

by Artie See
Originally published in the Lancaster Post on June 20, 2008

There are convention centers in many cities across North America. Why would a group choose Lancaster over places like Philadelphia, Baltimore, Reading, Hershey, Harrisburg, Altoona, or Erie?

In many presentations by Interstate Hotels and Resorts (the manager of both the hotel and the convention center being built in downtown Lancaster), the Pennsylvania Dutch Convention and Visitors Bureau, and the Mayor's Office Of Special Events, special emphasis is placed on how "unique" the Lancaster facilities will be. For example:

He said the preservation of the Beaux Arts facade of the former Watt & Shand department store into the front of the hotel helps sell the property. But even more interest is being generated, he said, by plans for an attached Thaddeus Stevens museum that incorporates a cistern that was discovered under the site.

- Josh Nowak, Interstate Hotels and Resorts, quoted in the Lancaster New Era on November 16, 2007.

The overall scope of the hotel and convention center, with its historic structures mixed in among modern amenities, is what will make the complex more attractive than other convention centers, Smithgall said. "There's a number of these facilities, and they do compete with each other," Smithgall said. "We want to show something that's truly unique about Lancaster."

- Tom Smithgall, High Real Estate, quoted in the Intelligencer Journal on April 7, 2008.

Why would the facade of a once-historic building, combined with portions of several genuinely historic structures that have been integrated into and overwhelmed by a massive modern structure, cause meeting planners to choose Lancaster over other potential meeting locations?

Meeting planners must consider many different factors when choosing a site for a convention. The Lancaster facility is new, which will be attractive to potential customers. Other factors that must be considered by those who are planning an event include the availability and convenience of parking, loading and unloading, and lodging.

There will be few if any spaces available in the former King St. - now Penn Square - parking garage, since the hotel will require most of them. Parking will be available weekends at the City's other parking garages, the closest of which will be a block away. Weekday parking will be a different story; the existing garages are all filled close to capacity, with new parking garages planned or under construction that will offer barely a thousand additional spaces. This is totally inadequate for a meeting facility the size of the Penn Square project, which anticipates 4000 or more visitors for some events.

Unloading trucks at the convention hall will be inconvenient at best, by the developer's own admission. Trucks will need to negotiate a very tight turn from Vine St. onto Christian St., which is little more than an alley. There are only three loading docks available for use by the convention center. When exiting, trucks will need to make a very tight turn onto King St. There is no place to stage large trucks anywhere near the facility without blocking traffic.

Lodging is yet another issue: the Penn Square Partners' hotel will offer 300 high-end rooms. The Brunswick offers over 220 mid-range rooms two blocks away. All other lodging will require some kind of transportation to get to and from the convention center.

The convention center's location in downtown Lancaster has been called one of its greatest assets. There are restaurants and shops within a relatively easy walk of the convention center, along with several historic attractions. But those of us who have attended a number of conventions know from experience that there is usually very little free time left in the evenings. After a long day in meetings or working the floor, followed by what is usually a working dinner, exploring the neighborhood is usually the last thing on our minds. Museums or performances are out of the question.

One factor rarely mentioned is that conventions almost always rotate between different facilities. A convention held in Lancaster one year might not return for quite a few years, since there are now so many different facilities for meeting planners to choose from. And if meeting planners find parking, loading and unloading, and lodging to be inconvenient, they are more likely to choose somewhere else that presents fewer obstacles next time.

The individuals and organizations that are promoting the downtown Lancaster convention center have focused on the minor things that make their facility "unique", while ignoring its many shortcomings. By concentrating on the few nice "trees", they are avoiding the project's "forest" with its many pitfalls.

Why Bother?

by Artie See
Originally published in the Lancaster Post on June 6, 2008

We are often asked why we continue to oppose the $176 million hotel and convention center project in downtown Lancaster. Currently under construction, this project is scheduled to open in March of 2009. Nearly $64 million in 40-year construction bonds have been sold, and must be paid back. Nothing can stop it now; why waste all the time and effort to question the project now?

We oppose the hotel and convention center project because the agreements which created and control it are so unfair to taxpayers that they practically guarantee higher taxes for all of us, while the private "partners" stand to earn a windfall profit even if the project does not meet expectations.

