Lancaster, PA
April 1, 2013

The dramatic events of the past few weeks, concerning the downtown Lancaster hotel and convention center, have raised many questions about how this situation could have possibly happened.

Briefly, the former Marriot hotel opened to great fanfare in the spring of 2009, with the convention center officially opening a few weeks later. The number of guests staying at the Marriot was less than expected; Interstate Hotel blamed this on the ongoing recovery from the shallow recession of 2008, and ever-increasing gasoline prices. The convention center hosted six events in the remainder of 2009, leading project supporters to paint a rosy picture of its future.

2010 was promised to be a transition year, and indeed it was, in more ways than one. Ten events were held, four big enough to be considered "major", which project supporters claimed as proof the project was already a success. Even so, hotel occupancy rates averaged below 50%.

By the summer of 2011, it became obvious that the convention center losses would be far greater than anticipated. The convention center held eight events during 2011, only three of which were sizable. The County Commissioners reluctantly approved an increase in the hotel room tax to the maximum allowed by law. And the Penn Square Partners had been unable to refinance the $24 million RACL construction loan before it was due. Fulton Bank stepped in at the last minute, providing the final mortgage for the hotel building. Even so, project supporters still held out hope for a more successful future.

At the beginning of 2012, the local newspapers printed a series of articles that claimed to demonstrate how the people of Lancaster were already benefiting from the hotel and convention center project. But the truth was, the project was struggling. Only four events were scheduled for all of 2012 (two smaller events were eventually added), and the hotel occupancy rate continued to slide. People who publicly expressed concern over the financial state of the hotel and convention center were loudly derided as "naysayers" by project proponents.

By the end of 2012, the truth was undeniable. Only four minor events were scheduled for all of 2013, and bookings at the Marriot hotel continued to fall. The Redevelopment Authority of the City of Lancaster asked Lancaster City Council to guarantee the $24 million Fulton Bank mortgage, but a majority of members voted no, in spite of repeated pleas from Mayor Rick Gray. Penn Square Partners was unable to make the final mortgage payment of 2012, and declared bankruptcy in January of this year. Many questions still remain as to how the PSP could have declared bankruptcy without affecting the financial position of its parent companies.

As holder of both the $24 million and $14.5 million mortgages on the hotel building, Fulton Bank took control of the hotel building after the bankruptcy of PSP. RACL still holds title to the building, but without any funding of its own it is basically powerless. As the hotel building and furnishings began to deteriorate due to lack of money for maintenance, Marriot cancelled its franchise agreement, and Interstate Hotels resigned as manager for both the hotel and convention center. The hotel is still operating without a national franchise agreement, though its ongoing losses cannot be sustained indefinitely.

As guarantor of the $64 million in convention center loans, Wachovia Bank became increasingly alarmed at this turn of events. Under increasing pressure from Wachovia, in February of 2013 Lancaster Mayor Rick Gray and State Representative Mike Sturla announced an agreement to turn the main convention hall into a slot machine casino.

This proposal was greeted with vocal opposition. A number of civic and religious organizations have banded together to fight the casino proposal. Since the announcement, Lancaster City Council and LCCCA board meetings have been packed with casino opponents. State Senator Steve McDonald announced hearings to investigate the possible misuse of State funds. But the Lancaster County Commissioners issued a vague statement which emphasized the importance of the hotel and convention center to the revitalization of downtown Lancaster. And the local newspapers have all published articles that support the casino proposal, while cautiously expressing doubt about the propriety of gambling.

Proceeds from the "hotel tax" are enough to pay for the Wachovia convention center construction bonds, which have been reduced to "junk" status. There is enough money left after the bond payments to barely maintain the convention center, but not enough to keep it open without a steady source of income. Fulton Bank has been unable to find a buyer for the hotel building, although there are reports of some interest if the convention hall is actually converted into a casino.

Certainly a casino would provide the income necessary to maintain both the hotel and convention center. But the financial issues facing Lancaster City have required a reduction of police staffing, and there is genuine concern whether the increase in traffic and crime which would accompany a casino could be dealt with adequately.

The biggest losers have been the citizens of Lancaster. The "economic development" promised by the project never materialized; a few new restaurants and shops had opened since 2008, but even more have failed. And the jobs promised by this project turned out to be nothing more than yet another work of fiction.