Sunday News

Convention center deadline extended

Wells Fargo provides breathing room for restructuring debt, resetting deadline three months later to June 1.

The Lancaster County Convention Center is living on borrowed time.

With less than three weeks to go before the center's $64 million in construction debt was due to be restructured -- pushing interest rates higher -- officials on Friday extended the financing for three more months.

The move buys time for negotiation with lender Wells Fargo to come to terms the center can live with.

A consultant sounded the alarm a year ago that the nearly 4-year-old center could be forced to close if revenues were not significantly increased or financing fees cut.

Without changes, interest rates could jump up from 5.57 percent to 8 percent, the consultant warned.

The extension, from March 1 to June 1, locks in existing terms.

A letter, advising the trustee of the extension, was obtained by the Sunday News. It was signed by Kevin Fry, chairman of the Lancaster County Convention Center Authority, and Patrick Snyder, the authority treasurer.

Fry did not immediately return a call for comment Saturday. Snyder declined to comment, referring questions to Fry.

The authority board had foreseen in November that the deadline was fast approaching and voted to approve an extension, if that should prove necessary.

"It's doesn't surprise me," Lancaster County Commissioner Scott Martin said of the date being pushed back.

"That gives us more time to reach a resolution."

Martin has been meeting with Wells Fargo representatives for several months in hopes of reaching a deal to lower the credit fees.

The San Francisco-based bank is the authority's sole bond holder.

Martin believes they are very close to reaching a deal, he said Thursday, but he declined to provide details while it is under negotiation.

Wells Fargo would not comment on the talks citing client confidentiality, said Jim Baum, a bank spokesman.

The financing crisis seemed strangely disassociated with the operations of the center, which this weekend was packed with vendors and customers at the Suburban Pennsylvania Spring Home, Hot Tub and Landscape Show.

The center continues to host large events as varied as last spring's county Republican dinner featuring presidential candidate Mitt Romney, the 10,000 young volleyball players at January's MLK Kickoff Classic and the 20,000 expected for next month's American Quilters Society event.

Center use is surpassing initial projections, but revenue from those events was never expected to pay the bills. The county's 3.9 percent tax on hotel rooms was established to subsidize the center, which was expected to bring visitors that would benefit the county's tourism industry.

It is the recession-wrought shortfall in that tax revenue that created the crisis.

Martin said his goal in the negotiation is to get Wells Fargo to reduce its finance charge by 60 basis points. Doing so would save the Lancaster County Convention Center Authority $380,000 annually.

Yet, Martin was mum on the other provisions and also declined to name the others on his negotiating team.

That team does not include representatives of Lancaster city, whose Redevelopment Authority owns the integrated Lancaster Marriott at Penn Square hotel, or the private sector hotel developers, Penn Square Partners.

Martin's original proposal, released in August, calls for an additional $100,000 annual contribution from the city or a guarantee of center debt. It also calls for PSP to increase the food and beverage royalties it pays the center authority from 5 to 12 percent.

If that additional revenue is part of the negotiations, that could prove problematic.

Lancaster Mayor Rick Gray and Penn Square Partners President Nevin Cooley said last week they have not agreed to anything.

It's the short-term nature of Martin's proposal to which Gray objects. The mayor compared the situation to the fiscal cliff facing Congress.

"The problem with Commissioner Martin's plan is that it is an interim plan," the mayor said. "Interim financial plans just lead from one crisis to another, as they've shown in Washington."

The mayor said he is open to considering anything that provides a long-term solution.

Cooley, in a written statement, also said Martin's plan fails to address other necessary issues. Those issues include providing marketing funding to bring large-scale events to the center and funding to maintain the facility.

"As we have communicated since last summer, from our perspective, the Martin proposal does not return LCCCA to a long-term sustainable financial position.

"It does not provide adequate funding for marketing of Level I and Level II events. It does not address financing of reserves for replacement of furniture and equipment as required by our governing document. So, we will not increase our financial contribution for this plan," Cooley wrote.

Level I events are those in which 500 rooms are rented in the county on a peak night, ensuring spillover beyond the 300-room Marriott. Level II events bring at least 300 booked on a peak night.

Gray introduced an alternative in September that would address those issues, but it would also require raising the hotel tax 1.1 percent to 5 percent. The increase would add $1 to the cost of the average hotel room rental in the county, Gray said. That wouldn't turn anyone away, he believes.

A tax increase would need the approval of the county commissioners. Martin, the commissioners' chairman, said the board would not support an increase.

Any increase in the hotel tax has been opposed by the Greater Lancaster Hotel and Motel Association. Hotel operators contend any increase will add to the bottom-line cost and make them and the county less competitive against other areas.

The Pennsylvania Dutch Convention & Visitors Bureau, which counts hoteliers among its members, also opposes any increase in the tax.

"The board is still committed to opposition to an increase of the room tax as it relates to supporting the financial burden of the downtown center," reiterated Steve Sikking, board chairman of the visitors bureau.

Sikking is a partner in the Eden Resort and Fulton Steamboat hotels and past president of the hotel association.

Sikking, who voiced confidence in Martin, said the visitors bureau would oppose a third plan for center funding, which has not been publicly aired. He said it was discussed by the bureau board members, although not presented to them.

That plan would increase revenues for the convention center, but would not raise the hotel tax. Instead, the plan would shift excise tax revenue from the visitors bureau to the center.

The visitors bureau now gets all of a 1.1 percent excise tax on county hotel rooms that is also levied. That revenue is earmarked for county tourism promotion.

Although the December revenue has not been received, the excise tax is expected to have provided about $1.5 million to the bureau for 2012, said bureau spokesman Joel Cliff.

Lancaster Alliance President Bob Shoemaker said the third proposal is a hybrid plan intended to get people talking.

"The real impetus of any plan is to bring people to the table and that hasn't occurred to my knowledge," Shoemaker said.

The key to the proposal is establishing reliable, long-term debt funding; providing funds for reserves and replacing worn furniture, fixtures and equipment; and creating a marketing effort dedicated to the center, Shoemaker said.

Bringing a greater number of Level I and Level II events will not only help the center, but will help the county as a whole, which was the intent of building the center, he reasons.

"It's paramount to all of us in the business community that countywide tourism marketing be addressed," Shoemaker said.

Kevin Molloy, the Convention Center Authority executive director, has listened in on some of the conference call discussions which Martin has held with Wells Fargo.

Molloy last week said he is not losing sleep over the situation. He believes the center will be here, with its doors open, for the foreseeable future.

The fact that Wells Fargo would agree to an extension, rather than just raising the rates, is positive, he said.

"I think this is a positive sign that Wells Fargo is thinking positively of Lancaster County and the Lancaster County Convention Center," he said.

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