Space does not permit us to study each of these issues in depth, which we plan to do in future columns. Each one of these statements is based on information obtained from the Lancaster County Convention Center Authority, and/or from reports published in the media:

- The project was sold to the public as a "private-public partnership". Today, out of the currently anticipated cost of the hotel and its portion of the "shared space" of about $76 million dollars, over $40 million (plus over $5 million in interest) taxpayer dollars will be spent on the hotel. The only up-front private investment is $11 million in "equity" from the Penn Square Partners. There is also the promise that the PSP will make payments on a $24 million mortgage for the hotel over 20 years.

- The "private" hotel is being constructed and guaranteed by the Redevelopment Authority of the City of Lancaster. Since RACL has no source of income, Lancaster City taxpayers are ultimately responsible for the hotel and its debts.

- The ownership of the hotel was transferred to RACL so the Penn Square Partners would not have to pay taxes on their "private" hotel for at least 20 years. This will cost local taxpayers many millions of dollars in lost tax revenue.

- The agreements between the LCCCA and PSP dictate that the LCCCA - funded by taxpayer dollars - must pay for the construction and maintenance of parts of the "shared space" that will be used most of the time by the hotel, such as the kitchen and hotel ballroom.

- The agreements between the LCCCA and PSP dictate that the LCCCA split 50/50 with the PSP any revenue from the naming rights of the convention center, as well as any additional State grants to the convention center.

- The PSP demanded - and got - their choice of the joint manager for both the hotel and convention center. There are no checks-and-balances in place to guarantee that convention center funds will be spent only for the benefit of the convention center. Under these agreements, the LCCCA has practically no control whatsoever over the management and operation of their own convention center.

- As joint manager of both the hotel and convention center, Interstate Hotels and Resorts has final say over whether a smaller event or gathering is a revenue-generating function for the convention center, or for the hotel. Since the ballrooms and meeting rooms are "shared space", an event and its revenue could be assigned to either the hotel or convention center.

- The "pro-forma" estimates of the convention center's income and expenditures are overly optimistic, while assuming operational losses will still be covered by excess revenue from the "hotel tax". If fewer events are held than anticipated, or if operational costs are higher than expected, the current "hotel tax" will not provide enough money to keep the convention center in operation while still making construction bond payments.

- Each succeeding "pro-forma" estimate of the convention center's income and expenditures shows less and less revenue available to help pay for its operation. Amazingly, each one of these documents indicates the convention center's anticipated operational losses still fit within the same estimated revenue from the "hotel tax".

- Each "pro-forma" estimate assumes steady growth of revenue from the "hotel tax", in order to pay for increasing bond payments and operational losses. There is no allowance for the effects of a sluggish economy.

Taken together, it is likely that the "hotel tax" will need to be increased. The hotel, which is Lancaster City's responsibility, presents a lesser but still very real possibility of higher taxes. And we haven't even mentioned how difficult it will be for the project to even begin to live up to its promises of economic development.

A wise man once said that "Eternal vigilance is the price of liberty". We write about the hotel and convention center project because, without vigilance on the part of the people of Lancaster, we will all be forced to pay higher taxes to support it.

Stealth Funding

by Artie See
Originally published in the Lancaster Post on May 2, 2008

Anyone who travels through downtown Lancaster cannot avoid noticing the hotel and convention center under construction at Penn Square. Before this summer is over, the hotel tower will be taller and more massive than the Griest Building located diagonally across the square.

We've all heard the project described as a "public-private partnership". We've all seen the often-quoted $170 million price tag. But these do not tell the whole story.

One of the promises made to justify this project was the large amount of real estate taxes the hotel would pay. Unfortunately, the current financing plan allows the "private" hotel to get away with paying NO taxes at all for at least 20 years. At the Lancaster City/County/School District of Lancaster 2008 tax rate of 34.0160 mils, the $76 million hotel would have paid well over $2.5 million a year in real estate taxes (assuming the building would be assessed at what it actually cost to build).

The convention center itself, since it is owned by a government agency, will never pay any taxes at all. Had this site been developed for commercial and/or residential use, a LOT of real estate tax dollars would have been generated every year. Our taxes will always be that much higher as a result of this missing revenue.

To add insult to injury, Lancaster City has not charged either the hotel or the convention center for any of the building permits or inspections which are required by law. This is costing Lancaster City taxpayers over $1 million in lost revenue.

Then there are the hidden costs.

