The Lancaster County Convention Center Authority is running low on money.

Stung by higher-than-expected utility bills and especially by lower-than-expected hotel tax revenues, the authority soon could see the amount it holds in reserve fall below what it is required to keep in its rainy-day funds.

And if that happens, the Lancaster County Convention and Visitors Bureau — the group that promotes and markets Lancaster County tourism — could take a million-dollar hit.

Open since June 2009, the convention center, adjacent to the13-story Marriott Hotel, is at or near projections in terms of the number of shows and events it hosts, and the revenue generated by those events, say authority officials.

But the convention center was always predicted to run at a loss. The difference between revenues and expenses is supposed to be made up by the county's hotel tax — a 5 percent levy, 80 percent of which goes to the convention center authority, with the other 20 percent going to the Lancaster County Convention and Visitors Bureau, for tourism marketing.

A separate, 1.1 percent excise tax also goes to the tourism bureau.

The problem is that authority officials, in their 2011 budget, anticipated a 5.5 percent rise in hotel tax revenue for the year.

Through the first six months of the year, tax revenues are up by about 1 percent — $1.49 million through June, compared to $1.47 million through June 2010.

Utility bills are running an estimated $300,000 higher than expected, officials said.

What this means is that the amount of money in reserves could fall below the $5.25 million that certain covenants require the authority to keep.

If that happens for two consecutive quarters, the portion of the hotel tax revenue that now goes to the tourism bureau will be automatically redirected to the convention center authority to stabilize its finances.

That amounted to $914,526 last year, according to county figures.

In a joint interview, Kevin Molloy, executive director of the convention center authority, and Kevin Fry, chairman of the authority board of directors, said this is the last thing they want to see happen, in that less money for tourism marketing could result in fewer tourists, fewer hotel room nights sold — and even less hotel tax revenue down the line.

So authority officials have been meeting with local "stakeholders," in part to try and come up with new ways to generate revenue.

They may ask the state for more money. And they're hoping that tourism surges during the remainder of the year and continues to increase in 2012.

"When [projections] were done, people didn't anticipate the worst recession since the Great Depression," Fry said.

Molloy added: "We can't live on 1 percent" increases in hotel tax revenue. In the medium term at least, "we need to see 10 to 15 percent growth."

Room rates holding
That is unlikely.

As national statistics indicate a worrisome stall in the economy, local tourism has increased — slightly.

"We think that [county hotel] occupancy this year will end up 4 percent over 2010 actual levels, which was a good year," said Christopher Barrett, president and CEO of the Pennsylvania Dutch Convention and Visitors Bureau. But that figure doesn't tell the whole story.

"Where we are having a challenge is with the average daily rate," Barrett said, the amount visitors pay for hotel rooms. Through July, the average daily rate grew at an anemic pace — from $89.73 through the first seven months of 2010 to $89.77 this year.

The economy, Barrett said, "has necessitated rate manipulation as the environment has become super competitive. Also, the guest has become very last-minute with bookings, which has caused some additional rate drop as well."

Barrett said he's confident conditions will improve — eventually. "We think that growth will be slow in 2012 but accelerate in 2013 due to pent-up demand," he said.

Slow growth could further complicate the convention center authority's financial picture — and the visitors bureau's, too.

The visitors bureau, with a budget of around $5 million, has lost more than $1 million in state funding over the course of the past few years as the state has trimmed tourism spending. Losing its portion of the county's hotel tax could blow a hole in the bureau's budget.

Still, Barrett said, "We consider the authority to be a very strong partner, and we do have an ongoing dialogue concerning this as well as a host of other subjects . ... Our focus is to work very hard to 'sell' ourselves to the solution that would forestall the mechanism from being triggered. That means selling more room nights, which would generate more tax revenues."

Tight budget
The convention center authority, too, has very little wiggle room.

According to the authority's 2010 audit, posted on its website, the authority had an operating loss of $3.96 million for the fiscal year that ended Dec. 31, 2010.

Late last month the authority voted to refinance $63.9 million in debt — in part, because the authority was unable to make a $545,000 principal payment on that debt.

At the same meeting, the authority voted to borrow another $750,000 — partially to pay the costs associated with the refinancing, but also to help it pay its bills through the rest of the year.

The authority could have waited until next year to refinance its debt. But Thomas K. Beckett Jr., the authority's financial adviser, said the deal being offered by Wells Fargo Bank was probably better than what the authority would have gotten had it waited.

