Lancaster First, Lancaster PA

This includes all 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.

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the Unit Owners (a) in accordance with the Joint Development Agreement, and (b) if the Joint Development Agreement is no longer in effect, then, fifty percent (50%) to the Unit Owner of the Convention Center Unit and fifty percent (50%) to the Unit Owner of the Hotel Unit.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".

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.

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.

WE WILL NEVER FORGET!

For over a century, the Watt & Shand building stood as a source of pride for Lancaster. Forever more, its few surviving remnants will always be a source of shame. Whenever we pass its shell, whever we see a picture or painting of its former glory, we will again and again be reminded of how our own public officials sold out so much to benefit so few.

Why The Convention Center Project is Already a Failure

The hotel and convention center project in downtown Lancaster, PA has been a failure on many levels. Worst of all, this project has been a failure of government of the people, by the people, and for the people. Nothing that can happen now or into the future can change this. Some examples of these failures include:

No competing bids were considered for the sale of the Watt & Shand building in 1998.

In 1998, the "Lancaster Campaign" commissioned a major study of the potential of downtown Lancaster. The "LDR International/Winterbottom" report clearly recommended the adaptive reuse of the Watt & Shand building, along with a modest "conference center" located in the east side of Lancaster Square in the 100 block of N. Queen St. This current project has violated both of these recommendations.

All of the newspaper articles and press releases from 1999 repeatedly promised that one of the primary purposes of this project was to save the Watt & Shand building, while saving taxpayer dollars by claiming historic tax credits. Now the Watt & Shand building has been demolished, and the tax credits along with it.

The proposed "private" hotel was widely publicized as a way to provide badly-needed real estate tax revenue to the School District of Lancaster. However, in early 2005, Penn Square Partners decided they needed 20 years of tax abatement to help fund their project. When the SDoL refused, PSP first declared the project dead, then sold the Watt & Shand property to the Redevelopment Authority of the City of Lancaster in an attempt to avoid having to pay ANY property taxes at all for at least 20 years.

State laws have been repeatedly re-written by State Senator Gib Armstrong and State Representative Mike Sturla to specifically benefit this particular project. Among the worst of these is a law that requires Lancaster City residents to pay real estate taxes on the City-owned "private" hotel.

The Penn Square Partners are providing no more than $11 million in up-front "equity" (which has never been defined to the public) to furnish the City-owned hotel building. Over the next 20 years, they plan to pay the RACL a total of $24 million in "lease-purchase" payments, out of future profits they plan to earn from the City-owned hotel building. At the end of 20 years, the PSP has the option of purchasing the City-owned hotel building for a relatively nominal fee. This is a VERY good deal for the PSP, since the total cost of constructing the hotel (before interest) is estimated to be well over $72 million.

The Lancaster County Convention Center Authority has consistently followed a pattern of secrecy. It took a Sunshine Act lawsuit by a local activist to force the LCCCA to allow public comment at board meetings. To this day, many LCCCA officials look away during the brief "public comment" period near the beginning of their board meetings, in an open display of contempt for the public they were appointed to serve.

Nor does the LCCCA readily release most of its financial information to the public. For example, millions of dollars in legal and consultant fees have never been explained.

The LCCCA's former legal counsel received about $8 million (the exact figure has never been released to the public) for negotiations with the Penn Square Partners, at the same time this very same law firm was retained by High Associates (the "general" partner in PSP) for other issues, including government lobbying.

In 2003, the project was completely redesigned. According to the Penn Square Partners' web site, "Architects are directed to re-design the project to reduce construction budget costs both for LCCCA and PSP". What really happened was, the project was greatly increased in size, with the LCCCA assuming responsibility for all of the "shared space" the PSP would have had to otherwise pay to build. This redesign pushed the total estimated cost of the project from $75 million up to $129 million, a figure that was quoted until the plans were completed in 2006. Construction bids have pushed the current estimated cost of the project to nearly $176 million, excluding interest.

In 2007, foundation construction began nearly THREE MONTHS before project financing was in place. This is the equivalent of building the foundation of a home before the mortgage is approved by the bank. How many of us could possibly get away with that?

Neither the PSP nor the LCCCA has ever provided any study or other explanation to justify the economics behind the 2003 redesign. Even the "pro-forma" estimates being used to determine the LCCCA's ability to make bond payments have never been released, not even to the LCCCA board members!

The cost of this project to the public is currently estimated to be nearly $165 million in taxpayer dollars and guarantees, plus interest (as of March 2008). What kind of economic development would be required to justify this massive expenditure of taxpayer dollars? Where would this economic development take place, and what form would it take? What kind of return on investment can the taxpayers expect for their hard-earned money?

