The developer of the downtown Marriott hotel adjacent to the Lancaster County Convention Center says an increase in the county's hotel tax is necessary to address the convention center's funding shortfall.

Nevin Cooley, president of Penn Square Partners, said Friday that the proposed "modest" increase in the tax from 3.9 percent to 5 percent is "the only sustainable option" that would "sustain a position of strength" for both the convention center and the Pennsylvania Dutch Convention and Visitors Bureau — which relies on room tax revenue to market the county to potential visitors.

"This increase represents $1 a night" for the average hotel room in Lancaster County, Cooley said. "I don't think anyone is changing travel plans on the basis of $1."

The possibility of a room tax hike was raised last month by Convention Center Authority Executive Director Kevin Molloy, who said it was necessary for the authority to keep its financial commitments, pay down construction debt, and for the visitors bureau to continue getting a cut of the revenue.

If the tax isn't raised or significant cuts to convention center operating expenses aren't made, the authority will soon begin taking all of the room tax revenue to cover its obligations.

Lancaster County Commissioners must approve a tax hike, and both the visitors bureau and a consultant hired by the convention center authority are analyzing the center's financial position. But the possibility of a tax hike is roiling the county's hotel industry, which saw more visitors but flat revenue, last year.

One hotelier — Rodney Gleiberman, general manager of the Continental Inn in East Lampeter Township — told county commissioners last week that hoteliers cannot abide another tax hike. He said the downtown project — which was supposed to help county hotels with spillover business — has hurt them instead.

That drew a sharp response from Kevin Fry, chairman of the Lancaster County Convention Center board, who blasted Gleiberman's "inaccurate comments, generalizations and misrepresentations," and from Cooley, who said Gleiberman's "math doesn't work."

The hubbub presages what may become a major political battle over the proposed tax increase, designed to support a project that itself was one of the most contentious issues in county history.

Task force working
The special task force convened by the visitors bureau is working to get a clear picture of the convention center's finances before April 1 — when the bureau could lose its 20 percent cut of the current 3.9 percent hotel tax.

All hotel rooms in Lancaster County are assessed a 3.9 percent room tax, and a separate 1.1 percent excise tax. All excise tax revenue goes to the Convention and Visitors Bureau. The 3.9 percent room tax is split, with 80 percent going to the convention center authority, and the visitors bureau getting the other 20 percent.

Some tourism officials worry that getting a definitive handle on the center's finances may be difficult, as hotel tax delinquencies are on the rise, and there's a big discrepancy between what a leading hotel industry analyst suggests the county should have collected in tax revenue and what the county did collect.

In 2009, the room tax and excise tax brought in $5.4 million. Of that, just under $280,000 came from delinquent accounts — hotels that had not paid taxes on time.

Last year, the two taxes generated $5.98 million — of which, $802,053 came from delinquent accounts.

Hotels must pay the tax by the 25th day of each month, but county Treasurer Craig Ebersole said some can't, and others choose not to. A hotel might be facing a cash crunch, he wrote in an email; on the other hand, "some (an increasing number) are owned by part-time residents here, and part-time in another country, and they do not authorize staff to sign checks, and so we must wait until they are back in the country for payment."

Penalty for late payment is negligible — 3/4 of 1 percent per month, simple interest, not compounded, which would total 9 percent per year. "So if you had gross revenue for the month of $500,000, you would owe $25,000," Ebersole wrote. "If you delayed paying the hotel tax for one month, the penalty would be $187.50 — less than the fee for the commercial loan application at most banks."

By one estimate, the county's hotel industry is strong. Smith Travel Research, which analyzes the hotel industry and provides market share analysis for major hotel chains and brands in North America and the Caribbean, estimated that in 2011, 1.42 million room nights were sold in the county — a record.

Still, hotel tax revenue was flat, rising a minuscule 0.7 percent from 2010 to 2011. The convention center authority budgeted an increase of 5.5 percent.

Christopher Barrett, president and CEO of the Pennsylvania Dutch Convention and Visitors Bureau, said there's a 7.1 percent gap between what Smith Travel Research suggested the bureau should have gotten from its 20 percent cut of the room tax and what it did get. The gap over the previous four years ranged from 1.6 percent to 4.8 percent.

"The STR [Smith] report clearly shows that revenue should be up countywide," he said.

Puzzled by discrepancies between the Smith estimates and the county numbers, the visitors bureau filed a right-to-know request with the county last year, seeking information from the treasurer on taxes paid and occupancy rates at individual county hotels. When the hotel community found out about the request, the Continental Inn's Gleiberman said, it went ballistic.

