Sunday, March 8, 2009

Convention Center Revenue: A Guessing Game

Courtesy of

Any project that involves cash flow needs to have a business plan. This includes the taxpayer-financed convention center project in downtown Lancaster.Unfortunately, the few convention center revenue projections released to the public seem to be a part of some kind of guessing game.

One of the first "pro-forma" projections available was a in a presentation to the Lancaster County Convention Center Authority board on February 22, 2006. The projection of first full-year revenue was estimated to be $1,272,799.

The only estimate of convention center revenue to be widely distributed was published in the Lancaster New Era on Thursday, June 14, 2007, page A4. It projected the first full year of operation would generate $1,577,000 in gross revenue.

The first revenue projection available to the public from Interstate Hotels and Resorts, the joint manager of both the hotel and convention center, was created on November 6, 2007. At this point, IHR was using a "stub" year for 2009, from the opening of the convention center until the end of the calendar year; this estimate was $971,636 for nine months - roughly in line with the February 2006 projection.

Late in 2008, IHR switched to a fiscal year, to align their operational budget with the long-established fiscal year used by the LCCCA. In November of 2008, IHR released a projected operating budget for Fiscal Year 2010 (April 1, 2009 through March 31, 2010). This document included figures from a "pro-forma" dated February of 2008; at that time, convention center revenue for the first full year of operation was estimated to be $1,149,267. But as of November of 2008, the anticipated first year's gross income was down to $957,840.

At the LCCCA Public Relations, Marketing & Hospitality Committee meeting held on Thursday, February 19, 2009, IHR presented its latest estimates of operational income for the convention center. At that time, the total projected revenue of the first full year of operation for the convention center was down to $514,935, or less than a third of the amount published in the local newspapers in June of 2007 (only twenty months earlier). The February 2007 IHR presentation also included the amount of revenue booked to date.

As of the date of this presentation, IHR had commitments for five trade shows, matching its latest goals, and eight consumer shows, out of an updated goal of eleven. It is highly unlikely that a significant number of large events will be added at this late date. Where bookings have fallen short of goals is in "other" events, which could be anything from a wedding reception to a conference; so far, only eleven have been booked, out of a goal of 52. It is possible that more of these types of events will be booked, but the goal appears unreachable.

Consequently, the total amount of revenue contracted to date is estimated to be only $235,886, or only 15% of the amount published in the newspaper during June of 2007.

If revenue from the "hotel tax" would have continued at the rate estimated in late 2007, there should have been enough money left after construction bond payments to balance the budget. However, "hotel tax" revenue during 2008 fell nearly 5% below the previous year's receipts through November, the last month currently available. (It is worth noting that both September and November had revenue shortfalls of more than 25% over the previous year.) Figures for 2009 are not yet available, but as the recession has deepened, the dramatic decrease in "hotel tax" income during late 2008 is likely to continue.

To make matters worse for the LCCCA, market rates have at times been outside of the range allotted in the construction bond sale's interest rate "swap". This has already cost the LCCCA tens of thousands of dollars beyond its budget for bond payments.

What does this mean for Lancaster County taxpayers? It is entirely possible that the LCCCA will not collect enough money from the "hotel tax" and convention center revenue combined to cover its bond payments and operational costs. This means that a tax increase of some kind will be inevitable, whether in the "hotel tax" (which is limited by State law) or in Lancaster County property taxes, perhaps as soon as next year (2010).