The taxpayer-funded Pennsylvania Dutch Convention and Visitors Bureau is in the process of hiring its third full-time employee dedicated to bringing conventions to Lancaster County; a large portion of their time is spent promoting the downtown convention center. The PDCVB and Interstate Hotels and Resorts (the manager of the hotel and convention center) meet every two weeks to coordinate their marketing efforts. And the PDCVB always shares their booth at convention marketing events with Interstate Hotels. None of the costs of these employees or their marketing efforts are considered to be a cost of the convention center itself. But they should be.

Lancaster City plans to make extensive "streetscape" modifications throughout a large part of downtown Lancaster, in an attempt to make the streets more attractive for convention attendees and other visitors. This will include a band of bricks laid in a herringbone pattern in the sidewalk next to the curb, along with additional street lighting, plus standards for trash receptacles and other sidewalk furnishings. Over the next year or so, taxpayer dollars will fund the initial construction. But in the future, property owners will have to pay for the increased cost of these new design standards whenever they do any work on their sidewalks. To pay for these changes, Lancaster City will be spending $2 million from bonds issued primarily to build two new water treatment plants, on top of a similar amount of State grant money.

People who visit the hotel and convention center will need somewhere to park. The hotel will need 300 or more parking spaces for guests and staff. The convention center management expects that some events will draw 4000 or more visitors per day. Because of the hotel and convention center project, the Lancaster Parking Authority is constructing a $14 million 505-space parking garage in the second block of East King Street. Contract customers of the King St. garage, adjacent to the hotel and convention center, will be moved to the new parking garage to make space for hotel guests and staff. Since the Lancaster Parking Authority had previously borrowed money up to its legal limit, Lancaster City Council re-wrote the law so additional funds could be borrowed to build this new garage.

Another issue is the need for police patrols and traffic control around the hotel and convention center. Four thousand or more new visitors to downtown Lancaster will create a LOT of traffic. And the area around the convention center main entrance near Queen and Vine is well known to be less than safe after dark.

There will definitely be a need for additional police patrols and traffic control in downtown Lancaster whenever the convention center is occupied. The problem is, there is no money in the Lancaster City budget for additional police staffing. The only alternative will be to relocate police officers out of residential areas of Lancaster City, in order to meet the needs of the hotel and convention center. This means the people of Lancaster City will have to pay for the project in reduced police patrols and slower police response times.

Those behind this project have repeatedly claimed that the cost to taxpayers will be minimal. But the hidden costs of this project have already hurt the residents of Lancaster, and will continue to do so long into the future.

Taxpayer Tragedy

by Artie See
Originally published in the Lancaster Post on April 18, 2008

In August of 1999, the public was first introduced to the idea of a hotel and convention center at Penn Square in downtown Lancaster. According to published reports, the $75 million project would include a $20 million 61,000 square foot convention center, a $7 million expansion of the King St. Parking Garage, and a privately funded $45 million luxury hotel in the former Watt and Shand building (with retail shops at street level). Funding for the convention center would be provided by a $15 million state grant, and $15 million in bonds floated by a new convention center authority. Historic tax credits and "Tax Increment Financing" were to help finance construction of the private hotel. At the time, it was estimated that the hotel would pay $475,000 a year in city, county, and school property taxes.

The project under construction right now at Penn Square is currently estimated to cost about $176 million. The convention center alone is expected to cost just over $100 million, and cover 183,917 square feet (not including 66,745 square feet of "shared space" with the hotel). State grants for the project still total $15 million to date, although another $1.5 million is promised, and another $3 million is being sought. The Lancaster County Convention Center Authority bond sale in March of 2007 was for nearly $64 million, to be paid back over 40 years with proceeds from the "hotel tax".

The site of the former Watt and Shand building is no longer owned by the hotel developer Penn Square Partners, which is owned 50% by High Associates and 50% by Lancaster Newspapers. Instead, the hotel is currently being built and will be owned by the Redevelopment Authority of the City of Lancaster.

The size of the hotel has increased from 281 rooms to 300, and the estimated cost of the hotel has increased from $45 million to nearly $76 million. What has changed the most with the hotel is the financing: the only private investment in the hotel is $11 million in "equity", whatever that means, plus $24 million in "lease" payments over the next 20 years. State tax dollars already committed to the "private" hotel total over $37 million to date, not including interest on a $14.5 million bond; another $3 million has been requested to complete the project. At the end of 20 years, Penn Square Partners will have the option of purchasing the hotel building for an estimated $2.25 million. Until that happens, Lancaster City taxpayers are ultimately responsible for the hotel.

