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Lancaster mayor calls for hotel tax hike

By , - Last modified: September 13, 2012 at 11:58 AM

Lancaster Mayor Rick Gray has proposed a temporary increase in the county hotel tax as part of a plan to shore up the finances of the Lancaster County Convention Center Authority.

In a presentation Wednesday evening to the Lancaster County commissioners, Gray proposed raising the tax to 5 percent from 3.9 percent for five years. That would add about $1 to the cost of a typical room, he said.

The hike, combined with other measures, would provide the authority enough revenue for Wells Fargo, the bank that holds the authority's debt, to lower the interest rate on a portion of it, Gray said.

"We have an obligation to secure a long-term financing agreement that protects the investment our taxpayers have made in the convention center," he said.

The five-year hotel tax hike "will allow time to identify and pursue alternative revenue streams to provide for a longer term financial solution," he said.

The city, the county, the authority, the Pennsylvania Dutch Convention and Visitors Bureau and Penn Square Partners, the joint venture that owns the franchise of the Marriott Hotel component of the convention center complex, have been discussing for much of the year how to put the authority's finances on a more sustainable footing.

Normally, the authority receives 80 percent of hotel tax revenues, which is supposed to cover its payments on $64 million in construction bonds, the convention center's operating deficit and other expenses. The hotel tax has not proved sufficient to cover those items, and the authority's bond reserves have fallen below mandated minimums.

Because of that, since April, the authority has received the 20 percent of the hotel tax that is supposed to go to the Pennsylvania Dutch Convention and Visitors Bureau. If the funding is not restored, the bureau will eventually have to cut back on its marketing, officials have warned.

In March, Wells Fargo is due to reset the interest rate on the variable-rate portion of the authority's debt. If the authority's finances are significantly stronger, the bank could lower the rate; if they are more fragile, the bank could seek a higher rate as a risk premium.

Last month, Commissioner Scott Martin offered a plan that did not call for a hotel tax hike. Martin's plan would not meet Wells Fargo's criteria for new revenue, Gray said, though Martin has said it would.

Martin opposes raising the hotel tax, as do many hotel operators.

The other components of Gray's plan are as follows:

• The Redevelopment Authority of Lancaster City would devote $100,000 a year of Penn Square Partners' rent to convention center marketing.

• Penn Square Partners would forgive $350,000 in authority debt, which would go toward furnishings and equipment maintenance and replacement.

• Even if the authority cannot meet its obligations, it would receive only half of the visitors bureau's portion of the hotel tax, rather than all of it.

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