Deadline nears for Lancaster convention centerBank entitled to reset bond interest rate in March
Less than two months from now, Wells Fargo Bank is due to adjust interest rates on $64 million in bonds that financed the Lancaster County Convention Center.
The bank's decision looms large for the convention center and the public authority that oversees it. Unless steps are taken to improve the authority's financial outlook, it risks dramatically higher rates, the Pennsylvania Dutch Convention and Visitors Bureau warned in a report last year. Conversely, a rate cut could improve matters considerably.
Stakeholders in the facility have been talking for a year about the need to take action. Local leaders express optimism, but so far, no resolution has been reached.
Asked if the situation resembled the U.S.'s recent "fiscal cliff," Bob Shoemaker responded: "I've used that analogy with my board."
Shoemaker is president of the Lancaster Alliance, an organization of executives focused on Lancaster civic issues.
Potential bookings at the convention center are being lost and multiyear deals are being shortened because of the uncertainty about the future of the venue, he said.
County Commissioners Chairman Scott Martin said he has met nearly weekly with Wells Fargo, and "the talks have been productive."
"I feel confident we're going to get where we need to be," he said.
The county is the guarantor for roughly $20 million of the bonds, and also collects the hotel room rental tax that is supposed to pay for them.
The Lancaster County Convention Center Authority normally receives 80 percent of the 3.9 percent per-room tax. The Pennsylvania Dutch Convention and Visitors Bureau is supposed to receive the other 20 percent, as well as a 1.1 percent per-room excise tax.
In theory, the tax receipts are enough to cover the authority's bond payments and certain other expenses. However, revenues have come in below projections.
The recession was a factor; critics also say the projections were overly optimistic. Last spring, under the bond terms, the authority began receiving the visitors bureau's portion of the hotel tax.
The bonds, meanwhile, have a fixed rate component and a variable "credit enhancement" component that Wells Fargo can adjust based on risk.
Martin has proposed that Wells Fargo reduce the credit enhancement component by about 60 basis points. In return, his plan recommends various financial commitments on the part of the authority, the city, the visitors bureau and Penn Square Partners, the subsidiary of the High Cos. and Lancaster Newspapers Inc. that owns the franchise of the adjoining Lancaster Marriott at Penn Square hotel.
Those local commitments would boost the authority's income by about $1.3 million a year. The proposed Wells Fargo rate cut would reduce outlays by about $380,000.
Notably, the Martin plan does not require an increase in the hotel tax. All three commissioners oppose hiking the tax, Martin said.
Many county hoteliers dislike subsidizing the convention center and vehemently oppose raising the tax. On the other hand, no immediately available alternative would provide a comparable amount of revenue, according to a report prepared for the authority last year.
Martin's plan relies on continuing to divert the visitors bureau's share of the tax to the authority. That would hobble the bureau's tourism marketing efforts, Mayor Rick Gray said last year.
Gray has put forth an alternative plan that includes raising the tax to its maximum, 5 percent.
The mayor said last week he is open to any solution that garners broad support among the various stakeholders.
"The proposal I made was not written in stone," he said.
Penn Square Partners strongly advocated for a hotel tax hike last year, while opposing Martin's proposal that it adjust the terms of its contracts with the convention center. The organization chose not to comment for this story.
The hotel tax ebbs and flows with Lancaster's tourism economy as a whole. From January through November 2012, the 3.9 percent tax brought in $4.7 million, compared with $4.6 million for all of 2011, according to the county Treasurer's office.
That may be enough for the visitors bureau to start receiving its share again. The authority must meet two financial tests for that to happen, Executive Director Kevin Molloy said. It has passed the liquidity test, but it is not yet clear if the required debt coverage service ratio has been met, he said.
Gray said discussions about the convention center are ongoing and he is confident a solution will be reached.
"We still have time to do it," he said.
The Lancaster Alliance, is "critically interested" in the convention center's welfare, Shoemaker said.
A viable solution will not only secure the bond financing, he said, but will also ensure enough money for marketing and upkeep, he said.
As the economy improves, convention centers around the country are going to be chasing new business, Shoemaker said.
He added: "I don't want (us) to be sitting on the sidelines here in Lancaster when that happens."
By the numbers
The Lancaster County Convention Center Authority must pay down nearly $64 million in construction bonds held by Wells Fargo Bank. The authority also owes $750,000 in a short-term note issued to cover restructuring costs and operational reserves.
2003 Series Bonds
Amount: $39.7 million
Fixed rate: 3.67 percent
Variable rate: 1.75 percent
2007 Series Bonds
Amount: $23.9 million
Fixed rate: 3.57 percent
Variable rate: 1.9 percent
Source: Pennsylvania Dutch Convention and Visitors Bureau, “Report on the Fiscal Impact & Recovery of the Lancaster County Convention Center Authority”