RACL ownership means the Penn Square Partners will pay no real estate taxes at all for at least 20 years. This also eliminates any possibility of "Tax Increment Financing" credits, since no real estate taxes will be paid. Historic tax credits for the hotel were denied, because the hotel plans were determined by the Pennsylvania Historical and Museum Commission to out of character for the Watt and Shand building (which before being demolished was on the National Register of Historic Places).

The Penn Square Partners will be paying just over $35 million over 20 years for a $76 million building. That is a very good deal for Penn Square Partners, but a really bad deal for taxpayers.

Complicating the matter is the "shared space". This includes parts of the buildings that are being built and will be maintained by the LCCCA, such as the hotel kitchen and ballroom, for which the Penn Square Partners will pay $100 a year to use. This blurs the line between how much of the project is convention center, and how much of it is hotel.

Both the hotel and the convention center will be jointly managed by the company selected by Penn Square Partners, Interstate Hotels and Resorts. Under the terms of the agreements which govern this project, the LCCCA has practically no control over the management and operation of its own convention center.

How did this project get to be so far out of control?

In future columns, we will try to understand how and why.

Convention Center Naming Rights

Money From Sale of Convention Center Naming Rights:
HALF goes to Penn Square Partners
S. Dale High has "Right of First Offer"

On Thursday, January 17, 2007, the Lancaster County Convention Center Authority's Public Relations, Marketing, and Hospitality committee held a meeting where selling the naming rights of the convention center was briefly discussed.

At this meeting, committee chairman Joe Morales commented on the "Declaration of Condominium" agreement which dictates the terms of selling the naming rights by saying:

"For those unfamiliar, we have what is called a Condominium Document that was drawn-up very early on in the preparation of this project. And I think I'll be as diplomatic as I can in saying that there are a couple of provisions of this agreement that I think are not entirely in the best interest of this authority."

Joe Morales went on to say:

"I think that it will only by the - what's a good word here, largesse - of Mr. S. Dale High that any changes are made or even entertained so I would encourage this Board and this particular committee to enter such conversations with Mr. High to maybe allow this authority a greater deal of flexibility in negotiating naming rights."

Here is the passage in question, taken directly from the "Declaration of Condominium" agreement dated March 27, 2007. Please note the highlighted passages:

Section 5.3 Naming Rights.

(a) The Unit Owner of the Convention Center Unit shall have the exclusive right to sell, lease or license naming rights to the convention center facility to be constructed and operated within the Convention Center Unit (the "Naming Rights"), provided that all fees, charges and other revenues arising from the sale, lease or license of the Naming Rights shall first be used to fund any working capital or similar fund required by the Manager and the balance shall be distributed to the Unit Owners (a) in accordance with the Joint Development Agreement, and (b) if the Joint Development Agreement is no longer in effect, then, fifty percent (50%) to the Unit Owner of the Convention Center Unit and fifty percent (50%) to the Unit Owner of the Hotel Unit. The Unit Owner of the Convention Center Unit may enter into an agreement with a third party pursuant to which such third party will obtain a lease, license or similar right to designate the name of the Convention Center Unit (the "Naming Rights Agreement"), provided, however, that the Naming Rights Agreement shall provide that all marketing, promotional and advertising materials and all signage at the Convention Center Unit and Common Elements that is to include a reference to "Convention Center" shall be styled as follows: "Lancaster Marriott and Convention Center" when the convention center facility is marketed, promoted, advertised or referenced in conjunction with the Lancaster Marriott and Convention Center" when the convention center facility is marketed, promoted, advertised or referenced without the Lancaster Marriott. The Naming Rights Agreement may include, among other terms and conditions, provisions regarding (i) the payment of fees for the Naming Rights and (ii) the right to include the designated name on all signage, marketing, advertising, contracts and other communications and designations of recognition regarding the Convention Center Unit and to otherwise publicize the designated name of the convention center facility. If the Unit Owner of the Convention Center Unit enters into a Naming Rights Agreement, all signage at the Convention Center Unit and Common Elements that is to include a reference to "Convention Center" may also include the name designated by the holder of the Naming Rights under the Naming Rights Agreement.

