Two separate studies are probing the depths of the Lancaster County Convention Center Authority's fiscal problems — and could suggest solutions.

Convention Center Authority Executive Director Kevin Molloy made headlines last month when he called for county commissioners to increase the county's hotel room tax. But even before Molloy made his pitch Jan. 19, the Pennsylvania Dutch Convention and Visitors Bureau had convened its "Lancaster County Convention Center Fiscal Impact and Recovery Task Force," comprised of officials from the Convention Center Authority, Visitors Bureau and some of the heaviest hitters in the local tourism industry.

Chaired by Al Duncan, CEO of Thomas E. Strauss Inc., parent company of Miller's Smorgasbord and Plain & Fancy Restaurant, the task force is studying specific topics — including what it would mean if the convention center were to default.

In the meantime, the Convention Center Authority's lender, Wells Fargo, required the authority to hire a consultant to conduct a study to determine how the authority can comply with its financial obligations — including one that mandates the authority keep a minimum of $5.25 million in its rainy-day funds.

If authority reserves fall below that level for two consecutive quarters — which could happen this spring — the county's hotel tax, which is now split 80-20 between the authority and the Visitors Bureau, would all go to the authority.

The Visitors Bureau has already lost millions in revenue in recent years as the state has cut funding. Some fear that were the bureau to lose the hotel tax revenue — nearly $1 million last year — it could be another blow to the agency's ability to market Lancaster County to potential visitors, perhaps leading to a further decline in tourism.

"Our goal is to put the actual facts [about the convention center's fiscal condition] out there," said Duncan, who chairs the Visitors Bureau task force. "For the first time, we'll have a crystal-clear 'state of the union' " — and once that's established, Duncan said, the task force is likely to make a recommendation to the county commissioners, who must make the decision if the hotel tax is to be raised.

Both the task force and the Convention Center Authority's consultant must act fast — the entirety of the county's hotel tax is likely to be redirected to the authority at the end of March or early April.

Tax breakdown
Visitors to the county now pay two separate taxes on their hotel bill — a 1.1 percent "excise tax" that goes to the Pennsylvania Dutch Convention and Visitors Bureau for marketing purposes, and a 3.9 percent hotel tax that is split between the Convention Center Authority (which gets 80 percent of the revenue) and the Visitors Bureau.

Molloy, in January, proposed that county commissioners raise the hotel tax to 5 percent, the maximum permitted by state law. The 1.1 percent excise tax would remain unaffected.

The commissioners have been cool to the idea. "We have a hotel industry that has been volatile over the last few years," said commissioner Scott Martin. "We have a picky consumer [to whom] price points really matter when making destination decisions, and we also have the risk to property taxpayers down the line, too," should the convention center default on its bonds.

"Every stone needs to be turned and the overwhelming feedback I have heard is for us to do that," Martin said.

If the tax is raised, Molloy said, the increased revenue would allow the authority to keep its financial covenants and pay down construction debt, and the Visitors Bureau would still receive funding.

Molloy said late last month that raising the tax might generate even more revenue for the Visitors Bureau than it gets now.

According to figures from the Lancaster County Treasurer's Office, the 3.9 percent hotel room tax generated $4.6 million in 2011; of that, 20 percent — $920,028 — went to the visitors bureau. Molloy said that "while we don't control the economy," authority staff projects that if the tax were raised to 5 percent, it would generate $5.2 million for the visitors bureau between 2012 and 2016 — an average of more than $1 million annually.

Molloy said that if the tax is increased to 5 percent, it would generate $24.6 million in revenue for the authority over the period, money that would be used to pay down debt and cover operations.

The convention center was always projected to run at a loss; the hotel tax was to make up the difference between revenues and expenses.

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. Figures from fiscal year 2011 are not yet available.

The authority's 2012 budget, passed in October, forecasts a $1.3 million loss in 2012.

