Budget & Tax News February 2007, pages 8-9 Lancaster Convention Center Battle Shatters Penn. Amish Country Calm By Christiaan A. Hart Nibbrig

The project started out modestly enough.

In 1999, a $75 million convention center and hotel was conceived for downtown Lancaster, Pennsylvania, a city of about 50,000 in a county with a population of approximately 500,000.

Private investment would cover $40 million; the rest would be absorbed by a state grant of $15 million and a $20 million bond supported by a hotel room tax levied against every hotel and motel in the county.

Today, the same project, which hasn't begun construction, has mutated into a $175 million behemoth, of which only $11 million is private investment, less than the private investors will make on side deals with the Convention Center Authority. A subsidiary of the general partner, for example, was the sole bidder for a $37.1 million general trades construction contract.

Investigations Requested

The Lancaster project is administered by a seven-person joint city/county-appointed Authority, which has spent more than $17 million to date – including more than $6.5 million to a single law firm.

The administration of the project has prompted public demands for greater disclosure and a call by three members of the Authority board for a district attorney investigation of expenditures.

One of the three board members to call for the district attorney investigation is business owner Laura Douglas, who says, "Quite simply, the Convention Center Authority is the worst-run organization I have ever encountered, let alone been a part of. It is very clear to me that this Authority has no regard for the source of its revenues, the taxpayer. I have absolutely no confidence at all in this Authority's ability to build this project and keep it within budget, much less run the facility after the fact."

The project is touted by sponsor Penn Square Partners as a way to revive a moribund city economy. According to them, the convention center/hotel promises to attract tourist and investment dollars into the city proper. Penn Square Partners includes the formidable union of the area's largest industrial firm (High Industries), biggest bank (Fulton Bank), and monopoly newspapers (Lancaster Newspapers, Inc.).

Newspapers at Center of Fight

The role of project partner Lancaster Newspapers, Inc. (LNP), a 44 percent project owner, has been pivotal. LNP publishes two dailies and a Sunday paper and has been run by the Steinman family since the mid-19th century. Critics of the project accuse all three Lancaster newspapers of using their news and editorial pages to cheer for the project and report events selectively and with bias.

The newspapers have further been accused of using their monopoly position to attack two of the Authority's three sitting county commissioners, Chairman Dick Shellenberger, a Republican, and Molly Henderson, a Democrat.

On Nov. 26, Sunday News Editor Marv Adams, wrote, "Commissioner Shellenberger cries that the newspapers have not 'objectively' explained his questioning of 'the taxpayer's liability' in the convention center-hotel project, because Lancaster Newspapers is involved.

"Maybe that's because neither he nor Commissioner Henderson seem able to grasp the math themselves, even when we've given them the space to say it in their own words. Maybe that's because the project risk is minimal, not in the tens of millions they conjure up to scare folks."

Commissioners Stand Firm

Shellenberger and Henderson, elected after the previous board entered into the county bond guarantee agreement, have challenged the viability of the project and the validity of the county's portion of the $40 million bond. They have also expressed concerns that a project failure will lead to pressure for a county bailout at taxpayer expense.

"My job is to protect the taxpayers of Lancaster County," says Shellenberger, "and I believe this project is too risky. And I cannot, and will not, support that, no matter what they write about me."

Even the market studies commissioned by developers Penn Square Partners suggest Lancaster's relatively weak position in the convention center market. Those studies point out that the local airport provides service only to Pittsburgh and has only three flights per day. The city lies 20 miles off the Pennsylvania Turnpike and is not served by any through interstate highway. The convention center would be located in the most congested part of downtown Lancaster, and visitors arriving by automobile would have to wend their way through a maze of difficult-to-navigate city streets. The studies also noted a paucity of downtown attractions.

Bond Guarantees Opposed

A poll sponsored by the local Fox television affiliate and conducted by national pollster Opinion Dynamics, Inc. showed a local public about evenly divided about building a convention center. But when county residents were asked if they support taxpayer guarantees of the project bonds, 78 percent of county residents with an opinion said they were opposed.

The Lancaster Newspapers never published the results. A private citizen took out an advertisement showing the results.

The project has provoked significant organized opposition, street protests, flier campaigns, opposition Web sites, and unruly public meetings. Some landmark buildings have already been demolished.

Court Appeals Pending

The outcome may hinge on appeals to be heard by two legal appeals that are pending in Harrisburg, one before the Commonwealth Court, the other before the Supreme Court. The county is taking the lead in both, and a local businesswoman has also intervened.

Pending before the Pennsylvania Supreme Court is a challenge under the Uniformity Clause of the Pennsylvania Constitution to a $20 million state grant for the project. The county is arguing that the 2006 amendments to the Act 23 grant program create a non-uniform means of taxation because they give municipalities (including Lancaster) "unfettered discretion to abate or waive taxes on projects funded by Act 23 grants," according to Howard Kelin, special counsel for the county.

"We are currently completing the briefing process. Oral argument has not been scheduled."

Pending before the Commonwealth Court is an appeal of Judge Joseph Madenspacher's decision, issued Oct. 23, 2006, in which he upheld the validity of the county's construction bond guaranty.

County commissioners are challenging the validity of the county's guarantee on a $40 million construction bond, arguing that documents prepared in 2003 are badly flawed.

Board to Change

The endgame could be determined by the county commissioners, who will appoint a fourth member of the Convention Center Authority board to a two-year term in September, 2007. The city currently holds a four to three majority on the board. Every two years the majority alternates. In September the county will take the majority.

It may be a new chairman who will have the last word.

Christiaan A. Hart Nibbrig (christiaanhn@earthlink.net) is news editor of NewsLanc.com, which has been documenting the convention center fight.

For PolicyBot: "Space Available: The Realities of Convention Centers as Economic Development Strategy," by Heywood Sanders of the Brookings Institution, is available at http://www.brookings.edu/metro/pubs/20050117_conventioncenters.htm.

SIDEBAR
Deficits Projected, County Officials Worried

An independent feasibility study – the first ever done on the Lancaster Convention Center project – by PKF Consultants was ordered by the county in 2006. The report concluded the project "should be downsized or an alternate use for the site" be found. It also projected an annual deficit even after public subsidies of up to $4.8 million.

Another report published in 2005 by the Brookings Institution underscores the problems of the convention center market nationally. "While the supply of exhibit space in the United States has expanded steadily, the demand for convention and tradeshow exhibit space has actually plummeted," wrote Heywood Sanders, author of "Space Available: The Realities of Convention Centers as Economic Development Strategy."

Treasurer Concerned

The man responsible for collecting the hotel room tax and remitting the Convention Center Authority its 80 percent portion is Lancaster County Treasurer Craig Ebersole. Ebersole's concern is the bottom line.

"If there is a funding gap between revenues, debt service and operating expenses," Ebersole says, "the first monies in play would be the portions of the lodging tax currently paid to the Pennsylvania Dutch Visitors Bureau for promoting the convention center. If this happens, and marketing money is used to simply pay light and heating bills, a slippery slope could quickly become a downward spiral. Thus the County Government Tax Fund would be in play in this scenario."

Ex-Controller Questions Legality

Other project critics include former Lancaster City Controller Robert "RB" Campbell, who refused to sign papers on behalf of the city because of questions about city financing.

"I am concerned that the taxpayers of the city are being unfairly burdened with the majority of the financial risk, with very little risk to the private partners," Campbell says. "Frankly, it appears to be a scheme to shelter the owner of the proposed hotel from having to pay their fair share of property taxes and various fees to the city, and it may be illegal."

-- Christiaan A. Hart Nibbrig