(b) S. Dale High (who may nominate High Industries or any affiliate thereof to exercise the rights granted in this Section 5.3(b)) shall have a right of first offer with respect to all Naming Rights. If any time the Unit Owner of the Convention Center Unit desires to sell, lease or license the Naming Rights, then the Unit Owner of the Convention Center Unit shall send a written notice to S. Dale High at High Real Estate Group, 1853 William Penn Way, P.O. Box 10008, Lancaster, PA 17605-0008 (or such other address as the Unit Owner of the Convention Center Unit has been notified of in writing) stating all of the terms upon which the Naming Rights will be marketed (the "Naming Rights Notice"). S. Dale High shall, within fifteen (15) days of his receipt of the Naming Rights Notice, notify the Unit Owner of the Convention Center Unit in writing of his acceptance or rejection of the terms of the Naming Rights Notice. S. Dale High's failure to respond within such fifteen (15) day period shall be deemed a rejection of the terms of the Naming Rights Notice. If S. Dale High shall reject the terms of the Naming Rights Notice or be deemed to have rejected the terms of the Naming Rights Notice, the Unit Owner of the Convention Center Unit may market and sell, lease or license the Naming Rights for a period of six (6) months on the same terms (or terms more favorable) as set forth in the Naming Rights Notice. After the expiration of such six-month period, if the Unit Owner of the Convention Center Unit has not sold, leased or licensed the Naming Rights during such six-month period, then the right of first offer granted herein shall be reinstated and the Unit Owner of the Convention Center Unit shall not market, sell, lease or license the Naming Rights except in accordance with the provisions of this Section 5.3(b).

The above document references the "Joint Development Agreement", where section 2.1.7 addresses this issue:

(b) RACL, PSP and LCCCA shall work cooperatively and make commercially reasonable efforts to secure additional funds for the Project by (i) selling naming rights to the Convention Center Unit, (ii) selling air rights above the Hotel Unit and Convention Center Unit, (iii) reducing LCCCA expenditures on parking, (iv) secure inducement from Manager for rights to manage the Condo Association, (v) secure additional State Grants for the Project, all which shall be used within the terms and conditions of this agreement.

(c) The parties acknowledge, that in addition to (a) above, additional grants from the Commonwealth of Pennsylvania and the IFIP Grant are required in order to construct the Project.

(d) In the event the Final Budget is less than the available funds shown on Exhibit D, plus any funds secured in 2.1.7 (b), any surplus funds shall be equally allocated to RACL (to be utilized in accordance with the Hotel Tower Lease Agreement between RACL and PSP) and LCCCA as an additional contingency.

The "Hotel Tower Lease Agreement" mentioned in the "Joint Development Agreement" does not directly address selling the naming rights. This excerpt from section 4.2 seems to be the only appropriate provision:

"The utilization of cost savings with respect to the Hotel shall be determined by Lessee in its sole discretion and shall be used by Lessee to construction finance maintain and operate the Hotel. Lessor shall not be entitled to use cost savings for any other purpose."

This legalese seems to confirm that any additional funds provided to RACL (as mentioned in the "Joint Development Agreement") are to be given to the Penn Square Partners to reduce their costs (and increase their profit margin). This is consistent with the statements in the "Declaration of Condominium".

How much is too much?

According to the LCCCA's "Sources and Uses" document dated March 27, 2007,

The anticipated cost of the proposed hotel and convention center is now $169,781,172

The LCCCA has borrowed $63,920,000 for 40 years in "variable rate 7-day demand bonds" using a risky "interest rate swap"

Total anticipated cost of the proposed convention center: $97,507,456

Total anticipated State grants for the proposed convention center: $15,000,000

Total anticipated cost of the proposed "private" hotel: $72,273,716

Total anticipated State grants for the proposed "private" hotel: $37,273,717

The Redevelopment Authority of the City of Lancaster has borrowed $14,523,716 from Fulton Bank to help build the "private" hotel, to be repaid by an anticipated $1 million each year in State Act 23/TIF funds which are guaranteed by Lancaster City taxpayers

Penn Square Partners has a commitment from Wachovia Bank to borrow $24 million, which is to be repaid by the Redevelopment Authority of the City of Lancaster from "lease payments" made by the Penn Square Partners on the City-owned hotel building

The issuer of the LCCCA bonds is Wachovia Bank, which has obtained a lien on all proceeds from the "hotel tax" for 40 years. Since the LCCCA bonds are so speculative, Wachovia Bank has provided an additional guarantee for the County-backed bonds at the cost of an additional 0.95% fee, and for the rest of the bonds at an additional 1.25% fee. These guarantees could total $6.5 million or more over the term of the bonds. Without these guarantees, the LCCCA's bonds would have been given a "junk" rating.

