When Local Government Spending Gets Out Of Control

It’s been a long time since I’ve posted any information about the proposed publicly funded hotel and convention center project in Lancaster, PA, mostly because I spend so much of my free time working to oppose this misuse of taxpayer dollars. This article was printed in today’s Intelligencer Journal, and explains the current situation very well. The situation must be getting bad: Lancaster Newspapers is one of the Penn Square Partners that this article talks about.

Intelligencer Journal
Saturday, October 22nd, 2005

City center price tag jumps again

Total now $8.8 million above what developers have said they can afford

BY DAVE PIDGEON, Intelligencer Journal Staff

The projected price of the proposed hotel and convention center in downtown Lancaster has jumped by $3.8 million, according to documents obtained by the Intelligencer Journal.

The total estimate is now $137.8 million, or $8.8 million above what developers have said they can raise for construction.

Also, hotel developer Penn Square Partners is asking the city to reimburse it for $7.06 million in development and maintenance costs and to purchase the Watt & Shand building, where the hotel and center are to be built, according to the documents.

The reimbursement request in April was $6.8 million.

If developers are to obtain state funds crucial to the hotel, the city must take ownership of the Watt & Shand building and coordinate construction financing.

The documents obtained by the Intelligencer Journal outline final agreements between the city and Penn Square Partners, which call for the city to lease the 300-room Marriott Hotel for 20 years to the partnership.

The final agreements — negotiated for six months — are expected to be voted on during City Council’s meeting at 7:30 p.m. Tuesday in Southern Market Center.

Phone calls seeking comment from Penn Square Partners president Nevin Cooley, Lancaster County Convention Center Authority executive director Dave Hixson and several members of City Council were not returned Friday night.

Convention center authority chairman Ted Darcus said he was out of town for several days and did not know the estimated cost of construction had risen for the second time in three months.

“I don’t know if it’s due to litigation or cost of materials,” Darcus said. “It’s something to be looked at and come back and say, ‘Do we have a solution?’ ”

Penn Square Partners, the convention center authority and the city plan to build the hotel and a 220,000-square-foot convention center at the Watt & Shand site.

At the start of this year, project developers said $129 million in private investment and public funds was the most they could raise for construction.

In July, the convention center authority announced construction price estimates had jumped to $134 million, and for several weeks afterward the authority and Penn Square Partners sparred over which was to blame and which ought to fill the gap.

No solution has been announced.

The city would become a partner in the project through its Redevelopment Authority in this way:

·The redevelopment authority would be the official owner of the hotel and be in charge of reimbursing the partnership for eight years’ worth of maintenance, development and acquisition costs.

The city would back a $12 million construction bond and half of another worth $24 million, the latter to be paid off by Penn Square Partners’ lease payments.

Developers are hoping to use annual grants from the state to retire the $12 million bond, but those grants would be subject to yearly approval by the Legislature.

Should the partnership or the Legislature fail to provide the money, the city would be responsible for the debt.

·The final agreement calls for Penn Square Partners to not pay property taxes because of the public ownership of the hotel and instead pay the city $200,000 yearly in lieu of taxes.

The partnership estimates making at least $2 million in annual profit from the hotel after paying the city.

Redevelopment authority solicitor Frank Mincarelli said he expects two Lancaster County commissioners opposed to the project to sue in Commonwealth Court to force Penn Square Partners to pay property taxes.

If they do bring litigation after Tuesday, Mincarelli said, they won’t win.

“I don’t think they can raise (the property tax issue) until the hotel is built and the county assessment (board) determines its tax status,” Mincarelli said.

Lancaster County Commissioners Dick Shellenberger and Molly Henderson have criticized project developers for wanting to use more than $90 million in public money and putting most of the financial risk on the public sector.

Shellenberger and Henderson have maintained that exempting Penn Square Partners from paying property taxes violates state guidelines governing the allocation of state funds.

County special counsel Howard Kelin on Friday called upon the city to hold the partnership accountable for paying taxes.

“Penn Square Partners has yet to explain why it can’t afford to pay its taxes like everyone else,” Kelin said. “If the city would join the county and the (School District of Lancaster) in asking that question, the public might finally get some answers.”

As part of the agreement, if the partnership is required to pay property taxes, the city would pay them instead.

·The redevelopment authority would reimburse Penn Square Partners by forgiving $5 million in loans it has given the partnership for the project since 2000 and by obtaining a $2 million grant.

Penn Square Partners is requesting the city reimburse it for the following:

·$1.25 million for what the partnership paid in 1998 to own Watt & Shand.

·$3.11 million (or $111,060 more than it asked for in April) for fees related to architecture work, engineering, development and legal fees.

·$2.7 million (or $352,537 more than it asked for in April) for fees to secure, insure, maintain and decorate the building.

Sources have said once the real estate transfer takes place, Penn Square Partners will have no money invested in the project until it pays $10 million when construction begins.

Sources said if Penn Square Partners walks away from the project before construction begins, it will have lost no money, and having no risk makes it more tempting for the partnership to give up on the project.

The public, however, would be left owning the Watt & Shand building and several blighted structures at the construction site and holding millions in bonds and loans it would have to repay.

Darcus said Penn Square Partners will not walk away from the project.

“I would be surprised,” he said. “They don’t take this lightly. I just don’t see it happening. I’ve seen that they’ve been in it for seven years.”

Penn Square Partners includes general partner Penn Square General Corp., a High Industries affiliate, and limited partners Fulton Bank and Lancaster Newspapers Inc., publisher of the Intelligencer Journal, Lancaster New Era and Sunday News.

Dave Pidgeon’s e-mail address is dpidgeon@lnpnews.com.

© 2004-2005 Lancaster Newspapers
PO Box 1328, Lancaster PA 17608, (717) 291-8811

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