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.