The "Smoking Gun"

How does a 61,000 square foot convention center (according to the Lancaster New Era of August 19, 1999) planned as a "public-private partnership" turn into a taxpayer-owned facility of 183,917 square feet PLUS 66,745 square feet of "shared space" (with Penn Square Partners) according to the Lancaster County Convention Center Authority's Web site?

A document released by the Penn Square Partners on March 28, 2003 clearly provides important clues as to why. CLICK HERE to read the original document.

Distributed among a number of diversions and excuses are a few interesting tidbits:

"Architects for the Lancaster Marriott and Lancaster Convention Center project developed their initial program plans around a number of design constraints, many of them driven by requirements of various public sector incentives upon which the private sector relied. These included the need to locate the exhibit hall, meeting rooms, and ballrooms of the convention center facilities within the "footprint" of the convention center itself; retaining the facade and major portions of the historic Watt & Shand Building; PSP's intention to apply for historic tax credits and Tax Increment Financing (TIF) support; and the need to build in and around existing historic structures valued by the community."

Later in the same document, the Penn Square Partners make an important admission:

"Further, PSP cannot qualify for historic tax credits and recent Pennsylvania Court decisions regarding Tax Increment Financing and prevailing wages make the costs of accepting this incentive higher than its potential value."

As a result, Penn Square Partners planned to submit a new proposal to the LCCCA board:

"The revised plan best meets the requirements of both the hotel and the convention center in a more efficient "package" at the budgeted cost. The design changes would be transparent to a visitor to the hotel or to the convention center. The historic facade of the Watt & Shand Building still would be rescued and important historic properties still would be incorporated into the design of the convention center. The "look and feel" of the design still would be sensitive to its historic downtown Lancaster site."

THIS is the point where it was decided the entire Watt & Shand building would be demolished, EXCEPT for the facade. Together, the above statements prove the ONLY reason that ANY part of the Watt & Shand building was to be saved was so the Penn Square Partners could collect lucrative historic tax credits.

As for the reference to "efficient"? It is beyond obvious that $170 million (plus interest) cannot possibly be more "efficient" than the $75 million 1999 project. Neither can 250,662 square feet be more efficient than 61,000 square feet.

Yet it is obvious that even in early 2003, the Penn Square Partners' were looking for ways to reduce their cash investment in the project, while coercing the Lancaster County Convention Center Authority to assume more and more of the Penn Square Partners' responsibility:

"The proposed restructuring would provide the most expedited approach for PSP to proceed with the project, reduce the long-term cost to the public for operating the convention center and transfer ownership of the historic Watt & Shand building from private to public ownership."

This document proves the Penn Square Partners primary motivation has alway been what is best for the Penn Square Partners, NOT what is best for Lancaster or its taxpayers.

What Might Have Been

ALTERNATIVE USES FOR THE WATT & SHAND SITE

April M. Koppenhaver
May 2007

For over the past three years I have been passionately working to enlighten the citizens of Lancaster city and county of what we have affectionately called Plan B. Plan B consists of several alternative uses for the Watt & Shand site. Each of these plans incorporate individual home ownership through residential condominiums, which would generate tax income for the city of Lancaster, school district of Lancaster, and county of Lancaster. Also, through these plans we feel the projects would serve the citizens of our city and county, as well as provide interest to the visitors of our community by keeping the building size within a scale that encourages foot traffic and individuals participating on a daily basis with the site. By encouraging foot traffic to be the catalyst for economic revitalization, we would eliminate the need for hundreds of additional parking spaces required for a hotel and convention center.

Through the enlightenment of citizens, our goal was to apply pressure to the Redevelopment Authority of the City of Lancaster, Lancaster City Council, Penn Square Partners and the Lancaster County Convention Center Authority. We wanted to change the proposed hotel convention center project, which Tom Smithgall and Nevin Cooley of Penn Square Partners termed "The Loss Leader", to a project that would serve our community at large without requiring taxpaying citizen guarantees or a hotel bed tax.

