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.