Initially the debt, bonds issued in 2003 and 2007 had been guaranteed by Wachovia Bank, which was purchased by Wells Fargo in 2008. They were tax-exempt, "low floater" bonds that were repriced and remarketed every week.

Through an interest rate swap, the authority's debt was "synthetically fixed," Beckett said, though the rate does typically vary, resulting in "basis risk," or unexpected additional interest costs.

The new deal offered by Wells Fargo was a direct purchase agreement, in which the bank holds all the bonds. That will save the authority about $60,000 a year in remarketing fees, Beckett said.

But after March 2012, the new rate on the bonds kicks in. It's higher, about 5.45 percent in total (compared to the 4.83 percent the authority would have paid on its debt as of last Thursday).

Beckett estimates the new rate will cost the authority an additional $32,850 per month.

But, he said, had the authority waited to refinance, it would likely be paying even more as Wells Fargo likely would have repriced some fees upward: "So although the authority's interest costs will increase after March 2012, they will increase by a lesser amount by virtue of the direct purchase."

The new deal is also in place for just 18 months; when it expires, the authority will have to renegotiate with the bank. At the Aug. 25 meeting at which the authority board voted for the new agreement, Beckett acknowledged that "yes, this isn't the greatest deal in the world, and yes, we're going to have to go out and renegotiate in 18 months, but that is the nature of the beast."

Utility bills
Meanwhile, the authority's operating losses have been greater than expected. That's in part due to the higher utility bills.

The responsibility for heating, cooling and other utilities in the "integrated facility" — the convention center and hotel — is governed by agreements between the authority, the Redevelopment Authority of the City of Lancaster — which owns the hotel tower — and Penn Square Partners, the developers of the hotel who lease the tower from the redevelopment authority.

Penn Square Partners consists of Penn Square General Corp., an affiliate of the High companies, and Penn Square Ltd. LLC, an affiliate of Lancaster Newspapers Inc., publisher of the Sunday News and the Intelligencer Journal/Lancaster New Era.

Under the agreements, the convention center authority is responsible for heating the large, open lobbies along both Queen and Vine streets, and maintains other areas from which Penn Square Partners receives all revenue.

Molloy and Fry say electric bills in particular have been expensive; the authority has hired an "energy allocation specialist" who may be able to recommend ways it can cut its utility costs.

As a result of the additional borrowing, the temporary savings on its debt service — and the fact that the $545,000 mortgage payment that had been due Oct. 1 will be amortized over the remaining life of the 2003 bonds — the authority's cash-flow situation should be fine through March. Then, the new interest rate goes into effect, and the authority's monthly costs jump.

Unless revenues jump with it, the authority could fall below its "minimum liquidity covenant" of $5.25 million.

Beckett said the authority holds $4.1 million in its debt service relief fund, another $450,000 in its rate stabilization fund, and its debt service fund typically carries a balance of about $500,000.

That, Beckett noted, leaves the authority about $240,000 short.

"The authority's available liquidity is a function of both revenue and expenses," he said. "To the extent that the hotel tax grows at its historical rate, the authority and its management team identifies constructive cost savings and additional revenue is accessed, the liquidity will increase."

And while $240,000 may not seem too daunting a figure, he cautioned that the authority "needs more than that [the] minimum requirement to ensure smooth and effective operations. The original projections called for at least $2.2 [million] over and above the minimum liquidity."

Fry acknowledged that "we need to generate more revenue."

"We're meeting our revenue projections, there are 172 people employed," he said. "Operationally, this place is wildly successful."

According to Josh Nowak, director of sales and marketing for the Lancaster County Convention Center and Lancaster Marriott at Penn Square, between June 2010 and June 2011 there were 572 events at the "integrated facility," involving more than 11,000 "event days" — and 272,000 people who attended the events.

And for the year 2011, revenue from the convention center alone, he said, is projected to be up 22 percent over 2010.

But it's not enough to make up for the ground lost by the hotel tax.

Molloy believes it can be made up. While the tax may be flat this year, he noted that in 2010, it was up nearly 10 percent over 2009 — although 2009 revenues were down 9 percent compared to 2008.

Still, officials remain cautiously optimistic.

"Our mission is to maintain a well-managed convention center for our guests, provide benefits to the community and be an advocate for tourism so that it it would help our hotel tax [revenue]," Molloy said.

"I think we're getting where we want to be."

Gil Smart is associate editor of the Sunday News. Email him at gsmart@lnpnews.com, or phone 291-8817.