Over the past eight years I have seen the project mutate from a private/public endeavor (involving a small amount of public money), to a much larger, much different public/private endeavor, with limited private money and an exorbitant amount of public money. To be specific, in 1999 the public was told that Penn Square Partners (consisting of the Fulton Bank, the Lancaster Newspapers, and an affiliate of High Industries) would be responsible for 45 million dollars of the cost and the public would be responsible for 30 million. In 2006 the project was estimated to be 170 million, with 35 million dollars coming from Penn Square Partners (11 million dollars cash, and 24 million over the next twenty years from hotel profits... a promise of money not yet earned) and 135 million from public sources.

I was instrumental in forming LancasterFirst.org, a group that has the best interest for the city of Lancaster first and foremost in its vision for the future. Many citizens attended the Lancaster County Convention Center Authority meetings, City Council meetings and Redevelopment Authority meetings and brought up logistical and financial concerns, most of which fell on deaf ears. In this report are several discussions on alternative uses of the Watt & Shand site, which could have been built at a fraction of the cost and make more sense in the context of our community. What would immediately need to be disbanded is the cash cow, the hotel bed tax as well as the city and county guarantees for repayment of the debt.

Throughout the past several weeks, in the Master Planning course, many concepts were detailed which had already been incorporated in the various versions of Plan B. A few of those concepts are as follows:

Adaptive reuse of historical structures

Pedestrian friendly streetscape

High density urban development

Human scaled dimensions

Active and diverse retail

24 hour activity

Wide sidewalks

Inviting open space

Active building fronts

Appropriate businesses

Cultural, historical, and unique destinations

Comprehensive economic sustainability without new taxation

Victor Capecce's plan kept the Oblender store intact. By having continual streetscape buildings, foot traffic would become a natural progression up Queen Street and towards the center of town. Mr. Capecce's plan incorporates restaurants, retail, tradeshow pods, exhibit spaces, and a nightclub that could be accessed in the rear from the existing bridge from the parking lot. It also would include a museum and heritage store that would be used to retrofit the Thaddeus Stevens' home and the Lydia Smith residence. Both bridges over Lennox/Christian Street would have remained as well. The Watt & Shand building would have been kept intact, and converted into retail, restaurant, exhibit space, and residential units. The restaurant would have a carousel theme and an attached carousel themed store. The carousel would be the original carousel from Rocky Springs Park, and would be placed outside in an open park setting. The unique and historic interior of the Watt & Shand department store, including the art deco lighting fixtures, brass staircase railings and cast iron steps for emergency exits, ornate plaster and tin ceilings, and wonderful wide wood trim, would have been highlighted instead of destroyed.

Architect Tom Despard shared with LancasterFirst and other community members what he entitled Penn Square Plan B. As seen in his aerial view, there were six main components to this idea, which are listed below:

1. The Watt & Shand building would utilize four levels:

Retail, cultural and entertainment

Public and private offices

Residential Apartments

Residential Condominiums

2. Montgomery House: mixed-use commercial
3. Park with Thaddeus Stevens statue
4. Parking garage
5. Oblender buildings: mixed-use commercial
6. Stevens- Smith historic sites

My personal suggestions for this site was to feature an international foods restaurant on the first level of the Watt & Shand building and convert all remaining space to high brow condominiums with an affordable overtone. This would include underground and convenient onsite parking, door greeters, valet parking, and top security. The condominiums would be priced according to the number of windows in each condo, with those facing the monument and on the highest level bringing the top dollar. Individuals have approached me saying they would be delighted to buy a condo in the Watt & Shand site from anywhere from $350,000 to one million dollars.

The lot behind the Watt & Shand building I believe would have been an ideal size to house the Lancaster Symphony Orchestra, which requires 44,000 square feet. It gives me goose bumps to picture the orchestra members walking downtown on an ongoing basis in their black tuxedos and long black skirts to entertain our citizens and guests. Can you think of a more beautiful sight? Also, because the orchestra would be exempt from paying taxes due to their 501( c ) (3) status I feel it would have been an agreement between the city, county, and symphony to offer several performances and special seminars to city and county school students to encourage their participation in the musical arts, and to develop their tastes as a future audience. With space permitting, the North Museum as well as the community YMCA could find their home also at this site. The activity that one, two, or all three of these entities would generate would in itself bring an abundance of people, vitality, and financial stability to our town.

In conclusion, the hotel convention center business has been on a decline for the past decade. Taxpaying citizens all over America are at the affect of previous bad decisions encroaching on their tax dollars. I believe that investing our future and our current tax dollars on a hotel and convention center for the size of Lancaster city is absolute criminal. The Plan B proposals offered in this document should be given serious concern to turn a losing proposition into an abundant, happy, healthy, and diverse community.