"Even High Hotels supported our efforts to quash that request," Gleiberman said.

High Hotels is a subsidiary of the High Cos.; another High affiliate is Penn Square General Corp., one of two firms that make up Penn Square Partners. The other is Penn Square Ltd. LLC, an affiliate of Lancaster Newspapers Inc., publisher of the Sunday News and the Intelligencer Journal/Lancaster New Era. The private partners developed the hotel and lease it from the Redevelopment Authority of the City of Lancaster, which owns it.

The visitors bureau ultimately withdrew its right-to-know request. But Friday, the Sunday News submitted its own right-to-know request seeking the same information.

Ebersole suggested the county would not release the information, writing in an email that "the figures for a particular lodging establishment are held to be proprietary in nature, and we have not released such data in the past."

"I can understand the hotels not wanting rivals to get a look at their figures," said Marv Adams, editor of the Sunday News. "But how can the county commissioners make a decision on the hotel tax if those figures aren't public? The facts crucial to this debate would seem to be in those room-tax figures."

The form that hoteliers must fill out when they remit the tax asks for, among other things, the total potential room nights for the period, and the total number of occupied room nights for the period. Ebersole said providing that information is optional.

Ebersole said the county annually audits the largest properties and those that have had problems paying the tax on time. Smaller properties are audited every two to three years.

Many, but not all, properties report data to Smith Travel Research; STR estimates data for those that don't. "I think the visitors bureau just wants to use the numbers that are the most convenient," Gleiberman said.

Gleiberman was one of 11 local hoteliers who challenged the Lancaster County Convention Center Authority in court prior to construction of the facility. He said the authority's revenue shortfall proves those hoteliers were right — and now they may be forced to pass on yet more taxes to their guests.

"We financed this thing on baseline numbers that were inflated," he said. "And [convention center proponents] said we were going to get rooms out of this."

In fact, he told county commissioners last week, the downtown Marriott takes guests away from other county hotels.

Convention Center Authority Executive Director Kevin Molloy, Gleiberman said, "has repeatedly stated that the center generates an average of 1,500 overflow rooms per month or 18,000 rooms per year."

Even if all 18,000 were new rooms, Gleiberman said, "we have to look at the impact from the 299-room taxpayer-supported hotel built as the other half of this project. At 60 percent occupancy, that hotel would sell 65,481 rooms per year. Conservatively assuming that half of those rooms come from the existing marketplace, that hotel takes 32,240 rooms from the county pool. Now, if you subtract those rooms from the 18,000 rooms Mr. Molloy proudly boasts of, you are left with a net loss of at least 14,420 rooms-nights per year.

"This project is having a negative impact on rooms sold," he said.

Cooley, the president of Penn Square General Corp., disputed Gleiberman's figures. "While the Lancaster Marriott at Penn Square added 299 rooms, the demolition of the former Ramada Inn by the same developer reduced Lancaster County's hotel inventory by 189 rooms, resulting in a net gain of just 110 hotel rooms," he said.

That hotel, a former Holiday Inn located at 521 Greenfield Road, had been saddled by local and federal tax liens and faced lawsuits from unpaid vendors. It was subsequently purchased by High in 2009 and closed and demolished in 2010.

Asked if Gleiberman's estimate of occupancy at the Marriott was accurate or near-accurate, Cooley said, "As a private business, the Lancaster Marriott at Penn Square does not disclose performance-related information."

Fry, chairman of the convention center board, responded to Gleiberman's statement by sending a letter to the county commissioners the next day, disputing Gleiberman's claim "that he is somehow excluded from conversations regarding the business of the authority" and expressing outrage that Gleiberman would denigrate Molloy.

"The Lancaster County Convention Center is an outstanding venue, exceeding expectations in almost every operational category," Fry wrote. "The deficiency of the community funding for the project is a condition that is not uncommon across the country, given the difficult financial times."

Added Cooley in an interview Friday, "The shortfall in convention center revenue is not because people are not coming, and it's not because its operations are inefficient." Rather, he said, it's specifically because the recession has kept a tight lid on room rates, and revenue hasn't grown as quickly as the authority expected.

That could change soon, he said: "It's the prediction of the [hotel] industry that we should see an increase" in average daily rates in 2012.

In a "fact sheet" on the convention center shortfall, Penn Square Partners asserts, "The convention center already is succeeding and will continue to grow demand for new visitors to Lancaster County.

"A modest increase in Lancaster County's hotel room guest tax is the only sustainable solution to the funding shortfall (and will still be in line with that of other regional destinations)," according to the fact sheet.

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