Molloy and other officials have said that in terms of the number of shows booked, the convention center is actually doing better than expected. But higher-than-expected utility bills and slow growth in revenue from the county's hotel tax — and the fact that that the authority projected significantly more robust growth — led to the current fiscal impasse.

In its 2011 budget, the authority projected that hotel tax revenues would rise 5.5 percent. Instead, it rose by just 0.7 percent — from $4.57 million in 2010 to $4.6 million last year.

Asked if there was any chance the convention center could default on its bonds, Molloy said in an email that if the hotel room tax isn't hiked, "On April 1, 2012, the covenant is triggered in our agreement with the bank [that] the CVB's [Visitors' Bureau] share of the hotel room guest tax revenue is diverted to cover those obligations. The ramifications of this event include moving to the use of finite funds in the LCCCA's checking account that would be expected to run out in mid-2013."

Consultant hired
The Visitors Bureau task force, along with the consultant hired by the authority at the behest of Wells Fargo, are working to make sure that doesn't happen.

In late January the authority hired Convention, Sports & Leisure International, which on its website describes itself as "a leading advisory and planning firm specializing in providing consulting services to the convention, sport, entertainment and visitor industries."

"Their charge is to look at our operations, our sales and marketing," said Molloy, and make recommendations on how the Convention Center Authority can meet its fiscal obligations. That includes a "liquidity covenant" that requires the bureau to keep at least $5.25 million, as well as its "debt service coverage ratio" — which measures the authority's ability to generate enough cash to cover its debt payments.

Molloy said the ratio is calculated by measuring revenues from the previous 12 months against anticipated expenses for the next 12 months. The required debt service coverage ratio is 125 percent — in other words, revenues must be 25 percent higher than the amount needed to cover its debt payments.

When the authority restructured its bonds late last year, Molloy said, the testing of the debt service ratio was suspended until the third quarter of 2012. The last "unofficial" test of the ratio was Sept. 30; the ratio at that time, Molloy said, was 121.71 percent.

Molloy said the consultant's report and recommendations need to be completed by the end of March. "We are all for looking at every expense, and I hope they find something," Molloy said. Still, he doubts that "we can expense this out" — that the authority can cut its way to firm, sustainable financial footing.

The Lancaster County Convention Center Fiscal Impact and Recovery Task Force could recommend cuts, or that the tax be raised. Now, "the first step is to put everything on the table so we're all working from the same sheet of paper," said Christopher Barrett, president and CEO of the Pennsylvania Dutch Convention and Visitors Bureau. "Once the facts are out, we'll decide where to go from there."

The task force has three subcommittees. The first, according to documentation provided by the bureau, is "Project Debt Financing." The group will "present five best case scenarios for consideration." Michelle Rondinelli, owner of Kitchen Kettle Village, chairs this subgroup.

The second subcommittee is "Utilization: How can facility usage be increased? How can more business be driven based upon the current configuration?" This subgroup, chaired by Blaise Holzbauer, executive vice president of Willow Valley Hospitality Management/Doubletree, will produce a white paper on the topic.

The final subgroup is "Default: What is a financial default? What is considered a default between the project's public and private partners?" This subgroup is chaired by Chuck Simmons, general manager at Tanger Outlet Centers.

Duncan, who chairs the overall task force, said last week that default "doesn't just mean that the doors would close — we're talking about the obligations of the authority and private partners, all kinds of things could be in default."

The private partners, Penn Square Partners, developed the hotel and leases it from the Redevelopment Authority of the City of Lancaster, which owns it.

The private 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.

The task force has met with Lancaster Mayor Rick Gray, Penn Square Partners and the Convention Center Authority, and has "the full cooperation of the county commissioners," Duncan said.

The task force will present the results of its inquiries at a meeting of the county commissioners.

Asked when that might be, Duncan said, "The target is no later than April 1. I'd like it to be sooner than that; this is not a six-month or nine-month kind of deal at all."

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