Convention Hotel Risk Transferred To Taxpayers

In my previous articles, I outlined how a proposed hotel and convention center for downtown Lancaster, Pennsylvania has changed from an ambitious public/private partnership into an extravagance funded completely by taxpayers. Both the local School Board and the County Commissioners have started questioning the proposed financing package. As a result, the mayor of Lancaster City, Charlie Smithgall (R), prompted by State Senator Gib Armstrong (R) and State Representative Mike Sturla (D), pushed a package of ordinances through Lancaster City Council on 12 April 2005 that will allow the Lancaster City Redevelopment Authority to purchase the proposed hotel site from the Penn Square Partners. The intention is that this will remove the former Watt and Shand department store property from the tax rolls, and supposedly make the proposed convention center hotel eligible for “Act 23” grants from the State of Pennsylvania.

“Act 23” is a law that was pushed through the Pennsylvania Legislature a few years ago by State Senator Gib Armstrong that provides State-funded grants for certain projects in anticipation of future State sales and income tax receipts. The grants are to be reviewed every three years, and can be revoked if the project fails to meet its anticipated financial goals.

In February 1998, the Penn Square Partners purchased the former Watt and Shand property for $1.25 million; it was appraised recently for $1.5 million. The Lancaster City Redevelopment Authority, staffed by individuals appointed by Mayor Charlie Smithgall, has agreed to pay Penn Square Partners $6.8 million for the Watt and Shand property. The difference is supposed to cover ALL of Penn Square Partners costs since their purchase of the building, including maintenance, all taxes, and plans for the proposed hotel project. Once Penn Square Partners receives $6.8 million from the government, there will no longer be ANY private money invested in this project.

This package of ordinances commits the City of Lancaster to “incur debt in connection with the Project” “not to exceed Twelve Million Dollars” “together with interest” “not to exceed twenty-five (25) years” (Administration Bill 6-2005). Interestingly, Administration Bill 6 also states “This city specifies that the estimated useful life of the facilities to be acquired and/or constructed as part of the Project is at least 30 years” as well as “All other ordinances or parts of ordinances which are inconsistent herewith shall be and the same expressly are repealed.” Administration Bill 12 commits the City of Lancaster to “lease rental debt” “not to exceed Twenty-four million dollars” “together with the interest payable” “over a term not to exceed twenty-five (25) years”. It further states “this City shall guaranty, unconditionally” “full and prompt payment of Debt Service”. It also notes that possibility “that occurs because the Authority must apply amounts to the payment of real estate taxes on the property subject to the Lease.” Furthermore, “this City shall and does pledge, irrevocably, its full faith, credit, and taxing power” to pay these debts, plus interest.

However, the costs to the taxpayers of Lancaster City could far exceed the numbers quoted in these ordinances. The Lancaster County commissioners commissioned the law firm of Kegel Kelin Almy & Grimm LLP to perform a legal analysis of the “Taxability of Marriot Hotel” (click here to read the entire report). This report references a number of legal precedents to predict the hotel property CANNOT be exempt from real estate taxes, which could cost Lancaster City taxpayers up to an additional $17.7 million, or even more if property taxes rise more than predicted, or if the completed hotel property is appraised for more than $28.3 million (this for a building that will cost an estimated $60 million to build!). This means that the taxpayers of the City of Lancaster could be responsible for more than $53.7 million plus interest, all for the benefit of Penn Square Partners.

I cannot conceive of a term to adequately describe the way the taxpayers of Lancaster City are being taken advantage of. All of this to build a “privately-owned” hotel?

You can read this entire series of articles, plus more related news and comments, at: www.lookingatlancaster.com.

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