No matter whether this project is "successful" or not, it will always be a reminder of what happens when a few "special interests" get away with manipulating local government for their own benefit. Not only has downtown Lancaster lost yet another big part of its history, the rest of us will end up paying for this project in one way or another for the rest of our lives.

Why We Will NEVER Support the Hotel and Convention Center Project

It has been said that it is time for compromise between supporters and opponents of the proposed hotel and convention center project.

It has been said that it is time to put aside our differences, and work together to support the project, to minimize the risk to local taxpayers.

We do not agree.

The actions of two mayors of Lancaster City, Lancaster City Council, previous Lancaster County Commissioners, and the unelected board of the Lancaster County Convention Center Authority, have intentionally slammed the door on "compromise". Their actions combined have committed to this project at least $165 million taxpayer dollars and guarantees plus interest over 40 years, out of an estimated $176+ million cost.

The lure of "easy money" has seduced local business, political, and civic leaders into pursuing an increasingly risky gamble. Yet not a single one of these individuals can look someone in the eye and explain with verifiable facts and figures why this outrageously expensive project is such a good investment of taxpayer dollars.

A few - but not all - of our concerns are:

There has been no accountability of any kind to local taxpayers. Millions of dollars have already been spent without adequate explanation. Particularly troublesome have been the exorbitant sums spent on legal fees and consultants without detailed invoices. Most of the repeated "Freedom of Information" and "Right to Know" requests have been ignored or refused. Even members of the LCCCA board are kept in the dark until the day before they are expected to vote on the expenditure of even more taxpayer dollars, and many other expenditures have never been explained to them at all.

The original project was widely publicized as the best way to save the historic Watt & Shand building, which was added to the National Register of Historic Places. Today, all that remains of the Watt & Shand buildings are ruins.

The original project was widely publicized as a "private-public partnership". Today, only 6.25% of the up-front cash investment is expected to be private "equity", or $11 million of the currently anticipated $176 million. The claim of an additional "private" investment is to come from future profits to be earned from the taxpayer-owned and financed hotel.

The original project was widely publicized as a way to provide additional tax revenue for the cash-strapped School District of Lancaster. Today, the City of Lancaster has taken legal ownership of the Watt & Shand site in an attempt by the Penn Square Partners to avoid paying taxes at all on their "private" hotel building for at least 20 years. Meanwhile, the leaders of Lancaster City have waived hundreds of thousands of dollars in badly-needed fees that should have been collected from this project.

No substantial justification for the project has ever been presented to the public. The LCCCA has repeatedly pointed to a marketing report of the original $75 million incarnation of the project from the year 2000 (which has since been discredited by its authors); in fact, the LCCCA and Penn Square Partners web sites still misquote figures from this report. However, in 2003 the project was redesigned "to reduce construction budget costs both for LCCCA and PSP", according to the Penn Square Partners' web site; this resulted in a much larger and far more expensive project than was originally presented to the public. In spite of this, the LCCCA has never presented to the public facts and figures that would show how this vastly expanded project can make any kind of economic sense. Even today, the LCCCA refuses to explain how they arrived at the figures they are currently using to anticipate cash flow and operational losses.

State laws have been repeatedly rewritten to support this specific project, without any concern for the long-term consequences. These include substantial cutbacks of prevailing wage laws, the infamous Act 23 (which provides State grants based on anticipated tax collections), and the ability of local governments to force taxpayers to pay all real estate taxes on projects specifically designed to benefit private business.

On multiple occasions, the Penn Square Partners have threatened to kill the project unless their demands were met. In each case, the LCCCA caved in. This is not negotiating, this is coercion and intimidation.

Multiple lawsuits have been brought against the project by various parties, all concerning various aspects of the project financing. The LCCCA publicly claims victory in court over all of these, but in most of these cases what really happened is the LCCCA threatened to draw out legal actions using taxpayer dollars until the private parties were driven into bankruptcy. This is not legal victory, this is coercion and intimidation.

The local newspaper - whose owners stand to reap 50% of the profit from the proposed taxpayer-owned and financed hotel - has consistently attacked those who dare raise questions about this project, while basically ignoring their concerns. This is not reporting, this is coercion and intimidation.

Compromise means all parties involved in an issue must be willing to give up something. Yet all the calls for "compromise" from the people behind this project include no concessions on their part. This is not compromise, this is coercion.

Public support for any expenditure of taxpayer dollars requires openness, honesty, accountability, and public involvement. This project has never involved any of these. The result of this has been, and always will be, division and discontent. No matter what happens from this day forward, this project will remain a source of shame for generations to come.

updated April 20, 2008 at 8:00 AM

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