LCCCA Construction Bonds: A Risky Investment

On March 26, 2007, Moody's has rated the LCCCA bonds as AA1. As explained in this excerpt from Moody's press release, this rating is based ENTIRELY on Wachovia's five-year line of credit.

This proves that the creditworthiness of the LCCCA and its bonds by themselves are insufficient for an investment grade rating.

"The rating is based upon the irrevocable direct pay letter of credit provided by Wachovia Bank, N.A. (the Bank); the structure of the transaction, which ensures timely debt service and purchase price payment to investors; and Moody's evaluation of the creditworthiness of the bank issuing the letter of credit."

What happens to the bonds after five years? If the project fails to live up to its estimates - which it cannot, since the LCCCA's cash flow projections are based on the PricewaterhouseCooper reports which were withdrawn by their author - the rating of the bonds will collapse.

# # #

At the LCCCA board meeting on December 14, 2006, financial advisor Tom Beckett publicly stated that the LCCCA convention center construction bonds would be sold by the end of January, 2007.

At the LCCCA board meeting on January 31, 2007, financial advisor Tom Beckett publicly stated that the LCCCA convention center construction bonds would be sold by the end of the second or third week of February, 2007.

At the LCCCA board meeting on February 22, 2007, financial advisor Tom Beckett publicly stated that the LCCCA convention center construction bonds would be sold by the end of the second or third week of March, 2007.

In the Lancaster Intelligencer Journal of March 20, 2007, LCCCA executive director Dave Hixson was quoted as saying, "'We're probably a week-and-a-half from closing' on the bonds".

According to the Lancaster New Era, the bond sale closed on March 29, 2007.

Why the repeated delays?

# # #

Over several weeks in early 2007, Lancaster City Director Of Administrative Services Patrick Hopkins put together a $125 million bond sale, primarily for mandatory upgrades to the City's water system. Lancaster City received a favorable bond rating, and the bonds were quickly sold at an Internet auction among major lending institutions for a very advantageous fixed interest rate. Construction contracts for the water filtration plant project were not signed until AFTER the bond sale was completed.

Compare this to the announcement that the LCCCA convention center construction bonds would be in the form of risky "variable rate 7-day demand bonds" sold using a complex "Interest Rate Swap". In addition, Wachovia Bank - which has agreed to market the bonds - has provided a five-year letter of "credit commitment to provide credit enhancement and liquidity" in an attempt to enhance the LCCCA's bond rating.

Why can't the LCCCA sell their bonds using conventional financing, just like Lancaster City did?

Meanwhile, the LCCCA started pouring concrete for the foundations of the proposed convention center BEFORE the construction bonds were sold. This is like pouring the foundations of a house before the mortgage is approved.

# # #

At the LCCCA board meeting on February 22, 2007, marketing consultant Dan Logan publicly admitted that the current cash flow estimates for the proposed convention center were based on the 2000 PricewaterhouseCoopers report, the 2002 PricewaterhouseCoopers update, the 2003 C.H. Johnson update to the PricewaterhouseCoopers reports, and information provided by Interstate Hotels. Mr. Logan clearly stated that the 2006 PKF study (which called for major cost reductions to the project) was NOT taken into consideration.

This means that the projections being used to estimate the ability of the LCCCA to keep up with payments on their bonds are based on data that is questionable at best.

# # #

At the LCCCA Finance Committee Meeting of February 21, 2007, consultant Maurice Walker clearly stated in public that out of the proposed $64 million bond sale, just over $50 million would be available for construction. Mr. Walker's explanation was that much of the remainder of the borrowing was required to guarantee the bond sale, above and beyond the $20 million guaranteed by County Commissioners Paul Thibault and Ron Ford in late 2003, just before their terms in office expired.

Every bond sale is rated for credit risk by agencies such as Moody's or Standard and Poor's. Lancaster City's bond sales have consistently received excellent bond ratings. Yet the LCCCA has repeatedly pointed to the Wachovia five-year letter of "credit commitment toprovide credit enhancement and liquidity" as support for their bond rating.

The LCCCA convention center construction bond sale requires unconventional financing, "interest rate swaps", and credit enhancement. This proves that the LCCCA convention center construction bonds BY THEMSELVES are not worthy of an investment-grade credit rating.